Pick Your Weapon βš”

It’s time to select an investing strategy. There are many to choose from, but value investing stands alone as the most successful historically. This lesson will prime you on day trading, penny stocks, derivatives, and momentum investing, before we delve into the meaning of value investing. We’re about to start stacking change, so stay tuned!


Find The Perfect Strategy Match πŸ’™

We have three guiding requirements. The strategy must be;

Investment-oriented, not speculative.

InvestmentSpeculation
Investment strategies are focused on the economics. Investors are very demanding for the financial thesis of the stock pick to be watertight, and if the numbers don’t crunch, quit it. There’s very little emotion in this mindset. Everything is under control.
Stock picking without any concern for business fundamentals or economics. Speculative strategies are mostly driven by the hope of a stock price going up.

Able to yield in the region of 10% over 30 – 50 years.

An index fund returns 7% on average (9% if you use other time spans). If we’re actively stock picking, it seems sensible to aim for more than 7%. 8 or 9% would be cutting it way too close which is why I’ve suggested 10%, and at a 30 to 50 years time frame to ensure we see the benefits of compounding.

Allows us to earn control over risk by improving our skills.

After seeing what’s under the surface of some of the strategies below, it will be clear that we can’t have a strategy that is overly risky by its very nature, dragging us down.


The Contestants πŸ‘₯

An β›” indicates the strategy does not fulfil all three requirements. A βœ…indicates that it does.

Day Trading β›”
This involves taking out debt to rapidly buy and sell stocks. You’re supposed to make money from reading technical charts correctly, but there’s never been a day trader anywhere near the Forbes list. Commissions (large spreads) make this approach very expensive but more importantly, it’s completely unconcerned with business fundamentals. I consider it more like a game. This is not investing and I can’t help you with day trading.
Penny Stocks β›”
Penny stocks are very small companies, only listed on less regulated stock exchanges. Some investors hunt these exchanges for solid, good companies that have genuine prospects and profits. However, this is not a niche for beginners. Most penny stocks have terrible fundamentals, are frauds, or are impossible to learn enough about. Investors in penny stocks should have a very strict and principled investment mindset, totally comfortable with saying “no.”
Derivatives β›”
Two people find something they disagree about – preferably finance related!Β The two people write a contract between them where one has to pay the other some amount of money in the future, tied to that thing they disagree about. So, each is betting on that thing going in various directions, and to the extent which it does, one party wins and one party loses! Derivatives are too risky and difficult for the majority of investors. Some have very complex formulas behind them that mixed that with leverage can make for a deadly concoction.
Shorting βœ…
Shorting is one of the only forms of derivative that I consider investment-grade. Shorting a stock is trying to profit from it going down, and although a very simple concept, it’s a completely different ball game to normal “long” investing. That’s why I’ve created a separate lesson about shorting that saves you making any costly mistakes. Fill the form out below, refer two friends, and all three of you will be in the audience for a private lesson as soon as it gets released.
Momentum β›”
This strategy is to buy a stock because it is already going up and looking like a train that still has steam left to run. Whilst this can pay off in the short term, it’s speculative and doomed in the long run. Momentum-based tactical add-ons are unnecessary.
Value Investing βœ…
The strategy of buying a business on the stock exchange for less than you think it’s worth. After doing that, only good things can happen to you. Depending on how well you can figure out what a business is worth, you can control the risk of this strategy. Those valuation skills can be improved and that’s why value investing has such an excellent track record behind it. The approach doesn’t demand a high IQ (luckily for me), but it does make you earn your pay with emotional discipline and effort.

Value investing is the approach we will follow in this course!


Value Investing is a Sport of Information β„Ή

To win at value investing, learn, learn, learn! The better your insights, opinion, and overall understanding of a business, the better your valuations of what the stock is worth. Your skills at working that out are up against everyone else’s. Stock prices are set by institutions (banks and hedge funds) that invest for passive investors because they move the most money. Therefore, we’re competing against Wall Street “pros,” a privileged class of know-it-alls! Beating them is a piece of cake, actually. Here are three tips:

Specialise.

Find a niche and dominate it. Pick what calls you and have fun learning! It could be an industry, a certain country, or even in a type of business situation. Drilling deep into one area is the most reliable way to develop an understanding and highly rank yourself as an investor.

Team-up.

Let’s pool our insights together in the comment sections of this site and Instagram. Stronger together!

Wait for the fat pitch.

Enthusiastically buying and selling around the clock (otherwise known as “hustling”) is a terrible idea. Don’t compromise on the quality of the stocks you buy just to feel active in the market. When a home run lands on your desk, run with it, but that won’t be a weekly or even monthly occurrence. Read, learn, read a bit more, and then explode into a punchcard investment with devastating speed and efficiency!


 

Chris Morrissey

Chris started in financial advisory, assembling client portfolios with pension companies and investment banks. Following that, he worked at an agricultural commodities trader in London and now various "fintech" start-ups. He's also studying business full-time at Lancaster University. Feel bewildered by the stock market? Chris will help you get things under control.

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