Who to Trust in the Investment World?

[MTF]

I'd like to educate myself more about investing - both in a general sense as well as specifics so that I can understand and be able to assess potential investment opportunities. I'm mostly interested in building a cashflowing portfolio (no appreciation play). The challenge is that there are lots of investment gurus, but many of them shouldn't be trusted or give well-meaning and wrong advice (like many Slowlane gurus).

Who do you trust when it comes to investment advice? Whose advice is well-aligned with the Fastlane mentality? Which books do you consider must-read to learn how to build a proper money system?

I'm aware there were some similar threads in the past, so my question is mostly about specific people to follow, not general investing advice.

 

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[TonyStark]

Are you talking about stocks?

 

[jon.a]

Nobody

 

[TonyStark]

I think picking stocks is like picking a favorite place to eat, each person has their own tastes and reasons for choosing said restaurant (i.e. price, food, ambiance, etc).

But if you're talking about a subjective view on the stock market, I usually like Martin Shkreli. His philosophy is influenced by Warren Buffett as he is also a value investor.

I don't think anyone can tell you who to pick, but we can tell you the right way to analyze a stock so you don't make major mistakes.

Here is a great video lesson by Martin Shkreli where he talks about the process he goes through to pick and analyze a stock. (the guy did start a hedge fund)

It's part 1 of a 4 part video:

View: https://www.youtube.com/watch?v=ARrNYyJEnFI&t=4616s&index=4&list=PLPhX1T-Xeq_b-XgrwHJOf428M6j7EVcOw

 

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[MJ DeMarco]

Trust no one.

STICK to facts and knowledge, make your own decisions.

Fact: Stocks go up and down. More selling, price goes down. More buying, price is bid up.
Fact: Mutual fund XYZ has a 1% management fee.
Fact: A sold call on a stock position is called a "covered call"
Fact: Interest rates and bond values are inversely related.

 

[G-Man]

Who do you trust when it comes to investment advice?

Nobody

Market pundits, politicians and other mainstream investment advice, I trust slightly less than the weed dealer that sat outside my old apartment all day. That dude would tell me I left my trunk open. The others would steal my retirement without skipping a beat.

I know I come off as paranoid a lot around here about the stock market, but working in accounting and having been through a nasty corporate bankruptcy that involved massive misappropriation, I don't trust any financials I didn't put together myself... and even those I triple check.

 

[MTF]

Are you talking about stocks?

Not only, also in a general sense like MJ in the business world. There are shady business gurus and there's MJ whose advice has changed my life so I was wondering if there's somebody like that in the investing world.

Thanks for the videos, I've heard about value investing multiple times. I think I need to finally read The Intelligent Investor.

STICK to facts and knowledge, make your own decisions.

Thank you. I guess maybe I approach it from the wrong perspective, thinking that investing is like business where you can follow a set of guidelines created by an expert and it's better than trying to figure it out yourself.

I know I come off as paranoid a lot around here about the stock market, but working in accounting and having been through a nasty corporate bankruptcy that involved massive misappropriation, I don't trust any financials I didn't put together myself... and even those I triple check.

Do you still invest in the stock market knowing that the odds are against the little guy?

 

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[TonyStark]

Thanks for the videos, I've heard about value investing multiple times. I think I need to finally read The Intelligent Investor.

If you haven't read 'Buffett: The Making of an American Capitalist', I would start there.

 

[G-Man]

Do you still invest in the stock market knowing that the odds are against the little guy?

I do not.

It's not really about big guy vs little guy. It's like dealing with anything else, you interpret people's actions through the lens of the incentives they face. So, let's think about the incentives: The underwriters and bankers, especially on huge deals, have every incentive to pump things up. Don't forget that at the end of the day, it's their job to place money and securities. Executives have every motivation to pump things up artificially because of their compensation structures, plus the perennial big dick contest these guys all have with each other.

This leaves the accountants and auditors. First, it's possible to fool them, especially at big multinationals, because they're often so segmented off that they can't get the information to piece together the big picture. The auditors, on the other hand, are the opposite, they often have access to general information, but access to specifics is limited. Now let's assume one of them figures out what's going on, and this is where I start speaking from personal experience: accountants are people too, and just like everybody, from the CEO to the cashier, they don't wanna lose their job. As an accountant who blows the whistle, there's basically three possible outcomes:

1. You're ignored.
2. You just painted a target on your back.
3. You're listened to, and put the company you work for out of business, and yourself out of job.

TLDR: When looking at the financials of these big companies, it's best to assume the books are cooked to some degree, because that's where all the incentives are.

 

[Alexlewter]

Your eyes

Your conviction

Your belief

Your knowledge

Your skill.

 

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[MJ DeMarco]

Who do you trust when it comes to investment advice? Whose advice is well-aligned with the Fastlane mentality? Which books do you consider must-read to learn how to build a proper money system?

Just to reiterate what I already wrote...

Trust no one.

Read a ton of books, but filter the FACT from OPINION / BIAS...

Then make your own decisions.

Fact: Stocks go up and down. More selling, price goes down. More buying, price is bid up.
Fact: Mutual fund XYZ has a 1% management fee.
Fact: A sold call on a stock position is called a "covered call"
Fact: Interest rates and bond values are inversely related.

Not fact: Buffett says compound interest is wonderful.
Not fact: Buffett says AAPL is undervalued and its price target should be $200.
Not fact: CNBCs Kramer says buying stocks is still the best way to generate wealth.

 

[CareCPA]

Building off @MJ DeMarco 's post:
- We can teach you to research dividends and the effective rates, but we can't tell you if they will continue in the future.
- We can teach you to calculate P/E rations and diluted earnings, but we can't tell you whether the P/E is high or low, because that's an arbitrary opinion.
- We can teach you to calculate compound interest, but can't tell you what that growth rate will be (either positive or negative).

It's all about what you want to learn, and how you're looking to apply it.

All of this assumes the company financials are accurate, which @G-Man spoke to earlier.

 

[InspireHD]

*WARNING - Incoming Wall of Text*

I think too many people get set on the idea that they need to look at companies and come up with an exact number for what it is worth. The big shiny number everyone looks at is how much each share is worth. They will look at AAPL at $200 per share and think, "Wow, that's expensive! I can't afford that! I'm going to buy 10,000 shares of Brawndo Pharmaceuticals for 57 cents per share because that's what plants crave!" Well, guess what? There's a reason why it's that cheap and there's a reason why you're losing money and think investing resembles gambling.

The per share figure is partially irrelevant and there is a reason why if AAPL had one share trading for $200 per share and they make $100 billion a year, $200 per share is extremely cheap. If AAPL only made $10 a year, $200 is expensive. It's all relative to how many shares they have outstanding. The Market Capitalization is where the real value should be discovered.

There are some respected professors out there who build elaborate spreadsheets and have all these numbers and fancy colored cells that make you go cross-eyed. *CLICK CLICK CLICK* Tesla is valued at $38.47 per share! This is very wrong and will become a trap. Change a few assumptions and Tesla is now valued at $42.18. But it's trading at $44 per share!!!! Let's change a few more assumptions because I think Tesla will come out with electric powered flying Jetson-mobiles. A few more changes and, here we go, Tesla is now worth $88.51 per share! Wow...look guys, I'm going to be an eleventy-billionaire in 2 years!

Long story short, there is no way to come up with a figure that provides an exact number. The future is too uncertain. Nobody knows what's going to happen next year or even tomorrow. If you want to invest in individual companies, your goal is to buy undervalued businesses, not to jump on the bandwagon and hope Twitter gets their thumbs out of their butts. Look up the Greater Fool Theory.

I've been investing in the stock market for 14 years now. I'm not an expert by any means, but it's one of those things that really stuck with me after I learned about it and learned how I could put my money to work. The stock market is a market for businesses. You realistically could take a lot of money and start buying enough shares in a company to take control of it. It's just like how Amazon bought Whole Foods. It'll be hard because to take control, you need to buy the majority of the shares of the owners, but it can be done. That's why Amazon made a deal with Whole Foods -- they can't just go into the stock market and buy every share. If I own the only share of Apple and you want it because you want to own the entire company, you're going to have to come to me and convince me to sell it to you. I can name whatever price I want. If I own 100 shares of Apple and they have 110 shares outstanding, you might be able to get the first 10, but you're going to have to pay me some kind of premium to take the 100 from me.

I own a company now that I bought in 2013 when they were valued at $300 million. Today, they just crossed over the $7 billion valuation. I owned a company several years ago that was valued at $50 million and I sold it 4 or 5 years later when they were worth $300 million. I'm not tooting my own horn and I'm not claiming to be the next Warren Buffett, but my point is that investing can be profitable if you approach it from the right perspective. On the flip side, I have made investments that lost me money too -- most recently a company heavily weighted in the oil sector that I ended up losing about 60% of my investment. I sold it because it was time to cut the loss and move on. I didn't want to wait an unknown amount of years for the oil industry to come back into play.

In my experience, don't follow anybody, especially not the thousands of blogs out there. As @MJ DeMarco says, take advice from the people who have actually done what you want to do. There are professional managers out there who invest a relatively smaller amount of money, like $500 million, who do really well. You can follow their investments and decide for yourself or you can try to reverse engineer why they select certain companies. I can point you in that direction if you're interested.

To end this, I will give a disclaimer that I'm just a person who enjoys investing and thinks the stock market is a powerful vehicle. It is only my view from my perspective and I wouldn't necessarily say it's Fastlane or Slowlane. To me, it's simply an interesting subject that provides a challenging opportunity and that when you really dig deep into what the stock market is you'll find it to be fascinating. At least I do.

 

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