I've accumulated various notes over the years of best strategies for $tock investing which I may post some other time in some form. I just thought I'd start this thread now. If you have anything insightful to say, then please do share. I don't really mean tips on which stocks to buy or whether Bitcoin or Gold is the better investment.
One area in which I feel my knowledge is lacking is when to sell a stock. It's become quite easy for me to know when to BUY one, less so when to SELL. But I have a few thoughts there too.
This advice applies if you know nothing about the company or the world other than the price of the stock, and if you don't want to spend all your time reading about stock prices.
Sell a stock after it's price has gone up and before it has gone down.
Since no one knows when a stock's price will go down, but anyone can see when it's price is rising, you should sell when it's price is rising.
Since we are assuming zero knowledge of the company's prospects and the world's situation, we will assume that the stock's price will undergo random fluctuations about some mean trend. These fluctuations should obey the same statistics as any set of natural random processes (because we don't know any better, remember?). That is, lots of little variations and a few large variations. Sell when the price undergoes a large enough variation to cover the cost of trading the stock, plus whatever profit you deem fit.
In practice, this is ridiculously hard to do for individual stocks and requires constant, and I mean constant, monitoring of the stock's prices. The answer is to bundle many stocks together in a fund and to monitor only the average price of the fund.
Maintain several funds in several different areas, such as Large Caps, Small Caps, Domestic, Foreign, Cash, Bonds, and Real Estate. When one fund gives you gains, sell some of your holdings from that fund and buy into a fund that has lost value (BUT NOT IF THAT FUND MAKES BUGGY WHIPS, but you knew that, right?) This process is called "Balancing your Portfolio" and should be done infrequently because trades cost money which detract from your gains. Say, every six months or so, no matter who is president or what condition the planet Mercury is in. This is a time-honored method of keeping up with traffic. It won't allow you to advance like Apple stock did, but it should keep you slightly ahead of the game.
Last edited by Adam Strange; 10-27-2020 at 02:27 AM.
Firstly, briefly, it does seem to be good advice that for the average person, if you are going to save some money for investing with a minimum amount of effort and knowledge, it is safest to invest in stock funds. John Bogle had a lot to say (he recently died) about that and his Vanguard funds may be worth looking into. There's also Meb Faber with his Cambria funds who writes regularly on the matter.
I think attempting to put any system in place that can't handle a random throw of the dice as far as what stocks you pick and when you pick them is folly. I've seen enough people trying to hold sand with strike-it-rich strategies that it seems ridiculous to try to do otherwise, essentially like playing the lottery. Lazy, safe strategies like diversification/mutual funds, money management, and buy and hold are usually the best ones for your peace of mind and eventual success.. The more lazy, safe strategies in tandem, the better. If it can't fit in with another strategy it's probably bad.
For a long while, I've followed the work of James O'Shaughnessy (his books especially the What Works on Wall Street series but also his Twitter: jposhaughnessy, and fund website https://osam.com/). Some ENTP guy. But also the writings of his son, Patrick (mostly his website https://investorfieldguide.com , and to a lesser degree his Twitter and books - I think the earlier stuff on his blog is best, which has a lot of research, while his later stuff is generally interviews).
James O'Shaughnessy' strategy is/was as follows:
(I'm not actually following this myself at the moment, but I learnt from it)
He later removed the "Price to Book" sub-metric because it's not been as effective in recent years.
Basically, you rank stocks on each of those metrics, then have a combined total. His strategy was to remove the bottom scoring 80% of stocks and then with the remaining 20%, sort them by 6 month price momentum (with higher being better).
Blank values he gave a score of 50 - I tried giving them a score of 1 (or 100 depending on which way you do it). I think in cases with negative values (e.g. a negative P/FCF score, that those should be given a poor rating)?
Then buy the top ranked stocks, and hold them for a minimum of a year, selling those not in the top 20% after a year. There are exceptions to "minimum" of a year holding period:
if the company is charged with fraud by the Government, if the company reissues figures that means it wouldn't have qualified in your stock screen, if the stock drops 50% from the price you purchased it while being in the bottom 10% of all stocks in terms of price performance (in the last 6 months?), and if the company receives a takeover offer - sell if the price goes into 95% of the takeover offer value.
There are a few later insights that the O'Shaughnessys have found to be an improvement, which I'll try to summarise.
I preferred the suggestion of weighting the Valuation metric part by 70% and the 6 Month Price Momentum by 30%.
They also seem to doing something different for the Momentum part more recently: they make it a hybrid of 3 month, 6 month, and 9 month price momentum, along with “Lowest return volatility” (12 month volatility) - using (reverse) Beta may be an acceptable alternative if you can't find that.
I think some/many of their asset funds filter out the 30% of stocks that score lowest on "Financial Strength", which includes: : External Financing (Low is better); Debt-to-cash flow (Low is better)(as inverse: Cash flow to debt); Debt-to-equity (Low is better); 1-year change in debt (Debt Change) (Low is better – i.e. a reduction in debt).
A portfolio size of around 15 positions may be optimal: https://investorfieldguide.com/20141...lue-portfolio/
Last edited by Subteigh; 10-27-2020 at 11:53 PM.
This probably isn't going to be what you want. Cause I don't know if you can ever really predict anything, but it does seem to be true that value investing creates more wealth over long periods of time over somebody that tries to time and predict things short-term. Even short-sellers can make horrible mistakes.
The best thing you can do is take advantage of tax savings by turning income into investment dollars that only get taxed when withdrawn. Even a 401k that somebody withdraws from at a 10% penalty is still going to be a better strategy over long periods of time. Maxing out investment accounts to pay less taxes at the end of the year is usually pretty smart. Even something like a HSA can be invested and save on taxes and medical visits, while also being transferable to normal cash after a certain time, like a 401k.
Or you can be like Donald Trump and own a lot of property that people pay to use, via casinos, hotels, rental properties, etc.
Of course, investing in a business is probably best if you are the Ej type that will take good ideas and try really hard to capitalize on them.
Originally Posted by Aramas
Originally Posted by MidnightWilderness
It may be wise to limit the proportion of your portfolio invested to any one sector (to maybe something like no more 25%), and to make sure that you don't invest in too many very similar companies (what is meant by that is up to you).
You should factor in the bid-ask(offer) spread when buying or selling stocks. There's no point screening for cheap stocks if you are just going to be impacted heavily when you buy them.
Screening stocks by $ dollar volume traded (both over a long period of time like 90 days and over the last trading day) may help to limit stocks with unacceptable spreads (I don't really know anything about that subject area).
Set news alerts for the stocks you own - maybe even at two alert providers for extra security - so you can keep up to date with significant news stories. You should also do this for your stockbroker if they hold your stocks because you don't want to risk not having access to your stocks if they become bankrupt or similar.
Consider having a dividend diary (so you know when to expect payments).
Probably true for the majority of people.
Originally Posted by ouronis
I've felt also that being a passive investor (letting things take their course and not over-trading, not selling when the stock market tanks etc.) and being patient are not qualities that everyone has or are likely to develop without significant negative consequences. It seemed to me that it took me years to become more like that, after years of experience. And I say that thinking that I was well-suited to act rationally. I don't think either that a person can easily learn the appropriate temperament from experimenting on paper without actually investing their cash - having "skin in the game" probably disciplines the mind with a far greater effect.
I agree with you, unless you make the mistakes with money you don't mind losing, you're probably not going to learn a more time-insensitive approach to it. You'll either trade small amounts a lot or make wild trades that you eventually lose out on and then get the "I'm never going try that again" attitude. Training yourself to be patient and not let your emotions ride the market is difficult.
Originally Posted by Subteigh
Books that I found worth reading, in author alphabetical order - best of the bunch:
The Little Book of Value Investing by Christopher H. Browne
Contrarian Investment Strategies by David Dreman
What Works on Wall Street by James O'Shaughnessy
Berkshire Hathaway Letters to Shareholders by Warren Buffett
The Interpretation of Financial Statements by Benjamin Graham
Quantitative Value by by Wesley R. Gray; Tobias E. Carlisle
Global Value by Mebane Faber
The Most Important Thing by Howard Marks
Your Money and Your Brain by Jason Zweig
The Four Pillars of Investing by William J. Bernstein
If You Can: How Millennials Can Get Rich Slowly by William J. Bernstein
The Intelligent Asset Allocator by William J. Bernstein
The Investor's Manifesto by William J. Bernstein
Common Sense on Mutual Funds by John C. Bogle
The Little Book of Common Sense Investing by John C. Bogle
Deep Value by Tobias E. Carlisle
Capital Returns by Edward Chancellor
Quality Investing by Lawrence A. Cunningham; Torkell T. Eide; Patrick Hargreaves
All about Asset Allocation by Richard A. Ferri
Common Stocks and Uncommon Profits and Other Writings by Philip A. Fisher
The Intelligent Investor by Benjamin Graham
Security Analysis by Benjamin Graham
Zurich Axioms by Max Gunther
The Bogleheads' Guide to Investing by Taylor Larimore; Michael LeBoeuf; Mel Lindauer
The Elements of Investing by Burton G. Malkiel; Charles D. Ellis
The Manual of Ideas by John Mihaljevic
100 Baggers by Christopher W. Mayer
Value Investing by James Montier
Inside the Investor's Brain by Richard L. Peterson
Priceless: The Myth of Fair Value by William Poundstone
Other books that I thought were good but may be of less relevance:
Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein
Fooled by Randomness by Nassim Nicholas Taleb (I liked this a lot - probably my fave Taleb book)
Poor Charlie's Almanack by Charles T. Munger
Business Adventures by John Brooks
The Einstein of Money: The Life and Timeless Financial Wisdom of Benjamin Graham by Joe Carlen
How Markets Fail by John Cassidy
The Myth of the Rational Market by Justin Fox
Judgment Under Uncertainty: Heuristics and Biases by Daniel Kahneman; Paul Slovic; Amos Tversky
Buffett by Roger Lowenstein
The (Mis)Behavior of Markets by Benoît B. Mandelbrot; Richard L. Hudson
The Total Money Makeover by Dave Ramsey
Irrational Exuberance by Robert J. Shiller
The Black Swan by Nassim Nicholas Taleb
Skin in the Game by Nassim Nicholas Taleb
Misbehaving by Richard H. Thaler
Last edited by Subteigh; 10-29-2020 at 01:06 AM.
At the moment, I use the Uncle Stock screener to pick stocks using parameters I found effective through backtesting. I won't mention what they are, because you'd need to pay for a subscription to be able to use it. Also, I've only recently started following it, so I cannot confirm that is an effective strategy. The backtesting suggests it has high Sharpe and Sortino ratios (measures of risk adjusted returns), although quite a high level of Beta (volatility in relation to the market as a whole). One thing I do like about it is that I should be better placed to know when to sell a stock.
There are many sites like admiralmarkets that provide all information necessary for successful trading. Such resources are in great demand among beginners who are still learning. With regard to stocks, I think this asset is more suitable for experienced traders who know all intricacies of the stock market. And it will be too complicated for new traders to get a profit from stock trading.
Last edited by mloolks; 06-08-2021 at 12:38 PM.