Becoming a not terrible investor

[augustabound]

Also this one is free.

https://www.coursera.org/course/accounting

 

Edit: it seems to be closed now. As of last week it was open, I thought it ran from Sep to Nov.  :-\

[Tim Eriksen]

Eventually in the career of an investor I believe that the emotional and psychological aspects of investing subsume the technical aspect.  So I agree with what everyone is saying on those points.  However, it struck me that the OP is lacking some basic skills right now.  He said it's about discipline, not knowledge, but from what he said I am not sure I agree at this point.  Buying something because it appears on the 52 week low list in an of itself isn't a recipe for success.  The list is just one of many places to fish for ideas.  It's not that because something is on the list it's a good idea or will work out.

 

I don't think you need to necessarily give up and index.  My first trades, and I use that term in contradiction to investments, were probably similar to yours - either new 52 week lows or stocks profiled in Barron's that I thought could bounce.  So I know that you can learn a better way.

 

But  based on what you posted, along with the psychological/emotional aspect, I see another fundamental flaw - you don't appear to know how to value a business (or if you do you are not incorporating it into your decisions).  You are using book value as a proxy, and it isn't.  Then you are trading (versus investing) and hoping for a dead cat bounce of 10%.  Most value investors would not look at something if it were just 10% "undervalued."  If you had a strong and rational conviction regarding the value of the business you would not choose a 10% "hurdle."

 

Start valuing smaller businesses in industries you understand, whether you buy the stock or not is not important, and over time expand your circle of competence to other industries and larger companies.  At the same time develop a style that works for you.  Then you will be able to find stocks that are able to double or triple. 

 

 

[Palantir]

Have you studied accounting/familiar with reading statements/modeling?

[KCLarkin]

STOP!

 

Your trading strategy is deeply flawed and is not a good starting point. Overcoming your temperament will not cure this (actually I think you must have a good value temperament if you are attracted to 52 week lows). Most stocks that hit 52 week lows, continue to hit 52 week lows. Short term momentum is real and will kill you. If you were looking at stale 52 week lows (say from 6 - 18 months ago), you might have better luck.

 

Read, read, read. Don't trade until you have read most of the books on this list:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/which-5-investing-books-have-been-the-most-influential-to-you/msg175475/#msg175475

 

Actually, I think the title of your post hints at why you are having problems. Stop thinking like a speculator and start thinking like an investor

[rkbabang]

One thing that helped me a long the way, and I still do it today, is to look at what other smart investors with excellent track records are doing and try to figure out why they are buying the stocks that they are buying and why they are selling the stocks that they are selling.  You can find some excellent investments this way and it gets you to dig deeper into stocks that you might never have thought to look at.  I've found all of my best investments over the years this way.  In investing there are no points off for cheating.  I'm not one to try and mine stock screens (like your 52wk low list) to find my own gems, I'd rather follow people who I know are good, see where they are digging and start there.  Also, I have a day job and this is a time-saving short cut.  It is my way of screening to find a list of stocks to start looking at.  Running automated screens turn up mostly garbage.  It is no fun sorting through garbage.  I'd also agree with everyone else here, never stop reading.  I read about a book per week and make sure that at least one book per month is investing/economics/psychology related.  The above recommendation of "Thinking Fast and Slow" is an excellent book, as well as one called "Your Money and Your Brain".

 

[bookie71]

Back before I went into semi retirement, I would ask new clients if they were in the market. They normally would answer either "I play the stock market" or "I invest in the stock market".  This was usually enough to tell me what kind of investor they were.  There are a lot of folks who only invest in a savings account.

[Packer16]

I think the first thing you need to do is to value any stock you purchase.  If you don't know what it is worth I don't know how you can make a buy/sell decision or even a decision to switch from one security to another.  Alternatively, if you don't have the time or interest in valuing stocks, you can invest is low-cost funds which include stocks that have value characteristics such as Vanguards Small Cap Value fund.  These types of funds will at least prevent you from purchasing overvalued growth stocks that can be heavily weighted in cap weighted indexes like the S&P 500 and provide the advantage of low costs.  As Ben Graham has said: To achieve satisfactory results is easier than most people realize; to achieve superior results is harder than it looks.

 

Packer

[SharperDingaan]

A couple of things you might want to consider ...

 

There is nothing wrong with your pool. We fish it as well, & usually very successfully.

 

Almost all the very good investors on this board have years of FI business experience, MBA's, CFA's, CPA's, etc. - & most probably have more than one of these. Each of those letters takes 2-3 years to achieve, & only if there are no failures along the way. Those technical skills are essential, and its a long apprenticeship.

 

Most folk would invest in just the industry they work in, because that is what they know best. The time invested in understanding their industry business structure, comparative advantage, and strategy then also helps in getting a better position within the industry.

 

SD

 

 

[innerscorecard]

All the OP's follow-up replies are the reason why I asked why he was investing - whether for economic reasons (maximize gains, preserve wealth, etc.) or for non-economic reasons (likes the idea of being a value investor, likes owning companies, has fun trading, etc.).

[jouni1]

When you are mediocre at something, it is often hard to really see how mediocre you are untill you are good at it. And then you can look back and know how bad or good you were exactly. And even then your not sure as you might still be mediocre without knowing.

 

For example people with low intelligence think higher of themselves then people with high intelligence. So if you invest part time your brain is constantly trying to fool you that you are at least pretty decent when in fact you might not be. Reading this book might be a good start:

http://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman-ebook/dp/B00555X8OA/ref=sr_1_1?ie=UTF8&qid=1411483092&sr=8-1&keywords=thinking+fast+and+slow

 

So before you do anything with investing, you should remind yourself constantly to tell yourself that your not nearly good enough. Most people never get good at it because they stop pushing themsleves to become better at some point. Not because they lack some innate skill. That point usually comes way too soon. And when their results are then bad over a longer period they will just throw in the towel and say it is too hard, or complain about bad luck.

 

With most skills if you plateau at some point and stop learning, you will get killed fast. With sports or sales or any skill with immediate feedback and low variance you will fail right away if your learning curve flattens out too soon. The dangerous part with investing is that it can take quite a while before you could blow up with a bad strategy. So this fear should always be in the back of your head. You cannot rely on stock prices going up or down for negative feedback. It should come from within.

::) well said!

[Guest longinvestor]

I like how you titled this thread and being honest, seeking input. You're off to a good start.

 

I'll add my 2 cents to this. I have a history of being a terrible investor myself. It all boils down to naivety in trusting my money in the hands of others. No matter what process you follow, at the end of it, you cannot escape trusting someone. This matters most in investing. In my humble opinion, the world is not filled with trustworthy people, especially with money. (Yours). I learned this the hard way.

 

The other big thing that matters is, how good you think you're or likely to become through reading, experience and reflection. Others have posted about this. Here's what I took away: It is rather unlikely for me to get as good as a Guru like Warren Buffett. No matter the reading, experience etc. I have a very large portion of my networth entrusted with him. The biggest mental adjustment I've had to make include tolerance for boredom (do nothing). To some, this is not originality, but until this trust in proven unworthy, I plan to stick with this.

 

It is working so far. My results are mine, I don't compare with others. I must add that the financial crisis helped a lot and this mental framework was in place before he crisis. In short, I'm enjoying the proceeds over process. Mine is not a process I suppose, given that it involves doing nothing. I read up a lot of what Berkshire is doing, for example, after reading about solar energy, I visited a solar facility near Las Vegas to size up why BRK is pouring billions into it. I'm reading about the history of the railroad in the USA etc.

 

Be yourself.

[Tim Eriksen]

I like how you titled this thread and being honest, seeking input. You're off to a good start.

 

I'll add my 2 cents to this. I have a history of being a terrible investor myself. It all boils down to naivety in trusting my money in the hands of others. No matter what process you follow, at the end of it, you cannot escape trusting someone. This matters most in investing. In my humble opinion, the world is not filled with trustworthy people, especially with money. (Yours). I learned this the hard way.

 

The other big thing that matters is, how good you think you're or likely to become through reading, experience and reflection. Others have posted about this. Here's what I took away: It is rather unlikely for me to get as good as a Guru like Warren Buffett. No matter the reading, experience etc. I have a very large portion of my networth entrusted with him. The biggest mental adjustment I've had to make include tolerance for boredom (do nothing). To some, this is not originality, but until this trust in proven unworthy, I plan to stick with this.

 

It is working so far. My results are mine, I don't compare with others. I must add that the financial crisis helped a lot and this mental framework was in place before he crisis. In short, I'm enjoying the proceeds over process. Mine is not a process I suppose, given that it involves doing nothing. I read up a lot of what Berkshire is doing, for example, after reading about solar energy, I visited a solar facility near Las Vegas to size up why BRK is pouring billions into it. I'm reading about the history of the railroad in the USA etc.

 

Be yourself.

 

Good points.  In choosing to do it ourselves, I would say we don't have to be,or even think we are as good as Buffett, we just need to be better than Buffett is with his constraints (immense size of BRK limits his ability to materially outperform).  There is nothing wrong with acknowledging that you can't do it, or don't have the time or desire to do it yourself.  One should then still study the best approach in order to choose who to hire to do it, and then periodically monitor.  Sounds like you have chosen what works best for you.   

[Uccmal]

I like how you titled this thread and being honest, seeking input. You're off to a good start.

 

I'll add my 2 cents to this. I have a history of being a terrible investor myself. It all boils down to naivety in trusting my money in the hands of others. No matter what process you follow, at the end of it, you cannot escape trusting someone. This matters most in investing. In my humble opinion, the world is not filled with trustworthy people, especially with money. (Yours). I learned this the hard way.

 

The other big thing that matters is, how good you think you're or likely to become through reading, experience and reflection. Others have posted about this. Here's what I took away: It is rather unlikely for me to get as good as a Guru like Warren Buffett. No matter the reading, experience etc. I have a very large portion of my networth entrusted with him. The biggest mental adjustment I've had to make include tolerance for boredom (do nothing). To some, this is not originality, but until this trust in proven unworthy, I plan to stick with this.

 

It is working so far. My results are mine, I don't compare with others. I must add that the financial crisis helped a lot and this mental framework was in place before he crisis. In short, I'm enjoying the proceeds over process. Mine is not a process I suppose, given that it involves doing nothing. I read up a lot of what Berkshire is doing, for example, after reading about solar energy, I visited a solar facility near Las Vegas to size up why BRK is pouring billions into it. I'm reading about the history of the railroad in the USA etc.

 

Be yourself.

 

Well said.  As for original ideas there aren't any extra points awarded.  All of my greatest hits were someone else's idea.  BAC - Chou/Berkowitz; Aig - Planmaestro, Berkowitz; Seaspan - Irwin Michael; FFH Options - Originalmungerville; etc. 

[Guest longinvestor]

I like how you titled this thread and being honest, seeking input. You're off to a good start.

 

I'll add my 2 cents to this. I have a history of being a terrible investor myself. It all boils down to naivety in trusting my money in the hands of others. No matter what process you follow, at the end of it, you cannot escape trusting someone. This matters most in investing. In my humble opinion, the world is not filled with trustworthy people, especially with money. (Yours). I learned this the hard way.

 

The other big thing that matters is, how good you think you're or likely to become through reading, experience and reflection. Others have posted about this. Here's what I took away: It is rather unlikely for me to get as good as a Guru like Warren Buffett. No matter the reading, experience etc. I have a very large portion of my networth entrusted with him. The biggest mental adjustment I've had to make include tolerance for boredom (do nothing). To some, this is not originality, but until this trust in proven unworthy, I plan to stick with this.

 

It is working so far. My results are mine, I don't compare with others. I must add that the financial crisis helped a lot and this mental framework was in place before he crisis. In short, I'm enjoying the proceeds over process. Mine is not a process I suppose, given that it involves doing nothing. I read up a lot of what Berkshire is doing, for example, after reading about solar energy, I visited a solar facility near Las Vegas to size up why BRK is pouring billions into it. I'm reading about the history of the railroad in the USA etc.

 

Be yourself.

 

Good points.  In choosing to do it ourselves, I would say we don't have to be,or even think we are as good as Buffett, we just need to be better than Buffett is with his constraints (immense size of BRK limits his ability to materially outperform).  There is nothing wrong with acknowledging that you can't do it, or don't have the time or desire to do it yourself.  One should then still study the best approach in order to choose who to hire to do it, and then periodically monitor.  Sounds like you have chosen what works best for you. 

Immense size of Berkshire: just wondering as to when they got to this immense size. $50 B, $ 100 B or the $330B right now? Or $1 Trillion?

 

To me the material underperformance thing is hypothesis to be proven in the future. I realize we've had this discussion before re:starting point for comparison, like 2006 or 2009 etc.

I will be posting my annual performance in January every year. My performance is heavily tied to BRK.

 

 

[Tim Eriksen]

I like how you titled this thread and being honest, seeking input. You're off to a good start.

 

I'll add my 2 cents to this. I have a history of being a terrible investor myself. It all boils down to naivety in trusting my money in the hands of others. No matter what process you follow, at the end of it, you cannot escape trusting someone. This matters most in investing. In my humble opinion, the world is not filled with trustworthy people, especially with money. (Yours). I learned this the hard way.

 

The other big thing that matters is, how good you think you're or likely to become through reading, experience and reflection. Others have posted about this. Here's what I took away: It is rather unlikely for me to get as good as a Guru like Warren Buffett. No matter the reading, experience etc. I have a very large portion of my networth entrusted with him. The biggest mental adjustment I've had to make include tolerance for boredom (do nothing). To some, this is not originality, but until this trust in proven unworthy, I plan to stick with this.

 

It is working so far. My results are mine, I don't compare with others. I must add that the financial crisis helped a lot and this mental framework was in place before he crisis. In short, I'm enjoying the proceeds over process. Mine is not a process I suppose, given that it involves doing nothing. I read up a lot of what Berkshire is doing, for example, after reading about solar energy, I visited a solar facility near Las Vegas to size up why BRK is pouring billions into it. I'm reading about the history of the railroad in the USA etc.

 

Be yourself.

 

Good points.  In choosing to do it ourselves, I would say we don't have to be,or even think we are as good as Buffett, we just need to be better than Buffett is with his constraints (immense size of BRK limits his ability to materially outperform).  There is nothing wrong with acknowledging that you can't do it, or don't have the time or desire to do it yourself.  One should then still study the best approach in order to choose who to hire to do it, and then periodically monitor.  Sounds like you have chosen what works best for you. 

Immense size of Berkshire: just wondering as to when they got to this immense size. $50 B, $ 100 B or the $330B right now? Or $1 Trillion?

 

To me the material underperformance thing is hypothesis to be proven in the future. I realize we've had this discussion before re:starting point for comparison, like 2006 or 2009 etc.

I will be posting my annual performance in January every year. My performance is heavily tied to BRK.

 

I purposely said limits his ability to materially outperform.  I did not say underperform. I expect BRK to outperform by a modest amount.  Buffett has said by 2-3%.

That is a much tougher hurdle than when BRK was much smaller and he said 5 to 8%. 

 

I personally think BRK hit it in the 1990's.  The per share book value returns from 1975 to 1998 were substantially higher than 1999 to date.  Even 1998's 48% is due to share issuance at a premium to book.  Absent the shares issued for General Re it would have been around 10%.  The market value gains have also been drastically different since then.           

[LC]

I'd say experience. Simply growing older does wonders for realizing what's important, both in business and in "life".

 

No need to get rich quick, you can also get rich slowly and learn and grow along the way.

 

So uh...I guess my novice advice is to just take it slow. Good luck and welcome :)

[rkbabang]

I'd say experience. Simply growing older does wonders for realizing what's important, both in business and in "life".

 

No need to get rich quick, you can also get rich slowly and learn and grow along the way.

 

So uh...I guess my novice advice is to just take it slow. Good luck and welcome :)

 

+1.  That's exactly why I like the advice to read a lot books.  Because reading takes time.  Read 10 investment books per year and after 150 books you'll be a better investor.  Mostly because you'll have an additional 15 years of experience.