INSIGHTS
MAY
17
COSTA’S CORNER
“Fundamentals make the market”
That old sage, T Boone Pickens, came up with that basic principle of investing.
While I love technical analysis, it’s the fundamentals that matter.
The problem with fundamentals however, is that some of them may be skewed and being able to look in a crystal ball and discern the facts from the fiction can be challenging.
Some companies have become masters of misdirection as they hire wordsmiths to write their press releases and corporate CEO’s tend to create masterworks explaining the prospects for their company’s future.
Data doesn’t lie but Investor relations people can paint a fairly pretty picture even with the worst supplies.
My feelings are pretty simple, corporate correspondence is just one small part of the bigger picture. Believe only 10%-20% of what they say and go from there.
Portfolio managers model out a companies’ prospects and use data they derive from a few different places to either recommend the investment or not. It’s not foolproof and I believe there is some guesswork involved as well. People don’t have the ability to see into the future and while these PM’s will run program after program to check their assumptions, you have to remember, they still are assumptions.
I have known people who have done an incredible job of investing by simply using what is readily available on the internet. After they look at the information and based on their knowledge of a companies’ business model and what they believe is there chance for growth and success, they make an investment.
Some of these people may use some technical analysis as far as getting into or out of a stock but overall, it’s fundamental core research.
If you don’t want to use any sort of technical analysis you still need to have a core investment plan and this is the hardest part. That core investment plan has to include your tolerance for risk, your tolerance for pain(assuming your wrong),and your strategy for the out(when to sell if it’s profitable).
This core strategy has one element that few of us have ingrained in us, discipline. The hardest tool to develop is discipline because by nature, we love being right and a bad investment can become a proxy for being right. You ride it longer than you should and you lose more than you should. Your wrong, sell it.
Same goes with being right. Don’t fall in love with an investment. You have an exit price, stick to it.
Another element that may have some relevance is your time frame. If you believe a stock is way underpriced but it will take months or maybe years to reach its full price potential, you have to remember, you are tying up capital that may be better served in something with a shorter time horizon. Why miss a diamond when you are waiting for nature to create a diamond. However, if you love it, allocate some resources and treat it like a savings bond, with some out in the future maturity date.
The overall idea here is research the fundamentals and make your decision.
Peter Lynch said it best, “invest in what you know>”
Same old song and dance.
50% Stocks
25% Fixed Income
25% Cash
That old sage, T Boone Pickens, came up with that basic principle of investing.
While I love technical analysis, it’s the fundamentals that matter.
The problem with fundamentals however, is that some of them may be skewed and being able to look in a crystal ball and discern the facts from the fiction can be challenging.
Some companies have become masters of misdirection as they hire wordsmiths to write their press releases and corporate CEO’s tend to create masterworks explaining the prospects for their company’s future.
Data doesn’t lie but Investor relations people can paint a fairly pretty picture even with the worst supplies.
My feelings are pretty simple, corporate correspondence is just one small part of the bigger picture. Believe only 10%-20% of what they say and go from there.
Portfolio managers model out a companies’ prospects and use data they derive from a few different places to either recommend the investment or not. It’s not foolproof and I believe there is some guesswork involved as well. People don’t have the ability to see into the future and while these PM’s will run program after program to check their assumptions, you have to remember, they still are assumptions.
I have known people who have done an incredible job of investing by simply using what is readily available on the internet. After they look at the information and based on their knowledge of a companies’ business model and what they believe is there chance for growth and success, they make an investment.
Some of these people may use some technical analysis as far as getting into or out of a stock but overall, it’s fundamental core research.
If you don’t want to use any sort of technical analysis you still need to have a core investment plan and this is the hardest part. That core investment plan has to include your tolerance for risk, your tolerance for pain(assuming your wrong),and your strategy for the out(when to sell if it’s profitable).
This core strategy has one element that few of us have ingrained in us, discipline. The hardest tool to develop is discipline because by nature, we love being right and a bad investment can become a proxy for being right. You ride it longer than you should and you lose more than you should. Your wrong, sell it.
Same goes with being right. Don’t fall in love with an investment. You have an exit price, stick to it.
Another element that may have some relevance is your time frame. If you believe a stock is way underpriced but it will take months or maybe years to reach its full price potential, you have to remember, you are tying up capital that may be better served in something with a shorter time horizon. Why miss a diamond when you are waiting for nature to create a diamond. However, if you love it, allocate some resources and treat it like a savings bond, with some out in the future maturity date.
The overall idea here is research the fundamentals and make your decision.
Peter Lynch said it best, “invest in what you know>”
Same old song and dance.
50% Stocks
25% Fixed Income
25% Cash