WolfOfMainStreet Posted January 19, 2014 Posted January 19, 2014 Hello value investors! I only recently started looking into value investing and reading up on people like Graham, Buffett, Lynch, and Greenblatt. While value investing seems like the best way to go for me I still have plenty of questions. There are tons of stock screeners and guides out there. I know some of the basic ratios such as P/E, P/B, P/S, PEG, etc. I'm also familiar with the basic ideas of profits such as gross, net, EBITDA. So basically I can look at an income statement/balance sheet and have a general idea of what's going on. While I do have a general understanding of these statements and big businesses, my test portfolios in the past have not performed as well as I wanted them to. I did learn from some of my mistakes but I am still not confident enough to put any of my own money out there. I am currently a college student majoring in Accounting with about $1000 that I want to put into the market hopefully by the summer. I know diversification is key to investing but since my budget is pretty small I am looking to buy and hold no more than three stocks at a time. I'm not looking for anything to be handed to me or just to copy someone's portfolio. What I'm asking is to be pointed in the right direction. Which valuing formulas and approaches have worked well for you in the past? What screeners do you use? Any advice for someone like me starting out? Here are some of the screeners and tools I use: http://www.valueexplorer.com/ (This one is probably my favorite so far) https://valuemystock.com/screeners/ (Seems pretty sophisticated but not too sure about this one) http://seekingalpha.com/ (Pretty much a must have for any investor) Some formulas I had questions about: Yay or nay? http://www.buffettsbooks.com/intelligent-investor/stocks/intrinsic-value-calculator.html (Interesting to me) (Seems pretty basic) Daniel P.S. I have been browsing through some of the posts before I signed up to this forum. The posts are very high quality and civilized. Love this forum so far, thanks in advance for any replies!
investor-man Posted January 19, 2014 Posted January 19, 2014 Hello value investors! I only recently started looking into value investing and reading up on people like Graham, Buffett, Lynch, and Greenblatt. While value investing seems like the best way to go for me I still have plenty of questions. There are tons of stock screeners and guides out there. I know some of the basic ratios such as P/E, P/B, P/S, PEG, etc. I'm also familiar with the basic ideas of profits such as gross, net, EBITDA. So basically I can look at an income statement/balance sheet and have a general idea of what's going on. While I do have a general understanding of these statements and big businesses, my test portfolios in the past have not performed as well as I wanted them to. I did learn from some of my mistakes but I am still not confident enough to put any of my own money out there. I am currently a college student majoring in Accounting with about $1000 that I want to put into the market hopefully by the summer. I know diversification is key to investing but since my budget is pretty small I am looking to buy and hold no more than three stocks at a time. I'm not looking for anything to be handed to me or just to copy someone's portfolio. What I'm asking is to be pointed in the right direction. Which valuing formulas and approaches have worked well for you in the past? What screeners do you use? Any advice for someone like me starting out? Here are some of the screeners and tools I use: http://www.valueexplorer.com/ (This one is probably my favorite so far) https://valuemystock.com/screeners/ (Seems pretty sophisticated but not too sure about this one) http://seekingalpha.com/ (Pretty much a must have for any investor) Some formulas I had questions about: Yay or nay? http://www.buffettsbooks.com/intelligent-investor/stocks/intrinsic-value-calculator.html (Interesting to me) (Seems pretty basic) Daniel P.S. I have been browsing through some of the posts before I signed up to this forum. The posts are very high quality and civilized. Love this forum so far, thanks in advance for any replies! As a newb myself (less than one year of investing experience) I'm finding "cloning" to be pretty successful. I'm at 55% IRR right now by picking up several suggestions I feel comfortable with on this board and looking over the super investor's filings. Watch all of the Mohnish Pabrai videos you can get your hands on for more info.
WolfOfMainStreet Posted January 19, 2014 Author Posted January 19, 2014 Hello value investors! I only recently started looking into value investing and reading up on people like Graham, Buffett, Lynch, and Greenblatt. While value investing seems like the best way to go for me I still have plenty of questions. There are tons of stock screeners and guides out there. I know some of the basic ratios such as P/E, P/B, P/S, PEG, etc. I'm also familiar with the basic ideas of profits such as gross, net, EBITDA. So basically I can look at an income statement/balance sheet and have a general idea of what's going on. While I do have a general understanding of these statements and big businesses, my test portfolios in the past have not performed as well as I wanted them to. I did learn from some of my mistakes but I am still not confident enough to put any of my own money out there. I am currently a college student majoring in Accounting with about $1000 that I want to put into the market hopefully by the summer. I know diversification is key to investing but since my budget is pretty small I am looking to buy and hold no more than three stocks at a time. I'm not looking for anything to be handed to me or just to copy someone's portfolio. What I'm asking is to be pointed in the right direction. Which valuing formulas and approaches have worked well for you in the past? What screeners do you use? Any advice for someone like me starting out? Here are some of the screeners and tools I use: http://www.valueexplorer.com/ (This one is probably my favorite so far) https://valuemystock.com/screeners/ (Seems pretty sophisticated but not too sure about this one) http://seekingalpha.com/ (Pretty much a must have for any investor) Some formulas I had questions about: Yay or nay? http://www.buffettsbooks.com/intelligent-investor/stocks/intrinsic-value-calculator.html (Interesting to me) (Seems pretty basic) Daniel P.S. I have been browsing through some of the posts before I signed up to this forum. The posts are very high quality and civilized. Love this forum so far, thanks in advance for any replies! As a newb myself (less than one year of investing experience) I'm finding "cloning" to be pretty successful. I'm at 55% IRR right now by picking up several suggestions I feel comfortable with on this board and looking over the super investor's filings. Watch all of the Mohnish Pabrai videos you can get your hands on for more info. By cloning you mean copying the big guys? Also by 55% IRR you mean just on test portfolios you've made or actual money you've put in? Sorry not too keen on some of the more technical terms. Will check out Mohnish Pabrai. Thanks!
Guest deepValue Posted January 20, 2014 Posted January 20, 2014 Welcome to the boards, Wolf! If you haven't read it yet, you should read Security Analysis by Ben Graham and David Dodd. It is a rite of passage for value investors of all stripes. After that, you should check out http://www.oddballstocks.com/ and read everything Nate has written from oldest to newest. You'll learn a lot about how to find and evaluate obscure companies selling for less than the value of their current assets. You should also read everything that Geoff Gannon has written: https://web.archive.org/web/20051228080530/http://www.gannononinvesting.com/ Also http://gannonandhoangoninvesting.com/ Geoff invests a lot like Warren Buffett and writes at a level that beginners can understand. Sometime before you finish reading those blogs, you'll probably get the urge to dive into 10-Ks; go for it! That's the most important part of investing.
Palantir Posted January 20, 2014 Posted January 20, 2014 You should post some ideas. That's the best way. Even if your ideas are bad, you will learn.
WolfOfMainStreet Posted January 20, 2014 Author Posted January 20, 2014 Welcome to the boards, Wolf! If you haven't read it yet, you should read Security Analysis by Ben Graham and David Dodd. It is a rite of passage for value investors of all stripes. After that, you should check out http://www.oddballstocks.com/ and read everything Nate has written from oldest to newest. You'll learn a lot about how to find and evaluate obscure companies selling for less than the value of their current assets. You should also read everything that Geoff Gannon has written: https://web.archive.org/web/20051228080530/http://www.gannononinvesting.com/ Also http://gannonandhoangoninvesting.com/ Geoff invests a lot like Warren Buffett and writes at a level that beginners can understand. Sometime before you finish reading those blogs, you'll probably get the urge to dive into 10-Ks; go for it! That's the most important part of investing. Thanks for the detailed reply! I'm going to take all of your advice step by step. I did a quick search for "Security Analysis by Ben Graham and David Dodd" and I got a ton for results. Here is the link: https://www.google.com/search?q=Security+Analysis+by+Ben+Graham+and+David+Dodd&rlz=1C1CHFX_enUS553US553&oq=Security+Analysis+by+Ben+Graham+and+David+Dodd&aqs=chrome..69i57&sourceid=chrome&espv=210&es_sm=122&ie=UTF-8#q=Security+Analysis+by+Ben+Graham+and+David+Dodd&tbm=shop&spd=0 Which version do you recommend the most? The first one looks awesome but its a bit out of my budget. After I'm done with the book I'll move on to the blogs. Reading those 10-Ks on a daily basis!
constructive Posted January 20, 2014 Posted January 20, 2014 You should post some ideas. That's the best way. Even if your ideas are bad, you will learn. Agreed. I wouldn't bother taking any position less than $1k, or buy any shares that you don't intend to hold for several years. Smaller or more frequent transactions will just chew up brokerage fees and result in bad habits. In a few years you will be saving a lot of money so this particular $1k is probably not that important. What you learn from reading, writing and investing will be very important though. Some books I like: The Essays of Warren Buffett, The Intelligent Investor, Margin of Safety (online pdf), The Manual of Ideas, The (Mis)behavior of Markets, The Alchemy of Finance. Welcome to the board and good luck.
Guest deepValue Posted January 20, 2014 Posted January 20, 2014 Welcome to the boards, Wolf! If you haven't read it yet, you should read Security Analysis by Ben Graham and David Dodd. It is a rite of passage for value investors of all stripes. After that, you should check out http://www.oddballstocks.com/ and read everything Nate has written from oldest to newest. You'll learn a lot about how to find and evaluate obscure companies selling for less than the value of their current assets. You should also read everything that Geoff Gannon has written: https://web.archive.org/web/20051228080530/http://www.gannononinvesting.com/ Also http://gannonandhoangoninvesting.com/ Geoff invests a lot like Warren Buffett and writes at a level that beginners can understand. Sometime before you finish reading those blogs, you'll probably get the urge to dive into 10-Ks; go for it! That's the most important part of investing. Thanks for the detailed reply! I'm going to take all of your advice step by step. I did a quick search for "Security Analysis by Ben Graham and David Dodd" and I got a ton for results. Here is the link: https://www.google.com/search?q=Security+Analysis+by+Ben+Graham+and+David+Dodd&rlz=1C1CHFX_enUS553US553&oq=Security+Analysis+by+Ben+Graham+and+David+Dodd&aqs=chrome..69i57&sourceid=chrome&espv=210&es_sm=122&ie=UTF-8#q=Security+Analysis+by+Ben+Graham+and+David+Dodd&tbm=shop&spd=0 Which version do you recommend the most? The first one looks awesome but its a bit out of my budget. After I'm done with the book I'll move on to the blogs. Reading those 10-Ks on a daily basis! Any version is fine, but most people think the 1940 edition is the best. You can probably find it at your school library.
one-foot-hurdles Posted January 20, 2014 Posted January 20, 2014 Welcome to the board Wolf, Security Analysis is the 'Bible' of value investing, but it might be a hard read someone starting out. Here are some books I would read first: Starting out - One up on Wall Street - Peter Lynch Very popular and inspiring introductory book. Introduces basic analytical concepts without getting too tedious - The Intelligent Investor - Benjamin Graham great book for intermediate fundamental analysis - Buffett: The Making of an American Capitalist - Roger Lowenstein easy-reading book on the 'Maestro' and a gentle intro into principles of value investing, told in a way that speaks more on reason and commonsense rather than mathematical formulae and ratios The next phase.. - The Investment Checklist - Michael Shearn - Common Stocks and Uncommon Profits - Phil Fisher - Security Analysis - Graham & Dodd
investor-man Posted January 20, 2014 Posted January 20, 2014 By cloning you mean copying the big guys? Also by 55% IRR you mean just on test portfolios you've made or actual money you've put in? Sorry not too keen on some of the more technical terms. Will check out Mohnish Pabrai. Thanks! Yes, copying the big guys. Well, copying other good investors. I think a lot of people on this board are every bit as good as Pabrai, Einhorn, Tepper, etc. Check out these threads: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/your-returns-in-2013/ http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/your-highest-conviction-idea-for-2014-why/ My favorite idea for the year is FIATY. It's trading at a very cheap EV/EBITDA multiple, and despite the recent run up in price, it's still very cheap. Checkout the video on this blog post: http://www.gwinvestors.com/Main/Blog/Entries/2014/1/4_F_IM_.html
DoddDisciple Posted January 20, 2014 Posted January 20, 2014 If you only have $1k, just plop it into the Guggeheim S&P 600 SmallCap Pure Value ETF. You won't be able to cost effectively do anything else and if you lock this up for the next 50+ years, you should be good :)
andron Posted January 20, 2014 Posted January 20, 2014 SAVE! save save save and then save some more. cut expenses where you can (not too much so that you are unhappy because you will then stop cutting expenses), have a big pile of money then start investing. if you only have 1K and want to invest now keep expenses as low as possible with 1 pick and go with it. Personally I've found the psychology of investing the most difficult to master. Seeking wisdom by peter Bevelin or the munger psychology of misjudgements speech are both very good.
enoch01 Posted January 20, 2014 Posted January 20, 2014 Read all of the Berkshire Hathaway annual reports, in chronological order. That's the best value for your money. After you finish, then start thinking about what you want to purchase.
matjone Posted January 20, 2014 Posted January 20, 2014 Don't buy the books if you can keep from it. I've found I can get most stuff through interlibrary loan. If you do buy something try to buy it at a price where you can sell it back and at least break even. I wouldn't pay for any services or subscriptions or screeners either. I think 1000 bucks would be fine to get started with as long as you can find a broker that will let you get started with that much. Even if you don't feel totally comfortable, I think it could be a good idea to start sooner rather than later. Until you have real money on the line you won't understand the emotional part of it, and this 1000 bucks is pretty insignificant when you compare it to your future earning power. So I say just read until you find something that looks like a good bet and go all in or maybe make a couple 500 dollar bets. It might be a good idea to coat tail on your first ideas. It might also be a good idea to pick a smaller company that's easy to understand, rather than a complicated large cap with a 200 page 10-k. Oddballstocks blog is great and so is otcadventures.
LC Posted January 20, 2014 Posted January 20, 2014 I always recommend the intelligent investor to people who ask me first. Then, if they come back for more, I go through the value classics. Some discount brokers will let you start with a few hundred bucks and charge 5/trade. So with 1000 bucks you can take a few positions to actually learn by doing. Good luck and welcome to the forum!
Guest deepValue Posted January 20, 2014 Posted January 20, 2014 It's also important to remember that $1k isn't that much in the context of your salary once you graduate. Put it to work in ideas you investigate and judge to be investment worthy; don't worry too much about losing it. Just build a track record and be able to explain why you picked the stocks you did; it'll be something that separates you from others in job interviews. By the way, Scottrade has no minimum that I'm aware of. $7 per trade. It's a good broker to get you started.
andron Posted January 20, 2014 Posted January 20, 2014 agree with enoch01. for the price ($0) the Berkshire letters are unbeatable. keep your costs down. Be a cheap SOB (within reason) and learn as much as possible. I'm into audio while driving and listen to Financial sense newshour every week. lots of good interviews (not necessarily pure value investing but i think its good info)
NormR Posted January 20, 2014 Posted January 20, 2014 I always recommend the intelligent investor to people who ask me first. Then, if they come back for more, I go through the value classics I love the intelligent investor, but I find the moderately archaic language to be off putting to some new investors. I think a better starter book would be David Dreman's Contrarian Investment Strategies or something similar. A new investor should also seriously consider if they really are a value investor. Many people are not, and it can take some time to figure that out.
one-foot-hurdles Posted January 20, 2014 Posted January 20, 2014 Try and get your hands on the Behavioral Finance materials from the CFA Level 3 cirriculum(2013 onwards) - gives you a good understanding on investor bias. Books on psychology: Kahneman - Thinking fast and slow, Taleb - Fooled by Randomness, Mackay - Popular delusions and madness of crowds
Ross812 Posted January 20, 2014 Posted January 20, 2014 The best thing you can learn right now is not to waste your early pay checks. Concentrate on saving. Check out: http://www.mrmoneymustache.com/forum/index.php Read the Berkshire letters and a book that teaches you how to think about investing. I like: http://ecx.images-amazon.com/images/I/51JNxbOk6KL._SY344_PJlook-inside-v2,TopRight,1,0_SH20_BO1,204,203,200_.jpg I'm up in the air on whether you should try investing in single companies with any less than 20k as fees will eat you alive. Rather than making any money, having a little skin in the game may help those lessons stick and losing a few thousand isn't going to hurt your future like 10s of thousands will later if you don't learn your lessons now. Its really up to you, if you are a hands on type I'd recommend scottrade, but don't concentrate on return, learn the process. Welcome to the forum!
EliG Posted January 20, 2014 Posted January 20, 2014 My advice would be to focus on your studies and, later, on building your career. You are in accounting. You should be able to make six digits. Try to get there as fast as you can and don't let investing be a distraction. The ROI of career building will easily beat anything you can do in the markets, given that you don't have much money to work with.
DoddDisciple Posted January 20, 2014 Posted January 20, 2014 Depending on how far you are in accounting, really think if that's what you want to do. There's over 900 comments on the first result for "accounting sucks" on Google. True, you can get to six figures, but you're going to have to burn up a lot of life getting there. Accounting seems like a good way to torture your mind and learn very little about investing. Of course, of all business concentrations, it is probably the best for someone with no connections and could lead to positions outside of the field since it's seen as more "intelligent." If you want to gamble, you can try to do an accounting PhD and make mad money telling people how "great" the career is that you left for academia :P
ScottHall Posted January 20, 2014 Posted January 20, 2014 I'd recommend reading Poor Charlie's Almanac before anything else, personally. Having an understanding of mental models - and business models - is so much more important than being able to evaluate the safety of a railroad bond. Try not to think about investing purely from the point of view of rudimentary valuation metrics like P/E, P/B, EV/EBITDA or whatever your favorite metric is. Valuation is very important, but the key drivers of a business and their sustainability is even more important. Otherwise I would agree with the Berkshire letters, and I would add The Outsiders by William Thorndike and When Genius Failed.
yadayada Posted January 20, 2014 Posted January 20, 2014 The intelligent investor bored me to fking death. It cost me alot of money, I would have been into valueinvesting like 2 years earlier if it wasnt for that book. Not sure why everyone loves it so much. Its like one of those ancient movies from the 30's that supposedly revolutionized a genre. Better watch the modern ones that perfected the genre. It was just too dry and long winded for me. I liked this book much better as an intro: http://www.amazon.com/Getting-Started-Value-Investing-ebook/dp/B000SHWG52/ref=sr_1_sc_1?ie=UTF8&qid=1390218841&sr=8-1-spell&keywords=getting+started+in+valu Then I would read this one, it really describes the different ways you can go into investing pretty well. http://www.amazon.com/Manual-Ideas-Framework-Finding-Investments-ebook/dp/B00DF1L98S/ref=sr_1_1?ie=UTF8&qid=1390218867&sr=8-1&keywords=the+manual+of+ideas But you might want to get your accounting knowledge up to date tho, to understand the language of business, so to speak. http://www.amazon.com/Financial-Statements-Step---Step-Understanding-ebook/dp/B004GGU342/ref=sr_1_1?ie=UTF8&qid=1390218919&sr=8-1&keywords=financial+statements http://www.amazon.com/Financial-Shenanigans-Third-Howard-Schilit-ebook/dp/B0026HPHW6/ref=sr_1_1?ie=UTF8&qid=1390218985&sr=8-1&keywords=financial+shenanigans Both highly recommended. Also read alot of financial reports. What you want to do then is get an idea what is cheap and what is not. I see alot of write ups on sites like VIC marketting ideas that are trading at 12x earnings, but should be at 18 times earnings, because the other companies are valued like that. Your objective should be to figure out how to figure out what apropriate valuations are for different types of businesses. Probably recommend this one for that: http://www.stockideas.org/seth-klarman-margin-safety-pdf-download-notes/ You could buy it, but it's like 3k$ now on amazon. This should get you started imo. And read all the other books mentioned here.
WolfOfMainStreet Posted January 20, 2014 Author Posted January 20, 2014 Thank you all for the wealth of information and high quality answers. I will try to summarize all of the advice that I will take away from this discussion. While the classical value investing books such as Security Analysis and The Intelligent Investor are difficult to understand I am still going to take a crack at them. I am doing this for two reasons. The first is that I am a strong believer in the value of history regardless of how difficult it might be to understand. The second is that I enjoy reading on my free time and I've still got plenty of time until I start investing this summer. My logic is also that if I really can't understand the fundamental ideas that Graham and Dodd are talking about then maybe investing isn't for me. I took a little peek into the preview of Security Analysis and so far I understand most of it so I ordered the book. Although a position of just 1K doesn't seem like much and the brokerage fees will be a pain I believe the experience I will learn from making (or probably losing) money will prove to be invaluable. I am definitely a more "hands on" type of person. I would also like to apply the ideas and opinions I extract from those classics into the actual market to see what works best where. As for my majoring in Accounting, the "accounting sucks" thing is something I am very well aware of. This is something that has kind of pushed me towards finance in the past couple of months but for now I am sticking to my first choice. I am not that far into Accounting. Value investing is something I want to research heavily during my time off and manage during my time in class. The things I want from investing this 1K are (in order of importance): understanding a business from every angle, gaining experience specifically from trading stock (beating Mr. Market), and lastly to see some kind of decent return. I will take the first two without the third and still be happy. Thank you all for so much help, Wolfie
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