In the comedy City Slickers, Billy Crystal plays a middle-aged man named Mitch who can't seem to find happiness or meaning in his life. In a mid-life crisis move to try and find himself, he leaves his wife and kids at home and sets off with a group of friends on a "fantasy” vacation where they get to play cowboys on a cattle drive. Jack Palance plays the crusty old trail boss named Curly, guiding the "city folk" on the drive.In one scene, Mitch and Curly are having a conversation while riding their horses along the trail. Curly asks Mitch, "Do you know what the secret of life is?" Mitch responds "No, what?" Curly holds up his index finger and says "This." Mitch asks, "Your finger?" Curly continues, "One thing. Just one thing. You stick to that and everything else is irrelevant." Mitch asks, "That's great, but what's the one thing?" Then Curly gives Mitch this nugget of wisdom: "That's what you've gotta figure out." As Mitch eventually figures out, the “One Thing” is different for every individual. You can't “discover” it from someone else. You can't just copy it and expect it to work for you like it did for the one you copied it from. You can learn from others, but ultimately, your personal “One Thing” is uniquely yours. It also cannot be judged to be “right” or “wrong” based on how similar or dissimilar it is from your neighbor's “One Thing”. It is only right or wrong based on whether or not it works for you. *** Three years ago I made one of my first detailed posts describing my “One Thing” for investing (not life!): the use of statistics and regression analysis to develop a “fundamentals vs. valuation” based behavioral model of the market. Since that time, I have learned a lot from the FC, and have incorporated some very specific changes and additions into my model thanks to folks like Chin, Eldrehad, LeBean, madmarv, PosFCF, StarryNightShade and others. Beyond my math model, the Admiral, babyfrog, kitkatklub, and Ro come to mind immediately as excellent teachers of “good practices” in the due diligence processes that go beyond the “numbers”. My point in this post is to encourage people to continue to learn from others, whether or not you know what your “One Thing” is yet. But in my opinion, you shouldn't really try to perfectly replicate someone else's process, or assume you can get others to perfectly replicate your process. I just think we're wired too differently as individuals for that to happen. (…thinking of Ro's “Why Mr. Buffet won't write a book”…) Here is a recent post from the FC Projects board detailing results from portfolio selections that were made publicly and in real time, using my “One Thing”: http://fireboards.fool.com/Message.asp?mid=20573168 Will excellent results like that continue? I can't predict the future. I do have considerably more data than what was shared in that post, which suggests some statistically significant consistency in beating the market averages, month after month after month, for 3+ years now, just blindly using the math model. My personal real-money results then improve on those results by the use of simple DD on the selections the model feeds me. But I suppose it could all very well fall apart tomorrow, which is why I continue my experiments, learning from others, and measuring the results of my process in a disciplined manner. A rather widely respected (though somewhat difficult to keep track of) responder to my post ( http://boards.fool.com/Message.asp?mid=14703402&sort=whole ) noted 3 years ago that I am probably making things too complicated, and pursuing methods that are getting quite hysterical, and should undoubtedly spend my time better by reading more 10K's, and looking at retail comps, and learning more about Peter Lynch. Now I'll admit those are all good things, and I certainly use those methods occasionally. But abandon my math to focus on them exclusively? Ahhh, yes…. then I'd be trying to replicate his “One Thing”. No thanks. Happy springtime to all, and don't forget your clocks tomorrow. Ralph
Ralph,My point in this post is to encourage people to continue to learn from others, whether or not you know what your “One Thing” is yet. But in my opinion, you shouldn't really try to perfectly replicate someone else's process, or assume you can get others to perfectly replicate your process.Well and truly said!Curiously enough, my method has evolved to one not so dissimilar to yours, but then, ah ha, we both have strong mathematical numbers. Math is but another language and I find it easier to detect the lies or the truth in the language of mathematics than that of English. Others will find it the other way around.SincerelySNSP.S. You have my continued thoughts and prayers for strenth!
A rather widely respected (though somewhat difficult to keep track of) responder to my post noted 3 years ago that I am probably making things too complicated, and pursuing methods that are getting quite hysterical, and should undoubtedly spend my time better by reading more 10K's, and looking at retail comps, and learning more about Peter Lynch.(I'm supposed to be off for a week but wanted to respond anyway; it would have been a million chance that I'd find this post otherwise if it didn't appear on the BEST OF). I was arrogant and full of myself back then, enough so that I felt the need to savage the approaches of others if they didn't agree with my little view of the world. Part of this was likely due to simple insecurity, but it is the polar opposite of how I try to approach things today. In other words "Whatever works for you Grandpa Ralph is a-ok with me", and "Just make money". In other words, my deepest apology.Of course, I will make one small comment - I think Lynch's material is worth careful study and could be useful for any investor. Since you've got three Lynch's One Up, Beating, and Learning to Earn along with a host of Worth articles (if you can find them), there's plenty of material that could help. Could help that is. Regardless, it seems logical to model an approach (that ultimately, as you say, becomes your approach) on someone that is already successful. Lynch fit that bill. That was my only thought back then, and I still think it applies today.Watubi (tislynch), he who is difficult to track
Hi Ralph:Excellent post!"My point in this post is to encourage people to continue to learn from others, whether or not you know what your “One Thing” is yet. But in my opinion, you shouldn't really try to perfectly replicate someone else's process, or assume you can get others to perfectly replicate your process. I just think we're wired too differently as individuals for that to happen. (…thinking of Ro's “Why Mr. Buffet won't write a book”…)"Your commentary makes me think about how Mr. Buffett evolved over time with his approach. After he received his MBA from Columbia University, Mr. Buffett attempted to get a job at the investment firm of Graham-Newman Corporation (which, of course, is connected with the father of value investing, Benjamin Graham). Mr. Buffett had to do a lot of talking to get into the firm but finally succeeded. What Mr. Buffett realized soon after working there was that Ben Graham's process was very mechanical and, in fact, pretty boring. There were worksheets you prepare for determining whether or not a company was trading below working capital per share (pursuant to Mr. Graham's very conservative definition whereby all liabilities are included). In the wonderful book by Roger Lowenstein, Buffett: The Making of an American Capitalist, Buffett described Graham's method to being as dull as filling in an insurance application. At Graham-Newman, there was no concern with the qualitative things about the company or gaining a good understanding about the company and industry where it competes. Just a very simple worksheet approach. Followers of Buffett know that Philip Fisher and Charles Munger had a tremendous influence on Buffett over the years - probably even more than Benjamin Graham. Buffett found his one thing as you describe it which is a combination of several folks (including Graham).I agree with your comment about studying others until you find that one thing. IMO, to excel in something (such as sports), it does not hurt to study the masters of that sport and eventually find you own place. If you are a golfer, sure you will never strike the ball as well as Tiger Woods but studying the style of Woods can still significantly improve your own game. I believe this is true with investing as well. And that is why I invested (excuse the pun) time in studying how the masters did it.Best regards,LeBean :-)
Will excellent results like that continue? I can't predict the future. I do have considerably more data than what was shared in that post, which suggests some statistically significant consistency in beating the market averages, month after month after month, for 3+ years now, just blindly using the math model. My personal real-money results then improve on those results by the use of simple DD on the selections the model feeds me. But I suppose it could all very well fall apart tomorrow, which is why I continue my experiments, learning from others, and measuring the results of my process in a disciplined manner.GrandpaRalphExcellent post. May I quibble? I have studied most mathematical models and I have found them to be predictive mainly in how people react to the model and how they react to what is delineated. The numbers say; people respond to the numbers. In widely used mathematical models, TA being one, I can take a bearing on a future point and say that the market will presumably do this. Yet what is more predictive is how others will act in response to those assumed states. It's a buying opportunity; no, it's a selling point; no, it's a floor wax; no, it's a dessert topping.When I was younger and only slightly less foolish than I am now, I thought trading was the means of wealth. I lost a considerable amount. I learned cycles, stock analysis, flipped coins, the whole enchilada. I still lost. And I was losing on a constant basis even though my charts and numbers said profit was 'inevitable'.How I so agree with your 'one thing'. Mine was this. 1). Is there a market for the company's product? 2) Can the market afford the company's product? 3) Is the company's management smart enough to keep this going and not do something stupid to upset this marvelousness.I stopped trading and moved into LTBH with horizons of no less than five years and as long as 20 years.One word you used and I rec'd your post for the whole thing yet would have for this one word: discipline. To not be swayed when there's a lemming-like response to a market. I think this is the one thing that can be equal among all investors. Whatever your 'one thing' don't be railroaded into doing what's against your own gut even if others are panicking. One last on this: opportunity cost. I think that's a phrase invented to shake the tree rather than gain wealth. It's based mostly, I believe, on hindsight and is a scare tactic for the unknowing.Liked your post muchly.MichaelR
Watubi, ...I was arrogant and full of myself back then, ... Geez, I wait 3 years to send a subtle but fairly sharp jab, and you take all the fun out of my gloating by a response that leaves no doubt as to why you were then, and are now, "rather widely respected". And thank you also for the email. I have my moments too, as I'm sure TMFEldrehad can attest to. Watubi added to your Favorite Fools list. Hmmmm. I really thought it was going to tell me you were already there. Perhaps by another name? I know you have at least two different "poster numbers" on the FC. Peace. Ralph
MichaelR, May I quibble? I haven't figured out what you wanted to quibble with yet. Perhaps somewhere in here: In widely used mathematical models, TA being one, I can take a bearing on a future point and say that the market will presumably do this. Even if that's not what you had in mind for quibbling on, it is probably worth mentioning that my model has nothing whatsoever to do with TA or predictions. It is simply a snapshot in time that evaluates mostly "fundamental metrics" of a large number of companies, and calculates a "fair" valuation ratio for each company based on "typical" market reaction to those fundamentals. Companies selling below that "fair" price are considered undervalued, and vice versa. In the past, I may have used the word "predict" in connection with the model's calculation of that "fair" value, but I didn't intend for the word to refer to "future". Only that it would give a "predicted" fair value now, based on data that is current now. Figuring out if the difference between "actual" and "fair" price is justified or not by things not measurable in the "numbers" is of course the key to doing even better than just blindly following the model's recommendations. I hope that isn't too confusing or out in left field with respect to your point. Ralph
Ralph, it's not that I have a quibble with your system, far from it. Yet I do have a view on any enumerating method: that by enumerating an influence is created that causes a reaction to the estimation that results in buyer/seller action.A system may be entirely factual and is effective and could be a closely held knowledge yet once it becomes more known it then effects rather than reflects. I used TA as an example: the processes are well-known – because of this then that – so the investor acts on that knowledge and contributes to the effect. When I hear that on a certain date there is a 'triple witching' I know the buying/selling itself will form a self-fulfilling prophecy.Your method is to take the factors leading to believing a stock is either under or over valued. In all probability you're right nine times out of ten yet by saying that a particular stock is either causes market action that then becomes the predicted action: under valued then buy; over valued then sell or short.To me, how you arrive at a conclusion about a stock is probably brilliant yet immaterial if the statement is made that supports buying or selling as perceived by others reacting to the statement.I may have this wrong and that stock analysis no matter how made will affect the buying/selling and all one should do is take advantage of it and buy when others are selling and sell when others are buying. Maybe it's as simple as that.Or it could be that stock enumeration by whatever method is a more complex version of rumor and auguries. I tend to that belief. It also may that stock newsletters shape the market and those with the most success in newsletters fit what the effect is of their analysis.If I take two stocks: Microsoft and Garmin. I say that both are undervalued. Possibly contentious in MSFT's case since it could be argued that it is or it isn't. In Garmin's case it's not so clear yet by stressing it is undervalued and that is believed, people will buy and thus cause the stock to rise this showing it was undervalued. The stock price is then claimed to be overvalued and selling takes place and the stock price decreases. Yet, to my mind, caused by the pronouncement.I keep looking at certain professional stock gurus and their analysis and I wonder not so much as to the analysis as much as I do at the effect of the analysis on prospective buyers/sellers.MichaelR
MichaelR, I think I understand what you are saying now, and have no fundamental disagreements. I'm not sure all the forces you reference are working in my case though. Yet I do have a view on any enumerating method: that by enumerating an influence is created that causes a reaction to the estimation that results in buyer/seller action. This has certainly been very evident in TMF Hidden Gem selections. Somehow they get publicized on a Yahoo board, and a significant move happens. To a lesser extent, I've also seen it happen around noon on Fridays when Value-Line publishes their timeliness ranks. But I doubt if some old grandpa on one or two TMF boards has the "power" yet to really make an impact. Besides, I have obtained similar results on selections that I don't publicize, so even if someone were acting on my published selections, how would you explain my fairly consistent results on selections I haven't published? Are enough others out there using a similar process? People with enough muscle to move the market? I'm skeptical, though I have noticed several posters doing more with relative valuation techniques after our Damodaran class. Eventually, if enough people start using this process, the returns will diminish. Maybe we should start sealing our lips. I may have this wrong and that stock analysis no matter how made will affect the buying/selling and all one should do is take advantage of it and buy when others are selling and sell when others are buying. Maybe it's as simple as that. I am a fairly active trader, though certainly don't consider myself a "day-trader". Over the past 3 or 4 years my buy/sell strategy has evolved through "market orders" to "stop orders", (which most of the TA folks seem to like) on both the buy and sell side, and finally to "limit orders", almost exclusively, again on both the buy and sell side. I don't know if it is coincidence or not, but my returns began improving significantly when I started using limit orders at the prices my matrix generates. Limit orders on the buy side of course, only execute when others are selling; limit orders on the sell side only execute when others are buying. I really believe setting your buy and sell points based on valuation, then executing the orders with some safety margin around those values using a limit order strategy is worth at least a couple percent on each transaction. I keep looking at certain professional stock gurus and their analysis and I wonder not so much as to the analysis as much as I do at the effect of the analysis on prospective buyers/sellers. I did some statistical regression several years ago on guru upgrades and downgrades and concluded there is no long term affect, on average. There is almost always a short term affect however, and when a downgrade occurs to a stock I want, it is one of my most favorite ways to get that stock at my price. I absolutely love what the analysts can do for my returns. Thank you for your observations and comments. Ralph
Thank you for your observations and comments.RalphSir, thank you for yours.MichaelR
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. Market data provided by Interactive Data.
Company fundamental data provided by Morningstar. Earnings Estimates, Analyst Ra