mardi 9 janvier 2018

How to build a position

It took me a lot of time to understand the very simple way of building a position with a new stock. I'm ashamed to be almost 40 years old and to write something about that so late in my investing life.

  1. Find a great stock;
  2. Wait for a moment where the stock is not in favor of the market. These great stocks are rarely sold for 15-20 times earnings. If you can find an interesting gap between historical PE and current PE, you probably should buy that stock, except if some very bad thing is going on. I can't detail what could be a very bad thing. Unfortunately, only your judgment will make a difference here. That's the only point of this list where a robot couldn't do the job; 
  3. Buy a small position at first. Something like 1 or 2% of your portfolio. Then, wait for the next earnings to be released;
  4. Usually, great stocks don't go badly for too long. If the next earnings are worse than the last and the situation seems to get worse, you could sell your small position with a loss. It won't hurt because it was a small position. If the earnings went well, add to your position, even if the stock price goes up something like 5-10%. Your small position at a bargain price will compensate for the rise;
  5. You now have a 3 to 5% position with a great stock and it was gradual and safe. Or you have a 0% position with a stocks that seemed good but wasn't that good. And you lost only a few hundred bucks. The performance of your portfolio won't be affected this year.
  6. Don't thank me. I live to give.

6 commentaires:

  1. This is very good advice. You'll also find that a lot of times, the earnings report is amazing...but the stock goes down or stays flat. This is because some big shareholders choose the time of maximum optimism and when the stock has the headlines to sell their position or take some profits. So, what ends up happening is you buy and in a week or two people take note of how amazing they did last quarter and bid up the price AFTER the big dump of shares at earnings. When you have a lot of shares, the best time to sell is at earnings when there's been a good earnings report. You would send the stock price crashing down if you sold on some random week.

  2. Hey, Penetrator! I just took a position in FIVE below. It's more fun to see them go from 600 stores to 2,000 stores while owning some FIVE shares. You're going to wait for weakness to buy a position in FIVE? You prefer Dollarama? We took a bit of a hit with Facebook but I'm not worried. An interesting article that makes your case:

    The best line from the article in case the link does not work or you do not have time for the whole article:

    In terms of the 22% or $12.9 billion year-over-year increase in total internet advertising revenue, Facebook and Google together grabbed 99% of the growth!

  3. Yes, I'm waiting for a better entry point for FIVE. Maybe it won't happen... but each year, there's a big difference between the highest and lowest price of shares.

    And I just bought Facebook last friday. I believe in this stock.

  4. I am hesitating so much these days... not true, it's been a year. I am on the sideline ready to fire, but I don't know. THere are so many headwinds that I can only be patient and wait for something negative to happen and bring the market with it. I know it is a bad strategy to expect ups or downs with the market, but it feels like the elastic is about to pop

    1. I know how you feel. Late last March I bought a US ETF…RWM, that shorts the Russel2000. I did it to hedge my market investments. It has proven to be an expensive form of insurance. Shortly after I bought it, the Canadian dollar took off and I got hurt on the exchange rate between it and the US dollar. On top of that the Russel2000 has continued to go straight up since I bought the ETF. I am now down 22.55 percent on my investment in that ETF. And it’s not a small position.

      I guess the market isn’t a game for perfectionists. It is a multi-faceted phenomenon so I suppose one’s investment results will be multi-faceted as well. Maybe the thing to keep in mind is to focus on the performance of your over all portfolio and not on any particular position you hold within it. Luckily for me, my best ideas are where most of my money is (except for the investment in RWM)…

  5. a not bad strategy could be to buy compounder cash machine who are able to take advantage of a tanking stock market. For Example Berkshire or Markel who always have lots of cash flow and are able to take advantage, i think better than us, from distress situations like 2008.
    Maybe nowadays we could had the big tech like FB, Goog or Appl