Cheap & Interesting!

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blind stock valuation, cheap and interesting, fear and greed, growth investing, growth vs. value, investment writeup, reading, stock ideas, value investing, worship the spreadsheet

There’s one category of email I receive ’bout every second day. A typical example will thank me for the blog (yes, always good to hear!), stress they’re a regular reader, often cite a share we own in common, but then we reach the real meat – usually a somewhat impassioned plea:

Please tell me…where & how exactly do you come up with your ideas?!

All appear to be from genuine readers & investors – I certainly don’t think anybody expects some kind of get-rich-quick answer. [Though it gives a taste of how such a desire is so regularly exploited by the unethical & downright criminal]. I suspect this plea reflects a pretty common frustration for investors – where & how do I find new ideas…and how do I know if they’re actually bloody good ideas? Of course, I’ve no magic short-cut to offer here. My definitive answer’s still:

Read, read, read & then read some more…

I covered this ground in ‘Why I Read…’ (Parts I, II, & III – probably my most popular blog series ever). [‘Why I Write…’ may be a useful companion piece]. Looking back, I think these lines (from my final post) nicely sum up the challenge & benefits of reading:

‘I’m talking about territory where the greatest opportunities, and the greatest investors & traders, reside….For them, you can probably chalk it up to pure innate talent. For the rest of us, I think huge swathes of reading is the inevitable toll you pay to get there – however you go about it:

But reading annual reports will give you the figures. Reading non-fiction gives you the facts (& the right context). And most importantly, reading fiction allows you to recognize the fear & greed in yourself (& others), and enables you to see & imagine the world very differently.‘

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So, Growth…or Value?

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Benjamin Graham, buy and hold, catalyst, growth investing, growth vs. value, investment theme, Joel Greenblatt, multi-bagger, Philip Fisher, reading, survivorship bias, value investing, Warren Buffett

Ah yes, the great investing debate & divide…

At one extreme, we have the wild-eyed growth investor foaming at the mouth over a great story. A silky-tongued CEO’s painted unicorns & castles in the air, and our reckless plunger’s itching to dance the magic rainbow. No price is too high, no management too sleazy, no risk too great, to deter him from the boundless opportunity he now sees stretched out in front of him… His investing idol’s Philip Fisher, of ‘Common Stocks & Uncommon Profits’ – which I had the misfortune of re-reading recently. How this book was ever nominated a bloody investment classic, I don’t know!? OK, let’s grant some credit. Yes, I’m sure Fisher was a gifted investor, but he was also in the right place at the right time – in California, at the dawn of the electronic (& venture capital) ages.

So, who’s ever sat down & really studied his book, and actually figured out how to bloody implement his 15 Points? Who among us has the time, the means, the resources, or the determination to practice 95% of what Fisher preaches? And where in the book is the real secret exposed – the foresight to pick a 100 or even a 1000–bagger? That’s the problem people forget with growth investing – survivorship bias. Consider a buy & hold investor seeding his portfolio with a selection of promising growth stocks – some die off quickly, most turn out so-so, but maybe one (or two) actually grow & grow to dominate his entire portfolio. Of course, the losers are long forgotten, and he’ll nod wisely & tell you he always knew the real winners! Or how about the chancer who bought a single long-shot stock…and ended up making a friggin’ fortune?! Well yes, he’s obviously a media darling now. But where are the stories about his fellow slobs who bet the ranch & lost everything? Well, like I said, the losers are long forgotten…

Not to mention the fact share prices of even the biggest winners usually suffer some pretty sickening plunges along the way. Of course, every growth investor’s confident he won’t be the sucker shaken out of his wonder-stock’s long-term parabolic trajectory by a mere trading blip. Learn from Black Monday ’87, he savvily reminds you – it’s a mere blip on the charts now! Yeah, but the average investor wasn’t calling it a blip then – he was too bloody busy selling…

Why I Read (Part III)…

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activist investors, autodidactism, books, Bruce Kovner, consensus, contrarianism, fear and greed, Howard Marks, investing, Isaiah Berlin, latticework of mental models, literature, Magic Eye, mosaic theory, Nosce Te Ipsum, reading, Warren Buffett

OK, back in June & July, I covered two key benefits of reading:

Knowledge, Experience & Inspiration – a constant & wide-ranging diet of non-fiction reading’s essential for any investor, and something you’ll find all the great investors practice & recommend. 

Nosce Te Ipsum – I believe reading literature’s equally important, it’s one of the few ways you can truly know thyself (& other people). And painful self-awareness & examination offer the best hope of avoiding the potentially devastating impact of fear & greed on your portfolio.

It’s been a long time coming – let’s tackle the final benefit of reading, which I call:  Magic Eye. It’s definitely the most exciting – I guess I’d classify it as offensive, versus the rather defensive nature of the other benefits. But some context would be useful – let’s first talk a little about how I actually read:

Ever since I was a kid, I’ve always found it incredible how the entire world (even multiple worlds) can be encapsulated in a single book. And there’s almost never-ending mountains of them, just waiting to be discovered! In fact, they really are never-ending: In the UK, for example, 150,000 new titles are published each year! Faced with those kinds of numbers, I’ve always felt an overwhelming sense of urgency – how can I ever bloody read quickly & widely enough to ever make a dent in such a mountain?!

Why I Read (Part II)…

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fear and greed, investing advice, literature, Nosce Te Ipsum, portfolio performance, readers, reading, South Sea Bubble, Warren Buffett

Continued from here.

I encouraged you to ‘Read, read, read & then read some more (’til you puke..!)’, and in return I promised you’d gain:

i) Knowledge, Experience & Inspiration

Readers appeared to enjoy the post, but perhaps it was a bit of a cop-out… ‘Cos there’s plenty of great investors who’ve already highlighted how much you need to read if you aspire to be a great investor too. That’s obviously excellent advice, and I probably didn’t add very much to it. But perhaps I can offer something valuable here – I believe there are two far more important benefits to reading. I should warn you, I’ll be writing about these from a far more personal perspective – so there’s definitely a chance they may not appeal to, work for, or even make sense to you (as an investor). That being said, it’s always worth remembering investing is ultimately ‘an art, not a science’:

ii) Nosce Te Ipsum

How often do you encounter people who are formidable experts in dispensing advice…but appear incapable of following their own advice? Dare I ask, maybe you’re one of those people?! But honestly, we all do it sometimes – when it comes to other people’s problems we have the wisdom of Buddha, but in our own lives we all too often make poor decisions, we deceive ourselves, we procrastinate, we trip ourselves up, etc.

Why I Read…

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autodidactism, biography, bloggers, Blogroll, Bloomberg, fund managers, history, latticework of mental models, LSE, MOOCs, mosaic theory, Nasdaq, Niall Ferguson, reading, Ron Chernow, stock ideas, Ugg slut, Vanity Fair

[NB: I guess you might call this a companion piece to my February post, ‘Why I Write…’].

The immediate & obvious answer, as with most things in life, is ‘What else would I bloody do…?!‘ But I have to admit, I’m an autodidact – always have been, always will be, ever since childhood – which unfortunately made organized education increasingly intolerable** the older I got. However, when it comes to investing, the odds are stacked in my favour – organized education doesn’t offer you a hope in hell of becoming a good, let alone a great, investor. As people often notice with regard to MBAs… [Again, I can’t resist this classic!].

[** Hopefully, that all changes with the advent of MOOCs, which have the potential to offer interactive autodidactism. But don’t believe all the hype – sadly, most people just aren’t motivated enough to learn & study alone. In fact, they often have different priorities… Of course, if you’re dirt-poor & living in a third world slum, you may be incredibly motivated – I think MOOCs present an amazing business/investment (& charitable) opportunity to bring Western education to emerging & frontier markets. Forget the hollowed-out state of manufacturing…the next generation of US college kids, plus their six-figure student loans, should be bloody terrified of the rest of the world potentially competing on far more equal terms…and far less pay].

Buffett perhaps said it best, as he often does: ‘But ultimately, the key to success is emotional stability. You don’t need a high IQ to get rich‘. He was highlighting EQ, rather than IQ, but also implicit in the quote is that education (at least in the traditional sense) isn’t required to get rich either – this is particularly true when it comes to investing. I scarcely need to argue the point – simply give me a couple of books, and a day or two of your time, and that’s really all that’s needed to teach you the essentials of investing. Seriously..!

While that crash-course would certainly provide a good foundation, it’s ultimately irrelevant – as I guarantee you it could take a lifetime (or never) to become a great investor. Gulp… So, is there anything to help with/change that? Actually, yes – c’mon, you know my answer:

Read, read, read & then read some more (’til you puke..!) 🙂

Correlation…Schmorrelation!

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activist investors, agri-business, Asta Funding, beta, catalyst, Colony Financial, correlation, distressed assets, Europe, Event Driven, favourite stock, Fortress Investment Group, litigation funding, Margin of Safety, reading, Risk Arbitrage, risk management, stock ideas, umbrellas & ice cream, value investing, wind-down

Monday, I re-posted my appeal for your fave stock ideas, which was originally prompted by the dog days of summer. Those months when trading volume & news slows down, and you’re off for a relaxing holiday, are a perfect time to open your mind & embrace new ideas. Take along some good books for their historical perspective, magazines to dip into the current market/economy buzz, and (most importantly) stacks & stacks of annual reports. And just read, read, read..!

Personally, my focus over the summer’s been on correlation. Some investors are great at stock-picking, risk management & portfolio construction, while others are abysmal..! But, all too often, there’s precious little difference in respective performance. Because we’re all terribly correlated with the market, and with the economy – yep, we’re all making pretty much the same big bet! A preference for discounted assets, special situations & stocks with specific catalysts is my attempt to escape this correlation risk. Medium-longer term, I think this approach offers a genuine ‘edge‘ via lower beta stocks. Trouble is, shorter term, market correlation (especially in market setbacks) can simply trounce all other factors…

REPOST: Summer Doldrums…So, What’s Your Fave Investment?

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favourite stock, plagiarism, readers, reading, stock ideas, summer doldrums, value investing

Thks, folks! I believe I’ve emailed everybody who submitted a fave investment idea & promised I’ll be taking a closer look. [Apologies if you didn’t hear from me, would you plse resend your email as a reminder?]. Anyway, I’m still looking for more ideas, so plse read my re-post below & I look forward to hearing from you! All retweets/emails/links of this post would be appreciated also.

REPOST:

Summer doldrums are here again… A good time for a sanity check on your existing holdings, and some cash-raising? Perhaps time for a closer look at that long list of potential buys you’ve been meaning to revisit… Or, maybe most exciting, it’s time to find something new – there’s always plenty of interesting companies out there to find.

Summer Doldrums…So, What’s Your Fave Investment?

Tags

favourite stock, plagiarism, readers, reading, stock ideas, summer doldrums, value investing

Summer doldrums are here again… A good time for a sanity check on your existing holdings, and some cash-raising? Perhaps time for a closer look at that long list of potential buys you’ve been meaning to revisit… Or, maybe most exciting, it’s time to find something new – there’s always plenty of interesting companies out there to find.

For example, the other night I randomly picked out about 30 London listed stocks to look at, and was amazed to find 3 interesting/high upside potential stocks…that I’d never even heard of before!

But, of course, many new ideas can be simply sourced from the financial & investing community. No harm in that, we’re all plagiarists – even the best investors happily admit to that! I encourage you to read, read & read – you never know where a ‘block-buster’ idea might turn up…  And in that spirit, I’d like to invite readers to share their favourite investment: