I left my job as a Professional Investor to help investor like you!
Here are 25 things I learned from managing $200 million π
1. Invest for the long term
In the short term, stocks return can be volatile.
But in the long term stocks always perform better than bonds.
Here are 25 things I learned from managing $200 million π
1. Invest for the long term
In the short term, stocks return can be volatile.
But in the long term stocks always perform better than bonds.
2. Investments double in 10 years on average
Equities return 6.8% annually after inflation over 204 years.
Equities return 6.8% annually after inflation over 204 years.
3. Stocks are less risky than bonds
Stocks are generally safer than bonds.
Over a 10-year period, stocks have an over 80% chance of outperforming bonds.
Stocks are generally safer than bonds.
Over a 10-year period, stocks have an over 80% chance of outperforming bonds.
4. Avoid market timing
Selling when stocks are high and everyone's optimistic is tough.
Buying at market lows during widespread pessimism is even harder.
Selling when stocks are high and everyone's optimistic is tough.
Buying at market lows during widespread pessimism is even harder.
5. The world keeps changing
Quality investors should avoid companies active in fast-changing industries.
Quality investors should avoid companies active in fast-changing industries.
6. This time itβs not different.
βMost of the change we think we see in life is due to truths being in and out of favor.β β Robert Frost (1914)
βMost of the change we think we see in life is due to truths being in and out of favor.β β Robert Frost (1914)
7. Let your winners run
Sell your losers and keep your winners.
Take Philip Morris, for instance. If you invested in 1925, it would have grown by over 400,000 times today.
Sell your losers and keep your winners.
Take Philip Morris, for instance. If you invested in 1925, it would have grown by over 400,000 times today.
8. Low stock prices are great for investors
When people get too pessimistic, you can buy stocks at a discount.
Bear markets and corrections are good chances for long-term investors.
When people get too pessimistic, you can buy stocks at a discount.
Bear markets and corrections are good chances for long-term investors.
9. Choose companies that convert earnings into cash flow
Earnings are an opinion, cash flow is fact.
Research shows that companies which translate most earnings into cash flow outperform others by over 17% annually.
Earnings are an opinion, cash flow is fact.
Research shows that companies which translate most earnings into cash flow outperform others by over 17% annually.
10. Focus on earnings
In the long term stock prices tend to follow earnings growth.
The return of you as an investor is equal to the earnings growth plus shareholder yield (dividends and buyback yield) +/- multiple expansion / contraction.
In the long term stock prices tend to follow earnings growth.
The return of you as an investor is equal to the earnings growth plus shareholder yield (dividends and buyback yield) +/- multiple expansion / contraction.
11. Consider the equity premium
In the last 200 years, it's averaged between 3% and 3.5%, showing the difference between stock and government bond returns.
In the last 200 years, it's averaged between 3% and 3.5%, showing the difference between stock and government bond returns.
12. Size matters
In general, small cap stocks outperform.
Smaller stocks generate a higher return on the stock market.
Between 1926 and 2006, the smallest decile stocks compounded at a CAGR of 14.0% compared to 10.3% for the S&P500.
In general, small cap stocks outperform.
Smaller stocks generate a higher return on the stock market.
Between 1926 and 2006, the smallest decile stocks compounded at a CAGR of 14.0% compared to 10.3% for the S&P500.
13. Valuation matters too
Cheaper stocks outperform the market.
Based on the price-earnings ratio, the 20% cheapest stocks outperformed the S&P500 by 3.2% per year between 1957 and 2006.
Cheaper stocks outperform the market.
Based on the price-earnings ratio, the 20% cheapest stocks outperformed the S&P500 by 3.2% per year between 1957 and 2006.
14. Do not invest in IPOs.
From 1968 through 2000, a buy-and-hold strategy on IPOs underperformed the index in 29 out of 33 years.
βIPO: Itβs Probably Overpriced.β
From 1968 through 2000, a buy-and-hold strategy on IPOs underperformed the index in 29 out of 33 years.
βIPO: Itβs Probably Overpriced.β
15. Investors can beat the market using factors
Various strategies like low volatility, value, and quality can help.
Remember, no strategy consistently outperforms, so always stick to your plan.
Various strategies like low volatility, value, and quality can help.
Remember, no strategy consistently outperforms, so always stick to your plan.
16. "Stocks are a long-term hedge against inflation
17. The stock market predicts the economy
Typically, there's a 6-month gap between stock market movements and economic shifts.
Typically, there's a 6-month gap between stock market movements and economic shifts.
18. Avoid using macroeconomic factors for investment decisions
βUsing macro-economic factors will lead to buy at high prices when times are good, and sell at the low when the recessions near its trough and pessimism prevails.β β Jeremy Siegel
βUsing macro-economic factors will lead to buy at high prices when times are good, and sell at the low when the recessions near its trough and pessimism prevails.β β Jeremy Siegel
19. The short term is very uncertain
Only a small fraction, less than 25%, of major market movements can be tied to significant news events, highlighting the market's unpredictability in the short term.
Only a small fraction, less than 25%, of major market movements can be tied to significant news events, highlighting the market's unpredictability in the short term.
20.Typically, the stock market experiences weekly fluctuations exceeding 1%
βThe percentage of trading days when the Dow Industrials changed by more than 1% has averaged 23% between 1834 and 2006, or about once per week. β β Jeremy Siegel
βThe percentage of trading days when the Dow Industrials changed by more than 1% has averaged 23% between 1834 and 2006, or about once per week. β β Jeremy Siegel
21. Over the past 2 decades, September has been the worst month on the stock market by far.
βSeptember is by far the worst month of the year. September is followed closely by October, which has a disproportionate percentage of crashes. β β Jeremy Siegel
βSeptember is by far the worst month of the year. September is followed closely by October, which has a disproportionate percentage of crashes. β β Jeremy Siegel
22. Investing between Christmas and New Year is often a good idea
In the last 120 years, daily price returns during this period were 10 times higher than usual.
In the last 120 years, daily price returns during this period were 10 times higher than usual.
23. For periodic investments, the optimal time is usually mid-mont
Institutional investors receive inflows at the start and end of each month, leading to higher stock prices.
Institutional investors receive inflows at the start and end of each month, leading to higher stock prices.
24. Set clear rules to maintain your portfolio's course.
25. Act cautiously when everyone's enthusiastic, and seize opportunities when others are apprehensive.
The table below shows that, in general, lower investor sentiment is a better time to invest.
25. Act cautiously when everyone's enthusiastic, and seize opportunities when others are apprehensive.
The table below shows that, in general, lower investor sentiment is a better time to invest.
The word is out!
I left my job to transform Compounding Quality into a full investment platform.
To celebrate, I am sharing an e-book with 300 pages (!) full of investment wisdom.
Sign up here if you want to receive it for free: eepurl.com
I left my job to transform Compounding Quality into a full investment platform.
To celebrate, I am sharing an e-book with 300 pages (!) full of investment wisdom.
Sign up here if you want to receive it for free: eepurl.com
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