A few times a week, I drive home for lunch to take the dog out and listen to a podcast. Midway through December, I found myself ignoring the podcast to instead think over a bunch of stock ideas and strategies that had been floating around in my mind.
On the way to work one of those days, I mentioned in passing to my fiancée/editor that it would be fun to write an eBook with all these strategies and write-up the stocks. I could use my checklist to write-up some of the stocks (to encourage readers to sign-up to my list to access the checklist) and put my Fiverr tear-sheet in front of some of the chapters as well.
“Well, do it then,” she responded.
Over the next two-and-a-half weeks or so, I neglected animal time after work, spent the weekends putting together stock charts and spreadsheets, contacted a couple different graphic designers to work on the cover and kept in mind all the grammatical issues I tend to make in everything I write.
Soon enough, I had plowed through 65 pages and the book was ready for her to edit. The final product has ten trades: two ETFs and nine stocks (one trade buys one stock and shorts another). The strategies/themes/whatever buzzword you want to use are:
All-in-all this is my favorite book I’ve ever written. As I have with my newsletter, I targeted approachability and humor in the writing and tried to use as many different tools to analyze the stocks as I could to get beginner level exposure to all of them.
Hopefully, you’ll love the book as much as I do. It is free right now and will be until this Friday – I’ll send another email out then as a reminder.
By the end of 2016, uranium was down about 90% since 2010.
Ignorance of the science behind nuclear energy, the Fukushima disaster and assorted other nonsense had pushed the price far below levels where it could realistically be produced.
For a few years, commodity investing expert Rick Rule had pounded the drum to speculators to invest in Uranium. His thesis that the basic laws of economics would not allow the price of a valuable commodity (nuclear energy still creates tons of demand for uranium around the world) to stay below the cost of production was logically sound but was taking a while to work out.
We added uranium producer Cameco to the Market Timing Portfolio when it debuted in November 2016.
On December 21, our favorite Quant, Meb Faber, wrote about uranium comparing it to coal stocks at the end of 2015. Coal stocks en masse doubled in 2016.
The timing couldn’t have been better, Cameco is up 24% since Faber’s post and up more than 40% since it was added to the market timing portfolio.
The market timing portfolio as a whole has massacred the market, and good thing too, because the other portfolios have seen performances ranging from satisfactory to FUBAR.
In addition to Cameco’s massive return, our trades in the Russian, Polish and Brazilian ETFs are all up more than 15%.
For more on the portfolios (including the performance of the Stocks for 2017 portfolio’s first month and some lessons I learned from losing 70+% in option trading),you can find this month’s review here.
Make a watch list of quality companies you are familiar with and interact with in your daily life.
Either learn how to value them or use a service like Morningstar to value them.
Sell put options on the companies at a strike price below that value. When you sell the puts you are paid a premium up front to give the other party the right, but not the obligation, to sell the stock to you at the strike price.
For example, if you sell a put with a strike price of $115 and an expiration date a month out on Apple for $2, you receive $200 up front (option contracts have to be 100 shares). If the stock price falls below $113 (the strike price minus the premium) the other party is likely to put the stock to you, which means you would have to pay $11,500 ($115*100) for the stock.
This is a lot of money (you would probably want to focus on stocks with lower prices for a $50k portfolio), but remember that you believe the stock is worth more.
When you are put stocks, hold them until they trade for 20% more than the value you calculated.
Once they approach that number, sell call options.
When selling call options you are also paid a premium up front to give the other party the right, but not the obligation, to buy the stock from you at the strike price.
In both of these cases you will find quality companies and pick a price range where you want to own them. You can then sell other people the option to buy or sell them outside of your price range to trade around the position.
As you do this over and over you will get a handle on option pricing and be able to target when the volatility portion of the option price is too high or too low. You can also start identifying other ways to trade with options. If you’re interest I wrote about my option trading strategy here:
I’ve been a value investor for about 13 years and in that time have never figured out quite how to perfectly time my buys. No one has really.
There are technical indicators, and, that seem to allow you to better gauge the market’s emotions.
Many value investors think reading charts is hogwash but trust their own ability to judge management from thousands of miles away or predict cash flows 15 years from now.
I think of these things there is a better chance that buying when a stock is trending up (or even when a down trending or channeling stock is starting to move toward a better trend using Bollinger band width and MACD to figure this out) so that you know the emotion of the market is positive will have consistently good results.
I have aI go through for all traditional value investments (think Peter Lynch/Warren Buffett style stuff) I make. It works pretty well for these straightforward deals and I’m thinking of adding some technical analysis to it as well.
The problems I’ve had with the checklist are that I have a hard time applying it to industries that have unusual characteristics, commodities, turnaround situations, ETFs and CEFs, high growth companies, short-term trades, you get the picture.
When it comes down to it, the checklist applies to the minority of potential investments/speculations that I look at. I put all this time into synthesizing my thoughts and reading all these books and I don’t really use it that much. Oh well.
Do what McDonald’s would do.
Identify some good commercial real estate and buy it with 25% down or as little as you can put down so you can spread the cash over several properties.
Find people who want to start reliable franchises in the locations and lease the CRE to them.
This way they are paying the debt down for you.
Set aside part of the payment for maintenance issues and make sure to use the depreciation and interest to reduce your taxes.
Over time collect the excess payments and invest them in municipal bonds yielding 4%+ tax free, when you have enough for another down payment buy another property.
Meb Faber recently wrote about this in one of his classic white papers that turns into a fun ETF:
Basically, when you’re looking for value you look for the highest yields. This is similar in other forms of value investing – in stocks you look for the highest earnings yield and with real estate you look for the highest capitalization rate.
As for how to fundamentally analyze bonds, which is what value investors do, you should first analyze the balance sheet.
Look for ratios of debt to cash and other assets that can be turned into cash. In the footnotes for the financials you can find the maturity dates of the various debt instruments the company has used. Make sure that there isn’t a clump of them due prior to your bond maturing.
Next, analyze the income. As a credit underwriter in my day job, our main focus is cash available for debt service. Compare this number with the annual required interest and debt payments and make sure you have a sufficient margin of safety if the income happens to fall.
Finally, it is important to keep in mind that bonds almost always have a binary outcome – they will default or you will get paid back. In some circumstances there can be restructuring as well, but for our analysis that can be considered the same as a default.
If you get paid back 100% on the maturity date all volatility in the interim is irrelevant.
I opened my first brokerage account when I was 13 with $1,000 and immediately put half in Krispy Kreme and half in Pfizer. Both were terrible decisions that lost 30+%.
As I got different summer and after school jobs I would transfer more money into the account and diversified more and created better returns.
My parents were also wary at first. I was able to convince them that it was a smart decision by earning the money on my own through these various jobs and writing up every investment I made to prove I was thinking them through well.
I started a blog when I was around 15 to track my investments and write about what I was learning. If you can’t convince your parents right away this would be a good idea. You can point toward the good picks you have made and show them what you have learned and even get feedback from professional investors. I often used my age as a way to get a foot into the door to discussions with hedge fund managers who otherwise would have ignored me.
Worst case you can invest the money when you turn 18 either way.
Another strategy could be to agree to save half of what you contribute to the brokerage account in a traditional savings account/CD/municipal bond that is super low risk.
If you are committed to earning money and saving it from a young age you can demonstrate discipline that is unusual for someone your age and that can also be an argument for investing.
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