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TMFMileHigh (74.60)

How do you invest?

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December 06, 2006 – Comments (2)

I'll be honest: it feels a little weird to blog. Airing your thoughts as though someone actually cares takes more than a little dose of hubris, I think.

Nevertheless, blogging is a cool idea when it comes to CAPS. How better to gauge the prevailing winds blowing through a community of 15,000+ investors than to read the raw thoughts of those participating? The pure power of the idea compels me to participate.

But let's start small, with one simple question: How do you invest? Do you like stocks that trade at historically low P/Es a la John Neff or the Sound Shore Fund? (Sound Shore, incidentally, is a favorite of mine: http://www.f...06091428.htm)

Or do you prefer beaten-down stocks that are suffering from a temporary blast of bad news a la our Foolish admiral Philip Durell? Higher-octane stocks that possess the potential to double in three years or less? Small caps? Large caps? Fool caps? You get the idea.

I ask for two reasons. First, because I'm curious. Second, because I have a theory about what sort of investor makes a Fool. I'll reveal my hypothesis in my next post, after reading your responses.

In the meantime, here's a short description of how I invest.

First and foremost, I like cash. My best investments (Akamai, Oracle) are businesses that produce big wads of cash each quarter thanks to easily identifiable competitive advantages. Well, easily identifiable for me because I've studied tech for so long. For the market, the real cash-generating power of each of these stocks was widely misunderstood for a loooooooong time. Short interest was high and the P/E and PEG ratios were either stratospheric or nonexistent. Yippee!

Seriously. I don't think there's any real profit in stocks that are easy to follow. Go with your edge. Mine is tech. And growth. What's yours?

2 Comments – Post Your Own

#1) On December 06, 2006 at 11:36 PM, TMFSpiffyPop (99.40) wrote:

Tim, great to see you getting started, here. I think you probably know some of how I invest, but I'm one-part "Motley Fool Investment Guide" and one-part "Rule Breakers, Rule Makers" (the former part). ;)

That is to say, I am focused on growth in both cases, but like to mix big-cap "evergreen" companies that I think are so competitively strong that you should own them for the long haul -- and particularly add to them on weakness -- together with the exciting small-to-mid-cap high-octane growth component.

But really, for me, far more than any numbers appearing either in valuations or income statements, I try to focus on who is actually running these companies, and then also picture the 10-year future for this company and for its industry. Starting with the industry, I like to get a ballpark sense of how much cash flow the industry might generate, and then for the company, how competitive will it be in the battle for profits within its industry. More than anything, I like to find emergent leaders before they hit the front pages of The Wall Street Journal or Forbes.

There's a lot more besides, of course, and in the end the best way to "see" how I invest is to take a look at the different services or scorecards I oversee or have overseen for the past dozen years.

Final point: I'm always open to change. I look to assimilate new ideas, approaches, technologies, etc., and I aim to accommodate them in my thinking and my investments if they seem powerful to me. As a consequence, my approach to investing has evolved continuously since I bought my first stock 22 years ago.

Fool on! --David

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#2) On December 12, 2006 at 6:39 AM, TMFBreakerTAllan (99.00) wrote:

Tim

How do I invest? I don't know, but I am thinking that the company and its products needs to be relevant and have potential to grow and expand. And cash - that's great, but as I look to my portfolio, 1/2 my holidings don't have earnings (and that includes the Savings Bonds that I am purchasing for future college expenses)

I am coming to realize that a company has to pass most or not all of the schools of investment thought from DCF analysis, to ratio comparisons within the industry, to having a great market for products and be either somewhat unknown or out of favor in order to be a real buy. An amalgam as it were of ...

everything.

And I am finding it hard to find those companies to invest in.

T. Allan

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