[SamuelBRoberts]

(07-14-2017 10:05 PM)Australia Sucks Wrote:  

For most guys, including most on the forum putting the extra work into their investments which could lead to an extra substantial six figure some after a few decades will give a huge boost to their life. Sure if you have $100 million dollars why waste your time picking stocks? Getting an extra $3 million dollars in return is not going to add anything to your lifestyle. But for some cubicle drone earning $80,000 per year an extra $100,000 in wealth in a decade's time is a huge win. Most guys can afford to put in the time by prioritizing and cutting back a little on shit like internet browsing, porn, TV, drinking beers with friends, etc

What you are saying is almost the equivalent of some skinny guy who says "I'm good at game so why should I bother trying to put on muscle or going to the gym? I can just game more hours to pull more girls"

If you think you can learn to consistently beat the stock market by "cutting back on internet browsing and porn" and devoting that time to market research, you're delusional and there's really no point in talking to you.

[Australia Sucks]

(07-14-2017 04:49 PM)John Michael Kane Wrote:  

Stock prices have shot way up, but top-line revenue is mostly flat or small growth. Pretty much, there are very few bargains out there for individual stocks, and indexes are overpriced right now due to individual stocks within the index being overpriced.

This is an important point to touch on. Most individual investors are investing small sums of money and thus have a much bigger pool to play in because the is enough liquidity for them to invest in many of the micro-cap and small cap stocks.

In the U.S. if you combine the number of companies listed on the NASDAQ with the number of stocks listed on the NYSE that's between 3500 and 4000 stocks. Are you telling me an individual investor who turns over a lot of stones so to speak can't find 3 to 5 bargain stocks to invest in? You can't legitimately tell me there is not at least a few bargain stocks among the 3500+ available? Which means, if you can find a few true bargain stocks you avoid the risk of overpaying as would when you buy a broad index fund while the market is expensive. Another advantage of active investing.

[Australia Sucks]

SamuelBroberts you will have to explain why you think I am delusional? Hurling insults is not useful, what is useful is you explaining your reasoning why you think I am wrong. Peter Lynch one of the greatest fund managers of all time wrote a few books encouraging average Americans to pick individual stocks and said they can succeed and its a realistic goal.

As I noted in my opening post a lot of institutional investors might be "smarter", more well connected, more knowledgeable and more educated than individual investors but they have less flexibility and also strong performance is not always their number one priority.

I once remember reading a blog comment somewhere from a former fund manager that when he was a fund manager his fund outperformed the market by only 1% per annum net over a 14 year period (I think it was 14, I do not remember exactly) and it was damn hard to achieve. He claimed over the same time period that he was a fund manager his personal portfolio (where he had full flexibility and a small sum to invest) outperformed the market by 14% per annum net and it was less stressful.

Competing with institutional investors by picking individual stocks is like going up against a Olympic professional sprinter in a race after he has had his right leg amputated at the knee (with no prosthetic replacement)

[Australia Sucks]

(07-14-2017 04:07 PM)Veloce Wrote:  

If you really want to talk about being better than the average man then that has to do with your overall financial health. Investing is just one part of that.

I agree with that 100% but investing is still an important part and the part I decided to focus the thread on it, because its a big enough topic to deserve its own thread. Its like when you try to pickup girls. Your game, your looks, and your bankroll/money are all important, and the are many many threads talking about niche subtopics within those 3 broad topics. I have decided to focus this thread on a niche within a niche. Financial health===>Investing====>Stock market investing

[SamuelBRoberts]

Let's try this another way, then.

Walk us through your last purchase. How long it took you to find it, what methods you used, how much you invested, and how much you've made off it so far.

[Australia Sucks]

SamuelBRoberts I do not want to derail this thread as its not a thread about specific stocks, there are other threads discussing specific stocks. Also to answer your question I would reveal more personal information than I am comfortable on a public forum. I will send you a p.m. a little later to answer your question.

[Australia Sucks]

De-beguiled, Harry Brownes advice is great (and I am aware of his 4 asset rebalancing "permanent portfolio") for someone who wants to preserve substantial wealth they already built, but not as great for younger guys who are still in the early stages of their wealth building journey. There is a reason he formulated the advice after he got rich speculating on gold and not before. Because he wanted to know how to preserve and safely grow his existing wealth.

Sure, Harry Brownes advice if you are early on your wealth building journey could make you modestly rich after 30 or 40 years of grinding and saving and investing but that is assuming that you are healthy enough to work for that long (who knows what unexpected health problems can occur) not to mention that the overall job market could deteriorate greatly (due to automation, increased foreign competition, etc) so you might not be able to get a decent paying job in 20 years time. Plus who the fuck wants to work for 40 years anyway!

[Australia Sucks]

Polar I will address some of your points.

Firstly I started investing in Australian stocks in 2007 right the market peak when the GFC was about to hit. So I know first hand what a bear market is like. Secondly how can you possibly say I got lucky by riding a huge bull market? I invested close to the market peak (I was a newbie at the time and just recently had some cash to invest). Also the Australian stock market has not enjoyed anything like the Bull run of U.S. stocks and the All ordinaries index is still well below its 2007 high. It peaked at around 6800 in 2007 and is currently around 5800. Hardly what I would call a strong tailwind.

In regards to me holding 3 stocks you clearly glossed over that post where I mentioned that stocks only make up a portion of my investment portfolio. I also own real estate and commodities.

Warren Buffett back in the day once invested 40% of his partnerships money into American Express. Long before that a young Buffett invested 75% of his personal net worth into GEICO.

Now obviously I am not as smart or knowledgeable as Warren Buffett, but to say that concentration is bad is not always accurate. Warren Buffett famously stated that "diversification is protection against ignorance. It makes little sense if you know what you are doing." He routinely advises most people to buy a low cost index fund because most people are ignorant. I would like to think I am not that ignorant so I concentrate. So far, so good but only time will tell if I am right on this assumption.

[TheFinalEpic]

We're confusing investing with trading and vice versa multiple times in this thread.

They are NOT the same. The average person thinks they are "investing" by buying penny stocks. Far from it. They would be far better off dollar cost averaging into an index or vanguard fund that tracks the S&P or Dow. When shit hits the fan, buy more at a discount, and over the course of your life, you will do not too poorly.

The average person doesn't understand hedging strategies, how to properly utilize options, or frankly what derivatives even are. They are much better off investing in index funds. I would say 90% of people should do this. If you want to play Steven Cohen, put 80% of your money in an index and 20% you can buy naked options and trade futures and jerk off when you win big, but it doesn't hurt so bad when you lose.

Then there is 10% of people that can properly value invest. These people probably have some business background, understand financial statements, and can properly see where there is future value in a company via discounted cash flows. They can see clearly what is good value and what is dog shit. This takes time and effort. You need to read books, go into the SEC history of companies and view their quarterly/annual reports and make intelligent decisions. <b>It is however, doable.</b>. These people will also likely understand derivatives and will hedge their portfolios over significant geo-political and unseeable events. Think Brexit, Trump's election etc.

Finally, we come to the .0X% of people that can run long-short hedge funds, utilize algorithmic methods, and seek alpha in all sorts of circumstances no matter what the overall market volatility is. These are the people that can successfully <b>trade</b> with defined risk-reward outcomes, proper portfolio allocation, and understand that they are simply gambling, albeit intelligently.

To conclude, I fully agree the average and vast majority of people should index. Should YOU index? If you're willing to put in the time to properly evaluate a company, you might be able to pick stocks over the long term and beat the market. It's definitely doable.

[Australia Sucks]

TheFinalEpic, yes most people are idiots and should probably buy an index fund, but Roosvforum members are not most people, hence the reason for creating this thread.

And yes there are no shortcuts to value investing I have 50+ investment books that I have read on my bookshelf including the classic 1951 edition of Security Analysis by Ben Graham and David Dodd. Its around 770 pages long, and full of financial terminology and concepts. Most investment professionals never even bothered to read Security Analysis and yet I read it when I was 18 or 19! I am not saying I am an investment whiz or anything but I like to think I at least have the basics down pat. I remember a long time ago when I was in my final year of high school and should have been studying for my exams I was instead lying in bed re-reading Peter Lynch books.

TheFinalEpic when you said "We're confusing investing with trading and vice versa multiple times in this thread." Where you referring to me or other posters in this thread? I do not see anywhere that I mentioned anything that could be interpreted as trading.

[Teutatis]

(07-14-2017 11:30 AM)John Michael Kane Wrote:  

I'm a fan of index funds for the average investor who doesn't have the time or technical expertise to beat the big boys who trade for a living. Still, stocks are wildly overpriced right now, which would include an index fund. It is best to be cash heavy right now, we are headed for another correction. Credit card debt levels are at 2008 pace, people are still overpaying for housing relative to earnings and wages/unemployment have still been running on fumes. As someone who has worked in the financial industry for some time, I strongly recommend being cash heavy right now and invest in index funds later. The time to invest is when everyone else is panicking, and hence the bargains for you if you waited. Any free cash you have right now should be held for the correction that is coming or invested in starting your own business.

I completely agree that stocks are way overpriced and a correction is coming, and we're closer to it every passing day, but the problem is I've been hearing about the big correction for the past 5 years and it's still nowhere to be seen. Sure, it can happen next week, or in 6 months or in two years, no one knows, but more money has been lost waiting for corrections than experiencing one. And trust me, I have a nice chunk of $$$ waiting to throw into the market, I wish it would come already.

(07-14-2017 12:33 PM)kavi Wrote:  

Austrialia Sucks, I dont mean to be negative but I really dont agree with your position. I think the stock market is an evil thing and should be avoided where possible by workers. The stock markets only purpose is to help the rich and elite get richer. It has a negative affect on average workers. You can get all excited by your little victory, but then you could easily have lost that money you started with, and many have. Much of it will be luck.

Such a negative view on money and the financial markets, do you like capitalism and money and do you also think it's bad for workers?

(07-14-2017 11:12 PM)TheFinalEpic Wrote:  

We're confusing investing with trading and vice versa multiple times in this thread.

I was going to say the same thing, one thing is investing, other is trading/speculating. Investing is much simpler and less stressful, just buy some funds, some dividend stocks, whatever, and keep buying them regularly for the next 20 or 30 years and you'll do well, much better if you had left your money on some back account, but if you want to trade that's a whole different story. It's so much harder and more stressful, but also can yield incredible returns. It's not for everyone.

[Teutatis]

Concentration is perfectly fine if you're actively managing your portfolio and you keep an eye on it all the time to make sure nothing funny is happening.Unlike the big guys, being the microscopic fish we are we can get in and out, and in and out of our positions in a few clicks, there's no need to be in the market if the world is collapsing around you.

[Digimata]

@Australia Sucks, bro you are only hearing what you want to hear. Good job turning 5 figures into 6. Really, congrats.

Here's the thing, not everyone cares. You said an extra 100K over a decade is great and everyone should aspire to it. Yes and no.

That's only 10K per year. If you are getting hardons over an extra 10K per year, I argue you need to think bigger. Sky's the limit if you are good in capital markets.

If you have seen what other people in other industries are making with the minuscule effort they put in as I have, you wouldn't think so greatly about the diminishing returns pouring over 10K and DCF models.

I did the same thing as you, I worked in industry. I put the same numbers up as you. I wouldn't do it over again. My time is worth more.

You also don't realize that a lot of fund managers aren't swinging 20K accounts where they don't impact the market. Try moving a book of 200M and see if you get the prices you want.

[Australia Sucks]

Firstly the $100,000 was just a hypothetical example. That is for people with piddling amounts to invest, you have to start somewhere. You build up the skills gradually then when you have bigger sums you are already well honed. If you just say "nah I don't have enough money to invest for it to be worth my while being active" when you eventually do have bigger sums to invest, you won't have the skill set to invest it.

For the guy who already has some decent capital lets say $300,000 or $400,000 to invest the difference for outperforming over a decade can be huge. The difference between earning 7% per annum and 12% per annum on $350,000 over a decade is nearly an extra $400,000. Is that still too small time for you? With the current trajectory I am on I expect to break 7 figures net worth within the next ten years.

While having $1 million or even $1.5 million dollars does not make you a baller or rich by any stretch of the imagination (not even close) its enough for a comfortable retirement in a cheap country, i.e. enough to quit the rat race which is all I ever really wanted.

Digimata when you say:

"You also don't realize that a lot of fund managers aren't swinging 20K accounts where they don't impact the market. Try moving a book of 200M and see if you get the prices you want. "

You are actually agreeing with what I said previously! I mentioned that being a small investor is an advantage because you can get in or out of a stock quickly without affecting the price whereas for the big guys its not always the case. Glad we agree on that.

[Teutatis]

(07-14-2017 11:44 PM)Digimata Wrote:  

That's only 10K per year.

Only? That's a lot of money for a lot of people. Let's not start going all "pointy elbows" with sums of money now.

[Peregrine]

Quote:

While opportunity cost is a real thing, its a bit of a straw man argument because most guys, including most Rooshv forum members are not some multi millionaire basketball player or established law firm partner, or brain surgeon, etc.

For most guys, including most on the forum putting the extra work into their investments which could lead to an extra substantial six figure some after a few decades will give a huge boost to their life. Sure if you have $100 million dollars why waste your time picking stocks? Getting an extra $3 million dollars in return is not going to add anything to your lifestyle. But for some cubicle drone earning $80,000 per year an extra $100,000 in wealth in a decade's time is a huge win. Most guys can afford to put in the time by prioritizing and cutting back a little on shit like internet browsing, porn, TV, drinking beers with friends, etc

What you are saying is almost the equivalent of some skinny guy who says "I'm good at game so why should I bother trying to put on muscle or going to the gym? I can just game more hours to pull more girls"

SBR already said what I wanted to, so I'll add this: getting good at financial speculation is no easier or particularly different than getting good at online poker. And let me tell you, if you want to get good enough to make a living off online poker nowadays, it'd better be your main focus. And even then, there's no guarantee you'll be good enough. Maybe you just don't have the temperament or the skills.

And just like online poker, the real obstacle to learning lies in lack of reliable feedback. You shoot hoops, you know you're fucking up if the ball doesn't go in consistently. But in poker and market speculation, you could be doing the most retarded shit imaginable and still be making piles of money.

Until you aren't.

Quote:

And yes there are no shortcuts to value investing I have 50+ investment books that I have read on my bookshelf including the classic 1951 edition of Security Analysis by Ben Graham and David Dodd. Its around 770 pages long, and full of financial terminology and concepts. Most investment professionals never even bothered to read Security Analysis and yet I read it when I was 18 or 19! I am not saying I am an investment whiz or anything but I like to think I at least have the basics down pat. I remember a long time ago when I was in my final year of high school and should have been studying for my exams I was instead lying in bed re-reading Peter Lynch books.

And that's admirable. I'm willing to bet 95% of this forum would equate reading Security Analysis (which I agree is a must read) to watching paint dry. You have to realize that this type of work is inherently unpalatable to the vast majority of people. RVF is no exception.

[Kangaroo]

AS how are you determining a stocks fundamental value?

Do you use the FCF method and forecast revenues, do regressions etc?

[SamuelBRoberts]

(07-15-2017 12:19 AM)Teutatis Wrote:  

Only? That's a lot of money for a lot of people. Let's not start going all "pointy elbows" with sums of money now.

All stocks give a percentage return off initial investment, so if 10,000$ is a lot of money of you, you won't be able to invest enough for this to really be worth your while. Your money needs to go to paying things like rent and car insurance, and if you want more money your spare time needs to go towards finding a better job or learning a skill.

In any event, I think what's in order here is a datasheet from OP about how to learn how to beat the stock market in your spare time: what to learn, what to look at, how long it's going to take, what kinds of returns you can realistically expect. I'd love to read it, if he's willing to write it, and if he's not there's really no use for this thread.

[Digimata]

(07-15-2017 12:15 AM)Australia Sucks Wrote:  

Is that still too small time for you? With the current trajectory I am on I expect to break 7 figures net worth within the next ten years.

While having $1 million or even $1.5 million dollars does not make you a baller or rich by any stretch of the imagination (not even close) its enough for a comfortable retirement in a cheap country, i.e. enough to quit the rat race which is all I ever really wanted.

Bro I've done the linear net worth projection too. Everytime I did it it marked a top in my personal net worth. Have you considered your compound rates?

Take your CAGR and project that out and realistically think about it. I peg your account at 100K-150K AUS. You need about a 22% CAGR over the next 10 years to make it. If you can't make that 22% average you're not hitting 1M. This is hard math reality check.

(07-15-2017 12:15 AM)Australia Sucks Wrote:  

Digimata when you say:

"You also don't realize that a lot of fund managers aren't swinging 20K accounts where they don't impact the market. Try moving a book of 200M and see if you get the prices you want. "

You are actually agreeing with what I said previously! I mentioned that being a small investor is an advantage because you can get in or out of a stock quickly without affecting the price whereas for the big guys its not always the case. Glad we agree on that.

I absolutely agree being a small time investor you can get higher rates of returns. That however does not validate why you think large funds underperform because fund managers are shit(most are). They have a liquidity constraint, you and I do not.

You aren't making an apples/apples comparison.

[Digimata]

(07-15-2017 12:19 AM)Teutatis Wrote:  

(07-14-2017 11:44 PM)Digimata Wrote:  

That's only 10K per year.

Only? That's a lot of money for a lot of people. Let's not start going all "pointy elbows" with sums of money now.

Brother, then you need to elevate your position. Not a judgement on you. But if you haven't seen this level of cash being thrown around, take a trip to NYC/Chicago/London/HK and try to spend a day inside a prop firm or bulge bracket. Or ask institutional mutual fund sales guys at a large company what their commission checks are like. Hell, my company's annual Christmas party bill is 20K alone.

[BB1]

What most retail and professional investors fail to release that in order the beat the market you need to make more painful decisions that the crowd, and embrace uncertainty.

My most successful investments have been when I felt sick in my stomach when I clicked on the buy button.

[Australia Sucks]

Kangaroo it depends on the situation, you need different tools in the toolkit. Sometimes I go old school and use asset based valuation methods and look at book value, net tangible assets, liquidation value or replacement value depending on the situation.

Sometimes I look at takeover value by looking at a previous takeover that got rejected or looking at other similar companies that got taken over. This is more for the optimistic case rather than as a base case scenario.

Sometimes I use rough earnings based valuations such as projecting various e.p.s. figures 5 or 10 years into the future and then apply what I think is a reasonable p.e. multiple to it ten years in the future.

For example company A is a quality company which currently earns $1 per share currently and pays a $0.20 per share dividend. After carefully studying the business I think it can at least quadruple its earnings per share over the next ten years (i.e. around 15% per annum) while paying a dividend every year. Today you can purchase the shares for a bargain price of $10 (p.e. of 10). Now in ten years time you will have made at least 15% per annum from earnings growth (plus a few percent per annum from dividends with any potential p.e. expansion being icing on the cake)

Another type of earnings valuation use sometimes is the "payback period". Its conservative because it focuses on getting your money back as quick as possible so to speak. It measures how many years it will take for the company to "pay back its purchase price". Its different to a p.e. because it takes into account changes in earnings over the time period. For example company B's shares trade for $5, and if you expect company B to earn per share $1 then $1.10, then $1.15, then $1.25, $1.30 you calculate it will take between 4 and 5 years to earn back the purchase price. The assumption of this model like any earnings based valuation is that its a good company and retained earnings are value creating for shareholders.

I do tend to cross check earnings against the cash flow statement and occasionally make adjustments if I think earnings are overstated or understated). I do not do regressions as such but I do come up with a range of back of the envelope type earnings valuations. I believe DCF models need to much precision to be useful in most cases and hence its a case of garbage in garbage out. Also while I do look at broker/analysts forecasts I make my own forecasts (or rather range of forecasts) for a company.

Sometimes I use a sum of the parts valuation. In Australian shares a good example of using sum of the parts valuation would be the property funds management company APN property group (ASX code: APD). They are a property fund manager and they also own some properties. So you separately calculate an asset based valuation (NTA based on the properties, etc) and earnings based valuation (the funds management business) and sum them together.

The reality though is that usually I spend very little time on valuation, and I rarely use spreadsheets for valuations because if something is an obvious buy it will slap you over the face so to speak. I think too many people get bogged down on this aspect. An obvious bargain is easy to spot. If you find yourself needing to pull out a spreadsheet and do elaborate calculations then its probably not cheap enough.

An actual example of a stock I loaded up on less than 2 years ago. A small cap company that had compounded e.p.s. at twenty something percent since listing around the turn of the millennium. Industry leader with the highest market share. It paid roughly half its earnings as a dividend had a high return on equity and strong balance sheet, good management, etc. It looked set to keep growing e.p.s. at 15-20% for years to come. It looked likely to beat its guidance for the year and was trading on a dividend yield north of 5% and a forward p.e. of less than 10. I bought it, and within a few months the company issued a profit upgrade and the share price doubled in under 12 months. Do you think when I bought it I used a spreadsheet. Hell no. It was such an obvious bargain it just hit me over the head.

An example of a company I advised a friend to buy (I could not buy because I did not have cash) a year ago was a foreign property developer listed on the ASX. Management and directors owned 90%+ of the company, it was generating solid returns on equity and the balance sheet had no "debt" so to speak. The company had been around a long time and had a history of buying back shares below NTA and the shares were trading at a 30% discount to NTA (property valuations were conservative too) and a p.e. of 6 or 7. Also the stock paid a decent dividend.

Fund managers did not like buying the stock mostly because of the lack of liquidity (management and directors had ninety something percent of the stock tied up and it was only small/mid cap stock), but also the somewhat complicated holding structure, the dividends were un-franked (did not have imputation credits attached) and the lumpy earnings profile (property developers often have lumpy/cyclical earnings).
Fast forward a year later and the stock is up over 35%.


The hard part is not the quantitative side its the qualitative research learning about and evaluating the business model, the competition/industry, the management etc. That is where you need to spend most of your time.

[Australia Sucks]

Digi you are way off with my account size. My gross account size is way higher than that and I am substantially leveraged (using property as collateral, no margin loans). I do not use anything like a 22% CAGR projection (at least not if we are talking gross assets). Also when I say I will have a 7 figure sum I mean including the results of my whole investment portfolio; shares, property, commodities. Sorry if I was not 100% clear on that before.

Besides my current and future net worth is off topic and irrelevant to the thread. The thread is about "active" vs passive investing not about my investment performance or future net worth.

[Digimata]

(07-15-2017 01:50 AM)Australia Sucks Wrote:  

Besides my current and future net worth is off topic and irrelevant to the thread. The thread is about "active" vs passive investing not about my investment performance or future net worth.

No it is very relevant. Firstly, because it's implicit in the claims you are making, and secondly because you straight up brought it up.

Unlike many others in this thread, I'm your biggest hype man. Because I did exactly what you did too(margin loans). I know it's doable.

If you are coming in here and making large claims you best have your shit locked down is all I'm saying. Best of luck.

[Australia Sucks]

(07-15-2017 01:04 AM)SamuelBRoberts Wrote:  

(07-15-2017 12:19 AM)Teutatis Wrote:  

Only? That's a lot of money for a lot of people. Let's not start going all "pointy elbows" with sums of money now.

In any event, I think what's in order here is a datasheet from OP about how to learn how to beat the stock market in your spare time: what to learn, what to look at, how long it's going to take, what kinds of returns you can realistically expect. I'd love to read it, if he's willing to write it, and if he's not there's really no use for this thread.

SamuelBRoberts I am not totally opposed to the idea of eventually writing a datasheet about how to invest in stocks, but I do not want to seem arrogant. With the types of people that frequent Rooshv I can already see the backlash people saying shit like "this arrogant dude in his 20s who is not even a millionaire yet and does not work in the finance industry is trying to give people advice on how to invest. The dude must be a troll. Nobody has ever seen or verified his results how do we know he is not bull-shitting about his investment returns? The O.P. should be banned."

I just think if I wrote such a thread it would anger a lot of people and ruffle feathers.