Author Topic: Maximizing Time for a Recreational Investor  (Read 2827 times)

John Hjorth

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Re: Maximizing Time for a Recreational Investor
« Reply #10 on: July 09, 2018, 08:07:13 AM »
Investing is simple but not easy, there is no shortcut.

writser,

I think there is an answer to your post in abyli's last post in this topic. By investing, you also invest in yourself personally, by sacrificing some time now to get better, with the aim to improve the quality of time later. It is [- or, it can be, depending on who you are -] a learning process and an educational journey that never ends. [ : - ) ]
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai


Gregmal

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Re: Maximizing Time for a Recreational Investor
« Reply #11 on: July 09, 2018, 08:09:14 AM »
Read. Anything and everything. If you are a capable investor your brain will eventually start linking things you read, find interesting, or come across in everyday life with a way to capitalize on the pieces that are worthwhile. The greatest gift to the modern investor is the internet. The big reason I think hedge funds are no longer performing is that their edge used to be information. Now everyone can access almost anything via the internet. While the biggest names in the biz have hundreds of portfolio managers reporting their best ideas to them, you can too. Following credible blogs or investor forums more or less acts as a funnel in which the brightest people bring you the best ideas. Your job is simply to figure out who the brightest people are and what ideas are worth digging into deeper.

LC

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Re: Maximizing Time for a Recreational Investor
« Reply #12 on: July 09, 2018, 09:13:45 PM »
I would suggest finding some "dead" time: commuting to work, break between class periods, etc. to do reading. I don't know what reading will work best, but I can tell you what I did (over about a 2 year period, reading about 1hr per day on the subway to work):

First I read about 5-6 of the "value investing canon". Buffett Partnership letters, Klarman's Margin of Safety, Graham's Intelligent Investor, Greenblatt's Little Book, Howard Marks memos...pick about 5 or 6. I think once I hit Howard Marks, they all started sounding the same.

Then I would find random companies that seemed interesting. Someone's blog, an stock screener, something in the news, or something original from myself. Never check the market cap. I would order the most recent 10K and read it with a Sharpie in hand. Once I was done reading it I would say "what would I personally pay for this company" and stick that number on the cover, along with the date. Then I would compare it to the market cap.

Did that about...say 30-50 times and eventually got bored. That's when I realized I am no professional investor, it's just not fun for me.

But I think it was a worthwhile endeavor: you really learn to value a company this way. Then you get older, you hear the same news about the same companies, you can take the mental shortcuts because (1) you know the company and (2) you know how to value companies. So you place your bet.
« Last Edit: July 09, 2018, 09:15:22 PM by LC »
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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Ghost

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Re: Maximizing Time for a Recreational Investor
« Reply #13 on: July 10, 2018, 06:40:54 AM »
So I had this thought yesterday reading this forum. Since January I haven't done a single bit of stock research (combination of market highs, new house, and general life stuff). And when I post here I feel a bit guilty because I am not contributing much in terms of stock ideas lately.

But it made me wonder, if you polled everyone on this board, what is the one stock or asset that has made them each the most money over time? I.e. trading in/out of US banks, or BRK, Fairfax, etc. etc.

Of course, there are some situations like Eric where you make a craptastic ton of cash on a single event which will probably never reoccur. But over a lifetime, most I feel will make it trading in/out of stocks they "know". So why not go even further: just study one business/stock - for your entire life? I mean, if you become the de-facto expert, and you trade that stock with a value mindset (margin of safety, general conservatism, etc.) I think you would do pretty damn well. Just food for thought.

This is pretty much what we do, and over a clutch of maybe 5-10 names at best.
At any one time we may be in 2-3 of them at most.

The name of the game is to hold dividend payers, and get to as many shares as possible funded by house money.
When the share is out-of-favour, continue to hold for the dividend (at 'zero' cost the yield is infinity). When the company really screws up, buy in a bunch more and average down (against existing shares with zero cost) - as you already 'know' the company very well, there is relatively little risk. When the company is flying high, sell enough to return your cost to zero. Your measure of success becomes an annual rise in dividend income (more shares + higher div/share).

Alternatively buy a non dividend payer, get to house money, sell the position when they fly high, and reinvest in either a distressed FI instrument, or something else that has just experienced a dividend cut. In most cases, quality firms will mean revert over time, leaving you with an inflated cash stream paid for with house money.

The time commitment is essentially maintainance.
Once a year we might do a deep dive, focusing on a targets continuing 'viability'. The conventional investment metrics (multiples, TWR, etc) are also pretty meaningless. Our focus is cashflow; hence at times our portfolio can be down 30%+ (terrible by TWR standards) while our cashflow is up 10%. If we DO NOT have to sell tomorrow TWR is meaningless, whereas cash remains king.

Obviously. not an approach you can use with OPM.

SD


 

SD I have always enjoyed reading your posts, any chance you can expand on this idea...possibly with an example.

John Hjorth

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Re: Maximizing Time for a Recreational Investor
« Reply #14 on: July 10, 2018, 08:32:29 AM »
Just lookup SharpenDingaans's posts here on CoBF, Ghost. They are actually already here. [ : - ) ]
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

SharperDingaan

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Re: Maximizing Time for a Recreational Investor
« Reply #15 on: July 10, 2018, 09:02:36 AM »
A very old example ...

In 1999 we sold a position in an oil company, and bought into what what was then TransCanada Pipeline (TRP) just after the dividend had been cut by a third to 80c/yr from $1.12. TRP is a regulated utility, a 'widows and orphans' stock, had a rising annual dividend, and would have been a core holding for many on this board. Like many here might have done, 12M shares traded on that adverse announcement (massive blowout), and in the public eye - TRP was 'cursed' for years. https://www.cbc.ca/news/business/transcanada-stock-drops-after-dividend-cut-1.169193

It took a while but the dividend was restored, and has continued to rise to the $2.76/yr it is today. We bought at $13.25; had we kept them we would have had a cash yield of 20.8% today, and they would be worth $56.70 - shortly after ANOTHER dividend cut!  https://www.fool.com/investing/2018/05/02/shares-of-tc-pipelines-crater-on-distribution-cut.aspx

We held for a while, recovered our capital outlay through dividends and a gain on sale, and rolled the now house money into distressed Fortress Paper Preferreds at around 50c in the dollar - and a cash yield of 12%+. Lot of drama later (par for the course), we exited at face value upon maturity.

The guiding principal was that ongoing cashflow = capital x yield. Small amount of capital x high yield + return of capital, to a larger amount of capital x high yield, to an even larger amount of capital x low yield (T-Bill). With ongoing cashflow rising throughout the hold period.

Along the way we expanded our 'circle of competence' to include pipelines and specialty paper.
But ultimately we could have just stayed with TRP, and also done extremely well. The punch-card test.

You don't have to be 'clever' you just to be able to recognize oportunity, and have the patience to let nature take its course.
A lot easier said than done!

SD



LC

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Re: Maximizing Time for a Recreational Investor
« Reply #16 on: July 10, 2018, 09:23:00 AM »
SD I take a similar strategy but slightly different:

What you're talking about is after a dividend CUT. Usually that happens when $h1t hits the F@N.

I took positions in PM (philip morris intl) and CMP (compass minerals - salt mines) during higher-than-normal dividend yields. The thinking on my part is as you mentioned previously - reversion to the mean when you're dealing with "good" or "stable" businesses.


Can you talk about the differences of these two approaches - i.e. jumping in after a huge cut (where the old ladies may be selling along with the investment funds) vs. jumping in during business slowdowns (where maybe just the investment funds are selling) ?


In other words, your approach is enticing but it takes some cojones to hop in during such times of real distress.
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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augustabound

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Re: Maximizing Time for a Recreational Investor
« Reply #17 on: July 10, 2018, 12:08:38 PM »
Usually that happens when $h1t hits the F@N.

All my life I've freely used the word fan and never known it was a bad word......  ;D
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SharperDingaan

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Re: Maximizing Time for a Recreational Investor
« Reply #18 on: July 10, 2018, 02:06:41 PM »
You have to realise what you are seeing, realise you are looking at quality, and be able to determine a reasonable liquidation value.
You're then taking your cue from a newspaper article.

Utilities are rate regulated, with price structured to achieve a target rate of return (assume 6%). Make less than 6% and the utility can recover it in the next cycle through an upwards rate revision. These are monopoly businesses with captive markets, hence there is very little real business risk. The share price falls because the 'marketing story' (safe, secure dividend) collapsed, and media sped up news distribution; producing a wall of selling and extreme skepticism - you're just exploiting the investor churn, and your liquidity. The utility will experience accounting write-offs, price will be set by dividend/market yield, but cashflow will remain largely unchanged. Little real risk.

Post 'cut' there are management changes, and efforts to restore 'confidence'. If this is a regulated bank (finance utility) you have a put on the central bank using repos to pull enough sh1t out of the bank to boost its capital ratios, and avoid the bank having to start caling in loans (triggering a credit contraction). Hence, buying into DB right after it has collapsed 25%, has little real risk - particulary if its one of THE banks, and German.

Doing the NBG, SAN or FTP thing is actually multiple times more risky, and a lot more work. The regulatory and sovereign 'moats' are a lot weaker, and investor protections a lot more 'iffy'. Essentially it's similar to jumping into a business during a downturn, and while you can still do well - there are easier ways of making a buck.

So what makes you rich?
Just read the newspaper, keep a pile of T-Bills (or margin capacity), and wait for the tear-gas to hit the streets ;)

SD

« Last Edit: July 10, 2018, 02:17:33 PM by SharperDingaan »