Whats your investment strategy

Whats Your Investment Strategy?

Over the years, I’ve written (and read!) about all sorts of different investment styles. Here on StockIdeas.org, you can find blog posts and videos about everything from buy-and-hold value investing, to day trading penny stocks.

But even after all this, I haven’t made it clear what my own investing style is.

So are you curious?

Consistent with my recent post about my own journey to financial independence, I wanted to share some information about my own investing style.

My Stock Picking and Investment Strategy Explained:

As you undoubtedly know, there are a myriad ways to approach the market. And everyone has their own style when it comes to grinding out a profit. For me, it’s about putting the odds on my favour in both the short and long term.

So how do I do it?

First, everything I do is grounded in a value investing methodology. I like buying bargains, and stocks that are selling at a discount to a conservative estimate of intrinsic value may offer a valuation tailwind. In this way, Security Analysis and The Intelligent Investor were big influences on my thinking. But I’m not just looking for any old cigar butt.

That’s because quality counts. As explained in the book The New Buffettology (and The Warren Buffett Way), companies that can compound capital over the long term make very appealing investments. So I’m also focused on finding quality companies. In fact, I have a database of over 300 of just these kind of stocks. And I’m always making additions and subtractions.

But I don’t stop there.

That’s because after years of trying to bottom-fish stocks trading at 52 week lows, I’ve found that a little technical analysis can go a long way. Books like Secrets for Profiting in Bull and Bear Markets convinced me that a few technical filters can go a long way. The results have paid for themselves.

To that end, I try to buy high quality companies, at or below my estimate of intrinsic value, and I only do so if the stocks are making higher highs and higher lows. It’s one of the most often quoted pieces of trading advice, but I must admit that the trend has been my friend.

Technical analysis also helps with risk management. I use stop losses because I don’t like to see my capital tied up in losing or languishing stocks.

And finally, I’ve relied on books like Trading in the Zone and What I Learned Losing a Million Dollars. These focus on the psychological side of money management. Sticking to your plan can be easier said than done.

Now, I could go deeper. But there’s no sense bogging you down in the details. So I hope this overview provides you with a bit of context for the content on this blog, and how I’m investing in my own stock ideas.

By the way, while my investing strategy evolves incrementally, it’s been the same for a long time.  I improve one sprint at a time in a very methodical way.  A lot of trading and investing results come down to the mathematics of positive expectancy. And once you have that done, it’s just about maximizing your edge and profits. Make sense?

But now I want to hear from you. What’s your process for picking stocks?

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Financial Independence and Stock Ideas

I’ve had this website for a few years. And in that time, the focus has pivoted: I’ve covered book reviews, market news, and of course, stock pick ideas. But as a result, this blog has lost focus. And frankly, that’s got to stop.

Of course, I don’t want to be too hard on myself. This is just a hobby, after all. But it is representative of my obsessive focus on financial independence. And while all the current content touches on that theme, I think I can do a better job pulling it all together. Plus, I think I can make things more personal.

At the end of the day, humans want to hear stories about other humans. At least, that’s the kind of information I like to consume best. And as long as you’re not a sociopath, I imagine the same is true about you.

So going forward, I plan to shake things up a little.

While I’d love to blog more about specific stock picks, analysis and the trades I’m making, my employer’s compliance department won’t let that fly. So I’ll continue to write book reviews, share podcasts and post links that I think are interesting. But I’m also going to take it a step further.

I’m going to write more about me. And more about my life. And more about my journey to early retirement. After all, this blog is mine!

I’m eager to explain my personal circumstance, as well as the strategies and tactics I’m using to break out of the rat race.

I’ll tell you how my investing style has evolved over the years. And why I shake my head at efficient market theory. I’ll also write more about investing and trading psychology, and why we are often our own worst enemies (especially when it comes to finances).

Looking ahead, the next couple posts will likely elaborate on the themes above. I will write more about my own background, where I’ve come, what I’m doing and what will hopefully come next.

And all of the content will be created with financial independence in mind. I’m going to share secrets, opinions and points of view that are designed to cut through the noise and help you see what works and what doesn’t.

Next stop: financial freedom.

Jesse Limermore’s Methods of Trading in Stocks (Book Review)

Jesse Livermores Methods of Trading in Stocks Book Review2Jesse Livermore’s Methods of Trading in Stocks, by Richard D. Wyckoff is a collection of articles and interviews. These columns originally appeared in the Magazine of Wall Street, of which Wyckoff was the editor.

As long time readers of StockIdeas.org know, Jesse Livermore is one of the greatest speculators of all times. And I’ve already read a few books about him, like: Reminiscence of a Stock Operator and How to Trade in Stocks – both of which gave insight into Livermore’s market methodology. So you can understand why I was excited when I discovered that these lost volumes had finally been brought back into print.

Further, I also recently read and reviewed Richard Wyckoff’s own book, Studies in Tape Reading. I found his approach to be matter-of-fact, simple to understand and most of all, time-tested. While these approaches were written about in the early 1920, they’ve stood the test of time. And I was optimistic Jesse Livermore’s Methods of Trading in Stocks would present more of the same.

I was not disappointed. Let me tell you why.

Overview of Jesse Livermore’s Methods of Trading in Stocks:

As I mentioned, this book is actually a collection of articles and interviews. They were written at the time when Jesse Livermore was the most well-known speculator in the markets. And while Livermore historically avoided the spotlight, he did agree to share his methods in this one set of interviews. Neat, right?

So as you might expect, the book is actually quite short. I would almost call it a pamphlet. That means, at only 32 pages, it’s a very easy read, and each chapter is completed self-encapsulated. But you might be wondering, is a book that short worth reading?

Emphatically, the answer is yes. Although the book is simple, it’s still profound. To paraphrase Livermore himself, there’s nothing new in speculation because human nature doesn’t change. The tactics and strategies he used over 100 years ago are still effective today because our brains and emotions still work the same way. Hope and fear spring eternal.

And that leads my to my favourite part about this unique trading book.

The Best Part of Jesse Livermore’s Methods of Trading in Stocks:

For me, the best part in Jesse Livermore’s Methods of Trading in Stocks is the fact that the book is so simple. And I’ll tell you why.

It’s because in this day and age of online brokers and advanced technical analysis, there’s a tendency to overcomplicate the market. CNBC has 24 hours to fill, 7 days a week. So you can’t blame them for manufacturing drama and complicating the market analysis.

On the other hand:

If Jesse Livermore can lay out his methodology for trading and speculating in stocks in just over 30 pages – and still have the lessons be applicable 100 years later – then it just goes to show that  playing an active hand in the market doesn’t have to be that complicated. You see…

Livermore’s words are a great reminder that you can keep things simple. It’s the classic advice you’ve heard a million times before: go with the trend, cut your losses and let your winners run, and don’t listen to random tips from people on the street.

Of course, there are some nuances. And putting this advice into practice is easier said than done. But I found it incredibly encouraging to see that the approach Livermore espoused is similar to the best practice guidance you hear today. Speculating isn’t complicated, us humans just like to make it that way.

So if you’re looking for a simple to read introduction to the kind of trading advice that’s stood the test of time, then Jesse Livermore’s Methods of Trading in Stocks might just be the right book for you. Since it’s only a couple dollars and under 35 pages, I highly recommend you check it out on Amazon.

For more information, you’re welcome to watch the video book review below to get even more information on this unique trading and speculating book.

Jesse Livermore’s Methods of Trading in Stocks – Video Book Review:

 

4 Successful Trading Rules

The following is a guest post from MoneyFed.com. I think it’s good advice you’d be wise to pay attention to. Enjoy!

Successful investors don’t just take a guess, they discipline themselves to follow a tested, yet flexible, investment strategy that is based on principles for both bull and bear markets. Today, we’re going to examine 4 basic trading rules that have proven to be successful for weekend investors of all skill levels.

Trade with the Market Momentum:

Knowing the overall momentum of the market can save you thousands of dollars. As the markets trend upward, you can invest with more confidence that 8 out of 10 stocks are also trending upward. After all, it is these individual stocks that cause a market to move in a particular direction. And if the markets trend downward, you may want to tighten stop losses, invest only in the leaders, use half positions rather than investing your normal full amount into any stock.

Always Use Stop Losses:

There is some disagreement in the investment community about using stop losses. Many argue investors may be stopped out prematurely from positions during an abnormal market condition (such as May 2010). Nevertheless, I’d rather take my profit and put it in my pocket than watch my stock drop below my purchase price or worse. Unless you’re a sophisticated investor who can watch your positions throughout the day, always use stop losses to minimize your risk and maximize your returns.

Plan your Trade and Trade your Plan:

If you’ve taken the time to develop an investment strategy, as noted in the article above, you can invest with confidence because you’ve back tested your ideas as well as paper traded them until you were consistently successful. Now be disciplined… and stick to your plan.

Review Every Trade Every Week:

It doesn’t have to take hours… but you must take a few moments to review every trade every week. Has anything changed (i.e. news, earnings report, market conditions, technical indicators, etc.)? Then make the necessary adjustments which may include little steps such as moving your stop losses or selling half of your position. Finally, successful investors learn from each closed trade. What worked? What didn’t work? How did emotion play a role in my decisions? Did I follow my investment strategy and if not, what impact did my lack of discipline have on my bottom line?

What I Learned Losing a Million Dollars

What I Learned Losing a Million Dollars Book ReviewWhat I Learned Losing a Million Dollars is an auto-biographical book about the life of Jim Paul, by Jim Paul and Brendan Moynhian.

Although I very recently read this book, I can’t remember where I heard about it or why I picked it up. But either way, I’m very excited to write this review. Because this was one of the best finance books I’ve read in a long time. Can you guess why?

Basically, What I Learned Losing a Million Dollars is all about failure. It stands in stark contrast to 99% of the other investing and trading books out there. Believe me, I’ve read a lot of them.

So this one was refreshing.

I can’t wait to tell you all about What I Learned Losing a Million Dollars, so you can decide whether or not this is the right book for you. So let’s get into it, shall we?

A Summary of What I Learned Losing a Million Dollars:

What I Learned Losing a Million Dollars is an autobiographical account of Jim Paul’s life as a trader and broker. It chronicles the exciting ups and downs in a fun and easy to read way. And as a bonus, the book is educational too.

The first part of this book, and probably the most exciting, is about the life of Jim Paul. It starts at childhood, and documents his exploits through adolescence, college and his nascent career. Since Jim’s such a good story teller, it makes for fun reading. You get a sense of what he was like growing up, and why he became the big shot futures trader that he did.

But then things take a turn for the worst.

The second part of this autobiographical section is the downfall of Paul’s trading career. It explains how he rode a big winner into an insanely large loser. And it’s amazing how quickly things unraveled. This part of the story is both gripping and unbelievable.

The third part of this book, and probably the most interesting, is the post-mortem. Paul takes a cold hard look at his downfall. He tries to learn where he went wrong, and how to succeed in the market. But then, he has a revelation.

Instead of trying to find a holy grail technique to conquering the market, Paul decides to become an expert on losing. He goes to great lengths to learn why people lose in the markets. And to his surprise, there are only a few key reasons. This is where things really get fascinating.

My Favourite Part of What I Learned Losing a Million Dollars:

What I Learned Losing a Million Dollars is a great book overall. But for me, the last part of the book really stood out as the most educational and insightful.

The most interesting part for me, is that it turns out there are only a couple of ways to lose money in the markets. While there are innumerable ways to make a profit, losing comes in only one of two ways.

I don’t want to give away the book here, but it boils down to (1) losing money via your trading or investing methodology, and (2) losing money due to psychological mistakes that cause you to deviate from your methodology.

Make sense?

in the last section of What I Learned Losing a Million Dollars, Paul goes deep into the second factor. Because that’s where most people lose most of their money. Neat, isn’t it?

But to be honest, there’s one thing you should know before you buy this book.

What I Learned Losing a Million Dollars – A Word of Warning:

What I Learned Losing a Million Dollars is a great book, don’t get me wrong. But it’s hard to overestimate how hard it is to implement the advice in the book. You see…

This is the same kind of advice I really enjoyed reading about in Trading in the Zone. And that was one of my favourite trading books of all time. I’m always encouraged when great books independently correlate each other.

But here’s the thing: I’ve read Trading in the Zone 5 times at least. And when reading What I Learned Losing a Million Dollars, I combed over it with a pencil and paper. I do my best to absorb these lessons, and they’re still hard to apply.

The deep-seeded desires of the ego are hard to overrule. But with practice and conscientiousness, I believe it’s possible. So if you have trouble applying the lessons in the book, just keep trying.

Now, let’s bring this book review to a close.

What I Learned Losing a Million Dollars – The Final Word:

What I Learned Losing a Million Dollars is a great book. I honestly can’t wait to read it again. For the reasons above, I highly recommend you check out What I Learned Losing a Million Dollars on Amazon for yourself.

If you want even more information though, you’re also welcome to watch the video book review below.

What I Learned Losing a Million Dollars – Video Book Review:

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What’s Your Peloton

I went for a 7-mile run on the treadmill this morning. I watched the Tour de France. It got me thinking about something I read a few months ago on Howard Lindzon’s blog. One of his ten years of blogging lessons comes to mind:

“Invest in yourself and your network. One of the oldest races is the ‘Tour De France’. The ‘peloton’ is a french word originally meaning ‘platoon’. A well developed peloton helps reduce ‘drag’ or as I like to say, speeds you up by as much as 40 percent.”

And that got me thinking about my own peloton. For me, I think it goes beyond people (although that’s certainly a part of it). I also owe thanks to Howard for creating StockTwits, and helping me find some of my own peloton members.

In terms of tools though, here are some things that I’d be hard-pressed to live without:

  • Finviz.com: This is just one of the most robust and easy to use stock screeners. I’ve done tons of videos about free FinViz stock screens. It’s just a great tool for finding stock ideas.
  • Morningstar.ca: I just love that Morningstar has 10 year historical financial data for almost every stock. It’s a great way to start analyzing investment opportunities. I’m very grateful for this free data source.
  • Google Spreadsheets: These free online spreadsheets are my favourite way to keep my abreast of potential opportunities. You can easily pull data in from Google Finance too, which creates powerful sheets that automatically update.
  • My BrokerHaving a low-cost broker with good execution is critical to success in the stock markets. Low commissions help reduce drag. I also like that my broker has advanced order types, like conditional orders, which can help me customize the way I get filled to try and avoid getting stopped out on head fakes.

Remember, your peloton is what will help you break out from the pack. It’s the boost you need to blaze ahead. Everything else is just the desperate crowd nipping at your heels.

By the way, if you aren’t keeping up with Howard’s blog, you should be. He’s been crushing the Swiss alps with his own peleton.

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Doing What’s Uncomfortable

I’m sure I’ve written about this before. But it’s an important theme that’s always good to remember. Basically: it often pays to do what feels counter-intuitive.

I liked this Trading Nation clip from the Crossing Wall Street (CWS) Blog. The host asked, will the Dow reach 20,000? And Eddy Elfenbein, as well as the other guest, indicated it might. But here’s where it gets interesting…

Eddy shared some statistics, about how buying at new highs generally leads to more new highs. But as you might know, buying at new highs isn’t easy.

Especially as value-focused investors, there’s a tendency to try and pick bottoms. And look, I appreciate a good deal as much as the next person. But you need to be careful about being right vs. making money.

Finance is full of very bright people. And there’s a tendency to want to do things uniquely, differently or in a more elegant and complex manner. but sometimes simple is more robust.

If buying at the highs is what works (and the data is pretty compelling), then maybe it’s just best to do that. Even if it’s not easy.

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Globalization, House Prices and Walls

There are lots of anti establishment movements these days. Brexit, Trump and Sanders are the most poignant right now, but there are many similar nationalist movements across Europe. Election results are telling the story.

Is this the downside of globalization? Do people actually prefer an inefficient economy? Are you ready to compete on a global scale?

A local example, here in Toronto and mirrored in Vancouver, is endlessly rising home prices. It isn’t my fellow millennials bidding over asking price to tear down a house and build a bigger one. In the few personal experiences ive encountered it’s  always foreign buyers. The data, more broadly speaking, suggests these overseas agents are having a role.

So is the inability to own an abode the cost we pay for access to global markets? It very well might be. And for me, that’s okay. But did the majority of our politicians and government economists foresee this trade off when they voted for free trade? Do they regret it? Do their constituents? I don’t, but some others likely do.

Plus, is local home ownership something we want to encourage in our communities? Again, data and talking points suggest this could be the case. So it begs the question…

Is that how we got to talk about building walls? On one hand, it’s crass and crude. On the other, well, surely we must do something if we want to maintain our societal norms, right?

Interesting times, as always.

Studies in Tape Reading Book Review

Studies in Tape Reading Book ReviewStudies in Tape Reading by Richard Demille Wyckoff is a classic trading book that you won’t want to miss.

And in this book review, I’ll tell you everything you need to know about this unique book. To give you a bit of perspective before we get started, you should know this book was actually originally published in 1910. The recent edition I’m reviewing was re-published in 2011, but without any changes to the original version.

One of the reason’s I wanted to read this book is because it provides a unique historical perspective on Wall Street, and speculative trading and investing. I really enjoyed the book and am excited to tell you about it. So let’s get down to business.

Studies in Tape Reading Book Summary:

Studies in Tape Reading is a wonderful book. The author, Richard Wyckoff was himself a very successful speculator. And as he became wealthy, his attention turned to educating other aspiring traders. He was the editor of Wall Street Magazine  and Stock Market Techniques. So you get the explicit sense that the author was in touch with the stock trading strategies of his day.

Studies in Tape Reading offers a very unique perspective. The book is essentially a collection of magazine columns that share tips, tactics and techniques for improving tape reading, and trading. While we obviously don’t have ticker tape machines today, the basic concepts are the same. The book is only about 175 pages and very easy to read, so it’s not too intimidating if you’re just getting started with the stock market.

Additionally, it’s incredibly insightful to read advice from 1910 that says essentially the same thing you read today: cut your losses, let your winners run, go with the trend and try your best not to be overly emotional. The book explains trading and successful speculation is a business that can be learned if only one has the right knowledge, discipline and tenacity.

And that leads me to my favourite part about this classic trading book.

The Best Part of Studies in Tape Reading:

While I enjoyed the entire book, there’s one special part of Studies in Tape Reading that I can’t help but really appreciate. And basically, it boils down to this: There have never been any short cuts on Wall Street.

It really struck me when reading this book, that even over 100 years ago, traders and speculators were constantly scheming to beat the market. They were worried about the tape being manipulated. There were tips, scams and anxiety, just like you see in today’s markets.

So I can’t hammer home this point enough: There are no secrets or short cuts in the stock market. That’s because the markets are made up of human beings, and human nature and psychology doesn’t really change. At the end of the day, we still experience fear and greed just like our ancestors did over 100 years ago.

I think this realization had a big impact on me. People have been trying to find new ways to beat the market for centuries. But at the end of the day, it comes to consistently executing a profitable strategy. And the basic tenets of going with the trend and keeping losses small are still essential to long term success.

So by now you might be wondering, is there anything I didn’t like about this book?

One Cautionary Note on Studies in Tape Reading:

Well, overall, I really enjoyed reading Studies in Tape Reading. It’s a unique book that provides a glimpse into the thinking of Wall Street speculators over 100 years ago. For this reason alone, I think the book is worth buying. But there is something you should be warned of.

Obviously, the book is a little bit dated. It pretty much only refers to traders as men. And some of the language is a little bit old-fashioned. Additionally, there are some spots where the author shows a series of transactions from the tape. Whiel thesis very interesting, I hadn’t read a ticker tape before, so this took a little bit of getting used to. That said, I enjoyed the novelty of it and wouldn’t avoid the book for these quaint little features. Make sense?

Now, with that in mind, let’s bring this book review to a close.

Studies in Tape Reading – The Final Word:

Studies in Tape Reading is a wonderful book that shows how people have been trying to make mont in markets for over 100 years. For this reason alone, I recommend that you pick up a copy of Studies in Tape Reading on Amazon and read it for yourself.

However, if you’re still looking for a little more information, then you’re encouraged to watch the video book review brow to get even more insight into this classic trading book.

Studies in Tape Reading – Video Book Review:

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A Breath of Fresh Air

I like living in a busy urban centre. It’s convenient, it’s diverse and it’s a lot of fun. But every once in a while, particularly during the warmer months of the year, it’s nice to get away. You need a breath of fresh air.

I was out of the city for probably less than 24 hours. But it was a nice reprieve. And it whet my appetite for upcoming weekends throughout the summer. It’s refreshing. Lately Dr. Brett Steenbarger has been mentioning his recent trip to Norway. He goes on a trip like this once a year, to experience new things and new views.

I think this is great advice.

Especially if you’re a work-focused over achiever in a very competitive field like financial services. Don’t be afraid to unplug every once in a while. Embrace it and feel refreshed.