Any INTJ investors?

[Rick]

Hi, all

Stocks, anyone?

Just wondering whether it is an INTJ thing or just me.

As time permits, I play with an online stock trading service...buying and selling.

If there are others, do you care to trade experiences, picks, and strategies?

I have one stock that I watch like a hawk. If others have interest, I'll share as well.

[Henry]

Hi, all

Stocks, anyone?

Just wondering whether it is an INTJ thing or just me.

As time permits, I play with an online stock trading service...buying and selling.

If there are others, do you care to trade experiences, picks, and strategies?

I have one stock that I watch like a hawk. If others have interest, I'll share as well.

Own stocks, but its almost all in index funds. I think maybe 5% of my money is actively managed, the rest is an index in one form or another.

Boring, but clearly the best investment for everyone but Buffet.

[Max T]

Yes I enjoy investing and closely follow the 'value' investing discipline.
The UK market is quite overpriced (bull run for the past 5 yrs) so very few companies are selling at half price at the moment, so mainly in cash, waiting for the next correction/ crash.

I waffle here:
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... about value investing and how it fits the INTJ mentality very well.

Value investing requires going against the herd, and by buying $1 companies for 50 cents, you not only minimise risk (of further decline) but also maximise gains.
And for small investors with comparatively little money, we can invest where the market is most inefficient and therefore opportunities abound- the smaller companies.

The stock market system, big picture analysis of companies and behavioural finance aspects are fascinating.
I recommend value investing to any business-minded INTJ.

[GOD]

I started analysing the stockmarket when I was about 9 or 10. Is was a function of me liking Maths and being very interested in making Money. (By that stage I'd already made a couple of hundred dollars trading and winning at Marbles (I cornered the market in these "swirly" marbles and forced the value up and traded them). I also had memorised the value of every mint and used stamp ever issued in my country and traded with other kids at school.

So yeah, I knew P/E ratios and so forth as a pre teen and didn't learn about them formally until my second year of my Finance degree.

As for the Stockmarket. Sorry it sucks. You hand over money to others who are "dimmer" in intellect and care less for your money than you do. The Stockmarket itself is driven more by funds inflow than actual fundamentals. (The property market is a far better mechanism if you consider the leverage of debt than can be achieved (and the control)).

[logan235711]

I'm wondering what anyone here gets out of investing? Are you money hungry? Or do you feel that doing something such as this is important to your life in some real way beyond economics vs something else you could be doing? If I were begin investing, what are some things I could look forward to getting out of it beyond monetary benefits? etc.

[Max T]

As for the Stockmarket. Sorry it sucks. You hand over money to others who are "dimmer" in intellect and care less for your money than you do. The Stockmarket itself is driven more by funds inflow than actual fundamentals.
The stock market certainly does suck!
What is comical if it wasn't so tragic is that all the share investors combined do not produce any gains whatsoever- they cancel each other out. Those that gain are funded by those that lose. They invest everyone's wealth/ pension/ savings and do not actually produce a dime extra in the short-term. That's how the system has to work.

And yet the market increasingly attracts some of the sharpest brains (e.g. Phd quants creating exotic derivative models, business leaders that can move proverbial mountains through M&A's). All those brains creating no societal wealth, just redistributing it...
But not redistributing all back to investors- the City/ Wall Street put their interests before their clients so they take a big cut too.

The Stockmarket itself is driven more by funds inflow than actual fundamentals.
Agree. Driven by big fund inflow and also by investor emotions (primarily greed and fear).
As a result, the market is occasionally very inefficient (i.e. very inaccurate at valuing a company) and value investing exploit this.

If you're a coldly logical INTJ who can determine a business' true value using fundamentals (not that difficult), you just wait for the market (i.e. all other investors) to irrationally drive down the company's share price until it reaches half its true value based on your analysis and buy...
... then wait up to 3 yrs for the market to then realise "actually it's not a bad company after all" and bring the price up to the true value. Doubled your money and taken minimal risk.
That's value investing in a nutshell.


Why does this INTJ believe in value investing so much?
First- why shares?
Shares have provided a greater return over all other asset classes (commodities, bonds, property, fine wine) based on past 100 yrs (c. 10% return p.a. against property's c. 7% nominal return). And shares investing can be done on just 5 hrs a week- try doing that with property and a full-time job. True- the leverage capability with property is great but you'd need to ditch the full time job and go wholly into property. In this sense, the stock market system is amazing- you can buy a piece of a company's future profits for just $15.

Why value investing?
Fund performances since 1930's show that it produces greater returns than other styles (even when you take out Warren Buffett's performance).

So it's simply about investing in the best performing asset class with the best performing strategy.
Value investing only achieves superior returns in a system (the market) that reverts any excess returns to an average (as other investors imitate a successful strategy and compete away the profits), by doing what the masses cannot do- exploit mass investor emotions whilst keeping yours in check.
Hence value investing is an ideal pursuit for INTJs.

[Max T]

If I were begin investing, what are some things I could look forward to getting out of it beyond monetary benefits? etc.

Personally, investing is simply a route to financial independence.
Save 20% of take-home pay, invest it at 20% return p.a. and quit working for others in 10- 15 years.
When you have the mentality to achieve these figures, material possessions become totally meaningless (else you won't save 20% per week) and delayed gratification, your time and productivity become very important... mmm... pretty good life lessons.

An employee is partial freedom from prison (you're still dedicating 40- 80 hrs/week to shareholders... that 'shares' thing again!). A self-employed guy is nearly fully free.
Financial independence is total freedom.

I want to fill a working week with 2 days spent on ideas/ inventions, 2 days on voluntary work, 1 day on study and the week-end to relax with family etc. And make a real difference when donating to charities. No job gives that but investing is one route.

How do you want to fill your ideal week?

[GOD]

I'm wondering what anyone here gets out of investing? Are you money hungry? Or do you feel that doing something such as this is important to your life in some real way beyond economics vs something else you could be doing? If I were begin investing, what are some things I could look forward to getting out of it beyond monetary benefits? etc.

Most people do "investing" for the security of money and what that brings -> Freedom.

Although money ultimately buys you "time".

Me, as 8w7 I am the INTJ challenger. Its just an intellectual joust and a test of realisation of my imagination.

[Rick]

Agree completely with the 'money buys you time' statement. Eventually, I hope it will provide a ticket away from 9-5 type jobs.

My investing is done online so I don't have to use a broker. It is mixed between day/swing trading and long term. For day/swing trades, I find stocks that are channeling. In other words, stocks that have a relatively stable prices with up/down changes of only pennies per day. If you buy enough shares of, say, a $1 stock then buy/sell it everytime it goes up/down a penny or two per share, that is a terrific annual return.

I only own one long term stock, and that is Siga Technologies (SIGA on the NASDAQ).

[elsdfr]

Hi, all

Just wondering whether it is an INTJ thing or just me.

If there are others, do you care to trade experiences, picks, and strategies?



Its not just you, about a year ago I put a forum poll on a Foreign Exchange forum. The results where swayed outrageously to INTJ/P types. From memory it was more than 50% out of about 50 people. Unfortunately I can't find the thread anymore but will update if I do.

These days I usually take a contrarian view on markets and buy/sell (stocks, metals, options, currency) knowing I might have to weather a storm or two but with time I can't pretty much mitigate the risk if need be. Earlier on I was just a wagon jumper/scalper. Although I still like to get the pulse going now and then I prefer to preserve capital these days.. I found earning then losing a small fortune month in and out was having more than a few effects on me, plus I need to get back into life :D

I've actually written about some of my own trading experiences - To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

[GOD]

Its not just you, about a year ago I put a forum poll on a Foreign Exchange forum. The results where swayed outrageously to INTJ/P types. From memory it was more than 50% out of about 50 people. Unfortunately I can't find the thread anymore but will update if I do.

These days I usually take a contrarian view on markets and buy/sell (stocks, metals, options, currency) knowing I might have to weather a storm or two but with time I can't pretty much mitigate the risk if need be. Earlier on I was just a wagon jumper/scalper. Although I still like to get the pulse going now and then I prefer to preserve capital these days.. I found earning then losing a small fortune month in and out was having more than a few effects on me, plus I need to get back into life :D

I've actually written about some of my own trading experiences - To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

One thing I would say, and it’s highlighted by the "plus I need to get back into life" is that life is like the yin and yan type balance. A very smart INTJ will see opportunity to find a business activity that covers all the basis, or at least decide that they will sell their soul for the highest price per day and find an out of hours activity that recharges them and fulfills their other needs.

I treat business as a seamless activity... Just as an E is charged by social interaction I am charged by a mutually successful trade in which the buyer votes for my abilities by buying my product. It’s along the lines of that endorphin buzz I need by going to the gym etc.

I'd say women can understand less a guys propensity to like "business" but if any F women turns their own desire "to nest" into a desire to "build a nest" then they might have some basis for understanding "some" elements of the male psych.

[INTJoe]

Glad to finally see an investment thread formulating.

I've only been investing for a few years or so, but I'm glad I started.

Myself and my live-in ISTJ girlfriend have managed to save 50% of our gross income over the last 2 years towards the purchase of a home/whatever.

I don't buy stocks, and the only actively-managed funds I own are in my companies craptastic 401(k) plan.

I think I'm a bit too heavy in retirement, though. As of next January 1st, when her and I max out our Roth IRA's for 2008, we (combined) will have about 58% of our net savings in retirement, and the other roughly 35% in online e-savings accounts earning 5%-6% guaranteed, FDIC-insured interest, as we will be pulling that money out in a couple years as downpayment. I've got another 7% or so in independent funds which are in Vanguards Total Stock Market Index. I may or may not pull that out when we buy. Depends on if it's up or down. If it's down I'm certainly not going to pull it out and realize a loss. I've got plenty as it stands to buy a home and not have to pay PMI.

For those INTJ's reading this thread who are not invested, I recommend starting up a Roth IRA (if you are eligible). The sooner, the better.

[Henry]

As for the Stockmarket. Sorry it sucks. You hand over money to others who are "dimmer" in intellect and care less for your money than you do. The Stockmarket itself is driven more by funds inflow than actual fundamentals. (The property market is a far better mechanism if you consider the leverage of debt than can be achieved (and the control)).


Except with an index fund, you get, looking back a 6.5% real rate of return (going forward it will probably be 4.5-5.5), compared with about 1.5% per bonds and about -.5 percent for cash. Those are before fee, before tax returns. Inflation is a bitch, and the only real way to guard against it is to own stocks.



And can I please make a brief commentary here:

Nobody beats the market over a 20 year period, except Buffet. And Buffet beats it because of temperament, management, and an obsession for details and integrity that INTJs don't have. Its extremely unlikely that you're going to beat the market as an INTJ over the long haul because the market is not moved by fundamentals, its moved by Mr. Market and the people that listen to him. Thus the most rational perspective, even if the most counterintuitive, is that the index fund provides the highest return for the least effort.

[The Rose]

...Nobody beats the market over a 20 year period, except Buffet....What is Buffet?

[INTJoe]

What is Buffet?


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the most successful investor known to man.

[The Rose]

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the most successful investor known to man.Thank you. Very interesting wiki.

[Max T]

Nobody beats the market over a 20 year period, except Buffet.
Certainly Buffett (not the restaurant diner) is a six+ sigma person, a 1 in a billion.
No one is going to beat Buffett over 20 yrs.
But I don't think the logic can then be extended to "no-one beats the market over 20 yrs".
Over 20 yrs, many investors aggregate returns will come between beating the market but not beating Buffett's record.
That's how the system has to work, just as equal numbers of investors will underperform the market (thereby funding the market outperformers).


And Buffet beats it because of temperament, management, and an obsession for details and integrity that INTJs don't have.
INTJs have a significant advantage over other investors.
Our trait typecasters suggest we: have well placed self-confidence (emph. on 'well placed'), a rational and analytical nature, pattern forming thinking and are very humble yet confident in our own analyses.
All fantastic qualities to succeed in investing (not speculating).


Thus the most rational perspective, even if the most counterintuitive, is that the index fund provides the highest return for the least effort.
Agree- index funds are the most efficient way to invest your savings providing you hold in the fund for at least one typical economic cycle (c. 7yrs).
For INTJs lacking business background and not enthusiastic about researching companies for min. 3 hrs per week, a cheap index fund is most efficient.

But not most effective. If you understand business and have the time and temperament, you can trounce the stock market over 20 yrs.


Its extremely unlikely that you're going to beat the market as an INTJ over the long haul because the market is not moved by fundamentals, its moved by Mr. Market and the people that listen to him.
In the short-term (<1 yr) the market is moved by the emotions of the manic depressive "Mr. Market" as we mention.
But in the long-term (>1yr) the market IS moved by fundamentals, I assure you- this is what Buffett has been advocating for the past 5 decades.
Wiki's Buffett link says:
"[Buffett] bought companies because they were cheap compared to their intrinsic value (i.e. true based on fundamentals)... He reasoned that the market will eventually realize it has undervalued the company and will correct its course [returning the co. to its true intrinsic value]".

Buffett's mentor- Ben Graham said in 1930's: In the short-term the market is an emotional voting machine, in the long-term it is a weighing machine.



Reasons why the small investor can beat the institutions that practically represent the market over 20 yrs:
1. small investors can hold cash when no half-price companies exist such as now (therefore hold 50% of funds in cash waiting for a market slump). Institutions have to remain fully invested in shares.
2. they can invest where the market is least efficient- in companies <$100m cap. Try doing that with an institution's fund of $1bn.
3. they don't have liquidity problems in exiting / entering positions in companies because they're buying such small stakes. A big fund buying 5% of a company takes a lot of time and cost.
4. they can hold a focussed portfolio of say 10 stocks and therefore understand the companies better than the institutions (greatly increasing probability of beating the market). Institutions have to hold 80+ stocks.
5. they can take the better long-term view with investments by tolerating underperforming the market for months or even years. A fund manager suffering such 'tracking error' (deviating from the market) will be out of a job.
6. most importantly, the small investor can wait for months until a decent company at a great (half) price is offered by the market. The institution has to be actively buying and selling to justify the hundreds of people- analyst front office, settlement back office etc.

The small investor can thrash the market in the first 20 yrs providing they have 3+hrs/week to research, they understand business, have the right temperament and follow the value investing discipline.


(Index fund= a fund that doesn't try to pick select companies but instead buys hundreds of companies 'til it reflects the whole market indices).

[rocksteady]

/\ nice post max, I am currently contemplating choosing economics as my field of study in college, and have planned on doing some investing similar to what you describe above.

[Henry]

Certainly Buffett (not the restaurant diner) is a six+ sigma person, a 1 in a billion.
No one is going to beat Buffett over 20 yrs.
But I don't think the logic can then be extended to "no-one beats the market over 20 yrs".
Over 20 yrs, many investors aggregate returns will come between beating the market but not beating Buffett's record.
That's how the system has to work, just as equal numbers of investors will underperform the market (thereby funding the market outperformers).

Your thesis hinges on the last statement.


INTJs have a significant advantage over other investors.
Our trait typecasters suggest we: have well placed self-confidence (emph. on 'well placed'),

Self confidence is probably not an asset in investing, particularly if that self confidence extends beyond "I'm smart and capable" to "I'm smarter and more capable than everyone else".

a rational and analytical nature, pattern forming thinking and are very humble yet confident in our own analyses.
All fantastic qualities to succeed in investing (not speculating).

Perhaps. I'm just doubtful that any individual can do better than the team of MBAs, PhDs, and JDs that investment houses put together, and more skeptical that they can, after taxes and fees, beat the index return that beats actively managed funds by a considerable margin.

People screw up their own portfolios. Average individual stock investor made, as I recall correctly, around 2% from 1980-2005. I don't have Bogle's book around here anywhere, but I do know that it was abysmally low over that period.



In the short-term (<1 yr) the market is moved by the emotions of the manic depressive "Mr. Market" as we mention.
But in the long-term (>1yr) the market IS moved by fundamentals, I assure you- this is what Buffett has been advocating for the past 5 decades.
Wiki's Buffett link says:
"[Buffett] bought companies because they were cheap compared to their intrinsic value (i.e. true based on fundamentals)... He reasoned that the market will eventually realize it has undervalued the company and will correct its course [returning the co. to its true intrinsic value]".

Buffett's mentor- Ben Graham said in 1930's: In the short-term the market is an emotional voting machine, in the long-term it is a weighing machine.

I would be more apt to agree with this statement if we amended your 1 year being "long term" to 10 years.



Reasons why the small investor can beat the institutions that practically represent the market over 20 yrs:
1. small investors can hold cash when no half-price companies exist such as now (therefore hold 50% of funds in cash waiting for a market slump). Institutions have to remain fully invested in shares.
2. they can invest where the market is least efficient- in companies <$100m cap. Try doing that with an institution's fund of $1bn.
3. they don't have liquidity problems in exiting / entering positions in companies because they're buying such small stakes. A big fund buying 5% of a company takes a lot of time and cost.
4. they can hold a focussed portfolio of say 10 stocks and therefore understand the companies better than the institutions (greatly increasing probability of beating the market). Institutions have to hold 80+ stocks.
5. they can take the better long-term view with investments by tolerating underperforming the market for months or even years. A fund manager suffering such 'tracking error' (deviating from the market) will be out of a job.
6. most importantly, the small investor can wait for months until a decent company at a great (half) price is offered by the market. The institution has to be actively buying and selling to justify the hundreds of people- analyst front office, settlement back office etc.

The small investor can thrash the market in the first 20 yrs providing they have 3+hrs/week to research, they understand business, have the right temperament and follow the value investing discipline.

(Index fund= a fund that doesn't try to pick select companies but instead buys hundreds of companies 'til it reflects the whole market indices).


All valid reasons to support your thesis, except that the data shows a different perspective. Perhaps the INTJ is different.

[Max T]

Certainly Buffett (not the restaurant diner) is a six+ sigma person, a 1 in a billion.
No one is going to beat Buffett over 20 yrs.
But I don't think the logic can then be extended to "no-one beats the market over 20 yrs".
Over 20 yrs, many investors aggregate returns will come between beating the market but not beating Buffett's record.
That's how the system has to work, just as equal numbers of investors will underperform the market (thereby funding the market outperformers).
Your thesis hinges on the last statement.

To expand, <1yr the stock market is a zero sum game (i.e. one can only gain if another loses) and >10yr it's mainly a positive sum game (i.e. most investors gain) as dividends are received and corporations create genuine wealth thereby pushing up share price.


INTJs have a significant advantage over other investors.
Our trait typecasters suggest we: have well placed self-confidence (emph. on 'well placed'),


Self confidence is probably not an asset in investing, particularly if that self confidence extends beyond "I'm smart and capable" to "I'm smarter and more capable than everyone else".
Absolutely agree- the stock market will strip the money from an arrogant person.
Self confidence and investment returns are inversely correlated.
Hence my emphasis on "well-placed" confidence and to be humble.

But you have to be confident in your analysis to buy a company like Fiberweb, as I did at 51 pence last week (see chart below- now at 39 pence). It's selling for half it's true value that I estimate at 102 pence (which is when I'll sell unless something changes). The absolute bottom- its full liquidation in a distressed sale- is c. 45 pence.

a rational and analytical nature, pattern forming thinking and are very humble yet confident in our own analyses.
All fantastic qualities to succeed in investing (not speculating).

Perhaps. I'm just doubtful that any individual can do better than the team of MBAs, PhDs, and JDs that investment houses put together, and more skeptical that they can, after taxes and fees, beat the index return that beats actively managed funds by a considerable margin.

I agree it sounds unlikely. But value investing eliminates both of your very valid claims.

Can you imagine a team of MBA's advocating buying a company that has fallen to 1/5th its market value within 6 mths? They just won't agree for fear of losing their jobs, looking dumb, looking too 'high risk' (even though risk of actual capital loss is negligible), fear of having to explain to a client why they hold such a 'dog'...

And value investors typically hold c. 10 stocks for up to 5 yrs max., so the taxes and fees are much lower than those of the investment houses.



People screw up their own portfolios. Average individual stock investor made, as I recall correctly, around 2% from 1980-2005. I don't have Bogle's book around here anywhere, but I do know that it was abysmally low over that period.

I so agree- an investor's biggest liability is their own emotions. Some research into individual investors accounts found the average individual investor to just break even. They don't even make any money but buy shares for entertainment and to join the party talk!
The value investing framework protects the investor from their emotions.
Bogle was very pro indexing.


In the short-term (<1 yr) the market is moved by the emotions of the manic depressive "Mr. Market" as we mention.
But in the long-term (>1yr) the market IS moved by fundamentals, I assure you- this is what Buffett has been advocating for the past 5 decades.


I would be more apt to agree with this statement if we amended your 1 year being "long term" to 10 years.

Ok yes agree >1yr is too short... but I'd say 4 yrs is normally long term enough for two reasons:
a. most companies fix their strategies and problems within that period and
b. it takes max. 3 yrs for investors to actually forget a company's 'disaster of the day' (profit warning, product recall etc.).



Reasons why the small investor can beat the institutions that practically represent the market over 20 yrs:
1. small investors can hold cash when no half-price companies exist such as now (therefore hold 50% of funds in cash waiting for a market slump). Institutions have to remain fully invested in shares.
2. they can invest where the market is least efficient- in companies <$100m cap. Try doing that with an institution's fund of $1bn.
3. they don't have liquidity problems in exiting / entering positions in companies because they're buying such small stakes. A big fund buying 5% of a company takes a lot of time and cost.
4. they can hold a focussed portfolio of say 10 stocks and therefore understand the companies better than the institutions (greatly increasing probability of beating the market). Institutions have to hold 80+ stocks.
5. they can take the better long-term view with investments by tolerating underperforming the market for months or even years. A fund manager suffering such 'tracking error' (deviating from the market) will be out of a job.
6. most importantly, the small investor can wait for months until a decent company at a great (half) price is offered by the market. The institution has to be actively buying and selling to justify the hundreds of people- analyst front office, settlement back office etc.

The small investor can thrash the market in the first 20 yrs providing they have 3+hrs/week to research, they understand business, have the right temperament and follow the value investing discipline.


All valid reasons to support your thesis, except that the data shows a different perspective. Perhaps the INTJ is different.
Value investing is practised by c. 2% of the investing community.
Therefore, it is very likely that value investor's results were not factored into the data you refer to.
The INTJ is not different- he's just parrotting back to you what he has read from value investing books... and practised.


Let's invert the situation and consider from Bogle's perspective- the most efficient thing to do is to invest in index trackers- say 95% of money is in them.
That would provide even greater returns for value investors, as the stock market would consider even less the individual companies' performance and so share price would be further removed from reality. The market would be less efficient.
For example, if most people index tracked, a company whose size is on the brink of say the top 500 shares some funds are tracking, could one day lose 50% of its value as index funds sell that company. Irrespective of true (intrinsic) value, that company is now on sale at 50% discount. A value opportunity.


But what do value investors know?
The academics hate us for disproving their efficient market hypothesis.
The City/ Wall St. have set up corporations and consumer expectations in such a manner that prevents them from following the value discipline.
... And that's is just how we like it. :-)

[Max T]

Henry- I can't help but feel that you either:
1. invest personally and, judging by what you say, you outperform the market most of the time (but perhaps you're having an underperforming year like everyone (incl. Buffett) suffers) or...
2. you're smart enough not to invest but instead leave it in a tracker/ decent few funds.

Me? figured that my gains over the past 5 years were just pure luck- the US and UK markets have been rising- everyone wins. Increasingly nervous about the next crash/slide/correction so been reading a bunch on value investing.

[Henry]

Value investing is clearly the most rational way to go about investing in a very irrational market. There's no other way to do it, especially when you can find companies very close to book value.

I still think its very easy to get scared out of the market, and do stupid things to screw up your portfolio.

To expand, <1yr the stock market is a zero sum game (i.e. one can only gain if another loses) and >10yr it's mainly a positive sum game (i.e. most investors gain) as dividends are received and corporations create genuine wealth thereby pushing up share price.

Agreed.

But if you own individual stocks and you don't understand or can't handle the ups and downs, then bonds, especially TIPS, are ideal. And I think TIPS are ideal for most investors.




But you have to be confident in your analysis to buy a company like Fiberweb, as I did at 51 pence last week (see chart below- now at 39 pence). It's selling for half it's true value that I estimate at 102 pence (which is when I'll sell unless something changes). The absolute bottom- its full liquidation in a distressed sale- is c. 45 pence.

Well if you are actually able to find bargains like this and hold through ups and downs, you'll do fine.



I agree it sounds unlikely. But value investing eliminates both of your very valid claims.

Can you imagine a team of MBA's advocating buying a company that has fallen to 1/5th its market value within 6 mths? They just won't agree for fear of losing their jobs, looking dumb, looking too 'high risk' (even though risk of actual capital loss is negligible), fear of having to explain to a client why they hold such a 'dog'...

And value investors typically hold c. 10 stocks for up to 5 yrs max., so the taxes and fees are much lower than those of the investment houses.

Depending on how its done, a value investor may want to hold substantially longer than 5 years.

You have an excellent point regarding status-whores not being able to value invest.


Value investing is practised by c. 2% of the investing community.
Therefore, it is very likely that value investor's results were not factored into the data you refer to.
The INTJ is not different- he's just parrotting back to you what he has read from value investing books... and practised.

If I recall the data correctly, those who setup a system for themselves did much better, around 6% per year, than the person that picked individual stocks. I'm not sure whether they were considered systematized or individual.


Let's invert the situation and consider from Bogle's perspective- the most efficient thing to do is to invest in index trackers- say 95% of money is in them.
That would provide even greater returns for value investors, as the stock market would consider even less the individual companies' performance and so share price would be further removed from reality. The market would be less efficient.

No question there. Indexing piggybacks on others' buying and selling.

For example, if most people index tracked, a company whose size is on the brink of say the top 500 shares some funds are tracking, could one day lose 50% of its value as index funds sell that company. Irrespective of true (intrinsic) value, that company is now on sale at 50% discount. A value opportunity.

I don't disagree; your method is clearly the most rational way to proceed in an insane market. I would caution anyone to take a balanced approach though, and indexing with a substantial part of the portfolio.

[Alexfree]

I am into options.

I like investing just because it is a chance to multiply my money, retire early and being independently introverted all day long :D

No, seriously. I think INTJ are natural investors because good investing strategies (that is, something that could yield more than a crappy 5%) require excellent information-gathering capabilities... which is something I guess we are good at... if motivated enough.

By the way, a good eyeopener about stock market is a book called "A Random Walk Down Wall Street" by Burton G. Malkiel. Classic.

[Warren_Wong]

Own stocks, but its almost all in index funds. I think maybe 5% of my money is actively managed, the rest is an index in one form or another.

Boring, but clearly the best investment for everyone but Buffet.

I completely agree. With all the time that people spend day trading and picking stocks, that time could be spent actively making money elsewhere. Like 15% of like 50k isn't really that much more than 10% of 50k. Unless you have like a couple million or more, it really doesn't make a whole lot of difference.

[elsdfr]

15% is 15% - if you can average that over twenty/thirty plus years yourself then why wouldn't you try?

Anyone can put a lump sum into a managed fund and throw out the pretty graphs they send you... BORING! and who knows where your money is really going.

And Buffet is just the Bill Gates of the Finance world. He took a huge risk and now the general populous puts him on a pedestal and throw blanket statements around like "clearly the best investment for everyone but Buffet." ... err, please!

[Max T]

With all the time that people spend day trading and picking stocks, that time could be spent actively making money elsewhere. Like 15% of like 50k isn't really that much more than 10% of 50k. Unless you have like a couple million or more, it really doesn't make a whole lot of difference.

Warren- what do Einstein, Gates and Buffett have in common?
They all knew the power of compounding (i.e. earning interest on the interest earnt each year).
- Einstein said compounding was the '8th wonder of the world'.
- Gates saw the compounding opportunity: by having his OS installed in PCs throughout the world, he had a captive market for upselling onto different software appl.
- Buffett knew that by starting from a young age and learning from the best compounders of his day (i.e. working for free at investor Ben Graham's office in Wall Street in the 1960's), he would in time have a few dollars.

So the smartest guy last century and the two richest of this century knew the power of compounding.


$50,000 earning 10% av.annual gross return over 20 yrs = $336,400.
$50,000 earning 15% av.annual gross return over 20 yrs = $818,300.

And consider that a small investor can compound at 20-30% for twenty years by following Buffett and the value investing discipline (or elsdfr's trading, Alexfree's options etc. if so choose):
$50,000 earning 25% av.annual gross return over 20 yrs = $4,337,000.

[ShaiGar]

I'm a small time investor. Most of the time I write short stories, work on my novels, poetry and technical designs. However I know the power of fashion and stupidity, and I occasionally save money to go to thailand, with no clothes, buy a shitload over there of decent designs(99bhat), and sell them back here to morons.(822bhat=30dollars)

That's how I Invest.

I'm considering getting myself an INTP or INTJ agent based either in Singapore or in Bangkok who can bhater (pun, supposed to be barter) very well, and setting up a distribution line out of Darwin. Doing that til i have enough money to set up my own sweatshop in either Indonesia or Philippines. I know it's smalltime, but capital needs to be raised to reach my higher financial aims.

[GOD]

And can I please make a brief commentary here:

Nobody beats the market over a 20 year period, except Buffet. And Buffet beats it because of temperament, management, and an obsession for details and integrity that INTJs don't have. Its extremely unlikely that you're going to beat the market as an INTJ over the long haul because the market is not moved by fundamentals, its moved by Mr. Market and the people that listen to him. Thus the most rational perspective, even if the most counterintuitive, is that the index fund provides the highest return for the least effort.

Sorry, but your completely and utterly wrong.

Firstly, Buffet is successful but he's not alone, there are plenty of others
of his type but you just don't here about them much, they keep a low profile for obvious reasons.

Buffets strategy is simple. He focuses on Fundamentals. While most of you are playing day trades and other "chartist" type plays he's focusing on cashflow and undervalued assets. In the 1960's there were more than a few players doing the asset stripping game, he's from that school.

In terms of saying that INTJs are the wrong type and temperament, that’s wrong. INTJ's are most suited to the fundamental plays that Buffet does (As it requires more strategy, more forward looking over the long term and attention to details), whereas the ISTJs will go more the chartist type plays.

To say you are unlikely to beat the market over the long run is also wrong. If you play the indexed fund management then you will likely equal the market (Or less when you take their fees out) (All as they do is achieve the market beta by having a diversified portfolio). However if you know your stuff (You'd better have a skill set up to CPA standard) and go the fundamental route then you can well and truly beat the market.

[Max T]

Sorry, but your completely and utterly wrong.

Firstly, Buffet is successful but he's not alone, there are plenty of others
of his type but you just don't here about them much, they keep a low profile for obvious reasons.

Buffets strategy is simple. He focuses on Fundamentals. While most of you are playing day trades and other "chartist" type plays he's focusing on cashflow and undervalued assets. In the 1960's there were more than a few players doing the asset stripping game, he's from that school.

In terms of saying that INTJs are the wrong type and temperament, that’s wrong. INTJ's are most suited to the fundamental plays that Buffet does (As it requires more strategy, more forward looking over the long term and attention to details), whereas the ISTJs will go more the chartist type plays.

To say you are unlikely to beat the market over the long run is also wrong. If you play the indexed fund management then you will likely equal the market (Or less when you take their fees out) (All as they do is achieve the market beta by having a diversified portfolio). However if you know your stuff (You'd better have a skill set up to CPA standard) and go the fundamental route then you can well and truly beat the market.

Yes- this has all been stated previously by someone else posting here.

To be fair to Henry, he's doing the next smartest thing by indexing.
Far more individual investors think they can beat the market than actually do.
Just as far more active institutional funds underperform the market (c. 80%) than beat it.

Buffett said that the best thing for a 'know-nothing' investor to do is to index the market.
So, ironically it takes a smart investor to decide to index (and put energies into other things in life).

[GOD]

Just as far more active institutional funds underperform the market (c. 80%) than beat it.


Most institutional investors equal the market because they actually replicate it via their diversified portfolio. Why the majority actual perform below is due to their c2% fees they then subsequently slice off.

If you want to replicate a diversified portfolio then randomly get 30 different stocks in the market....and save yourself the 2% institutional charge.

[Max T]

Most institutional investors equal the market because they actually replicate it via their diversified portfolio. Why the majority actual perform below is due to their c2% fees they then subsequently slice off.
Sure, and the transaction costs of continually buying and selling.

Coupled with the customer's behaviour and expectations- namely 'if you underperform I'm withdrawing my money', most funds today do the most logical thing- become a closet index tracker (but charge the fee)... and when the 5yr chart starts to show underperformance, start a new fund.

"Better to fail anonymously with everyone else then be different and risk failing on your own" could be a fund manager's mantra.


If you want to replicate a diversified portfolio then randomly get 30 different stocks in the market....and save yourself the 2% institutional charge.

Or try Joel Greenblatt's To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.
It's like a cheap and simple way to value invest for those without the time etc.
Greenblatt created a fund called Gotham capital that compounded 40% over 20 yrs.

His 'magic formula' approach simply identifies the companies with 1. lowest Price/Earnings ratios ('though he uses E/P yield) and with 2. the highest return on invested capital (ROIC) if I recall.

In other words, you're buying low price (P/E ratio) companies that are actually strong businesses producing good returns via competitive advantage (ROIC). The share price is currently low and very likely to bounce upwards within a year.

Invest in 10 of them and a year later, sell (regardless) and repeat, each year. Mechanical.
It is this simple for a good reason- you don't really understand the company so you don't know when to sell. Such a strict buy and sell decision removes emotions and (likely) erroneus judgement from the process.

It sounds like a back-tested system that will fail when the future deviates from the past, but it is grounded in fundamentals.

The only real potential downside is that the system becomes so popular that it no longer exceeds market returns (as gains are competed away), but I guess his book addresses this.


I recommend INTJs to read the book and, if you do invest, absolutely go by the book and don't "style drift" into other strategies such as momentum, growth etc.

[Warren_Wong]

Warren- what do Einstein, Gates and Buffett have in common?
They all knew the power of compounding (i.e. earning interest on the interest earnt each year).
- Einstein said compounding was the '8th wonder of the world'.
- Gates saw the compounding opportunity: by having his OS installed in PCs throughout the world, he had a captive market for upselling onto different software appl.
- Buffett knew that by starting from a young age and learning from the best compounders of his day (i.e. working for free at investor Ben Graham's office in Wall Street in the 1960's), he would in time have a few dollars.

So the smartest guy last century and the two richest of this century knew the power of compounding.


$50,000 earning 10% av.annual gross return over 20 yrs = $336,400.
$50,000 earning 15% av.annual gross return over 20 yrs = $818,300.

And consider that a small investor can compound at 20-30% for twenty years by following Buffett and the value investing discipline (or elsdfr's trading, Alexfree's options etc. if so choose):
$50,000 earning 25% av.annual gross return over 20 yrs = $4,337,000.

Yeah, except that only becomes more important at higher $$ amounts. When you have a few million, then sure, spend time on finding better investments, but when you only have like $10k, then spend your time making more money...

[Warren_Wong]

15% is 15% - if you can average that over twenty/thirty plus years yourself then why wouldn't you try?

Anyone can put a lump sum into a managed fund and throw out the pretty graphs they send you... BORING! and who knows where your money is really going.

And Buffet is just the Bill Gates of the Finance world. He took a huge risk and now the general populous puts him on a pedestal and throw blanket statements around like "clearly the best investment for everyone but Buffet." ... err, please!


Because I'd rather get 10% now and an extra 50 hours or so, and then spend that 50 hours later to get the 15% when I have more money.

[Max T]

Yes I understand your perspective Warren.
Those extra hours this year could be very valuable especially if we're going to die next year!

So you prefer to maximise earning potential now and invest at a low rate, and when sufficient funds are accrued, start to invest at a higher rate.

But surely most of us cannot earn more than a fixed amount per week, so there's a restricted cap on current potential earning. But there is no restricted cap on investment returns (just a diminishing rate of return)- some earn cash deposit 6% p.a. and others earn 30% p.a.
There are two advantages to starting investing at a higher rate now:

1. seek to maximise investment returns now and you'll be a pro investor in 20 years, so you'll likely be earning greater p.a. returns in 2028 than the guy that started in 2018.

2. seek to maximise investment returns now and the mistakes you (inevitably) make will not erode your capital, since you have less of it, as much as mistakes made in 2018 when you start investing with larger sums. 30% loss on $10k ($3k) is ok but 30% loss on $1m is painful (I imagine!). (Relatively speaking, they're the same amount of loss in absolute terms, since the $3k loss could have compounded).

(3. a final virtuous circle (i.e. self-powering effects) for some is that by starting shares investing now, you become a better business person as you understand businesses better in general= better job = higher earnings and greater compounded returns).


The disadvantage to maximising investment returns now is the loss of 5hrs per week spent playing computer games, reading a book or writing on forums (d'oh! double d'oh!)... and you'll gain those hours lost now in your retirement, which would come earlier than the person who started maximising investment returns later in life.

Such delayed gratification is completely opposite to the 'spend now worry about debts later' society that we live in.
Once you've retired, you can think about how you want to give it back- again completely at odds with society!

[Warren_Wong]

I can see that Max, and I agree with you that if you were unable to make other sources of income, then of course, investing now makes sense.

However, in my experience, it's not that hard to make other sources of income. For example, playing poker, starting a website, can all yield upwards of a hundred k or two per year, which is no small sum. Additionally, if you're investing in stocks, there is generally the constant distraction of wanting to look at it, disrupting your current work efforts.

I think the best way is probably to start a business of your own. That way, you get to understand businesses from the inside out. I tend to think investing in stocks is more about understanding the business behind the stock, so "investing" from the outside in something you don't understand wouldn't yield much knowledge to make you a pro investor in my opinion.

[elsdfr]

I can see that Max, and I agree with you that if you were unable to make other sources of income, then of course, investing now makes sense.


I met a guy the other day who digs/cleans faeces from treatment plants, he earns more in a day then most earn in a week and he work maybe six hours a day. He said they are looking for people if I'm keen... bit I'm not, I prefer to invest in my spare time, so what does does this make me, an idiot?

By all means save your pennies, learn nothing of the market or your emotions V money over time and then plunge it all your hard earned into the next boom only to lose your shirt like all the rest of leemings... seriously, the market needs you.

[Henry]

Sorry, but your completely and utterly wrong.

Firstly, Buffet is successful but he's not alone, there are plenty of others
of his type but you just don't here about them much, they keep a low profile for obvious reasons.

Buffets strategy is simple. He focuses on Fundamentals. While most of you are playing day trades and other "chartist" type plays he's focusing on cashflow and undervalued assets. In the 1960's there were more than a few players doing the asset stripping game, he's from that school.

I'll label this argument the "Black Helicopters of Investing Thesis". They're these super competent, super secretive people that are soooo good no 1 knows about them.

Thanks for the lesson on Buffett.

In terms of saying that INTJs are the wrong type and temperament, that’s wrong. INTJ's are most suited to the fundamental plays that Buffet does (As it requires more strategy, more forward looking over the long term and attention to details), whereas the ISTJs will go more the chartist type plays.

Actually, I stated little re temperament and investing. I did state that Buffett, who is clearly STJ, is the only investor who has beat the market by any sum worth the effort and risk.

To say you are unlikely to beat the market over the long run is also wrong. If you play the indexed fund management then you will likely equal the market (Or less when you take their fees out) (All as they do is achieve the market beta by having a diversified portfolio). However if you know your stuff (You'd better have a skill set up to CPA standard) and go the fundamental route then you can well and truly beat the market.

Ah, my all time favorite internets argument: never mind the data, the strong supporting theory, or the advice of experts. My anecdotal, unverifiable "evidence" trumps all that nonsense.

[Warren_Wong]

I met a guy the other day who digs/cleans faeces from treatment plants, he earns more in a day then most earn in a week and he work maybe six hours a day. He said they are looking for people if I'm keen... bit I'm not, I prefer to invest in my spare time, so what does does this make me, an idiot?

By all means save your pennies, learn nothing of the market or your emotions V money over time and then plunge it all your hard earned into the next boom only to lose your shirt like all the rest of leemings... seriously, the market needs you.

No, it makes you someone who choose that path. I'll make that few hundred extra k and put it in an index fund. That'll probably beat what most people do anyway.

[Warren_Wong]

I met a guy the other day who digs/cleans faeces from treatment plants, he earns more in a day then most earn in a week and he work maybe six hours a day. He said they are looking for people if I'm keen... bit I'm not, I prefer to invest in my spare time, so what does does this make me, an idiot?

By all means save your pennies, learn nothing of the market or your emotions V money over time and then plunge it all your hard earned into the next boom only to lose your shirt like all the rest of leemings... seriously, the market needs you.

I'm just saying there's better ways of learning about that than "investing" in the market.... like actually starting a business.

[elsdfr]

No, it makes you someone who choose that path. I'll make that few hundred extra k and put it in an index fund. That'll probably beat what most people do anyway.

I was pointing out that what you stated sounded like anyone who invests for themselves either doesn't make enough money in a "real" job or doesn't have what it takes to start a "real" business, which is simply not true.

It has similarities to the "dating an INTJ female thread" where some people stated broad generalizations that work for the majority of the time. Little do they know they are actually offending a quiet minority who probably wouldn't say anything otherwise.

And really if you haven't actually lived something then your ideas are just theory and even if you have lived through something then you should have the knowledge to realise your outcomes are not always going to be the same as someone elses.

I'm just saying there's better ways of learning about that than "investing" in the market.... like actually starting a business.

Fair enough, again this works for the majority of people. In my opinion anyone with the will to sell themselves to the bank can do this. Find anyone who is debt free and completely independent these days and you are again talking 2%'ers.

Its a different mindset and to dismiss it is, well.. :(

[Warren_Wong]

I was pointing out that what you stated sounded like anyone who invests for themselves either doesn't make enough money in a "real" job or doesn't have what it takes to start a "real" business, which is simply not true.

It has similarities to the "dating an INTJ female thread" where some people stated broad generalizations that work for the majority of the time. Little do they know they are actually offending a quiet minority who probably wouldn't say anything otherwise.

And really if you haven't actually lived something then your ideas are just theory and even if you have lived through something then you should have the knowledge to realise your outcomes are not always going to be the same as someone elses.

I'm sorry if that's what it sounds like, but that's not what I meant at all. I just happen to think (at least for me) that starting a business is a much better way of learning to invest and also to make extra money to invest with while doing so.

Fair enough, again this works for the majority of people. In my opinion anyone with the will to sell themselves to the bank can do this. Find anyone who is debt free and completely independent these days and you are again talking 2%'ers.

Its a different mindset and to dismiss it is, well.. :(


Well, I think it's a good idea to borrow money if you think you can make a higher return on it. For example, I have a few hundred k in liquid capital, but I still borrow money from the bank. Like why not... borrow for like 5% and get an average return of 10% just by sticking it in an index fund... hey, free money :)

I don't think it's a bad mindset to try to learn to invest and make above market returns. However, in my opinion (and experience), studying stocks and investing is actually a very poor means of accomplishing.

Like when it comes down to it, you have to understand the value the business is providing. Learning about all sorts of metrics really doesn't give you an edge over other investors (even though you might think that you're al ot smarter... there are plenty of phds with finance degrees out there running hedge funds). The only way to really understand what makes a business successful is to start a business of your own and get the experience, as the rest is just theory.

Just look at Buffet... he was running businesses when he was like 12...

[Max T]

However, in my experience, it's not that hard to make other sources of income. For example, playing poker, starting a website, can all yield upwards of a hundred k or two per year, which is no small sum. Additionally, if you're investing in stocks, there is generally the constant distraction of wanting to look at it, disrupting your current work efforts.

Yes I understand you. My justification to maximise investment returns now was based on the notion of the individual earning a fixed annual salary (i.e. no overtime pay opportunities) and not having a second line of business ('moonlighting' I think some call it?).

For some companies- included my previous employer- if you were caught with a second line of work you'd be made redundant. But I'm sure many people do run a second line of income even if its an eBay thing.


I think the best way is probably to start a business of your own. That way, you get to understand businesses from the inside out. I tend to think investing in stocks is more about understanding the business behind the stock, so "investing" from the outside in something you don't understand wouldn't yield much knowledge to make you a pro investor in my opinion.
Totally agree and you're in good company- Buffett once said that when he started actually owning whole companies, all the other issues to running a business he previously was unaware of was a real learning curve and made him a better investor.



On this issue of do we maximise earnings/savings or do we maximise investment returns, I guess it can be answered by determining patterns in the wider world.

Buffett humbly once said he couldn't do what Gates does but imagines Gates could do what Buffett does. Equally, even though investors and business owners have strong similarities (capital allocation, commercial acumen etc.), you rarely see someone excelling in both simultaneously or sequentially (e.g. first business start-up, then investor).

So it comes down to our own skills- some of us are more entrepreneurial and so can and should increase earnings by creating a second line of income/ starting own business.

Others are not so entrepreneurial but perhaps excel in other areas such as analysis and temperament. I've failed in little ventures with convincing consistency so moved to this camp.
Guess it comes down to playing to strengths and minimising weaknesses.

But like elsdfr and myself say, having earned your money through business ventures ShaiGar and Warren, don't then beat your chest as all conquering and suddenly switch to active investing else you could lose a lot.

[Warren_Wong]

Yes I understand you. My justification to maximise investment returns now was based on the notion of the individual earning a fixed annual salary (i.e. no overtime pay opportunities) and not having a second line of business ('moonlighting' I think some call it?).

For some companies- included my previous employer- if you were caught with a second line of work you'd be made redundant. But I'm sure many people do run a second line of income even if its an eBay thing.

Hehe, I tend to think even an ebay thing has better opportunities than a fixed income job :) Jobs have a ceiling cap of like a few hundred k... which really kills any motivation I have hehe.


On this issue of do we maximise earnings/savings or do we maximise investment returns, I guess it can be answered by determining patterns in the wider world.

Buffett humbly once said he couldn't do what Gates does but imagines Gates could do what Buffett does. Equally, even though investors and business owners have strong similarities (capital allocation, commercial acumen etc.), you rarely see someone excelling in both simulateously or sequentially (e.g. first business start-up, then investor).

So it comes down to our own skills- some of us are more entrepreneurial and so can and should increase earnings by creating a second line of income/ starting own business.

Others are not so entrepreneurial but perhaps excel in other areas such as analysis and temperament. I've failed in little ventures with convincing consistency so moved to this camp.
Guess it comes down to playing to strengths and minimising weaknesses.

But like elsdfr and myself say, having earned your money through business ventures ShaiGar and Warren, don't then beat your chest as all conquering and suddenly switch to investing else you could lose a lot.

Hmmm, so for reference, I have made a few hundred k playing poker and have lost 6 digits doing the "investing" thing, so this is mostly experience talking. Having spent like the last 4 years of my life analyzing edges and so forth, my conclusion is that you really don't have much of an edge over hedge funds, etc. Like my question to you is, where do you see your money coming from?

Business wise... just keep trying :) Only need to "make it" once hehe. That's my favorite thing about businesses, you can just keep failing, but you just have to get it right once to make it big!

[Warren_Wong]

The main thing for me is - when I run a business, I know where my money comes from. I provide value to people who in turns gives me money for it.

When I invest in stocks based on analytical things.. what are you really providing to other people? All you're really doing is adding liquidity to the market, and there are already tons of people with multi billion dollar computer systems pounding out those edges.

In my experience, if you don't know where the value comes from, then you're bound to lose money. It's like poker.. if you don't know who the fish is, you're it :-)

[Max T]

Hmmm, so for reference, I have made a few hundred k playing poker and have lost 6 digits doing the "investing" thing, so this is mostly experience talking.

This is interesting- so it appears that personal experiences (my start-up failures, you losing six figures investing) polarise our views on investing and earning- we are squeezed to opposite ends yet both understand each other (I hope).

Ironically, poker teaches a valuable lesson for investing. When your card hand (and approximate mental card counting) suggests that the odds are heavily stacked in your favour, bet big.
Same with investing- when you find a company like Fiberweb (stock chart above) selling at half price, bet 1/10th of your stake on it.


Having spent like the last 4 years of my life analyzing edges and so forth, my conclusion is that you really don't have much of an edge over hedge funds, etc. Like my question to you is, where do you see your money coming from?
Oh I have a huge edge over hedge funds.
I'm only investing small amounts so can invest in companies like Fiberweb currently valued at £48m. No fund with >$1bn assets can go near this size of business.
Just like in business where small companies compete with large, there are niche areas in the stock market where the smaller investor can gain an 'edge'.

Buffett perhaps says it better:
"If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that."



One guy may begin with greater capital by starting a business, then it folds/ sold and they're too tired later in life to start again and so stay with 10% p.a. investment return... whilst another guy starts off slowly and just keep compounding 20%+ p.a. and gets better at it later in life.

So the longer the former lives, the less likely they can earn their money again (because start-ups is a young persons thing), but the longer the latter lives, the more cash they're generating. Time is on the side of the latter.

So the latter is more likely to return more cash to society.
In the meantime, by investing in dirt cheap companies, the value investor is ensuring the stock market system functions by preventing such companies from falling so low in market value that they break banking covenants, suffer working capital problems, supplier and customer relations problems, aggressive takeovers and so on.

Ethically and materially, you know where I am.

[Warren_Wong]

One guy may begin with greater capital by starting a business, then it folds/ sold and they're too tired later in life to start again and so stay with 10% p.a. investment return... whilst another guy starts off slowly and just keep compounding 20%+ p.a. and gets better at it later in life.

So the longer the former lives, the less likely they can earn their money again (because start-ups is a young persons thing), but the longer the latter lives, the more cash they're generating. Time is on the side of the latter.

So the latter is more likely to return more cash to society.
In the meantime, by investing in dirt cheap companies, the value investor is ensuring the stock market system functions by preventing such companies from falling so low in market value that they break banking covenants, suffer working capital problems, supplier and customer relations problems, aggressive takeovers and so on.

Ethically and materially, you know where I am.

Well, the current business I'm invovled is returning over 40%/year, not to mention growth. I mean, it's like investing in stocks, except it's just me, and I have a say in where the business goes. If you're investing in stocks, you have basically no control and have to place all your trust in some guy you don't know, and probably some business that you're not even familiar with. Well, unless you get like a 30% stake or something, which I might do if the business grows to be worth in the tens of millions...

[Max T]

Well, the current business I'm invovled is returning over 40%/year, not to mention growth. I mean, it's like investing in stocks, except it's just me, and I have a say in where the business goes. If you're investing in stocks, you have basically no control and have to place all your trust in some guy you don't know, and probably some business that you're not even familiar with. Well, unless you get like a 30% stake or something, which I might do if the business grows to be worth in the tens of millions...

That's a wonderful rate of return.
But think about this- no company is going to maintain 40% return unless its a Microsoft in early years etc.
Very likely, you'll have 40% return for at most the next few years than competitors enter the market and your competitive advantages decay. So in a few years your return on invested capital is likely to equal weighted average cost of capital. In a few year it is no longer creating excess free cash flow but produces a salary.

An investor on the other hand can maintain 20+% p.a. return on invested capital for the next 20 years. To achieve this, your company would be tremendous and v.v. rare. Probability <0.01%?


What you gain in control over the business, you lose in diversification of risk. If the company struggles, you're going down with it.

With a portfolio of 10 companies, I understand them better than most city analysts who have to cover say 30 stocks. And when one company falls... well that rarely happens since I bought at half price. Worst thing is I hold for 4 years and nothing happens.

[Max T]

Ultimately Warren, surely neither of our ways is better than the other.
For the next 10 yrs I'd prefer to be able to do what you're doing,
and in the next 20 years prefer to do what I'm doing.

Ideally, we'd be able to do what we're both doing, simultaneously, but this is virtually impossible to do!

[Warren_Wong]

That's a wonderful rate of return.
But think about this- no company is going to maintain 40% return unless its a Microsoft in early years etc.
Very likely, you'll have 40% return for at most the next few years than competitors enter the market and your competitive advantages decay. So in a few years your return on invested capital is likely to equal weighted average cost of capital. In a few year it is no longer creating excess free cash flow but produces a salary.

An investor on the other hand can maintain 20+% p.a. return on invested capital for the next 20 years. To achieve this, your company would be tremendous and v.v. rare. Probability <0.01%?


What you gain in control over the business, you lose in diversification of risk. If the company struggles, you're going down with it.

With a portfolio of 10 companies, I understand them better than most city analysts who have to cover say 30 stocks. And when one company falls... well that rarely happens since I bought at half price. Worst thing is I hold for 4 years and nothing happens.

Hmmmm that is a good point about diversification. There are some ways to minimize that of course, but yeah, definiately some disadvantages there.

Although, I don't I agree that my returns would decay within the next few years. 40% + in the 100k-1 million range is easily maintainable I think. If anything, my return should increase having more experience in the area, and hence gaining a competitive edge.

Obviously it'll slow down at some point, but I expect that to happen more around the low double digit million area. We'll see though hehe. Probably being optimistic :)

I guess my problem is how you can determine "half price", since you aren't completely sure how the company works (I'd assume) and what makes a successful business work. Valuation is based on your perception of how the company operates in the future, except I don't really see how anyone's perception can be accurate without having actually run such a business before...

[Warren_Wong]

Ultimately Warren, surely neither of our ways is better than the other.
For the next 10 yrs I'd prefer to be able to do what you're doing,
and in the next 20 years prefer to do what I'm doing.

Ideally, we'd be able to do what we're both doing, simultaneously, but this is virtually impossible to do!

I do agree with this though hehe.. after the first 10 years.. hopefully we'll be able to acquire some other companies to diversify :)

[GOD]

I completely agree. With all the time that people spend day trading and picking stocks, that time could be spent actively making money elsewhere. Like 15% of like 50k isn't really that much more than 10% of 50k. Unless you have like a couple million or more, it really doesn't make a whole lot of difference.

This is the biggest problem most high earners have. If you want to replace your day job with a business (start up or otherwise) you really need to make some serious cash.

As for indexed or otherwise returns. You might as well just pay your Mortgage off. The benefit is equivalent to pre tax earnings. Say your Mortgage is 6% and your tax marginal tax rate is 35%. Then the pre tax yield benefit is PV = i / (1 - t) or 9.23%. And ZERO RISK.

[Max T]

Obviously it'll slow down at some point, but I expect that to happen more around the low double digit million area. We'll see though hehe. Probably being optimistic :)

I guess my problem is how you can determine "half price", since you aren't completely sure how the company works (I'd assume) and what makes a successful business work. Valuation is based on your perception of how the company operates in the future, except I don't really see how anyone's perception can be accurate without having actually run such a business before...
In defense of your argument, you've supplied a bit of information to start a crude valuation of your company.

Value investors place heavyweight emphasis on the present and not the future.
As you rightly say- the future is too unpredictable.

Based on your reference to internet-based business and your age from your avatar and the high early-stage business returns of 40% and your 'increasing experience building the competitive advantage' suggesting a knowledge-ish business, I'm guessing it's an internet start-up operating for 1-2 years with very low net asset value (assuming it has more assets than liabilities). Say $20k for servers + some know how.
If a competitor were to start competing, this is what they'd have to borrow from the bank.

Now 40% profit return on those assets (dunno operating/ gross/ net) producing a range of $100k - $1m (assuming dollars) implies that you've found a little market arbitrage- like ShaiGar's business description, you're found a niche in the market and it might be a fleeting arbitrage before a large rival finds out and enters, but for now it's profitable.

So the free cash flow for this year could be say $100k (I don't know typical reinvestment rates (capex + working capital - depreciation) for internet start-ups).
So this year, $100k could be taken from the business and returned to all shareholders- you get some after the bank is paid.
Assuming no growth, multiply this $100k x 10 (dividend discount model-ignore the math)= $1m present value of future cash flows for 10 yrs. But we cannot assume any terminal value after 10 yrs- this is an assumed early-stage company so just add start-up cost so $1m + $20k =
$1.02m present value of future cash flows.

This is an optimistic valuation that assumes that rivals cannot enter and drive down returns to 10% p.a. (which roughly equals your cost of capital, so you're operating to pay the bank) and that your competitive advantages (be it low cost or differentiation) will remain perfectly intact.
Most likely barriers to entry and compet. advantages will fall. Rivals will see that for $20k start-up cost they can get future cash flows currrently worth $1m. That's a no-brainer decision- more co.s will enter until all their returns incl. yours drop down to 10% cost of capital and there is no incentive for more to enter= your present value of future cash flows become $20k start up cost.

So we've covered reproduction cost for a rival to start-up. Valuation = $20k
And crude discounted cash flow based on current situation. Valuation = $1020k
Now what about cash flows based on future potential by applying same compet. adv. within the impenetrable market? This is far removed from the present with such huge uncertainties that value investors would not consider it here (but would for Coca-cola and the like).

So two valuations. How much weight do we put on each?
What's the probability of the company having nil compet. adv. and low barriers to entry within the next 10 yrs- high probability so make it 80% chance.
Probability of retaining full monopolistic power over 10 yrs- in other words achieving same cash flows as currently at 40% return- 20% chance (that's generous).

80 + 20 probabilities =100% so we've covered "all" eventualities for the business over the next 10 yrs, placing greatest weight on the present.
$20k x 0.8 + $1020k x 0.2 = $16k + $204k = $220k.
Your company is worth $220k (its 'true value' based on the above).
If I were to buy the company, I'd want to pay $110k (half of $220k).
I'd then wait for the market to realise this is a cheap company and return it to its true value and then sell, doubling my investment.

Obviously don't be offended if this is too low a valuation- it's crude and I'd need 5 yrs of annual finances and be familiar with the industry and most importantly understand your competitive advantage producing the 40% return (assuming it's not 1 yr arbitrage).

Value investing seeks to minimise risk of loss and maximise positive future uncertainty.
The research you do today should pay off in 3 yrs time- you gather a pipeline of cheap companies.

[Max T]

This is the biggest problem most high earners have. If you want to replace your day job with a business (start up or otherwise) you really need to make some serious cash.

Absolutely.
Whilst we're talking about personal finances we have to be rational to make optimal decisions.
Key 2 criteria I've read- one from economics and one from psychology:
a. opportunity cost as GOD implies- what is the cost of not doing the next best thing. If running a business is more hours and less pay than the next best thing of a salary and the satisfaction doesn't bridge the gap, get out.

b. corrrectly anticipated regret- imagine what is the worst that could happen in the future if you made that decision- how would you feel? Now make the decision if you think you could "survive" that worst case.

Allied with using strengths and avoiding weaknesses, guess we could all find our optimal balance of investing and earning.

[Warren_Wong]

This is the biggest problem most high earners have. If you want to replace your day job with a business (start up or otherwise) you really need to make some serious cash.

As for indexed or otherwise returns. You might as well just pay your Mortgage off. The benefit is equivalent to pre tax earnings. Say your Mortgage is 6% and your tax marginal tax rate is 35%. Then the pre tax yield benefit is PV = i / (1 - t) or 9.23%. And ZERO RISK.

Well, right now it's more like 40% and my credit card debt is only like 3.4% :-D

Plus, in an index fund, if I leave it in there, it's basically tax deferred. I agree though.. otherwise the edge is kind of small for all that hassle.

[Warren_Wong]

In defense of your argument, you've supplied a bit of information to start a crude valuation of your company.

Value investors place heavyweight emphasis on the present and not the future.
As you rightly say- the future is too unpredictable.

Based on your reference to internet-based business and your age from your avatar and the high early-stage business returns of 40% and your 'increasing experience building the competitive advantage' suggesting a knowledge-ish business, I'm guessing it's an internet start-up operating for 1-2 years with very low net asset value (assuming it has more assets than liabilities). Say $20k for servers + some know how.
If a competitor were to start competing, this is what they'd have to borrow from the bank.

Now 40% profit return on those assets (dunno operating/ gross/ net) producing a range of $100k - $1m (assuming dollars) implies that you've found a little market arbitrage- like ShaiGar's business description, you're found a niche in the market and it might be a fleeting arbitrage before a large rival finds out and enters, but for now it's profitable.

So the free cash flow for this year could be say $100k (I don't know typical reinvestment rates (capex + working capital - depreciation) for internet start-ups).
So this year, $100k could be taken from the business and returned to all shareholders- you get some after the bank is paid.
Assuming no growth, multiply this $100k x 10 (dividend discount model-ignore the math)= $1m present value of future cash flows for 10 yrs. But we cannot assume any terminal value after 10 yrs- this is an assumed early-stage company so just add start-up cost so $1m + $20k =
$1.02m present value of future cash flows.

This is an optimistic valuation that assumes that rivals cannot enter and drive down returns to 10% p.a. (which roughly equals your cost of capital, so you're operating to pay the bank) and that your competitive advantages (be it low cost or differentiation) will remain perfectly intact.
Most likely barriers to entry and compet. advantages will fall. Rivals will see that for $20k start-up cost they can get future cash flows currrently worth $1m. That's a no-brainer decision- more co.s will enter until all their returns incl. yours drop down to 10% cost of capital and there is no incentive for more to enter= your present value of future cash flows become $20k start up cost.

So we've covered reproduction cost for a rival to start-up. Valuation = $20k
And crude discounted cash flow based on current situation. Valuation = $1020k
Now what about cash flows based on future potential by applying same compet. adv. within the impenetrable market? This is far removed from the present with such huge uncertainties that value investors would not consider it here (but would for Coca-cola and the like).

So two valuations. How much weight do we put on each?
What's the probability of the company having nil compet. adv. and low barriers to entry within the next 10 yrs- high probability so make it 80% chance.
Probability of retaining full monopolistic power over 10 yrs- in other words achieving same cash flows as currently at 40% return- 20% chance (that's generous).

80 + 20 probabilities =100% so we've covered "all" eventualities for the business over the next 10 yrs, placing greatest weight on the present.
$20k x 0.8 + $1020k x 0.2 = $16k + $204k = $220k.
Your company is worth $220k (its 'true value' based on the above).
If I were to buy the company, I'd want to pay $110k (half of $220k).
I'd then wait for the market to realise this is a cheap company and return it to its true value and then sell, doubling my investment.

Obviously don't be offended if this is too low a valuation- it's crude and I'd need 5 yrs of annual finances and be familiar with the industry and most importantly understand your competitive advantage producing the 40% return (assuming it's not 1 yr arbitrage).

Value investing seeks to minimise risk of loss and maximise positive future uncertainty.
The research you do today should pay off in 3 yrs time- you gather a pipeline of cheap companies.

Hehe, I think this is exactly my point. That's how companies look like when you don't know exactly what they're doing (as is the case here), so you make a lot of educated guesses. Except the start up cost isn't $20k, the barrier of entry only grows with time, and it's not arbitrage, etc. If you put all those errors together, then that valuation means almost nothing...

On the "inside" so to speak, you get to know exactly what is going on. Like what your competitive edge is, etc. and get a more accurate picture of what is going on.

To me, investing 'outside' of companies without having experience within the company is kind of like a box of black chocolates with some white ones in it. You say.. oh... there's like a 30% chance that this one I pick will be a white chocolate! Whereas, inside the company, you get to look at the chocolate first before making your decision.

[Max T]

I guess my problem is how you can determine "half price", since you aren't completely sure how the company works (I'd assume) and what makes a successful business work.
Well I endeavoured to show you how to determine half price with a simple illustration that, as a businessman, you should be able to relate to.

Hehe, I think this is exactly my point. That's how companies look like when you don't know exactly what they're doing (as is the case here), so you make a lot of educated guesses. Except the start up cost isn't $20k, the barrier of entry only grows with time, and it's not arbitrage, etc. If you put all those errors together, then that valuation means almost nothing...

On the "inside" so to speak, you get to know exactly what is going on. Like what your competitive edge is, etc. and get a more accurate picture of what is going on.

To me, investing 'outside' of companies without having experience within the company is kind of like a box of black chocolates with some white ones in it. You say.. oh... there's like a 30% chance that this one I pick will be a white chocolate! Whereas, inside the company, you get to look at the chocolate first before making your decision.

The chance of six figure investment losses that you've experienced can be eliminated by:
1. investing in businesses you understand well (leaves me with 1/5th of the stock market)
2. as in my illustration, placing heavyweight emphasis on the present and largely ignoring the future
3. recognising accounting tricks
4. being humble (and knowing the numerous biases that distort judgement) and
5. waiting for the company to be offered at half price. This completely negates the need for accurate valution, only for conservative valuation.


You have to keep investing back into the business irrespective of whether it's sliding downhill (unless you go into administration). You have to keep eating the chocolates.
In investing, I can wait and wait until I'm 99% certain that the chocolate (price) is right. Minimise risk and maximise positive uncertainty.

Obviously neither way- own business/ investing- is inherently a better route to freedom, but the pitfalls you describe to having 'imperfect knowledge' of a business can be overcome by an investor.

[Warren_Wong]

The chance of six figure investment losses that you've experienced can be eliminated by:
1. investing in businesses you understand well (leaves me with 1/5th of the stock market)
2. as in my illustration, placing heavyweight emphasis on the present and largely ignoring the future
3. recognising accounting tricks
4. being humble (and knowing the numerous biases that distort judgement) and
5. waiting for the company to be offered at half price. This completely negates the need for accurate valution, only for conservative valuation.

I dunno how well you can do #1 without having actually run the business, which affects basically 3 & 5 (kind of important).


You have to keep investing back into the business irrespective of whether it's sliding downhill (unless you go into administration). You have to keep eating the chocolates.
In investing, I can wait and wait until I'm 99% certain that the chocolate (price) is right. Minimise risk and maximise positive uncertainty.


You can always give up on the business if you don't think the market is there.

Obviously neither way- own business/ investing- is inherently a better route to freedom, but the pitfalls you describe to having 'imperfect knowledge' of a business can be overcome by an investor.


I don't see how... how can you gain experience in something that requires you to actually do it without actually doing it? It's like saying I understand having sex completely without having actually done it.

[Max T]

I don't see how... how can you gain experience in something that requires you to actually do it without actually doing it? It's like saying I understand having sex completely without having actually done it.

You're still in "if you don't run that business, you lack perfect information and should never invest in that business" mode.

I've explained from 2 angles why an investors does not need 'perfect information':
1. by showing a process to reach a perfectly rational and conservative valuation, based on analysing industry, rivals, customers, competitive advantage and financial reports (post 52).
2. by showing how the investor protects her/himself against investment losses possibly coming due to 'imperfect information' (post 56).


Now a third and fourth angle to explain why an investor can make a profit without having perfect information of actually running that specific business.


Third attempt- we'll invert the situation and consider why the actual business owner could not reach a more accurate valuation than an external, regular investor (although accuracy is not actually needed):
a. the business owner is more likely to make a grossly optimistic assessment of their business' value, since they're emotionally attached to the thing.The external investor knows through experience how to take a balanced analysis.
b. the business owner lacks any valuation experience- as much as you know about your business and all the minor little details, you do not know about valuation techniques and errors and sometimes can be blind to the real big issues affecting your business. You value the company based on what's in your head- investors value after speaking with your rivals and customers.
c. the business owner typically lacks the ability to compare their company with alternatives. Investors compare your company with other similar companies. You can only pick the chocolate whereas investors can pick a chocolate, a toffee, a walnut...


Fourth attempt- we'll cover why perfect information is both impossible and useless to investment requirements:
d. the outside investor understands that some information will always be impossible to gain (the business owner will just deceive themselves into thinking they know what their market will do next).
e. the outside investor know that company information decays rapidly over time- information from last month is likely useless now, and information about a year ahead could be very inaccurate.
f. the outside investor recognises that a perfect valuation based on perfect information would require so much time to compile that the opportunity to buy at an attractive price will likely disappear.


Finally, directors buying their own company's shares is a good sign to an outside investor. But we don't automatically mimic the directors and buy also, because directors (who know all the chocolates and had sex with the company!) frequently make terrible investment decisions with their own money.
They are not investors first and foremost, they are operators.

[INTJoe]

Guys, I know it's a little OT, but I have a question about the Roth IRA.

I know you can pull out your Contributions at any time for any reason, tax and penalty-free, but if you put in a $5K Contribution for 2008, and you need to pull it out for a downpayment, can you replenish the $5K by Tax Day 2009 (for 2008)?

For some reason I remember hearing that you could not replenish your Roth IRA once you've pulled out the Contributions. But perhaps I'm thinking of years past. In other words, say you took out $9K next year (07 & 08 Contribution), you could only replenish $5K, and not the full $9K because 4 of that came out of the 2007 contribution.

Any help on this? Thanks!

[Warren_Wong]

You're still in "if you don't run that business, you lack perfect information and should never invest in that business" mode.

I've explained from 2 angles why an investors does not need 'perfect information':
1. by showing a process to reach a perfectly rational and conservative valuation, based on analysing industry, rivals, customers, competitive advantage and financial reports (post 52).
2. by showing how the investor protects her/himself against investment losses possibly coming due to 'imperfect information' (post 56).


Now a third and fourth angle to explain why an investor can make a profit without having perfect information of actually running that specific business.


Third attempt- we'll invert the situation and consider why the actual business owner could not reach a more accurate valuation than an external, regular investor (although accuracy is not actually needed):
a. the business owner is more likely to make a grossly optimistic assessment of their business' value, since they're emotionally attached to the thing.The external investor knows through experience how to take a balanced analysis.
b. the business owner lacks any valuation experience- as much as you know about your business and all the minor little details, you do not know about valuation techniques and errors and sometimes can be blind to the real big issues affecting your business. You value the company based on what's in your head- investors value after speaking with your rivals and customers.
c. the business owner typically lacks the ability to compare their company with alternatives. Investors compare your company with other similar companies. You can only pick the chocolate whereas investors can pick a chocolate, a toffee, a walnut...


Fourth attempt- we'll cover why perfect information is both impossible and useless to investment requirements:
d. the outside investor understands that some information will always be impossible to gain (the business owner will just deceive themselves into thinking they know what their market will do next).
e. the outside investor know that company information decays rapidly over time- information from last month is likely useless now, and information about a year ahead could be very inaccurate.
f. the outside investor recognises that a perfect valuation based on perfect information would require so much time to compile that the opportunity to buy at an attractive price will likely disappear.


Finally, directors buying their own company's shares is a good sign to an outside investor. But we don't automatically mimic the directors and buy also, because directors (who know all the chocolates and had sex with the company!) frequently make terrible investment decisions with their own money.
They are not investors first and foremost, they are operators.


For 1: The process is very flawed without an accurate understanding of how businesses work. Plus, this "process" is available to everyone, thereby not really giving a significant edge. That is why I submit this "process" has a margin of error so big that it's completely useless. (FYI, this isn't random BS, I have taken graduate level investment courses in Stanford and gotten As in them so...)

For 2: I agree with the diversification bit, although, it doesn't mean the business can't diversify within itself also. These issues aren't really different from the person within the business. Business owners are investors themselves after all. This diversifying and protecting from mistake would be more easily done from within the business I'd say.

For 3: Again, you seem to think the business owner is some blockhead who has no financial or valuation knowledge, which is simply completely untrue. If anything, the business owner knows more about the valuation of their own company than anyone else. At least, I definiately know much much more about the valuation of my business than I would've if I was on the outside. It's much easier to value like a widget when you've tried to sell it to 100 people and seen their reactions, or when you've spent months trying to sell your company.

For 4: Again, you're implying that the business owners are somehow misinformed or doesn't have the "experience" that outside investors do, which is just not true. In my mind, business owners and investors are pretty much exactly the same, except the business owner has more information in their particular case.



Come to think of it, I think it depends on what the type of business you're running is. I think I'm thinking more of like Buffet, and you're thinking more like a flower store or something...

[Warren_Wong]

Guys, I know it's a little OT, but I have a question about the Roth IRA.

I know you can pull out your Contributions at any time for any reason, tax and penalty-free, but if you put in a $5K Contribution for 2008, and you need to pull it out for a downpayment, can you replenish the $5K by Tax Day 2009 (for 2008)?

For some reason I remember hearing that you could not replenish your Roth IRA once you've pulled out the Contributions. But perhaps I'm thinking of years past. In other words, say you took out $9K next year (07 & 08 Contribution), you could only replenish $5K, and not the full $9K because 4 of that came out of the 2007 contribution.

Any help on this? Thanks!

Hmmmm, not totally sure about that...

Seems like you should be able to, since it doesn't cost the government anything (it'd be like if you just put it in later...)

[INTJoe]

Yeah the reason I ask is because I'm planning on buying a home in 2009, but if the prices keep falling like they have been in my market, I may pull the trigger earlier and buy in 2008 if I feel it's bottomed out. I was going to throw the max. in for myself and my gf on Jan. 1, but if I can't replenish it if I pull it out, I may keep it out in case I want it for downpayment. Then I'd have time to get the '08 contribution in by Tax day 2009.

I need to find out, because the difference between the return on my Roth investment and FNBO Direct e-savings is obviously pretty substantial. It doesn't seem like it should be a problem, as you say, it wouldn't affect the governement, or anybody really. It just seems like I read that somewhere. I need to ask my INTP investing friend, because he actually took the time to buy a book on Roth IRAs and read it. :)

[Max T]

INTJoe- I know nothing about Roth IRA.

For 1: The process is very flawed without an accurate understanding of how businesses work. Plus, this "process" is available to everyone, thereby not really giving a significant edge. That is why I submit this "process" has a margin of error so big that it's completely useless. (FYI, this isn't random BS, I have taken graduate level investment courses in Stanford and gotten As in them so...)

Thank God the intelligent students from Stanford don't follow the valuation process I describe!

To confess, the valuation process I demonstrated to you was largely learnt from Columbia Business School:
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I didn't study there- they likely wouldn't accept me. But these two great sites provide a top quality free education on valuing businesses- you can even download their lectures to take notes from!


Come to think of it, I think it depends on what the type of business you're running is. I think I'm thinking more of like Buffet, and you're thinking more like a flower store or something...
This insult suggests that your mind is firmly closed to my view that an outsider can profit from investing in a company without having perfect information, and that perfect information can actually harm investment returns. Guess that's the end to our discussion.

[Happydayz]

well, I believe in efficient markets. So almost all of my investments are in the S&P 500 or other market following index funds.

I do believe that it is possible to get outsized gains from the market, however it is extraordinarily difficult to do this year to year and over time there is a definite regression to the mean. There are a HANDFUL of people who manage to consistently beat the market, Warren Buffet being the most noticeable. However I'm hesitant to invest in his company given that I have a buy and hold mentality and frankly Mr. Buffet is getting up there in age. No idea what will happen to Berkshire Hathaway once he retires/dies.

[GOD]

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10.

The villagers seeing that there were many monkeys around, went out to the forest and started catching them.

The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer rate increased to $25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $100! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers. Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $75 and when the man returns from the city, you can sell it to him for $100 ."

The villagers squeezed up with all their savings and bought all the monkeys.

Then they never saw the man nor his assistant, only monkeys everywhere!! !

Welcome to the "Stock" Market!!!

[Max T]

well, I believe in efficient markets. So almost all of my investments are in the S&P 500 or other market following index funds.

Paradoxically, the more money that goes into index funds, the more inefficient the market becomes, as fewer and fewer investors bother to perform fundamental analysis.

So, if everyone indexed, all share prices would be fixed at that price forever since there'd be no-one to move them!


I do believe that it is possible to get outsized gains from the market, however it is extraordinarily difficult to do this year to year and over time there is a definite regression to the mean.
Agree- the investor's average annual % return will revert to market mean over the decades, as your sum eventually represents a greater % of the market and you have to invest in the efficiently-priced blue chips (unless you buy small businesses outright as Buffett).

Until that point, the investor's aggregate (sum) % return will logically widen from the market aggregate % return (albeit at an increasingly slower annual rate).

And so the investor's annual monetary gain will avert from the annual gain produced by the market index, at an increasing rate ('though not exponentially).



Even efficient market supporter William Sharpe (1990 Nobel winner) admitted:
"I still think it's prudent to assume that the market is pretty close to efficient in terms of pricing and risk and return and all that”.
Pretty close, say 98% of the time, but based on power of compounding, I think it's worth the effort to exploit the 2% when the market gets it completely wrong.

[INTJoe]

Man, those villagers are pretty dumb.

[Warren_Wong]

This insult suggests that your mind is firmly closed to my view that an outsider can profit from investing in a company without having perfect information, and that perfect information can actually harm investment returns. Guess that's the end to our discussion.

It's really not an insult. That's just my perception of how you see businesses. I was just making a point that you seem to see businesses differently from me - which is just a vehicle for investing with more information.

As for perfect information, you can't get harmed by having more information. You can always ignore it. If you aren't able to do that, that's not the information's fault...

[Warren_Wong]

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10.

The villagers seeing that there were many monkeys around, went out to the forest and started catching them.

The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer rate increased to $25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $100! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers. Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $75 and when the man returns from the city, you can sell it to him for $100 ."

The villagers squeezed up with all their savings and bought all the monkeys.

Then they never saw the man nor his assistant, only monkeys everywhere!! !

Welcome to the "Stock" Market!!!

Hahaha!! Good one :-P

That's why you need to know where the $$ is coming from hehe!

[banzai]

Unprofessionally, but yes

Why wouldn't anyone? It seems silly.

[GOD]

Man, those villagers are pretty dumb.

The General public is pretty dumb.

They buy shares in companies when they don't even understand the financials. They buy shares in IPO's when the advisor is also the recipient of an underwriting fee for the placement...

My guess is that there's going to be a huge shake out in the Chinese Stock market and if that happens in 2008 coupled with the US slowdown... there will be some serious blood letting...

[Max T]

My guess is that there's going to be a huge shake out in the Chinese Stock market and if that happens in 2008 coupled with the US slowdown... there will be some serious blood letting...
Absolutely.

In the late 1960s Polaroid had a price/earnings multiple of 100 (in 100yrs the earnings will amount to the price, all things equal)- next year dropped by 90%

In the 2001 dot.com boom, the likes of Webvan.com went to 100 p/e- now gone.

Last month, Alibaba.com (like a mediocre ebay for business people in China) launched and had a 300 p/e on the Hong Kong stock market.

Shanghai index attached:

[Henry]

My guess is that there's going to be a huge shake out in the Chinese Stock market and if that happens in 2008 coupled with the US slowdown... there will be some serious blood letting...

Won't be as bad as you think. Bernake is a dove. China is, from a fundamental perspective, macroeconomically very solid, even if they have an absurd stock bubble that makes the US tech bubble diminutive by comparison. Worst case is a slowdown in the US, which would help get rid of the inflationary pressures we have, and Chinese recession, which would likely be disinflationary in the US as well.

[Mason]

To summarize all of the above posts... Two words: Index funds.

[elsdfr]

To summarize all of the above posts... Two words: Index funds.



By all means save your pennies, learn nothing of the market or your emotions V money over time and then plunge it all your hard earned into the next boom only to lose your shirt like all the rest of leemings... seriously, the market needs you.

If the shoes fit, wear them.. by all means. But one size doesn't fit all, especially in the investment world.

[Cyrus]

Hello all,

you guys might wanna check out this link
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apparently Buffet, Soros and other top notch people are INTJ or other NT type cousins.

I'm not too sure about indexing and market efficiency. To be perfectly honest, after sitting on a dealing desk during internship, I'm not quite a believer of efficient markets. The chief's biggest take was $1.6 billion in ONE day.
He also made $30m for his personal account in a span of 2 weeks. This was 2 months back. Efficient? I'm not sure. Not for him @ least.

"You can't beat the market" Sounds like a cop out to me. Paul Samuelson, founding father of the Efficient Market Hypothesis (EMH) and today's school of [can't rememb e exact word. but it means math based] economics, chucked a ton of $$$ with Buffet just before embarking on his EMH rant to the world.

IMHO: Markets are made of people (controlling $1k or $1000k, but still people) People are not perfect. We all have tempers, flaws, tired days, etc.
Markets can't be perfect, but instead reflect a good amount of biases inherent in human nature.
I believe the key to making money in the markets is personal mastery + a good dose technical knowledge.

One size doesn't fit all, but as Bruce Lee said, "Absorb what is useful, discard what is useless and add what is specifically your own"
Takes alot of effort, but I think that's something an INTJ doesn't quite bother with as long as there's mental challenge and a big fat reward at the end.

Cy

[Henry]

apparently Buffet, Soros and other top notch people are INTJ or other NT type cousins.

Buffet is not an N. He's an S. All the way. He has a well developed macro sense, but he's all about what's actual, not about what's possible. Simple words. Transparency. Makes or breaks deals on details. Kiersey has him as model ISTJ and I agree 100%.

[INTroJect]

Yes I enjoy investing and closely follow the 'value' investing discipline.
The UK market is quite overpriced (bull run for the past 5 yrs) so very few companies are selling at half price at the moment, so mainly in cash, waiting for the next correction/ crash.

I waffle here:
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... about value investing and how it fits the INTJ mentality very well.

Value investing requires going against the herd, and by buying $1 companies for 50 cents, you not only minimise risk (of further decline) but also maximise gains.
And for small investors with comparatively little money, we can invest where the market is most inefficient and therefore opportunities abound- the smaller companies.

The stock market system, big picture analysis of companies and behavioural finance aspects are fascinating.
I recommend value investing to any business-minded INTJ.

Hello Max T, can we talk abotu this sometime outside of this forum? My mind and temperment are natural for value investing. I have been studying company annual reports but for some reason I am not able to get a feeling that I have a good enough grasp of the company or to know what level is cheap enough. My readings on investing have been extensive: Warren Buffett's letters, Peter Lynch, B Graham, Mohnish Pabrai (even managed to get him on the phone once and tried to hound him with questions but eventually ended with "Well thanks for your interest" <click>), Joel Greenblatt, Swensen (a little of him) they are the only investors that I can think of off of the top of my head but I also read a lot of business books and bios/autobios of rich people like Carnegie, Rockerfellar, B.Franklin, Astor, etc.

What happens in my research is I can spend weeks reading on a company and there is always this feeling that I am missing something. It could be a good thing to feel that way becasue it causes me to keep digging but I am not sure when enough is enough. There have been plenty of times when I am researching a company, find the tiniest thing wrong wiht it and then toss it aside only to watch it as it subsequently goes up. And the other concern is that I dont seem to focus into the numbers as much as it seems other investors do. I go through the statements and the notes and get a feel for things but if someoen were to ask me to repeat the numbers, I just cant manage to do it for some reason. Nor connect a sure good/bad feel for what I am reading.

I think I may want to spend some time digging into the subject with someone to see if, despite my understanding and temperment for value investing, there is something with my inherent design that I'm just not seeing things as clear in that realm as I would like. For example, from reading buffetts letters and lowenstein's bio on him it seems like the good ones swim in the numbers and the connections between all of them and can come to important conclusions (like able to tell if the company is making things up). I have not been able to get past "Ok, This number is X and that number is Y...super duper" And nothing further. Maybe because I have only studied the top .001% of investors I am expecting the same of myself?

I am good at telling who is a good investment manager based on knowing Buffett/Pabrai/etc and looking at their buying, selling and reasoning for it. But, of course, it is always history by the time we can see what they are doing.

[Hdier]

I'm going to dabble in investing when I get out of college (currently in High School), though I'm an F rather than a T. I have a high T, though.

[Max T]

Buffet is not an N. He's an S.
Yes I've read elsewhere that Buffett is an ISTJ... can't be perfect, eh! :-)


[INTJ] Charlie Munger - Buffett's co-chair of Berkshire. I really think he is.


Yes agree Munger could be an INTJ:
1. Munger's book "Poor Charlie's Almanac" covers his INTJesque self-taught multiple mental models (such as cognitive persuasion in psychology, normal distribution in stats, reversion to the mean in economics) that are useful to approach many situations.

2. Said by colleagues to "go through life to his own drum beat".

3. When asked by a stranger to sum up in one word the key to investing success, he just said: "rational... be rational".

4. Known to be a bit blunt and a little aloof, is loyal to only a few people and is referred to by his kids when young as a 'book with legs'.

Hello Max T, can we talk about this sometime outside of this forum? .
I'd prefer to cover it here if OK.
Saves checking multiple message boxes and info can be shared with others if they like. Caveat- advice only applies to value investing research.

I have been studying company annual reports but for some reason I am not able to get a feeling that I have a good enough grasp of the company or to know what level is cheap enough....
What happens in my research is I can spend weeks reading on a company and there is always this feeling that I am missing something.

Yes I have done exactly the same- overresearching.

First, our research goal is to determine the company's intrinsic value. All that matters is to be conservative in your intrinsic value estimate, not accurate.
Greenwalds' "Value investing: Buffett and beyond" has a brilliant chapter on estimating intrinsic.

Secondly, reasons why days of research (beyond say max 14 hours) is not only unnecessary but harmful:
-Pareto's 80:20 rule applies hugely to researching a stock: only a few issues (say <6) really impact the company at present or in future. Examine those few key variables.
-Add discipline to research via using a checklist of things to briefly examine. If the co. fails one, don't make that a deal breaker but note it as something to monitor during ownership if buying.
-Pabrai and Buffett refer to picking value investments that scream "cheap". 2 inch putts. If it's taking days to study a company, then it isn't an obviously half-priced stock.
-Margin of safety [of say 50% discount] does away with the need to be accurate, so says Ben Graham the founder of value investing.
-Buffett's circle of competence: if you're having to research for hours a company, it is likely out of your circle of competence. Drop it. I only consider 1/6th of all listed sectors.
-Studies show that more research beyond a point only increases confidence, but not accuracy. We all suffer bounded/limited rationality.
-If a company is so complicated it needs days of researching, it will be difficult to follow once owned and problems can be better hidden. A complex company has too many variables are at play undermining your conservative intrinsic estimate.
-Be quick to drop a company during the research: Buffett says 'if you're not willing to own for 10 yrs don't research for 10 mins'.
-The more you research a company, the greater your vulnerability to the psychological bias "endowment effect”= you've put in so much effort you become determined to own a part, regardless.
-Another cognitive trait: humans can optimally process 7+/-2 chunks of information. If you have found 20 chunks, the intrinsic value estimate will be difficult to judge.
-Information is time-sensitive: it decays in value over time. Info from say 18 mths ago has little impact on the future.
-Lynch and Buffett: "the investment's rationale/thesis should be summed up in a single sentence that a kid could understand".
-Einstein: "simplify as much as possible and no more".
-A company may be a buy opportunity cos the market struggles to understand a key issue (say a hi tech part). This still does not justify days of research but only very focussed examination of that one key area.
-Perfect information not = profit. This sounds weird given the EMH thinking that all information is factored into the price, but perfect info not=profit since it's unattainable.
-Leading from this, striving to gain perfect info will lead to opportunities missed in the market. By the time you know all re. the company, other investors see the mispricing and the price goes up.

Having said all that, it's better to err on too much than too little. But it's not quantity of research that really matters, but quality via multi-perspectives.


For better research I've learnt to:
-study what is and not what could be. This is S thinking and not N, so don't do what I've done which is paint rosy pictures of what could happen.
-understand the (irrational) views of the market. What info has sent the price down?
-research the risk of loss you face as well as the intrinsic value estimate. What's worst case? This is key since sometimes a company only becomes dirt cheap cos the market has v. little clue about its future, but equally that there is close to nil probability of further loss. Buy something that really cannot go much cheaper and has huge positive uncertainty.
-Use filters. Big filter first: a free online screening service to filter all with say P/E <3. Of those 10/20/30 co.s in each filter, quick 2 minute check on 5yr financials to see if it's in long-term sales/margin decline or real bad balance sheet (drop). Another 2 minutes to see if in circle of competence (drop). 10 mins examining the reasons for its declining share price;serious long term sustainable implications? (drop). Quick 2 min estimate of its intrinsic value (book value or current discounted cash flow x 10)= share price at half of intrinsic? no (put on watchlist).
So just a few companies each year become investment opportunities.



And the other concern is that I don’t seem to focus into the numbers as much as it seems other investors do. I go through the statements and the notes and get a feel for things but if someone were to ask me to repeat the numbers, I just cant manage to do it for some reason. Nor connect a sure good/bad feel for what I am reading.

Yep, been there too and I've made hideous decision due to financials naivety.
Like any research, you'll get over a hump when suddenly it all fits in place and you read the story of the company in numbers. FYI it took me a year of study.

It's a big topic to cover here, so here's advice on how to approach self-study; small chunks. Sorry in advance if this is too basic.

3 financial statements: profit/loss, balance sheet and cash flow statement.

First get familiar with the profit/loss statement; the operating, gross and net margin and sales stuff.
Second get familiar with the balance sheet; the assets create the profit/loss sales, these assets are funded by both debt and shareholders money (equity), and assets minus debt= equity.
Third, get familiar with the metrics that join the balance sheet and profit/loss sheet: Return on Assets, R on Invested Capital (ROIC) and R on Equity.

Fourth, get familiar with ROIC </> cost of capital (weighted average c of c).
If the company borrows $100m debt, pays $10m interest on the debt p.a. (10%WACC) and only earns $9m return on its invested capital (the debt) = it is destroying intrinsic value. Majority of investors don't understand this. Companies can buy growth via more debt and yet actually lower their intrinsic value.

Fifth, get familiar with discounted cash flows. Net operating profit after tax (NOPAT) plus depreciation minus capital expenditure and minus increase in change in working capital. It's the real cash that the company can use for growth/ dividend/ retaining in balance sheet.

Join 4th and 5th points: A company sees another getting excess returns (ROIC>WACC) above cost of capital. That company enters the market and increased competition drives down margins. More enter until ROIC=WACC and lowers cash flows until the discounted future cash flows equal the start-up costs. Now, no more companies are attracted to enter the market because the cost to startup and buy the assets (balance sheet) = the future cash flows (profit/loss statement and cash flow statement) expected out of the business.

Say 60% of all listed companies have ROIC=WACC. 20% are in long-term decline (ROIC<WACC) and 20% have genuine competitive advantages (moat) providing ROIC>WACC.

So one company's financials tell a story about the market they compete in.
Feel free to ask any other questions TheLoneINTJ.

[RickJames]

Hello. I just joined today and naturally ended up here :).

I myself am a value investor and have been studying WEB and Value Investing for some time now. I do believe in efficient markets: I just don't believe they are instantaneously efficient. I think that the market naturally swells and shrinks towards and away from equilibrium. Over time, the market reaches this equilibrium but never remains there... I wonder if I'm making sense?


Try to visualize a pendulum. When the pendulum is perfectly still (90 degrees) that is equilibrium. Now put the thing in motion. It will always go towards equilibrium one way or another. The two ends reflect extremes... out of favor and red hot popular. Many stocks swing from one extreme to another... and unpredictably (maybe a pendulum wasn't a good example?)


A poster mentioned that PhDs and MBAs that run funds are much smarter than laymen and since they cannot consistently beat the market, nobody can. These intelligent individuals have their hands tied because they must meet quarterly targets and their constituents can pull out their money at almost any time. If the stock market were to jolt down 10% in a very short time, many fund investors would be scared and would close our their positions. This would force the fund managers to liquidate assets to payout the investors... whether they wanted to or not! This makes most investment funds very short term minded.


I am a firm believer that successful investing depends heavily on temperament. Intelligence helps, but temperament (ie patience and steadfastness) are more important. You can significantly beat the market... you just need an iron stomach. Warren Buffett has had his purchases drop by 50% after he purchased them... only to watch them skyrocket years later.


Buy when everyone is selling. Sell when everyone is buying. It seems easy... but its not!


ALSO
Benefits of investing vs business

If you hold your stock for > 1 year, you are taxed @ 15% of gains. All gains are tax deferred until date of sale.

Businesses pay their respective marginal tax rates which can reach ~40%. While running a business, you are also exposing yourself to all sorts of liabilities (whether you are LLC, C, LLP, LP, etc).



Here is a great link that some of you might enjoy:
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[Max T]

What I found so confusing in the past is that there are different versions of value investing.
Broadly speaking, these are:

Modern Buffett, Robert Hagstrom, Munger advise buying great companies at 30% margin of safety (i.e. discount from intrinisc) and hold forever (>7 yrs).

Pre 1980s Buffett, Pabrai and Ben Graham advise buying mediocre companies at 50% margin of safety and sell immediately they reach intrinsic (normally <3yrs).

TheLoneINTJ- having said that companies only need say 14hrs research max, this only applies to the latter type of value investing.

RickJames- welcome another value guy! Like your pendulum description.
I also think that by investing in very inefficiently priced (half price) companies that will eventually return (upwards) to efficiency, it leads to a portfolio which is detached from the market. In effect, you're skimming off the very few companies that are way out of whack from reality (efficiency), so the fund doesn't move at all like the market.


Book recommendation- Seth Klarman's Margin of Safety.
This 25yr old Harvard MBA grad starts a family fund (Baupost Group), achieves 20% p.a. net return over 20 yrs, writes a book in 1991, never publishes a second edition and now it is the most commonly stolen US library book, selling on Amazon for c. $1500. You can occasionally buy the photocopied pages on eBay for $100. The book perfectly describes modern value investing- some hedge fund managers swear by it.

[rocksteady]

Book recommendation- Seth Klarman's Margin of Safety.
This 25yr old Harvard MBA grad starts a family fund (Baupost Group), achieves 20% p.a. net return over 20 yrs, writes a book in 1991, never publishes a second edition and now it is the most commonly stolen US library book, selling on Amazon for c. $1500. You can occasionally buy the photocopied pages on eBay for $100. The book perfectly describes modern value investing- some hedge fund managers swear by it.


looks like I will need some decent returns to afford that book!

I am ordering the Greenblatt book, would like to get a few more recommendations....

[bladeserver]

This thread seems to be dormant but I can add a little to the debate. I am an intj hedge fund manager and have been, with some degree of success, for 20 years. I am UK educated, US based and a pure value guy. I take freely from new and old value and also have my own niches but I am closer to Graham than Buffet.
I have the Klarman book and it is, indeed, wonderful although it is hardly light reading :). For the neophytes I woulld recommend Grahams "The intelligent investor" which I believe is still the best book on investing that I have ever read.
I cannot speak, obviously, for other INTJ's but i find myself ideally suited to running a value fund (which is just as well as I can't imagine being competent or enjoying too many other careers ;) ).

[thod]

I am an INTP which probably explains why I get it wrong as much as right. The single best strategy I have found is jumping on the bandwagon with everyone else. The trick is trying to figure out if too late to jump on and when to jump off before they do.

Value investing seems so logical I can see the appeal. However it doesn't seem to work for me. The other people are too stupid to see thats it good value and bid it up.

[nonentropic]

Hi, all

Stocks, anyone?

Just wondering whether it is an INTJ thing or just me.

As time permits, I play with an online stock trading service...buying and selling.

If there are others, do you care to trade experiences, picks, and strategies?

I have one stock that I watch like a hawk. If others have interest, I'll share as well.

yeah, i know a good deal about these things. i am only really interested in holding some silver and gold in physical posession at this time (perhaps some palladium...it should go up because platinum is so high now...eventually...and for other reasons which follow). too much inflation in the world's fiat currencies. too much manipulation for gain up & down also (ethically i have severe problems with the idea/concept and acts that are classified as "short-selling"). far too much "leveraging" (don't believe this is ethical either) from all directions within the systems/the primary example: banks. systemically...world-wide there are problems...big ones imo. remember this (it is my own quote/perception and understanding)... in essence: "money does no work...people do all the work...credit given to god/nature and/or whatever else when it is due"

[INTJoe]

For the neophytes I woulld recommend Grahams "The intelligent investor" which I believe is still the best book on investing that I have ever read.

ARRGGGG!! I got this book from my gf for my birthday back in March, but haven't allowed myself to read it until I'm finished with the studying I'm doing for my career. Some nights I want to bust it open, but I know I'll forget about my "priorities". Sadly, this means I won't be able to touch the book until about mid-July.

I have read most of The Millionaire Next Door, which is a simple book to read, but a lot of fun and it really goes a long way in explaining what is wrong with the typical American's spending habits.

Good bump, btw. This thread should be close to the top of the forum. If this thread picks up steam, I'd like to Sticky it eventually.

[Max T]

Hi bladeserver. Could you give a little advice?
I manage sub $1m of family savings and a pension in a 7-holding value portfolio.
1/7th (14%) is nearly always in cash, waiting. Over the past year, a further 2/7ths have also been in cash, making 3/7ths or 42% held in cash, the reason being because I can't find investments at 50%+ margin of safety ('though quite a few at 30% and 40%).

Trouble is, I've only 3 yrs value experience, so lack the long term judgement to know whether my cash holding % is a. sensibly cautious esp. given the 5 yr bull rally or b. overly cautious and dampening returns.

Supporting "a.sensibly cautious", Klarman says nothing wrong with being up to 40% in cash when no opportunities arise. And given just 3 yrs experience, perhaps more opportunities will appear with greater experience. But he's managing billions and so faces fewer opportunities than I.

Supporting "b. overly cautious", Buffett says if managing sub $1m he would be fully invested (see To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.). If the % cash being held is governed by the number of opportunities you identify, then surely with my tiny capital and subsequent ability to invest in small $10m caps, I should find sufficient opportunities to be fully invested (aside from the 1/7th always in cash). But Buffett's obviously in a class of his own.

Given my circumstances, do you think I should be fully invested to maximise returns, or would you advise that I be cautious and preserve capital at this early stage whilst gradually building the ability to identify opportunities, to then be fully invested a few years from now?

Many thanks in advance.

ARRGGGG!! I got this book [The Intelligent Investor] from my gf for my birthday back in March, but haven't allowed myself to read it until I'm finished with the studying I'm doing for my career. Some nights I want to bust it open, but I know I'll forget about my "priorities". Sadly, this means I won't be able to touch the book until about mid-July.

Buffett advises that you read these chapters INTJoe:
Chapter 8- because it helps you to avoid the one mistake virtually all early stage investors get sucked into, which is to largely ignore the market and use it only for the purpose of buying at one price and selling at another price. The market has no other purpose.

ch 1- because it touches on what true investing involves- buying a part of a business.

ch 20- describes the major finding by Graham: that a margin of safety (i.e. buying at a discount to the true company's worth) is central to investing.

I personally found the others sections on bonds and 'enterprising/ defensive investor policy' a little perplexing.

Next, Pabrai's 'The Dhandho Investor' is a great primer on modern value investing.

And then Greenwald's 'Value Investing: From Graham to Buffett and Beyond'- teaches how to determine intrinsic value (i.e. company's true value), of which much of value investing hangs off. After all, Buffett once said if he taught a course (he did at 21 yrs) he would just go through case study after case study determining intrinsic value of companies.

[bladeserver]

Max:

I don't want to get into specifics for 2 reasons - that I don't know your individual circumstances and, of equal importance, that my portfolio is constantly being modified and my views at the end of May might be not represenative of my position in July.

But i can add some general things that you might find useful. My hedge fund is small (by choice) at $125 mill. but i certainly don't have the range of opportunity that is available to you. I obviously don't have buffett's problems but size IS an impediment. I am managing my money but also other peoples money and I find, even with these experienced value investors, that they do not have my level of patience. Over many years I have learned that -10% in a 12 month period is the limit of their pain threshold so this certainly modifies my behaviour. Accordingly I rarely have more than 50 - 60% in value equities with the balance in a variety of, hopefully, uncorrleated arbitrages, reorgs etc. Marty whitman at Third avenue runs a fund that has similar characteristics and so did max heine and then Mike price with Mutual Shares.
A site that you might find of interest for a variety of reasons is gurufocus. com which is a free site dedicated to actual portfolio movements by the best value investors in the country. Obviously you will have your own favorites but i have always admired the folks at oakwood, longleaf, seth Klarman, marty whitman, ruane cunniff and the kahns.

As for value criteria - I always keep with my discipline and if opportunities arent available those funds wander into arb.opportunities etc or simply stay in cash.
Commentators - a fellow countryman Grantham at gmo.com is always thought provoking and usually right.

Hope this helps. Cheers Mike

[Max T]

Accordingly I rarely have more than 50 - 60% in value equities with the balance in a variety of, hopefully, uncorrleated arbitrages, reorgs etc.
Marty whitman at Third avenue runs a fund that has similar characteristics and so did max heine and then Mike price with Mutual Shares.

Yes I gather that Buffett did the same in the 50s-60s with a portion of funds in workouts and arbitrages. It appears to be a way of achieving a fairly consistent 20% p.a. but I lack the knowledge for now.

I thought about doing similar by putting 33% of funds in stocks at 2/3rds of net net working capital- it used to achieve 20% p.a. for Graham but critically it needs 20+ holdings (to offset the bankruptcies) and I can't find that many (and they'd correlate too much with market downturns).

You mention Price- check out his lecture here: To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.
Especially on how he scours the WSJ for cheap stocks.

Akin to gurufocus for ideas, you've visited this?
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As for value criteria - I always keep with my discipline and if opportunities arent available those funds wander into arb.opportunities etc or simply stay in cash.
Yes 'style drift' into other areas can be a real curse apparently. Guess I'll just wait- the opportunities will come.


You mention client pain threshold and gurufocus.
I've weaned my family off knowing their holdings and just give them a biannual NAV, as it affords independent freedom to change my mind (and reduces their stress- it aint a spectator sport).
But when reading some of these value blogs and sites, the private investors who publicly state their holding I feel are doing a real injustice to themselves (for example To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.). Because they end up becoming heavily emotionally attached to their holding and so losing that all important objectivity.

[SirJac]

I see the draw of value investing and I've been pretty good at it but my method of preference is the top down method. I'm moderately capable of judging intristic value of companies but I'm far better at predicting trends and events early and using that as my method of choosing stocks.

First I look at global events and try to judge externalities that could occur. Once I've found plausible externalities, I watch for expected fluctuations as evidence that the externality I predicted is indeed having an effect. From that I can predict the magnitude and start looking at industries that will be effected positively or negatively. Once I've narrowed down which industries will be most effected, I tend to take a basket investment of the large cap companies in that industries to mitigate risk of individual risk in a particular company and ride the trend as far as I believe that it will carry and start looking for an exit price when it starts getting too popular and the stock price is driven by momentum instead of the trend itself.

I'll accept higher risk in the form of less diversity in industries that I know very well which tends to do well for me. I also look at longer term trends and research small cap companies in the effected industries as they tend to get fantastic long term growth if you do your homework first.

I havn't had much opportunity to make real benifit from my technique yet, but I've been testing it of practice portfolios for about 4 years and have managed to sustain 40% or better annually. I would have done alot better if I knew as much about shorts as I do now but I wasn't comfortable with my lack of knowlage so I only played growth positions.

In any case, I find the top down method for picking stocks is definately my favorite. Not that I ignore value investing either, being compitent with both is ideal to minimize risk while maximising growth, and my top performing stocks have been the value stocks in the industries that I've anticipated are in line for a growth trend.

Always important to have a couple backups though to move money to if needed. So even though I only hold stocks in a handful of companies, I still keep up to date on probably 3x as many as backups. Not to mention knowing where your money is safe in the case of a major economic downturn is prudent planning. If nothing else, Berkshire Hathaway is a great place to have money when people get scared because everyone trusts Buffett when things look bad and it tends to move inversely when people are seeing bears elsewhere.

[augustus]

I am new to the INTJ forum but its good to see a thread for investing.

Love investment. I am a growth investor like Buffet. I like to hold a few outstanding stocks for ever.

[sam988]

What do you guys think about Greenblatt's magic formula in "the Little Book that Beats the Market"?

It's said that his "magic formula" did pretty bad for the last 2 and a half years, since people started testing it. I myself created a virtual portfolio based on it a few weeks ago and i got a .72% devaluation on it.

The idea of having a magic formula doing everything for you looks great of course, but apparently it either has stoppoed working since now so many people use it or it did never work as well as greenblatt pictures it in his book.


Maybe a good strategy would be to use his magic formula as a screening criteria to find good companies, and once you found them you take your screening one step further with your own methods of researching to find better bargains.



edit: By the way, i'm also into value investing and have read many books on it including the ones mentioned in here "the intelligent investor", klarman's "margin of safety", and many others.

[Monte314]

I've made most of my investment money in stock options.

Trading in individual stocks is best left to the experts... people who have the time and energy to meet with the top management, etc. That's why most of my money is now in mutual funds. You won't make top dollar this way, but you are also unlikely to lose your shirt.

[azelismia]

I invest in antiques.

[Zirka]

I'm interested in investing, but I don't know much about it. I'm currently trying to figure out what to invest in next (the GIC I had has just come to term).

I want something with better returns but not too much risk, seeing as I don't have much money available for investing at the moment (most of it is going towards my university tuition)

[Max T]

What do you guys think about Greenblatt's magic formula in "the Little Book that Beats the Market"?

I see your point- do we invest 3 years minimum (as Greenblatt advises) to following his system and face the risk of zero returns, or try something different?

Trouble is, no-one has pursued the system for a full 3 year period and I bet that very few actually follow the system exactly as described. The self-professed experienced investors will want to tweak and 'improve' it and the inexperienced may make all kinds of mistakes.
The key component of the system is that it adds the required discipline that most investors lack by requiring us to leave the brain (the liability) at the door.

IMHO re. the Magic Formula, I'd read about all other's learnings and mistakes on the internet and then invest only say a 1/2 of funds in the system for 3 years minimum. (For starters, read Geoff Gannon's blog comment on the Magic Formula and from memory 'Controlled Greed' blog talks about it too). Also ignore weekly and monthly portfolio moves- 1 year movement gives a slight hint as to its potential.


Although it's a difficult decision whether to follow the system, the decision can be simplified by considering the worst case: you're less likely to lose money if there's a bear run than if your money's in an index fund or mutual fund (many of which are closet index trackers) and you'll learn more about investing. So I'd do it but follow his advice exactly to the book (+ other's learnings).

[augustus]

I'm interested in investing, but I don't know much about it. I'm currently trying to figure out what to invest in next (the GIC I had has just come to term).

I want something with better returns but not too much risk, seeing as I don't have much money available for investing at the moment (most of it is going towards my university tuition)

You can start by investing in index funds. This is just the market. The market has been known to return around 11% in the long term (10 years or so). I am assuming you are in the US. You can simply join any online brokerage (I like sharebuilder) and buy an ETF like SPY.

I invest in individual stocks but it is mainly to beat the market rates (11% over the long term). To invest in individual stocks and beat the market you need a lot of passion and commitment to research and it takes time and discipline, not to mention knowledge of financial analysis and temperament.





augustus added to this post, 49 minutes and 24 seconds later...

I've made most of my investment money in stock options.

Trading in individual stocks is best left to the experts... people who have the time and energy to meet with the top management, etc. That's why most of my money is now in mutual funds. You won't make top dollar this way, but you are also unlikely to lose your shirt.

One man's food is another man's poison, I guess.

I don't have too much trouble beating the market with individual stocks. But I find stock options too risky. I would never trust my money with those mutual fund guys!!

There are many ways to make money of the stock market. Its your knowledge, skill, experience, discipline and commitment that gives results.

[thod]

You can start by investing in index funds. This is just the market. The market has been known to return around 11% in the long term (10 years or so).

No way. This week 10 years ago ^DJI was 9037 today it is 12210. Thats just over 3% a year capital growth.

You wont even get that due to edge effects and fees. Edge effects occur because when a company goes bust another one is promoted. However you are still left holding the useless shares. The same thing happens when a company is demoted. You are left with the crap shares and have to sell them to buy the new entrant. You do of course get some dividends to reinvest, which ups the numbers some.

Index fund investing has been a bad choice over 10 year, you would have done just as well sticking your cash in a high interest account.

You can however play the index funds by buying those shares just below the index threshold. If they do well they get promoted and the index funds are obliged to buy. This sudden rush of buyers ensures you sell at a premium. You have to love forced buyers.

[bladeserver]

What do you guys think about Greenblatt's magic formula in "the Little Book that Beats the Market"?

It's said that his "magic formula" did pretty bad for the last 2 and a half years, since people started testing it. I myself created a virtual portfolio based on it a few weeks ago and i got a .72% devaluation on it.

The idea of having a magic formula doing everything for you looks great of course, but apparently it either has stoppoed working since now so many people use it or it did never work as well as greenblatt pictures it in his book.


Maybe a good strategy would be to use his magic formula as a screening criteria to find good companies, and once you found them you take your screening one step further with your own methods of researching to find better bargains.



edit: By the way, i'm also into value investing and have read many books on it including the ones mentioned in here "the intelligent investor", klarman's "margin of safety", and many others.
I am skeptical about any "magic formula". I have been around a LONG time and seen formulas appear and disappear with some regularity. I think you have the perfect idea i.e to use it as a starting point and as one method of screening potential purchases.

blade

[INTJoe]

I'm interested in investing, but I don't know much about it. I'm currently trying to figure out what to invest in next (the GIC I had has just come to term).

I want something with better returns but not too much risk, seeing as I don't have much money available for investing at the moment (most of it is going towards my university tuition)

If you have earned income, and you are really young (I'm assuming you are), you should start a Roth IRA. You can put up to $5K post-tax dollars in for 2008. Unless you earn too much $ (somewhere over 6 figures).

I've got a Roth IRA using Vanguard's Target Retirement 2045 fund. It has a very low expense ratio. The minimum to buy this fund is $3K, but Vanguard does offer a STAR fund with a minimum of $1K if you can scrape that together. Then when you get $3K in there just trade it all for Target Retirement funds.

The best thing about the Roth IRA is that if you get in a pinch, and need money, you can withdraw your Contributions at any time, for any reason, tax and penalty-free.

[bladeserver]

I see the draw of value investing and I've been pretty good at it but my method of preference is the top down method. I'm moderately capable of judging intristic value of companies but I'm far better at predicting trends and events early and using that as my method of choosing stocks.

First I look at global events and try to judge externalities that could occur. Once I've found plausible externalities, I watch for expected fluctuations as evidence that the externality I predicted is indeed having an effect. From that I can predict the magnitude and start looking at industries that will be effected positively or negatively. Once I've narrowed down which industries will be most effected, I tend to take a basket investment of the large cap companies in that industries to mitigate risk of individual risk in a particular company and ride the trend as far as I believe that it will carry and start looking for an exit price when it starts getting too popular and the stock price is driven by momentum instead of the trend itself.

I'll accept higher risk in the form of less diversity in industries that I know very well which tends to do well for me. I also look at longer term trends and research small cap companies in the effected industries as they tend to get fantastic long term growth if you do your homework first.

I havn't had much opportunity to make real benifit from my technique yet, but I've been testing it of practice portfolios for about 4 years and have managed to sustain 40% or better annually. I would have done alot better if I knew as much about shorts as I do now but I wasn't comfortable with my lack of knowlage so I only played growth positions.

In any case, I find the top down method for picking stocks is definately my favorite. Not that I ignore value investing either, being compitent with both is ideal to minimize risk while maximising growth, and my top performing stocks have been the value stocks in the industries that I've anticipated are in line for a growth trend.

Always important to have a couple backups though to move money to if needed. So even though I only hold stocks in a handful of companies, I still keep up to date on probably 3x as many as backups. Not to mention knowing where your money is safe in the case of a major economic downturn is prudent planning. If nothing else, Berkshire Hathaway is a great place to have money when people get scared because everyone trusts Buffett when things look bad and it tends to move inversely when people are seeing bears elsewhere.
Are you a professional? If, as I am guessing you are not, on what basis do you expect to out perform the myriad top down guys and gals who continuously scour the world for top down themes? The years have taught me to be quite modest in what i can, and can't, do and i tend to like to play where I have conspicuous advantages that I can clearly explain and defend.
This is not mean as an attack but rather as a conversation about approaches to markets.

Blade





bladeserver added to this post, 4 minutes and 35 seconds later...

I'm interested in investing, but I don't know much about it. I'm currently trying to figure out what to invest in next (the GIC I had has just come to term).

I want something with better returns but not too much risk, seeing as I don't have much money available for investing at the moment (most of it is going towards my university tuition)
One caveat which i believe is still in force - the 5 year holding period.

blade

To be qualified, the distribution MUST be:

Made on or after the date you become age 59 1/2; OR
Made to your beneficiary, or to your estate, after you die; OR
Made to you after you become disabled within the definition of the IRS code; OR
Used to pay for qualified first-time homebuyer expenses.
But -- and this is a very big but -- even if one of the qualifications above is met, the distribution is STILL not qualified if it is made within a five-tax-year period. We'll see how to compute the five-tax-year holding period a bit later. Just know that five tax-years are NOT necessarily the same as five calendar years.

So, in effect, there are two sets of rules that must be met before a Roth IRA distribution becomes qualified, and therefore tax-free: The distribution rules and the five-tax-year rules. Unless both sets of rules are met, the distribution will NOT be qualified, and the earnings will be subject to tax, and possibly penalties. We'll discuss penalties in detail in the next article.

[thod]

The big problem with assessing a company based on balance sheet is its smoke and mirrors. There are so many variable that are off balance sheet, uncosted obligation brand loyalty etc. Accounts tell you very little about what is going on.

The first thing I do is look at the what is happening in the news. From that try to deduce what is going to benefit. Then spread among the chosen sector. Been hit too many times by a company that makes huge profits one year and then a loss due to front loading. What I am looking for is trends, investing in a good company in a crap sector is not as profitable as the a bad one in a rising sector. Once the rest of the money comes in you will be able to sell at a profit. You good company is still sitting there with nobody buying.

[INTJoe]

One caveat which i believe is still in force - the 5 year holding period.

blade

To be qualified, the distribution MUST be:

Made on or after the date you become age 59 1/2; OR
Made to your beneficiary, or to your estate, after you die; OR
Made to you after you become disabled within the definition of the IRS code; OR
Used to pay for qualified first-time homebuyer expenses.
But -- and this is a very big but -- even if one of the qualifications above is met, the distribution is STILL not qualified if it is made within a five-tax-year period. We'll see how to compute the five-tax-year holding period a bit later. Just know that five tax-years are NOT necessarily the same as five calendar years.

So, in effect, there are two sets of rules that must be met before a Roth IRA distribution becomes qualified, and therefore tax-free: The distribution rules and the five-tax-year rules. Unless both sets of rules are met, the distribution will NOT be qualified, and the earnings will be subject to tax, and possibly penalties. We'll discuss penalties in detail in the next article.

I said Contributions can be withdrawn at any time for any reason, tax and penalty-free. You're talking about Earnings here.

The Roth IRA qualifies each dollar as one of the following three: Contributions, Conversions, and Earnings. The toughest dollars to pull out are earnings, the next toughest are Conversions, and the easiest are Contributions.

So if you maxed out your Roth IRA for 2006, 7, and 8, and your account was valued at $14,000 today, you could pull out the $13,000 worth of Contributions without worry, leaving the $1,000 worth of earnings in there.
This would be silly, of course, seeing as you can never "catch up" and replenish the 2006 or 2007 dollars you Contributed.

But, down the road, in a pinch, needing $5 or $10K for whatever reason, it is a very viable option. This option isn't there with a 401(k) plan, as you would pay taxes, AND penalties if you are younger than 59.5.

[thod]

I would guess if you are passive like that tax may be a big factor. For me though I want to get in and out.

Do you think we will have a 'black Monday' tomorrow? I am convinced we are going to have a systemic collapse soon with the DJI down to 3000 and being able to move fast is all that will save you when it happens.

[bladeserver]

I said Contributions can be withdrawn at any time for any reason, tax and penalty-free. You're talking about Earnings here.

The Roth IRA qualifies each dollar as one of the following three: Contributions, Conversions, and Earnings. The toughest dollars to pull out are earnings, the next toughest are Conversions, and the easiest are Contributions.

So if you maxed out your Roth IRA for 2006, 7, and 8, and your account was valued at $14,000 today, you could pull out the $13,000 worth of Contributions without worry, leaving the $1,000 worth of earnings in there.
This would be silly, of course, seeing as you can never "catch up" and replenish the 2006 or 2007 dollars you Contributed.

But, down the road, in a pinch, needing $5 or $10K for whatever reason, it is a very viable option. This option isn't there with a 401(k) plan, as you would pay taxes, AND penalties if you are younger than 59.5.
My apologies. You are, of course, correct. I had my mind focussed on earnings.

[INTJoe]

My apologies. You are, of course, correct. I had my mind focussed on earnings.

Especially in the short-term, your portfolio should be composed of over 90% Contribution dollars. In the long term it would easily get to the point where a giant chunk of your Roth is earnings dollars. But if you had that much in there anyway, then you should easily have enough Contribution dollars to pull out.

Actually, I've maxed mine out since 2006, (13K), and as of today my account has about 12.9K in it. lol. So more than 100% of my account is Contributions, and a negative percentage is earnings.

[INTJoe]

I would guess if you are passive like that tax may be a big factor. For me though I want to get in and out.

Do you think we will have a 'black Monday' tomorrow? I am convinced we are going to have a systemic collapse soon with the DJI down to 3000 and being able to move fast is all that will save you when it happens.

Expound on this. You think the Dow will go down to 3000? Why would we have a black Monday? Wasn't Friday black enough? lol. I'm not being silly, I'd actually like to hear your thoughts. I'm a passive investor but I still try to inform myself.

[Henry]

Expound on this. You think the Dow will go down to 3000? Why would we have a black Monday? Wasn't Friday black enough? lol. I'm not being silly, I'd actually like to hear your thoughts. I'm a passive investor but I still try to inform myself.

I hope the DJIA goes to 3k. I'll retire in a decade.

[thod]

What can I say? My readings tell me there is a systemic collapse of the financial system coming. Everything is interlinked, someone defaults on you then you cant make your payments. The monolines are bankrupt so there is no insurance. The banks have lost all their capital to sub prime. They will all attempt to sell at once to anyone that will buy at any price.

I have nothing in shares now. I have minimal cash in private bank, a reasonable sum in government owned bank (backed by taxpayer) and the bulk in gold in a swiss vault. Just sitting in vulture mode biding my time, if I am wrong I lose nothing, if I am right I win big time.

Its a case of how you see the risk/gain ratio. I dont see much upside, companies are not going to make more money in recession, their raw material costs are going up. Even if you make 10% that only covers inflation. I trust the shadowstats site more than government numbers on inflation. So, to me, I see all downside and no upside so I want to be out. After you have all lost your wealth, I will come back in and buy from you for pennies on the dollar (if there still are dollars).

What I see is inflation out of control making cash and bonds poor value. Shares are overvalued and will also return sub inflation. The money is flooding into commodities to preserve value. The only reason we havent had a collapse is all the feds money printing. But that is exactly what is driving the inflation. The only reason oil stopped going up is it hit its limit for the day.

I think tomorrow (Monday) is going to see some big action on the markets. But then again, a dumbass like me is outside the loop and dont know a thing, you have to make your own choices.

[Henry]

What can I say? My readings tell me there is a systemic collapse of the financial system coming. Everything is interlinked, someone defaults on you then you cant make your payments. The monolines are bankrupt so there is no insurance. The banks have lost all their capital to sub prime. They will all attempt to sell at once to anyone that will buy at any price.


There's this thing called "the Federal Reserve" that stands ready and willing to prevent a failure like the one you are describing. It has a variety of tools to do this and has been remarkably effective at this whenever they choose to be.

Liberal monetary policy can cause an inflation, but that's probably unavoidable with the histrionics in the oil market right now. Read up on effective responses to oil shocks. Likely to have little/no growth and a moderate inflation until the mania subsides.

I have nothing in shares now. I have minimal cash in private bank, a reasonable sum in government owned bank (backed by taxpayer) and the bulk in gold in a swiss vault. Just sitting in vulture mode biding my time, if I am wrong I lose nothing, if I am right I win big time.

Except that the "bulk" of your assets are in gold - a totally unproductive, dramatically overpriced asset that historically appreciates about 1% over inflation. When the mania in the oil markets stops, gold will take a huge hit. And then I'm sure you have a high expense ratio on storing gold in Switzerland as well.

But all of this sounds cool, just like "I just boutgh AOL for 100 per share" during the technology craze and "I bought a 4plex because Robert Kioysaki told me to" during the RE mania, so carry on. Just understand that its probably costing you a lot of money.

Its a case of how you see the risk/gain ratio. I dont see much upside, companies are not going to make more money in recession, their raw material costs are going up. Even if you make 10% that only covers inflation. I trust the shadowstats site more than government numbers on inflation. So, to me, I see all downside and no upside so I want to be out. After you have all lost your wealth, I will come back in and buy from you for pennies on the dollar (if there still are dollars).

What I see is inflation out of control making cash and bonds poor value. Shares are overvalued and will also return sub inflation. The money is flooding into commodities to preserve value. The only reason we havent had a collapse is all the feds money printing. But that is exactly what is driving the inflation. The only reason oil stopped going up is it hit its limit for the day.

I think tomorrow (Monday) is going to see some big action on the markets. But then again, a dumbass like me is outside the loop and dont know a thing, you have to make your own choices.

Kindly tell me what the "limit" of oil is "for the day" in a free market system?

Also kindly explain to me why, even though there already is or there is going to be a recession, I should pull money from the stock market that I'm investing for the next 40 years? Do you seriously believe you can time the market? Or do you seriously believe that US firms cannot continue to expand productivity - as they have for 20/21 decades in the past? Prices distributing resources+innovation+reasonable level of human and physical capital investment=predictable long term economic growth

[thod]

This darn tin foil hat isnt working. I can feel those mind control rays getting inside.

[sam988]

The big problem with assessing a company based on balance sheet is its smoke and mirrors. There are so many variable that are off balance sheet, uncosted obligation brand loyalty etc. Accounts tell you very little about what is going on.

The first thing I do is look at the what is happening in the news. From that try to deduce what is going to benefit. Then spread among the chosen sector. Been hit too many times by a company that makes huge profits one year and then a loss due to front loading. What I am looking for is trends, investing in a good company in a crap sector is not as profitable as the a bad one in a rising sector. Once the rest of the money comes in you will be able to sell at a profit. You good company is still sitting there with nobody buying.


I agree that assessing a company on balance sheet only may cause many problems.


The ideal, IMO, is to asses the company's last 5 years' balance sheets, and identify trends, like profits consistently going up. Just 1 year's balance sheet tells little about a company and if it had extremely abnormal profits due to some unpredictable reason, the stock may overprice and when next year's profits turn to normal again, the stock will go back to the price it was supposed to be, or even less (good opportunity to find a bargain), since the market is so emotional and moody.


A good way to asses a company is to read it's balance sheets (say last 5 years), get a "picture" of the company by reading these numbers, then read it's annual reports to see if it makes sense (like reading the annual report of last year and see what came true in it from last year to now and what didn't, so i have a better picture if the people inside the company are competent). And then of course read the news related to the company to have even a better picture of it. Also take a look at the stock trend in these last 5 years.

But all this is for professional investors that have full time for investing and searching bargains. I plan on becoming one, but right now i'm just playing with virtual portfolios.

[INTJoe]

I hope the DJIA goes to 3k. I'll retire in a decade.

What does this mean, you are shorting the market?

[INTJoe]

I think the doomsday forecasters over-react just a bit. Things are definitely not good. The market is stagnant, the fed rate is very low, and the value of dollars is low. It's pretty bad.

But doesn't this mean we're at a point where it cannot get much worse? I've heard the value of dollars can only go down so much before they begin rebounding. Once US dollars plummet so much, then foreigners actually start investing in them by purchasing land, homes, or vacationing here. Right?

I just read an article today that said tourism in San Francisco was supposed to be very high this summer due to the fact that foreigners can do a lot here and spend a little. That is just one example. But I'm under the impression that it is globally inefficient for a country as advanced as America to have dollars that are so worthless.

I would much rather see the fed raising rates right now rather than lowering them. How the hell is devaluing money supposed to help the country get out of this rut?

[Zirka]

You can start by investing in index funds. This is just the market. The market has been known to return around 11% in the long term (10 years or so). I am assuming you are in the US. You can simply join any online brokerage (I like sharebuilder) and buy an ETF like SPY.

I invest in individual stocks but it is mainly to beat the market rates (11% over the long term). To invest in individual stocks and beat the market you need a lot of passion and commitment to research and it takes time and discipline, not to mention knowledge of financial analysis and temperament.
results.

I'm in Canada. There are index funds here too... I think.

If you have earned income, and you are really young (I'm assuming you are), you should start a Roth IRA. You can put up to $5K post-tax dollars in for 2008. Unless you earn too much $ (somewhere over 6 figures).

I've got a Roth IRA using Vanguard's Target Retirement 2045 fund. It has a very low expense ratio. The minimum to buy this fund is $3K, but Vanguard does offer a STAR fund with a minimum of $1K if you can scrape that together. Then when you get $3K in there just trade it all for Target Retirement funds.

The best thing about the Roth IRA is that if you get in a pinch, and need money, you can withdraw your Contributions at any time, for any reason, tax and penalty-free.

If 18 is really young then, yeah, I'm really young. However, I've been working since I was 15 and received numerous scholarships for first year university.

Since I'm in Canada, Roth IRA's are a no go.

I have about $5K available for long term investment at the moment, it may go up depending on how much I make this summer.

[SirJac]

Are you a professional? If, as I am guessing you are not, on what basis do you expect to out perform the myriad top down guys and gals who continuously scour the world for top down themes? The years have taught me to be quite modest in what i can, and can't, do and i tend to like to play where I have conspicuous advantages that I can clearly explain and defend.
This is not mean as an attack but rather as a conversation about approaches to markets.

Blade

Well given that I managed 40%+ annually with pretend money, I expect to be more conservative with my own money. Even then, I don't think that 20% is unreasonable as long as I keep myself informed. After all, as a small investor I am far more flexible then large players and can move my money around much faster to take advantage of time sensitive opportunities that arn't available when your dealing with hundreds of millions of dollars. Essentially I take full advantage of being small enough to be a price taker in the market.

The true potential of top down investing can only be unlocked by small investors because of this. Hedge funds, banks and other big players simply cannot take full advantage of it because it takes them so long to dramatically change their positions without causing instabability in the market. On the other hand, I can sell all my shares in a company and short it the same day and it won't have any measureable effect. That is the advantage that I have over all the professionals and I take full advantage of it to make large annual gains that far surpass what the big players can do.

So instead of looking 3+ years down the road like a value investor, or a couple days or weeks down the road like a day trader, I usually operate with a 4 month time frame in mind. 4 months isn't a hard rule, but it's a small enough time frame that large players can't take advantage of it because of the volumes they deal with and long enough that day traders don't have enough foresight or discipline to take advantage of it.

[Henry]

What does this mean, you are shorting the market?

These "collapses" wind up benefiting those who buy when everyone else is thinking the sky is falling. A decade later, those people who bought when everyone else was in a tizzy do well, whether its 29, 73, 87, or 91.

The US economic system is fine. Human capital is good. Physical capital is OK. Fiscal policy is not terrible, monetary policy has generally responded appropriately to inflation and employment. US continues to be at the forefront of research and innovation. US also generally allows prices to distribute resources more than other developed countries.

Betting against the market as a whole is a bet against the US economy. Not a good bet over a time horizion of more than 10 years.

This darn tin foil hat isnt working. I can feel those mind control rays getting inside.

A substantive response.

Well given that I managed 40%+ annually with pretend money, I expect to be more conservative with my own money. Even then, I don't think that 20% is unreasonable as long as I keep myself informed. After all, as a small investor I am far more flexible then large players and can move my money around much faster to take advantage of time sensitive opportunities that arn't available when your dealing with hundreds of millions of dollars. Essentially I take full advantage of being small enough to be a price taker in the market.

Probably 95% of investors think they can beat the market by a consdierable margin over long periods of time. There's currently one in the market who can.

I think the doomsday forecasters over-react just a bit. Things are definitely not good. The market is stagnant, the fed rate is very low, and the value of dollars is low. It's pretty bad.

But doesn't this mean we're at a point where it cannot get much worse? I've heard the value of dollars can only go down so much before they begin rebounding. Once US dollars plummet so much, then foreigners actually start investing in them by purchasing land, homes, or vacationing here. Right?[/quote]

No, just the opposite. As the dollar falls, international investors will demand higher US returns to compensate for a declining dollar.

But, much more importantly, US exports will be more competetive. This will help with the only real structural problem with the US economy - a lack of national savings -

I just read an article today that said tourism in San Francisco was supposed to be very high this summer due to the fact that foreigners can do a lot here and spend a little. That is just one example. But I'm under the impression that it is globally inefficient for a country as advanced as America to have dollars that are so worthless.

Not really. Currency devaluations typically have been good for growth in developed economies. Many intentionally devalue their own currencies to stimulate growth.

I would much rather see the fed raising rates right now rather than lowering them. How the hell is devaluing money supposed to help the country get out of this rut?

They have to choose between inflation and unemployment. They're making the right decision.

Falling value of the dollar likely to have a positive long term impact on economy.

[sam988]

One question to you guys: What level of understanding do you guys think Buffet means when he speaks about "understanding a company"?

[INTJoe]

One question to you guys: What level of understanding do you guys think Buffet means when he speaks about "understanding a company"?

One that would take me at least 169 hours a week to attain. :)

[augustus]

One question to you guys: What level of understanding do you guys think Buffet means when he speaks about "understanding a company"?

I will take a crack at this. I have been a Buffet devotee for a long time.

First of remember that Buffet is no longer a value investor in the mold of Benjamin Graham. He is more or less a growth investor like Philip Fisher. He still uses Graham's important principle of buying at a price that is at a discount to intrinsic value.

When he refers to understanding a company it means:
1. Knowing how the business makes money and if the business falls in their circle of expertise. Buffet ignores technology companies.
2. What is the competitive position? Does the business truly own any economic moats that are sustainable for the long term?
3. What are the future prospects of this business?
4. Is this business subject to change especially from technology?
5. Is the business predictable? In other words if future earnings are plotted out into the future, are those numbers reliable?
6. Does this business demonstrate a history of consistent earnings? Or Is it a cyclical business?
7. Is this business run by able and honest people?
8. Does the business have a strong balance sheet? Does the business carry a lot of economic goodwill?
9. Does the business require much capital to grow? He especially like great ROE and profit margins for obvious reasons.
10. What is the price the business selling for? Is it at a significant discount to intrinsic value?

Those are most of what Buffet look for and that I have used successfully in my own investment efforts.

All the best.

[Max T]

One question to you guys: What level of understanding do you guys think Buffet means when he speaks about "understanding a company"?
Buffett: "We don't do due diligence or go out kicking tires. It doesn't matter. What matters is understanding the COMPETITIVE DYNAMICS of a business. We can't be taken by a guy with a sales pitch... What really counts is the presence of a competitive advantage."

Also read his letters and books on the subject.

Connecting your question with your quote:

But all this [balance sheet analysis] is for professional investors that have full time for investing and searching bargains.
IMO it's a fallacy to think you need to dedicate full-time effort to beat the market when you have little capital. I list reasons for not over-researching further up this thread.
Instead you can trounce the market and still hold down a FT job. In fact investing makes you a better employee too since you think like the owner.

With practice it takes 5 mins of research to see if an asset looks roughly 40%+ discounted to put on your watchlist and <8hrs to determine the conservative intrinsic value (a function of all estimated future scenarios x payoffs (internet search "expected value probabilities")) prior to buying.
And you're only doing this max. 8hrs per stock research on several companies in a year.

You can't research harder or be more active in your trading- the market will provide the best investments when it feels like it.
And investing requires making the fewest mistakes whereas hyperactivity only leads to more mistakes.
Compounding is achieved by waiting- you don't fatten a pig by continually weighing it.

[augustus]

You can't research harder or be more active in your trading- the market will provide the best investments when it feels like it.
And investing requires making the fewest mistakes whereas hyperactivity only leads to more mistakes.
Compounding is achieved by waiting- you don't fatten a pig by continually weighing it.

As Buffet puts it "You can't produce a baby in one month by getting nine women pregnant" ;)

[Henry]

I think tomorrow (Monday) is going to see some big action on the markets.

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/crystal ball fail

[sam988]

Max T (or anyone else who wants to answer), what are your less-than-5-minutes screening criteria? How do you discard or decide that a company is worth taking a closer look at in this amount of time? You just go at the more common indicators like P/E, ROE, ROIC, revenues/profits growth throughout the years, etc? What's your "ritual", if there is any?

[Max T]

Max T (or anyone else who wants to answer), what are your less-than-5-minutes screening criteria? How do you discard or decide that a company is worth taking a closer look at in this amount of time? You just go at the more common indicators like P/E, ROE, ROIC, revenues/profits growth throughout the years, etc? What's your "ritual", if there is any?
Sure I'll have a stab.

First, only examine industries that you understand (circle of competence)-
Personally it reduces c.3000 in UK's FTSE Allshare to c.600 companies (and 1/5th of those are too complicated!).

Next, those 600 are screened to show possible cheapness: P/B<0.6, P/E<5, P/S<1, 52wk lows, dividend yield >7% and my "poor man's Greenblatt formula" of P/E<5 with RoIC>30%.
These screens includes micro-cap companies as small as £5m.
This filters 600 down to c.50.

Next the checklist- drop the co. if it fails any of these:
1.Decent balance sheet and P/L statement.
2.No significant debt (Debt/Equity ratio <25%) and offering liquidation value to shareholders.
3.Stable min. 5 yr operating history.
4.Definitely within circle of competence? (understand how it makes money?)
5.Stable industry not vulnerable to technological change?
6.Determine if the news resulting in the share price collapse has a long-term impact on the business. Check the discussion forums to soak up the emotional sellers reasoning.
Filters 50 down to 15.



Next a quick 5 mins intrinsic estimate.
Ultra quick 1min way is just to calculate free cash flow to the firm (FCFF) for the recent yr (click the FCFF .pdf from here To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) and multiply by 10 (same as divide by 0.1 (cost of capital 10%).

5 min process:
If loss making and in a declining industry, drop it. Berkshire Hathaway textiles was a value trap like this- traps your capital for years and intrinsic slowly drops to the 'bargain' price you paid, so at best you sell at the price you paid after many years lost opportunity (grrrrr!).

If RoE 8-15% and RoIC 6-13% and not in declining industry, then the company is roughly worth its net asset value (NAV) since say £100m of NAV = £100 market cap in the stock market. No companies are attracted to enter the market- why invest £100m to be worth £100m in investor's eyes? And the companies' valuation based on future earnings will also match £100m- again no new entrants due to £100m of assets not producing say £150m of future earnings. Read slide 16 here: To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts. to calculate earning power value (EPV- the value of the company based on its earnings).
These co.s are very common and very mediocre, but you can buy at 50% discount because investors can quickly assume the co. is going bust (when it isn't). Their intrinsic value is NAV which usually equals EPV.

If RoE>15% and RoIC >14%, then the company may have a competitive advantage (moat). I.e. For its £100m of NAV (net asset value) it produces £150m of EPV/ FCFF. Other companies are attracted to compete and pay £100m of assets for £150m of earnings, but the competitive advantage prevents them from taking the excess profits. Such a company is not worth £100m but £150m, since this is the amount of cash the investor can expect to take out of the business during its remaining life. So their intrinsic is the EPV/ FCFF. These companies may reach 30% discount to their intrinsic (£150m x 0.7 = £105m) but highly unlikely to be even 40% off, simply because they are good businesses that can grow their value by retaining earnings, reinvestment or give back as dividends. The mediocre companies do not grow their intrinsic-flatline instead.
C.20% of listed companies have a competitive advantage in their existing, stable market.

Even fewer (say less than 5%) have a competitive advantage AND can apply that strength into new markets or grow in their existing market.
Small investors can ignore these since there's increased risk of inflated prices and increased risk of estimating future growth wrongly.
There's a lot more subtleties to estimating intrinsic (read the books) but this is the 5 mins job.

See slide 12 for a summary of this process to determine intrinsic value for all types of co.s: To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

This takes just 5 mins because when an asset is 40%+ discounted, it is very noticeable and therefore quite easy to identify.
It also takes 5mins because we're not doing anything particularly clever.
As Bladeserver mentions earlier, value investing is a lesson in humility- don't try fancy maths or grandiose projections since no-one's easier to fool than yourself. Wisdom is knowing you know nothing- don't get complicated, we're dumber than we think we are. Don't forecast- buy based on what is.


Intrinsic valuation is part art and part science and takes practice.
Famous 60's cyclist Eddy Merckx gave away his secret to winning bike races- "ride your bike, ride your bike, ride your bike".
For investing it could be "estimate intrinsic, estimate intrinsic, estimate intrinsic" and say no 95% of the time and read loads.

[bladeserver]

Max.I read this as a professional all too ready to find faults but faults there were none :). Bravo. An excellent blueprint for the beginning value investor.
I gather you are U.K. based. It is, I believe , a wasteland for value investors? Most of the U.K. stuff that I read (admittedly not much) seems to be written without the benefit of a value perspective.

I have to say again. Bravo.

Mike

[Max T]

Max.I read this as a professional all too ready to find faults but faults there were none :). Bravo. An excellent blueprint for the beginning value investor.
I gather you are U.K. based. It is, I believe , a wasteland for value investors? Most of the U.K. stuff that I read (admittedly not much) seems to be written without the benefit of a value perspective.

I have to say again. Bravo.
Mike

Cheers Mike, (((but we both know I'm only parrotting what is already in the books and the internet! just don't tell 'em))).

Yes, you're right the UK is very light on value investing, which is wonderful.
I think this is a combination of:
a. Buffett, Graham, Columbia b-school etc. all being from the US. No leaders from the UK to follow.
b. If you own >3% of a company in the UK, you have to publicly disclose your ownership. I think the threshold in the US is more like 9%. Big value guys cannot take large positions in beaten UK stocks without everyone else knowing, so value gets less look in here.
c. UK culture goes against value investing. In the US far more individuals have brokerage accounts and the US culture is oriented to "think independent" (key value skill). Brits are more conservative/ less independently-minded and fewer have brokerage accounts.


Regarding UK funds, there are a few small funds that don't say "we're value" but definitely operate as such in small caps (e.g. Ennismore, Peter Gyllenhammer). Aberforth is more typical of your Wally Weitz funds. Otherwise it's all boring old 'efficient-market' institutions.

[augustus]

MaxT and other Value Investors,

I can appreciate your method of investing. I think this was the way Benjamin Graham instructed young Buffet to start investing. In investment circles its sometimes called the "cigar butt" investing method .

You know, I tried doing the screening myself around 1996. I would digest tons of stocks using Valueline to identify cheap stocks in industries I understand.

It was extremely tedious and I gave up after a while. I am glad I did because I don't think I would succeed doing what I didn't enjoy.

While Buffet started out this way, Munger introduced him to Growth investing along the way which is what he has been practicing at least since the 80's or longer.

Currently 70% or more of his portfolio is in 14 stocks (last I looked).

Growth investors don't worry about traditional metrics like P/B, P/E and stuff like that. We simply look for a big discount to potential future growth in an outstanding business run by able and honest men (the simple definition).

Instead of screening stocks, we spend a lot of time identifying outstanding businesses. And then wait for them to be available at a discount. This was the case for me with MCD in 2002 or Apple in the late 90's. When this happens, we buy a chunk. I have had my share of mistakes too.

I recently paid 18 P/E for a NASDAQ business due to future potential and past EPS growth rate.

But what I am doing is nothing special.

Buffet bought KO around 1988 at around 15 P/E and value investors laughed
at him. They weren't laughing very long though. His 1B investment was worth $3B very quickly and is worth around $13B today.

My one big gripe with value investing is the amount of time spend screening. At the end of the day you still end up with a lot of stocks and you can't truly understand all the factors affecting these businesses.

Buffet was a pretty bright guy but he still made many mistakes with value investing like Berkshire, Airlines stocks, some shoe company and others.

So chances are you are going to make a few mistakes too which translates to selling, cutting into your own returns.

With a concentrated portfolio of outstanding business you let compounding work for you for ever.

As Buffet likes to say "Time is the friend of the great business and an enemy of the mediocre business"

So, while I respect the value investors, I don't think it's for everyone.

[Max T]

So, while I respect the value investors, I don't think it's for everyone.
Yes I see your point. I would imagine there is more effort required to invest like old value(buy mediocre co.s at 50% discount and sell at intrinsic) compared to modern Buffett (very good co. at 30% discount and hold for a long time).
I don't want to give the impression that there's shortcuts- it takes practice and I make many mistakes despite exactly following others.

But for those of us with very little capital, lots of passion and a sustained interest each month, traditional value investing can produce returns of 25% to 40%+ p.a.
Modern value typically produces 10% to 25% (by the experts) p.a.
Clearly the compounding effect that every percentage point gives is huge over time.


These % diferences between old and modern investing can be explained:
7 holdings in traditional value small caps all at 50% discount = a portfolio that will double/ produce 100% return within 3 yrs (typically 1.5 yrs) = 66% p.a. average return (this should be compound annual growth rate instead of average but keep it simple). Subtract the holdings that are mistakes, deduct taxation and add the dividend yields of c. 5%+ and we get 25-40%+ p.a. average return.

7 holdings in great companies at 30% discount that reach intrinsic in 1 yr = 43% return in first yr and then hold for another 9 yrs at a fantastic 15% growth p.a. = 178% total return / 10 = 18% p.a. average return.
(Please no-one flame me saying they do better or that the numbers are junk- they're just rough estimates based on examining different value portfolios).


In Buffett's personal portfolio, he's back to cheap stocks. A couple of years ago he collected some Korean stocks at >3 P/E.
Greenblatt started out with cheap stocks as is Pabrai... and they slowly move to good companies/ modern value as assets under management increase. If someone is very successful at old value investing, after a while they must move towards modern value buy and hold forever.

So old value presumably does require more time to screen and continuously sell holdings at intrinsic, release cash and research to put it to use with a whole new company. I cannot ignore the holdings for a month, whereas you could ignore yours for a year+. So there are sacrifices.

Augustus- two funds in your style:
1.check out To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts. very talented guy producing 17% returns against say 3% by the Dow (he says he's old Buffett but he's modern in stock selection and old in how the fund charges fees). The letters are interesting. He is a pharmaceuticals saleman during the day and holds some stock for 8+ yrs.
2.Also Bill Miller's value fund at Legg Mason.com is very much in the modern Buffett way with exceptional results. Miller writes fascinating letters too.

[sam988]

Thanks Max for your response. That was very clear indeed. Even if you're just parroting what's on the net, it's still more informative and enlightening than just reading about "what ROE means" in some random page...


This topic is a very good one, if i'm not mistaken, someone suggested, before, that it could become a sticky, and i totally agree.

[Max T]

On the basis of buying when everyone else is selling...
... Any property investors here?

Surely the US housing market would be great for investing in, in a year or two.

[merid]

I know I am barging in but I was wondering what books were suggested.

I have done a little bit of research and have seen that "The Intelligent Investor" by Graham, "Common stocks and Uncommon Profits" by Phillip Fisher and "What is Value Investing?" by Lawrence Cunningham are suggested. Does anybody have any exerperience of these books? Are there other books that could help understand investing?

[bladeserver]

I know I am barging in but I was wondering what books were suggested.

I have done a little bit of research and have seen that "The Intelligent Investor" by Graham, "Common stocks and Uncommon Profits" by Phillip Fisher and "What is Value Investing?" by Lawrence Cunningham are suggested. Does anybody have any exerperience of these books? Are there other books that could help understand investing?
Not barging in at all. First my confession. I'm a true believer in the value approach and I've professionally run a hedge fund (smallish) for the last 20 years.
O.K. so I'm biased :).
Reading "the intelligent investor" transformed my life. Seriously. Thats Ben Graham's book for the masses (he also has a denser book but that's for another day). I also cannot recommend enough Klarmans "Margin of Safety" IF you can fnd a library that has it. Anything written by Marty whitman of the Third Avenue funds is worth reading and it is, probably, worth looking at the Berkshire hathaway annual reports.
Good luck.

Mike

[merid]

Thanks for the tips.

But...:stunned: I can see why you suggested looking at the library for 'Margin of Safety'

[augustus]

On the basis of buying when everyone else is selling...
... Any property investors here?

Surely the US housing market would be great for investing in, in a year or two.

You are right. For new investors, owning a Home Builder ETF like XHB is a safe play within a 3 year time frame.

[Max T]

Summaries on Klarman's book. One short, one longer:

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You are right. For new investors, owning a Home Builder ETF like XHB is a safe play within a 3 year time frame.
Certainly.
I was thinking more along the lines of actually buying dirt cheap property in our neighbourhoods in a year or two.

[elsdfr]

I remember paper trading via the paper at the age of 14. The ability to see trends in society and spot things that seem undervalued is just plain interesting! Why other types seem so averse to this kind of things has always perplexed me.The money is good but proving yourself right is almost equal, for me anyway. At the moment I'm heavy in Commodities and Resource Stocks. I'm winding out slowly and looking for something new... property is looking more interesting but a one house seems enough I think. Long term it'd be easy to pick something good up but to sit on something that illiquid seems strangely disconcerting. Punting on Junior Oilers is the most fun. "Why don't you just go to the Casino?"... "Err because its full of people and I can't stack the odds!" ;)

[merid]

I have just seen that soon a sixth edition of "Security Analysis" will be released, with some commentary by Klarman.

What is the hope that he is going to give out some pearls...

[bladeserver]

I have just seen that soon a sixth edition of "Security Analysis" will be released, with some commentary by Klarman.

What is the hope that he is going to give out some pearls...
I would suggest Googling Baupost. You should be able to pick up a fair bit of Klarman.

Here is one

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Incidentally I agree with him. To quote
"I think growth investing is a stupid style"

[sam988]

A bit off topic (just a little), i am planning on starting an intensive study in investing and related subjects. I decided that i'm going to read introductory (yet big lol) books on Microeconomics, Macroeconomics, Accounting, Business Law, Psychology and Sociology (although these 2 aren't directly related, i'm sure they offer practical knowledge not just on investing but in much else).


What other fields would you guys study if you wanted to become a better investor?

[Dazu]

I wish I had read the Coffeehouse Investor years ago. It is an easy to understand book. He recommends investing in a varied group of 5 to 7 ETF's and then balancing them twice a year. I think I would have saved much on commissions and expenses over the years and gotten as good or better rate of return.

[elsdfr]

So have any friendly INTJs got some future visions to share? aww common! Where is all the "smart money" going? :p

I know you're out there. I once did a survey on a Currency Trading Forum and over 30% where INTJs. Err, statistical bias!

Sam98: I don't know how to answer that other than to say it just takes time? I'd do some basic study of Eccons, Accounting etc and then get into charting/TA and see what suits. Ideally you'll want to be decent at both and then sort out what you want to "invest" in. Some like ETFs, some like the Currency Markets or Stocks/Options... which ever. How much time do you have, your age, income... plus no one book will make you rich, in the long run anyway. GL though.

[thod]

From the bear viewpoint.

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[Max T]

On the basis of buying when everyone else is selling... Any property investors here?
Funny how no property investors replied.
Finally dawned on me- doing up houses isn't a very INTJ thing to do. Fancy tiling a bathroom anyone?

I have just seen that soon a sixth edition of "Security Analysis" will be released
That reminds, there’ll be a biography on Buffett that he has greatly assisted with (for the first time) coming out in September.
Called "The Snowball" (as in a snowball compounds and grows...), it is written by a stock analyst who's report on Berkshire Hathaway so impressed Buffett that he let her into his personal life.
A bit like the old Remington shaving advert- "I liked the product so much, I bought the company!" (bought the analyst in this case).
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"Why don't you just go to the Casino?"... "Err because its full of people and I can't stack the odds!" ;)
Good point elsdfr re. odds. Investing is really just about stacking odds in your favour- not rocket science. In that sense, it makes a mockery of efficient market theory of having to accept greater risk if you want greater return.

Sam988- I’d add v.v. basic probability theory to your reading list (intrinsic value is the sum of say 4 different scenarios' payoffs x the prob. of each happpening (i.e. expected value)).

From the bear viewpoint.
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Headline "Royal Bank of Scotland issues global stock and credit crash alert".

A crash is good news for young investors 'though, as they'll be net buyers of cheaper stocks over the next five years.

I feel sorry for the soon-to-retire. Recently the UK pension regulation changed to allow pension savers to manage how their savings are invested.
Jeez, can you imagine working 40 yrs to save for a pension pot of say £200k, then decide you’ll become an investment manager and lose c. 30% in a panic, a few yrs before retiring on the remains.

[sam988]

Sam98: I don't know how to answer that other than to say it just takes time? I'd do some basic study of Eccons, Accounting etc and then get into charting/TA and see what suits. Ideally you'll want to be decent at both and then sort out what you want to "invest" in. Some like ETFs, some like the Currency Markets or Stocks/Options... which ever. How much time do you have, your age, income... plus no one book will make you rich, in the long run anyway. GL though.


I already know a good deal about investing. And about the subjects there, i already know a good deal about them all. I just felt like i really needed to get more knowledge, and since my best learning style is by reading and not attending classes (i'm in college, but i'd rather learn all i learned so far just by reading, would be like 10x faster), i figure that if i read all those books i'll know so much more and be a much better investor.

And i'm tired of just studying about investing in it's pure sense, for an investor to be complete, he has to have a lot of knowledge about many different subjects that are basic for him to fully understand investing and the businesses he is going to invest in.

[bladeserver]

A bit off topic (just a little), i am planning on starting an intensive study in investing and related subjects. I decided that i'm going to read introductory (yet big lol) books on Microeconomics, Macroeconomics, Accounting, Business Law, Psychology and Sociology (although these 2 aren't directly related, i'm sure they offer practical knowledge not just on investing but in much else).


What other fields would you guys study if you wanted to become a better investor?
Do you mean to invest personal funds on a part time basis or to go into the investment field?
If the latter do you already have a preference - analyst, portfolio manager etc?

[thod]

You are right. For new investors, owning a Home Builder ETF like XHB is a safe play within a 3 year time frame.

Not what I see. I see several years worth of unsold stock just looking for buyers. They cant make any sales to service their huge debts. So the guys form a new company and let the old one go under to remove the debt. They buy the land bank from the receiver for pennies and begin again. I wouldn't touch home builders with a barge pole.

[sam988]

Do you mean to invest personal funds on a part time basis or to go into the investment field?
If the latter do you already have a preference - analyst, portfolio manager etc?


I am going to invest personal funds, yet to be a full time investor. The idea is to live, as an investor, from some 800,000 dollars -or something around that- that i am going to have in at most 1 year (sorry i can't get into details about that). I also considered owning a business but after weighting a lot of factors i decided that investing would be a better option for me.

So i plan on going on value investing because it's the less risky investment method i know of, if you're good at it of course.

In the beginning i would invest like 70% of the money in fixed income (i live in brazil, and as you may know interest rates here are the highest in the world making fixed income a considerably good choice for inexperienced investors) and 30% in stocks (or even less, depending on how ready i feel i am), and i would slowly change this balance as i get more experience. I need to minimize my risks the most, at least in the beggining while i don't have much experience.


Btw, i'm 20 y.o. so i really don't have experience in investing and i plan on becoming a lifetime investor. So you see, getting as much knowledge as possible in the area is really important for me don't you think.

[thod]

There is nothing the markets like better than a 20 year old with $800k deciding he is going to become a professional investor.

I have a bridge for sale, could make you rich. How about these shares in Nepalese palm oil, bound to go up. You want to buy into collateralized money market hedge options, a sure winner.

[sam988]

There is nothing the markets like better than a 20 year old with $800k deciding he is going to become a professional investor.

I have a bridge for sale, could make you rich. How about these shares in Nepalese palm oil, bound to go up. You want to buy into collateralized money market hedge options, a sure winner.


Don't generalise. Why do you think i'm preparing myself so much. I know people in my position have the tendency to make more mistakes and lose it all. But that's not the rule for everybody.

[Max T]

Don't generalise. Why do you think i'm preparing myself so much. I know people in my position have the tendency to make more mistakes and lose it all. But that's not the rule for everybody.

I think you're very sensible- far more so than I was at 20.
But understand the source of Thod's cynicism: most people nearing retirement after 40 years of hard work don't save half of what you have.


So i plan on going on value investing because it's the less risky investment method i know of, if you're good at it of course.
Then scrap macroeconomics (too many variables), business law (unless investing where law intervenes (takeovers, bankruptcies)) and sociology.

I'd tighten the research into closely affiliated areas to true investing in equities: microeconomics, basic accounting, thinking part of cognitive psychology (heuristics, biases, decision making (behavioural finance)), basics to business strategy, basics to probability theory and investment risk (not beta volatility).

Also read investing classics - Schwed's where are the customer's yachts, Smith's the money game, Fisher's common stocks and Lefevre's reminiscences of a stock operator. Study typical investor mistakes.
Also Munger's mental models (that bandwagon-jumpers Pabrai and Hagstrom then write about too). Read the .pdfs at To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

Listen to these value investors:
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Practice self-analysing/ thinking about your thinking patterns (check Senge's double loop thinking)- e.g. is your desire for very broad knowledge driven more by a fear of making investment mistakes than a desire to become a better investor?

Ignore tipsters, analyst recommendations, market news, stock ticker streams, economy forecasts, fed decisions, modern portfolio theory and efficient market hypothesis.

And get the hands dirty- ideally work for a small company for a while (big advantage over the investment community) and actually start investing, research companies and build a stomach for volatility.

[elsdfr]

If you plan to live off 800k then I would make sure you can invest say 10-20k for a year or two and live off that first. Just to see if you can plus when you are putting that kind of personal cash behind your ideas the Market can show many new faces so best to start of low, I think.

So yeah investing for a living will surprise you with many things you never expected. I took the plunge in my early twenties and only survived ten months. I think my INTJ "hermit/aloof/distant" personality was partly to blame... balance really is everything. Just make sure you surround yourself now and then with those things you think you can do without and umm yeah.. study/experience its a lot to do with it I guess. Personally I spent four years working and investing in my spare time. I considered it like a Degree that I was taking, I don't think its such a bad idea either as I've heard some real horror stories.

Hang on living in Brazil with 800K USD would be a since. Term deposits or Bonds are safe as and could return an easy 10%, what kind of returns do you want?

[comet]

9 years ago at the age of 47 I decided to retire from the workforce.

I've been living off investments I made in the stockmarket ever since. I must admit I have a core group of bluechip stock that I don't play around with, unless it's to purchase more of them. I have a second group of stocks that I trade/play around with on a fairly regular basis. I guess I was lucky as I got into the market at the right time, I made major purchases back in 2001 when the ASX (Aussie Stock Exchange) was very flat. I've yet to even draw down any superannuation monies.

Just a general piece of advice which applies globally, don't put all your eggs in one basket. If any of you intend to do what I did to take a giant leap and retire well before your use by date, make sure your debit free.

[augustus]

If any of you intend to do what I did to take a giant leap and retire well before your use by date, make sure your debit free.

"use by date"

that's hilarious, I have never seen it put that way.

"your debit free"

Did you mean, debt free or are you really an accountant!

Jokes aside, I agree with your point on diversification. Also it might be preferable to have stocks in different sectors.

Some 7 years ago, I picked Exxon Mobil for reasons which are obvious today but I was also interested in the beta. XOM did not quite represent the same volatility as the market.

In any case, such sector diversification can be useful when living off stocks.

[sam988]

I'd tighten the research into closely affiliated areas to true investing in equities: microeconomics, basic accounting, thinking part of cognitive psychology (heuristics, biases, decision making (behavioural finance)), basics to business strategy, basics to probability theory and investment risk (not beta volatility).

Also read investing classics - Schwed's where are the customer's yachts, Smith's the money game, Fisher's common stocks and Lefevre's reminiscences of a stock operator. Study typical investor mistakes.
Also Munger's mental models (that bandwagon-jumpers Pabrai and Hagstrom then write about too). Read the .pdfs at To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

Listen to these value investors:
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Practice self-analysing/ thinking about your thinking patterns (check Senge's double loop thinking)- e.g. is your desire for very broad knowledge driven more by a fear of making investment mistakes than a desire to become a better investor?

Ignore tipsters, analyst recommendations, market news, stock ticker streams, economy forecasts, fed decisions, modern portfolio theory and efficient market hypothesis.

Thanks for all the tips and info, i'll definitely add most of what you suggested into my "to study" list.

And yea i'm aware that if i'm going to succeed in the long term i can't let myself be convinced by the "experts" out there. Good thing about INTJs is that we like to think by ourselves.



And get the hands dirty- ideally work for a small company for a while (big advantage over the investment community) and actually start investing, research companies and build a stomach for volatility.

About working for a company, it's just that i think that spending 3-4 hours daily studying (plus my daily classes in college) will bring me much more knowledge than working for 6-8 hours daily in a company doing the same things over and over...

And as for investing, the only investing i currently do is with virtual portfolios. Obviously investing real money is a whole different game, a much more stressing one and emotions play a much bigger role. Maybe before investing higher amounts of money i should first start with smaller amounts, but even that i'm not sure would do much of a difference since i will know that if i lose it it's no big deal. Different than if i invest high amounts of money.

I guess the best strategy is to start small and raise the amount invested little by little.





sam988 added to this post, 26 minutes and 53 seconds later...

If you plan to live off 800k then I would make sure you can invest say 10-20k for a year or two and live off that first. Just to see if you can plus when you are putting that kind of personal cash behind your ideas the Market can show many new faces so best to start of low, I think.

You're right. Raising the amounts invested slowly is a good strategy. That's what i plan to do, i'll invest most in fixed income, in the beginning.


So yeah investing for a living will surprise you with many things you never expected. I took the plunge in my early twenties and only survived ten months. I think my INTJ "hermit/aloof/distant" personality was partly to blame... balance really is everything. Just make sure you surround yourself now and then with those things you think you can do without and umm yeah.. study/experience its a lot to do with it I guess. Personally I spent four years working and investing in my spare time. I considered it like a Degree that I was taking, I don't think its such a bad idea either as I've heard some real horror stories.

Yes investing for a living can be a bitch i imagine. Specially since there will be many emotions involved around the invested money since i will feel like if i lose it i have no money to live with. That's why fixed income will play a major role here, to compensate for possible losses and to give me more emotional stability that if i lose some money in stocks it will be compensated by the fixed income i'll receive.


Hang on living in Brazil with 800K USD would be a since. Term deposits or Bonds are safe as and could return an easy 10%, what kind of returns do you want?

If i wanted 10% yearly return i could easily get that by investing it all in fixed income. Getting some 12% yearly fixed income is not very hard either. But on average i plan on getting some 20-30% yearly. Of course i'm not going to spend all that, in fact i plan on reinvesting most of what i make.

[Provoker]

What Havard economists don't tell you is how profit is really made, and this is critical to your approach to investment. Profit is made by exploiting workers. I repeat, profit is made by not paying workers the full value of their labor. Instead, capitalists underpay them and that difference - that surplus - is profit. Thus if you're interested in finding a profitable company you need to find a greedy corporation that has no hesitations about screwing its workers. Because, like I said, when workers are screwed money is made. Obviously this runaway capitalistic system that is predicated on greed is neither sustainable nor just. But your not after a socialist revolution you just want to make a quick buck. So there you have it.

Incidentally, I have plans to get a team together and build a program. Masterminded by me, some academics and computer programmers, the program will be able to quantify all available data including (but not limited to) trade patterns, P/E ratio, volume, the overall sector the company is in, patterns of other sectors and the market overall, etc. The idea is this program is as follows. As humans we are limited in terms of our memories and ability to spot subtle patterns. In the 1990s Deep Blue (a chess computer) was able to beat the highest rated chess player in the world (Garry Kasparov). Why? First the computer is not vulnerable to emotion. When conflict ensues in a chess game it puts pressure on a person emotionally. It will affect their decision-making process. The chess computer knows no such emotion - it is pure calculation. Moreover, the chess computer compiles the best chess games played and stores this in a mega-database. There are times in a chess game when the computer can essentially calculate its way to the very end. As humans with limited three-dimensional minds that think in terms of syllogisms this is simply not possible in the alloted time of a chess game. Learning from the Deep Blue-Kasparov match I propose a program that can select stocks based on all the available data that will be compressed into this program. I still have to work out the details but this is the bases for my project. Also, too often stock brokers go on intuition. Well, intuition tells us that the world is flat. This program has no feelings. It makes predictions based on all the available data and patterns that can be squeezed into it.

[comet]

"your debit free"

Did you mean, debt free or are you really an accountant!


lol augustus, that's what comes with being on these forums well after the witching hour. Of course I meant debt free.

[bladeserver]

What Havard economists don't tell you is how profit is really made, and this is critical to your approach to investment. Profit is made by exploiting workers. I repeat, profit is made by not paying workers the full value of their labor. Instead, capitalists underpay them and that difference - that surplus - is profit. Thus if you're interested in finding a profitable company you need to find a greedy corporation that has no hesitations about screwing its workers. Because, like I said, when workers are screwed money is made. Obviously this runaway capitalistic system that is predicated on greed is neither sustainable nor just. But your not after a socialist revolution you just want to make a quick buck. So there you have it.

Incidentally, I have plans to get a team together and build a program. Masterminded by me, some academics and computer programmers, the program will be able to quantify all available data including (but not limited to) trade patterns, P/E ratio, volume, the overall sector the company is in, patterns of other sectors and the market overall, etc. The idea is this program is as follows. As humans we are limited in terms of our memories and ability to spot subtle patterns. In the 1990s Deep Blue (a chess computer) was able to beat the highest rated chess player in the world (Garry Kasparov). Why? First the computer is not vulnerable to emotion. When conflict ensues in a chess game it puts pressure on a person emotionally. It will affect their decision-making process. The chess computer knows no such emotion - it is pure calculation. Moreover, the chess computer compiles the best chess games played and stores this in a mega-database. There are times in a chess game when the computer can essentially calculate its way to the very end. As humans with limited three-dimensional minds that think in terms of syllogisms this is simply not possible in the alloted time of a chess game. Learning from the Deep Blue-Kasparov match I propose a program that can select stocks based on all the available data that will be compressed into this program. I still have to work out the details but this is the bases for my project. Also, too often stock brokers go on intuition. Well, intuition tells us that the world is flat. This program has no feelings. It makes predictions based on all the available data and patterns that can be squeezed into it.
Your name is well earned :). Really quite fascinating from the beginning to the end. Any thoughts on what to name your new super program when completed? Have you read much about what has happened in the past to similarly ambitious programs? How about ones that are extant? Just curious.

[thod]

Clearly he hasn't. I have known banks I have worked at work on such models for years and just write off the millions they have spent.

The fundamental error is the belief in determinism. If we gather enough data we will be able to predict the future. You see the same ideas in all of TA, "the MACD crossing the 3rd phase Elliot wave means it will go up". But of course it doesn't, a mine explosion or some real world event changes things. The problem with all such models is they cant predict real world news and how it will effect the model, nor can news events even be incorporated into past data. A better representation would be a fractal model, butterfly's flapping their wings over in china and all that.

There is another more philosophical point that comes into play too from the free will/determinism arguments. If you can see the future you can change it. So when we all see the price will rise in 3 days, we buy rising the price today. What then of our future model, it didn't say price should rise today.

The markets are not logical, they are driven by hope, buy, and fear, sell. These are determined by mass psychology which is another subject in itself.

I guess each generation has the same ideas and thinks they are the first to think of it.

[elsdfr]

What Havard economists don't tell you is how profit is really made, and this is critical to your approach to investment. Profit is made by exploiting workers. I repeat, profit is made by not paying workers the full value of their labor. Instead, capitalists underpay them and that difference - that surplus - is profit. Thus if you're interested in finding a profitable company you need to find a greedy corporation that has no hesitations about screwing its workers. Because, like I said, when workers are screwed money is made. Obviously this runaway capitalistic system that is predicated on greed is neither sustainable nor just. But your not after a socialist revolution you just want to make a quick buck. So there you have it.


Profit comes from many places not just exploited workers. And a companies stock price doesn't just rise relative to profit, it often falls. If only it was that simple. Sorry, but it seems you are saying that his investment is somehow unjust. How do you know the 100k of placement stock he buys doesn't go into funding a workers rec. room or washing facilities? Sure its a slim chance but it could.

Its true though, removing emotion from a Trade is the first lesson any real trader should be able to learn. Personally I just wonder how you can to stop it from filtering through to the real world. :confused:

[Max T]

Ooooh, Provoker comes on here saying a computer can outperform investors… Luddites unite!!

Seriously, on the premise that existing, successful programmes are heavily guarded by the investment institution, surely you’ll be partnering with a leading company for such a project, in order to start with the latest learnings rather than be two decades behind?

Also, with computers being ‘garbage in, garbage out’ processors, presumably there are two sources of garbage to be mindful of:
- Programmer garbage based on naivety or faulty back-testing and
- Stock trading noise/garbage (as 2 guys sell for holiday money, one buys based on over- weighted recent news etc. etc.)
So surely there’ll be a human at the other end to make the final decision and avoid the inevitable howlers?

Interestingly, computers are great at matching the market- Fidelity use black boxes to manage their index tracker funds- it’s 100% automated.

[bladeserver]

Thanks Max, Thod and Els for saying everything I was too lazy and tired to say :). You also said it more eloquently.

[augustus]

Interestingly, computers are great at matching the market- Fidelity use black boxes to manage their index tracker funds- it’s 100% automated.

On a different note, Max T, are they any web applications/software programs you use regularly/recommend for value investing?

[Max T]

On a different note, Max T, are they any web applications/software programs you use regularly/recommend for value investing?

I don't use any investing-specific software programs. But do use three simple systems that behave like an old and simple computer.

1. A 6 point checklist mentioned further up the thread (post 126?)- just like binary on a PC, if a company fails (0) on one, it most likely gets dropped.

2. Simple MS Excel spreadsheet model that calcs ROE and its parts on one page, another page has gross, op and net margin breakdown, another page has cash conversion cycle (debtors, creditors and inventory days) and then different methods to reach intrinsic- dividend discount model, book down to liquidation value, discounted free cash flow and earnings power value.
Just real basic excel modelling (cellA2*cellB5/cellC5) stuff. When you build from the bottom up, you know why the numbers the model spits out look the way they do.

3. The most useful system- a stock watchlist with a difference.
Just get a typical portfolio tracking service (e.g. marketwatch.com). But instead of putting in "xyz company that I own and bought at $2 share price" as everyone does, put in the companies that pass the checklist and look cheap, but insert at the price you crudely think them to be 50% off.
e.g. "XYZ at 15cent target price (intrinsic value 30cent)". It's at 20cent at the moment, so it's 33% above the target price that would trigger final research and a definite buy price. When it reaches 0% (15cent), examine it. You end up wishing for price falls!
Stocks on this list are continually rising in share price to some sort of true value and need removing off the list. So the list needs refreshing with new ones to watch.


All 3 systems save time by focussing scarce hours to looking at highly likely 50% cheap stocks only.
Systems 1 and 3 serve the purpose Provoker describes- they increase rationality by adding real discipline to the investor. Especially system 3- when you've watched 4 stocks nearly reach your buy price only to then shoot up by 75%, you're going to get frustrated and highly likely to buy the next 'cheap' stock at too high a price.
Also, when you're only looking for 1-3 investment ideas a year, you need to slow right down to a snail's pace- months go by. System 3 helps in this.
Finally, by making system 3 trigger your final research, you deliberately delay your buy response... giving time for the share price to fall even further, making the decision easier (as risk diminishes and return increases). When the market discounts an asset by 50%, it can easily reach 60% discount before rising.

This all fits with Buffett's advice to 'shoot where the fish (the discounts) are', 'move like a sloth' and 'wait for the fat pitch'.

3 simple systems that partially protect the investor from his often irrational and dumb mind!

[elsdfr]

Buffett's big bet - The celebrated investor wagers a tidy sum that even carefully chosen hedge funds won't return more than the market over time.

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Personally I'd replace celebrated with celebrity :p

[bladeserver]

Personally I'd replace celebrated with celebrity

Yes i've long been of the same opinion but, for him, it was the only rational approach once he started managing such unweildy amounts. I think he has done a masterful job of recognizing and acting on his new reality.

[Max T]

Buffett's big bet - The celebrated investor wagers a tidy sum that even carefully chosen hedge funds won't return more than the market over time.


Who'd want to be on the other side of Buffett?
Sell fund of funds (epic FUFU):).

It's great PR for the fund of funds managing company Protege.

The mechanics of a fund paying transaction costs and then understandably charging the clients make it difficult to produce net returns that beat the market...
... but then charging clients again (fund of fund)- the odds against that big headwind make it a safe bet for Buffett, surely?

[INTJoe]

What Havard economists don't tell you is how profit is really made, and this is critical to your approach to investment. Profit is made by exploiting workers. I repeat, profit is made by not paying workers the full value of their labor. Instead, capitalists underpay them and that difference - that surplus - is profit. Thus if you're interested in finding a profitable company you need to find a greedy corporation that has no hesitations about screwing its workers. Because, like I said, when workers are screwed money is made. Obviously this runaway capitalistic system that is predicated on greed is neither sustainable nor just. But your not after a socialist revolution you just want to make a quick buck. So there you have it.


Are you implying that this is the only way a company can be profitable?

If so, please post links or something that help substantiate your claim or else I'm deleting the above text.

[Provoker]

Are you implying that this is the only way a company can be profitable?

If so, please post links or something that help substantiate your claim or else I'm deleting the above text.

INTJoe it seems that you aren't well read or you'd know this. Therefore, I will point you to some authoritative texts: The Communist Manifesto by Karl Marx, Prison Notes by Antonio Gramsci, Politics of Latin America by Henry Veltmeyer, World Order by Immanuel Wallerstein. All of this literature supports the thesis that profit is made by capital exploiting labour - that is - not paying workers the full value of their labour. This is why multinational corporations, transnational corporations, the IMF, World Bank, international financial institutions have all moved industrial production to the Third World: To exploit the cheap labour of marginalized and impovershed people. Moreover, when MNCs don't have to pay for environmental costs and hazards and health costs this further widens the margin for profit. This is redundant for me to even have to explain this to you - you should know this already just being a product of the system. Bah

[bladeserver]

INTJoe it seems that you aren't well read or you'd know this. Therefore, I will point you to some authoritative texts: The Communist Manifesto by Karl Marx, Prison Notes by Antonio Gramsci, Politics of Latin America by Henry Veltmeyer, World Order by Immanuel Wallerstein. All of this literature supports the thesis that profit is made by capital exploiting labour - that is - not paying workers the full value of their labour. This is why multinational corporations, transnational corporations, the IMF, World Bank, international financial institutions have all moved industrial production to the Third World: To exploit the cheap labour of marginalized and impovershed people. Moreover, when MNCs don't have to pay for environmental costs and hazards and health costs this further widens the margin for profit. This is redundant for me to even have to explain this to you - you should know this already just being a product of the system. Bah
Thoroughly compelling and coherent argument. I do so enjoy your contributions.

[sam988]

INTJoe it seems that you aren't well read or you'd know this. Therefore, I will point you to some authoritative texts: The Communist Manifesto by Karl Marx, Prison Notes by Antonio Gramsci, Politics of Latin America by Henry Veltmeyer, World Order by Immanuel Wallerstein. All of this literature supports the thesis that profit is made by capital exploiting labour - that is - not paying workers the full value of their labour. This is why multinational corporations, transnational corporations, the IMF, World Bank, international financial institutions have all moved industrial production to the Third World: To exploit the cheap labour of marginalized and impovershed people. Moreover, when MNCs don't have to pay for environmental costs and hazards and health costs this further widens the margin for profit. This is redundant for me to even have to explain this to you - you should know this already just being a product of the system. Bah

Thoroughly compelling and coherent argument. I do so enjoy your contributions.


Bladeserver you're being ironic here right?


Provoker, as much as communism seems the perfect choice from a populist point of view, it's not for the maximization of production efficiency.

Capitalism, there's no more doubt about it, makes the general population and economy richer (becase production of wealth and goods is more efficient) than the short-sighted socialism, that may look like a good choice, but it is only so in the short term; in the long term socialism is impoverishing because there's not enough incentive for more efficient production and innovation.

[bladeserver]

Bladeserver you're being ironic here right?

Me, ironic . Never ;).

[Provoker]

Bladeserver you're being ironic here right?


Provoker, as much as communism seems the perfect choice from a populist point of view, it's not for the maximization of production efficiency.

Capitalism, there's no more doubt about it, makes the general population and economy richer (becase production of wealth and goods is more efficient) than the short-sighted socialism, that may look like a good choice, but it is only so in the short term; in the long term socialism is impoverishing because there's not enough incentive for more efficient production and innovation.

These ears are not for me. Sigh. Did I mention communism in my post? Marxism is not communism. I repeat, Marxism is NOT communism. Marxism is an analytical perspective for understanding power relationships. Analysts can use the Marxist framework to understand phenomena without buying the solution Karl Marx offered which was communism. Marxism is descriptive while communism is prescriptive let's be sure about that. Please think more critically and do your homework before intellectually paralyzing yourself.

[sam988]

These ears are not for me. Sigh. Did I mention communism in my post? Marxism is not communism. I repeat, Marxism is NOT communism. Marxism is an analytical perspective for understanding power relationships. Analysts can use the Marxist framework to understand phenomena without buying the solution Karl Marx offered which was communism. Marxism is descriptive while communism is prescriptive let's be sure about that. Please think more critically and do your homework before intellectually paralyzing yourself.


Ok so you don't support either capitalism nor communism. What do you support, then, after all? Because if you think you're so above these models for society you must have something much better to share with us, right? Please do.



Or you're just making justice to your forum username and spreading random criticisms without any point to make?

[Max T]

Please think more critically and do your homework before intellectually paralyzing yourself.

Provoker- could you turn to answering our questions (and more info) about your quick buck scheme you touched upon?

I realise your computer project is in its infancy, but it’s more interesting than provocative writings about socialism.

This is the investing/ ‘making a quick buck’ thread after all.

[augustus]

I don't use any investing-specific software programs. But do use three simple systems that behave like an old and simple computer.

1. A 6 point checklist mentioned further up the thread (post 126?)- just like binary on a PC, if a company fails (0) on one, it most likely gets dropped.

2. Simple MS Excel spreadsheet model that calcs ROE and its parts on one page, another page has gross, op and net margin breakdown, another page has cash conversion cycle (debtors, creditors and inventory days) and then different methods to reach intrinsic- dividend discount model, book down to liquidation value, discounted free cash flow and earnings power value.
Just real basic excel modelling (cellA2*cellB5/cellC5) stuff. When you build from the bottom up, you know why the numbers the model spits out look the way they do.

3. The most useful system- a stock watchlist with a difference.
Just get a typical portfolio tracking service (e.g. marketwatch.com). But instead of putting in "xyz company that I own and bought at $2 share price" as everyone does, put in the companies that pass the checklist and look cheap, but insert at the price you crudely think them to be 50% off.
e.g. "XYZ at 15cent target price (intrinsic value 30cent)". It's at 20cent at the moment, so it's 33% above the target price that would trigger final research and a definite buy price. When it reaches 0% (15cent), examine it. You end up wishing for price falls!
Stocks on this list are continually rising in share price to some sort of true value and need removing off the list. So the list needs refreshing with new ones to watch.


All 3 systems save time by focussing scarce hours to looking at highly likely 50% cheap stocks only.
Systems 1 and 3 serve the purpose Provoker describes- they increase rationality by adding real discipline to the investor. Especially system 3- when you've watched 4 stocks nearly reach your buy price only to then shoot up by 75%, you're going to get frustrated and highly likely to buy the next 'cheap' stock at too high a price.
Also, when you're only looking for 1-3 investment ideas a year, you need to slow right down to a snail's pace- months go by. System 3 helps in this.
Finally, by making system 3 trigger your final research, you deliberately delay your buy response... giving time for the share price to fall even further, making the decision easier (as risk diminishes and return increases). When the market discounts an asset by 50%, it can easily reach 60% discount before rising.

This all fits with Buffett's advice to 'shoot where the fish (the discounts) are', 'move like a sloth' and 'wait for the fat pitch'.

3 simple systems that partially protect the investor from his often irrational and dumb mind!

MaxT,

Thanks for your response.

Have you considered building a web based subscription service for value investors?

You seem to know a lot about value investing and obviously have passion for it.

You mentioned your failed attempts with multiple start ups showing your entrepreneur bent.

You may be able to put two and two together profitably.

Food for thought.

[Max T]

Have you considered building a web based subscription service for value investors?

Cheers, but I lack credibility and time for such a venture, alongside PT investing and FT job.
Instead, started a tiny 'incubator' fund to develop a track record (i.e. yearly audited accounts with own savings, defer legal and authorisation costs for 3-5yrs and then open up to outsiders). Google "incubator fund" if interested.


You seem to know a lot about value investing and obviously have passion for it.

Nah- you can go a long way by simply following the books exactly and minimising errors by protecting yourself from your own stupidity.

[Fence]

Hello Everyone,

This is a really interesting thread. I want to explain how I invest and hopefully get some input from anyone interested in picking apart my strategy.

My interest lies in finding mispriced securities; those trading for less than half of the price I expect them to be selling for in three years. It is my belief that while the market is almost always efficient over the long term, there are times in the short term when it over reacts to earnings reports or other news that will have virtually no effect on the long term prospects of the business. My observations lead me to believe that traders and momentum investors will often short a stock for no other apparent reason than the price is falling. It doesn't appear that they try to place a value on the company; they are only interested in the direction of the share price. I understand this and I certainly don't fault them for it. There are many ways to invest. My way of investing is to make sure that when I put my capital at risk I'm getting substantially more value than what I'm paying for. Therefore, I welcome short term over reaction and panic selling because it affords me investment opportunities.

Placing a value on an entire business by looking at it's financial statements is not something that I feel confident I can get right with great frequency, so I don't even try. Instead, I try to put a price on the stock three years from now based on what I've observed on how the market typically prices stocks. I look at their revenue growth over the past five years and analysts expectations of growth going forward; then I assume a growth rate for the next three years. I am conservative in my assumptions. If a company has been growing at 20% for the past five years, I will rarely assign them a three year growth rate above 14% and probably more like 12%. I also look at their net profit margin over the past five years and assume a net margin in year three that is never more than their worst margin over the last five years. I don't consider earnings per share in my valuations because it fluctuates according to share count and I don't think it tells me anything about the business. I do, however, consider how they have diluted the share count over the past five years and predict a share dilution rate over the next three. Again, I want to be conservative and assume a dilution rate that is higher than the historic trends. Also, if they don't have much cash on the balance sheet, I worry that they may issue more shares to raise capital, so I assume a much higher dilution rate. Finally, I have to assign a P/E ratio for year three and I generally give it one that is two points higher than the growth rate. If I've assigned it a growth rate of 12%, I assign it a P/E of 14. All of this goes into my spreadsheet and I am given the projected three year share price. If the current price is less than half of the three year target I'm interested and continue with a much more in-depth analysis of the company.

Here's what it looks like:

TTM Year 3
Revenue (12%) 100,000 140,493
Net Margin 9.5% 8.9%
Net Income 9,500 12,504
Shares Outstanding
3% dilution rate 6,000 6,367
Earnings per Share 1.58 1.96
P/E ratio 14
Year 3 share price (1.96*14) $27.44

In this case I would be interested in buying this stock if the current price is less than $13.72.

This whole process takes less than five minutes per stock so I can zip though a hundred a week and spend the rest of my time reading annual reports and listening to conference calls on those that pass, if there are any. Most of the stocks that pass the initial valuation get there because they have recently been hammered. Sometimes I make a purchase only to watch the share price fall further which irritates me so starting this past February I now also make sure that the 10 day moving average is above the twenty day and volume is increasing before I invest. It's not foolproof but if I would have had this rule in place last December I would have been up 34.6% for the year instead of 27.9%, and my results this year would be +12.9% instead of down 4.6%.

Essentially, I only buy a stock if I think it would be foolish not to. By being very conservative in my growth estimates and insisting on paying only half of the three year target price, I feel that I reduce my downside risk because I would have to be dead wrong in both my valuation and my opinion of the company in order to suffer a permanent loss of capital.

[augustus]

Fence,

Have you heard of the efficient market theory?

My big concern about your method is that you really have to a-better-than-analyst-insight into the future prospects of the business to understand why the stock is mis-priced. In addition a business needs good management to make the future happen.

If you rely too much on the numbers, the analysis can be flawed.

[sam988]

Have you heard of the efficient market theory?



The way i see it, the efficient market theory holds true for the long term, in that the market will eventually see the real price of the stock, but for the short term it doesn't hold true because the price of the stock is influenced, among many other variants, by people's emotions. So since fence's way of picking stocks focuses on the long term, i see no problem with it.

Of course taking a look at who's running the company won't hurt either... but fences says he does analyze it in that after he screens the stocks and chooses those that meet his screening criteria, he reads the annual reports and other things, to have a better look at the company.


What i think that's very valuable too that Fence mentioned is that knowing when to buy is also important in that it can maximize our future potential profits by buying the stock when it is among its lowest prices.

[Max T]

Hi Fence- who am I to argue with your solid recent returns? But here's a little biased input.

Incorporating P/E ratio into investment decisions may bring two problems:
1. The focus on the P/E's numerator share price (sp) leads to a heightened focus on sp, leading to your annoyance with further sp falls, leading to some technical analysis to try to time the end of the fall. So you've a mix of value and technical analysis- pretty complicated as an investment discipline. Buying a bargain means buying at a falling price so initially a decision looks bad- just accept it.

2. Also, you're focussing on growth stocks and assuming that the P/E ratio will be pretty much the same in 3 yrs. During long bull markets like the recent 5 yr rally, growth stocks can have astronomically high sp, so even if you set a very conservative 3 yr price target and buy at half price, you could STILL be buying an overvalued company liable to further falls, because investor sentiment/expectations may 'correct' the P/E from say 20 down to 10... and if earnings (denominator) falls, then the sp would have to fall really low to give a P/E of 10.
(Cyclicals' P/E movement bring further complications).


Overall, since you're comfortable with reading annuals and number crunching and have the mental fortitude to buy at half [share] price, surely you may as well value the whole business and buy that at half price instead (avoiding the two problems above)?
And base that valuation on current facts to make it easier, rather than on the very tricky 3yr earnings projections that augustus mentions.

My biased input is to ignore P/Es, projections and target prices.
Instead read about intrinsic valuation techniques and buy when the whole company is half its intrinsic value.
In this manner, you're pulled towards value founder Ben Graham's advice of:
- treating investing as buying a part of a company rather than a stock ticker and
- ignoring the share price movement and instead treating the market as merely a supplier of opportunities.

P/E is all about market expectations- great returns during bull runs when everyone's greedily over-expecting, but it could get tough during a 3 yr depressed market.
When you buy based on whole company valuation (valuation in absolute terms) and not on P/E (valuation in relative terms- relative to other co.s and the market), you build genuine insurance protection into your portfolio during a depressed market. Cheap stocks in absolute terms don't get much cheaper.

I realise your commitment to one method makes it difficult to adjust slightly to another.
For years I was hooked on Jim Slater's growth investing ("buy at PEG value below 1" garbage) AND paid money to be taught that markets are always efficient- think of the unlearning needed with that one!!
But if you're to do this for a couple of decades and considering the power of compounding by gaining a couple more percentage points, the switch is well worthwhile.

[thod]

Of course hardly anyone is making money by buy and hold at the moment. In the current bear market you make money by shorting stuff. If you are not happy with that stick your money in the bank, earn some interest and buy it at half price next year.

IMHO equities are still priced for bullish conditions. At the bottom of bear markets you can expect the index to have a P/E of 5. The faith that people have always amazes me, I still meet people saying buy houses, they only go up. Well maybe they have, but that doesn't mean I wont be able to buy a repo at half the price next year than I can today.

[augustus]

The way i see it, the efficient market theory holds true for the long term, in that the market will eventually see the real price of the stock, but for the short term it doesn't hold true because the price of the stock is influenced, among many other variants, by people's emotions. So since fence's way of picking stocks focuses on the long term, i see no problem with it.


Efficient market theory is one reason few people are as rich as Warren Buffet from investing.

The problem is that if 50 stocks or say 20 stocks clear the screen how do you know which ones are the outstanding companies. How do you know if the conditions surrounding the company are temporary? How do you know if future growth is slowed due to some new technology introduced by a competitor or some macro-economic condition that is unfavorable? Or if there are management issues etc.?

You truly have to know much more about the final list than all the analysts out there following these stocks.

I hate to discourage new investors but many people kind of tend to make investing look easy believe me its not.

Even Buffet says "investing is simple not easy".

Here a quote from Benjamin Graham, the author of Intelligent Investing:
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks."

[Fence]

Hi Augustus,

I have heard of the efficient market theory and I agree with Warren Buffett who has said many times that the professors who taught Efficient Market Theory observed correctly that the market is frequently efficient, they went on to conclude incorrectly that it is always efficient. The difference between these two is night and day.

I want to be clear that I don't buy stocks straight off the screen. Over the course of a year there are roughly 40-50 stocks that pass my initial valuation of being half of their three year target price. After further examination of their financials and the financials of their competitors and the financials of their largest customers and considering their future prospects and analysts opinion of the industry as a whole, I find that most of those 40-50 are justifiably beat down and priced correctly. However, in a really good year, ten are not. These are the ones I buy. Coincidentally, most of my stocks are also rated "Buy" or "Strong Buy" by analysts.

I totally agree with both the Buffett and Graham quotes. What I do is simple; Find cheap stocks. But it's not easy and you can't do it in twenty hours a week.

I don't know if the new investor comment was directed at me or not but just so we're clear, I've been investing since 1984.


[B]Thod[B]
I agree that the market is still overpriced, but not every stock that makes up the market is. Your statement about the market P/E going to 5 at bear market bottoms has been true in the past but it hasn't happened since the seventies and there is a difference today in that people put money into their 410k and in turn the mutual fund managers are required to invest it which will support prices. I wouldn't be surprised to see the S&P 500 drop to a P/E ratio of 11 or 12, but 5 is extremely unlikely.

Home prices have a long way to fall. In 2006 they were 40% over the long term trend because of low interest rates, "Liar loans", and 100%+ financing. Today, interest rates are higher, you have to prove your income, and have a down payment. This eliminates, I would guess, about a third of the potential home buyers which makes for an extreme surplus of homes on the market. Much more than the nine months of inventory that the National Association of Realtors is reporting. My opinion is that we are at least two years from real estate in general being a good deal. There are pockets of inefficiency though. A house near me was auctioned last month for $47,000. It last sold in 2001 (Pre-Bubble) for $128,000. It's a nice little house with a big yard across the street from a lake.

[thod]

There are pockets of inefficiency though. A house near me was auctioned last month for $47,000. It last sold in 2001 (Pre-Bubble) for $128,000. It's a nice little house with a big yard across the street from a lake.

US home prices always amaze me, I look at California and think they are so cheap. You should check out London prices where $500k will get you a one bed apartment in a crime central. If you want something to big enough to raise a family then you need a million.

[augustus]

Hi Augustus,

I have heard of the efficient market theory and I agree with Warren Buffett who has said many times that the professors who taught Efficient Market Theory observed correctly that the market is frequently efficient, they went on to conclude incorrectly that it is always efficient. The difference between these two is night and day.

I want to be clear that I don't buy stocks straight off the screen. Over the course of a year there are roughly 40-50 stocks that pass my initial valuation of being half of their three year target price. After further examination of their financials and the financials of their competitors and the financials of their largest customers and considering their future prospects and analysts opinion of the industry as a whole, I find that most of those 40-50 are justifiably beat down and priced correctly. However, in a really good year, ten are not. These are the ones I buy. Coincidentally, most of my stocks are also rated "Buy" or "Strong Buy" by analysts.


Yes. I agree now that you have shed some light on how you screen the business for its products, future prospects, competitive position and management.

My point was that the financials only give one part of the story, the rest comes from due diligence of the business.

Regards.

[elsdfr]

US home prices always amaze me, I look at California and think they are so cheap. You should check out London prices where $500k will get you a one bed apartment in a crime central. If you want something to big enough to raise a family then you need a million.

Property in London is expensive but there are many reasons why it would be compared to California. Things like a lack of space and people in the area earning something like 1k USD a day..

And what happened to Provoker? Perhaps the Secret Police took him? OMG he was conversing with Capitalist scum, get him back in his hole! *salute* :p

[merid]

I realise this may be a stupid question but how did you initially go about buying shares? I realise the mechanics I am more just looking for examples.


Also I am nearly through the Fisher book and I am finding it a bit hard to believe that you can just talk to people in the company to get 'secret' information.

[Max T]

Of course hardly anyone is making money by buy and hold at the moment.
Certainly-if you manage not to lose anything this year and so retain buying power, you'll have done very well.
I realise this may be a stupid question but how did you initially go about buying shares?
You mean an online brokerage account? Perhaps expand on what you're seeking?

Also I am nearly through the Fisher book and I am finding it a bit hard to believe that you can just talk to people in the company to get 'secret' information.
The smaller the company, the more approachable and the more likely the information will be 'secret'.
Fisher wrote his book in c. 1960s(?)- nowadays the internet makes information widely available. His views on what makes a good company are still very valid.

Putting Phil Fisher (not Ken) into perspective, Bill Miller said there are 3 sources to gaining an advantage over the market:
1. psychological advantage- maintaining rationality when others lose theirs e.g. selling when others are greedy,
2. analytical- putting greater weighting on the information that really matters most on the co.s valuation e.g. focussing on the co.s long-term customer contracts and not on the latest dire short-term news and
3. informational- gaining information that others don't have- such as Fisher advises e.g. company is about to expand into xyz country.

Fisher mainly advises on 3 and 2, but with key information to a company being widely available, it's how you weight it (2.) that matters a lot.

Note: gaining difficult-to-acquire information may lead to overweighting it's importance (as rarity increases perceived value), when in reality the info may have negligible impact.

[thod]

Down goes the Dow. When will it stop? Laughing all the way to the bank with my piles of gold, silver and cash. In fact I will own the bank when all this ends. Still cant blame the youngsters, this is the first time they have seen this game play out.

Now what do you guys have to sell, come on I got you by the balls, I offer a silver dollar for your house, another if you throw your daughter into the deal.

[merid]

You mean an online brokerage account? Perhaps expand on what you're seeking?

Yes an online account. Is it the easiest and safest way though?

[thod]

On a more serious note, I want to find a reasonable play in alternative energy that is not already priced to the moon. When I see the UK gov today announce it wants to expand wind power but Siemens and Vestas cant do a thing for 2 years its booming. Well Siemens is too diversified and the other has a P/E of 54. The market is ripe for start ups to make new windmills, it just old fashioned mechanical engineering.

Same thing with PV panels, all made by big engineering companies so cant get a pure play. Also the tech sites I visit show me it changing all the time. So the new maker is likely to be some start up with a patent.

Any ideas?

[Max T]

Yes an online account. Is it the easiest and safest way though?
Yes- the likes of eTrade and Schwab are very low cost per trade and safe.
But ignore the "training courses" the brokerage houses are offering- the courses merely encourage speculation/ gambling. The alignment of 1. spreadbettting & CFD products and 2. widespread broadband and 3. trading software means the stock market is becoming the new bingo/ casino venue. Toxic.

If you're starting merid (we all started sometime), I'd recommend 1. sticking with a proven strategy (pref. value investing), 2. start with say 1/6th of savings and veerryy slowly increase the amount over 5 yrs. Key rule is don't lose money- compounding is meaningless if you lose 50% in the first yr.


Any ideas?
God knows- PV panels, bioethanol- it's all "Next MSFT"/ 1970's computer co.s to me.
Sure the prices are sky high due to speculation AND green investment funds. These funds aren't bothered about returns- they just want more management fee so marketing is the game.
Why go from steady cash and gold to high risk shooting-the-lights? By the time a patent holder goes IPO, the price will be ridiculously high anyway.

Consider selling the gold and read how Lakshmi Mittal bought depressd companies in a depressed industry (steel). In a couple of years, certain industries will present great opportunities.
Sorry to put a dampener on things...

[thod]

Why go from steady cash and gold to high risk shooting-the-lights?

I am not a libertarian believing only in precious metals as a store of value. I moved to PM as a store of value. With stocks tanking and cash inflating its a safe haven, as others flee the virtual assets the price will rise. Very few people own PM, when inflation destroys their savings they will flood in. When the time is right, I will sell, leaving them holding the baby whilst I buy up the ravaged survivors. Who knows which banks will be left standing by then, but the ones that are will be very cheap.

The name of the game is simply moving ahead of the pack. Not a game value investors play. There are few contrarian traders, trading is about jumping on the band wagon and jumping off. The only trick is to tell if its too late to jump on now and jumping off just in time.

They say you dont get rich by digging gold but by selling shovels to those that do. The windmill makers are selling the shovels. IMHO such companies are the next bug thing.

[merid]

If you're starting merid (we all started sometime), I'd recommend 1. sticking with a proven strategy (pref. value investing), 2. start with say 1/6th of savings and veerryy slowly increase the amount over 5 yrs. Key rule is don't lose money- compounding is meaningless if you lose 50% in the first yr.

I am not going to invest until after I have read some more the books.

I am part way through "Common stocks and uncommon profits" whilst I have "The Intelligent Investor" and "The aggressive conservative investor" waiting in the pile.

Obviously I know next to nothing at the moment, so I am just going to watch what people talk about.

Out of interest, which investing forums, if any do people look at?

[Max T]

Out of interest, which investing forums, if any do people look at?
Just blogs personally- Gannon on Investing. Controlled greed. Sandman's place.
Vinvesting.com. grahaminvestor.com valuediscipline.blogspot.com/ fatpitchfinancials.

contrarian traders.
Now I understand- different styles.

How about tar sands?
Don't know any pure plays involved (ownership of fields, technology to convert), but in 2007 Buffett was saying it'll be big.
The world's need for oil isn't going to stop on a dime and tar sands will become economically viable.

[augustus]

I am not going to invest until after I have read some more the books.


Merid,

You should really read the "Essays of Warren Buffet". This is just a compilation of everything he has written for shareholders brought together in one book.

It is well written and communicated well for the laymen. I read this some time ago and when I went back to Fisher's book I thought Buffet just brought it together better in a much simpler way.

Having read some of the messages on these forums, I am amazed by the different styles out there. But I am guessing they all work because the investor makes it work.

I personally consider myself a growth investor. I grew out of value investing.

I simply accumulate a lot of knowledge on excellent/outstanding businesses and wait for it to be available at a substantial discount to intrinsic. You only need to invest in 10-20 excellent business in your life time.

But this works for me because I really love to study businesses, its products, management, business models, competition etc.

On the other hand, if you are more of a pure numbers person then try value investing or technical trading.

Maybe the best advice for you is to start with 80-20, with 20% in individual stocks and 80% in an index. Give yourself a couple of years to see what happened to that 20%. How was the outcome different from the original plan? When you start beating the original plan, you are on your way.

Remember one thing though - The first rule of investment is and has always been "don't lose money"





augustus added to this post, 7 minutes and 49 seconds later...

Yes an online account. Is it the easiest and safest way though?

I use sharebuilder and I am quite satisfied with them. They let you accumulate your cash at money market rates which I like.

Sharebuilder also lets you invest at a steady rate if you want to just take money out of your paycheck and do it regularly. I have never found this useful but its one of the reasons people prefer the brokerage. The trade only happens on Tuesdays and its $4 each time.

The real time trades are $10.00

I have used e-Trade a long time ago but got out because they started charging inactivity fees. I don't know how they are these days.

I have never used any other brokerage so I don't know about them.

[INTJoe]

What a crappy day. I lost almost a 2-week paycheck today.

It doesn't help that over 40% of my net worth is tied up in Vanguard Total Stock Market and Target Retirement funds. %^$

[merid]

I haven't read Graham's book yet but I have to say that Phil Fisher's book does resonate with me more. I would like to invest for the future.

Funny thing is that my fiancee is reading Graham's book and what I come out with from Fisher, she says is the other way in Graham.

[thod]

I would like to invest for the future.

Well you will be feeling confident and bullish after reading you investmetn books. Its time to see things differently. To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts. is a good site to start. I think we are in the stagflation scenario To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

[Eye_In_TiPi]

I wouldn't have posted here, considering the thread title, but I see that I'm not the only non-INTJ investor around these parts. I play around with it some myself. My stuff is kinda stinky right now. Everything is down - a lot, so right now I'm just holding on to what I've got hoping that it will come back. I've had my share of good days and bad ones. Recently, I had a good week when Bear Stearns was bought out. The Monday after the infamous back door deal, I bought as much of it as I felt comfortable and held on to it for a week, tripling my investment. I sometimes use what I call the "Angel Flying Too Close To The Ground" method. Basically, I just take a look at the day's biggest losers and do some research on them. If I can't find anything that warrants the stock's fall, I buy a little of it. I guess I'm more of a speculator than an investor. I've had some bad experiences, too. I thought Delphi was a good one back in October 2005. It was my first stock purchase ever. I only spent about $500 on it but I watched that $500 pretty much disappear when they filed for bankruptcy a couple of weeks later. It was a good example of "don't put all your eggs in one basket." I guess learning a valuable lesson was a good thing, but I still wish I could get my $500 back. Oh well. Live and learn.

[thod]

Everything is down - a lot, so right now I'm just holding on to what I've got hoping that it will come back

I tend to do that, less so these days since I have learned that in a lot of cases they dont they just keep going lower. If it doesn't go the way you expect then something is wrong. If it hasn't corrected after a week, get out.

but I watched that $500 pretty much disappear when they filed for bankruptcy

Been there, done that, got the T shirt. Sucks when it happens, but you make it back when something flys up. Thats why you dont put all your eggs in one basket.

What you are doing is looking at market overswings, more of a day trading strat than a buy and hold strat. I try to figure out where the money is going. When it comes out of say banking, where is it going next. So atm I am sitting on gold because I figure the money is going to come out of stocks, bonds, and savings accounts to there. Once its there I will sell the gold and maybe go to zinc if commodities are still hot, or basic utilities if nothing is happening. There will come a time again where banks will be cheap. Its all about moving ahead of the pack.

I had a good week when Bear Stearns was bought out. The Monday after the infamous back door deal, I bought as much of it as I felt comfortable and held on to it for a week, tripling my investment.

That was insane though. I never understood why JPM tripled the amount paid when they already had a done deal. I put it down to the fed telling them to offer more.

[augustus]

Is anyone else having as much fun as I am in the US Stock Market?

Its Christmas (Stock) Shopping season! Oh What fun!!!

[bladeserver]

Is anyone else having as much fun as I am in the US Stock Market?

Its Christmas (Stock) Shopping season! Oh What fun!!!
It is certainly interesting .
I am curious what areas that you are finding that offer attractive risk/reward characteristics and what risks you are considering as your worst case scenario.

[Max T]

It is certainly interesting .
I am curious what areas that you are finding that offer attractive risk/reward characteristics and what risks you are considering as your worst case scenario.
Personally, no specific areas-still waiting for cheapness and searching bottom up- but two recent purchases:

Titon Holdings.
Long-running (30 yr), small industrial that has huge management ownership (36%) and cut dividends to weather a slow down. Share price has been wallopped as income-seekers flee (UK:TON). Now at 34p- over 2/3rds below net net currrent assets (current assets minus all liabilities).
Worst-case: construction slow down leads to no return to intrinsic within 3 yrs and therefore sell at same price.
Chart:
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Fiberweb.
Overly-promoted IPO at the peak of the market last summer with management having to adjust downward their exaggerated projections- share price slumped (UK:FWEB).
Peaked at 230p in 2007, failed takeover bid for 100p/ share, significant management buying of shares at 40-50p. Could orderly liquidate at 40p. Now selling at 40p.
Slow growth industry. Quality LT revenue stream (repeat purchase, blue-chip clients, LT contracts, diversified demand). Simple restructuring situation by selling off non-core factories to lower debt and refocus.
Chart (ignore wrong "2.01" price):
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Worst-case: Oil prices, energy prices and interest rates all remaining high for 5+yrs AND no passing of costs onto clients in long term (v. highly unlikely), resulting in selling at roughly same price as buying.

TON may be too small (£3.5m) but if people's fund charter/ personal policy allows foreign stocks, look at FWEB.
(Note: This does not constitute investment advice etc. To avoid 'endowment effect', I could sell these tomorrow! (but most likely won't)).

[bladeserver]

Thanks Max. No worries I won't go blundering into any of your positions but I was curious about the mood out there. You seem to be doing what I always do which is to keep my head down and look for bargains with reasonable worse case scenarios.

Cheers.. Blade

[thod]

Shows how different people view things. I though I will go look at Titon Holdings for example.

I see their business is manufacture of window panels. So the first market is replacement of old wooden windows. Well I walk down the street and see everyone has UPVC these days, so that market is in terminal decline with very few old windows left. The other market is supply to new builds. Yet house building has ground to halt since the credit crunch with the major builders on the edge of bankruptcy. So I ask myself who are these guys going to sell to in order to make money. The answer I come up with is they are not.

So with few sales to generate profits they are going to have to lay off staff and downsize. Now I can go to the annual report, I want to see what inventory they are holding because I suspect they are making windows to store in a warehouse rather than be sold. I want to see if they have debt because they wont be able to service it in the lean years. So first I look at the real world, only then do I go to accounts, the accounts show the past, now what is coming.

This line from 2008 half confirms my view, that sales are down.

Operating profit 104 388 357

This one Cash at bank 1,958 1,674 1,678 tells me for a small company they have enough cash to survive the downturn, if they stop making so many windows.

The current P/E may seem reasonable but thats going to change when you see next years E. Overall I would not invest, not because they are bad, but because they are not going anywhere until the market for their product picks up.

Real world > value investing

[Max T]

Certainly very interesting to read other perspectives.
Hopefully my reply could serve as a little investing case study for others?
(Thod- don’t take my reply as nit picky criticism, just stating facts and investor views)
I see their business is manufacture of window panels… So I ask myself who are these guys going to sell to in order to make money? The answer I come up with is they are not.
You may have explained why some manufacturers of windows have recently gone bust.
But Titon does not make windows- that’s a horrible industry- so your hypothesis, whilst possibly correct, doesn’t apply.
Titon are in the ‘passive building ventilation’ business (wtf?!), comprising of trickle vent manufacture plus supply of mechanical pumps (+ supplying window manufacturers with handles, locks and hinges, which may have led to the assumption).

Titon are market leaders in trickle vents for over 20 yrs.
Why so long? Trickle vents are horrible for new entrants to copy, because of changing building regs (and intellectual capital to design vents), risk to specifiers in buying new entrant’s non-conforming vents, expense in designing moulds for all the different window dimensions and the fact that trickle vents are very boring.
So Titon’s RoIC matches cost of capital in the long term.


So first I look at the real world, only then do I go to accounts, the accounts show the past, now what is coming.
This line from 2008 half confirms my view, that sales are down.
Operating profit 104 388 357
The reason profit is down is less sales-driven and more cost-driven due to 1. building reg change resulting in product re-design cost, 2. raw material commodity cost, 3. one-off factory moving cost (and 4. UK housing slowdown).
I’m not really interested in sales or profit, but more with free cash flow.
FCF’s positive and they have very credible plans to improving it.


...for a small company they have enough cash to survive the downturn, if they stop making so many windows.

Titon's CEO and founder have run the business for 30yrs+, experiencing 3 housing recessions. So they acted rationally to cut the dividend- great.
And they have nil debt and 35% ownership meaning I’m not junior to debt and our interests are aligned.


The current P/E may seem reasonable but thats going to change when you see next years E.
Ignore P/E - it’s a short cut for thinking- it's just the start of further research.
Refer to my post to Fence (which he didn’t want to reply to!) on P/E.

Overall I would not invest, not because they are bad, but because they are not going anywhere until the market for their product picks up.
I’d be very surprised if a contrarian trader follows an investor’s view!
Value investors minimise risk #1 and hold for yrs, traders focus on returns and hold for as little as minutes.
Having paid below a liquidation value for the company (minimising risk first), I’ll happily wait 3 yrs to double my investment and sell.

Real world > value investing
More like “99% of investors' limited thinking = share price”?
Not a criticism- you surely spent 5-10 mins on your post = represents the market’s view/ most people’s sentiment.
Market is only a voting machine in the short-term, weighing machine in the long term.



Regarding Thod’s brief analysis, it’s interesting how an initially wrong assessment (Titon makes windows) leads to seeking confirming evidence only.
So one wrong hypothesis is built on another is built on another, leading to conclusions that are very detached from reality.

Being initially open-minded yet later drawing conclusions, as with being very humble yet very confident, is difficult to balance but important for investing and rewarding.

Lastly, if you’re truly buying an asset that EVERYone is selling (fearful), then all investments initially look dumb and easy to rubbish ;)
Just follow the books and don’t try anything too smart cos we're not.

[augustus]

It is certainly interesting .
I am curious what areas that you are finding that offer attractive risk/reward characteristics and what risks you are considering as your worst case scenario.

Blade,

I am accumulating a position in Starbucks.

Current prices offer a margin of safety if long term growth slows significantly (but I don't expect that to happen).

[thod]

I am accumulating a position in Starbucks.

Current prices offer a margin of safety if long term growth slows significantly (but I don't expect that to happen).

Starbucks To Close 600 U.S. Stores
July 1, 2008 04:26 PM EST |
SEATTLE — Starbucks Corp. has announced it's closing 600 underperforming stores in the United States.

The Seattle-based premium coffee company also announced Tuesday it expects to open fewer than 200 new company-operated stores in the United States in fiscal 2009.

The company says it will try to place workers from closed stores in remaining Starbucks


Whoops.

[bladeserver]

I'm not sure how this qualifies as a whoops. Even if, and it isn't true in this case, this was a trading position SBUX actually went up today in what was a horrible day in the marketplace.
Would I buy SBUX at these prices? No. Is it a bad purchase? I have no clue.
What is true is that no investment can be judged on such a small time frame unless you are a day trader. I usually find as I accumulate positions that the price continues to decline and I always work with a time frame of at least two years for equities unless there is a specific arbitrage/event involved. As has been said before the market can mostly be ignored apart from those times when it prices things that enable us to buy and sell favorably.

[Max T]

I am accumulating a position in Starbucks.


Starbucks To Close 600 U.S. Stores
July 1, 2008 04:26 PM EST |
SEATTLE — Starbucks Corp. has announced it's closing 600 underperforming stores in the United States.

The Seattle-based premium coffee company also announced Tuesday it expects to open fewer than 200 new company-operated stores in the United States in fiscal 2009.

The company says it will try to place workers from closed stores in remaining Starbucks

Whoops.

D'oh! (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)

Double d'oh!! (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts._effect)

[augustus]

I am not that concerned about the temporarily bad conditions surrounding Starbucks. These are the results of over expansion and the mindset that they can use their brand name to sell almost anything. They lost their focus on coffee. The US recession didn't help either.

Some of the reasons why I like the investment.
- Like Buffet, I value economic goodwill. Starbucks has it in bucket loads. The brand is recognized for premium coffee world wide. In addition to name recognition they can sell a wide variety of items in grocery stores.
- Only about 20% of their revenue comes from outside the US . They have the potential to diversify like Mc Donalds to insulate themselves from further US recessions.
- Management. Howard Schultz built it from 0 to $11B. He's back.
- Huge Competitive Advantage. Starbucks virtually operates like there is no competition. Starbucks has a 11B market cap, there's not a coffee chain even at $300M. This is because of the first mover advantage. Starbucks invented the concept of coffee chains.
- ROE approaching 30% and other strong balance sheet factors.
- The business of coffee is highly predictable and unaffected by change. A 100 years from now I don't know what technology we will be using but I am sure people will be drinking more coffee.

Finally the current business problems and economic climate make the business available at prices that give the investor a margin of safety.

[Max T]

I am not that concerned about the temporary bad conditions surrounding Starbucks.

Quite- thod's just winding up us investors, by speculating about """window manufacturers""" and """coffee farmers""" and focussing on the latest news he's fed.


Speculators/ traders and investors obviously don't mix and this is the investing thread, but he's fun!

[augustus]

Quite- thod's just winding up us investors, by speculating about """window manufacturers""" and """coffee farmers""" and focussing on the latest news he's fed.


Speculators/ traders and investors obviously don't mix and this is the investing thread, but he's fun!

Yep. Thanks.

[bladeserver]

Everyone is suddenly so quiet. I attribute this to :-

a. Ennui
b. The beach
c. Panic.
d. Time spent hunting for value.
e. Confusion

What say you all?

[thod]

What say you all?

Happy days are here again The skies above are clear again So let's sing a song of cheer again Happy days are here again ...

You can make money twice as fast as in bear market than a bull. Instead of looking for value, reverse it and find ones to short. Everythings going down, you can pick them with a pin and make a profit.

As for me, I am chicken. I am sitting on my pile of gold. There just hasn't been enough panic yet, none of the capitulation. When it comes I will dispose of my stash to the greater fool and move to a new home. Its all a psychological game, you see, not a numbers one.

So what do we have in store for you folks this evening? well its inflation and collapsing financials atm. "Buy gold as inflation, there are no safe banks to keep your cash" But thats going to get boring soon. Then we can move to the deflation scare "Sell gold, keep cash". Then we can realise that it was just the news and it was hyperinflation all the time "back to gold". Bond market meltdown is yet to come. Freddie and Fannie get government money. But have you seen the decline of the other bond insurers? they are going down. Need another big bank to go, probably LEH. General Motors and one of the big airlines has to go too. Going to be funny to see the Fed intervene and end up owning an airline. Well all this money has to come from somewhere and helicopter Ben is ordering brand new printing presses. Expect the dollar index to drop to 0.5, before something new is announced. Probably some kind of non redeemable gold certificate.


1. Major bank collapse on Friday
2. Banks unwilling to lend to one another
3. Banks borderline insolvent
4. Folks unable to make their mortgage
5. Manufacturing down
6. Dollar down euro up
7. Unemployment up
8. Major indices down in bear territory
10. Debt (federal and state) at all time highs
11. Debt (personal) at all time highs
12. Gas at nearly $5/gal
13. Inflation taking off
14. Iran itching in to pick a fight
15. American's unable to save morethan .5%

Did I miss anything...?

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We are past denial now and well into fear but not panic quite yet.

[eastman]

I've been following this thread for a while, and I've been wondering if anybody has used technical analysis or has tried to break into wall street as a "quant"?

I'm well aware of value investing, and that has been my current investment strategy, but does anybody else here trade options or futures?

[Max T]

Interesting post, thod- I think we're in denial / fear phase in the UK re. stocks and housing market.


What say you all?

Although holding 4 stocks and c. 50% cash, I'm still not quite seeing dirt cheap. The opportunity cost (i.e. next best choice) of buying and then missing out on an even cheaper company (say 60%+ discounted) in several months time is quite a hurdle.
Also, a key question is 'can the next purchase survive a recession?'- difficult to judge given that the UK's last recession was 1991.


So really I'm just watching, selling the family's house and going into rental accommodation for 3-4 yrs (and buy a repo at auction) and reading "Devil takes the Hindmost"- a history of crashes (very interesting):
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It's all a useful learning curve.

[SmartOne]

At the moment I invest in a managed fund (Pacific region, not US) Buy monthly then every three years cash in if the price is ok. So far making 15% return on average. With shares going down my monthly subscription now purchases more share's, theory is that the markets will recover, price goes up and I get more bang for my buck. Ultimate goal is that this will pay for my modest retirement as I can never see myself actually giving up work. In the past I have used a broker and made a few quid here and there, quite good fun but can take a whole chunk of time to do it. I Don't believe in the "systems" that some people come up with most have been proven to be a crock of dead frogs and are normally disproven when the "oracle" falls flat on his/her face taking a lot of people down with them.

[bladeserver]

Interesting post, thod- I think we're in denial / fear phase in the UK re. stocks and housing market.



Although holding 4 stocks and c. 50% cash, I'm still not quite seeing dirt cheap. The opportunity cost (i.e. next best choice) of buying and then missing out on an even cheaper company (say 60%+ discounted) in several months time is quite a hurdle.
Also, a key question is 'can the next purchase survive a recession?'- difficult to judge given that the UK's last recession was 1991.


So really I'm just watching, selling the family's house and going into rental accommodation for 3-4 yrs (and buy a repo at auction) and reading "Devil takes the Hindmost"- a history of crashes (very interesting):
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It's all a useful learning curve.
I particularly agree with the denial phase in the U.K. and I would, if I could, do exactly the same with my U.K. house.
I am, as nearly always, finding things to buy but there are two caveats to that statement - I am still only net 32% in equities and I always buy too early .

Blade

[thod]

Here is a graph showing yellow metal to dow

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It doesn't go upto now but we can add a new point at 11.5 for today. The curves seems to be following as expected.

Now I am sure there are people thinking "ah but gold could be in a bubble", well here is ^DJI on P/E so no gold prices to consider.

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Its pretty clear that the graphs correlate. I am staying away from equities until 2012. It doesn't matter if its a good company. If everyone else is selling its price is going down, and thats all that matters. Why buy today what will be cheaper tomorrow, heck, sell now and buy it back cheaper.

[SmartOne]

"Why buy today what will be cheaper tomorrow, heck, sell now and buy it back cheaper."

oops, that's shorting (well almost) and is a grand daddy sin if you listen to the banks and Mr Brown.;D

[Max T]

I usually find as I accumulate positions that the price continues to decline...

Yes this is something I've been wrestling with- should you:
A. buy small stakes and average down (Schloss and others do this) or
B. wait for the real fat pitch and invest your full allocation at that price (as Munger advocates).
Personally always done the latter due to simplicity and discipline it adds to purchasing, but presently wished I averaged down!

I always buy too early.

It's the old value investor's lament- buy too early and sell to early. Surely worthy of a bit of waffle.

I've thought about how to squeeze out these last drops of profit from each investment, but suspect that such behaviour is akin to speculating- if a company is a buy at $1 based on your careful analysis, then to wait to buy at 90 cents simply on the basis that the market might depress the price to that figure is akin to buying in the hope of selling to a greater fool when speculating.

So rather than trying to out-think what the market will be doing, I just accept that a purchase might drop another a 20%+ before rising.

In fact, 20% post-purchase declines happen so frequently that I've been considering waiting for 60% margin of safety in the small caps area (and not 50% as before).
The reasoning sounds compelling- if you're only buying mediocre companies with static intrinsics (and lacking experience to do event-driven arbitrage etc.), then the sole driver to investment returns is the size of the portfolio's margin of safety (+ dividends).
No increasing intrinsic is providing returns cos the companies are mediocre, so the objective should be to maximise margin of safety (whereas Buffett's modern objective is to pick companies with >15% RoE over long periods; that's his return + insurance float).
But this crucial issue of maximising margin of safety if investing in mediocre co.s seems to get little coverage (the mantra instead is "buy great at reasonable prices").

And understandably the greater the AUM, the more difficult to find big margin of safety- huge funds like Whitman's seek 30%, biggish like Tilson and Pabrai mention 40-50%... and Buffett in the 1950's when managing thousands to single digit millions mentioned buying $1 for 40cents (60% margin of safety). So extent of margin of safety (inverse of extent of market efficiency) could explain why it's possible to generate 40%+ annual returns with <$1m small sums of money in small caps and very difficult to generate 14%+ with larger sums.

Paradoxically, the smaller the sum of money invested, the greater the % returns achievable yet the lower the incentive to achieve those tiny monetary returns.

[Fej]

Anyone know of any good investing related forums?

[elsdfr]

They all suck. What kind of "investing" are you looking at, US stocks?

[Fej]

US and worldwide, anything and everything. Stocks, options, futures, ETFs, etc, etc.

I want to go DEEP into investing, so I need all valuable info available, I would like to make investing a hobby and possibly get some good money out of it.

[elsdfr]

An easy way it to borrow 10k off daddy, open an IB account (Stocks, Futures, Commodities and Currency) and get a hands on lesson.

Hard way would be to learn the basics and build on it. I'm not about to spoon feed you as I have better things to do but really you're on the Internet, if you can learn from it then I can't help you.

Switch easy and hard if you must.

[Max T]

An easy way it to borrow 10k off daddy, open an IB account (Stocks, Futures, Commodities and Currency) and get a hands on lesson.

Hard way would be to learn the basics and build on it. I'm not about to spoon feed you as I have better things to do but really you're on the Internet, if you can learn from it then I can't help you.

Switch easy and hard if you must.

To add to this, read the basics on the many investing and trading strategies out there and find the one that fits your personality. The catch 22 is you only find what really fits your temperament by practising it- and that takes time and lost money (we all lose some early on).

To crudely find what fits your personality:
A. are you patient enough to wait up to say 2 yrs (investor) for results or weeks (trader)?
B. do you have the independence of mind to buy what no-one else is buying (value investor/ contrarian trader) or prefer trends and joining others (momentum investor/ day trader)?
C. do you like charts (chartist/ trader) or business (value investor)?
This is a very rough indicator!

So first go broad examing many strategies... and then deep into a chosen niche.
Read a ton about that niche, practice it with own money and don't drift into other areas.


May sound tough but you're developing a skill to make money for the next few decades. And bear in mind that most instituional funds have lost between 15-40% of their customers savings/ pension in the last year- an added incentive to manage your own money.

[augustus]

To add to this, read the basics on the many investing and trading strategies out there and find the one that fits your personality. The catch 22 is you only find what really fits your temperament by practising it- and that takes time and lost money (we all lose some early on).

To crudely find what fits your personality:
A. are you patient enough to wait up to say 2 yrs (investor) for results or weeks (trader)?
B. do you have the independence of mind to buy what no-one else is buying (value investor/ contrarian trader) or prefer trends and joining others (momentum investor/ day trader)?
C. do you like charts (chartist/ trader) or business (value investor)?
This is a very rough indicator!

So first go broad examing many strategies... and then deep into a chosen niche.
Read a ton about that niche, practice it with own money and don't drift into other areas.


May sound tough but you're developing a skill to make money for the next few decades. And bear in mind that most instituional funds have lost between 15-40% of their customers savings/ pension in the last year- an added incentive to manage your own money.

Well said Max.

Add to this - Are you disciplined enough to follow a system (whatever it may be) consistently day in and day out.

The problem with most investors is they neutralize their gains from investing in great stocks by letting down their guard with others. At the end of the day they don't gain much.

In investing, which stocks not to invest is as important as which stocks to invest.

[elsdfr]

Being able to change with the markets is also helpful. Getting bogged down in a strategy for too long will kill you. Unless you're investing for value or perhaps "catching the falling knife" you will learn to cut your loss quick or ride it out. Depends on your temprement as well. From what I understand of you just buy into things you like and go from there.

[Fej]

Good info, thanks a lot.

I would like to know how many hours a day/week should I spend researching/analyzing stocks, deciding where to invest, reading charts, staying current with the market, etc?

Also, can one do this and still have a full time job?

[Jgib5328]

Start reading up on all of the fundamental investing books first, then start practicing, preferably with paper money second. That's what I'm doing right now. Study like crazy and practice a lot, and you should get good at it if you have the temperament for it.

[Max T]

The problem with most investors is they neutralize their gains from investing in great stocks by letting down their guard with others. At the end of the day they don't gain much.


Too true- the greatest enemy to our returns is our own behaviour.
Apparently our willingness to take risk (increased by greed/ decreased by fear) fluctuates up and down over the years.

Such high/ low fluctuations leads to our vulnerability to numerous cognitive biases. Say you become fearful- this leads to a proneness to overreact to latest news (a cognitive bias).

So I've experienced augustus' comment that "most investors neutralise their gains".
After taking a big gain on one stock, my next purchase was sloppy as greed led to overconfidence (cognitive bias) which lead to poor return which led to fear.
Oscillating between greed and fear.

To stop such irrationality from decreasing returns, I think the peaks and troughs of greed and fear need to be minimised. Buffett once mentioned that you need 'controlled greed'- greed to motivate through the continual investing process, with control to minimise the oscillations.

How do you minimise the risk peaks and troughs? Identify the drivers:
- current personal stock performance (doing well? higher risk taking)
- current personal life situation (e.g. lost job = lower risk/ fear, pay rise = higher risk) and
- current overall stock market sentiment and the general economy (bull run = take more risks).

So recognising that our risk level changes with every investment decision should makes us more rational and so increase returns.

Guess this emotional rollercoaster can only be experienced with own money- as elsdfr says practice with real money. Losses are an excellent tuition fee!

[merid]

I am part way through margin of safety, I have to say it is much better than Fisher, more consise.

[Henry]

US and worldwide, anything and everything. Stocks, options, futures, ETFs, etc, etc.

I want to go DEEP into investing, so I need all valuable info available, I would like to make investing a hobby and possibly get some good money out of it.


Read The Intelligent Investor by Graham. Any other source is a downgrade, and he's reasonably accessible.

Read 1 chapter of Zweig's commentary (its worthwile) that comes with the book, but don't read the rest - he basically says the same thing in each chapter.

[augustus]

Read "A random walk on Wall Street - Malkiel.

Not overly impressed. The author spent the entire book telling the reader how bad it is to invest in individual stocks. The author prefers to invest only in index funds.

It would have been better if the author had been more open minded. I like index funds too its just that I want to do better than 10.5%.

I guess its a great book to get exposed to the stock market but I had different expectations.

Next stop. On up on Wall Street by Peter Lynch. Its an interesting read so far.

[Fej]

Good info, thanks a lot.

I would like to know how many hours a day/week should I spend researching/analyzing stocks, deciding where to invest, reading charts, staying current with the market, etc?

Also, can one do this and still have a full time job?

Can anyone answer this question please?

I've been patient and waited for a while.

[upuaut]

I used to invest. Not anymore.
The stock market (in the USA at least) is so rigged, it is hopeless.

[Zirka]

Next stop. On up on Wall Street by Peter Lynch. Its an interesting read so far.

I read it. Its a good book, although he does get a bit repetitive by the end. His personal anecdotes were amusing.

[whistler34]

I currently work in a small options trading firm here in Chicago. Nothing big though, as I haven't finished with University; however, the position I am is a grooming position - most people move up to the trading floor. Right now, I find myself having a harder and harder time focusing on the work I am doing. Don't get me wrong, Options theory is quite interesting and there's nothing wrong with making money. The problem lies with my morals. I feel trading has no real social value. I was talking to a guy in the office who joined the Peace Corps after his undergrad and I think I may do that right off the bat to see where I end up.

If you want a great book on the gilded age of trading (you know, when those fools were making bucket-loads during the 80s on bonds), read Liar's Poker by Michael Lewis. Amazing read- real funny.

[augustus]

Can anyone answer this question please?

I've been patient and waited for a while.

Absolutely if you want to be a long term buy-and-hold investor. You might like to be a value investor or a growth investor (my preference) but either is fine.

Try reading works of the great investors like Buffet, Graham, Fisher, Munger, Lynch and so on.

Specific to hours, I spend more time understanding businesses. There is no specific time. The real work only starts if you identify a business available at a great price. Then you want to do due diligence.

Something else you might consider is if you don't have any time at all, try investing in blue chips only. These are the most scrutinized companies in the world with the greatest number of analysts following them. You can easily check up on these companies. You may never get the 50% growth, you get from small businesses but you will reduce the chance of completely losing your investment .

Invest a little at a time and monitor your results. Figure out what went wrong (if you make a mistake - believe me you will), correct it and invest some more. Overtime you will improve if you stick with it.

That's how I learned. I started out with Benjamin Graham and Buffet and I thought I knew it all. My initial results told a different story. So I went back and re-examined these books. Turned out my mistakes were based on ignoring principles outlined by these great pioneers. I just didn't understand it the first time. So I tried again, and again. Overtime, the results were great.

You learn investing by doing but it helps to build on a solid foundation.

[hypervel]

Best of luck. Just keep in mind that the market is neither free nor equal. If you don't own the system, you don't get to win.

[augustus]

I read it. Its a good book, although he does get a bit repetitive by the end. His personal anecdotes were amusing.

Thanks. Nice to hear that.





augustus added to this post, 807 minutes and 50 seconds later...

I currently work in a small options trading firm here in Chicago. Nothing big though, as I haven't finished with University; however, the position I am is a grooming position - most people move up to the trading floor. Right now, I find myself having a harder and harder time focusing on the work I am doing. Don't get me wrong, Options theory is quite interesting and there's nothing wrong with making money. The problem lies with my morals. I feel trading has no real social value. I was talking to a guy in the office who joined the Peace Corps after his undergrad and I think I may do that right off the bat to see where I end up.

If you want a great book on the gilded age of trading (you know, when those fools were making bucket-loads during the 80s on bonds), read Liar's Poker by Michael Lewis. Amazing read- real funny.

I always like to think that traders help investors. By creating demand for stock trading, they reduce trading fees. Traders play a role in the market and as long as it is their money I don't care.

BTW: I have a member in my extended family who has been a trader for a long time. I bought him a copy of "Reminiscences of a Stock Operator". Found out that the guy has read it five or six times already. He loves it.

He once described trading like musical chairs. When the music stops, you don't want to be the one without the chair. Anyway I thought that was pretty funny.

[sam988]

What do you guys think of forex trading? Anyone had some experience with it? I assume it must be possible to make profits in the long term with a lot of work?


What are your thoughts?

[Henry]

What do you guys think of forex trading? Anyone had some experience with it? I assume it must be possible to make profits in the long term with a lot of work?


What are your thoughts?

Its zero sum and relies on predicting other people's emotions or long-term macroeconomic trend in interest rates, purchasing power parity, and changes in export/import competetiveness - ie its impossible to do it over a long period of time. If you're George Soros, then you can occassionally do "no lose" moves like short a currency for more money than is in circulation (as in the case of New Zealand) but this takes several billion.

Its the hardest area of investing to make money in as an individual investor.

[sam988]

Its zero sum and relies on predicting other people's emotions or long-term macroeconomic trend in interest rates, purchasing power parity, and changes in export/import competetiveness - ie its impossible to do it over a long period of time. If you're George Soros, then you can occassionally do "no lose" moves like short a currency for more money than is in circulation (as in the case of New Zealand) but this takes several billion.

Its the hardest area of investing to make money in as an individual investor.

Since my question to now i've done some good studying on it.

It is a very challenging area indeed, and it is zero sum, but it's still possible to make a living out of it in the long term, if you have a good system (which isn't very hard to develop) and a set of rules which you should never break (which is the hardest part).


This is the general idea i got out of it on my studies, anyone with some time of actual experience in this market is more than welcome to share some knowledge :)

[Zee]

Anyone know of any good investing related forums?
investorvillage.com has decent forums

marketoracle.co.uk has some interesting articles

[thod]

It is a very challenging area indeed, and it is zero sum, but it's still possible to make a living out of it in the long term, if you have a good system (which isn't very hard to develop) and a set of rules which you should never break (which is the hardest part).


You will lose a lot of money in FX or commodities.

Because it is a zero sum game, the price movements are dictated solely by the balance between the bulls and the bears. Fundamentals do not matter at all except in their effects on the minds of the traders. If more traders are bullish then the price goes up and the reverse.

Thus the most successful FX trader is the average trader. He will be bullish when the crowd is bullish, he will turn bearish when the sentiment of the crowd does. Thus his buy or sell decisions will occur on the peaks and troughs.

Being too brilliant or insightful or analytic are disadvantages. They will cause you to be bullish when the crowd has turned bearish and thus cause you to lose money. All that matters is what the crowd does.

As an INTJ you are unlikely to be average and thus you will not be in sync with the crowd and you will lose money. You should stick with areas that you can do well in such as analysis, and avoid having to play the psychology game.