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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: AnthonyD who wrote (43476)	7/21/2011 12:40:01 PM
From: Paul Senior	1 Recommendation Read Replies (1) \| Respond to of 78652

You need some help -g-. Security Analysis is among the most recommended books when people talk about value investing books and/or Ben Graham. It's also the least read, especially by the people recommending it. lol. jmo. I say don't waste a lot of time on this out-dated dullard of a book. --- Also - and this is just my opinion - your posts might have more credence or weight if you could give Warren his other "t". He's not an all-you-can-eat buffet, he's W. Buffett. -g-

To: AnthonyD who wrote (43476)	7/21/2011 4:25:21 PM
From: armi	Respond to of 78652

Intelligent investor and security analysis is more or less the same. Reading Intelligent Investor is sufficient for today's market. IMO, it's crucial you specialize in something on the market. Buffett says one doesn't have to know everything and I agree as well, like me, I stay out of airlines, im doing poorly in SKYW and AIRT, and I'm very cautious regarding banks and insurance as I know I'm not really good with those. When it comes to tech, I know I have an advantage and Chinese stocks as well.

To: AnthonyD who wrote (43476)	7/24/2011 6:57:00 PM
From: Shane M	1 Recommendation Read Replies (2) \| Respond to of 78652

Anthony, As far as specialization. I'm not sure of your experience or background, but depending on how much time you've put in and time/experience I think matters for how you perceive the market and how it works. I've had the benefit of 2 monster bear markets in the 2000s followed by a couple of powerful bulls. Before that I saw the tech bubble of late 90s. Prior to that it was pretty much bull market my entire life. (I bought my first stock with lawn mowing money when I was a teenager back in the 80s, so until the 2000s I didn't really experience the a real grinding bear until the tech crash in 2000-2002.) I was getting very much into tech until the 2000-2002 bear which showed me the downside of the market - caused me to broaden my thinking to be much more afraid of the downside. It's odd now that many of the tech darlings of 2000 are so "cheap" now - things have nearly come full circle in a way. I started educating myself w/ the Peter Lynch books - I really liked the way he took time to explain how to read financials in some cases; stuff like Malkiel's "Random Walk Down Wall Street" was interesting was recommended by one of my college professors. After that I just started reading a bunch of stuff that was in the same section in the library. After a while alot of it starts sounding the same so you can start skipping more, but occasionally you get lucky and hit something interesting from different angles. I read through Value-Lines that were free at my college libraries. (This was before the internet so seeing long trends of data like value line had influenced me some I think). I still didn't have enough money to be dangerous with when I was in college, but that formed my basis (that and I was an economics major which trains you to think in a specific way about incentives imho). What really made a difference for me for organizing and filtering ideas down in a businesslike way using stock screening software and then doing financial projections in Excel. For me anyway, there are too many stocks to just take any stock and try to put a value on it. 95% I can exclude without even thinking about them. I used screening software (I use AAII Stock Investor Pro software) to narrow down my field of choices - exported alot of the passing companies financial stats to Excel, and then used excel to quickly narrow even further to a manageable amount. fwiw - while I've developed a much better gut feel for companies I'm looking for now, I still can't imagine trying to invest without using the screens I've built up over time when looking for new opportunities. I'd build in alot of automatic protections to filter out things that seemed to consistently get me into trouble - (for example excluding financial companies, or certain debt levels) Test your ideas: I used a website called marketocracy.com which let me run lots of trial portfolios over many years to try different approaches and verify what worked - which is very important - without confidence I'm toast. In my opinion there's a distinct lack of quality control in the investing area out there - most professional money managers can't beat the index so take market advice with a huge grain of salt. Most of them don't have an approach or system that's any better than average - but they may still get on TV or be interviewed in the paper. If you can find things that work for you - go with it. As I mentioned in a previous post Buffettology was a book that just "clicked" with me when i read it. It fit with the way I thought and it very much fit with a methodical stock selection approach. A lightbulb came on that what this book is telling me to look for companies w/ certain characteristics, but also having a high degree of predictability. The predictability part was very important for modeling values looking several years out into the future. So I set out building lots of filters that require long periods of predictable results and the screening software was excellent for that. The book provided a couple of formulas that are similar to what I use to do projections on stocks that meet enough stability requirements to be "projectable". IMHO not many stocks are projectable over several years, but there are a few that it seems it can be done with, and that's one of the areas I started with with a high degree of seriousness. I think there are probably 100s of other approaches that will work - but that's the first one I landed on and built out. It tested OK over time, it worked for me in practice, fit my personality, and I honestly liked the types of companies which tended to a growth bent - and I still have alot of bias in me toward growth stocks even today. Alot of folks would say most of the stocks I've made most of my money on have looked expensive - and they did unless you combined predictability of returns and growth over long periods of time. That doesn't mean I don't get burned every once in a while (example recently Garmin collapsed before I saw what was happening, but the Garmin lesson helped me understand and avoid companies like RIMM) - but I have confidence it'll work given the constraints used. More recently I've gotten into Greenblatt's Magic Formula approach. He has a few books out and a website that'll show the top passing companies. It's striking how simple his approach is, but I really like the type of companies his approach produces and he's already done a ton of the work by backtesting and sharing his idea with us. I do edit the results of the approach heavily (I also throw out almost all Chinese companies - there are lots that will pass) and am still learning, but I've added those companies to the universe of what I look at now. His approach really is all about buying only companies that have high "Returns On" calculations, but only buying them when they are priced "low". Many of these I think qualify as value stocks and are sometimes posted on this value board, but you'll still run into some that pure value investors will think are expensive, but that's OK. Everybody's gotta find their comfort zone - the types of company they can believe in - I think that's important. And another thing. Don't take anything I've put in here too seriously. I am a hobbyist. A pure investment hobbyist. I've done OK and think I've found some alpha over time. But I mean it when I say I think there's 100 different ways to make money - you've just got to find something that works for you AND fits your personality. Finding a style that fits our personality and approach is important. For example: I've never made a dime in financial stocks - I for the life of me can't understand them - I've done so badly with them that I have a rule to never buy another one that even "sounds" related to financials. There are other investors who have made their living in financial stocks - so if that's your game or area of expertise go for it. Peter Lynch said some of his best research was going to the mall and walking around and seeing which stores were crowded and which ones weren't. If you have special insight there - that's an advantage you have and go for it. You'll better understand why those companies are moving. Or how many people in the south saw Wal-Mart come into town and demolish K-Mart and all other competitors, but didn't buy the stock? Geography can sometimes be an advantage if you see something that works before it spreads (ala Starbucks maybe?) I guess I'm just trying to say there are lots of advantages out there, don't close off your mind to some advantages you may already have just because books may tell you to do something else. As far as your last comment about amount of money.... We all probably started w/ small amounts and it was a good thing. Learning can be expensive. Be humble with the market. Never think you know more than the market. It is smarter than everyone else combined. Some of my biggest mistakes were cases where I was in a stock that was going down, and I was convinced the market was wrong to be driving the stock down. So what would I do? I'd average down by buying more. And the stock would keep going down.... The market knows what we don't. I've found it best to assume the market knows something I don't - it keeps a little bit of fear in me at all times now. I used to get too confident at times, especially after some good runs. I now have a rule to never average down, and more often than not I'm now likely to just sell if a stock is moving against me strongly and I don't know why. Occasionally I'll sell at a low, but it's also saved me from larger losses more than a couple of times. With transaction costs as low as they are now you can move in and out of positions with relatively low cost, so I wouldn't think there's much concern about investing small sums of $ vs. large sums of money anymore. It used to matter more when commissions were higher, but now not so much. Anyhow, hope this helps.