UnThreaded | Threaded | Whole Thread (4) | Ignore Thread Prev | Next
Author: brwhiz Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75337  
Subject: No Marriage Vows Date: 6/20/2002 2:20 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
In the world of investing, there are no marriage vows.

There is no vow to HAVE and to HOLD. Investments are great to HAVE when they are producing positive results. But you are under no requirement to HOLD them when they start going negative more than just normal trading fluctuation.

There is no requirement to stick with an investment for BETTER or for WORSE. When worse comes along it's time to say adios and move the money into a better prospect.

There is no for RICHER or for POORER. I'm in it strictly for the RICHER. You can have the POORER if you want it.

There is no SICKNESS or HEALTH. If one of my investments starts looking SICK, I don't wait around to see if it is going to get well; I dispose of it and use the assets to purchase something that appears HEALTHY.

Well, death may part me from my investments, but my beneficiaries are going to love the fact that I never got married (to any of my investments).

When it comes to stocks, I am a trader, not an investor. The difference, to my way of thinking is this:

An investor is a person who buys a piece of a company. Investors get totally involved with the company, becoming interested in all aspects of the company, not just those that have direct bearing on the price of its stock. They will usually get involved in the shareholder management of the company, attending shareholders meetings, proposing agenda items for the meetings, and taking an active stance in voting their position. They may become so loyal to the company that they stick with the company, even into bankruptcy (who else is holding all that stock when a company goes belly up?). Warren Buffet is a classic investor. He oftentimes buys WHOLE companies and is definitely involved in the management of those companies.

A trader is primarily interested in the stock of the company as a commodity. Traders are concerned only with those things which directly affect the price of the stock. While a trader may do extensive research into the fundamentals of a company before investing, and may become quite knowledgeable about most aspects of a company, they do not become intimately involved with the company itself. Peter Lynch was and is a trader.

I love to find companies whose stock price prospects are outstanding and show long term potential. I don't like paying taxes any more than anyone else. But I NEVER base trading decisions on tax consequences. It is far better to pay 39% on a gain of $60,000 than to pay 8% on a gain of $6,000 (or worse yet, have the tax advantage of a long term loss of $10,000). It takes work to ferret out good prospects out of the myriad stocks available on the market. Screening tools will only get you so far. And then the list starts shrinking as you find deal killers as you examine the basket of prospects. So I don't like to go through this process any more often than I have to. But each of my investments has an assigned performance goal. If it can't meet that goal, then it gets replaced. Some months I may make as many as five trades, most months only one or two, and many times none at all. Since I use FOLIOfn for most of my stock trades (and TD Waterhouse for those stocks that FOLIOfn doesn't offer) my trading costs are minimal, averaging about .004%.

I learned many valuable lessons from an uncle who enjoyed tremendous success in the stock market. The three most important lessons were:

1) What stock(s) to Buy and how much

2) When to buy

3) When and how much to sell. And this is the most important of the three. You never make money until you SELL. You can have hundreds of thousands of unrealized gains (like TMF Rule Breaker and Celera - $320,000 in gains) and sit idly by and watch them evaporate. However, when your holding is negative, you've LOST that money and sticking with a loser usually only gets you more losses (again, TMF and CELERA - lost 50% of original investment hoping against hope for a comeback).

I achieve diversification through two mutual funds. One for my 403(b) and one for my 457. I pick my stocks solely based on the prospects of the company without regard to other current stock holdings in the portfolio. I seldom have two stocks in the same sector, since I am usually looking for the number 1 company in an industry or sector. And I oftentimes increase my holding when that stock is showing strong gains with continued prospects for more (discount to intrinsic value).

I engage in NO asset allocation. I use stock equity funds for diversification (as noted above) and because these funds provide the greatest potential return with respect to risk. I have "backtested" various scenarios with asset allocation and every scenario would have lost me money compared to my current holdings. As with any investment, potential return and risk are directly related. Risk can be reduced significantly through intelligent investing in stocks and keeping an eagle eye on ALL your investments. And it has never made the slightest sense to me to "rob" a strong performer and put the money into a "weak" sister in order to re-balance the portfolio. It makes as much sense as moving money from a money market paying 5% into one paying 3% because the first account was getting bigger than the second account. Dumb, as my uncle would say.

Now, I imagine I'm going to create a storm of replies with this post, telling me how off base I am and how this or that is a far superior strategy. But here is the bottom line. I've invested $3,000 each month since August 1998 and my current portfolio value today is 228,657.60 with all commissions, fees, and taxes paid out of the portfolio. If you want to convince me of the superiority of YOUR methodology (and I know that mine isn't number one!!) then show me better results and I'll listen attentively and thankfully.

The above doesn't begin to scratch the details of my investing methodology. It is a method that takes a fair amount of work and a cast iron stomach. I'm not saying that my way should be YOUR way. It's just my viewpoint on investing and what works (very well) for ME.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (4) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Post of the Day:
Value Hounds

Medallion Financial: TAXI!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement