A few have asked how I 'pick' stocks; so here is a little explanation -
First, I look for companies with a 'moat' or durable edge. Next, it has to be a business which I understand (I don't understand many). Third, the mgt. has to be sound. Last, valuation has to be fair...contd.
First, I look for companies with a 'moat' or durable edge. Next, it has to be a business which I understand (I don't understand many). Third, the mgt. has to be sound. Last, valuation has to be fair...contd.
Once a company has passed through all the above filters, I try and ascertain the length of its growth runway (how big can this business become in 10-15 years?). Then, I evaluate the competitive landscape and see if the company's growth can continue unabated...contd.
When picking a business, I prefer secular growth stories i.e. companies riding generational trends which provide a vital product/service which most use on a regular basis. I also like 'price setters' instead of 'price takers' so this rules out many industries....contd.
I believe that stocks (market caps of companies); don't go up or down in a vacuum and ultimately, the earnings power of a business determines its fate. So, for obvious reasons, I only invest in growing companies which (I believe) will be a lot bigger in the future....contd.
I don't worry about market timing or the indices' zigs/zags at all; but always remember that stocks are volatile and that the annual volatility (std. deviation) of $SPX is around 15%. So, I'm always mentally ready for pullbacks....contd.
In terms of position sizing, I'm conservative so don't put myself in a position whereby one bad apple can wipe me out. So, I allocate 4-5% of my portfolio to each biz; but don't trim winners for portfolio balancing. The idea is to run the winners for as long as possible...contd.
To protect myself from the big bear-markets (which can hand out 50%+ drawdowns), I hedge my entire portfolio by using a systematic trend following system which totally removes all emotions from the equation. This keeps my a/c somewhat flat during downtrends...contd.
Finally, I have zero loyalty to any of the companies in my portfolio. My only concern is my long-term CAGR so if a business or its management misbehaves or disappoints, I sell out immediately (whether at a profit or loss).
Many ways to play this game; but this is how I do it.
Many ways to play this game; but this is how I do it.
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