Investing Strategy

  • 16 Apr
    Sunday Edition: Would John Templeton Buy This Sector?

    Sunday Edition: Would John Templeton Buy This Sector?

    When a market is as overvalued as the S&P 500, it’s best to be defensive, rather than being 100% invested, trying to eek out every last drop of potential gain.

    I don’t care if the market moves another 10% or even 15% higher based on momentum.  When you compare the potential for another 5% to 15% upside against the risk of a 50% or greater crash, it seems like a foolish move to me.

    At the top of a business cycle (we are there now), the most successful investors will typically hold much larger than normal cash balances and only commit new money to sectors which are truly undervalued – and trading at a point of maximum pessimism with a nice margin of safety. More →

  • 14 Apr
    Debunking Bad Investment Advice: Don’t Buy That Wonderful Brand At Just Any Price

    Debunking Bad Investment Advice: Don’t Buy That Wonderful Brand At Just Any Price

    • As wonderful as a company may be, the price paid for it is the determining factor for investment returns.
    • Many companies with great brands have seen their stock prices appreciate while their fundamentals stagnate.
    • Buffett has mostly bought at wonderful prices. Keep that in mind when investing.

    Introduction

    It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

    Many asset managers and financial advisors have Buffett’s quote on their promotional materials and web pages. However, more arguments can be made against the above statement than for it. We’ll go through some examples to help prevent you from falling into the trap of paying what the market thinks is a fair price for companies that might not be that wonderful after all. More →

  • 12 Apr
    How To Prepare For Anything The Economy Throws At You

    How To Prepare For Anything The Economy Throws At You

    • All stocks will rise with a rising tide, therefore it’s wise to buy those stocks that won’t fall off a cliff in a recession.
    • The usual suspects—like consumer staples, utilities, and healthcare—are good ideas, but not at any price.
    • Bonds are close to becoming a win win situation.

    Introduction

    Yesterday we analyzed the FED’s latest meeting minutes, and saw how when the FED applies historical probability calculations to their own estimations, the result is that anything can happen.

    The FED itself stated that, in the next few years, economic growth could be anywhere between -0.5% and 4%, unemployment between 2% and 7%, and inflation between 1% and 3% with a 70% confidence interval. A 70% confidence interval means that there is a 30% chance economic indicators end up outside the above mentioned ranges. More →

  • 10 Apr
    Are You A Top Down Or Bottom Up Investor?

    Are You A Top Down Or Bottom Up Investor?

    • It’s best to use a bottom up and not a top down approach to investing if you want to lower your risk and increase your returns.
    • A value investor doesn’t like risk and invests with a huge margin of safety, is patient, happy to stay in cash if there are no bargains, constantly looks at balance sheets, and buys the present. Positive future developments in a business are just a bonus.

    Introduction

    We’ve covered more than half of Seth Klarman’s book Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor. I’ve received amazing feedback on the series and hope you will be satisfied with the summary and comment on the second half of the book. You can read the previous articles on the topic here. More →

  • 09 Apr
    Sunday Edition: How Bad IS the Worst-Case Scenario?

    Sunday Edition: How Bad IS the Worst-Case Scenario?

    If there is any single issue that generates more uncertainty, anxiety, and questions than any other about the Rebel Income system, I think it may be the perceived downside that comes with a stock assignment. Some of that uncertainty is a good thing, because it is true that selling put options (considered a naked transaction by brokers) without an understanding of the potential consequences leaves you more exposed to risk. However, I also believe that most of the fear that people tend to have about put selling is misinformed. More →

  • 06 Apr
    Read This Before Investing In The Next “Cool” Company

    Read This Before Investing In The Next “Cool” Company

    • The investment thesis behind investing in cool businesses is based on stellar growth. As no business can grow forever, sentiment often changes and stock prices plunge.
    • We’ll discuss, Tesla, Nike, Lululemon, Whole Foods, Under Armour, GoPro, Fitbit, and Microsoft to find the best way to invest in such businesses, because many of them are great businesses.
    • In the end, it all boils down to earnings. If you’re a long-term investor, focus on the business and its long-term health.

    Introduction

    I’m a value investor and as one, I always try to invest with a margin of safety. However, sometimes I get carried away and invest in companies that don’t really meet my investing criteria.

    The last investing mistake I made—where I invested in something because it was a cool brand, my wife loved shopping there, and it was growing fast—that perfectly relates to the topic of this article, was Whole Foods Market (NASDAQ: WFM). More →

  • 03 Apr
    Margin? Now? Really?

    Margin? Now? Really?

    • Margin levels are at record highs. History shows that this indicates high levels of greed and an inevitable bear market ahead.
    • It’s funny how when stocks are expensive, margin levels are high while when stocks are cheap, margin levels are minimal.
    • Leveraged investing should be only used when the earnings yield is above the interest rate. In such a situation, a personal bank loan is much better than investing on margin. If you can’t take a personal loan from your bank, forget investing on leverage as it pays more to pay off your credit card debt.

    Margin Levels Are At Record Highs

    It always baffles me when I see the level of greed in the investing community when the market is at all-time highs.

    A very small minority approaches investing from a risk reward perspective, and the rest approach it like a casino where they think they can beat the house. Further, a long bull market makes everyone think they’re so smart, while greed pushes them to bet more and more as losing seems impossible. More →

  • 02 Apr
    Sunday Edition: Should You Use Stop Losses?

    Sunday Edition: Should You Use Stop Losses?

    Occasionally I get emails from subscribers about my approach to stop losses on the stocks I hold in my portfolio. If you’ve subscribed to my Rebel Income, I expect that you’ve noticed I never write about stop losses on stocks I am assigned from my put selling trades. This isn’t a simple case of omission, but instead a deliberate piece of the income generation system I use. I don’t use stop losses on any stock I am assigned on purpose. More →

  • 31 Mar
    Don’t Give Up On Stock Picking. Do It The Right Way.

    Don’t Give Up On Stock Picking. Do It The Right Way.

    • Passively managed funds are extremely dangerous as their positive performance is self-reinforcing due to the huge positive net inflows.
    • But don’t jump to actively managed funds as, on aggregate, they will always underperform the market in the long term because they are the market.
    • The only solution is to invest like a business owner. You can do this by investing yourself or by finding an active manager who has the same principles.

    Introduction

    A recent Wall Street Journal article described how BlackRock (NYSE: BLK) is switching to robots from using humans to improve its stock picking for its actively managed funds. BLK’s reasoning is that its stock picking unit lagged in performance and has had many withdrawals that cut assets under management to $275 billion from $317 billion in the last three years despite the S&P 500 surging 27% in the same period. The hope is that robots will perform better at lower cost. More →

  • 27 Mar
    Want To Find Great Investments? Find Mismatches Between Market Perception & Reality

    Want To Find Great Investments? Find Mismatches Between Market Perception & Reality

    • A great company isn’t always a great investment, while a bad company can be a great investment.
    • In this environment, it’s very difficult to find great investments as only 35% of listed companies are creating value for shareholders.
    • The essence of investing is to find mismatches between the market’s perception and the company’s future.

    Introduction

    One of the most famous investing quotes is Buffett’s reflection on owning great businesses:

    “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

    In the current market, investors seem to focus only on the “wonderful company” part and totally forget the “fair price” part. More →

1 2 3 4 5 6 11