Latent Learning

[billyjoe]

Do you believe that by following the example of Mr.Market or the stock market in general you eventually become a better investor without being aware that you are absorbing knowledge? How about thinking of a potential investment over night and waking up with a clear plan that formulated while you slept. Or do we continue to make the same mistakes repeatedly. Do you keep a record of trades year to year and see a gradual improvement? Can something that was very hard or impossible to do 5 years ago become routine and effortless after trying again and again? Will we all find the Holy Grail too late in life? I'm thinking about all this on a rainy day.

-------------------billy

[mimo_100]

billy,

I struggle with the same things you mention. I know I have learned over the years to rely on both fundamental and technical analysis when I make investment decisions.

I am looking to develop a button to push that will analyse a stock and give me a decision to buy or not buy. Also, I struggle with selling points. After going thru the ups and downs recently, I have come to the conclusion the long term buy and hold may not be the answer - I prefer more of an intermediate term buy and hold.

[riverbabe]

I have learned, over many years of investing, that it takes a lot of experience to determine who you are as an investor and what kind of trading you do best. And once you figure that out, you can begin to make serious money! I have found out that fundamentals leave me glassy-eyed, I am not patient enough to be a long term investor, am absolutely lousy with options, and really HATE to watch profits melt away. That makes me a very short term trader, sometimes a day trader, sometimes a momentum trader. If I see a decent amount of green on the table, I TAKE it, regardless of the % gain! If I see a lot of red, I either get out and hope for better days, or I sit on it and wait for sector rotation. Because I now have the luxury of constantly watching the market with streaming indices, I have also become a pretty good market timing trader. Actually, I'm beginning to prefer bull and bear ETFs to individual stocks, which are so "hit or miss". It's been like an ATM machine lately. It also makes every day fascinating and keeps my little grey cells working. (Finally got around to using some bleach to take care of the moss growing on my deck and deck furniture, and let the rain rinse it away. I love rainy days.)

[mimo_100]

You all may have read this, but just in case you have not, here is a report from the WSJ, entitled, Look Who's on Top Now

The three top spots in the investment-advisory rankings are held by different services from the same firm. Can its success last?

http://online.wsj.com/news/articles/SB10001424127887323997004578642030536573020

Here is the text:

Aug. 2, 2013 8:01 p.m. ET


Good old-fashioned buy-and-hold investing might not be exciting enough to interest day traders. But it can nevertheless produce exciting longer-term returns—and beat out newfangled strategies.


Motley Fool co-founders David and Tom Gardner in 1998. Liaison/Getty Images
Consider this: The three top spots in the Hulbert Financial Digest's five-year rankings through June 30 of more than 200 investment-advisory services all buy and hold quality companies. Remarkably, all three are subscription newsletters published by the same advisory firm, the Motley Fool in Alexandria, Va., which was founded by brothers Tom and David Gardner in 1993.


The newsletters' names are Inside Value, Rule Breakers and Stock Advisor, and their model portfolios have produced average annual returns over the period of 18%, 16% and 15%, respectively, each more than doubling the 7.2% return of the overall stock market over the same period, as measured by the Wilshire 5000 index, with dividends reinvested.


Andy Cross, the firm's chief investment officer, wrote in an email that the firm's Inside Value service, which focuses on value stocks, searches for "great businesses at beaten-up or misunderstood stock prices."


In contrast, he wrote, the Rule Breakers newsletter, which focuses on high-growth stocks, searches for "the most innovative companies, often early in their history, that are in disrupting industries." Finally, the Stock Advisor service searches for "winning businesses with a special edge to keep them winning."


Since very few stocks are held in common by these three top-ranked services, one must credit the firm's underlying investment approach for their stellar performance. That philosophy, Mr. Cross said in an interview, is to invest in "great and amazing growth-opportunity businesses" whose full potential "other investors are ignoring," typically holding them for three to five years.


One consequence of this approach, he adds, is that the stocks the firm recommends aren't easily categorized along the typical parameters of small-cap versus large-cap or growth versus value, as defined by yardsticks such as price/earnings or price/book ratios, with growth stocks having high ratios and value stocks low ones.


For example, investors who focus on companies overlooked by the broader market tend to pick stocks near the value end of the growth-value spectrum. Yet that isn't always the case for their firm, Mr. Cross says.


Even the Inside Value newsletter, the firm's most value-oriented service, sometimes recommends companies that would otherwise be considered growth stocks. A current example: Web portal eBay, EBAY -0.52% with a trailing 12-month P/E ratio of 26 and a price/book ratio of 3.2. The S&P 500 currently has a trailing 19 P/E and a 2.51 price/book ratio.


To be sure, the firm's approach doesn't always beat the market. The Hulbert Financial Digest tracks three other Motley Fool services besides the three at the top of the five-year rankings, and two of these others have lagged behind the Wilshire index since mid-2008.


In fact, one of them—the Hidden Gems newsletter, which focuses on small-cap stocks—has suffered a 3% annualized loss over the past five years. In addition, the firm in the 1990s maintained several now-defunct model portfolios that trailed the Wilshire 5000 over the time I tracked them.


Still, of the six Motley Fool services I currently monitor, five have beaten the Wilshire 5000 over the entire periods I have been tracking them.


One particular challenge that investors face in following the Motley Fool's investment approach is that it requires the all-too-rare discipline of holding on to recommended stocks through bear markets. Mr. Cross points out that investors who bail out of stocks during declines seldom get back into equities in time to participate in the bulk of the subsequent recovery.


"Trying to figure out when to invest is a fool's errand," he says, and therefore his firm urges investors to get into "the practice of regularly investing as much as they can" in the stock market.


He unwittingly illustrated the difficulties of living up to this advice, however. Adding that "there is no doubt there will be a market pullback" over the next one to three years, Mr. Cross says investors might want to "keep some of their powder dry" right now—a suggestion that is difficult to square with the firm's official policy.


Another challenge the Motley Fool faces in trying to maintain its winning ways stems from the idiosyncrasies of its approach, which is far different than firms that rely on a mechanical and replicable formula, such as only buying stocks whose P/E ratios are below a certain level. The Fool's search for "great and amazing growth-opportunity businesses" is more subjective.


When questioned about the specific parameters the firm's investment team uses when picking stocks, Mr. Cross wrote back that it focuses "on where the company, not the stock, will be in the next 3-5 years, and even beyond." He called the approach "a business-owner mentality more than a 'stock-buyer' one," listing such criteria as assets, competitive advantages, boards and managers and market opportunities.


Something similar, of course, could be said by many other firms that focus on long-term value investing whose five-year returns are far less attractive. Mr. Cross's response is reminiscent of Supreme Court Justice Potter Stewart's famous remark about pornography: Though it was hard to define, he knew it when he saw it.


On the assumption the firm can continue its recent hot streak, here are some of the stocks recently added to the model portfolios of the three Motley Fool services currently at the top of the five-year rankings: Alnylam Pharmaceuticals, ALNY -0.27% a biotech company; CaesarStone Sdot-Yam, CSTE +0.32% an Israel-based quartz-countertop maker; oil-services firm Halliburton HAL +1.83% ; Liberty Global, LBTYA +0.02% the international cable company; clothing retailer Urban Outfitters URBN +0.80% ; and Yahoo, YHOO -1.82% the web portal.


—Mark Hulbert is editor of the Hulbert Financial Digest, which is owned by MarketWatch/Dow Jones.


Write to Mark Hulbert at [email protected]

[riverbabe]

Very interesting Tim. Are you still one of their "pro" (I forget the name) people?

[mimo_100]

I don't know what a "pro" is - I'm just reporting what is in the WSJ news. A person may not like the fool, but it is hard to argue against their success.

[billyjoe]

River, I've got a lot of green in the ATM but haven't taken much out. Did make one big sale of FTR for over 45% gain since it was looking shaky. Replaced it with a similar industry big div. payer that looks much better technically and fundamentally. Also have my finger on the trigger to bail out fast if need be. Have set new IRA records 9 of the last 10 months with December 2013 being the exception.

---------------------billy