Investing - The Basics

Re: Investing 101 - Getting Started

Postby winston » Wed Jul 27, 2016 11:44 am

5 Rules to Buy Low and Sell High in the Stock Market

By Mitchell Mauer

Source: GuruFocus

http://www.thetradingreport.com/2016/07 ... ck-market/
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Re: Investing 101 - Getting Started

Postby winston » Mon Aug 08, 2016 7:59 pm

One Popular Investor Obsession You Should Give up Right Now

By Dan Ferris

Today, I'm going to teach you one of the hardest lessons for investors to learn…

It's worth it to try, though. The fact that most investors will never learn this concept gives those of us who do a huge advantage now and forever.

It may come as a shock… You may find it very hard to believe… But it's the key to success for some of the world's most successful investors…

Gross domestic product (GDP) growth and stock market returns have just about nothing to do with one another. In fact, you can achieve great investment results without ever thinking about another "macro" issue again.

Most people base their investing decisions on economic data, forecasts, and what they hear in the media. They obsess over unemployment numbers… the Producer Price Index… housing numbers… interest rates… factory orders… industrial capacity utilization… the Baltic Dry Index…

But the wisest, richest investors in the world say to forget it.

Business partners and billionaire investors Warren Buffett and Charlie Munger, for example, have been investing their own and other people's money for more than 50 years. And in all that time, they claim they've never had a single conversation about the economy. They simply don't waste time on it.

The vice chairman of investment firm Fidelity, Peter Lynch, is one of America's top money managers. He says if you spend 13 minutes thinking about economic and market forecasts, you've wasted 10 minutes. It's just not worth thinking about.

Ben Inker of the money-management firm Grantham, Mayo, and Van Otterloo wrote an excellent paper demonstrating that there's no meaningful correlation between GDP growth and investment returns.

In other words, stock market investors who think it's important to worry about where the economy is headed are dead wrong. Every minute you spend worrying about macro data has zero value to you as an investor.

It's hard to remember this, though.

Everywhere you look, the financial news media are constantly trying to connect the two. They're obsessed with pretending to know what you should buy and sell based on all the economic data pouring out of governments, Wall Street banks, and the talking heads every day. But it's all useless noise. Most of that economic news has little value at all for investors.

Instead of worrying about all that, stick to studying great businesses.

Companies like Wal-Mart (WMT) and McDonald's (MCD) thrive in recessions as consumers pinch pennies. Consumer-products giant Procter & Gamble (PG) steals market share from its competitors during tough times because it has enough cash to maintain its advertising.

In 2009, Berkshire Hathaway (BRK) used its massive cash hoard to make incredible deals with cash-strapped firms that couldn't access credit anymore.

For every great business like these, there's somebody who thinks a macro wind will crush it. He has failed to learn one of the greatest lessons for anyone who seeks riches in the stock market: Great businesses are great because they can ride out and even exploit macro problems.

Great businesses aren't cyclical. They don't get better or worse with the economy. They stay profitable and continue to gush free cash flow and pay higher dividends every year.

If you focus on buying great businesses, you can turn down the volume on the news fretting about the Fed's latest pronouncement.

You probably don't believe it… I get reader feedback indicating many folks refuse to stop obsessing about economic and political problems. They just don't get it.

What's a fella to do? It's my job to show you the way, to help you become a better investor. But lots of folks don't seem to want to hear it. Instead, they let the market guide their investing decisions time and time again… And they miss out on some great investing opportunities.

I'm not saying you should never read another newspaper. By all means, know what's happening in the world. Understand the backdrop in which you're investing. But don't waste a minute trying to figure out what stock to buy based on economic reports and forecasts.

Don't let macro fears prevent you from buying great businesses and compounding your wealth with great stocks.

Source: Extreme Value
It's all about "how much you made when you were right" & "how little you lost when you were wrong"
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Re: Investing 101 - Getting Started

Postby winston » Wed Aug 10, 2016 8:22 pm

A Timeless Rule Followed by Every Wealthy, Sophisticated Investor

By Dan Ferris

On June 15, 1998, Coca-Cola (KO) – owner of the world's most powerful brand – traded for $88.94 per share.

For many years, I've been telling my readers to keep the bulk of their equity holdings in companies like Coca-Cola, which has fat profit margins, high returns on capital invested, a great brand name, and a sustainable competitive advantage. I call companies like Coke "World Dominators."

Owning dividend-paying World Dominators and compounding their gains over many years is the surest, easiest, greatest way to get rich in stocks. But anyone who bought Coke in late 1998 ignored a timeless rule that wealthy, sophisticated investors hold sacred. And they suffered big losses.

What is this rule of the wealthy? How did violating this rule allow some investors to actually lose money on one of the world's greatest companies? And how can you begin using it to make a fortune in stocks?

The rule is that the price you pay is the most important thing when it comes to succeeding as an investor. If you pay a cheap-enough price, you can make money in even the worst businesses. If you pay a dear-enough price, you can lose money for long periods of time in even the best businesses.

Back in 1998, Coke's annual earnings amounted to $1.43 per share. So at the all-time high of $88.94, the market was valuing the business at 62 times annual earnings.

That's crazy expensive. Investors were accepting an "earnings yield" of about 1.6%. (That's the amount in earnings the company generates as a percentage of your purchase price. So take $1.43 in earnings, divided by an $88.94 share price, and you get 0.016... or 1.6%.)

Think about it this way: It's like buying a $100,000 house that you can rent out for about $1,600 a year, or $133 a month. It would take you 62 years to get your money back out of that investment. And only another fool would pay you $100,000 to take the house off your hands.

When you accept terms like that, you're almost guaranteed to lose money in stocks. And that's exactly what happened to investors who bought Coke at the wrong time.

Less than three months after Coke nearly hit $90 a share, it was down more than 30%. Five years later, it was down 50%. Even 13 years later... counting dividends... those investors hadn't made a dime in Coke... which is one of the world's greatest companies. Nothing much changed about Coke's business during that time. It was still one of the world's most recognizable brands. It still sold soda all over the world. It still had high profit margins.

The losses incurred by folks who bought in 1998 were directly the result of paying a ludicrously high price to become a shareholder.

The same thing happened to investors who bought software giant Microsoft (MSFT) in 1999. Shares peaked at $119. Today, the shares trade around $53.

Investors who bought back then lost because they paid the wrong price. The stock was offering roughly a 2.4% earnings yield. At that rate, it would take you 42 years to get your money back.

I don't know about you, but I don't have that kind of time. I'd much rather see a "payback period" of 12 years or less. That means getting an earnings yield of 8%-10% (or more).

Smart, successful investors know that the price you pay is everything when it comes to making money in stocks, commodities, or any private business. You can lose money even in the world's greatest businesses if you pay too much. If you take that lesson to heart, and only pay the right price – the cheap price – you're virtually guaranteed to make money over the long term.

Source: Extreme Value
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Re: Investing 101 - Getting Started

Postby winston » Mon Aug 15, 2016 1:40 pm

Investing Tutorial for 20-Somethings

By Dan Moskowitz




Source: Investopedia

http://www.investopedia.com/articles/pe ... yptr=yahoo
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Re: Investing 101 - Getting Started

Postby behappyalways » Wed Aug 31, 2016 12:12 pm

Macroeconomics and Value Investing - Talk Back Thursday by Tan Teng Boo
https://www.youtube.com/watch?v=01zyGnOPMHk
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Re: Investing 101 - Getting Started

Postby winston » Wed Sep 07, 2016 7:39 pm

Are You Serious About Investing? Then Read This
By Mike Barrett

You can buy stocks like one of the world's most famously successful investors… if you just follow his blueprint.

To this day, Warren Buffett's success is legendary… And whether he's buying an entire business outright or simply purchasing shares of its common stock, the "Oracle of Omaha" says he has always taken the same approach.

Buffett employs a "bottom up" approach that looks closely at all aspects of a particular business, irrespective of things like employment levels, industrial production, or the direction of the stock market.

It all hinges on four simple tenets. These are the things that Buffett considers all-important. If you look for them, you can learn to buy stocks the Buffett way…


Tenet No. 1: Simple and Understandable

From Buffett's perspective, an investor's success is directly proportional to his understanding of the investment. This is one trait that separates investors who focus on the business from most hit-and-run investors.

You can't fully appreciate a company's opportunity tomorrow until you first understand what makes it tick today. The more complicated the business is now, the less likely you are to properly imagine how its story might change in the future.


Tenet No. 2: Favorable Long-Term Prospects

The great Wayne Gretzky famously said, "A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be."

Over the arc of his investing career, Warren Buffett has done a masterful job of identifying businesses with favorable long-term prospects… of skating to where the puck is going, not necessarily where it is today.

A prime example is auto insurer GEICO, which was close to bankruptcy when Buffett started buying it 65 years ago. In his 2015 letter to shareholders, Buffett explained…

It was clear to me that GEICO would succeed because it deserved to succeed… The company's low costs create a moat – an enduring one – that competitors are unable to cross.


Tenet No. 3: Honest and Competent Management

A business can only be as good as the people it attracts and retains. Buffett tests management's honesty and competency by asking three questions:

1. Is management rational? Buffett believes management's capital-allocation track record is an important rationality test, since these decisions ultimately influence shareholder value. In his opinion, management should either reinvest a growing cash balance in the business at above-average rates of return or return it to shareholders.

2. Is management candid? Buffett admires CEOs who fully and genuinely report their company's results, whether good or bad. Invest alongside management teams who can explain complex ideas in simple ways and engage their audiences with straight talk.

3. Does management resist the "institutional imperative"? Buffett says one of the most surprising discoveries of his entire career is the presence of a stealth force he refers to as the "institutional imperative" – a tendency of managers to imitate the behavior of other managers, no matter how silly or irrational doing so might be.


Tenet No. 4: Attractive Pricing

The final step is to assess to what degree (if any) the current price represents a discount to the business' intrinsic value. The greater the difference between the two, the greater the margin of safety.

Buffett believes the best way to determine intrinsic value is a technique called discounted cash flow (DCF) analysis. You simply discount the net cash flows expected to occur over the life of the business by an appropriate rate. The resulting net present value (NPV) provides an estimate of the company's intrinsic value.

Most investors and analysts – Buffett included – prefer to discount projected future cash flows using a "risk free" rate. Normally, the 10-year U.S. government bond would be a reasonable point of comparison… but not when the Treasury-bond yield is as low as 2%, like it is now.

Because of this and the other shortcomings associated with DCF analysis, we prefer to take a more market-oriented approach to estimating intrinsic value. Over the years, we've observed that high-quality businesses with strong margins, balance sheets, and returns on equity often sell for 25 to 30 times free cash flow (i.e. operating cash flow less capital expenditures).

That's why we're constantly on the lookout for quality businesses trading at or below 15 times FCF. Buying a business with an intrinsic value of 25 to 30 times FCF at or below 15 times FCF helps us capture a margin of safety similar to the one Buffett is looking for using DCF analysis.

In summary, Buffett keeps it simple. He stays within his circle of competency, happy to pass up businesses he doesn't fully understand and those for which he can't confidently predict future cash flows. He also spends just as much time evaluating management's words as he does the numbers they generate. Finally, he insists on buying quality businesses at prices that provide a substantial margin of safety – just in case he's wrong.

As you construct your own investment-selection model, I suggest you emulate the one Warren Buffett has used for more than half a century. It's the blueprint that helped him become the world's greatest investor.


Source: Extreme Value
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Re: Investing 101 - Getting Started

Postby winston » Tue Sep 20, 2016 8:03 pm

Forever stock: ABC of a simple business

Billionaire investor Warren Buffett and famed investment manager Peter Lynch have emphasized the importance of investing in companies with simple businesses and operations that an average investor can understand.

In fact, lots of successful companies that have more than a century of history belong to this category. Think Coca Cola, Campbell Soup Co., P&G, Hershey’s and railway transporter CSX.

These are all household names which have built up their competitiveness over many years. Not only do they have strong brands, they also provide many of the daily necessities everyone needs.

One important attribute of things like chocolate, toothpaste or soda is the core product remains the same; only the ingredients or appearance change over time.

These companies do not have to keep launching ground-breaking products to survive or thrive. Nor do they have to keep coming up with new inventions like technology firms.

Instead, just by doing what they have been doing, they are able to earn substantial profit and create shareholder value.

If these do not qualify as forever stocks, what does?

Source: EJ Insight

http://www.ejinsight.com/20160919-forev ... -business/
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Re: Investing 101 - Getting Started

Postby winston » Fri Sep 23, 2016 9:52 am

7 Rookie Investing Mistakes to Avoid

Getting into stocks can be exciting for beginner investors ... but be careful and thoughtful

By Josh Enomoto

Source: Investor Place

http://investorplace.com/2016/09/invest ... -SJg_B96M8
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Re: Investing 101 - Getting Started

Postby winston » Wed Oct 19, 2016 7:54 pm

Master These Five Skills and Start Investing Fearlessly

By Dan Ferris

No matter how much research you do, you'll always reach a point when you must pluck up your courage and buy or sell.

Last month, I gave a presentation called "Invest Fearlessly" at the 2016 Stansberry Conference at the Aria Resort and Casino in Las Vegas.

I shared the five skills essential to your success in the market. Develop them now and they will give you the clarity and self-reliance you need to invest fearlessly. Let me explain…

The first skill you need is to be truthful with yourself. That means many things.

First and foremost, it means asking yourself if you really have the temperament to manage your own investments.

After you get past that hurdle, you have to decide what you are. Are you a value investor? A day trader? You must have a real plan.

Next, you must learn how to think long term. You need a long-term perspective to overcome the emotional pull of the herd… especially near market tops and bottoms, where most people make their biggest mistakes and lose money.

It's hard to stay true to a winning strategy when it's underperforming without a good understanding of that strategy's long-term performance. You need to understand how money compounds over the long term.

You also need to understand the history of price movements in stocks, bonds (interest rates), and important commodities, like oil and gold.

You must also learn negative thinking. Recognizing what you're doing wrong is a simple idea, but it's difficult to do.

You'll be smarter and more effective in the financial markets (and other areas of your life) if you spend more time trying to figure out what you're doing wrong than always trying to confirm that you're right. Many great investors advise negative thinking…

Warren Buffett says, "Rule No. 1: Don't lose money. Rule No. 2: Never forget Rule No. 1."

Billionaire trader George Soros says, "I'm always wrong. I'm always wrong, and I try to correct my mistakes. That is the secret of my success."

In other words, Soros is always trying to disconfirm any bad bets in his portfolio and get on the right side of the trade. If you can't sell your most cherished long idea or even go short on it if things change, you'll wind up with a portfolio full of financially draining emotional commitments instead of a portfolio full of winners.

Learn to think about all you don't know, figure out what you shouldn't do, and know when not to place a bet… Learn to disconfirm your ideas.

Finally, you must learn to approach investing as a business. The minute you decide to manage your own money, you start a business. Treat it like one.

Embrace the four business-like investing principles in the last two pages of Benjamin Graham's classic, The Intelligent Investor: Know your business, run your business, make sure the odds favor a profit over the long term, and have the courage of your knowledge and experience.

That last point brings us full circle from where we started…

You can't be a successful investor without the courage of your knowledge and experience. False bravado won't cut it, either. You must base your courage on what you've learned.

And no matter what the original source for your ideas, you had better do the necessary work to own them intellectually and emotionally before you buy.

Investing is like breathing. No one can do it for you.

Source: Extreme Value
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Re: Investing 101 - Getting Started

Postby winston » Wed Nov 09, 2016 6:45 am

The simplest possible way to understand investing

Source: Daily Crux

http://thecrux.com/sjuggerud-the-simple ... investing/
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