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Rule One Investing - Opportunities In Coming Recession

TreyAllDay

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I am stuck here with my laptop in a waiting room and I'm wondering how I may be able to provide some value, I thought I'd share a quick summary of a great book I just finished - being that I am a complete rookie in finance - and maybe even get feedback on the method from those who have a ton more experience than I do.

With the coming recession - there will be some great opportunities to buy stocks cheap so I have committed myself to learning as much about finance as possible. Here's the lowdown of Phil Town's Method.

What is RULE 1?

Very simply - never lose money in the stock market, and it's actually a simpler concept than most would think. Rule one investors just do not gamble.

How could you not lose money in the stock market, and in fact nearly guarantee 15% returns?
A majority of mutual fund managers/traders lose money by diversifying into a ton of different investments hoping to mitigate losses and have enough wins to still be on the positive side. There is no need to diversify if you are choosing the right companies. The market is an EMOTIONAL roller-coaster, and often misprices these great companies. You can identify and buy huge opportunities at 50% of their price, wait for the market to adjust their price, and sell/hold.

What Makes A Great Company?
Phil describes choosing great companies that you are passionate about, have strong growth rates, a "moat" (brand/patent/proprietary info), and great leadership. This can all be identified.

How Do I Know When A Great Business Is On Sale?
I will not get too deep into this, other than explaining the overall ideology. Using 10 year historical growth rates of sales, equity, earning per share, and ROIC (all very simple numbers to obtain), you can determine the future growth rates of the company. Using these growth rates you can determine the most likely future stock price and reverse calculate what price TODAY you'd need to buy at to have a 50% margin of safety (buy at half off) AND grow your investment 15% per year.

The Summary
GREAT companies with great track records for growth go on sale for 50% off when the market panics or misprices them. You can purchase them on sale and grow 15%-25% a year with very little risk as long as you are holding out for the right businesses.

I am currently selecting my rule 1 companies and waiting to buy them on sale when the recession hits over the next 2 years.
 

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JustinY

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I'm not super financially savvy, but I'll play devils advocate.

You say investors do not gamble, but playing the market is by definition buying into a company or companies. Unless you have insider information or a very clear understanding of that industry, it's gambling.
1. There's no telling when the price will be back up. It might be one month, it might be one year, it might be five years.
2. There are external factors that can play a large role in a company's health. I am in the paper industry. When China decided that they weren't going to take recycled fiber anymore, it raised costs for the entire industry. You could have stock in the best paper company but it would have done much worse than a company in another industry.

I'm not saying don't invest in a company that you've heavily researched, but I think it all depends on what your financial situation is.
If you have a couple of months from savings, money going to retirement, and you just have extra money to put into a Great Company that you've done extensive research on, then I would say go for it.
If you are living paycheck to paycheck, trying to time the market for a big payoff. I would say that's gambling.

Things like index funds are hugely popularized because they work for the average person to get an average return in the long term without a lot of work.
It's easy to look back and say, "I said these stocks were going to do well, and they did". It's a lot harder to do that over and over for years and years without being wrong.

Before you jump in though, I would play with a stock simulator and see how you do, an example is: Investopedia Stock Simulator
You sign up, they give you virtual money and you can see how your bets really turn out. I think you'll find out that it's not as easy as the book makes it sound.

Looking forward to hearing other people's opinions though.
 
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TreyAllDay

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I'm not super financially savvy, but I'll play devils advocate.

You say investors do not gamble, but playing the market is by definition buying into a company or companies. Unless you have insider information or a very clear understanding of that industry, it's gambling.
1. There's no telling when the price will be back up. It might be one month, it might be one year, it might be five years.
2. There are external factors that can play a large role in a company's health. I am in the paper industry. When China decided that they weren't going to take recycled fiber anymore, it raised costs for the entire industry. You could have stock in the best paper company but it would have done much worse than a company in another industry.

I'm not saying don't invest in a company that you've heavily researched, but I think it all depends on what your financial situation is.
If you have a couple of months from savings, money going to retirement, and you just have extra money to put into a Great Company that you've done extensive research on, then I would say go for it.
If you are living paycheck to paycheck, trying to time the market for a big payoff. I would say that's gambling.

Things like index funds are hugely popularized because they work for the average person to get an average return in the long term without a lot of work.
It's easy to look back and say, "I said these stocks were going to do well, and they did". It's a lot harder to do that over and over for years and years without being wrong.

Before you jump in though, I would play with a stock simulator and see how you do, an example is: Investopedia Stock Simulator
You sign up, they give you virtual money and you can see how your bets really turn out. I think you'll find out that it's not as easy as the book makes it sound.

Looking forward to hearing other people's opinions though.
Great points and definite risks. The risk is definitely part of it but this is why he talks about identifying great companies with great leadership, great history, with a VERY specific growth history and ONLY when they are priced at 50% of their ticket price. Even if your calculations are off or the industry fails, if you purchase with enough margin you're mitigating your risk.

Agreed it's not a fastlane starting point - I don't believe I'd advise anyone to invest with their $5000 life savings or late in their financial life.
 

socaldude

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I'm new to investing as well. And ironically I have a BS degree in finance which actually taught me very little about how to make money.

My thoughts are that you have to learn about everything; futures, bonds, options and stocks because if you just focus on stocks and buying low and selling high then you are missing out on other opportunities and clues in the markets.

Because remember you can also make money going short. Shorting stocks, Shorting option prices etc. Short means you sell first then buy it back.

I would suggest opening a paper trading account with TD Ameritrade and getting a backtesting software.

The problem I have with "buying the dip" is that the market can go even lower. And went it goes lower it means investors expectations of the earnings of that company are low. And a lot of market participants are not schmucks.
 

Champion

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Yep, deffinetly invest in the next stock market crash!

My prediction: Gonna happen in a relatively short period of time after Trump gets (probably) re-elected next year.
 
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James Fend

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waiting to buy them on sale when the recession hits over the next 2 years.
I'll play devil's advocate..

Rule #1: Do the opposite of what most people do. I will be honest with you here... the valet guy, the shoe shiner, the cashier at Walmart... "they" are all talking and thinking about a recession and what to do with it. Especially Millennials like me who got a real bad taste from the ~2009 Great Recession...

Repeat Rule #1..

The smartest person to hit the news lines this week was good ol' Warren Buffet who increased his Amazon holdings among other things..

Repeat Rule #1..

There's a reason a significant portion of big super successful investors are naturally Contrarians..

Repeat Rule #1..
 

James Fend

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I'd like to further clarify..

Almost every person with a minor ounce of entrepreneurism in their blood (and now as 'inversion curve' is main headlines, it's your common folks) are all getting greedy thinking how to monetize this upcoming recession... Greed is the #1 signal to me to do the opposite.

No offense; but this whole thread smells of Greed.

Repeat Rule #1 lol..
 
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socaldude

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My prediction: Gonna happen in a relatively short period of time after Trump gets (probably) re-elected next year.
Based on what happened after his election in 2016 and the 3 years after that, Trump was good for the stock market and the economy. Doesn't matter if you are for or against him the data speaks for itself.
 
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TreyAllDay

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No offense; but this whole thread smells of Greed.
I don't know if I agree. The whole point of going fastlane is seperating yourself from the rat-race and being able to determine your own luck. If I left the rat-race and can afford to purchase a company I love at a discount because the market mispriced it, or even short ones I dislike or think are overpriced, that doesn't seem greedy to me.
 

James Fend

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I don't know if I agree. The whole point of going fastlane is seperating yourself from the rat-race and being able to determine your own luck. If I left the rat-race and can afford to purchase a company I love at a discount because the market mispriced it, or even short ones I dislike or think are overpriced, that doesn't seem greedy to me.
Sure, I get what you are saying. I also re-read your thread and see you're fairly new to financial asset investing/trading, so will try to break down my perspective. So you clearly define what moves markets from the quote below:

The market is an EMOTIONAL roller-coaster
Here's the thing about trading/investing that books don't tell you: In order to have any truly effective skill at reading emotions/sentiment of a market is if you can conquer your own. The first step to conquer your own emotions is to identify them through extremely high self-awareness.

With that said; I'll ask you these questions:

1. Why are you getting into investing/trading now? You had lots of years, even during an entire long expansion bull market these past years... Why now (or shortly within the next years)?

2. Do you agree or disagree with the following statements:

- Millennials (expands to other gens but mostly mill) do not buy homes.

- Most millennials got a very bad experience from the previous recession.

- Most millennials recognized during the last recession that house prices super-tanked and were on 70-90% sale.

- Most millennials that lived through the past 4 years saw those same houses that were 90% off increase in value by 3+ fold.

- A large majority of millennials are holding out in order to buy during the next recession sale so they can eventually sell it for 3+ fold.

- Is trying to make Easy Money a direct form of greed at it's absolute root level? Remember; Easy Money is not the same as Quick Money.

- Therefore a large majority of millennials are essentially trying to time the market out of greed?

3. Now combine both answers from the previous two questions and I think it'll be clearer to see which side of the fence you're actually on.
 

Rawseed

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Phil describes choosing great companies that you are passionate about, have strong growth rates, a "moat" (brand/patent/proprietary info), and great leadership. This can all be identified.
If this can be identified, it's already baked into the current stock price.

The people who live and breath the stock market can't seem to beat the S&P 500 consistently. Unless they are activist investors.

Consider taking Phil's advice and create your own company.

Create a company that you're passionate about, has a strong growth rate, and a moat.

Be a good leader.

Here's a list of great companies started during recessions:

 

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TreyAllDay

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If this can be identified, it's already baked into the current stock price.
The people who live and breath the stock market can't seem to beat the S&P 500 consistently. Unless they are activist investors.
Again I am just learning so do love the feedback, but it seems from the research I have done the market misprices companies very often, giving opportunities to purchase or even short them before the market levels out and prices them correctly - these don't come along very often but they do come along.

A good example is Harley Davidson in 1999/2000s, 30% revenue cash and equity growth rate, good brand moat, and was priced between $20-$30 when it was calculated to be closer to $70 - it eventually got there in the trailing years after the market adjusted (although, crashed in last years of 2000's).

GM would be a good example as well - was way overpriced in the early 2000's despite stagnant growth rates and vanity metrics. Market adjusted it down.

Again I'm kind of talking out of my a** as I haven't even traded before but based on what I've seen not everything is baked into the price at all times.


100% agree with you though that the 2400% returns I get in my business is a better bet currently.
 

garyfritz

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Again I'm kind of talking out of my a** as I haven't even traded before but based on what I've seen not everything is baked into the price at all times.
I HAVE traded, on & off for decades, including doing it professionally. And I agree with you. The old "standard wisdom" of "everything baked into the price" was the Efficient Market Hypothesis. In this philosophy, all the knowledge about the stocks is public, so everybody makes the same decisions, so it's not possible to beat the market.

Which is obviously utter claptrap, balderdash, and booshwah. Look at Warren Buffet's record and tell me you can't beat the market. It's hard to believe people bought that BS for decades, and they even awarded a Nobel for it.

People are emotional. The markets are driven by fear and greed. (Though this is becoming less so as machines take over trading -- but people still run the machines.) People overreact when they're afraid, and they get too greedy when things look good. This causes overreactions. That's how businesses can go "on sale," when everybody panics and dumps their stocks at any price. That's when you want to buy.

100% agree with you though that the 2400% returns I get in my business is a better bet currently.
You got that right. If you can honestly make 2400% -- or hell, 100% -- you're spanking the stock market.

Consider how hard it is to create a successful business. How many people could duplicate those 2400% returns you're creating? Maybe one in 1000 ?

Well trust me it's EVEN HARDER to beat the market. It's the biggest casino on the planet, with mountains of money there for the taking. If you can just figure it out. And every bank, every financial institution, every schmoe on the street is trying to beat it. Fund companies have armies of PhDs, rooms full of computer equipment, and unlimited budgets trying to squeeze money out of the market. And when there are that many people going after a prize, the prize tends to get snapped up and disappear.

If you're making anything close to 2400%, if it has any chance of lasting more than 6-8 months, then ABSOLUTELY you should focus on that. You will never see anything like that in the markets. (And this is coming from a guy who ran a $27k account up to $188k in 6 months. Now that's about 4800% annualized, so you may justifiably call BS, but that was a freak event that I never came close to duplicating.)
 

Rawseed

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I HAVE traded, on & off for decades, including doing it professionally. And I agree with you. The old "standard wisdom" of "everything baked into the price" was the Efficient Market Hypothesis. In this philosophy, all the knowledge about the stocks is public, so everybody makes the same decisions, so it's not possible to beat the market.
You have a very superficial understanding of Efficient Market Hypothesis.

Efficient Market Hypothesis postulates that all rational data has already been baked into the stock price.

So, you can't use numbers, ratios, fundamental analysis, or technical analysis to value a stock or predict the direction of stock price.


Which is obviously utter claptrap, balderdash, and booshwah. Look at Warren Buffet's record and tell me you can't beat the market. It's hard to believe people bought that BS for decades, and they even awarded a Nobel for it.
Warren Buffet is an activist investor. He gets discounts on stock purchases. He uses his influence to broker deals. He uses his influence to increase the value of the companies that he owns. He uses his influence to purchase companies that create synergies between his companies.


People are emotional. The markets are driven by fear and greed. (Though this is becoming less so as machines take over trading -- but people still run the machines.) People overreact when they're afraid, and they get too greedy when things look good. This causes overreactions. That's how businesses can go "on sale," when everybody panics and dumps their stocks at any price. That's when you want to buy.
What you're saying here is completely in line with the Nobel Prize winning theory of Efficient Markets.

People are irrational. You can't use rational data to predict stock price or company valuation.

Well trust me it's EVEN HARDER to beat the market. It's the biggest casino on the planet, with mountains of money there for the taking. If you can just figure it out. And every bank, every financial institution, every schmoe on the street is trying to beat it. Fund companies have armies of PhDs, rooms full of computer equipment, and unlimited budgets trying to squeeze money out of the market. And when there are that many people going after a prize, the prize tends to get snapped up and disappear.
What you're saying here is also completely in line with Efficient Market Hypothesis.

The PhDs, computers, and unlimited budgets have already found any rational discrepancies in public company valuations.

Unless you are a computer or some form of AI, you cannot and will not find any rational discrepancies in stock price or public company valuations.

So, any discrepancies to be found are irrational and therefore cannot be predicted.

The closest thing we have to someone or someones who can predict human behavior is Ray Dalio and the Bridgewater Algorithms.

And actually, he can't predict human behavior. His algorithms just predict it better than 99% of investors.

So, unless you can predict human behavior, or can exert a Buffet-like influence on a public company, your stock market investing isn't Fastlane.

If you're an entrepreneur, invest in your own Productocracy
If you're an angel or VC, invest in someone else's Productocracy.
If you're neither, invest in an index fund.

Unless of course you're investing for income. For that read Chapter 48 of Unscripted.

Please disregard everything I've typed, if you have Marty McFly's Delorean time machine.
 
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G. Wellthy

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I am stuck here with my laptop in a waiting room and I'm wondering how I may be able to provide some value, I thought I'd share a quick summary of a great book I just finished - being that I am a complete rookie in finance - and maybe even get feedback on the method from those who have a ton more experience than I do.

With the coming recession - there will be some great opportunities to buy stocks cheap so I have committed myself to learning as much about finance as possible. Here's the lowdown of Phil Town's Method.

What is RULE 1?

Very simply - never lose money in the stock market, and it's actually a simpler concept than most would think. Rule one investors just do not gamble.

How could you not lose money in the stock market, and in fact nearly guarantee 15% returns?
A majority of mutual fund managers/traders lose money by diversifying into a ton of different investments hoping to mitigate losses and have enough wins to still be on the positive side. There is no need to diversify if you are choosing the right companies. The market is an EMOTIONAL roller-coaster, and often misprices these great companies. You can identify and buy huge opportunities at 50% of their price, wait for the market to adjust their price, and sell/hold.

What Makes A Great Company?
Phil describes choosing great companies that you are passionate about, have strong growth rates, a "moat" (brand/patent/proprietary info), and great leadership. This can all be identified.

How Do I Know When A Great Business Is On Sale?
I will not get too deep into this, other than explaining the overall ideology. Using 10 year historical growth rates of sales, equity, earning per share, and ROIC (all very simple numbers to obtain), you can determine the future growth rates of the company. Using these growth rates you can determine the most likely future stock price and reverse calculate what price TODAY you'd need to buy at to have a 50% margin of safety (buy at half off) AND grow your investment 15% per year.

The Summary
GREAT companies with great track records for growth go on sale for 50% off when the market panics or misprices them. You can purchase them on sale and grow 15%-25% a year with very little risk as long as you are holding out for the right businesses.

I am currently selecting my rule 1 companies and waiting to buy them on sale when the recession hits over the next 2 years.
Maybe I’m once shy twice burned but even great companies can turn to dust. Ten years is a long time to maintain a competitive advantage, some great companies turn that into fifty years of success and some don’t. I’m not sure how to identify which ones can and can’t. But maybe that’s part of the strategy. When a great company gets back to fairly priced, you can sell some or all of the stock.
 
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Rawseed

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Based on what happened after his election in 2016 and the 3 years after that, Trump was good for the stock market and the economy. Doesn't matter if you are for or against him the data speaks for itself.
Politics aside. Correlation is not causation.
 
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Rawseed

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Again I am just learning so do love the feedback, but it seems from the research I have done the market misprices companies very often, giving opportunities to purchase or even short them before the market levels out and prices them correctly - these don't come along very often but they do come along.
Hindsight is always 20/20.

Phil Town has used survivorship bias to convince you that he has a predictive model for valuing public companies.

If he did have a predictive model for valuing public companies, he wouldn't put it in a book that I can buy used on Amazon for $1.06.

Even if he did have a predictive model, the fact that he made it public, has completely eliminated it's predictive value.
 

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I’ve been investing for about 15 years now, i’ve tried all sorts of methods. There are lots of people succeeding using different strategies, and you have to take into account your own risk tolerance, and time to devote to it.

The thing that has personally worked the best for me is the following.

1) Identify mid to large size companies that have well established business models and products. I will only invest in companies that pay a dividend. I must receive some regular return, usually 3.5%+ is my target.

2) Track those companies, look at charts, set buy limit orders for when the price is near the 200 day moving average bottom (usually 5-10% above the bottom). I also pay attention to the 5 year chart. If something has really shot up in the past 2-3 years, i am a little leary. I prefer to see relative price stability.

3) As soon as I buy I then set a limit sell order for near the top of the 200 day moving average. Usually 5-10% away from the top.

4) Then I just step away and let the markets work - up, down, sideways. Whatever. I sit back and collect my dividends, and wait. Things tend to revert to the mean and be bounded by the extremes. If it takes years to get my money out of the stock, so be it. In the mean time i’m caching our dividends, and can grow my stock holdings or sit on the cache.

This method works for me because when the stock price is down i’m not stressing. It takes very little time and attention on my part, and I can check in our out at any point in time. It’s all mechanical and automated.
 

Rawseed

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I’ve been investing for about 15 years now, i’ve tried all sorts of methods. There are lots of people succeeding using different strategies, and you have to take into account your own risk tolerance, and time to devote to it.

The thing that has personally worked the best for me is the following.
When you say succeeding what do you mean?

To me, succeeding means that your returns are better than the S&P 500.

Actually, not just better.

Your returns need to be better while factoring the time you spent managing your portfolio.

Actually, that's not even enough.

Your returns need to be better while factoring in the time you spent managing your portfolio and factoring in the time you could have spent investing in your Productocracy (opportunity cost).

Investing in an index fund is completely passive. No time spent.

Your time is extremely valuable. So, your returns need to be significantly higher than the S&P 500 to legitimize managing a portfolio.

Disregard what I'm saying, if you invest for fun or entertainment. There's nothing wrong with that.

It's just not Fastlane.
 

GIlman

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When you say succeeding what do you mean?

To me, succeeding means that your returns are better than the S&P 500.

Actually, not just better.

Your returns need to be better while factoring the time you spent managing your portfolio.

Actually, that's not even enough.

Your returns need to be better while factoring in the time you spent managing your portfolio and factoring in the time you could have spent investing in your Productocracy (opportunity cost).

Investing in an index fund is completely passive. No time spent.

Your time is extremely valuable. So, your returns need to be significantly higher than the S&P 500 to legitimize managing a portfolio.

Disregard what I'm saying, if you invest for fun or entertainment. There's nothing wrong with that.

It's just not Fastlane.
Agree, investing is not fast lane. I use investing to grow my existing asset base and combat value erosion of inflation. Certainly you could invest in index funds, but my objective is to have significant regular returns from dividends that mitigates my holding risk.

Years ago I invested in a lot of growth stocks, the trick was always when to get in and out. Since all value was derived from the stock price, the stock HAD to go up to make anything. So if the market or stock falls out on you, which happens all the freaking time, you can either sell at a loss or white nuckle it for a while hoping it goes up.

I still have had losses with some dividend stocks, but so long as the dividend is being paid it chips away at any loss quarter after quarter.

As far as investing in indexes, for me I don’t like it because all value is derived by price. Say i buy at 10,000 spend 5 years riding up to 20,000 then a year it falls out to 12,000 or even lower. In this scenario you have held for 7 years and have virtually nothing to show for it. With indexes most people are doing dollar cost averaging, and hoping (betting) the market will be higher when they need to cash out.

I invest the way I do because I want to be constantly cashing out. My dividends average 4.5% right now, so if i hold for 7 years regardless of where the market goes i’ve recaptured 32% of my investment. I can buy more shares, or i can pull the cash.

I’m sure there are some higher yield strategies out there. But this method checks all the boxes for me and my goals and risk tolerances in being in the stock market.
 

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DustinH

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Buy real estate instead of stocks.

Stocks are rigged markets, zero-sum games, taxed as earned income, too liquid, are not multi-dimensional in how you make money (you only make money if the underlying moves in a direction, up or down) and lack control of the underlying asset.

Real estate markets are local and by principal are not rigged, deals can be win-win for buyer and seller, more tax advantages than any other asset class, illiquidity allows real estate to be a lagging indicator of a down market rather than a leading, making money is multi-dimensional (through rentals, owner financing, tax deductions, depreciation, land contracts, wholesaling, etc.), and you have full control of the success of the underlying asset.
 

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Warren Buffet is an activist investor. He gets discounts on stock purchases. He uses his influence to broker deals. He uses his influence to increase the value of the companies that he owns.
All true. However his outsized investing results started long before he was big enough to influence the market. That's how he BECAME big enough. He started producing exceptional returns when he was a pretty ordinary schmoe.

And BTW his size and influence are no guarantee either. Buffet didn't believe in the new-fangled dot-com stuff, so he completely ducked the carnage in 2000-2002 and gained a lot on the S&P. Then about 2002 he lost that advantage, and Berkshire turned into an S&P index fund. I haven't updated the study recently, but with one exception in late 2007, BRK's moves mirrored the SPY almost perfectly for over 10 years. Even with his size and influence.

26786

People are irrational. You can't use rational data to predict stock price or company valuation.
Unless you are a computer or some form of AI, you cannot and will not find any rational discrepancies in stock price or public company valuations.
Depends on how efficient the market is. In a fully efficient market, yes, it's pretty much a random walk. But in an inefficient market, you can find and exploit those inefficiencies. I used to do it myself.

As an example: in the late 1990's and early 2000's I produced some excellent-to-ridiculous returns, consistently, for over 2 years. With large amounts of real money. I used a computer to generate my trades but it wasn't some fancy AI, just simple moving averages & simple rules. I could have computed it with a 4-function calculator if I wanted to. I continued to be quite successful until the attacks of 9/11 shocked the market and totally blew up the market psychology. Then everybody stopped acting rationally like they had been, and I couldn't find those ineffiencies any more. I came back to the markets a few years later and found that more people were throwing technology at the markets, squeezing out the low-hanging fruit, and it became more efficient. It became much more difficult, and eventually impossible, for me to make a profit at it.

So, any discrepancies to be found are irrational and therefore cannot be predicted.
Trend-following is one of the oldest trading concepts, and it's totally rational. People see the market moving up and they don't want to miss the party, so they pile on -- which perpetuates the trend. Or they see the market heading down, they panic and don't want to get stuck with a losing position, so they sell and perpetuate the trend. Trend-following approaches worked very well (see e.g. the Turtles, who became some of the largest fund managers in the industry with that approach) until enough people figured it out. When too much money started chasing the same targets, it squashed the successful strategy.

In an efficient market, I agree with your "cannot be predicted" comment. And these days most markets are efficient. (But not all. I understand some of the cryptos can be traded very well because the markets are small, full of amateurs, and prone to over-reaction.) If you can find an inefficient market, you can still make money in it.
 

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However his outsized investing results started long before he was big enough to influence the market. That's how he BECAME big enough.
Great point. I really shouldn't have minimized Buffet's and Munger's accomplishments by calling them simple activist investors. It was disrespectful to their talents and discipline.

However, I will say that they made their biggest impacts in a completely different era. Information wasn't as widely distributed. There were secrets to be found.

There was no CNBC, 24 hour news cycles, Bloomberg terminals, high-tech computers, 24 hour trading, etc...

There was only a fraction of the total number of people watching the market and playing the market.

Buffett/Munger profited when others didn't have the discipline to stick to their principles. When others didn't have the discipline to study the company reports. When others didn't have the disciple to study the industries. When others didn't have the discipline to wait until the price of the company was low enough to have true value.

Things are completely different now.

It's like debating whose better: Bill Russell or Michael Jordan? Russell has 11 rings to Jordan's 6, but I'll take Jordan because the competition was fiercer.

He started producing exceptional returns when he was a pretty ordinary schmoe.
I'm not sure he was ever an ordinary schmoe. He was the student of the Intelligent Investor, Benjamin Graham.

And BTW his size and influence are no guarantee either. Buffet didn't believe in the new-fangled dot-com stuff, so he completely ducked the carnage in 2000-2002 and gained a lot on the S&P. Then about 2002 he lost that advantage, and Berkshire turned into an S&P index fund. I haven't updated the study recently, but with one exception in late 2007, BRK's moves mirrored the SPY almost perfectly for over 10 years. Even with his size and influence.
You're right. Buffett is the G.O.A.T. He's extremely well taught, well read, smart, rational, and most importantly disciplined.

Depends on how efficient the market is. In a fully efficient market, yes, it's pretty much a random walk. But in an inefficient market, you can find and exploit those inefficiencies. I used to do it myself.

As an example: in the late 1990's and early 2000's I produced some excellent-to-ridiculous returns, consistently, for over 2 years. With large amounts of real money. I used a computer to generate my trades but it wasn't some fancy AI, just simple moving averages & simple rules. I could have computed it with a 4-function calculator if I wanted to. I continued to be quite successful until the attacks of 9/11 shocked the market and totally blew up the market psychology. Then everybody stopped acting rationally like they had been, and I couldn't find those ineffiencies any more. I came back to the markets a few years later and found that more people were throwing technology at the markets, squeezing out the low-hanging fruit, and it became more efficient. It became much more difficult, and eventually impossible, for me to make a profit at it.
Exactly my point. The market is too efficient now. Buffett would do well, but I don't think he could replicate his initial success in this current era.

Which is why the rest of us mere mortals shouldn't waste our time trying.

Trend-following is one of the oldest trading concepts, and it's totally rational. People see the market moving up and they don't want to miss the party, so they pile on -- which perpetuates the trend. Or they see the market heading down, they panic and don't want to get stuck with a losing position, so they sell and perpetuate the trend.
Trend-following is the complete antithesis of rational thinking.

Doing something simply because others are doing it is irrational. It's following the SCRIPT.

Humans are inherently irrational. So, doing something because many humans are doing it is even more irrational.

Jimmy, why are you doing drugs? Because all the kids are doing it. That's not logic.

I think you're mixing up "common" thinking with "rational" thinking.

Trend-following made sense in human history because if you didn't follow the crowd, you were ostracized and kicked out of the tribe. Then you'd die.

So, trend-following is an engrained human instinct/heuristic. But, it's not rational anymore.

Instincts are Kahneman System 1. Rational thinking is System 2.

That's why @James Fend's point of doing the opposite of the crowd is a good strategy.

In an efficient market, I agree with your "cannot be predicted" comment. And these days most markets are efficient. (But not all. I understand some of the cryptos can be traded very well because the markets are small, full of amateurs, and prone to over-reaction.) If you can find an inefficient market, you can still make money in it.
Good point.

But, is it worth the time? Is finding and mining inefficient markets a more profitable strategy than creating and growing a productocracy? Or even being an angel investor? Or being an acquisition entrepreneur?

Thank you for your great points and analysis. I really forgot how awesome Buffett was.
 

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I have actually gone to Phil Towns 3 day Course and I learned quite a bit. He is pretty open about the risks involved and the mistakes he has made. He is definitely not the typical Guru you might see other places. He is quite smart and self made, he actually went from nothing to a million dollars on his own, so there is definitely a level of respect there. He still actively trades, and shares them with you, his system is still very relevant even in todays market.
 
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@Rawseed dropping lots of interesting knowledge.

So if your point of view that there is no way to get rich investing? Investing SHOULD only be something you do when you sell your business or have a large enough amount to live passively on a low-maintenance 4.5% bond? The reason I ask is it seems the amount of time spent on learning investing is... quite a bit more than I expected and not sure if it's worth it at this point or not.
 

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You won't get rich quick by investing. You might get rich slow. So it's a good thing to do in the background, while you're doing something else for your main shot at greatness. That way if you never manage to cash out your company in an IPO and retire rich at 35, you might at least be able to retire comfortably at 60.
 

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So if your point of view that there is no way to get rich investing?
You can get rich with investments, if you’re in financial services. Selling stocks, brokering deals, and/or managing other people’s money.

Investing SHOULD only be something you do when you sell your business or have a large enough amount to live passively on a low-maintenance 4.5% bond?
That’s not my view. Based on Unscripted, that seems to be Demarco’s view.

I just don’t think you should have money in individual stocks. Unless they’re stock options.

The reason I ask is it seems the amount of time spent on learning investing is... quite a bit more than I expected and not sure if it's worth it at this point or not.
The return you’ll get from the time you spend isn’t worth it. Just buy index funds with Vanguard, Fidelity, or Schwab.

I think that every entrepreneur should max out a Roth IRA or Backdoor Roth IRA annually using index funds.

Many entrepreneurs should also consider putting some money in a solo Roth 401k or SEP IRA. How much to put in it is hard to tell. It’s based on age, risk tolerance, family status, the stage of their business, and other factors.
 

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You won't get rich quick by investing. You might get rich slow. So it's a good thing to do in the background, while you're doing something else for your main shot at greatness. That way if you never manage to cash out your company in an IPO and retire rich at 35, you might at least be able to retire comfortably at 60.
Exactly. It’s building wealth. Not getting rich. You have to run a business to get rich (I.e. selling/brokering/servicing stocks) and invest (I.e. investing in companies) to get wealthy.
 

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That’s not my view. Based on Unscripted, that seems to be Demarco’s view.

I just don’t think you should have money in individual stocks. Unless they’re stock options.



The return you’ll get from the time you spend isn’t worth it. Just buy index funds with Vanguard, Fidelity, or Schwab.

I think that every entrepreneur should max out a Roth IRA or Backdoor Roth IRA annually using index funds.

Many entrepreneurs should also consider putting some money in a solo Roth 401k or SEP IRA. How much to put in it is hard to tell. It’s based on age, risk tolerance, family status, the stage of their business, and other factors.
I agree with Demarco’s strategy that focus on yield instead of just following on the broad index.

Dividend stocks have not underperformed the broad market over the long term and have much less volatility.

This combined with some minimal efforts of mean reversion strategy can yield a good sharpe ratio on the investment- beating the market over the long run without putting in too much time.

Personally I stayed away from U.S stocks for valuation reasons as well as tax on dividends. I do not have the time to monitor individual stocks to check on the business fundamentals also. That is not my strength. I keep a macro view on place more emphasis on mean reversion trading to enhance the portfolio return.

My thesis is that under the Trump administration there will be greater pressure to create chaos and capital flight to maintain the U.S. asset market valuation. Whether that will be successful is largely unknown but for sure many emerging market will have varying degree of market crash.

Crash. Recovery. Hope. And crash again seems to be the theme. I have accumulated and cashed out successfully for China and Turkey ETF (FXI and TUR) for several times this years. Basically gradually buy more as prices fell and gradually taking profit as prices recover. Use market volatility as an advantage and trade “almost like a market maker”.

I am starting to put money in argentina etf now with ARGT below 23.
 

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