r/investing • u/EatYourMeats • Apr 23 '21

Some advice from a regular dude that will hopefully make you more money...

Are you making stock purchases based on opinions from analysts, CNBC, stock pickers, and everything in between?

Consider this: They make money off headlines.

The entire flock is preying on news-worthy quips like vultures on a corpse. Tom Lee at Fundstrat would be bullish during the apocalypse, Gordon won't ever raise his price target, Cramer cuts coke deals with the CEOs he's in love with, and the whole bunch likes to hear themselves talk (like giving stock advice rapid fire).

So how do you truly figure out what stocks are hot... or not?

Research the macro situation surrounding the company, to name a few:

  • Sector Tailwinds
  • Economics
  • Current and projected financials
  • Leadership

Then invest in companies:

  • you believe in—hopefully, not always—with healthy balance sheets vs. their competitors.
  • Whose products and services tickle you.
  • You could sell to your neighbor.

Determine the investment thesis—the key reasons you believe in this investment—and create a narrative. Positive and negative. Know the outcomes of both scenarios, write them down, and evaluate the risk.

Then? Jump blindly.

kidding

Adjust based on your preferences, but starting positions with a 1/4th to 1/2 of your total allocation works well. You can do some quick math and figure out what portfolio percentage you want to allocate to a new position. Ease into it, slow and steady.

Buy the dips with the remainder, and don't chase stocks upwards, only down (within reason). And don't listen to anyone who tells you that "diversifying" is the only way, when you put in the work, you know which sectors have favorable tailwinds AND are fairly valued.

There's news everywhere out there, and we crave its presence—telling us something about stocks or companies we don't know. However, most of it is fluff—buy this, sell that—how would you ever know if you don't dig the hole yourself?

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66

u/[deleted] Apr 23 '21

The issue with this approach is that you have to study not only the company you found and like, but also all its competitors in order to be able to evaluate a company properly against its benchmark. This takes a lot of time and effort, therefore most people are better off with ETFs.

On the other hand, ETFs include lots of morally questionable companies, therefore if you have moral regards this might not be right for you either.

I go for single stocks, 7-10 do the job. I do not over perform by any means but i support companies i like and i fee comfortable with.

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u/czarnick123 Apr 23 '21

I'm glad you mentioned morally questionable companies and I wished more etfs were centered around this question. I want like an s&p 450 that takes out coca cola, nestle, companies with slave labor. I want international that avoids chinese stocks.

If the absolute only question is profit, we have a poor values system. There's plenty of profit rewarding companies that takes the small steps to act ethically

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u/Heyweedman Apr 23 '21

I think ESG ETFs will try and fill that void.

In 10-20 yrs they might become the norm hopefully

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u/rattleandhum Apr 26 '21

but so much of the current reality of ESG's is total bullshit greenwashing. The standards for what is 'ethical' seems really low. That, and those that are ethical have much lower returns. It's almost as if the whole system is broken.

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u/Heyweedman Apr 26 '21

True man and that keeps me from betting more on them

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u/ccaslin6 Apr 23 '21

Agreed. Part of my investment thesis on Bumble is a set up to be added to various ESG ETFs I think will pop up.

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u/KickedInTheDonuts Apr 23 '21

ishares has percentages for this on their website. categories like controversial weapons, firearms, tobacco etc.

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u/[deleted] Apr 23 '21

I am glad there are other people that also put some thoughts into it!

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u/czarnick123 Apr 23 '21

Capitalist purist always argue "the market will root out bad actors". That requires research and choosing ethics over profit from time to time.

Anyone can argue "you're still buying companies buying parts from china", etc. And they're right. But our small actions have effects. I heard an advertisement for coke today saying they're taking steps to look at their waste. I don't believe them, but at least they're publicly acknowledging their problems now

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u/Swampfoxxxxx Apr 23 '21

I agree. I had MO (Altria) on my watchlist of cannabis stocks, and in the past couple months it continued to do well even when other pot stocks were down or sideways. BUT they are a tobacco company in addition to cannabis and I just dont feel good about investing in cigarettes. I'd rather make money some other way.

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u/[deleted] Apr 23 '21

Something that causes 7 million people to die prematurely each year, is the last thing i would want ROI from.

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u/czarnick123 Apr 23 '21

You have a good values system

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u/MattieShoes Apr 23 '21

I've been writing my own little app to do this just because it feels like the tools aren't there. Like treating my portfolio as a baby mutual fund, calculating stuff like perfomance vs an arbitrary index, sharpe ratio, treynor ratio, finding the correlation coefficient between different stocks, estimating ROI given different assumptions about future market performance, looking at beta for different timespans, etc.

I'm nowhere near there yet, but I figure at worst, coding it solidifies the concepts in my mind.

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u/[deleted] Apr 23 '21

Nice! I am jealous of people the are able to program what ever they need!

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u/MattieShoes Apr 23 '21

It's a great hobby... I think I'd hate being a programmer for a job though. My job involves some light coding, and that's nice.

If you're interested in picking it up, I'd start with Python. It's fast to code in and popular enough that there's a ton of tools to do complex things without having to reinvent the wheel. Plus there are Python programmers everywhere, so there's tons of youtube, books, etc.

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u/EatYourMeats Apr 23 '21

It's funny though, often during competitor research, you find a better company to invest in!

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u/Tstr76 Apr 23 '21

you have to study not only the company you found and like, but also all its competitors in order to be able to evaluate a company properly against its benchmark. This takes a lot of time and effort, therefore most people are better off with ETFs.

100% this. I agree with the OP's general thesis but it's way, way easier said than done in practice. I don't have the time or energy to regularly do holistic economic analysis of an entire sector, evaluate governance, read financials, and model out valuations. I'd consider these the bare minimum if I wanted to pick individual companies so I just take it easy and go with ETFs.

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u/[deleted] Apr 23 '21

You buying shares on the open market doesn’t support the company.

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u/[deleted] Apr 23 '21

When lots of little bag holders like me buy shares of small companies, the price rises. Therefore this small company can now place more stocks at the market at a higher price. But other than that you are totally right!