Reblog: Successful Investing is Beautifully Boring


If you question how ‘boring’ can be beautiful, you have been following the wrong investment strategy.

Too many people have the misconception that investing is glamorous. The reality is that glamour is the last thing you will find in the stock market, most especially if you plan on being successful.

Hedge fund guru, George Soros sums it up brilliantly: “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”

Sure, we have all heard of a stock market success story or two. You probably have an acquaintance who made a decent return from investing in a tech stock that tripled in price before selling. Maybe even someone who inadvertently timed the 2008-09 crash correctly. In most cases, these successes are short-lived and can be attributed to pure luck. Although these ‘successful investing’ stories make for good dinner-party conversation, they are by far the exception among prosperous independent investors.

The fact is investors who produce the flashiest returns, time and time again, usually do so in the most unglamorous manner. A great example is Warren Buffett, who built an empire investing in so-called ‘boring’ stocks.

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Reblog: What Investors Need to Know About Investing in Low PE Stocks


Man and woman in business attire happily looking at computer screen
Value investing starts with low PE stocks, but it shouldn’t be an investor’s only financial metric.

What do Warren Buffett, Ben Graham, Seth Klarman, and Peter Lynch all have in common? Besides being wildly successful investors, they’re all are adherents to value investing, a method where one attempts to buy securities that have a higher intrinsic value than their current price.

One of the most basic forms of value investing is to find stocks with low price-to-earnings (PE) ratios. The PE ratio is a simple ratio that divides the current price per share of a company by the earnings per share over the trailing-12-month period. The logic behind buying low PE stocks is simple: As an investor, you are ultimately entitled to a pro-rata portion of company earnings, so paying the lowest cost, or multiple, for those earnings is preferable than paying a higher multiple. Essentially, your dollar is buying a larger portion of company earnings than it would with a high-multiple stock.


Reblog: Three Lessons for Investors in Turbulent Markets


The global stocks roller-coaster of recent days reminded me of three lessons I learned many years ago as an investor in emerging markets. If well understood and applied, these precepts can turn unsettling volatility surges into longer-term opportunities.

  1. Long periods of market calm create the technical conditions for violent air pockets. Until last week, the most distinctive feature of many market segments was historically low volatility, both implied and realized. Although several economic and corporate reasons were liberally cited for this development (including the convergence of inflation rates worldwide and eternally supportive central banks, as well as healthy balance sheets and synchronized growth), an important determinant was the conditioning of the investor base to believe that every dip had become a buying opportunity, a simple investment strategy that had proven very remunerative for the last few years.The more investors believed, the greater the willingness to “buy the dip.” Over time, the frequency, duration and severity of the dips diminished significantly. That reinforced the behavior further.The economist Hyman Minsky had a lot to say about the phenomenon of prolonged stability breeding complacency as a precursor to instability. This phenomenon is reinforced by the insights of behavioral finance and can lead markets to embrace paradigms that ultimately prove unsustainable and harmful (such as the idea well more than a decade ago that policy making had totally overcome the business cycle, and the notion that volatility had been flushed or hedged out of the financial system). Continue Reading

Reblog: 3 Mistakes Novice Investors Make All The Time & How To Avoid Them


Investing is a difficult business and that’s why most people under-perform the market. That said, here are three common mistakes novice investors make all the time and how to avoid them.

1) They Chase Price:

People do not fully understand the way the market works. The biggest lesson novice investors should learn is that the market is counter-intuitive in nature. The second biggest lesson is that successful investors separate price from value. A common mistake novice investors make all the time is that they tend to chase price rather than make decisions based on the underlying fundamentals.

2) They Confuse Price With Value

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Reblog: What a Complacent Investor Looks Like


During three separate interviews this week I was asked if I was seeing any signs of complacency among investors, markets, or clients.

If anything, the people I talk to are more concerned with the high probability of lower market returns in the future but my view is surely clouded by the clientele and readers I deal with on a regular basis.Whether my sample size is representative or not, measuring market sentiment is getting harder and harder these days. Everyone now has a megaphone to voice their opinions — social media, blogs, 24-hour financial television, podcasts, conferences, magazines, financial news websites, etc.I don’t see how you can reliably track sentiment when it comes at you every day like a wave that changes form and shape depending on people’s mood that day. There’s just not much signal in all of the noise anymore.Of course, investors have been given plenty of excuses to be complacent. It feels as though volatility and bear markets have been outlawed in 2017 and stocks in the U.S. haven’t seen a down year since 2008.Since I don’t see any reliable way to track the potential complacency of investors as a whole, I tend to look at different ways investors can be complacent depending on which type of market environment we’re in.For example, last month I read the Schroders Global Investors Study which surveyed over twenty thousand investors from around the globe to get their expected portfolio returns over the coming 5 years. The results show this group was a tad ambitious: Investors expect an annual return of 10.2% on their investments over the next five years, according to a major new study.The Schroders Global Investor Study (GIS) 2017, which surveyed 22,100 people from around the globe who invest, found millennials even more optimistic. Those born between 1982 and 1999 expected their money to make average returns of 11.7% a year between now and 2022.Older generations were more realistic. The Baby Boomer generation – born in the two decades after the Second World War – anticipated 8.6% a year.Millennials (born 1982-1999, aged 18-35): 11.7% Generation X (born 1965-1981, aged 36-52): 9.8% Baby Boomers (born 1945-1964, aged 53-72): 8.6% Silent Generation (born 1923-1944, aged 73+): 8.1%Double-digit annual returns over the next 5 years from current valuation and interest rate levels seems like a stretch to me. I could be wrong but investors with such lofty expectations after we just went through a period of above-average returns (at least in the U.S.) seems to be somewhat complacent to me.Here’s another example (although this is more delusional than complacent):
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Reblog: The Illusion Of Risk


When we find an attractive stock to invest in, we outlay money, aka invest, to earn an attractive return and the investment will involve a degree of risk.

One of the most dangerous, commonly accepted and ill thought out concepts in investing is the risk / return trade off.

That is: high returns equals high risk.

Unfortunately, Investopedia continues to spread this type dogma, as you can see by the graph below.

Illusion Of Risk

Volatility (standard deviation) is not risk!

The appropriate definition of risk is from the Oxford dictionary (or any other branded non-financial dictionary) as: Exposure (someone or something valued) to danger, harm, or loss.

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Reblog: How Bull Markets Affect Your Intelligence


“Become more humble as the market goes your way.” – Bernard Baruch

Lately, it feels like every time I time I log into check my investment accounts the market values are higher than the previous time I looked. The stock market continues to hit all-time high after all-time high. I have to admit, it feels pretty good when things are going your way in the markets and it seems like everything you touch turns to gold.

This is easy. Everything I buy just keeps going up.

It would be nice to assume that my intelligence has risen along with my skills as an investor, but I have to admit that’s not really what’s going on here. We just happen to be in the midst of a strong bull market. So I have to remind myself. Seeing your investments rise is no way to validate your level of intelligence. In fact, it can be extremely dangerous to your wealth when the music stops playing.

Who needs an insurance policy when all of my risky investments have been rising for years?

Researchers have found that the brain activity of a person who is making money on their investments is indistinguishable from a person who is high on cocaine or morphine. The brain of a cocaine addict who is expecting a fix and people who are expecting to make a profitable financial gamble are virtually the same. The danger in allowing a bull market to increase your confidence as an investor is that it can lead you to take unnecessary or avoidable mistakes to continue to get that high.

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Reblog: How safe is my broker?


Investors are often cautioned about investment risk, market risk, etc. by their advisors and brokers. Investing in a particular asset or any equity share in particular, can give back good returns or, on the contrary, even wipe out the basic value of money that you have put in. But did anyone tell you that the broker himself can also cheat you? He can go bankrupt or be a fraud?
Not only have the small ones, but big investment firms have also given their clients a nightmare. If viewed from the brokerage company’s perspective, it is doing a business purely. Profits are their primary motto. And your money, except from the brokerage charges, is a secondary element for them.
So, how can a stock broker deceive you?

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Reblog: How incorrect assessment of returns can lead to bad investment decisions


When it comes to gauging the worthiness of an investment, investors often land way off the mark. Most treat short-term returns as a yardstick, while others have unrealistic expectations. Yet others misinterpret returns completely. However, correct assessment of performance is a must to avoid bad investment decisions.

For most investors, point-to-point return figures serve as the performance yardstick. This can be misleading. The current return profile of equity funds, for instance, is a case in point. The three-year returns of most equity funds comfortably outshine the five-year figures (see chart). Large-cap funds have clocked 13.5% CAGR over the past five years compared to 17.8% over the past three. Mid-cap equity funds have yielded 20.6% CAGR over the past five years against a whopping 34% in three years. To the lay investor, this sharp disparity in returns poses a dilemma—if the return is so much higher for a three-year period, does it make sense to stay invested for five years or more? But the investor is overlooking two critical elements here. First, he is considering a singular point-to-point reference from the past to make an assumption about the future. Second, he is ignoring the difference between annualised returns and simple absolute returns.

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How to hunt value and discounts in market!


The original post is by Mastermind, Megabaggers and appears here.

I find it ironic that more research is being done today than at any point in time in the past, yet a lot of value investors are failing to beat the market.

Ironically, the mountain of articles on popular investing websites just aren’t helping. Part of the problem might be due to the “more brains” problem Graham cited years ago. Since everybody on Dalal Street is so smart, all those brains ultimately cancel each other out.

This glut of brain power, investment research, and investors clamouring for bargains does not mean that you can’t beat the market. But, knowing how to pick value stocks is a key requirement, along with having a good strategy and being prepared to do things that most other investors aren’t.

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