Welcome back and thank you for sticking with it! Beats shopping for a washing machine but most people spend more time doing that than they do trying to do better with their investments. Anywho, let’s now pivot the conversation towards the slippery “when to sell?” question. The first part of our talk will cover some applicable behavioral considerations and we will discuss more quantitative tenets in the latter part.

“Ok, so I am up something like 67% on XYZ Inc. but it is starting to roll over on me. The last quarter missed pretty bad and management is making some confusing strategic changes. I also took that hit locking in a 34% loss earlier in the year on ABC LLC? Should I protect the gain in XYZ and offset the loss a bit for my taxes? I probably should. Yet, XYZ still makes the grade and has been so good to me over the years. It’s just so hard to sell now. It was $112 per share earlier in the year and it is $91 per share currently. No, I can’t sell it here.” – My inner thoughts at some point 20 years or so ago I am sure.

There is so much wrong with the brain vomit above. Continue reading “Are You Selling Out? Can you Trust Yourself to Know?” →

“Seriously. It is like dating. Do you really want to go after the most attractive person at  school? The probability of success is low and even if you do succeed you will be spending a lot of your time looking over your shoulder. The smarter call is probably to look for someone more amazing but less obvious – who sidesteps the limelight and doesn’t know how desirable they really are.” – Dave O. or another person I used to work with.

We were watching a panel discussion at this conference in New York, and I recall telling myself, “I am not super bored. I am learning. I am engaged.”.  Then I realized that finance can be pretty boring when it is really dubitable. This respectable conference panel was organized to highlight diverse perspectives, and they did end up saying pretty much all different things. The problem was that they could not all be right so they all sounded wrong. Boring. Nobody risked getting to far into the weeds, except this one portfolio manager. Continue reading “Weeds, Water and Nicer Flowers” →

Selena Gomez and Richard Thaler may find this shameful, but I used to build and sell collateralized debt obligations (CDOs). Phew. I said it. It was actually somewhat of a natural progression from traditional fixed income sales as our institutional clients pressed for these in the early to mid-2000s. CDOs can really be built out of any pool of assets and/or securities that produce a predefined cash flow stream; including mortgages, bank loans, credit default swaps and, as Selena and Richard focused on, other CDOs themselves.

One of the things that most amazed me during my experience on the structured fixed income desk was our reliance on the major credit rating agencies. Most of our biggest institutional investors could not touch anything that did not have a minimum rating from two different agencies – one of which had to be either Moody’s or S&P – preferably both. These agencies owned us, which gave me the impression that they could charge us whatever the heck they wanted. What were we going to do? Go to a competitor? Nope, not going to happen because our clients won’t buy it. This got me wondering what they did with all the money we sent them. They didn’t have any factories, ships, trucks, inventory or anything that needed to be purchased or maintained. They had people and IT.

I figured I better own these stocks, and anyone who looked like them… Continue reading “The Power Three” →

“Slow is smooth and smooth is fast” – US Navy Seal maxim

Compounding returns is the real magic of investing. Investors who dollar cost average into the market (i.e. consistently invest at fixed incremental intervals through the year) and let their portfolios compound over time will do very well in the end. When you dollar cost average into a market you tend to care a little less about the risk of a market correction because you will be a buyer through it. Keep the faith. This strategy works. $100,000 invested in annual $3,300 increments over 30 years gets you to $333,541. Keep putting $3,300 away each year at 7% over 55 years leaves you ~$2 million.

Say someone committed $100,000 today to a foundation payable in 140 years and it earned 7% over the 140 years. The foundation gets $1.3 billion. That’s just four generations. This stuff matters. Continue reading “Average In & Compound Returns” →

We spoke of the importance of process discipline to generate consistent performance. IMHO this one deserves special mention and not as a mere Thinkling. Companies with a consistent history of increasing their dividend have a tendency, on average, to notably outperform index benchmarks over time. Worth noting here is that these companies do not necessarily pay high dividend yields. They just keep increasing the dividend per share each year. The absolute yield does not need to increase if the market rewards this prosperity with a higher share price. This process can be owned cheaply and easily through several ETFs. Put them in the oven and set the timer for forever. https://www.marketwatch.com/story/dividend-aristocrat-stocks-post-almost-double-the-returns-of-the-sp-500-in-2016-2016-09-06