Investment Strategies 03 (Jul 13 - Mar 19)

[winston]

As an investor, you have to “find yourself”

By Adam O’Dell, CMT

Are you aggressive or conservative?

Are you looking for income or capital appreciation?

Do you believe in diversification, or concentrated investments?

How do you react to losses? Do you have discipline, or are you quick to panic?

How much time can you make available to actively manage your portfolio?

There are dozens of questions like this. The point is, only YOU can decide what will work for YOU.

Personally, this is a journey I’ve been trekking for years…

I’ve learned I’m more successful operating “systematic” strategies than discretionary ones.

I’ve learned I’m better as an active trader than a passive investor.

I’ve learned I get better results when I’m able to quantify my probability of success, rather than assume my subjective feelings are a reliable gauge.

All told, I’ve learned — through the process of trial-and-error — what works for me (and what doesn’t).

To bring this home, my message today is simple: take ownership of your investment strategy.

Make the commitment to figure out what works for YOU, because only you can determine that.

Wall Street — whether villain or saint, biased or unbiased — can’t tell us the investment strategy best suited to you.


Source: Dent Research

[winston]

The important secret behind Starbucks’ 16,000% gain…

by Chris Mayer

Source: Daily Crux

http://thecrux.com/look-for-these-5-key ... utperform/

[winston]

5 tips from a seasoned EM stock picker

By Michelle Zhu

Source: The Edge

http://smr.theedgemarkets.com/article/5 ... b-87358173

[winston]

Your No. 1 Job as an Investor Before You Buy a Stock

By Mike Barrett

When you read about a business that might be a promising investment idea, your No. 1 job is to develop an understanding of what it does and how it makes money.

It sounds simple, but we all know better.

As Michael Shearn, author of The Investment Checklist: The Art of In-Depth Research, once said: "The value of a business cannot be condensed into a few simple factors."

He couldn't be more right. And recognizing this will put you far ahead of the vast majority of investors out there…

To understand what makes a business tick and how it has evolved, you've got to put in the time. There's no shortcut, but there are two important things that will help you understand a business…

One, don't forget the customers. Shearn says that, according to the American Customer Satisfaction Index (ACSI), customer satisfaction is a leading indicator of a company's financial performance. He adds that many companies with high customer-satisfaction scores produce higher stock returns than the S&P 500.

Do your best to understand the company you're evaluating from the perspective of its customers. Some key, customer-focused questions per Shearn include:

• Who is the core customer?
• What pain does this business alleviate for the customer?
• To what degree is the customer dependent on the products or services of this business?

My favorite story in Shearn's book is one he tells about trying to understand why customers shop at 99 Cents Only Stores. He visited 120 of the 150 stores, and spoke to as many as 10 shoppers per store.

What he learned was customers shopped there because they could buy smaller package sizes and thus increase their grocery variety, while still stretching their budgets. He discovered key information about what makes the business successful.

Two, focus on the business model. Last year, an interview with one of my favorite money managers, London-based Aled Smith, turned me on to an interesting idea about how businesses really operate.

Smith thinks the analyst community has it all wrong classifying businesses by industry, rather than how they actually make money. Cintas (CTAS), for instance, is a well-known service provider to a large base of industrial customers. If you asked 100 Wall Street analysts, every one of them would tell you it should be classified as an "industrial" business.

But Cintas makes most of its money renting uniforms to other businesses. This is a far different enterprise than manufacturing a product – and often, far more profitable. So Cintas is actually more comparable, in terms of its business model, to other landlords of physical items, like hoteliers and rental-car agencies.

Ten years ago, MIT students published a research paper on the topic titled "Do Some Business Models Perform Better than Others?" Though dated, the paper is an excellent starting point if you'd like to better understand companies in terms of their business models.

One of key findings was this: Business models based on the three non-physical types of assets (financial, intangible, and human) all have significantly higher operating income and market capitalization than those based on physical assets.

In other words, capital-light businesses have the potential to earn much higher returns on capital and thus represent attractive investment ideas. The challenge is finding those with shareholder-friendly management teams, and buying them at attractive prices.

I'm convinced that fully understanding a business before investing in it is a major key to getting results. Unless and until you've developed a working understanding of a business and its economics, you're simply not prepared to imagine how its story will change in the future.

Over time, it's also imperative you update your view of the business as new information arrives. Having already developed a working knowledge of the business will help you react decisively, without emotion, when the time comes.

Take the road less travelled when it comes to understanding a business. Do the work others won't. In the end, you will be rewarded.

Source: Extreme Value

[winston]

A 90-year glance at the two most popular stock market investing strategies

Value vs. growth investing; Bank of America’s new study indicates value may be the winner.

By Rayhanul Ibrahim

Source: Yahoo Finance

http://finance.yahoo.com/news/baml-90-y ... 02834.html

[winston]

The Secret Strategy for Finding Hidden Tech Winners

BY MICHAEL A. ROBINSON

Source: Strategic Tech Investor

http://strategictechinvestor.com/2016/0 ... /#deeplink

[winston]

The 10 Ways to Find Your Next Great Investment Opportunity

By Mike Barrett

Finding great investment ideas is hard work.

They don't just drop from the sky and say, "Here I am!" You have to uncover them.

Today, I'd like to help you improve your odds of finding great investments by briefly reviewing 10 classic setups that consistently produce winning ideas…


1. Companies with operating leverage

The idea here is simple: Look for companies where profits are growing faster than revenue.

Apple (AAPL) provides a perfect example. When the company introduced its ground-breaking iPhone a decade ago, revenue tripled in just four years, compounding at a remarkable rate of 33% per year. But earnings grew even faster, compounding at 58% per year, pushing the stock up fivefold.

Apple didn't have to triple the size of its operations to triple sales. Instead, it scaled the assets it already had by leveraging the excess capacity of its component suppliers. This is what enabled Apple to grow profits faster than revenue and exhibit operating leverage.

In contrast, the restaurant industry rarely demonstrates operating leverage. Every time Chipotle Mexican Grill (CMG) or Buffalo Wild Wings (BWLD) builds a new company-operated store, it has to fully equip and staff it. There's little opportunity to leverage these substantial costs, whether it's operating one or 100 stores.


2. Turnarounds

The right new manager can turn around an underperforming business and bring a fresh perspective to a company's challenges. When you hear about a company hiring a new CEO, watch for a potential turnaround setup.


3. Secular trends

Sometimes the herd actually gets it right. Look for emerging trends with the power to become secular, like e-commerce. Identifying the winners of these big trends early on can be extremely profitable.

Keep in mind there is a huge challenge to investing in big, secular trends: The winners, like Amazon (AMZN), rarely get close to anything resembling "cheap."


4. Underappreciated growth stories

My personal experience tells me this setup is as rare as politicians practicing fiscal restraint. Investors almost always overappreciate growth stocks, pricing them as if their current high, double-digit revenue growth will somehow continue on forever. Those rare instances when growth turns out to be greater than expected usually translate into wonderful investments.


5. Mischaracterized businesses

Investors sometimes develop inaccurate, preconceived notions about what a business really is. For instance, the stocks of many companies with only modest exposure to the oil and gas industry have been hit just as hard as those of companies with heavy exposure the past two years.

When you uncover a mislabeled business, you'll often find it has been mispriced as well. (As you look closer, it's important to consider what management could do to alter investor perception.)


6. Strong competitive position

Entrenched industries and niche-market leaders present great, stable opportunities, and many of Extreme Value's top recommendations have exhibited this trait. For instance, nobody imports more beer to the U.S. than Constellation Brands (STZ) or earns more profits selling smartphones than Apple.

Strong competitive positions don't happen overnight. Consistent operating margins over a long period of time are a key sign you've found a company enjoying a strong competitive position.


7. Assets with greater value than the company's market cap

Investors often view companies owning a collection of disparate assets to be worth something less than the sum of their individual values. A common misconception is that the businesses or assets that aren't part of the "core" operation are somehow less valuable.

Look for companies with businesses in more than one industry… business segments generating different financial returns… valuable real estate holdings… and/or excess assets, such as a large cash position. Oftentimes, you'll discover that the sum of these individual assets exceeds the company's current market cap.


8. Spinoffs

Larger companies with diversified operations sometimes "spin off" a smaller division or subsidiary into a separate public company. These spinoffs often run better as independent companies and sometimes become great investments on their own. Buying Altria (MO) before it spun off Philip Morris (PM) worked out well for Extreme Value readers. So did owning ADP Dealer Services before it spun off CDK Global (CDK).

Be wary of spinoffs saddled with huge debt by the parent company – something we find to be a deal-breaker more often than not.


9. Emerging paradigms

Companies creating tectonic shifts in a particular industry have the potential to become life-changing investment opportunities. Apple's iPhone helped make the mobile communications industry what it is today. And Netflix (NFLX) obliterated the movie-rental business that Blockbuster dominated for years.

New ways of doing business come and go all the time. The challenge is recognizing which companies possess the right business model and management acumen to capitalize on the market opportunity.


10. Customer loyalty

My colleague Doc Eifrig wrote about this in the April 7 DailyWealth. Customer loyalty ensures continuous demand, insulates the business from upstart competitors, and is a leading indicator of financial performance.

Keep in mind, these 10 investing setups aren't mutually exclusive. In fact, the greatest opportunities tend to be businesses demonstrating multiple themes. For instance, Apple wasn't just a great operating-leverage story a decade ago. The company also experienced tremendous customer loyalty and investors generally underappreciated the iPhone growth story.

Stay on the lookout for these 10 successful investing setups, and pay particular attention to any business intersecting multiple themes.


Source: Extreme Value

[winston]

How to Never Make a Bad Investment Decision Again

By Kim Iskyan

It's usually easier to do the wrong thing than the right thing, or to do something poorly than do it well.

This is particularly true when it comes to your money – whether you're investing or spending it.

But asking yourself three questions – before you invest or spend – may help you avoid (or minimize) some of the most expensive mistakes...


1) Why am I buying it/investing in it?

There aren't that many reasons to buy an asset. It might be something you need, like a refrigerator. Maybe you're buying a bungalow on the beach because you want a relaxing place to get away. You might buy a stock because you want it to go up in value or pay you dividends.

Whatever the reason, anything you buy is an investment – even if you don't think of it that way. You expect to get a return from it – whether that "return" is keeping your beer cold, the feel of sand between your toes, or more cash in your brokerage account.

Just be sure to remember why you're buying something. After all, you wouldn't be upset if that biotech stock you bought doesn't keep your wine chilled – that's not what you bought it for. In the same way, if your beach bungalow collapses in value, it shouldn't bother you too much – because remember, you bought it as a vacation getaway, not as an investment.

And take the time to think it through. As famed investor Peter Lynch said, "Invest at least as much time and effort in choosing a new stock as you would in choosing a new refrigerator."


2) When am I going to sell?

If you don't have a goal, you'll never know if you've achieved it... And you won't know to sell if you don't have an idea about when (or why) you're going to sell.

You should sell something when the reason that you bought it is no longer valid. Like if the fridge heats instead of cools, the bungalow is no longer relaxing, or the stock falls in value. If these things happen, your investment isn't providing the "return" that you expected. That's the time to re-evaluate your investment, and decide whether to sell it and put the money to better use.

When you buy an asset, you probably don't know exactly when you're going to sell (and in fact, you probably shouldn't). It's not going to be a date on the calendar, circled in red, someday in the future. But the day you buy something, you should know what your criteria will be for selling – and be ready to sell when those criteria are met.

With stocks, it's easy... You should set a stop loss that will trigger the decision to sell. If the stock falls, a stop loss will limit your losses. And if what you buy goes up in value, a stop loss will ensure that you keep most of your gains.


3) What am I not buying?

There are an infinite number of things that we could buy. But we don't have an infinite amount of money (unfortunately). So whenever we buy one thing, we're making an indirect decision to not buy many other things. And there is a cost associated with that decision – it's called the opportunity cost.

When you're investing in stocks, the opportunity cost is easy to figure out. You can see how other stock prices changed after you made an investment decision and (if you want to torture yourself) how much money you might have made.

But the "cost" of what you didn't buy is less clear with respect to other types of goods. The money you spend on a beach getaway is cash that you're not putting away for your children's education. You're also not buying shares in a stock that could double or triple in price in coming years (or in a stock that could fall to zero).

When you understand what you're not buying, you might change your mind about your purchase. Or you might decide that, given your aims and objectives (see the first question above), what you're buying is the best possible use of your funds.

After you're finished answering these three questions, ask yourself: "If I had the cash in my hand to buy this thing right now, instead of the thing itself (whether it's a refrigerator, beach bungalow, or stock), would I still buy it right now?"

Every moment that you're holding on to an asset, you're using valuable capital that you could put to a different use... So every day you are "buying" something that you already own.

By answering these three questions, you'll avoid a lot of the ways that your emotions can be investment pitfalls.

Source: Truewealth Publishing

[winston]

3 investment strategies to adopt in Asia should Trump become president

By Jude Chan

SINGAPORE (July 26): Asia will be on the “front line” if Donald Trump follows through on his main campaign pledges.

From protectionism to regional security and US macro policy, Asia could see a period of “risk and uncertainty” should Trump emerge victorious at the US Presidential Election in November.

“A Trump presidency would no doubt hurt Asia’s GDP growth and could ultimately drive cost-push inflation, impart smaller trade surpluses and looser macroeconomic policies,” says Nomura in a report on Monday.

Trump has said he would brand China as a currency manipulator and raise import tariffs, as well as withdraw from trade treaties such as the Trans-Pacific Partnership (TPP).

While he has pledged to bolster the US military presence in Asia, he also said he intends to force America’s allies, including Japan and South Korea, to meet the full cost of its security guarantees. This could result in a scaling back of US military engagement in Asia instead.

Nomura says this could destabilise regional security, particularly in the South China Sea and the Korean Peninsula.

A tribunal at the UN-backed Permanent Court of Arbitration in The Hague earlier this month ruled that some of China's expansionary tactics in the South China Sea were illegal, handing an emphatic legal victory to the Philippines.

China claims most of the sea, which is disputed by the Philippines, Vietnam, Malaysia and Brunei, who all have rival claims.

“At this early, speculative stage, our analysis indicates that South Korea and the Philippines would be among Asia’s most vulnerable in terms of both economic and geopolitical channels,” Nomura adds.

Nomura highlights some investment strategies to adopt if Trump makes it to the White House.


1) FX strategy

Direct risks to foreign exchange in Southeast and South Asia are likely to be less severe than in Northeast Asia, says Nomura.

In Asia, Nomura recommends being short Chinese yuan and Korean won, and long Indonesian rupiah and Malaysian ringgit.

“We believe the impact on IDR and MYR would be more contained, given robust growth, relatively favourable political and policy developments and bond inflows into both countries,” Nomura says.


2) Rates strategy

Nomura believes a Trump victory is likely to make central banks shift their bias further towards easier-for-longer policies.

“In such an environment we expect investors to focus on high-quality carry trades where an idiosyncratic domestic story is favourable for local rates,” Nomura says.

This would benefit rates market in Korea, India, Malaysia and Australia, while Hong Kong and Singapore are likely to underperform US rates.

“As far as trade recommendations are concerned, we believe receive 3yr MYR NDIRS; long 7yr MGS; long 7yr IGB; receive AUD 2yrfwd1yr IRS; receive KRW 3yr; and receive THB 5yr positions would perform,” says Nomura.

“We would express our view of HKD and SGD rate underperformance via pay HKD 5yr vs USD 5yr and pay SGD 2yr vs USD 2yr positions,” it adds.


3) Equity strategy

If Trump becomes president, Nomura says “an initial negative reaction in equities” is likely, but the longer term impact on equities beyond that is unclear.

China, Korea and the Philippines are likely to be most affected, followed by India, Singapore and Indonesia in the next group, and the least impact seen in Thailand and Malaysia.

“Specifically, we would expect our Asia Arms Race basket (rising risks of confrontation in the region), defensive stocks in Thailand and Malaysia (markets least impacted), and higher-yield stocks (to the extent that a Trump presidency contributes to lower global yields) to outperform,” says Nomura.

“Longer-term, downsides to growth and rising uncertainty in policy would imply a further flattening of our expected trend for Asian equities over the next 12-24 months,” Nomura adds.

Source: The Edge

[winston]

Earnings Season Advice: Wait for the Trend to Reveal Itself and Then Plot Your Strategy

Earnings season can present opportunities, provided investors are patient and pay close attention to company trends.

by Kunal Desai

The best way to seize opportunities during earning season is to wait for price action to reveal itself.

Instead of guessing which companies are going to pop, wait for the pop itself and then trade in the direction of the trend.

Source: The Street

https://www.thestreet.com/story/1365977 ... yptr=yahoo