Gannon On Investing

Bill Rempel, a.k.a No DooDahs is a regularly updated blog covering (in Bill’s
words):

Absolutely just stuff that I’m interested in, including investing ideas, especially value and contrarian investments, politics from the anarcho-capitalist P.O.V., and current events.

1. Are you a value investor?

Most of the time, with most of my money.

2. What is value investing?

The textbook says it's investing in assets whose market price is below
intrinsic value, whatever THAT is. I'm fond of calling it a mean
reversion stock market trade with a long payoff horizon. In essence,
the stock market is inefficient in several different ways, and value
investing is taking advantage of a longer-term negative overreaction of
the market. In general, I think value investing appeals to me because
I'm naturally pretty frugal, and so is my wife. We drive old cars with
lots of mileage on them, buy clothes at Wal-Mart, eat ground beef and
(Sanderson Farms) chicken, and have made a practice of living below our
means. We spend a lot of time deciding if things we want are really
worth the money. So stepping off into value investing was a natural.

3. What is your approach to investing?

Eclectic. Primarily it's data-driven, and value investing is where the
majority of my money goes, but there are other opportunities that I try
to take advantage of. I've back- and forward-tested some models that
look like they could be used to time the S&P 500 with some alpha.

4. How do you evaluate a stock?

For a value play, I have a screening routine based on some data mining
I did, which suggests I should fish from a certain pond of stocks that
have PE, PB, DE, and 52-week total return for value longs (or shorts).
I add some other criteria that make it easier to winnow down the pool,
then I hit them with a spreadsheet that simplifies some accounting
analysis to see if the company looks healthy. I'll do some technical
analysis to see if the stock has hallmarks of change, or something that
might make a good trade. If the stock passes the value play checks,
I'll download 3 or more research reports, the most recent 10K and 10Q,
the most recent Proxy, and read them. It's several hours for each
stock that I might actually buy, and sometimes several hours for some
of the stocks that I would not be interested in. Some of the potential
value plays get watched for trades. I've got some screeners for
possible trades, and I'm also evaluating some value short screens for
finding stocks that might be worth shorting, once they top out (or if
the general market looks like a bear for a while).

5. Why do you buy a stock?

Because I believe it has a much better chance of trading at a higher
price than a lower one, or its current price, within a certain time
horizon. Switch "higher" and "lower" and you've got my reasons for
shorting a stock.

6. Why do you sell a stock?

If I re-evaluate and find I shouldn't have bought it in the first place.
If I see news that changes my estimation of its chances to trade higher
versus lower in the future. If I see a much better opportunity for that
capital than where it currently is, which would include selling a big
gainer for a more promising prospect.

7. What investment decision are you most proud of?

Deciding EMH was completely and totally full of s**t.

8. What investment decision do you most regret?

Not having an open mind towards technical analysis when I first started.

9. Why do you blog?

To create a record of my thoughts on investing, so that I (and others)
can decide, upon further review, whether I'm as completely and totally
full of s**t as EMH is. Also, I found that I had places where I would
talk economics, places where I would talk politics, and places where I
would talk investing. Now I have a blog where I can do all those
things.

10. What's your best post?

Whichever one I'm reading at the moment. Alternately, the most recent
one where I made a prediction that succeeded.

11. What's your worst post?

Whichever one I'm reading at the moment. Alternately, the most recent
one where I made a prediction that failed.

12. What financial publications do you read?

In print? None. On the web? Any. I surf very open-mindedly through a
variety of different news sites, watch a bunch of CNBBubbleheads and
Bloomers and sometimes I come up with cross-connections that make
sense. I also browse research papers from different sites trying to
find tidbits I can use.

13. What investing blogs do you read?

If I read 'em regularly, they are on my links list on the right of my blog.

14. What's the best investment book you've read?

That's like trying to name my favorite pet. Ouch. Quit that!
Actually, the best stuff I've ever read on investing were working
papers and research papers I found on the net. Really exposed me to
the theoretical underpinnings of momentum, mean reversion, and time
horizon, and how they all interact in swing and day trading, trend
following, and value investing.

15. What's the last investment book you've read?

How to Make Money Selling Stocks Short by that guy that founded
Investor's Business Daily. I've got a copy by the can. Lots of pretty
charts. Seriously, though, his explanation of how a stock "looks" when
it tops out - combined with a research paper I read that mentioned
stocks with high price momentum and lots of volume as a percent of
float mean revert most quickly - combined with a spreadsheet of how
many stock shares were sold in the last three months to investors that
are currently upside down - combined with other reading on behavioral
finance - made the whole TA thing "click." In retrospect, there are
some patterns like the head and shoulders that make perfect sense.
There's still a lot of the chart pattern stuff that I find arbitrary
and meaningless, but by and large I like the indicators and theory of
TA, and I'm starting to find my own twists on the popular indicators.

16. When did you start investing?

Being a very active investor and trader in individual stocks? Only
recently. It goes back to my decision about EMH. I had been reading
the research out there about anomalies and decided that I could do
better. I have absolutely zero "formal" market education, and I think
that's a plus. Less to un-learn.

17. How have you improved as an investor?

By examining my mistakes, looking at the ideas I documented but passed
on, and being open-minded. While I got into this deal on a value
investing tear, I saw too many people making money that don't do it the
same way the value guys do, so I swallowed my pride and arrogance (OK, I
chewed just a tiny bit of my pride and arrogance and kept the rest for
further use, sorry!) and decided to see what they were doing and if I
could do it, too.

18. How do you need to improve as an investor?

Emotional control on my trading. I need to learn to trust my analysis
through some uncertainty and give the trade plenty of rope to prove me
wrong before I pull the plug. I could have easily doubled my profits
shorting GOOG the week of Jan 16 2005 if I had just done that. Also
I've been scared out of (or stopped out of) trades that I didn't give
enough time or rope to go through. I've passed on some opportunities
because I'm too afraid of losing capital. It's all ego. I need to
realize that having to put a lower return number down for a month's
work might be just the price I need to pay to learn a lesson.

19. Where are the bargains in today's market?

I don't think they're in any one place. However, I do notice that
sometimes my value screener plays like a roundup of the usual suspects.
It's kinda funny when I see something on the screener that I bought
last May.

20. What's the most interesting company we haven't heard of?

Rex Stores (RSC). I looked at them in mid-2005 as a possible value play.
This little electronics store in the heartland, sitting on a bunch of
real estate, with an extremely low effective income tax rate. Huh?
Turns out the company had a big hand in these synthetic fuel plants
that were getting oodles of tax credits, and the IRS was investigating
several of these things because they were throwing off tax credits but
the fuel they were producing synthetically was costing more than normal
fuel, something along those lines. I can't remember if the synfuel
plant they owned a part of was in the investigation or not, but I
decided I didn't like the notion of buying a small cap retailer that
was into quite that diverse an investment. It pays to read the fine
print.

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