Maximizing Time for a Recreational Investor

[valueventures]

Hi all,

 

Hope you are doing well. It's been a while since I've visited, as I have been busy preparing for CFA Level I (passed in December!) and recently transitioning to a new job. Now that I am settled, rather than continuing with the CFA Program for now, I plan to shift my focus to value investing.

 

As a recreational investor who plans to spend 15-20 hours a week studying investing / researching investments and writing an article or two, how would you advise me to make the most of my time? The equities investment universe is expansive, and it can be a bit overwhelming to filter it down to a more manageable field. This can feel especially daunting when one considers that many PMs (guys like John Huber, Connor Leonard, etc., who I follow) are full-time investors and feel that only a few companies per year are worth investing in.

 

I am planning to read the classics, use screeners (Finviz, Morningstar, etc.), use weekly Value Line research, and read this forum and other blogs. Please share any thoughts or feedback you have. I appreciate your help in advance. Thanks!

[cameronfen]

Hi all,

 

Hope you are doing well. It's been a while since I've visited, as I have been busy preparing for CFA Level I (passed in December!) and recently transitioning to a new job. Now that I am settled, rather than continuing with the CFA Program for now, I plan to shift my focus to value investing.

 

As a recreational investor who plans to spend 15-20 hours a week studying investing / researching investments and writing an article or two, how would you advise me to make the most of my time? The equities investment universe is expansive, and it can be a bit overwhelming to filter it down to a more manageable field. This can feel especially daunting when one considers that many PMs (guys like John Huber, Connor Leonard, etc., who I follow) are full-time investors and feel that only a few companies per year are worth investing in.

 

I am planning to read the classics, use screeners (Finviz, Morningstar, etc.), use weekly Value Line research, and read this forum and other blogs. Please share any thoughts or feedback you have. I appreciate your help in advance. Thanks!

 

I have a full time job and many other interests.  If you want to get the best returns with minimal effort I suggest cloning other people's thesis.  Follow a billion blogs/CoBF etc. and just pick the ideas other people have that make the most sense with you.  Because you won't have time for much personal research/exit stratagies make you protfolio as diversified as possible.  Sell when the thesis you cloned doesnt make sense any more even if the person you cloned is still holding.  It's not your research so mission creep is even more dangerous.  I would use a stop loss as well (perhaps only an informal one) to protect against ignorance.  also pair down winners, so they dont become too large of the portfolio.  It comes down to recognizing you don't know as much as the people who are pitching and you have to protect against that.  This stratagy is what I do.  I come up with maybe one original thesis a year and have some 30 or 40 stocks in my portfolio.   

 

If you want to improve your investing the above is an option but not the best.  I recommend deliberate practice based on books like Peak and other work by K. Anders Ericsson.  Basically practicing is not going to be fun.  But if your goal is to get better as fast as possible this is the best bet.  Pick a stock some superstar invested in like 5 or 6 years ago.  Read nothing about his/her thesis.  Look at annual reports and other documents from that time and try to engineer the investors thesis.  Then look at the actual thesis and evaluate what you picked up and what you missed.  This is the best way to become a good investor imo.  Repeat as many times as you can stomach. 

[John Hjorth]

cameronfen,

 

It's to me an interesting angle to investing applied by you, that you describe here. Where is your own soul in all this?

 

valueventures,

 

Is it about your own money alone, or are you considering attracting capital?

[abyli]

Hi all,

 

Hope you are doing well. It's been a while since I've visited, as I have been busy preparing for CFA Level I (passed in December!) and recently transitioning to a new job. Now that I am settled, rather than continuing with the CFA Program for now, I plan to shift my focus to value investing.

 

As a recreational investor who plans to spend 15-20 hours a week studying investing / researching investments and writing an article or two, how would you advise me to make the most of my time? The equities investment universe is expansive, and it can be a bit overwhelming to filter it down to a more manageable field. This can feel especially daunting when one considers that many PMs (guys like John Huber, Connor Leonard, etc., who I follow) are full-time investors and feel that only a few companies per year are worth investing in.

 

I am planning to read the classics, use screeners (Finviz, Morningstar, etc.), use weekly Value Line research, and read this forum and other blogs. Please share any thoughts or feedback you have. I appreciate your help in advance. Thanks!

 

Investing is simple but not easy, there is no shortcut.

[LC]

So I had this thought yesterday reading this forum. Since January I haven't done a single bit of stock research (combination of market highs, new house, and general life stuff). And when I post here I feel a bit guilty because I am not contributing much in terms of stock ideas lately.

 

But it made me wonder, if you polled everyone on this board, what is the one stock or asset that has made them each the most money over time? I.e. trading in/out of US banks, or BRK, Fairfax, etc. etc.

 

Of course, there are some situations like Eric where you make a craptastic ton of cash on a single event which will probably never reoccur. But over a lifetime, most I feel will make it trading in/out of stocks they "know". So why not go even further: just study one business/stock - for your entire life? I mean, if you become the de-facto expert, and you trade that stock with a value mindset (margin of safety, general conservatism, etc.) I think you would do pretty damn well. Just food for thought.

 

 

[Jurgis]

But it made me wonder, if you polled everyone on this board, what is the one stock or asset that has made them each the most money over time? I.e. trading in/out of US banks, or BRK, Fairfax, etc. etc.

 

Of course, there are some situations like Eric where you make a craptastic ton of cash on a single event which will probably never reoccur. But over a lifetime, most I feel will make it trading in/out of stocks they "know". So why not go even further: just study one business/stock - for your entire life? I mean, if you become the de-facto expert, and you trade that stock with a value mindset (margin of safety, general conservatism, etc.) I think you would do pretty damn well. Just food for thought.

 

OT?

I think the absolute amount "most money" has drawbacks. As portfolio grows, the latest stocks will make most money. Also slow grower kept forever may make more money than fast grower kept for 1 year, but fast grower has way bigger return rate. OTOH trying to figure out best-return stocks by adjusting for portfolio size and return rate is a bit complicated (so I will never do it), so perhaps your measure is not that bad.  8)

 

So I looked at my portfolio since the beginning of the universe . I cannot account for all Liberty-Malone machinations, so I skip Liberties. I'm pretty sure they would be in the list though (some of them in positive, some of them perhaps in negative). My "most money" stocks then are: BRK (6 Jur-units money made), JPM (5), Gulfport Energy (4), ING pref(3), Exor (3), AAPL (3), Grand Terra Energy (3), First Industrial Realty Pref (3), Fairfax (3).

 

I think these cover a lot of what you said and also cover the issue I raised with your measure:

- Gulfport Energy (4), ING pref(3), Grand Terra Energy (3), First Industrial Realty Pref (3) were great returners from 2008-2009 GFC. So, once-in-a-lifetime event perhaps. Especially since my biggest losers (also since forever) include energy stocks in 2014-2016: about -2 Swift energy, -2 Denbury, -1 Baseline Oil.

- BRK (6), JPM (5), Exor (3), AAPL (3), Fairfax (3) are all "recent" stocks, which accounts for their bigger contributions than let's say pre-2009 holdings.

- AAPL annualized return is higher than BRK annualized return

 

Regarding your suggestion, I don't think I traded in/out of any of these stocks. I either bought and sold or bought and held. I don't think I'm gonna trade in/out of them in the future either. 8)

[SharperDingaan]

So I had this thought yesterday reading this forum. Since January I haven't done a single bit of stock research (combination of market highs, new house, and general life stuff). And when I post here I feel a bit guilty because I am not contributing much in terms of stock ideas lately.

 

But it made me wonder, if you polled everyone on this board, what is the one stock or asset that has made them each the most money over time? I.e. trading in/out of US banks, or BRK, Fairfax, etc. etc.

 

Of course, there are some situations like Eric where you make a craptastic ton of cash on a single event which will probably never reoccur. But over a lifetime, most I feel will make it trading in/out of stocks they "know". So why not go even further: just study one business/stock - for your entire life? I mean, if you become the de-facto expert, and you trade that stock with a value mindset (margin of safety, general conservatism, etc.) I think you would do pretty damn well. Just food for thought.

 

This is pretty much what we do, and over a clutch of maybe 5-10 names at best.

At any one time we may be in 2-3 of them at most.

 

The name of the game is to hold dividend payers, and get to as many shares as possible funded by house money.

When the share is out-of-favour, continue to hold for the dividend (at 'zero' cost the yield is infinity). When the company really screws up, buy in a bunch more and average down (against existing shares with zero cost) - as you already 'know' the company very well, there is relatively little risk. When the company is flying high, sell enough to return your cost to zero. Your measure of success becomes an annual rise in dividend income (more shares + higher div/share).

 

Alternatively buy a non dividend payer, get to house money, sell the position when they fly high, and reinvest in either a distressed FI instrument, or something else that has just experienced a dividend cut. In most cases, quality firms will mean revert over time, leaving you with an inflated cash stream paid for with house money.

 

The time commitment is essentially maintainance.

Once a year we might do a deep dive, focusing on a targets continuing 'viability'. The conventional investment metrics (multiples, TWR, etc) are also pretty meaningless. Our focus is cashflow; hence at times our portfolio can be down 30%+ (terrible by TWR standards) while our cashflow is up 10%. If we DO NOT have to sell tomorrow TWR is meaningless, whereas cash remains king.

 

Obviously. not an approach you can use with OPM.

 

SD

 

 

 

[writser]

Of course I don't know how old you are / what your savings are etc., but, before we discuss HOW to fill 15+ hours, maybe first discuss WHY you want to fill 15+ hours? Unless you have like $1m+, surely there are better ways to spend your time?

[KJP]

Of course I don't know how old you are / what your savings are etc., but, before we discuss HOW to fill 15+ hours, maybe first discuss WHY you want to fill 15+ hours? Unless you have like $1m+, surely there are better ways to spend your time?

 

Along the same lines, what are you trying to do?  Build a track record to get a job at a fund?  Invest your own money?

 

Assuming you're only trying to invest your own money, I recommend the following from personal experience:

 

1) Read widely from blogs, forums and investor letters to find potential ideas; and

2) Spend time only on companies (i) that either really interest you or are very simple businesses; (ii) whose accounting you can understand; (iii) have no more than 2 significant business lines/divisions (even that's a stretch); and (iv) that are small/nano caps.

[Rod]

I used to research any stock that I thought might be cheap and that I had a decent chance understanding. But looking back I see that the work I did, while earning good returns, did not produce useful lasting knowledge of companies. These days I don't research any company unless I expect to have a long term interest in it. This is the checklist I use to select what to research:

 

1) Is this a company I LIKE?

2) Is this a company that I can UNDERSTAND?

3) Is there something GREAT about this company?

4) Is this company relatively IGNORED by other investors?

5) Will I want to follow this company LONG TERM?

6) Is there good reason to think it is CHEAP NOW?

7) Does this company add DIVERSIFICATION?

 

The last two items reflect timeliness. Ideally I want to build up a list of 10 to 15 carefully chosen companies that I understand very well and do almost all my investing within that group, adding and subtracting over time. I think this system will earn the greatest return not just on money invested but time. That should reduce the amount of research I need to do.

[John Hjorth]

Investing is simple but not easy, there is no shortcut.

 

writser,

 

I think there is an answer to your post in abyli's last post in this topic. By investing, you also invest in yourself personally, by sacrificing some time now to get better, with the aim to improve the quality of time later. It is [- or, it can be, depending on who you are -] a learning process and an educational journey that never ends. [ : - ) ]

[Gregmal]

Read. Anything and everything. If you are a capable investor your brain will eventually start linking things you read, find interesting, or come across in everyday life with a way to capitalize on the pieces that are worthwhile. The greatest gift to the modern investor is the internet. The big reason I think hedge funds are no longer performing is that their edge used to be information. Now everyone can access almost anything via the internet. While the biggest names in the biz have hundreds of portfolio managers reporting their best ideas to them, you can too. Following credible blogs or investor forums more or less acts as a funnel in which the brightest people bring you the best ideas. Your job is simply to figure out who the brightest people are and what ideas are worth digging into deeper.

[LC]

I would suggest finding some "dead" time: commuting to work, break between class periods, etc. to do reading. I don't know what reading will work best, but I can tell you what I did (over about a 2 year period, reading about 1hr per day on the subway to work):

 

First I read about 5-6 of the "value investing canon". Buffett Partnership letters, Klarman's Margin of Safety, Graham's Intelligent Investor, Greenblatt's Little Book, Howard Marks memos...pick about 5 or 6. I think once I hit Howard Marks, they all started sounding the same.

 

Then I would find random companies that seemed interesting. Someone's blog, an stock screener, something in the news, or something original from myself. Never check the market cap. I would order the most recent 10K and read it with a Sharpie in hand. Once I was done reading it I would say "what would I personally pay for this company" and stick that number on the cover, along with the date. Then I would compare it to the market cap.

 

Did that about...say 30-50 times and eventually got bored. That's when I realized I am no professional investor, it's just not fun for me.

 

But I think it was a worthwhile endeavor: you really learn to value a company this way. Then you get older, you hear the same news about the same companies, you can take the mental shortcuts because (1) you know the company and (2) you know how to value companies. So you place your bet.

[Ghost]

So I had this thought yesterday reading this forum. Since January I haven't done a single bit of stock research (combination of market highs, new house, and general life stuff). And when I post here I feel a bit guilty because I am not contributing much in terms of stock ideas lately.

 

But it made me wonder, if you polled everyone on this board, what is the one stock or asset that has made them each the most money over time? I.e. trading in/out of US banks, or BRK, Fairfax, etc. etc.

 

Of course, there are some situations like Eric where you make a craptastic ton of cash on a single event which will probably never reoccur. But over a lifetime, most I feel will make it trading in/out of stocks they "know". So why not go even further: just study one business/stock - for your entire life? I mean, if you become the de-facto expert, and you trade that stock with a value mindset (margin of safety, general conservatism, etc.) I think you would do pretty damn well. Just food for thought.

 

This is pretty much what we do, and over a clutch of maybe 5-10 names at best.

At any one time we may be in 2-3 of them at most.

 

The name of the game is to hold dividend payers, and get to as many shares as possible funded by house money.

When the share is out-of-favour, continue to hold for the dividend (at 'zero' cost the yield is infinity). When the company really screws up, buy in a bunch more and average down (against existing shares with zero cost) - as you already 'know' the company very well, there is relatively little risk. When the company is flying high, sell enough to return your cost to zero. Your measure of success becomes an annual rise in dividend income (more shares + higher div/share).

 

Alternatively buy a non dividend payer, get to house money, sell the position when they fly high, and reinvest in either a distressed FI instrument, or something else that has just experienced a dividend cut. In most cases, quality firms will mean revert over time, leaving you with an inflated cash stream paid for with house money.

 

The time commitment is essentially maintainance.

Once a year we might do a deep dive, focusing on a targets continuing 'viability'. The conventional investment metrics (multiples, TWR, etc) are also pretty meaningless. Our focus is cashflow; hence at times our portfolio can be down 30%+ (terrible by TWR standards) while our cashflow is up 10%. If we DO NOT have to sell tomorrow TWR is meaningless, whereas cash remains king.

 

Obviously. not an approach you can use with OPM.

 

SD

 

 

 

 

SD I have always enjoyed reading your posts, any chance you can expand on this idea...possibly with an example.

[John Hjorth]

Just lookup SharpenDingaans's posts here on CoBF, Ghost. They are actually already here. [ : - ) ]

[SharperDingaan]

A very old example ...

 

In 1999 we sold a position in an oil company, and bought into what what was then TransCanada Pipeline (TRP) just after the dividend had been cut by a third to 80c/yr from $1.12. TRP is a regulated utility, a 'widows and orphans' stock, had a rising annual dividend, and would have been a core holding for many on this board. Like many here might have done, 12M shares traded on that adverse announcement (massive blowout), and in the public eye - TRP was 'cursed' for years. https://www.cbc.ca/news/business/transcanada-stock-drops-after-dividend-cut-1.169193

 

It took a while but the dividend was restored, and has continued to rise to the $2.76/yr it is today. We bought at $13.25; had we kept them we would have had a cash yield of 20.8% today, and they would be worth $56.70 - shortly after ANOTHER dividend cut!  https://www.fool.com/investing/2018/05/02/shares-of-tc-pipelines-crater-on-distribution-cut.aspx

 

We held for a while, recovered our capital outlay through dividends and a gain on sale, and rolled the now house money into distressed Fortress Paper Preferreds at around 50c in the dollar - and a cash yield of 12%+. Lot of drama later (par for the course), we exited at face value upon maturity.

 

The guiding principal was that ongoing cashflow = capital x yield. Small amount of capital x high yield + return of capital, to a larger amount of capital x high yield, to an even larger amount of capital x low yield (T-Bill). With ongoing cashflow rising throughout the hold period.

 

Along the way we expanded our 'circle of competence' to include pipelines and specialty paper.

But ultimately we could have just stayed with TRP, and also done extremely well. The punch-card test.

 

You don't have to be 'clever' you just to be able to recognize oportunity, and have the patience to let nature take its course.

A lot easier said than done!

 

SD

 

 

 

[LC]

SD I take a similar strategy but slightly different:

 

What you're talking about is after a dividend CUT. Usually that happens when $h1t hits the F@N.

 

I took positions in PM (philip morris intl) and CMP (compass minerals - salt mines) during higher-than-normal dividend yields. The thinking on my part is as you mentioned previously - reversion to the mean when you're dealing with "good" or "stable" businesses.

 

 

Can you talk about the differences of these two approaches - i.e. jumping in after a huge cut (where the old ladies may be selling along with the investment funds) vs. jumping in during business slowdowns (where maybe just the investment funds are selling) ?

 

 

In other words, your approach is enticing but it takes some cojones to hop in during such times of real distress.

[augustabound]

Usually that happens when $h1t hits the F@N.

 

All my life I've freely used the word fan and never known it was a bad word......  ;D

[SharperDingaan]

You have to realise what you are seeing, realise you are looking at quality, and be able to determine a reasonable liquidation value.

You're then taking your cue from a newspaper article.

 

Utilities are rate regulated, with price structured to achieve a target rate of return (assume 6%). Make less than 6% and the utility can recover it in the next cycle through an upwards rate revision. These are monopoly businesses with captive markets, hence there is very little real business risk. The share price falls because the 'marketing story' (safe, secure dividend) collapsed, and media sped up news distribution; producing a wall of selling and extreme skepticism - you're just exploiting the investor churn, and your liquidity. The utility will experience accounting write-offs, price will be set by dividend/market yield, but cashflow will remain largely unchanged. Little real risk.

 

Post 'cut' there are management changes, and efforts to restore 'confidence'. If this is a regulated bank (finance utility) you have a put on the central bank using repos to pull enough sh1t out of the bank to boost its capital ratios, and avoid the bank having to start caling in loans (triggering a credit contraction). Hence, buying into DB right after it has collapsed 25%, has little real risk - particulary if its one of THE banks, and German.

 

Doing the NBG, SAN or FTP thing is actually multiple times more risky, and a lot more work. The regulatory and sovereign 'moats' are a lot weaker, and investor protections a lot more 'iffy'. Essentially it's similar to jumping into a business during a downturn, and while you can still do well - there are easier ways of making a buck.

 

So what makes you rich?

Just read the newspaper, keep a pile of T-Bills (or margin capacity), and wait for the tear-gas to hit the streets ;)

 

SD