Part of being an investor, and for that matter a human being, is how “you” the investor evolves overtime. After reading Jae’s Contrarian Investment Rules, it took me to the days when I started investing. It was those specific rules that convinced led me to become a low P/E guy. I’m pretty sure other investors have gone through a same or similar process in which I am going to describe…..
Low P/E
Thank You David Dreman. His books were the first that led me to become a value investor and I actually followed his strategy that he lays out in the book for a while. I started having problems when I bought cyclicals and value traps. Apparently, no one told me at the time that low P/E’s in cyclicals were a bad thing.
DCF
I first learned about discounted cash flows from the Fool.com. I thought they were the holy grail of investing and especially for any value investors. Plugin some numbers, change the discount rate, and WHALA!! I soon found myself doing the same thing as Warren Buffett. While I found nothing wrong with discounted cash flows, I always had it in the back in my mind that a change in growth rate or discount rate could change the values produced and thus, I have avoided DCF for the most part.
Magic Formula Investing
At last, a simple strategy that is endorsed by well known value investors. Only problem, no rankings and some clunkers along the way. I actually know someone doing a magic formula portfolio that is fully automated and he is outperforming the market.
Magic Formula Investing +1
My current and most successful “strategy”. I screen stocks on the magic formula list, and buy when they are trading at a discount. I do not rely on future earnings,only present cash flow. While not 100% crash proof, my results have been great and it fits my style. I do not worry what a stock is going to do, how the economy is going to look in the next X months/years, etc…
Finally, being a value investor is fun and rewarding. Is it for everyone? I don’t think so. I personally do not look at my portfolio throughout the week. I do my stock research on the weekends (usually Sunday), enter my orders , if any, Monday morning. Some people have t be looking at their portfolios throughout the day. How do I avoid my portfolio? Most of it has to do with my mind being conditioned that the magic formula works, but more importantly why it works. As this crisis continues to unfold, I was convinced I was going to go crazy trying to decide which stocks to buy. Surprisingly, I haven’t been that active. And if you notice, Warren Buffett hasn’t been that active on te stock sides. His bets are mainly on the debt side of things.
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The Holy Grail to Investing.
The utlimate business solution. The ability to cut the cost of any business expense, or just plain invest.
Developed multiple arbitrages for the financial markets. Arbitrages that produce just a few percent a year, to arbitrages that produce over 30 percent a year.
In 2001 i started developing, as of now, a dozen arbitrages. I lock in an X percentage, and Y time later, i close out the arbitrage. Over 30%/yr.
Risk-Free Investing is not only possible, but in abundance. Just that people are told and taught that it is impossible. No risk has been in front of all, but not seen.
The market is unlimited.
I’m interested in selling, or partnering to sell, or partner in a business that uses my arbitrage.
Thomas
352-283-3326
HolyGrailToInvesting@hotmail.com