A Few Investment Models

Tim recently showed interests in making money from stocks and that was the topic

during this Sat's hike. In less than an hour, we came up with five models.

 

The first was Forest's style, refering to Forest Gump's success in buying into

the "fruit company," aka Apple Computer. Tim told me about how Shaq O'Neal got

a tip from his baby-sitter to buy Google early on. We both agreed that these

were insanely lucky cases on the same level of winning the lottery.

 

Second, there was the popular hot-stock model, where one identified trendy

stocks and tried to buy low and sell high. Timing was critical as difficult.

Some got rich this way, although I was not sure how sustainable the strategy

was.

 

Third, the Warren Buffett (or Peter Lynch) method, i.e., value investing. One

peruses financial reports of public corps and purchases undervalued businesses.

This involves a huge amount of research and skills in evaluation. Of course, 

with faith and capital, one can simply buy Berkshire Hathaway stocks.

 

Fourth, the dividend or dividend-growth model. The basic insight is that a 

company's dividends reflect its true financial health and no accounting tricks

can hide regularly paying out cash to investors or failing to do so. It could be

boring, however, as one may have to hold for a long time before being able to

sell at a profit and, meanwhile, the dividends feel meager with a small amount

of capital which is common for starters.

 

Last, trading. The trader has a few price-predicting and timing tools with

the discipline to stick to them. For example, he does not hold onto

shares when his models say sell, even if he has to sell at loss or has a

gut-feeling that the price is still going up. The game seems especially

psycological as one has to conquer his own greed and fear and maybe understand 

mass behaviors.

 

There is a wealth of literature on investing. I myself have read O'Higgin,

Graham, Paul, Munger, Lynch, Weiss, and Wright among others. It makes sense to

me that one needs to acquire the knowledge of multiple models and practice the

one most suitable to his temperament.

[7grizzly]

回複 '暖冬cool夏' 的評論 : Thank you, 暖冬, for reading and your thoughts. Having multiple models helps greatly, if just for comparison and understanding oneself.

Have a great week and looking forward to your story.

[暖冬cool夏]

which may be posted

[暖冬cool夏]

A very interesting topic. I am glad Tim at such a young age is interested in it. Investment is always important, especially at this age when the return of investment could exceed one's income. Nobody knows how long this bull or frothy market will last. So one more strategy is to buy index funds or ETFs, to minimize the loss if one day the bubble may bust.
Timing is everything when it comes to buy stocks, but just as you said here. timing is as critical as difficult. Nobody could always time the market correctly. And investing in today's market is like a gamble, with fundamentals being ignored.
I like stocks with dividends too. I wrote a story in Chinese, which may post in April.
Good luck on your investment!