Monday, February 24, 2014

Let's Talk about Investment Strategy - Part 1

I want to talk about investment.  I do.

I just get bogged down in the details.  Do I tell my story first to give you the context of why I made what decisions, when?  Will that take too long?  Shouldn't I review a book before I reference it?  ...and on and on.

Scibbled drawing of me looking wide-eyed and thinking: "Where's the cable to upload all of the contents of my brain?  That would be much easier."
Someone should invent this.

I want to talk about investment.  So I will.

Investment, by definition is buying value and then earning a profit.  Even the Black Swan strategy of Mr. Taleb, the investor who is a true original, still involves buying low cost options and then earning a profit (provided that the economy happens to totally tank).  This makes sense - if you are spending money and not earning a profit you do not have investment, you have a hobby.

Scribbled drawing of a black swan dressed in a gothic way.  It is saying: "I'm a unique black snowflake in a sea of tedious white.  I am a true original.  Don't try to understand me.  It is acceptable to revere me."
What a contrarian derivatives strategy might look like.

So the meaty chunks in the investment strategy stew are figuring out what is "valuable" and how to profit from buying that thing.  That's why investment strategies can range from keeping money in a bank account to buying Bitcoins.

What a Bitcoin might look like.
One involves putting your faith in an unaccountable entity until such time as the inevitable crash comes,
and the other is a digital currency.

As a side-note - you will never, ever, find here a recommendation that anyone buy a real, tangible item as an investment.  EVER.  It's really a whole other post, but basically: if you are spending money and not earning any income, you don't have an investment - you just own something.  Most of the time, if you own a thing, you own a thing - it's not an investment.

Sketch of a stuffed giraffe, reminiscent of a Beanie Baby.
Except for my beanie baby, which is totally an investment, you guys.

Of course, you're free to do what you want.  But I'll be over here, recommending investment in dividend-paying stocks.

Yes, dividend investing - using your investment money to buy stocks that pay cash to their shareholders at regular intervals.  You've got another boring dividend investor on your hands, joining other old boring people like Warren Buffett and... here I was going to list at least two other famous dividend investors.  

The only other famous investor I know of is Bernie Madoff, but he is not famous for being a dividend investor.

Image of Bernie Madoff - Source Wikipedia
Pictured - The mug shot of NOT a famous dividend investor.

For want of a broader base of celebrity gossip from the finance world, it's me and my buddy Warren, sharing an investment strategy.

Cartoon of Warren Buffett, sitting on a giant pile of money (labelled "His stash"), with a me beside him, trying to get his attention standing on a tiny dot (labelled "My stash").
Warren and me, chillin' on our piles of money.

Or, to be more accurate, Warren, me, and Warren Buffett's zillions of rabid investment fans who watch his every investment move with fascinated interest.

Same picture of Me & Warren Buffett, only now Warren is surrounded by adoring fans.
Or maybe they're just trying to steal his money.

Now it's time for an admission:

I was going to do that thing where I slowly explain bits and pieces of investment strategy until it comes together as a cohesive whole.
Image of a two piece puzzle, broken apart.  Each piece contains a word: "Buy" and "Stocks"

I realized how stupid that idea was.  I am a person who gets easily bored; I demand that what I read is quick to get to the point.  Why write something that I as a reader would find annoying?

For this reason, I will start this series by getting to the point.  For the edification of those who are similarly impatient, the rest of this article is a picture-less overview of the investment strategy that I champion.

Buy quality:
1 - Reduce the playing field.  Only buy stocks that give dividends.
2 - Reduce the playing field more.  Only buy stocks that have given dividends consistently over a period of time.  5 years is a good number, some people use 25 years.

Buy value:
3 - Make a list.  List all of the stocks that meet the conditions above.
4 - Analyze the list.  Download relevant stock information about each of the stocks on the list.
5 - Compare and contrast.  Use a ranking system to give all the stocks a score.
6 - Narrow the field even more.  Using the ranking system, find the top 10% scores.
7 - Pick.  Decide which of the stocks in the top 10% is the most interesting.
8 - Buy.  Buy as much as possible.

Sell duds:

9 - Never sell.  But, if a stock lowers or cuts its dividend, sell it. 

So that's what I do, in the nuttiest nut-shell of them all (get your minds out of the gutter, people).  

Sketch of a peanut.
A peanut.  Because, why not?
I wanted to expand and to add sub points and sub-sub points and then maybe a few explanatory paragraphs, but I stopped myself.  I shouldn't expose myself to the liability of someone getting mouse-scroll-related tendinitis if I get too wordy.  My lawyer tells me that I should stop here.

(Note: I don't have a lawyer.  I'm also not a lawyer.  So... don't ever take legal advice from me.)


 Please realize that "Let's Talk Investing" is not authored by a financial planner, adviser, or a professional investor in any capacity. As such, this is not expert advice in legal, taxation, financial, or any type of information that may be provided. The reader must realize this when reading these articles and must not rely on them as the ultimate source of information but must seek proper verification from the appropriate professionals before acting on any of this information.

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