This blog is an attempt at recording my
own investing strategy, trying to figure out this stock market game in all
that spare time when I should be sleeping... Hopefully it has a happy
ending. We shall see!
FYI I am not trying to get rich quick
here. Patience and never giving up are two pretty good philosophies I
think. This post is pretty much my own market experience and basic
understanding of the stock market so far, which will get us all up to the same point
together, or on the same... post? page? wavelenth? Beuller...
So to start, every time I take an
investing course or read a book or revisit just what in the world we are doing
with our money, I come to the same basic conclusion:
Either You Become a Millionaire or
Turn Your Banker into One
And each time I am more convinced than the last.
For the sake of not being idiots, let's assume that we would rather be
one ourselves. How, then, is this possible? Well, anything is
possible, but I am talking about doing this simply and steadily, and without
inventing the Next Big Thing. Why? You'll see. Stick around.
"Compound interest is
ridiculously cool." - Einstein or somebody.
Ok maybe those weren't his exact words, but here is
why it doesn't matter - it's still true:
Premise: If you invest just $375 per
month, every month at 20% interest annually, you will
have $1 million after taxes in 20 years.
That is nuts. Only putting in $90,000, and the other $910,000.is
all interest on INTEREST. That's 1011%.
Working the other way, if you are paying that much on
a credit card with a high balance, that's how much you are lining the credit
card company's pockets. Unless the rate is 29% which is not uncommon.
Then that same amount would turn into over $5 million.
Which side of that deal would you
rather be on? Thought so. Me too.
If freeing up $375/month free to
save/ invest is a challenge, may I suggest you find and attend a Dave RamseyFinancial Peace University. Take your spouse. Trust me. We did this at our church when they held the class there. You
will learn exactly how to do it, and then the trick is to actually DO IT.
:)
Next, we must find a way to get
even close to that 20-30% return. Again, knowing how is nothing without
actually DOING IT, and keeping the profits reinvested in order to have interest
build on that interest (i.e. compounding).
When in Omaha...
I don't claim to know all the
answers when it comes to investing in the stock market. I don't even know
the questions. In fact, all I barely know is what I remember reading
about it. Here that is (slighltly abbreviated):
- If you are going to study
anyone's investing strategy, only study the best
- I think most of us would
agree that the best is, well, Warren Buffett
- Read his bio, The
Snowball, and then his teacher Ben Graham's The
Intelligent Investor
- Read his own words on
Berkshire Hathaway's website. All about value investing, and
patience
Want What He Has? Simple. Do What He Did.
Buffett's teacher and mentor, Ben Graham, was brilliant, and he
followed his own teachings by the book,
which gave him returns consistently of
20% or so and beat the pants off overall market returns. Buffett
expanded to include his own criteria of goodwill, i.e. name recognition and
rep, and took a more proactive approach with his interaction with businesses he
owned stock in.
If it Worked For Him, Can it Work
for Others?
I think people look at those who
get rich in the market and think, "Oh yeah, they are geniuses, not
me." Maybe, but if you understand the man, you realize Buffett spent
VERY little money, reinvested his gains (compounded) heavily, fully appreciated what it was to
be without money and so always had a healthy respect for it. That, and
this is his Magnificent Obsession.
"Genius is Only Patience"
Buffett also has always had a lot
of fun with Mr. Market. That's the emotional, personified stock market
entity thats mood swings wildly in all directions based on news stories, phases
of the Aurora Borealis, rabid groundhogs and basically anything, fictional or
not...
Buffett and Graham would both
agree: Look what everyone else is doing, and do the opposite. When
everyone is selling and scared, be bold and buy. When everyone is buying
and seemingly invincible, be afraid, be very afraid.
So, if anyone else out there can
get Consistent returns like Buffett, are the ones
online really legit or just crackpot scam artists? Anyone can show off
huge gains on small caps in a bull market. It is sustained performance
that will keep that compounding going and not blow it all to smitherines.
Beware of Any "Formula"
that Claims to be "Magic"
That is, unless you are looking
at www.magicformulainvesting.com because
you just read The Little Book that Beats the Market. Joel
Greenblatt has since come out with an updated book with probably more decent
stuff.
You don't need to get the book in
order to create an account, but it's a good idea so you have a clue how the
"magic formula" is screening these stocks. The Little Book is
a quick read, not like The Intelligent Investor, but if you can
find the time, read both. If you don't even have time to pay attention,
then there should be enough info on that website to follow along.
I am not sure which was first,
Joel's which led to study Buffett/ Graham, or if it was the other way around,
but either way they are preaching from the same exact pulpit. What
Greenblatt does is simplifies it and then gives you a feasible way to follow
it. His track record speaks for itself, with average 40% per year for 20
years prior to writing the book.
Here's the deal though: you
have to take your emotions out of it, if you can. You don't get your
house appraised every week and freak out if its value drops, then try to sell
and get out of it like now, right? Don't do that with these value stocks
either. If anything, look at a drop in price as "Hey, an even better
deal!" and buy more if you have the extra cash.
By the way, don't buy the company
if it is going out of business. Of course, you cannot foresee the future,
but there are a few other screening filters that I got out of The
Intelligent Investor that all but guarantee against this. I can
add another post dedicated to that if anyone is interested...
*Time Out* Over 20 years, that $375/month at 20% = $1mil, at
30% = $5mil, what about at the 40% that Greenblatt gets with his Magic Formula?
Investing $375/mo for 20
years would create $26.7million after taxes, hitting $1million in just 12
years. Are you kidding me?
So if Value is Good, and Magic Makes
it Better, What's Next?
I came across this website a little over a week
ago, which told a story that I was already vaguely familiar with, and the
potential for an undervalued stock that Wall Street did not get the memo
about...
The story was about Duck Dynasty:
the big deal last December (just over a month ago) with A&E trying to
pull the show off the air and the backlash that followed from a massive number
of loyal fans. They evidently went out and bought everything
show-related, and one small cap company had a pretty big role in this
merchandise...
Long story short, I bought the $7
report with the expectation to research more to really see if this was a waste
or a winner. The company was Under Armour (UA), and this report was
saying that Wall Street will realize and correct the stock price when earnings
are announced.
FYI this tip is obviously past
now, but he has another one up now that I will also be getting:
For this UA stock tip last week, I
did not like its P/E ratio at 60 (ideal is at or below 10 for value stocks),
but I know and like the brand. Also, it's been a little colder around
these parts this winter. I decided to give this guy Matt a shot.
His videos are not ultra-professional, but I like that. He is a
real person, and I was only a few days away from finding out if he was right.
Didn't want to kick myself later, so I bought at $82.50 per share.
What happened next blew me away.
Less than a week later, on
Thursday, 30 Jan, I casually checked my stocks app and did a double-take at the
number I saw.
The stock price of UA was up
22.99%. In one day. It is currently even higher at $108.11, or 32% higher than it
was a week ago when I bought in. This is a graph of UA's 1 week stock
price...
Now,
I know even a blind squirrel can find a nut once in a while...
I do not want to take advice from someone who does not take their own, so did Matt invest in it, too? He pulled in over $8k from that one trade. He doesn't act like it in the videos, but I believe he is doing very well. He is an everyday guy that does his homework and knows what to look for. He doesn't win them all, but as long as the winners outweigh the losers, I'd say that's the goal.
Besides his $7 report, there is his paid newsletter, which runs $97/month. Seems that it pays for itself, but a little steep if you don't plan to trade a lot. One or two big winners a month should cover it, but the goal is not just to 'cover costs' right? The goal is at least 40% per year. Otherwise stick to magicformulainvesting.com
Of course there are no guarantees in the market. I will keep using his picks and documenting them here in my spare time. I do have two businesses, a separate full-time job, and a wife and two little girls at home, so this will NOT be a daily or even weekly thing. That's why I see these reports as so valuable, doing research I simply do not have time (or know-how) to do...
It's one of those Catch-22s that I
do not have the time to trade consistently, but will I
have more at some point in the future if I don't do anything different?
Sure, right after pigs fly over, dropping bags of cash in my lap. Hmmm.
I should note that among my other
long-term stocks are AAPL (Apple) and F (Ford). Both came out of the
screener at Magic Formula and my own further screening. They have grown
steadily (20% & 40% after recent price drop) since I bought about a year
ago, and with both P/Es around 12, they are still a good value. It is
always good to spread it around and hold a number of other stocks, too for
safety's sake.
Also, these picks made me consider
others out there that might be offering legitimate tips. The closest
possibility so far seems to be another self-proclaimed numbers nerd (Egghead) that only has a one-time fee
of I think $97 for lifetime ongoing weekly stock
picks (he looks younger, so 'lifetime' might last a while. I
might check that out more if Matt's picks start lagging or I stumble upon an
extra $97...
That's it then. Till next post. Toodles.
