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9 Ways To Make Money On The Stock Market

March 7, 2011 6 Comments

Here are 9 ways listed by Whitney Tilson to pick diamonds in the stock market:

1. Out-of-favour blue chips. Even the world’s greatest companies encounter problems or otherwise fall out of favor. Correctly differentiating between those suffering temporary rather than permanent issues is the key to success here. As long as the positive fundamentals of the company’s business remain intact, and new management is willing and capable of bringing the company on track buying out of favour blue chips can be very profitable.

2. Distressed industries. Buying a good company in a distressed industry is often a great way to make money.

3. Turnarounds. Turning around a broken business is difficult and often takes much longer than expected — but when it occurs, a stock can rise many-fold.

4. Overlooked small caps. Among the thousands of publicly traded stocks that analysts don’t cover are fine businesses that are cheap because either no one is paying attention to them or their stocks are thinly traded. Read more of this post

Filed under Paper Assets, Theory, Tool Kit Tagged with activist, blue chips, cheap stocks, distressed industries, growth, growth investor, growth stocks, momentum investor, Money, postaday2011, RandomBlog2011, small caps, stock investing, stock market, stock share, turnarounds, valuation, value investing, Whitney Tilson

Confusing Uncertainity With Risk

March 4, 2011 Leave a comment

Here is an extract from the article ‘ Investors will miss out if they confuse uncertainity with risk ‘ by Whitney Tilson published in the Financial Times on 16 Feb 2008.I think confusing uncertainity with risk is precisely what happened pre-budget in India this year. And this confusion is something that happens to a greater or lesser extent every year before the budget.The same thing happens before the final decision is taken on any government policy. So if a stock investor remembers that there is a difference between uncertainity and risk he/she can sometimes buy shares cheap.Risk means the chance of a loss of capital. Uncertainty is the range of different outcomes. So a stock may have high uncertainty but may not be risky, if no one knows what will happen but the worst case scenario would not results in a huge loss.

“Dealing with uncertainty is always a key challenge for investors. But dealing with uncertainty doesn’t mean avoiding it – on the contrary, it is often fuzziness about a company’s future that creates the type of opportunity bargain-hunting investors cherish.Wall Street in the main hates uncertainty, which manifests itself in depressed share prices of companies whose prospects lack “visibility.” But where the market can err is in confusing uncertainty with risk. Just because a company’s future is highly uncertain doesn’t mean an investment in it is risky. In fact, some of the best potential investments are highly uncertain, but have little risk of permanent capital loss. As hedge-fund manager Mohnish Pabrai describes it in his book, The Dhandho Investor: “Heads, I win; tails, I don’t lose much.” Read more of this post

Filed under Paper Assets, Theory Tagged with bankrupt, bargain hunting, buying opportunity, debt fuelled consolidation, debt load, debt problems, doubling share price, Financual Times, free cash flow, Funeral Home Operator Stewart Enterprises, government policy, least likely to fail, Monaish Pabrai, permanent loss of capital, pre-budget, probability, Risk, share investing, stock investing, stock investor, stock share, The Dhandho Investor, Uncertainity, Whitney Tilson

The Right Approach To Long Term Investment Success In The Stock Market

February 24, 2011 2 Comments

There are many ways to make money in stocks. But not every way works well over longer periods of time.There are people who never make any money from stocks and there are others who make significant amounts of money in the stock market only to lose it again.To understand how to make money from stocks and keep it the long term we need t0 study the habits of investors who have remained successful over a long term.Such an exercise shows that the odds of long-term investment success are greatly enhanced with an approach that embodies most or all of the following characteristics:

Thinking about investing as the purchasing of companies, rather than the trading of stocks.
Ignoring the daily noise of the market. As Graham wrote in his classic, ‘The Intelligent Investor‘, “Basically, price fluctuations have only one significant meaning for the true investor. They provide him an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times, he will do better if he forgets about the stock market.”
Only buying a stock when it is on sale i.e. available at a discount to its intrinsic value.
Focussing first on avoiding losses, and only then think about potential gains. “We look for businesses that in general aren’t going to be susceptible to very much change,” says Warren Buffett “It means we miss a lot of very big winners but it also means we have very few big losers…. We’re perfectly willing to trade away a big payoff for a certain payoff.” Read more of this post

Filed under Paper Assets, Theory, Tool Kit Tagged with Benjamin Graham, Bill Miller, Common Sticks and Uncommon Profits, discount to intrinsic value, Legg Mason, Long term stock investment, Peter Lynch, Philip Fisher, postaday2011, RandomBlog2011, share market, stock investment, stock share, The Intelligent Investor, Warren Buffett

Have You Got It In You To Be A Good Stock Market Investor ?

February 23, 2011 5 Comments

Can you honestly say ‘YES’ to the following questions ? If so, you are cut out to be a good investor if you have good systems in place,cultivate good investing habits and gain sufficient experience.

Are You A Businesspeson ? Warren Buffett has been known to say”I am a better investor because I am a businessman, and a better businessman because I am an investor.”A businessperson understands how his/her own companies work and respond to their environments.He/she can then extrapolate this experience to look beyond the numbers of other companies.And this makes them better investors.
Are You Sufficiently Brainy ? Being a top notch investor requires a certain amount of brains-the sort of IQ that the average college graduate might have.But EQ is equally important.Too much IQ and a person will handicap himself and too little might make the constant learning associated with investing a drag.Warren Buffett has been know to say that”Success in investing doesn’t correlate with I.Q. once you’re above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
Are you good with numbers ? Advanced math such as calculus is irrelevant to your success as an investor.But you do need to master pre-university math concepts and constantly apply them in daily life while thinking about your investments.Also you should be able to seize on the most important nuggets of information in a sea of data and act upon them
Can you remain confident and humble at the same time? You need the confidence to act on your independent analysis,literally put your money on the line despite what the world round you might be doing.But on the other hand you need to be able to accept that you are not above making mistakes or missing out on something that’s obvious to others.You need the humbleness to listen to others,to stick to stocks and businesses that you understand,to stick to investing methods you know , to avoid excessive leverage and to diversify sufficiently to avoid being wiped out by a wrong call. Read more of this post