Some advice from a regular dude that will hopefully make you more money...
By - EatYourMeats
I feel like too often ppl go like "this business is so good" but disregard valuation which is an important aspect
Most of “reddit” investors just go I like x company/product and buy in. No futher considerations lol
...which is why that place is spammed to death by paid shills, while good DD ends up getting shadow banned.
Especially in this sub. So many "DD" posts only look at if a company is profitable or has a big market and doesn't consider what is already priced into the evaluation. There's a reason most IPOs trail their sector the first 3 years.
Valuation is important no doubt, but only a piece of the pie. Valuations tend to carry.
>Valuations tend to carry.
What does this mean?
Valuation isn’t a sole factor but a complimentary one.
Lots of new investors on this sub that got bored during quarantine and started buying and selling equities out of boredom, made these decisions based on their own subjective judgement and experience (see: any AMD thread over the past year), made some quick cash, and all of a sudden they're convinced that they should be running RenTech.
Whenever challenged on an investment thesis by actual multiples, forward cash flow information, and a lot of valuation terminology and theory that they don't understand this is the main mental gymnastics exercise that they perform "pssshhh, I don't need to actually learn about financial or operating fundamentals, or any base accounting knowledge. I'm just naturally really smart and am able to predict what will be the 'next big thing'"
Or this is the cognitive dissonance routine they run through whenever they hear "You started investing in April 2020 at the market bottom. Your returns are due to systemic uplift, not because you're naturally skilled at stock picking"
But what if my investment thesis *is* that more people will get bored and start buying and selling equities?
You don't need to find the next big thing, you need to find what *people* will think is the next big thing.
This. Valuation isn't the end all be all.
I missed out on Amazon because I used to overweight P/E ratios and valuations for my stock picking and AMZN's was always ultra crazy. It was "too high" for me in 08, 10, 15, 20, etcetc. Luckily I bought into other things like Google and Alibaba, but I really missed out on Amazon because the P/E, Forward P/E, and a lot of those ratios screamed overvalued. Reality is that it was and probably still is undervalued.
[If it makes you feel better, at least you didn’t scoff at the idea it would ever be more important than Sears.](https://youtu.be/ViwhkcxO9T0)
Sears makes me irrationally angry. I recently ordered from them thinking that bankruptcy would force them to adapt... nope.
I like the analogy The Plain Bagel did. P/E ratios are like price per pound. Do you want to pay 10$/pound for a certain cut of meat or do you want to pay 12$/pound for this other one
I just don’t understand how PE values have so much importance when we have companies with PEs greater than 500 that are rapidly appreciating. Also, they’re basically constantly changing with the price of a stock. A lot of the older investing books I’ve read out a lot of weight on PE ratios but it really only seems useful to me to use it to compare companies in the same industry in the same phase of evolution.
It's the most important factor
The single most important factor is literally the amount an idiot would buy a security for. I don’t care p/e, etc. All I most care about is that you give me money. Undervalued stocks go down everyday.
> The single most important factor is literally the amount an idiot would buy a security for. I don’t care p/e, etc. All I most care about is that you give me money. Undervalued stocks go down everyday.
You can't predict human behavior or depend on it.
1. Even if idiots keep bidding up the price, if you wait too long to sell and it crashes, it doesn't matter that you were up 100% at one point if all those gains disappeared overnight. see: tech bubble in 2000, real estate bubble in 2008, etc. The thing about momentum based trading is it's very hard to come up with an exit plan that doesn't backfire. Maybe you sell when up 20%, and it goes up 100% after that. Or maybe You plan to sell when up 40%, and it goes up 38%, then drops 50%.
2. It can work against you too. Maybe investors don't want to pay you much for the stock. If this trend continues, would you feel comfortable holding the stock knowing you can't sell it for more than you paid for it? If you invested in some new fancy tech company in 1999 thinking some idiot would pay more than you, you were down substantially after the crash and never recovered. But if you invested in boring non tech stocks like REITs or value companies like Coke, Walmart, etc, you could just hold and collect dividends.
This is why I invest in dividend payers that I believe are undervalued based on fundamentals. If the price is unreasonably low at the time, but I need to withdraw money from my brokerage, at least I have good cash flow coming from it.
With a growth company like Tesla, Shopify, etc, if investors suddenly lose the excitement and are no longer willing to pay more than 20x earnings for it, it might be several decades before I make my money back as they're a long term growth company and don't pay a dividend
That doesn't mean I simply chase yield. Growth is valuable too as it makes existing dividends more stable or enabled to be hiked. Companies like Microsoft and Visa have low yields, but they have done great and have hiked their dividend every year as their earnings grow.
It's almost impossible to know what next idiot will pay for it. In the long run valuation always plays out, it can take some time for the market to recognize it.
*laughs in tech stocks*
Imagine it’s a high jump. Valuations are the bar being set, the company still has to jump. I’d much rather set the bar at 1 ft than 7 ft, but the company still has to be able to jump
Also if a company jumped a high bar in the past then that could hint that it would be able to jump one in the future.
We use ratios to value stocks, take P/E ratios for example. Many companies trade within a defined P/E ratio over the course of time. These valuation ratios are usually generated based on the macro factors I mentioned. (i.g. EVs are the future, Elon musk is the future, therefore Tesla deserves to trade much higher than ICE automakers).
That's why comparing a company to its peers and examining the narrative of the sector when determining valuation is key. in Tesla's case, you better have some bloody conviction. I rented a Tesla for the weekend before investing.
I think their point was to "also look at valuation" not "only look at valuation". The biggest problem around here is that people look at earnings but not the market cap relative to that. If you're looking at both, then P/E is implied.
Hi. FP&A Guy here.
>We use ratios to value stocks, namely P/E ratios for some sectors.
Who is the "we" in this sentence?
The investment community.
Don't think so. P/E is pricing not value.
>The investment community.
So, in other words, not any particular finance professionals you can name.
This is incorrect both from an FP&A perspective and an M&A perspective. P/E multiples are one aspect of value triangulation but the foundation of the valuation exercise from an M&A perspective is discounted cash flow (DCF) analysis.
P/E is only a tertiary talking point because it tells you the premium paid, the price, but not the actual operating value of the company.
A DCF model cannot predict the operating value of a company either—as it takes “expected” cash flows. Valuation goes beyond financial tools and formulas, they are used as a guide.
Which is the purpose of this post.
Personally I just avoid all stocks I think are overvalued because it makes no sense to pay more than the present value of expected future cash flows when acquiring a business. However a lot of ppl do in fact disregard it and just buy attractive businesses no matter the cost
I think once interest rates go up, and cash starts earning a decent %, then stocks will be less appealing.
Also, once world opens up, all that spare cash will be used to travel and go out, not the market or other investments.
No doubt that high interest rates = lower stock prices but that is good because the money you put in then will garner higher rates of return
It also strongly hurts growth companies since they rely heavily on debt.
I would argue that growth companies tend to raise more capital via equity than via debt, as such companies tend to continue to grow a lot (equity is more desirable) or go bankrupt (debt is a little more desirable but still not desirable).
Thus, growth companies tend to get more bang for their buck raising cash using equity than loans, and tend to do so.
Looks like the world gave all their money to Amazon. I think it’s a large assumption that people sitting at home with nothing to do just saved money instead of blowing everything online shopping.
Amazon and all the FAANG stocks are no longer growth companies to be fair. They are well-established, blue chip tech behemoths.
I think he means they spent it on Amazon products, not Amazon stock.
Yea I don't think there is a lot of money sitting around for travel.... We literally had to have 3 stimulus checks to get the majority of people through the pandemic, where is all this money saved up for traveling lol?
All of the white collar who continued to work the entire time without consuming what they were prior
Ok with that reasoning if it's so simple, then wouldn't that already be factored into the markets? Also what about the headlines a few months ago regarding mile long food lines, people behind on bills, and the need for a rent moratorium and UIB. I don't think you can just patch the middle class being poor, with just a white collar bandaid that makes no sense.
It Is being factored into the markets...have you not seen the earnings expectations and stock prices of travel related companies? There truly is a K-shaped economy, some people who lost jobs are in real pain, while most white collar have never been better. Household savings rates are at all time highs
I think it's difficult to tell for sure. While I certainly understand the logic behind the idea of pent up travel demand and vast savings ready to be unleashed upon the world, I don't see much evidence of it in my personal life. I would consider it to be a possibility more than a fact.
People paid down credit cards. Next they can reinflate those cards with travel debt.
What do you think is driving the insane demand for housing right now? People are sitting on piles of cash
That is pretty well known, But the billion dollar question is when will interest rates raise. I think low interest rates is a new norm
Rates went up to 3% few years back and the market still went up by 30%.
Also, it'll be a lot harder to see the rates go up in a world where the U.S. has the only attractive sovereign bond market. Folks around the world would just pile in their cash and put a massive downward pressure.
Also, with this move on cap gain taxes that Biden is trying to pull, Treasuries might become even more attractive.
I say all of this as things to consider, as I have no idea where the rates are headed.
Got the 3% for a few months then damn rate went down. If it stayed at 3 or higher, would be tempting to keep more cash.
No clue about future rates or direction of market. But the way us and EU printing cash, something will probably give.
Travel and leisure stocks go up then
Carnival and Norwegian are both over priced in their reopening play already.
that's the usual "this company is so hot right now, I need to get in", a combination of FOMO, dreams and thinking that the current price tag is 100%! the floor...
I've been watching Airbnb since the beginning - like many others and so far I've been glad I haven't given in to investing here. But I def want to hold that stock in future, because this form of tourism/remoteworking is not going away in the future
I recently invested in Airbnb. I would imagine all of the future post-pandemic travel is already priced in, I bought in at $170/share. After doing some crunching, I determined a personal price target of $210/share, but also I'm still new to this (been investing for 3 months) so I'm not sure how accurate my intrinsic value really is. I'm still bullish on it, but definitely think I FOMO'd in at that price. Hopefully, I'm right! Their debt is a bit of concern, but that is why I'm long - their EPS looks good if they can settle any liabilities in the new couple of year imo. \*Not financial advice, seriously I barely know what I'm doing\*
Oh boy, I'm sorry but 170 was the time I looked at and thought "only a moron can buy an IPO at that price" - sorry
I expect airbnb to be a value stock, not insane growth. It will take time I believe (personal opinion) - but how many stocks are you holding if you don't mind me asking?
No offense taken - like I said, relatively new to it and my evaluation could very well be wrong! But it is all about learning. I am planning to hold for 5+ years because I think they have reached that "verbiage" level of recognizability. "Let's get an Airbnb?" just like someone would say "Google it." Outside of traditional hotels and VRBO, I think its economic moat is pretty solid. Ha, most folks I mention VRBO to have never even heard of it!
Also, I don't mind. I only have 2 shares, I'm keeping my portfolio small while I learn.
That's good, <400 won't hurt in the grand scheme of things
Also, buy and hold is one of the soundest strategies (next to ETF if you want to play it safe)
If you do buy and hold, do your research on the company, avoid FOMO and only buy stocks of companies you never want to sell. Try not to get emotionally attached. Unless the company shits the bed real hard and you are not convinced about it anymore.
I review my stocks every 2-3 months, usually not much changes, but it's good to keep an eye on your portfolio.
But that's just how I do it. I've been active in the stockmarket since 1y or so - previously too but I let it sit for a while, now getting back into it
Yes, that is all sound advice. I recently have been reading The Complete Idiot's Guide to Stock Investing and A Random Walk Down Wall Street in an effort to learn about a lot of the strategies you've mentioned there. I have a spreadsheet to track my "why's" behind my purchases so that I can review them periodically. Hopefully, I have some real winners!
So have I.... Airbnb is on my hitlist.
To me it depends on the company. Someone like Cloudflare who's consistently innovating and creating new revenue streams? I'll bite. A company who's just overvalued because it's hyped up like Tesla? Nah.
The risk has to be factored into the price also. I'm not going to buy a company who's priced like everything they'll do is a sure thing. A company can be profitable and still be a bad investment.
I subconsciously do this with something like, "I'm hearing about this stock too often, must be too late." Not as good as actual valuation, but highly correlated. \*cough\*PLTR\*cough\*
Setting a target where you'd like to buy is always a good idea.
You prefer rockets and bananas ?
I like to eat eat eat rockets and bananas.
Does valuation validate Tesla's market cap or are we pricing in their self driving technology and vertical integration with batteries at a premium?
In a similar way, AMD is overvalued at >30 PE ratio?
Never tried valuing either one so I don't know
Or buy VTI or VT and chill, right?
I've added VXUS back into my portfolio...but then again, I put a couple grand in during March of last year, and everything you touched back then (If you held) is gold now.
Except for WMT, that only went up 20% or so, while the market as a whole climbed a whole lot more.
Now, we see CNBC pushing the merits of WMT
It also never really dipped like the market overall. Looking at a 5 year chart and you would have no idea there was a massive stock crash in March 2020.
In February of 2020 it was trading about 118. Between the 22nd of that and the next month,it bounced off of 108.
Discounting the buying opportunity of 108, we see the climb from 118 until about 140 these past few days.
I also purchased VTI at or around the same period (looking for buying opportunities) and think I was in at 125. Today it’s about 217.
There simply isn’t enough upward momentum or swings to make it interesting. The growth isn’t there apparently as a company nor as an investment.
If anyone took their $100K, they would have seen a nice $20K boost with WMT. Or could have done far better in an index (or nearly any other company that size). Even the CEF of something like USA paid higher dividends and grew at a faster clip.
Absolutely, I liked WMT to the extent that I purchased a few hundred shares in the company.
Not saying it is a “bad” investment at all... just that there are better options out there for growth, stability and security.
don't forget VOO
Isn't VOO functionally the same as VTI, just with the top 500 companies instead of the whole thing?
Or spend 80% on VT or VTI and the 20% on 5 to 10 names that you like... that way you get a bit of both.... and even though bonds/cash look pretty bad here spend a little of that 80% in That so you have something if/when the market tanks to add more to your equity position
20% is alot. You should spend 1% on speculation. A a reasonable portfolio after 10-15 years of investing might be worth $1 million. I certainly would not want to bet around with $200,000. Then also be incurring all those capital gains and paying tax.
if you're *very right* 1% can make a big difference
Source: me, bitcoin 2013.
Nasdaq 100 works too. I know people call it a tech-heavy index, but it's actually pretty well diversified.
What is the advantage of VFIAX of VOO? They look identical but VFIAX has a min balance and a higher expense ratio? thanks
Look up the differences between mutual funds and ETFs. They have a few novelties to them. For example mutual funds can only be traded at the end of the day at their true NAV value where ETFs can trade whenever but have some drift from NAV. Additionally, as mentioned, you can allocate an exact dollar amount as a recurring investment into mutual funds where ETFs you typically have to buy a share (I know this is changing).
no advantage other than you can allocate a % easily on a recurring basis since it's a mutual fund. higher cost and entry min. as you mentioned. VOO is a low-ER ETF. depending on your platform you can also automatically put in a desired % to an ETF (m1 finance for example).
It's certainly been good to me!
I like VTWAX because I wish I spoke another language.
I’ve only been investing for a short while but already figured that Motley Fool, Seeking Alpha and others are selling yesterday’s news with hype headlines. BS vendors — also spreading BS short reports (especially SA). It’s only in their interest to get clicks, they don’t get money making you rich.
What kinds of questions do you search to start here?
*Research the macro situation surrounding the company, to name a few:*
* Sector Tailwinds
* Current and projected financials
I really like the ease into a new position slow and steady advice. If your judgement is good, there should be some time where it makes money unless you're day or hype trading.
Awesome question. I think he means look to complimentary industries, production cost/demand, potential growth (which is the hardest thing to predict) and company management (sometimes difficult to research independently.)
* For Sector Tailwinds (complimentary industries) you look to find disruptors: events, companies, industry shifts. These can remove demand or render the company redundant. Also, what other companies and industries benefit from them and are part of their supply chain?
* For Economics, it's pretty simple: What do they need to make their product? Where do they get it? How much does it cost? How reliable is that supply? How many people want this? Why do they want it? Is it a need or a luxury good? How long will it stay relevant?
* Financials should be self explanatory. Check their website for their investor relations. Look at their balance sheet, compare it to their competitors. Those are usually simplified for the layman, but you need to know how much debt this company has and what their income is. How long have they been in this situation and is it improving with time or getting worse? Are they looking to borrow again?
* And the hardest thing to quantify is quality of leadership. While results are self explanatory, you can't get a feel for what a CEO brings to the table without experiencing their leadership. I found myself looking the CEO's up on Linkedin to as a starting point, but most of the more successful ones avoid it. They trade by reputation from within the industry, so I search business journals for articles on them. It's like looking up you next gf. Look at how they impacted the companies they worked at in the past. I rarely look at their education unless it is required (do they have formal training in some aspect of the industry the are managing).
Lastly, I say go with your gut. Don't hope the past performance of a company is something that can be repeated. Look at how they plan to respond to the changes in the world. That is the ultimate determination of how safe you investment will be.
EDIT: Thank you kind stranger for the hug.
EDIT: Thank you kind Stranger for the silver.
As a relatively new investor, I love this break down - one of the hardest things I've come across is trying to qualitatively analyze a company, even when the numbers look good there are so many intangibles to consider as well. Thanks for this!
This, when I took on BlackBerry I researched everything from 5 years to today to see where they were going as a company hence I learned rather quickly that out of all the meme stocks this and Nokia would be long term ventures.
Further more they fall right into the sector invest in heavily which is is securities
I plan to get back into blackberry soon, I'm waiting on a few more briefs from them.
Yeah, I understand that. It's going to be rough for the next 3 years I believe until I see they really start getting their kick off myself hence I'm buying as much as I can now.
You also need to be okay researching dozens of companies before finding one you truly like.
If you want to learn about the management for small caps, you will likely need to put a good bit of work into it. Find interviews of their executives. Talk with current employees. Check out forums related to their industry. Knowing about the company's real world work is just as important as knowing their financials.
Or just buy puts on everything they are pumping.
I would also like to add: invest in a sector you are familiar with.
Like what you do for a living or your education about or something your interested in as a hobby.
You can easily weed out overhyped companies.
Agree on this. The only time I've ever really done this was when AMD tanked because of malware scares. I knew it was a short term problem. I don't do a lot of stock picking though because it's so rare that those opportunities seem to arise.
Do it more, wall st. Is sometimes disconnected from reality if you are for a long run, knowing the company can be very beneficial.
But again alot of good companies are considered boring.
So important not to listen to CNBC...
I feel the way they were promoting coinbase was a huge con job.
There's better tips on reddit than CNBC.
And don't follow Cathie woods either.. she isn't investing her own personal money.
> And don't follow Cathie woods either.. she isn't investing her own personal money.
Cathie did spend her life savings to start ARK at the beginning in 2014. Not many fund managers can say that.
All of the major crypto stocks saw major boosts in the days leading up to coinbase. Then Citron randomly and trashed them the day of Coinbase IPO
They all crashed
they were going to crash anyways. I could see that peak coming a mile away and cashed out.
I feel like most of the news stuff is mini pump n dumps. Intentional or not, tested a lot as soon as there was news, most had a slight uptrend before recommendation. Bump up when recommended. Then a slow trailing downwards afterwards. Biggest winners would be people who had the stock a week or so before the news. Second biggest, people that bought right at the news release and sold within a day.
Buy on rumor, sell on facts has long been the adage!
How is buying coinbase different than buying Nasdaq (the stock not the index)?
I mean Nasdaq isn't a bad stock, but it's not like MSFT where it can go completely gangbusters.
I mean self full filled prophecies are a thing ain't they? My portfolio has been bleeding like crazy last couple of days and I see this buy by Cathie (U/Unity software which I hold long before seeing that) and boom up as hell. So this massive actors do end up flocking not only their investors' money but also the vultures that follow along.
Cathie has been by Unity for months now, hardly the reason it went up.
Yep, Woods collects her .75% AUM regardless of performance.
You still have to keep the song going if you want to collect that .75%
The difference between .75% of a billion and .75% of a million is its own motivator.
Yep and most active fund managers keep it up for a year or two before the fund crashes hard. End of the day, investors end up down 30% while the manager pulled a couple hundred mil. Sure she'd rather have a billion but she'll be sleeping well on her 9 figures regardless.
Yes indeed. Active funds tend to under perform long term. Anyone investing with them should take that into account.
I personally like the disruption and large tam plays of some of her funds, so I use them as a small hedge on runaway tech.
More power to you if you want to do that. I would however recommend watching [this video](https://youtu.be/p6HrepdLSu4) on the previous "Cathy Woods" of previous revolutions.
Basically every time there's a technical revolution, from the 70s through to the latest one around 2000, some Rockstar fund managers appear. They tend to have a phenomenal year or two *after which* more people buy in. Then either their luck runs out or they're unable to effectively deploy their newly large AUM and the fund underperforms for a few years until enough people withdraw their money and the fund collapses. Because most people buy in after seeing great performance, the average investor loses money even if the manager maintained a positive average return.
Do whatever you want with your investment, especially a small allocation, but know the odds aren't great.
These “rock star” fund managers are anything but. They have almost nothing insightful to say about the valuation process, and that’s because they don’t care. They simply recognize speculative manias and ride bubbles as far as they can before their luck runs out. Or they confuse multiple expansion for skill.
Great investors outperform over long periods of time by avoiding hype and focusing on the valuation process.
I don't know if you think I disagree with that but that's mostly my position. Except I think a lot of them do fool themselves into believing they can master the market like that. For a time...
The issue with this approach is that you have to study not only the company you found and like, but also all its competitors in order to be able to evaluate a company properly against its benchmark. This takes a lot of time and effort, therefore most people are better off with ETFs.
On the other hand, ETFs include lots of morally questionable companies, therefore if you have moral regards this might not be right for you either.
I go for single stocks, 7-10 do the job. I do not over perform by any means but i support companies i like and i fee comfortable with.
I'm glad you mentioned morally questionable companies and I wished more etfs were centered around this question. I want like an s&p 450 that takes out coca cola, nestle, companies with slave labor. I want international that avoids chinese stocks.
If the absolute only question is profit, we have a poor values system. There's plenty of profit rewarding companies that takes the small steps to act ethically
I think ESG ETFs will try and fill that void.
In 10-20 yrs they might become the norm hopefully
but so much of the current reality of ESG's is total bullshit greenwashing. The standards for what is 'ethical' seems really low. That, and those that are ethical have much lower returns. It's almost as if the whole system is broken.
Agreed. Part of my investment thesis on Bumble is a set up to be added to various ESG ETFs I think will pop up.
ishares has percentages for this on their website. categories like controversial weapons, firearms, tobacco etc.
I am glad there are other people that also put some thoughts into it!
I agree. I had MO (Altria) on my watchlist of cannabis stocks, and in the past couple months it continued to do well even when other pot stocks were down or sideways. BUT they are a tobacco company in addition to cannabis and I just dont feel good about investing in cigarettes. I'd rather make money some other way.
Something that causes 7 million people to die prematurely each year, is the last thing i would want ROI from.
You have a good values system
I've been writing my own little app to do this just because it feels like the tools aren't there. Like treating my portfolio as a baby mutual fund, calculating stuff like perfomance vs an arbitrary index, sharpe ratio, treynor ratio, finding the correlation coefficient between different stocks, estimating ROI given different assumptions about future market performance, looking at beta for different timespans, etc.
I'm nowhere near there yet, but I figure at worst, coding it solidifies the concepts in my mind.
Nice! I am jealous of people the are able to program what ever they need!
It's funny though, often during competitor research, you find a better company to invest in!
> you have to study not only the company you found and like, but also all its competitors in order to be able to evaluate a company properly against its benchmark. This takes a lot of time and effort, therefore most people are better off with ETFs.
100% this. I agree with the OP's general thesis but it's way, way easier said than done in practice. I don't have the time or energy to regularly do holistic economic analysis of an entire sector, evaluate governance, read financials, and model out valuations. I'd consider these the bare minimum if I wanted to pick individual companies so I just take it easy and go with ETFs.
When I just jump into a stock it instantly tanks 10%
When I want to dca in it instantly jumps 10% after my first buy
At the same time, don't ignore what's happening on TV. Even if the analysts are wrong, their reports will influence prices.
I appreciate folks like you. I'm a tradesman and when I was cutting my teeth I'd always appreciate it when someone more seasoned would show me the ropes with grace. No chip on their shoulder, just super helpful advice on doing something correctly.
Anyway thanks. Post saved. As a new investor I will be using it as one of many guide posts moving forward.
My pleasure, glad you enjoyed it. Hope you make some money.
I used to value financial projects and business proposals in my early ex career. Tell me what value you needed and I could fiddle amd argue it! That's the nature of value investing. Simple idea, horribly complex in reality.
I like the part where you mention slow and steady while entering a new position in a stock. Good advice.
I don't like the part where you say only buy the dip downwards and don't chase upwards. Actually it is always more advisable to buy a stock while its going up rather than going down (assuming you already hold a position in the stock) because a stock going up is showing strength and proving itself to be worthy, hence position size should gradually be increased as it keeps going up.
That's not to say you should not buy the dip. You should. However there should also be a strategy to buy the dip. Don't buy the dip at every 5% fall. Make it something like if it falls 20% from my average purchase price I will buy this much more. It could be 20%,30% or whatever. But ideally 5-10% dips should generally be avoided.
I think these are two different investment philosophies, both of which are proven to work if done correctly and not work if done incorrectly.
Averaging down once the OP’s qualifications are met has been implemented by many great stock pickers. The thing most people miss is that you have to have a solid thesis with a cold, logical price target and make sure neither of those are changing when the price is dropping.
I think that also depends on the type and size of the company. If Microsoft or COKE fall 20% I'd say it's a good bet they will rise again. Not so much for a smaller company.
I concur, buying the dip is important, but what's more important is analysing your stocks constantly, trimming the losers and adding to the winners. Also, price action on its own is meaningless - if the stock dipped but nothing changed for the company, hold or buy the dip.
Most of the time averaging up is better than averaging down.
"Trimming the losers and adding to the winners" I'm sure there's a super subjective answer here, but how long do you take before determining if the stock is a winner or loser? Is it dependent on individual goals and expectations for the stock? Or do you have more of a general guiding principle?
If the loser is not gaining fast enough and its competitors are growing faster, or they got a competitive advantage etc.
Take intel vs amd. They are in the same sector, when intel went down, it was better to sell and get amd. Obviously hindsight is 20 20.
Take disruptor newcomers, if you are invested in market leaders and a disruptor comes along, it's sometimes better to sell. Tesla was in 2008 a better bet than VW or BMW.
You can get around this by buying an etf.
Strategy is key when you're buying the dip. The point is to never buy it higher. If you miss the run upwards just sit on your hands. Stocks can fluctuate 50% in some years, patience.
This might be the 30 year old boomer in me, but I'm a fan of boring plays like Dollar Cost Averaging Index Funds and diversification ><
Nothing wrong with that, most people should handle their investments this way—especially if they're emotional and have less than 10k in stocks. (or if they just want to sleep well at night)
I forogt where the post was I think it was on r/stockmarket but someone ran the numbers on every single buy/sell cramer has given.
Of the first day and week the stocks outperformed but the first month of performance afterwards almost all of them tend to drop.
Ya I checked a few, the boost he gives is less than a percent on the ten or so I looked at. so it's a real effect but not really one worth taking advantage of. You'd have to time it perfectly to win pennies
Good advice. I would perhaps only add the caveat that you shouldn’t necessarily be afraid to add judiciously to your winners. Up to a point and of course paying closer attention that valuation still fits within the thesis. After all rising prices/valuations are just the market confirming/rewarding your obvious forethought, brilliance and analytical mastery.
Those last few words/phrases are dangerous
Oh most definitely. And they were intended with a dose of /s. But if you never add to a winner over time then you are not continuing to invest in consistent, successful, growing companies as they continue to prove their worth. Again an abundance of caution and opportunistic buying is recommended.
ya if it's got really strong upward momentum I think its a good idea, very risky to do with anything that move up and down
The news lies I'll never take advice from them, besides if it is true by the time the news gets the info your way late
Not chasing down too much is essential, have a % of max exposure and if you hit that with a position stop averaging down.
Nice post op
Not chasing down too much is essential, have a % of max exposure and if you hit that with a position stop averaging down.
Personally I like having a maximum of 8% exposure to individual stocks.
You can have a large % of market index funds ofc like VTI / VOO (I have 20% spy)
Nice post op
ya it's kind of confusing, becuase this looks like a growth situation, yet defensive sectors like real estate and health care are doing really well.
Yes it’s all click bait. Motley Fool is the worst. It’s like the do about 3 minute of due diligence on these articles. I think they throw darts at a dart board to pick their stocks. Also you will never know their conflicts of interest.
I wish I read this earlier. Bought a stock completely based on news and now it's in a loss. Hoping it will recover and I learned my lesson. I hope people benefit from your post
Buy the rumor and sell the news is something that seems to work well along with all the points you mentioned.
I appreciate you encouraging individual investors to do the (sometimes difficult) work to gather information on target investments. You know, one thing that makes information sharing more difficult is bias by internet forum mods. For instance, a post that I made yesterday about thinking forward about changes coming due to "climate change" policies was immediately removed in r/investing and r/wallstreetbets , and I was given a seven day ban from the latter for it being political. However, tens of trillions are being planned for future investment by banks due to these policies, which will surely affect the options of individual investors. For instance, fossil fuel investors might need to consider policies that might artificially depress materials prices or add consumer cost through tax.
>don't chase stocks upwards, only down (within reason)
Extremely helpful. Thanks.
As a new investor I appreciate this info a lot. However I haven’t figured out where to find balance sheets and information on businesses so I can decide if I want to buy shares or not. Can anyone give me some advice on what sites or where I can find reliable info on these things?
Google “[company] investor relations”. Every public company has an investor relations website that will include an “sec filings” page that has all their filings. Additionally, since you’re a new investor and you’ll likely struggle to wade through the filings, many companies include their financials in their earnings press release or shareholder letter (which you can find on the “quarterly results” or “financial results” or similarly named page)
No, you should always diversify.
You create a portfolio and you're picking all of the stocks, but you're still choosing what parts of the markets to buy and which companies within them.
Diversifying does not mean you have to get a whole market ETF with everything in it.
Imagine someone only owned airlines and cruise line stocks going into 2020. RCL was a great stock to own this past decade and DAL made solid growth since the last recession.
That doesn't mean they weren't horribly exposed to a single situation that was mostly outside of their control. They were both running good businesses, making money, and were in solid standing with a bright future. But, bad things happen.
You do the work not x1, you do it x15 or x20.
Sure my DAL and RCL went down and some of my financials took a hit, but my AMZN, TSCO, TGT, AMD, CSX, and KSU went up strongly.
You can pick stocks, but still pick portfolios that can take a hit when something really bad happens to one or a few of your picks. Even better, you can find some stocks that will hedge your portfolio when something bad happens to some of your picks. There is no reason to be that exposed.
If you really are a good analyst and stock picker... you can do it more times.
As for the TV blowhards.... I never watched them to be honest. I don't know if they are any good or not, but I'd expect them to be more valued for their entertainment and ability to keep people from changing channels. Not listening them seems like it would be good advice.
Agree with this. If you don’t happen to know or feel confident picking single stocks in a particular sector you can always create a small basket or just have an allocation to a sector ETF for some broad exposure. And then focus most of your stock picking/research to areas in which you feel most confident.
It's a choice. I keep 12 stocks in my portfolio. I don't have time to research 30 companies.
12 is enough to get most of the benefits of diversification (assuming you’re also diversified across sectors as well)
Good luck with this. Sounds wise, but I recall hearing a lot of wise sounding advise during the dotcom boom.
I don't see how knowing why and what stocks you own is anything like the dot com bubble.
No, but my point is that during the dotcom bubble a lot of people thought they had stock picking pretty much figured out. And I heard a lot of wise sounding advice from these people during that time.
Gotta start by looking up all these new terms you threw at us OP.
Oh look at this guy and his fancy"Op" phrase
/S I'm kidding y'all lol
Before you invest, look at the charts
Telling people not to average up isn't exactly good advice
Buy the dips with the remainder, and don't chase stocks upwards, only down (within reason).
What does this mean?
>Buy the dips
If a stock you are bullish on is going down, and you are still confident in the stock, if you buy at a lower price you reduce your average cost goer share. One method to do this could be if a stock falls 5% (an arbitrary number to use as an example), add 30% of your remaining cash to the name, and every additional 5% drop you could add an additional 30% of the remaining cash. Be careful with this strategy though, you don’t want to go into any one stock too much and at some point it’s not beneficial to invest in a stock that’s crashing.
>don’t chase stocks upwards
Basically, don’t just jump on the hype train thinking you’re missing out, because if you buy as a stock is rocketing higher it’s likely to come back to earth at some point, and the people who joined the hype train later tend to get screwed
>only down (within reason)
I explained this one in my first part of my comment
I prefer to just jump blindly lol
I won't buy stock in a company whose products I dislike, or where I wouldn't want to work.
Funny thing though, someone from WSB did dd on Cramer and found he's been right most of the time. He may be shilling but his advice is based on where things are going.
The more I research investments and see them through, the more I realise its all guess work. I've had people admit a stock will probably do well eventually (5-10 years) after arguing theyre not worth being long over since they dropped the past 2 weeks... Wtf I'd long to you?? I'm not retiring for at least 30 years
those that can do it right consistently probably believe it's skill, those who can't think it's guesswork. Not implying that either one is right.
Individual stock picks always have a lot of guesswork involved. Even Buffett has messed up several times. IMO the skill is in constructing an overall solid portfolio, where you'll still gain wealth even if you're wrong on a few of your picks.
My advice? Quit stock picking and just invest in index funds. Focus on doing well at your job and getting promotions or getting more skills to get a higher paying job. You’re free time is better spent building yourself and investing your time into yourself and your career than it ever will be picking the next Amazon. Even if you do make the correct choice, you’ll probably sell before you’re a millionaire anyways.
My advice; give Chinese ADR stocks serious consideration . American companies outside of a few are getting stagnanty
ADRs on a VIE in the Cayman Islands which have contracts for sharing revenue in China don't sit well with me.
Especially considering this whole structure is technically illegal in China, since foreigners are not allowed to own part of a Chinese business. Before that's been tested in court I'm staying away.
A stock is supposed to give you ownership over a part of a company, this just gives me a headache.
I have absolutely zero problems with ADRs based in countries where ownership is respected like Taiwan, Japan or most of Europe.
Because of the opacity in financials, along with the ownership by the Government, forced transfer of assets and hiring of members of the CCP (and family) to key positions, it's not something that would nor should be at the top of anyone's radar.
Greed can take you so far, and if people really want to go extreme, there are drug cartels in the Americas which have unlimited upside, and death as the only deterrent.
Uh oh, you know people get really really angry here when Chinese ADRs are mentioned.
These are probably the best deals in global tech right now.
> Then invest in companies:
>*you believe in—hopefully, not always—with healthy balance sheets vs. their competitors.*
>*Whose products and services ticket you.*
>You *could sell to your neighbor.*
Especially companies you are familiar with, whose products and services you use and would recommend to others. Sure check their finances, charts and especially news related to them, but don't let some paid shill on CNBC tell you if it's a good or bad buy.
I've not only become more profitable from this approach, but I feel confident even when markets are down and some stocks tank, because i know what i bought and why.
TLDR: Put everything into Tesla. Haha
Idk that advocating for chasing stocks down is really the best advice, especially considering the runup we've had up until recently
I make my decisions based on reddit posts. Jokes on you.
Doesn't hurt to add some crypto exposure...
lol. yes nothing like buying something super volatile with downward momentum