I always tell people that they are better investors than they think they are but there is a chance that I am looking over the years of experience I have had and now investing is just a lot easier for me. I think that both are true. I think that I have developed a keen ability to identify value but that people can do the same thing, and often times do. If you are in the mall and you see a pair of shoes discounted because of a pricing mistake or some other error, you see the value left on the table. You can buy them at a bargain for yourself or you can buy them and sell them and keep the profit. The same is true with investing.
In our investing course Investing 101 we discuss intrinsic value and market value. Intrinsic value is the stocks true value, market value is what it is currently priced at. The goal is to buy something that has a high intrinsic value but is being sold at a discount.
When I am looking at a property or a stock I always try to determine what the true value is. This can be based on replacement cost in real estate, rents, or potential upside. With stocks, I like to look at the strength of the brand, historical pricing (chart analysis) and where the stock is trading in comparison to moving averages and the 52 week high and low.
There is a lot to unpack there but all of this is trying to determine what the actual value is, where the price is going to go (higher or lower) and if money can be made.
A lot of what I do is trend following. This is a philosophy championed by Al Picket. Al always tells the story about how he made 84% one year by using this strategy, he makes even more now. I like trend following because sometimes you win by riding the wave not by trying to change the course of the tide. The key is to profit from the herd not to be the herd.
Part of my 35% gain was a 20% pop in Tesla. I have made huge gains in Tesla but it took a dive over the last year. I knew that the Model 3 would give the company wider appeal and I knew that would be great for the stock price I just wasn’t sure when that was going to happen. I got that signal when the stock reported huge earnings and then went on to rise for a few days after. Seeing that the stock had already ran up significantly prior to earnings I saw this as a huge sign of strength. A 20% gain in less than one month indicates that I was right.
The opposite side of trend following is contrarian investing. I think that both work you just have to know when to deploy each strategy. After I picked up 20% in Tesla I then rolled my money into Snapchat. Snap was getting hammered so hard prior to earnings that I knew it had to come back eventually. All of the economic indicators and pundits were pointing toward bad news from Snap but I knew that the company could only fall so far.
Sometimes it pays to go against the heard but you have to have the experience of getting it right or wrong enough times to know when you can deploy each strategy. This is why I tell people to invest NOW. Part of investing is making money but another part is gaining knowledge. The guys who are winning at investing have been doing it for years. To think you can come in and bypass those years of learning is naive. Better to get it in now than wait ten years and then still have to put in the time. The time will pass either way, you might as well get your money working and your brain working NOW.
After earnings, Snap took another dive. That was when I bought in. I took all my Tesla money and threw it into Snap. Snap then proceeded to rise back up 15%. I was nervous the entire time but I knew it had to come back to a descent number. It did. I think there is a lot of upside still left in Snapchat just like I think there is a lot of upside in Under Armour. We praise companies like Apple but we don’t realize that for YEARS Apple’s stock was terrible. Greatness takes time but greatness will come. Scoop up the shares of the great before its so obvious that there is no money to be made. You will look foolish in the beginning but in the end you will be well compensated for the public beating you took from the people who played it safe.
Be great, invest well.