mental preparation for stocks investing (股票投資的心理準備)

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

• 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

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


TIME FUND FUND INVESTOR

PERIOD NAME RETURN RETURN Difference

1991-2011 Legg Mason 9.2% 6.1% -3.1%/Yr

Vanguard 500 8.7% 6.6% -2.1%/Yr

Source: Morningstar


• 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.


• 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


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 25% 23.4% +1.6%

since inception (3/14/05) 4.3%/Yr 5.7%/Yr -1.4%/Yr

Prepare to Abandon Market Timing

Peter Lynch’s Cocktail Theory

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*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


• 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

About 3 times a year 47 days Nov-12(-5% or more)

Moderate

About once a year 115 days Oct-11(-10% or more)

Severe

About once every 2 years 216 days Oct-11(-15% or more)

Bear MarketAbout once every 3-1/2 years 338 days Mar-09(-20% or more)


• 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


EG/PE Club went through 5 market cycles:

Stocks Bought Near Top (+/- 3 months)

Stocks Bought Near Bottom (+/- 3 months)

SP500 from top to bottom Average %P&L Average %P&L

9/1/00-3/11/03 -47% -12% N=9 55% N=15

7/19/07-3/9/09 -56% -1% N=15 116% N=13

4/15/10-7/2/10 -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 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!

KISS Stock Investing:

(EGp+%D)/PE >1 >2 >3 Margin of Safety OK Excellent Chance of lifetime

He (Graham) said that the three most important words of investing: ‘margin of safety.’ –Buffett

KISS Stock Investing:

(EGp+%D)/PE < 0.5 May consider to sell

*Like Wayne Gretzky says, go where the puck is going, not where it is. -- Buffett

More on EGp:

EGp: (projected earning growth rate, %/Yr)

*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, becauseStocks Information Include:

You Know You KnowYou 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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mental preparation for stocks investing (股票投資的心理準備)

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