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getrichdietrying (81.05)

Becoming a Seasoned Investor Part. 1.

Recs

20

May 18, 2013 – Comments (23) | RELATED TICKERS: JPM , P , SNE

It's been only six years since I started began foolish investing and so far I still have alot to learn.  Let me tell you I did not attend or receive a degree from a prestige business school.  What I have learned has been self taught extremely hard with losses amounting to tens of thousands.  The only comfort I can take away from that is I learned and that it is still only a 1/2 semester of a prestige semester at one of the afore mentioned types of universities.  Along with that I am finally on track to earning those losses back and finally be in profit. My seasonings now are:

 

DON"T invest in stocks or companies based on their one day movements.

DO NOT invest in ANY ULTRA or PRO type shares. (Huge losses here).

DO NOT play with shorting ANY company.  For no reason you can fathom they will rise and you will be left broken under Margin. (Been there it left a foul taste) ie. HLF, ANGI.

DO NOT invest in a company with bad future outlook even if it shows short term investment return in stock value, because that company has not shown real value versus stock value. (JCP, BKS, BBY). JCP is the only company I see that might make it but not without closing loss leader stores which they can't due to covenants.

DO NOT Diversify too much. You return will either be dismal, a loss, or just be in stagnation.

DO NOT speculate too much, pick only one to two companies that are well recognized, well known, are offering tremendous possibility while they would still hold your current entry point and continue on to growth with real value. (TSLA, P)  (I myself have taken my TSLA profits after a gain of 100% in less than a week which came as a major great surprise.)

DO find a investment partner, a club, a community such as this, and a friend who you can invest along, talk, listen, learn, gain in profits along with.

DO follow a Top Fool here but DO NOT invest in RLP just because "he/she" did:

http://caps.fool.com/Blogs/how-to-win-like-top-fools-in/796420 

DO invest only in a handful of companies that are sound, well recognized/known, have the potential for future growth in value WHILE at the same time it will hold your current entry point. (GS, JPM, GOOG, SNE, YHOO)

DO use Margin for leverage only in GREAT COMPANIES that show a very little margin hold requirement. (GS, JPM, GOOG, SNE)

 

I an seeing a path to enlightenment which means sticking to my own methodology listed here, it tastes really great.  I will never stop learning but I learned this much so far and now try extremely hard to learn from other people's mistakes or great teachings left by the foolish community here.  I hope you Fools among us can leave what you learned here no matter how foolish an embarrassing lesson or an exemplary accomplishment it is for us all to learn to trade better. This post is meant to help not hinder.

 

23 Comments – Post Your Own

#1) On May 18, 2013 at 10:21 PM, awallejr (82.88) wrote:

I will throw a few more do's and don'ts I learned:

1)  Start selling puts on companies you want to buy but seem too pricey (but don't exceed using 1/3 of your margin availability).

2)  Create a core Yield group (5-10).  You want to create an income stream.  MLPs, BDCs and REITs are great here.

3)  With rare exception avoid heavily indebted companies.

4)  Don't just use a drip (although nothing wrong with using them if you want to continue to grow your holding in a given company).  Let your income stream accumulate then redeploy as opportunities present themselves (such as corrections). Sucks when a market corrects and you see a great price but no cash to act with.

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#2) On May 19, 2013 at 4:10 PM, Mega (99.95) wrote:

Learn from Graham, Buffett, Munger, Fisher, Klarman, Marks, Einhorn and other superinvestors. Don't just read them (or worse, read about them), think about why their ideas work and how to put them into practice.

If you're paying a fair price for something, it better be a great company. If you're buying an OK company, it better be a great price.

Ignore analysts. Generally, they can't see the forest for the trees. Even if they correctly predict short-term earnings (which they usually don't), that's not particularly helpful for investing.

Cash flow, dividends and buybacks are more real than earnings. Short term assets are more real than long term assets and intangibles. Pay attention to managers and investors who have a track record of consistent profitability.

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#3) On May 19, 2013 at 4:16 PM, Mega (99.95) wrote:

By the way, I have to disagree that Sony is a great company. Their profitability (e.g. return on invested capital) over the last 5 years is lousy.

The thesis for their recent surge is that they're a mediocre company that can be turned around.

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#4) On May 19, 2013 at 5:41 PM, awallejr (82.88) wrote:

I have mixed feelings about stock buybacks.  Often times it can be a waste of money or a way to "hide" option bonus's given to management.  Ones I like are when they are massive and when the stock is at lows (XRX and ACAS for example).  I didn't like AAPL's when they wanted to do it when the stock was mid 600s.  I don't mind it now when it is at lows.

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#5) On May 19, 2013 at 6:46 PM, Mega (99.95) wrote:

awallejr

That's true.

But although AAPL announced a $10B buyback in early 2012, they didn't execute it. (In my opinion, they didn't really want to buy stock in the $600s, they just had to come up with a plan for their cash.)

Now that it's in the low $400s, they increased the buyback program to $60B. Right now, it would not surprise me if they are in the market daily. The number of shares outstanding should fall significantly over the next 2 years.

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#6) On May 20, 2013 at 10:57 AM, jiltin (24.34) wrote:

getrichdietrying,thanks for summarising. It gives better idea for a newbie like me. 

I learnt everything you said by experience except this "DO NOT Diversify too much". I was thinking about this point, whether to or not to. You have resolved it.

One more I follow, never play on margin. I do have margin account, but I do not use it. If I make a loss, it becomes zero for me, but not negative. This is my own safer side limit.

I expect appx 25% total return. When I get it, I  realize the value by selling all. I count how much money I gained. Then reduce my investment. For example, I made appx 65% return on TSLA when I bought 550 shares. Sold everything to realize. But now, I have invest 100 shares (first kept 25 shares alone, then added 75) for ever as long term investment.

Similarly, I purchased 700 shares of SCTY and sold 500 after 88% of returns, keeping 200 shares (first kept 50 shares alone, then added 150) as a long term.

I do not want to see my book value, but would like to realize the value.

I do not know whether this good or bad idea.

 

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#7) On May 20, 2013 at 4:26 PM, getrichdietrying (81.05) wrote:

Can't tell you if your stretegy works long term as everyone learns what works for their individiual personality differently. 

Some diversification is good even in just a handful of holdings such as in Industry, CEO-COO,  too tied together investment holdings to each other might not be wise. TSLA-SCTY.

I do recommend not using margin to short, however I recommend using margin in great companies that will hold your entry better and reteurn profit after margin cost.

The strategy of expecting 25% is one I can get behind. 

I am not sure of holding out for companies that double 100+% in less than a month to continue their upside unabated is wise even as long term investments.  It screams take all profit now and run and hold that profit till market correction.  I understand no one wants to miss out on a multi-tripple digit bagger like Google and Apple because every one has their story of "I sold too early."  What they don't realize is there will be other chances and not every chance is another Google and Apple.

I will buy back into TSLA when it corrects and they come out with a average priced car for the average consumer, till than I am not paying a company that is same market value as Fiat, and Mazda. As to SCTY I did not invest because it is way overpriced even at $20 a share when I knew Eon Musk is Chairman not CEO because of fundamentals.  Conflict of interest is huge for Tesla for him to continue to remain with Solar City where he would consider using SCTY for any energy needs over better quality and better priced competitor might be one issue that arises.

Your strategy works for you is great, to learn different strategies make sure your not too vested in that all too familiar costs of the learning curve.

Thanks for your ideas.

 

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#8) On May 21, 2013 at 3:04 AM, valuemoney (99.99) wrote:

MegaShort brings up some VERY important points! Nice blog by the way. This is a type of blog people should read. I would add you should NEVER speculate not even one or 2 stocks. It is pointless in my own opinion. Consistent earners an much of what MegaShort said is the only way to go.

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#9) On May 21, 2013 at 4:56 PM, getrichdietrying (81.05) wrote:

awallejr

I don't mess with options due to how confusing and complicated they are. 

Income stream is when I don't want the volatility of the market and just wish to live on that stream.  Their returns are not as great as stock picking accurately.

I do ignore analysts and the thousands of charts that will literally leave you dumbfounded and panicky at every movement.

MegaShort

I agree with what your saying about learning from super investors.  I think your quoting what they said which is great when your rich and become a sage to the rest of the world but it's not any different than when you go buy a car.  Make sure to get a deal and not a lemon.  I agree what they say does make you a better investor I am just clearing up to a understandability of real world application- car and a lemon.

awallejr,
, MegaShort

Mixed feelings is right.  The one thing I have noticed about stock buybacks is that the CEO-management are not able to come up with better ideas and therefore resort to what they learned in Business Class 101.  Which is when you don't know what your doing and your investors are screaming increase the dividend and announce buyback of shares.  AAPL lost it's mojo after Jobs and Tim Cook is no visionary, I see Apple's dominance coming to an end and losses will accrue, which at that time at their worst I will invest when they replace the CEO with a visionary. The point is buybacks and increasing dividends to me show lack of innovation in that company and their stocks will continue to loose value.

jiltin

See prior post. Thanks.

valuemoney

Thanks. If you don't speculate you hate yourself when you missed that next Google, or Apple. I remain steadfast in that pick a good one and limit yourself to a max of one to two.

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#10) On May 21, 2013 at 5:36 PM, ChrisGraley (30.19) wrote:

You can break any of the don't rules if you know exactly why you are breaking them despite the rule. It's a learning curve and with experience comes variations.

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#11) On May 21, 2013 at 6:35 PM, awallejr (82.88) wrote:

Well back on buybacks, Mrk announced a $5billion one.  Would have been better if they threw that money into R&D.

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#12) On May 21, 2013 at 7:10 PM, Momentum21 (97.52) wrote:

Regardless of what we might think most of us aren't going to beat the index.  

Picking winners is not as important as managing the bank.

Human nature is to sell our winners way too early. We are weak.

We think holding a stock that has doubled is greedy or risky and that "no one ever got hurt taking a profit."  

If we are going to take the risk we better be able to hang around for the reward. 

The more CNBC we watch, the dumber we get.  

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#13) On May 21, 2013 at 7:26 PM, Momentum21 (97.52) wrote:

MegaShort (99.95) - regarding SNE - isn't our ability to beat an index based upon our ability to find companies like SNE? I don't think anyone would define them as great but certainly better than a JCP (a favorite of some superinvestors). 

Sometimes the premium you pay for "great" is not worth it.  

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#14) On May 21, 2013 at 7:26 PM, Momentum21 (97.52) wrote:

MegaShort (99.95) - regarding SNE - isn't our ability to beat an index based upon our ability to find companies like SNE? I don't think anyone would define them as great but certainly better than a JCP (a favorite of some superinvestors). 

Sometimes the premium you pay for "great" is not worth it.  

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#15) On May 21, 2013 at 9:39 PM, getrichdietrying (81.05) wrote:

awallejr

Guess how MRK is funding the buyback? With cash on hand?

Nope

Merck Prices $ 6.5 Billion Debt Offering

 Wednesday, May 15, 2013 6:29 pm EDT

http://www.mercknewsroom.com/press-release/corporate-news/merck-prices-65-billion-debt-offering

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#16) On May 21, 2013 at 10:39 PM, mistermiranga (98.31) wrote:

Of course, literally FREE money! : )

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#17) On May 22, 2013 at 1:56 AM, awallejr (82.88) wrote:

Have to say that is insane by Mrk Getrich.  Sure the borrowing cost is low, but they need to grow their pipeline, that is the nature of their business.

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#18) On May 22, 2013 at 12:17 PM, Mega (99.95) wrote:

Momentum21 wrote:

isn't our ability to beat an index based upon our ability to find companies like SNE? I don't think anyone would define them as great but certainly better than a JCP (a favorite of some superinvestors). 

Sometimes the premium you pay for "great" is not worth it.  

Sure buying companies like Sony, at the right price, can be profitable.

You're right, JCP is probably in worse shape than SNE. But JCP's valuation seems lower. Great investors own both companies, but I don't believe in copying great investors, I believe in learning from them. It's like the saying "Give a man a fish, and you feed him for a day. Teach a man to fish and you feed him for a lifetime."

Whether you buy great companies at decent prices or decent companies at great prices, you have to be able to quantify how good the business is and how good the price is.

In the original post, getrich did mention SNE as a great company.

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#19) On May 24, 2013 at 4:19 PM, getrichdietrying (81.05) wrote:

MegaShort

I don't get it "but I don't believe in copying great investors."  Isn't that what learning from them is, to follow in the footsteps of the superinvestors therefore to "copy" them to become a superinvestor like them yourself.  I believe that is what learning from them is, isn't it?

jiltin

I am trying out your strategy of keeping only the original cost basis in the fast growth stock (TSLA, my entry point todays close) and taking the profits.  We will see if this is a good one to make it to part two of Becoming a Seasoned Investor.

 

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#20) On May 28, 2013 at 12:43 PM, Mega (99.95) wrote:

If you just look at 13Fs, you don't know why they bought something or sold something, or their trading activity, or any short positions or foreign positions, or what their plans are for exiting a position. All you know is some of the securities they owned a few months ago. That's a massive knowledge gap between you and the person you're copying.

You probably can't replicate a superinvestor's performance if you have a massive knowledge gap.  However, if you understand the thought process behind investment (not just the tickers they hold), you can replicate their performance.

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#21) On May 28, 2013 at 7:08 PM, getrichdietrying (81.05) wrote:

I see. Just what exactly are the records of their performace in pecentages? I trully don't know..I assume as a Hedge Fund Managers using leverages probably puts them in at 10%+year over year for last 50years like Buffet?

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#22) On May 29, 2013 at 11:26 AM, Mega (99.95) wrote:

Yes, some hedge fund managers have a history of beating the market by 10% annualized. Unlike public companies and mutual funds, hedge funds aren't required to disclose performance publicly. But the best managers usually start their letters with their long term performance record.

http://www.hedgefundletters.com/recent-letters/

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#23) On May 29, 2013 at 11:31 AM, Mega (99.95) wrote:

By the way, many hedge funds these days don't use leverage or short positions. Mohnish Pabrai is one example - his performance record is great.

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