On You Tube, there are plenty of ways to be entertained and have the hours float away, there are always many hours of education to be learnt or to reinforce what you know. In the case of information, the company Google has a practice of inviting people to talk about investing to their company, because most of their employees have extra disposable income to invest in. One such talk was Laura Templeton who runs a Hedge Fund in Chattanooga, Tennessee. Laura is the granddaughter of John Templeton of Templeton Funds run out of Bermuda. She has many lessons to impart to the viewers.
Laura similar to her grandfather tries to value invest, which is difficult because it means buy low, sell high. While most of love to do that, the average investor tends to do the opposite for many good reasons. In her talk Laura described how the brain and all our normal reactions makes buy high, sell low much easier to do. Laura had a number of quotes and you can do them if you tend to follow them:
Trouble is Opportunity – after the people are safe, look at the companies how are they impacted. In a crisis, companies shares fall, which means if trouble is opportunity you need to have cash or ability to have cash to take advantage. Fortunately most of us will not know when there is a crisis, so you need to have Patience. The hardest part of a value investor is having patience. It means most of the time, you are not active. You nibble, stay engage and do your homework.
Homework implies when there is a downturn in the markets and you believe the bottom is near, which stocks will you buy? You can buy the index or indexes, but if you are a individual stock buyer, then which company is the best alternative? Why? What is a good price to pay. All of us shop or go to retail stores to buy the basics of life – you should know when something is on sale or is a good bargain. The similar aspect to buying stocks, nibble and when it is a good bargain, that is when you buy. The homework will tell you whether the stock price is a good bargain or not.
At the bottom of the market, the financial press and the general newspapers will give much pessimism, that is the time to buy for a value investor. When the financial press and general newspapers is of great optimism, that is the time to sell. Joseph Kennedy, the father of President John Kennedy, who made most of his money in the markets, said when the shoe shine person tells you about the stocks, it is the time to sell. That tends to mean the shoe shine person heard people talk and if everyone is talking about the markets having cash in your account is a good thing.
To value investors, the investor who has all the answers done not understand the question. The right question is Where is the outlook the most miserable? Then you begin to do your homework to find out the quality companies that are in business and the market is not valuing all their assets. When the miserable changes and the market values their assets, the stock prices will go up.
One of the stories Laura told about her grandfather was at the height of the dot com bubble, John was shorting the companies. What he did was after companies go public there is a lockup for those owning the shares of up to 2 years. This lock up means the owners can not sell all their shares and retire wealthy until they have run and managed the company for up to 2 years. What John Templeton did was find out when the companies lock up date would happened, it is public information, a week before that date he would short the companies because the original shareholders would be allowed to sell their shares and often the share price would go down. There are many reasons to sell some shares – diversify their holdings, pay down loans and mortgages, spend money and more examples. In the stock market, the companies shares would typically fall and when the bubble broke the shorts made more money. John was short about $400 million it is told.
A question of when to sell, selling is a discipline. In your homework you have decided what the company is valued at or should be value at under normal conditions; when the price is reached, is the company fairly valued? Should you move to alternatives and what are they? The discipline is do you let the price ride knowing pigs get slaughtered or you when do you take profits or what should you do? The only correct answer is in hindsight, but being disciplined and having done your homework will get you possible answers.
Linking to dividend paying stocks, the great thing about these stocks which can be in your portfolio for a long time is they pay a dividend so the market can do what it will do. Part of your homework is will the stock continue to pay a dividend, if yes, will it raise its dividend, if yes you can have the patience to continue to hold. You have time to find alternatives as your dividends are paid, do you buy more? buy an alternative to diversify or whatever else you may wish to do. Having a cash flow is a very good thing in your portfolio. You can search for alternatives without necessary having a timeline. In Laura’s case she said she has 10 stocks in her core holdings and is not considering selling but the firm spends a great deal of time and patience trying to find alternatives and deciding when to buy and when not to.
There are more questions than answers, till the next time – to raising questions.