Download Introduction of Nan-Jae Lin`s Complimentary Stocks Investment

Mental Preparation
For Stocks Investing
(股票投資的心理準備)
Greed and Fear
are detrimental to investor's return
After he finished college, Buffett invested
$100 in a Dale Carnegie course:
“… not to prevent my knees from knocking
when public speaking but to do public
speaking while my knees were knocking.”
--Buffett
• The purpose of this presentation:
Not to prevent one from greed and
fear when investing in stocks but to
investing in stocks successfully while
in greed and fear
股票投資的心理準備
•
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Prepare to Accept Reasonable Greed
Prepare to Abandon Market Timing
Prepare to Benefit from Market Volatility
Prepare to Do Independent Research
Prepare to KISS (Keep It Simple, Stupid)
Stock Investing
• Prepare to Do Performance Record & Company
Story Check-up
• Q&A
Prepare to Accept Reasonable Greed
I've heard people say they'd be satisfied with
a 25 or 30 percent annual return
from the stock market! -- Lynch
Prepare to Accept Reasonable Greed
Comparison
index
% Funds Beaten By Index
12/01-12/06
12/06-12/11
large cap core funds
SP500
75
68
mid cap core funds
SP Midcap 400
75
87
small cap core funds
SP Smallcap 600
76
71
Source: S&P
Prepare to Accept Reasonable Greed
TIME
FUND
FUND
INVESTOR
PERIOD
NAME
RETURN
RETURN
1991-2011
Legg Mason
9.2%
6.1%
-3.1%/Yr
Vanguard 500
8.7%
6.6%
-2.1%/Yr
Source: Morningstar
Difference
Prepare to Accept Reasonable Greed
• Over the past 20 years through December,
the average individual stock mutual fund
investor earned 4.25% per year, while the
S&P 500 returned 8.21%, -- The New
York Times recently reported, citing data
from Dalbar Inc.
Prepare to Accept Reasonable Greed
• I'm delighted if I beat SP500 by 2-3%/Yr
• I'm happy if I match SP500
• I'm average if I am beaten by SP500 by
2-4%/yr
Prepare to Accept Reasonable Greed
Return (%/Yr)
Vs.
SP500
Buffett Partnership (1956-1969)
32.0%before fees
Peter Lynch (5/1977-5/1990)
29.2%after fees
+13%
John Neff (6/1964-12/1995)
10.6%
+3.1%
Bill Miller (1/1991-2005)
16.4%
+5%
Bill Miller (1/1991-10/2011)
9.2%
+0.5%
NJL Stock Investment Newsletter Performance Record
Company
Buy Date
%PG
GENC
7/11/2012
-8.1%
asset play
PRLS
7/11/2012
-8.8%
asset play
AFL
7/11/2012
38.6%
Consistent Gr
DOV
7/11/2012
53.0%
Consistent Gr
WFC
7/24/2012
26.2%
Consistent Gr
LSI
7/24/2012
17.6%
Cyclical Gr
MNDO
9/10/2012
5.9%
asset play
FISV
8/17/2012
22.2%
Consistent Gr
TSRA
11/5/2012
44.2%
asset play
ESRX
11/19/2012
18.2%
Consistent Gr
QCOR
3/28/13
39.4%
Consistent Gr
AFL
3/28/13
12.5%
Consistent Gr
WFC
3/28/13
12.5%
Consistent Gr
BGCP
4/4/13
9.6%
asset play
COH
4/24/13
1.8%
Consistent Gr
CAT
4/24/13
-1.6%
Cyclical Gr
KSW
sold
29%
asset play
Dead Cat
sold
15%
11 stocks
NJL Stock Investment Newsletter Performance Record
Initial Date: 7/11/12
Share Price Change %
Date
Newsletter
VFINX
Difference
10/31/2012
10%
5%
+5%
12/31/2012
16%
7%
+9%
4/24/2013
22%
19%
+3%
6/28/2013
32.7%
22.0%
+10.7%
Jim Cramer's Mad Money performance
(tracked by Marketocracy.com)
SP500
last 12 months
since inception
(3/14/05)
25%
23.4%
+1.6%
4.3%/Yr
5.7%/Yr
-1.4%/Yr
Prepare to Abandon Market Timing
Peter Lynch’s Cocktail Theory
NJ Lin’s Seminar Attendance Index
1800
1600
SP500
1400
1200
1000
800
600
400
200
0
Jul92
Jul93
Jul94
Jul95
Jul96
Jul97
Jul98
Jul99
Jul00
Jul01
Jul02
Jul01
Jul02
Jul03
Jul04
Jul05
Jul06
Jul07
Jul08
Date
350
TACEC Seminar Attendance
300
250
200
150
100
50
0
Jul92
Jul93
Jul94
Jul95
Jul96
Jul97
Jul98
Jul99
Jul00
Date
Jul03
Jul04
Jul05
Jul06
Jul07
Jul08
Prepare to Abandon Market Timing
*The small investors tend to be pessimistic and
optimistic at precisely the wrong times, so it's
self-defeating to try to invest in good markets
and get out of bad ones. –Lynch
*The only buy signal I need is to find a company
I like. In that case, it's never too soon nor too
late to buy shares -- Lynch
Prepare to Abandon Market Timing
• As Stock market close to top, less companies
meet the buy criteria, and as market close to
bottom, more companies meet the buy criteria
17.5
45%
Valueline Median of estimated PE ratio
VL Median of 3-5 Yrs Appreciation Potential
26 weeks
market low
market high
26 weeks
market low
market high
ago
3/9/2009
7/13/2007
ago
3/9/2009
7/13/2007
15.4
10.3
19.7
55%
185%
35%
Prepare to Benefit from Market Volatility
• A history of DJ30 declines (1990-2012)
•
Source: Capital Research and Management Company
Type of
decline
Average frequency
Average length†
Last occurence
Routine
(-5% or more)
About 3 times a year
47 days
Nov-12
115 days
Oct-11
216 days
Oct-11
338 days
Mar-09
Moderate
(-10% or more) About once a year
Severe
(-15% or more) About once every 2 years
Bear Market
About once every 3-1/2
(-20% or more) years
Prepare to Benefit from Market Volatility
• Severe Bear Markets (-40% or more):
9/3/29-7/8/32
-89%
DJ
3/10/37-3/31/38
-49%
DJ
12/12/39-4/28/42
-40%
DJ
1/11/73-10/3/74
-48%
SP500
9/1/00-3/11/03
-47%
SP500
2/20/07-3/9/09
-54%
SP500
Prepare to Benefit from Market Volatility
EG/PE Club went through
5 market cycles:
SP500 from
top to bottom
Stocks Bought Near
Top (+/- 3 months)
Average %P&L
Stocks Bought Near
Bottom (+/- 3 months)
Average %P&L
9/1/003/11/03
-47%
-12% N=9
55% N=15
7/19/073/9/09
-56%
-1% N=15
116% N=13
4/15/107/2/10
-16%
-1% N=7
7% N=8
4/29/11-10/3/11
-19%
16% N=6
41% N=9
4/2/12-6/1/12
-10%
14% N=4
22% N=4
Prepare to Benefit from Market Volatility
Prepare your courage to buy more stocks when
everyone has extreme fear about the market
Prepare to Do Independent Research
• Ultimately, it is not the stock market nor even the
companies that determine an investor's fate. It is the
investor -- Lynch
• The same couple that spends the weekend searching for
the best deal on airfares to London buy 500 shares of
KLM without having spent five minutes --Lynch
• The only thing anyone wants to know is, ‘what are you
buying today?’ -- Buffett
Prepare to Do Independent Research
• If you turn over 10 rocks, you may get 1 gem
• You probably will spend about 1 hour to
research 1 company
Prepare to KISS (Keep It Simple, Stupid)
Stock Investing
• Investing is not a game where the guy with the
160 IQ beats the guy with a 130 IQ. – Buffett
• IQ fall somewhere above the bottom ten percent
but also below the top three percent -- Lynch
Prepare to KISS (Keep It Simple, Stupid)
Stock Investing
• KISS Stock Investing:
*Buy Growth Companies (high EGp)
(Consistent Growth, Cyclical Growth, Turnaround Growth)
at Reasonable Price (low PE)
* Buy Asset Play Companies:
Stock Price <Net Cash +
Positive FCF (free cash flow)
Earning, Earning, Earning!
%PG VS. %EG N=88
7
6
y = 0.57x + 0.09
R2 = 0.63
%PG (Price Growth)
5
4
3
2
1
0
-2
-1
0
1
2
3
4
-1
-2
%EG (Earning Growth)
5
6
7
8
9
1972 Nifty-50 % PG VS. %EG & PE
80
70
60
R2 = 0.17; PE
%EG OR PE
50
40
30
20
10
R2 = 0.68, EG
0
-5
0
5
10
15
20
-10
-20
% Annualized Return
1972 Nifty-50 %PG VS. EG/PE
1
0.8
R2 = 0.78; EG/PE
0.6
EG/PE
0.4
0.2
0
-10%
-0.2
0%
10%
-0.4
-0.6
%PG (%/Yr)
20%
30%
KISS Stock Investing:
He (Graham) said that the three most important
words of investing: ‘margin of safety.’ –Buffett
(EGp+%D)/PE
Margin of Safety
>1
OK
>2
Excellent
>3
Chance of lifetime
KISS Stock Investing:
(EGp+%D)/PE < 0.5 May consider to sell
More on EGp:
EGp: (projected earning growth rate, %/Yr)
*Like Wayne Gretzky says, go where the puck is
going, not where it is. -- Buffett
*Of course, the investor of today does not profit
from yesterday’s growth -- Buffett
*Earnings, or a promise of future earnings,
give stocks their value -- Buffett
More on EGp:
EGp is hard to predict, because
Stocks Information Include:
You Know You Know
You Know You Don’t Know
You Don’t Know You Should Know
You Don't Know You Don't Know
GIGO (Garbage In Garbage Out)
Prepare to Do Performance Record
& Company Story Check-up
• Are you cutting the flowers and watering the weed?
• The point is that fortunes change, there's no assurance
that major companies won't become minor, and there's
no such thing as a can't miss blue chip -- Lynch
• If a stock is down but the fundamentals are positive, it's
best to hold on and even better to buy more -- Lynch
Prepare to Do Performance Record
& Company Story Check-up
• WFC (Wells Fargo): This US 4th largest bank made
money during the 2008 financial crisis; it rank No.1
among 10 large and regional bank peers for 5-yr
compounding annual earning growth rate (CAGR)
• (1) It has the lowest cost of deposit and the lowest
residential mortgage foreclosure rate.
• (2) It achieves the highest return on asset.
• (3) Warren Buffett's company owns 6.5% of WFC.
• (4) WFC is expected to grow EPS at 10%/Yr, and with
its dividend yield of 2.7%,
• (5) the (EG+%D)/PE ratio of 1.2 is respectable.
股市有時升有時落
升起免太歡喜
是賣Hot Stocks的好時機
May Sell When (EGp+%D)/PE < 0.5
落下免太驚懍
是買Quality Stocks的好時刻
買Consistent Growth, Cyclical Growth & Turnaround Growth
(EGp+%D)/PE >1 (OK) >2 (Excellent) >3 (Chance of Lifetime)
買Asset Play
不理股市升股市落
繼續投資
兩三個Market Cycles看輸贏
股票投資的心理準備
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