Decision Time

[rayfinkle]

It seems like many (most?) folks on this board are not professionals...meaning that many of us hold day jobs and invest using non-work time. For me, this means that an investment process leading to a decision cannot be a comprehensive, Tiger-fund like cavity search diligence process, but rather relies heavily on 80/20 analysis and a basic understanding of the psychology of a situation. So, the question is, what does your pre-decision process look like?

 

For me it is:

-Identify idea (screen, blog, message board, meeting, serendipity): 1-3 hours

-Passively consider idea (1-3 days)

-Read financial statements, annual reports (3 hours)

-Research other secondary analysis (3 hours)

-Basic financial model (1 hour)

-Buy/sell

 

So, call it ~10 non-consecutive active hours. I then spend a chunk of time feeling guilty about how I should have done more work! It seems the decisions I've spent more time on (trying to figure tough stuff out, understanding turnarounds, unraveling complexity) have worked out worse than the really simple ones. I guess not surprising.

 

Thanks!

 

 

[Palantir]

IMHO, you should not try to make it a perfect process, because I feel that some people can procrastinate investing because they are trying to come up with the best, most bulletproof idea. I think you should research to the point of becoming "comfortable" with a name. If it goes down 20% on no news after your first transaction, would you buy more? Then again, I invest in very simple ideas....

[gary17]

I think if the issue is within your circle of competence, nothing wrong if the time is not that long. I thought about my apartment for about three days because I know the area and I'm always looking at things.

 

If you have been following certain sector and have a sense of the market and when something obviously cheap comes by, I don't see much risk thinking for a few hours for a starter position. For a punch card position I'd really think about it - would I have more fun owning the stock  or buy a Porsche (or whatever insanely expensive luxury item you don't need).

[yadayada]

I usually write up the idea. Forces you to go through a check list. Every time I dont do that I make mistakes. And I sit on it for a while (because I might be overly excited and biased without knowing). Then read some more. You always miss things if you just read them once. 

 

But writing it out, and writing up the numbers of the last 5-10 years in excel helps the most by far. If you are forced to put your thoughts about it on paper then all the vague subconscious misunderstandings will dissapear. Or you will find out it is simply out of your circle of competence. Also helps if you want to review for mistakes later.

[Hielko]

I usually write up the idea. Forces you to go through a check list. Every time I dont do that I make mistakes. And I sit on it for a while (because I might be overly excited and biased without knowing). Then read some more. You always miss things if you just read them once. 

 

But writing it out, and writing up the numbers of the last 5-10 years in excel helps the most by far. If you are forced to put your thoughts about it on paper then all the vague subconscious misunderstandings will dissapear. Or you will find out it is simply out of your circle of competence. Also helps if you want to review for mistakes later.

+1 on writing your thesis down. Really invaluable.

[Spekulatius]

1) I read about and interesting stock and then put it in my watchlist (~1-2h)

2) When my purchase price is reached I by a first position. I do more research to determine if it's worth a larger position (1-2h), or pot. Sell.

3) Each time, I bump up position, I spent a little bit more on research (0.5-1h).

4) When i sell, (typically after predetermined target price is reached), i also do check to determine, if a higher target price is warranted.(0.5h)

 

I have a diversified portfolio with typically ~30 positions, in various stages of value creation.

 

[DoddDisciple]

For those of you that invest directly in international stocks, how much time do you spend thinking about tax strategies in regards to investing with taxable versus IRA funds? I know dividends can be subject to witholdings that you may not be able to recover, but what about liquidations, special one-time large cash dividends, etc?

 

Looking at foreign tax credits, it almost doesn't seem worth thinking about unless you have a huge portfolio, and even then, between enough stocks, it might not matter as much as I think.