Time for a fundamental/value/long term investing thread biz. Otherwise known as the only type of investing proven to make money.
Pic related is my current portfolio.
RMD is up ~30% in the last two months.. For those of you who remember me posting about it a couple of months ago.
Currently buying Carsales, Trademe and ASX.
Dem free cash flow yields.
I have been lurking /biz/ a lot the past few months. Also been reading my facts and paying attention to the news. But what i cant figure out is how to start doing the initial investing. I don't want to go through banks/brokers if I can avoid it (to avoid losing my profits to fees). But this is where i'm uneducated in the matter. I just don't know how to start. Care to share?
Holy shit bro 32, 19 and 13% weight? I don't go above 9.5% on any single name and stay between 3-5% cash, but I run a focused portfolio.
Have you written anything that could be thrown up on VIC or anything?
My first tip would be to lurk /biz/ less. This place is a cesspool and no one really knows what they are doing. You need to get your hands on some books. Read, read, read. Especially the classic stuff like Graham, Lynch, Fisher, Buffett etc.
You will need to use a broker to buy securities unfortunately. Don't get too caught up in the details, a $10 fee to buy stocks that you will hold for 20 years is irrelevant.
Hmm now I think about it those %'s are quite misleading because they add up to more than 100%.
AAPL is actually closer to 25%, but still your point remains.
Some explaining factors in my circumstance: I'm 22, so I have almost unlimited 'human capital' left, so I can afford to take significant risks.
I'm up roughly 125% of Apple at this point, so it has grown in the last year into quite a large % of my portfolio. However, I'm currently pouring in $3-4k per month, so over the next year or two this % will naturally come down as my portfolio grows. I'm not willing to incur taxes and throw away money just for the sake of diversification.
>Some explaining factors in my circumstance: I'm 22, so I have almost unlimited 'human capital' left, so I can afford to take significant risks.
Makes sense. I'm 21 but have fundamental hedge fund experience.
>I'm up roughly 125% of Apple at this point, so it has grown in the last year into quite a large % of my portfolio. However, I'm currently pouring in $3-4k per month, so over the next year or two this % will naturally come down as my portfolio grows.
I've been in AAPL since around the time the 3Gs came out, but I only buy/sell when I feel its gotten over priced or the market does something stupid that creates an opportunity to buy. (Example, the stock seriously tumbled after the Street FLIPPED SHIT that they missed analyst iPhone 5s shipment estimates but still met management guidance.)
> I'm not willing to incur taxes and throw away money just for the sake of diversification.
Good idea. I don't really believe in diversification. I only invest in my ideas that are 9s and 10s so I'm pretty confident in my conviction. That said, I have < 10 positions right now, all long.
Value Investor's Club
Basically its a website where analysts/students/PMs post their special situation/deep value theses and you can view them. You need to submit your own idea to get full access, but as a guest you can view all posts but with a 45-day delay.
pretty nice return for the year m9
I assume you're an aussie?
not sure why you've got book values (that's what the NTAs - net tangible assets are?) posted without reference to share price
Post your portfolio? I'd be interested to see it.
>Street FLIPPED SHIT
Was that when it dropped from $500 to about $450 overnight? I picked up some then. Good times. If only I get another opportunity like that in my lifetime.
Thanks for the link will check it out.
Yep, Aussie m8.
NTA just refers to the NTA of my portfolio. I.e Assets - Liabilities. I have unitised it for accurate performance measuring, so I just pretend like I am a LIC.
Stay overweight winners. Applies not just to small cap aus miners
You only need ONE good multibagger to set you up for good.
- eg LNG.
Keypoint is winners not just trash thats been bobbing around for years eg LKO
How do you manage your cross currency stuff? Eg when you buy apple do you convert AUD to USD then buy, or do you sit there with a negative USD balance (until you sell)
I convert AUD to USD to buy overseas stocks.
The $930 USD I currently have are my Apple dividends that are stranded in my US brokerage account.
Don't want to pay the currency/wire fees to bring it back.
I do. I generally collect my dividends as cash and then deploy them when I see an attractive opportunity.
I don't like DRP's because you can end up buying shares that you otherwise wouldn't have. I'd rather collect all the money and deploy it in my best ideas.
Hey OP love the thread,
I'm just starting out and plan on being Long term like yourself. Just wondering where you are sourcing the monthly ASX Accumulation Index values. Ive goggled and don't seem to get the same values.
Could you supply a link to the site that you use for the Index values from or how you are getting them?
BTW purchased my first shares early November and just after the drop in oil. Looking forward to the future, Only holding small amounts but you have to start some where.
>Otherwise known as the only type of investing proven to make money.
No investing form has ever been "proven" to make money- not even buy and holdjng broad indices. There's ~150 years of data that lets us say with ~4.5 sigma confidence that it's a good idea, but there's plenty of other strategies (momentum, low volatility, mean reversion) that have been demonstrated to work with as good or better confidence than value investing.
Academics do a lot of talking and not much money making.
Great stuff mate, love it.
I get my ASX Accumulation values from the monthly ASX reports from WAM.. This is the only place I could find it that doesn't charge for it.. it gives you the monthly % change so I just plug them into my spreadsheet once a month.
I should explain the NTA in my portfolio.
When I started I divided my current assets into 1000 'units', and then every time I add money to 'buy' more units, kind of like a capital raising I guess, and 'sell' units when I remove money.
This is the only way to get accurate performance reporting when you are moving money in and out.
I bought Santos @ $12 and $9 on the way down.. unfortunately didn't get the bottom..
I started with 20k.
Invested 5k into SYD, QBE, ARG and WAM.
The latter two being LICs that I sold out with 30-40% gains, pure luck. I still own SYD and have gotten ~100% returns, and I sold the majority of my QBE for a 0% return two years later.
Your money is stuck in the US? Do you pay taxes for that?
How does one go about setting aside money for this kind of stuff and leaving it there? Does your day job do pretty well for you? Do you own a house free and clear or on a mortgage? Or do you rent?
I'm asking because I'm 30yo married man on rent saving for a house down payment in the US, plus I'm interested in investing. I'm trying to decide how to allocate my savings.
LTCM wasn't fucking run by academics, dipshit, it was the former Salomon bond team that had academics on their board.
An example of a hedge fund actually run by academia would be Renaissance Technologies, which has returned an average of 60%+ every year since the 70's and utterly wrecked every other investor in the planet.
Do you trade using CFDs with leverage and margin? That's quite a nice record you got there. It's crazy to think you started with only 20K and managed to make nine times more than that in just a few years. Kudos.
What ideas would you give to someone looking to create a portfolio? I've been focused on singular things so hypothetical portfolios that I create are fundamentally comprised on ratios on short and long positions to find out what is more advantageous to hold. But I know very little about portfolios, TBQH.
You're saying that someone who started with 10K on this fund would have about 1M (excluding taxes and commissions and fees) after 10 years? I find that incredibly hard to believe.
I pay taxes on the dividends at the end of the year.
>How does one go about setting aside money for this kind of stuff and leaving it there? Does your day job do pretty well for you? Do you own a house free and clear or on a mortgage? Or do you rent?
>I'm asking because I'm 30yo married man on rent saving for a house down payment in the US, plus I'm interested in investing. I'm trying to decide how to allocate my savings.
That's a really tough question m8. In Australia it is common to live at home whilst attending University, so I have had a massive leg up in that regard. Although Australia has one of the most over-priced housing markets in the world so trying to get your own place isn't easy.
I'm not sure what advice I can give you as I really haven't experienced what you are going through, apart from read, read, read and make yourself knowledgeable. Then set a budget and stick to it. Save hard, invest hard, become wealthy. For a lot of people that is too much work though, and they are happy to continue on as is. Up to you.
>LTCM wasn't fucking run by academics, dipshit
So.. your plan is to make money by competing with these guys that require hundreds of highly paid genius coders and algorithm writers to skim a few cents here and there?
Good luck m8 let me know how you go.
>You're no better than a nigger on welfare.
Uhh... whatever you say m8.
>Do you trade using CFDs with leverage and margin?
No I stay as far as possible away from CFD's and derivatives. My investments are actually extremely conservative.
>make nine times more than that in just a few years
Unfortunately I don't have 900% returns. I wish. I started with 20k, then probably have added 60k of earned money over the years, and had investments return of 60k maybe. Giving me a return since Feb 13 of about 50-55%, since I first bought that 20k in 2012 it would be higher.
>What ideas would you give to someone looking to create a portfolio?
I would steer away from shorting. The odds are much better going long. I would try and create a portfolio of amazing businesses that you can buy for reasonable prices. Business that have a long track record of returning a large % of their earnings to shareholders.
HS student here.
Have just read "The Education of a Value Investor", really enjoyed it. Talked a lot about the psychology of value investing and why to do it.
I'm convinced value investing is the way to go. I have about 10k capital id like to start investing soon.
But. How do i go about analyzing which stocks are undervalued?
I can't totally shake the efficient market theory; surely just because a company's market cap is below their reported equity doesn't mean they're undervalued.
What do i need to look at to determine which stocks are good buys?
I have heard that The Intelligent Investor is outdated. Is Analyzing Securities still relevant?
Basically I am not afraid of "Mr. Market's" manic personality. I want to invest in companies which have intrinsic value. How do i find and recognize these companies?
Do you have a good reason to believe they will outperform the market? What return are you expecting?
Thought I'd talk a little bit more about my loan. I have managed to secure it at 5.95%, which is has an after tax cost of about 4% to me. I've been slowly deploying funds from the margin facility over the last few months, and ideally will end up 50-60% geared.
If I can't beat 4% cost of debt with my stock picks then... I deserve to blow up I guess. 4% will probably be the lowest cost of debt I will see in my lifetime in Australia. I intend on taking advantage of it.
I'm finding lots of stocks at the moment with 5-6% free cash flow yields with plenty of growth ahead of them, or 8-10% FCF yields with less growth.
If I can get 10% return on these stocks (which I think is extremely achievable - many of them are paying 6% dividends alone) I will significantly speed up the process of becoming wealthy.
Further, due to my extremely conservative picks the large majority of the companies I buy are debt free. I.e AAPL, RMD, ASX. So I'm not piling leverage on leverage.
In addition: how would i go about learning how to trade stocks through an online broker?
I've seen a few platform interfaces and have trouble understanding them. Any books or terminology manuals?
I don't necessarily expect them to beat the market, just provide consistent returns. I'm not going for a get rich quick type thing, these will be very long term holdings that I plan to have well into the future and I expect them to appreciate in value. I'm not a high risk type guy.
>How do i go about analyzing which stocks are undervalued?
You need to develop a methodology/system of what you think an undervalued stock is. The best way to do that is to read widely and learn about how other experts do it.
>surely just because a company's market cap is below their reported equity doesn't mean they're undervalued
I think you've misunderstood something here.
Equity is an accounting construct dependent on book values. It doesn't tell you much when comparing to market cap, apart from how capital intensive a business is. The true value of a business is the sum of its future cash flows discounted at an appropriate rate.
>The Intelligent Investor is outdated.
Would have to disagree here, one of my favourite books.
> how would i go about learning how to trade stocks through an online broker?
It's pretty easy. Buy XXX at $XX.XX. That's pretty much all there is to it.
>OP, are you actually planning to get out before the inevitable crash in 2015?
>I think that if there IS a crash it would be the perfect time to buy stocks at bargain prices
A crash is a once in a life time gift to build your wealth.
>I don't necessarily expect them to beat the market
If you don't expect them to outperform the market, why are you holding a single stock and bearing the risk of a single stock and not being compensated for it?
Why not just buy the market, enjoy the diversification benefit and lowered risk, and the same return?
I would want some degree of confidence a stock was going to outperform the market, or is less risky than the market to invest into it individually.
You raise a pretty good point, and I guess I would have to say I trust these companies. I use Microsoft products and software every day, and they seem to be constantly improving (ex: accepting bitcoin as of late). I always fill my tank at Chevron, it's company policy for their attendants to wash the windshields for you. They're the only gas station I know of that does that, and I appreciate those kinds of business practices. AAPL is a no brainer IMO.
Let me tell you about one of my favourite companies.. Resmed.. I like to think of it like a mini-Apple (another of my favourite companies) that no one really knows about.
I bought RMD starting at $4 a few years ago through to about $5.80 a few months ago. It has shot up to $7 in the last few weeks.
Lets have a look at the business:
Currently worth $8B.
Net income of $345M, giving you a PE of about 23.
$300M of that comes through as free cash flow.
Now heres the interesting bit, lets look at what they do with that money.
Pay out $141M in dividends, or about a 2% yield.
And... $200M in share buybacks!
That gives you a yearly return of 140M+200M/8B = 4.25% (Keep in mind my cost of debt was only 4%)
How can they pay out 100% of their cash? Well.. they currently have about $1 billion in cash just sitting on their balance sheet. So of the $8B market cap, there is net cash of about $700m. (Remember how I said it was like Apple)
So that's all good and well.. but what are the growth prospects of this company?
Well they make masks that treat sleep apnea..
>Sleep disorders, including sleep apnea, have become a significant health issue in the United States. It is estimated that 22 million Americans suffer from sleep apnea, with 80 percent of the cases of moderate and severe obstructive sleep apnea undiagnosed.
And the kicker? This company was available at $6B only a month or two ago! 340M/6B = nearly a 6% return with no growth factored in!
This company has grown at a clip of 20-25% for the past 20 years!
>Basically I am not afraid of "Mr. Market's" manic personality.
Disappointing that the first thing you want to do after finishing Guy's novel is go invest, it's like you missed the entire point. I'll have to let him know this is the takeaway the kids are getting when I see him next...
>Basically, will working through Security Analysis or The Intelligent Investor give me good, relevant advice on how to identify good investments?
It won't give you a magical formula to make money however.
Are still living in the year 1997? Who the fuck still uses spreadsheets for managing their portfolio?
You are making it way too complicated..If you have to spend more than an hour or two a week managing picks and trades, something is wrong.
What's your end goal, man? Like do you ever seen yourself just withdrawing everything and going to Europe? Or do you plan on cashing a couple out at a time that have had recents peaks, and rebalancing?
Let me put it to you this way - there is no magic formula, or special book which will bestow upon you the key to success in investing.
You're 18 (?), commit 3-4 more years to reading and practicing with paper trading and then should feel comfortable throwing some real money into the game. (I need 5 boxes+ just for my investing & market books every time I move)
Investing is a long game. The goal of investing is not to make 50% in one quarter, its to make 20% every year over the next four years. My goal is to not lose any money. Of course, this isn't possible, but if you stick to that mind set and set a base of an extremely high conviction rate before you pull the trigger you will manage your downside fine.
To just say "I read Guy Spier's book now I'm ready to invest, I'm not afraid of the market" is retarded
LOL at 20% a year.
Setting your expectations that low is a learned mindset, and is pretty unhealthy, because you are limiting your potential, and even worse, you are acting like investing and trading is some magical skill that requires years of experience.
It takes longer to learn how to become a good welder or a good janitor than it does to learn how to far exceed 20% a year with minimal risk.
Instead of giving advice, I would spend your time questioning the mindset you adopted that limits your perceived potential to be so low.
It automatically updates. So I actually spend 0 minutes per week managing it. I just have to enter in dividends and trades when I make them (usually 10 or less a year).
Great question... I've already spent 6 months in Europe, you might be able to spot the flat line in the graph when I wasn't earning.
I can't see myself cashing out any significant parts of my portfolio any time soon. I just really like making money I guess. Watching my money compound is immensely satisfying. To be honest I haven't put much thought to what I will do with it..
I'm a complete noob when it comes to investing in anything but would someone like to inform me how I could use information to my advantage. If construction and property in my country is slowly becoming better how would I use that to my advantage aside from buying a house?
Yall might want to invest in Sony right now. It's low and it's going to skyrocket with all the hype around it. With the combination of The Pirate Bay being down this is the perfect moment to stuff money into them because of vastly lowered piracy numbers.
This isn't their first hack attack. Their poor security cost them this time and is likely to cost them in the future. Overall they are a (very) slowly dying company, and I wouldn't invest in them. Also piracy rates have not gone down.
fundamentals - high roe, low d/e, any fcf
value - trading .75 dcf or less
long term - purchasing within a pool of >300 companies with extreme competitive advantages
>disclaimer: i also invest in growth stocks and used market timing/m&a as well but mostly i follow these principles.
They're releasing it online. To get new hardware it's going to be a pretty penny, sure. However, if you understood anything about social engineering, sensationalism and the internet in general, you'd be able to see how this is all going to go down. You can't, so you're going to stay a poorfag because you can't see past minor setbacks into the broader horizon where new circumstances and opportunities are being forged amidst the beginning of the world's first cyber war. Enjoy being stupid as fuck with your money.
Index funds are great. I love the thrill of picking individual stocks, but for the majority of investors index funds are perfect.
Depends how old you are. To be honest I wouldn't bother if you are young.
As a rule of thumb Graham recommended your age to be your % portfolio weighting to bonds.
The job of an investor is to say no 99% of the time. I haven't looked at Sony in depth, but it doesn't look like look a great quality company to me. You don't have to invest in every potential opportunity.. just wait until you see an amazing opportunity. Apple at $400.
I don't think Sony is an amazing opportunity just because The Pirate Bay has been shut down (Pirate sites are like the hydra, you honestly think another 5 sites won't spring up?)
Refer to the Resmed post to get an insight into my thought process when looking at a company..
By buying good business at good prices? Not sure what you mean.
>How do you think the market is doing?
"I believe the market will fluctuate." - JP Morgan.
Who cares? I don't think people are going to check how the market is going before they buy a sleep apnea machine from resmed or a new iPhone for their daughter.
If you worry about where the market is going you will just be paralysed by something that you can neither control or predict.
Analyse bottom up, not top down.
Interestingly I have a fair mix of 'value' and 'growth' stocks in my portfolio. I read something interesting about this the other day.. I'll paraphrase:
The phrase value investing is redundant. What is investing if not trying to buy value at least sufficient to compensate for the purchase price. A value investment could have high or low PEs or book values etc. It is foolish to be shoehorned into using blunt tools such as those to define investments.
I don't do growth or value investing.. I just.. Invest. Try and buy $1 for less than $1. Anything else is gambling.
>Growth investing is not the same as value investing.
I'm selling two companies in a 0% interest rate world and they will only exist for 3 years.
Year 1 Earnings: $5
Year 2 Earnings: $5
Year 3 Earnings: $5
I am selling this company for the princely sum of $15, or a PE of 3!
This is clearly a value stock!
Year 1 Earnings: $1
Year 2 Earnings: $5
Year 3 Earnings: $9
I'm also selling this company for $15... but the PE is 15!!! This is clearly a growth stock.
Which one would you prefer?
They are both the same, right?
You see, 'growth' investing and 'value' investing are the same. They are just.. investing. You are just trying to buy future value sufficient to compensate for the purchase price you pay today.
How do you arrive at Company 1 is a value stock? I see no value in investing in a company that is not increasing in its earnings.
In general, how do you value the PE compared to the price, as one of many factors?
I don't invest in tech companies because I think that in the space of a month they could become worthless if something newer and better gets on the market.
I prefer conglomerates, PE firms, and large manufacturers.
GE, car manufacturers, energy companies, companies like blackstone, defense contractors, construction companies.
Even food is too volatile for me most of the time, McDicks is on the downtrend and Chipotle just ripped onto the scene. Way too volatile, even cars and oil companies are pushing it for me.
Hell, Buffet likes Coke because he thinks people will never stop drinking it, but that's beginning to happen in the US as healthy lifestyle campaigns spread.
Great reading so far fellas. I'm stranded in school for the next years, but I have $20k in savings right now just sitting and being eroded away by inflation.
What path would you recommend? I was thinking of setting aside and playing with $2k in forex.
>How do you arrive at Company 1 is a value stock?
Generally value stocks are associated with low PEs or book values, right?
> I see no value in investing in a company that is not increasing in its earnings.
Depends on the price you pay. There could be plenty of value in a company that has decreasing earnings as long as the price is right.
This goes back to my point of there is no 'value' or 'growth' just trying to buy $1 for less than $1.
>In general, how do you value the PE compared to the price, as one of many factors?
Not sure what you mean?
I thought about Coke, but I agree with you. I think there are significant risks around increasing health awareness.
$20k is a great place to start, enough to build a nice portfolio.
Would you want to take your $2k to the casino? Cause that is what you are doing with forex.
Why not build a portfolio of say 4-5 amazing companies with your $20k and enjoy as they provide a dividend stream for the rest of your life?
I interned in banking through 5 years of Uni and seemed every firm I worked for cares about the future. They don't care about current earnings or balance sheets. They want to buy something that's going to grow. But they do seem to care about current P/E ratios. But I don't know, I just made presentations and let them take credit for it. They already had all the data/analysis.
What do you think is a good split between value and growth stocks? I know you said that there's no real distinction, so if you're unhappy with that question (Even if I'm sure you know what I mean) let me phrase it in a different way, what is a good split between stocks undervalued by the market, and stocks that are adequately valued but will grow/increase in value over time, but with more risk.
Also, what's your opinion on small cap, medium cap, large cap, as well as blue-chip stocks? Personally I feel small cap is too risky, and blue-chip stocks don't offer enough risk/reward.
Third, what number of different stocks (in addition to one or more indices) do you think is reasonable? Obviously if I'm investing in growth stocks I need to keep an eye on reports, news, etc. whilst with value stocks I simply wait until the stock has reached its "true" value.
This means that after a certain point the number of stocks I own become too large to manage.
>>In general, how do you value the PE compared to the price, as one of many factors?
>Not sure what you mean?
Sorry, had a brain fart.
>What do you think is a good split between value and growth stocks?
I think there is a fundamental misunderstanding occurring, and once we address that the question above might not be relevant anymore.. You say..:
>stocks that are adequately valued but will grow/increase in value over time, but with more risk.
Lets deconstruct this.. What is a stock that is adequately valued? That means that all future earnings/current news etc are perfectly priced into the stock. This means that all future growth is ALREADY priced into today's price.
What does that mean?
A growth stock, adequately valued, will return the market return. Right?
Therefore, to make money from a growth stock.. It must still be... Undervalued!
In order to believe a stock will outperform the market.. you must have a view different to the market on that stock!
Now back to your question. Sorry to disappoint, but a split between value and growth isn't something I've thought about so I can't answer that. You can look at my current portfolio to see what it is I guess.
>Also, what's your opinion on small cap, medium cap, large cap, as well as blue-chip stocks?
I doubled my money in AAPL in 12 months, in what was probably the best risk/reward proposition I'll see in my lifetime.
Be careful putting things into buckets and categories.
In saying that, I have so far steered away from small caps. But have invested in companies from say $1B to $600B. If I found the right small cap I'm sure I'd invest.
>Third, what number of different stocks (in addition to one or more indices) do you think is reasonable?
Depends on your goals. If you are being aggressive.. 10-12 I think is a good number. If you are being conservative.. hundreds. Own the index.
Pic related is the diversification benefit, you get diminishing returns past 10-15 stocks, and you are right it becomes too difficult to manage. Better to focus on your best ideas I think.
>$20k is a great place to start, enough to build a nice portfolio.
>Would you want to take your $2k to the casino? Cause that is what you are doing with forex.
>Why not build a portfolio of say 4-5 amazing companies with your $20k and enjoy as they provide a dividend stream for the rest of your life?
I fear that the stock market right now is very overvalued and the performance doesn't match up with fundamental economic forces which have been pretty bleak for North America.
I think I would rather wait until March before I loaded up on stock.
So I just get in touch with a bank and order them up? I'm in Canada, so I guess my bank does the currency conversion? How do I know I'm getting a favourable rate?
What the hell do you think will change between now and March?
Be reminded of this: during the "dot Com bubble", Buffett significantly underperformed the market (or at least the tech sector) because he stuck to the principles of value investing. If you do this, then when whatever you think the current bubble is pops, you'll be on top and outperforming the market again because you have companies you partly own who are strong enough to weather pops...because you've done your research and know they have enough cash and liquid assets to recover. Right?
Read up on it. Overall forecast on a large scale is pretty pessimistic because of demographic problems that plague the industrialized world.
We are going to see slow or no growth environments for the long term.
>Would you want to take your $2k to the casino? Cause that is what you are doing with forex.
I don't agree with this statement. If you keep up with monetary policy and economy, Forex can be a good investment. You just have to anticipate the consequences rather than following the price.
For example, it was predictable that the USD/JYP would fire in value when the Bank of Japan engaged in QE about 2 years ago. To give a recent example, the USD/CAD - the drastic decrease in oil prices was bound to influence investor's appetite for the canadian dollar.
If for intraday purposes though, I agree. You're gambling your money.
Looks like this is a good opportunity to talk about macroeconomic forecasts and then maybe segue into hindsight bias to address the forex question.
>Overall forecast on a large scale is pretty pessimistic because of demographic problems that plague the industrialized world.
There seems to be a fundamental misunderstanding on here on how stocks are priced. Let's think about that statement. If EVERYONE knows there will be no growth, todays price will reflect a no growth future. So what are the outcomes? No growth = average returns, growth = outsized returns.
Therefore the only way to earn outsized returns is to be DIFFERENT to the consensus, and of course.. be right.
The next point is that macroeconomic forecasts are almost always wrong, and in the rare occasion someone gets one right, they never get two in a row right. So if the experts can't get it right, what are the chances the armchair economists on /biz/ can? Low.
However, macroeconomic forecasts sell papers and are interesting. This is why these threads are full of them. But focussing on these just causes a paralysis. Guess what... the future will ALWAYS be uncertain. Waiting until March will make the future no more certain, and if the future is more certain.. EVERYONE knows about it and you have to pay a premium for the comfort of a certain future (Which paradoxically, often ends up exactly what people didn't predict).
So what can we gain from macroeconomic forecasting? Nothing.
Whats a better solution? Focus on each individual business and value them INDEPENDENTLY of what the market is doing. Great businesses continue to increase their intrinsic value regardless of what the economy is doing.
>For example, it was predictable that the USD/JYP would fire in value when the Bank of Japan engaged in QE about 2 years ago.
This is classic hindsight bias.
>Hindsight bias, also known as the knew-it-all-along effect or creeping determinism, is the inclination, after an event has occurred, to see the event as having been predictable, despite there having been little or no objective basis for predicting it, prior to its occurrence.
> basic example of the hindsight bias is when, after viewing the outcome of a potentially unforeseeable event, a person believes he or she "knew it all along"
IF it was so easy to predict and EVERYONE knew, it would ALREADY be reflected in the price at the time, meaning that knowing something that everyone knows is worthless.
Secondly, lets think about what there is to gain from forex. I mean I just had a look at USD/JPY which is an extreme example, you stand to gain.. what maybe 40-50% over 3-4 years if you do EVERYTHING perfectly.
That's not even a great return, and worse you have to take on HUGE risk to get it. Firstly it could take years for your predicted price to change to materialise, and there is huge risk that it will go against you for a period of time, even IF you are right.
Worse, if you have to hold it for years to wait for your prediction to play out, it pays no dividend.
I don't see the attraction here? Huge risk, mediocre returns, and impossible to predict.
An index will return you 10% per year without any of that extra stress.
However, now I've said all that. Do I follow my own advice?
No. If you look at my portfolio I'm heavily exposed to the USD, with the AUD as my local currency.
I made an assessment that the AUD was high by historical standards in 2012/2013 and was likely to revert to the mean over the long term. I used that opportunity to buy great business denominated in USD i.e AAPL and RMD.
The AUD has now fallen by 30% and those businesses have doubled.. So that's all worked out well.
But did I just get lucky? Probably. Mean reversion is a strong force however.
Hold or sell through a bear market? Lots of investors choose to sell, and try to buy again at the end of the bear market and the beginning of the next bull one. I know that if you pick a stock who's fundamentals are sounds, and was undervalued when you bought it, you really have no reason to fear the bear market. However, selling during it, only to re-buy later would net you more profit.
WHY U NO LIKE ME MR MARKET? I MAKE BIG PROFIT AND ALL THE GAS BELONG TO ME.
What makes you think you can pick beginning or end of a bull or bear market?
Only sell on factors that affect your particular stock. Price, or a change in your investment thesis.
Why the fascination on here with tracking the markets every move?
Because after what happened to Yukos, everybody knows that Putin will nationalize you on a whim to give out a big payday to his oligarch friends.
A good part of value investing is knowing to avoid value traps like Russia.
What are some factors to look for? I get the basic idea of comparing different companies in the same industry, as well as the actual product or service they offer, and its future value.
Same goes for P/E, book value, as well as how the revenue and earnings are looking, and how it has performed during different market conditions.
But more concretely, I think some rules of thumb is really useful, just to get a hunch of around where I should be expecting values.
Know what makes them money.
Know how much they're making.
Know whether or not they can sustain their model.
Know if everything adds up on paper.
Basically if you smell bullshit anywhere then you should probably back off. I make sure I'm confident with each investment so that I can keep it together emotionally when a crash/correction comes.
Well a correction is different from a crash.
In general when investing, when should I sell? I get the whole "buy $1 for less than $1" and all that, and I might find something that I feel the market is undervaluing. Now let's say the market comes around and it instead starts overvaluing the stock. Obviously I shouldn't buy here, but when should I sell?
1. Yukos was a conspiracy that involved Jacob Rothschild, he sat on the board and took control of Khdorkovskys stake when he was arrested, he also tried challenging putin politically.
2. Why would the russian government nationalize a company it already owns?
>1. Yukos was a conspiracy
Depends on your definition of a conspiracy. If Putin wanting to eliminate a political rival's power base and seize assets to distribute to supporters is a conspiracy, then it's a conspiracy. If Yukos was seized because of a global Rothschild plot to control Russian, then no, it wasn't a conspiracy.
>2. Why would the russian government nationalize a company it already owns?
Hint: If you can buy stock in a company, it hasn't been nationalized. They may wish to reacquire the 49.99% share of the future cash flows that they sold off to stockholders. That's a lot of money left on the table.
in what rational context would putin ever do that? Unless he wants russia to repeat 1998 as western captial flees the country. They dont even have to take them they can just buy them because their cheap. Yukos wasnt even nationalized it was diced up and sold to rosneft which is the same as gazprom but deals in oil instead. If hes going to nationalize anything its going to be Lukoil due to their huge reserves that rosneft wants. Yukos was due to special circumstances and wasnt even a nationalization. They only way the government can own former yukos assets is through its rosneft shares because rosneft owns yukos not the russian government directly.
I try and find companies that I can say with a large degree of certainty they will return at least 10% a year. So a company with a FCF yield today of 10% with significant growth prospects would meet that criteria for example.
When to sell is a great question. And to be honest I'm still figuring that out. I think I'm okay at buying but I'm no expert on when to sell. In theory you sell when the price/return is now at such a point that you don't feel comfortable owning it anymore I guess.
Not him, but pull your money out, let the stock slide to what you perceive to be a suitable level and use your profits up to that point to increase your shareholding at a discount.
In the meantime, invest in traditional safe-havens such as Gold, Silver, Platinum.
In b4 can't time market.
Does anybody else here invest in small/microcaps?
I invest almost exclusively in companies b/w 10-200 million in value. Many people think that you can only find pump and dump bullshit down here, but I've found just the opposite. Value hidden in complex corporate structures and off-balance sheet assets isn't that hard to find, as these things are almost never priced into the stock.
For a typical investment, I bought a couple thousand shares of BFCF today.
The prices don't always move in tandem. Does this create arbitrage opportunities?
>mfw you were wrong and can't admit it and change the subject instead.
>has returned an average of 60%+ every year since the 70's and utterly wrecked every other investor in the planet.
Reminds me of good old Bernie Madoff. Except even he didn't boast extraordinary high retunrs, just decent very consistent ones.
Ponzi schemes require a constant influx of new money. Bernie Madoff would be more than happy to accept new investors. Medallion doesn't- the only way to invest is by either working at RenTech or by being a blood relative of Simons.
In other words, it can't be a Ponzi because there's no net inflows he can mislabel as "returns".
Fair point. Just did some reading about the Medallion fund and RenTec in general.
I do wonder why they don't accept more money (even very exclusively) if they have such a well oiled strategy.
>inb4 they don't need to
This is hardly a good argument. Sure, Simons has a net worth of $12bn but I'm sure he would prefer $120bn to spend on his philanthropy.
More investors = more regulations. Also if the strategy is saturated then more money would just mean lower return on equity. It may also interfere with their strategy since they are an algo fund and are increasingly becoming "the market".
It's not a fund which makes directional bet, just pricing arbitrage, of which only a fixed amount exists. If there's $5bn worth of arbitrage opportunities in the markets worldwide, and Jimmy can exploit half of those, then his $5bn fund will earn 30% net of fees and he'll look like a genius. If he has a $25bn fund, then he'll only earn like 6% net of fees, and nobody will want to invest with him because those returns suck.
>where to find potential stocks to investigate
I'm quite lucky in that I have access to a few stock research/recommendation newsletters that give me a population of stocks that I can start with. Other than that I like reading SeekingAlpha to get good ideas.
I think it would be relatively easy to create some criteria and use that to cut down the list of stocks to an 'investable universe'. I.e, positive FCF would eliminate a huge % of stocks. Graham talks about some criteria in the Intelligent Investor.. along the lines of at least 10 years of uninterrupted growing dividends, high returns on equity, conservative debt to equity ratios etc.
>How will your strategy change once the market goes tits up?
I don't think it will. I'm just going to continue trying to buy good business at good prices. It's funny, I get significantly more excited about the stock market in general when there has been sustained price falls.
If there was a genuine crash I think I'd just go on a buying spree.
>invest in gold, silver, platinum
I have no intention of being at the mercy of relying on a greater fool coming along. Productive enterprises are a much better home for money in my opinion.