Investing Strategy

  • 14 Mar
    The Market Is Overvalued – Look For Merger Arbitrage Opportunities

    The Market Is Overvalued – Look For Merger Arbitrage Opportunities

    • The arbitrage idea disclosed back in October has delivered 14% since then, but that isn’t the point.
    • The point is that merger arbitrage can deliver significant returns with less risk.
    • You can further improve your returns by not listening to the media, or even better, by listening but doing the opposite.

    Introduction

    There are essentially two low risk options to invest in in these expensive markets. It’s true that the S&P 500 can go higher in 2017 and 2018, but it’s what we don’t see coming that scares me at these valuations.

    The S&P 500 has a CAPE ratio of 29.14. This ratio has been higher only two times in history. You can read more about the CAPE ratio here. More →

  • 13 Mar
    Value Investing: The Importance of a Margin of Safety

    Value Investing: The Importance of a Margin of Safety

    • A margin of safety and value investing aren’t so attractive in rising markets, but become essential in declining markets.
    • The lower the price, the higher the margin of safety, no matter what the market thinks. Klarman usually buys more in such occasions.
    • Algorithms and numbers don’t make great investors. Discipline, patience, and judgement do.

    Introduction

    We have finally arrived at the core of Seth Klarman’s book Margin of Safety, i.e. Value Investing and the Margin of Safety.

    “Value investing is the discipline of buying securities at a significant discount from their current underlying values and holding them until more of their value is realized.” Klarman

    The essence of value investing is finding a bargain, i.e. buying a dollar for much less than one hundred pennies. When a bargain is found—and they can be very difficult to find, especially in a market like the one we’re in now—the next step is to determine the margin of safety, or the discount the price offers in relation to the undiscovered value. The bigger the discount, the better. More →

  • 10 Mar
    How The CAPE Ratio Can Give You An Investing Edge

    How The CAPE Ratio Can Give You An Investing Edge

    • The CAPE ratio shows when something is cheap or expensive and is much more precise than the PE ratio.
    • The S&P 500 is 74% overvalued and will result in negative 10-year returns according to the CAPE ratio and history.
    • However, there is plenty that can be done to improve your returns.

    Introduction

    Whether you’re a long-term investor or a trader, something that gives you a clue on the long-term trend around a security or sector is always very useful. Such a ratio was developed by Yale professor Robert Shiller and he didn’t get a Nobel prize for nothing, the CAPE ratio really works.

    Today, I’ll describe it, show how it can be used, and analyze its past performance. More →

  • 09 Mar
    What Is Your Investing Edge?

    What Is Your Investing Edge?

    • We’re all different, so investing can’t be one size fits all.
    • This article will discuss various investing edges that could fit your investment attitude.
    • Don’t worry about Wall Street and their billions spent on research. These days, almost all data is available online and only you can make the best decision for yourself.

    Introduction

    The market wants you to believe that you don’t have an investing edge. It’s simply not in the interest of the industry that you do your own investing because without fees, Wall Street would soon turn into something like the image above and with the bull long gone.

    However, we’re all different and you should find an investing edge that best suits you and your investing goals. The beauty of investing is that it isn’t one size fits all. More →

  • 07 Mar
    The Superinvestors Of Graham And Doddsville – Is Buffett A Hypocrite?

    The Superinvestors Of Graham And Doddsville – Is Buffett A Hypocrite?

    • According to Warren Buffet in 1984, investing and beating the market is simple: just use value investing and a margin of safety.
    • For this market, value investing is irrelevant. However if things change, value investing will become essential.
    • Spoiler alert: What I’ve written in this article you will either immediately like or totally disregard. Unfortunately, the latter will have a negative impact on your wealth.

    Introduction

    One short, 15-page article holds more investing insight than all the content published by the media in a year. It’s Warren Buffett’s article The Superinvestors of Graham and Doddsville.

    As the article was written in 1984, it gives you the real, non-political and unconstrained Buffett. Today’s Buffet is a hypocrite because he is forced to say index funds are a good investment even though stocks are at valuations he would never approve of. He has become so big that anything opposite to positive statements would lead to a possible market meltdown. Plus, don’t be confused by the fact that he recently bought $12 billion of stocks, as he bought into extremely cheap sectors, you can read more about that here.

    Today, I’ll summarize Buffett’s article and put it into today’s context. More →

  • 05 Mar
    Sunday Edition: How To Set Up A 10 To 1 Reward To Risk Trade

    Sunday Edition: How To Set Up A 10 To 1 Reward To Risk Trade

    Today I want to briefly discuss the difference between trading and investing (there is a big difference) and then show you how to set up a trade with very high reward potential and minimal risk.

    Many market participants don’t properly distinguish the difference between investing and trading which can be detrimental to the success of a portfolio.

    An investment is an asset that is purchased with the hope that it will generate income or will appreciate in the future. Whether investing in public or private companies, you are becoming a literal owner of that business and have claim to a certain percentage of assets and cash flows. More →

  • 03 Mar
    Why An ETF Is The Wrong Way To Invest In Emerging Markets

    Why An ETF Is The Wrong Way To Invest In Emerging Markets

    • Irrational market sentiment and low liquidity create high volatility that can easily be seized by smart investors. Just do the opposite of what the crowd does.
    • Despite what the market might think in a certain moment, emerging markets and businesses grow alongside economic development and positive demographics.
    • ETFs are the crowd and due to their construction and rules, ETFs represent buying high and selling low, which is a terrible strategy anywhere but it’s extremely costly on volatile emerging markets.

    Introduction

    I have a positive bias towards emerging markets because of their positive demographics, growth aspirations, and low starting level from a macroeconomic perspective, and because, from a behavioral perspective, emerging markets are completely irrational, much less liquid, and highly volatile, especially individual stocks.

    You might wonder why I like volatility, low liquidity, and irrational behavior. Well, at the first sign of fear on financial markets, everybody rushes to sell their emerging market position. This, combined with low liquidity, creates huge volatility which is the best investing opportunity if you are a value/growth investor. More →

  • 01 Mar
    Value That’s Measured In Millions

    Value That’s Measured In Millions

    • My goal for what I write on Investiv Daily is to increase yearly returns by 4 percentage points for those who want to remain invested in the U.S. and diversified across sectors, by 8 percentage points for those who want the same but dare to go international, and by 12 or more percentage points for those who want to look at specific stock investments.
    • History, statistics, the Buffetts of the world, macroeconomics, cycles, etc., show that returns of above 16% on an annualized basis are possible, so why should you settle for average?
    • The current investing environment praises index or average investing. However, I would wait for a complete business and market cycle to pass before praising an investment strategy. It’s fun how quickly people have forgotten about 2001 and 2009.

    Introduction

    You probably know that I’ve been writing here on Investiv Daily for a while now. Apart from the content and commentary that I publish here, I have a very specific goal in mind. My goal is to eliminate the word “average” from your returns and without increasing your risk. More →

  • 27 Feb
    A Value Investment Philosophy

    A Value Investment Philosophy

    • If you want to succeed in investing for the long term, your focus has to be on potential losses, only later should you look at potential gains.
    • Risk can’t be determined from historical data, it only depends on the price paid.
    • Risk avoidance is compatible with investing success when the correct approach is used.

    Introduction

    Given the great response, I’ll continue with breaking down Seth Klarman’s legendary book Margin of Safety.

    You can read my introduction to Klarman’s Margin of Safety here, my review of chapter one, Where Most Investors Stumblehere, my review of chapter two, The Nature of Wall Street Works Against Investorshere, and The Institutional Performance Derby: The Client Is the Loser chapter, here.

    Today, we’ll focus on the second part of the book, A Value Investment Philosophy.  More →

  • 26 Feb
    Sunday Edition: Fear and Greed: The Gremlins That Guzzle Your Money

    Sunday Edition: Fear and Greed: The Gremlins That Guzzle Your Money

    No matter how experienced you are as an investor, or how much money you’re working with, I’m willing to bet you started out in about the same place I did: you decided to buy that first stock because something, or someone, convinced you it was a good idea. Maybe your were acting on a stock tip from a close friend, or you saw Jim Cramer talk about how much he liked a stock. Either way, I’m willing to bet that initial decision was driven more by your emotion than it was on your ability to analyze the market or evaluate the stock itself. More →

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