The Short Story:
A blog about value investing, mostly in UK, Irish and US listed stocks. Interested in individual company stocks, investment funds, risk arbitrage, event driven/special situations, fixed income and even some natural resource stocks.
My personal investing career began with an emerging markets obsession. Investing in individual emerging market stocks was a much taller order then than today, so I gravitated towards investment fund shares and warrants. Little did I know that (despite the volatility involved) this would turn out to be a very fortunate approach – it pretty much saved me from the consequences of poor/misguided stock analysis, chasing stock tips and investing in garbage stocks all the way down to zero.
When talking with family/friends/colleagues, I still remember this good luck. It would be wonderful if everybody was a trained analyst, but the reality is most people don’t have the time/inclination for that – a selection of investment funds is probably the best long-term solution and risk/reward approach for them, and will hopefully steer them away from complete investment disasters. Of course, this won’t necessarily save them from unscrupulous advisers (always happy to churn ‘em in/out of the highest fee products), so a happy medium is still needed – everybody really should educate themselves enough, or ask for assistance, so that they can assemble and maintain a well diversified portfolio of investment funds/ETFs through a cheap execution broker.
Anyway, I recognized I had a lot of knowledge, reading and experience to get through before I was ready to buy individual company stocks. Eventually, I took the plunge…as in investing in plunging stocks, ouch… But over time I learnt a few tricks and lessons, and got a little better about putting together a bunch of stocks. I also noticed something interesting – after far too much reading (you can never read enough, I read annual reports for fun, rather sad…), an investment thesis would eventually percolate up in my brain, and I would have to search out stocks to exploit this thesis – not so easy sometimes! To give examples: a) thesis: global hunger for cheap/healthy protein, plus the depletion of wild fisheries – aquaculture companies, fish farming stocks, like Global X Fishing Industry ETF (FISN:US), and b) thesis: financial difficulties plus lack of credit access for US unemployed/lower income families/illegal immigrants (btw 14% are below the poverty line in the US, vs. 13.7% in Russia, go figure?!) – pawnbrokers, rent to buy stores, payday lenders, debt collection agencies, like Rent-A-Center (RCII:US).
Unfortunately, this approach also makes one susceptible to certain (more wild-eyed) writers out there on the web, who are often very good at pitching compelling demographic/secular investment trends and how to play them. The catch is any stock looks cheap when you think it’s operating within a sector/trend that is growing to the sky…! The only thing that saved me was a concurrent interest in value investing. I was getting pretty tired of growth investors describing how they found the next Starbucks (you know, Peter Lynch was a marvelous investor, but God his books caused a lot of damage to a lot of people). Many of them seemed completely unaware of the concept of survivor bias in their portfolios and of course 20/20 hindsight, and none of them provided any kind of reliable/quantitative approach to determining future winners. In fact, all they seemed to do for most people (and me) was to encourage them to buy good companies at horribly high stock prices.
Only when I learned of value investing did I finally discover a quantitative approach, plus a set of tools, that appealed to me and equipped me better for investing. And I guess it appealed to my mathematical background and perhaps my natural scepticism. It also tempered my lust to dive into investment trends – in fact, I’ve come to realize that any decent secular trend will take many many years to play out and there will be cycles of booms and busts in any related stocks to exploit, so hold your horses, stick to value investing and your chance will come…! Finally grabbing what proves to be a growth and value opportunity is perhaps the most satisfying investment one can make.
Continuing on, I’ve burnished my value credentials over quite a few years now through some great, and some painful, experiences. I have plenty of individual company stocks in my portfolio these days, but still have a fondness for investment funds (especially those that trade at steep discounts, and/or exploit a preferred trend), and I’ve broadened my investing scope to include risk arbitrage, event driven/special situations, fixed income and even some natural resource stocks. Generally, I stick to Irish, UK and US listed stocks (for obvious reasons). I’ve become a little better at prioritizing financial strength vs. upside potential (as Buffet said: “The first rule of investing is don’t lose money; the second rule is don’t forget Rule No. 1.”) and at better diversifying my portfolio (I believe positions should usually be between 1-5% of my portfolio, and I’m very keen on including less/negatively correlated investments).
I haven’t shorted stocks to date, I’m not sure I have the discipline to deal with a short gone wrong, like most people I suspect – I think shorting is really only appropriate in a trading context, but I might be willing to explore using some of the new short ETFs, or possibly using shorts in a pairs trading context. I still struggle with a declining share price – I have no problem with this in a trading context, but from a value investing perspective it’s a difficult choice between i) do nothing, ii) apply a systematic stop-loss approach, or iii) progressively add to a position at better (?) prices – something to think about and discuss further, I think. I’m not a big believer in cash, as I think ‘there is always a bull market somewhere’ (haha, sorry to quote Cramer) – generally, I think ratcheting up and down my risk arb/event driven investment allocation is a perfectly acceptable alternative to cash, and much more rewarding. Finally, I don’t hesitate to entirely eliminate or ignore sectors/regions/categories from my portfolio – if a stock or region is too hard, just move on, there’s always something else to buy!
Most importantly, I still sometimes look back and remember how inexperienced/naïve my investment approach and assumptions were five, ten, fifteen years ago and know that I will definitely think the same again in the future – I think the most valuable ‘skill’ any investor can wish for is a little dose of humility.
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Wexboy, possibly the best read on the web about investing. Im relatively inexperienced but have read a lot. A cheap education indeed.
I haven’t noticed you write much about technical analysis or trends at all. Im a value investor but i think my latest learning point has been that a small touch of TA Might be helpful (note the hesitation writing that). The trend might be worth looking at when judging an entry point. If only it works perhaps because the folly of the crowd believes and fulfills their own prophecies.
Do you buy TA at all?
Yes, I’ve made plenty of money over the years trading with technical analysis – although I suspect trading strategy & risk management were equal/more important contributors to my success. You’ll note I said ‘trading’ – I don’t think it’s that important for investing, and if you find you’re relying on it too much you’re probably not a real investor.
But it is a useful tool – if you search back through my posts, on occasion I do make reference to using it (TOT & FBD, for example, if I recall). I guess I do it pretty unconsciously/intuitively, so I don’t think/write about it much – it’s just another thing on my investment checklist. Technical analysis certainly wouldn’t be the reason I start or finish with a position, but I do use it regularly to assess my risk management, and to help with the timing of adding to/reducing positions.
However, a good portion of my stocks are smaller/lower volume, and I don’t think the majority of technical analysis is much use with stocks like that. Simple charting is still helpful though, to some degree – frankly, I mostly just rely on support & resistance levels to assist me.
These two posts are (somewhat) relevant:
Chris Menon (@Penforjustice) said:
Thanks for sharing your experiences here. Very educational and I can relate to much of it, as I have made and continue to make plenty of mistakes.
Don’t we all… Thanks.
Unfortunately, no matter how much you read/learn, most of your experience will come from losses. That’s where the rubber meets the road – too many investors retreat into anger & denial, and then wonder why they go nowhere for the rest of their investing lives.
Those that learn though have time & earnings on their side – I made some of my worst mistakes with only a few grand here & there (and those amounts hurt at the time), but what a cheap education it was when I look back – as your holdings & portfolio get ever larger, you can’t afford to be making the same basic mistakes over & over again.
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