20 Questions for MarketWizWannabe of RVB's Market Musings
MarketWizWannabe is a former Engineer who dreams of someday running his own hedge fund. Currently he is an MBA student in the University of Wisconsin's Applied Security Analysis Program (ASAP) . His blog is devoted to continual learning about stocks and how the markets move, because he believes that the best way to profit from the markets is to understand them from all directions.
1. Are you a value investor?
Yes, but not in the classic sense. I define “value” as a stock whose share price is too low in the market, whether it is a typical “value” or “growth” stock. I am not a big proponent of the value/growth partisan battle, because I feel that different times and different sectors call for different measures of value – it is not always a low price-to-book ratio, high yield, low P/E, etc… Often times markets underestimate the growth prospects of a company, and that can make a stock a “value” as well. And in certain sectors there are different ways to evaluate value – especially true in tech stocks.
2. What is value investing?
At the simplest level, value investing to me, is buying when the fundamentals say that the stock is significantly underpriced. The devil is in the details of my simple definition, however.
3. What is your approach to investing?
I try to stay in touch with what’s going on in the world by not living in front of the computer. By doing this, I can better understand what a company does and often times I ask people about businesses. In the retail sector, for example, my girlfriend gets asked about stores all the time. I also try not to make things too complicated. I should have an MBA and a CFA in the near future, but hopefully those things won’t hinder my ability to be a great investor. The best ideas are simple, and don’t need a discounted cash flow analysis. If you’ve ever read “The New Market Wizards”, you may have read an excerpt about the “Zen” of trading – which is a good analogy for the art of investing. That book also happens to be the source of my chosen nickname on Blogger – MarketWizWannabe.
4. How do you evaluate a stock?
The first thing I do is look at a chart, but not for the technicals like you may think. I look to see what days had impact and find out what the news was on those days. This lets me get an initial idea of what the market thinks about the companies and what drives the stock. At this point, I usually lose interest but if I am still curious, I’ll move on to the financial statements and compare the company to others in terms of profitability, ROIC, stability, etc. ROE and ROIC are important metrics for me, unless the company just has staggering growth potential and the market isn’t priced for it. I tend NOT to look for a low P/E per se, but many of my stock screens do use the P/E as a starting point. I was once told early in my investing days that a P/E below 7 usually indicates trouble for one reason or another. That number may vary from sector to sector, but the idea is an important lesson – really low P/E stocks are likely to stay there unless some kind of macro event changes the situation for its sector.
5. Why do you buy a stock?
It’s all about, “Do I think that this company can earn more than what Wall Street thinks?” If yes, I dig in. Sometimes a stock is just too cheap because big institutions got caught in capitulation and then analysts get too pessimistic. This happens perhaps everyday, but that doesn’t mean I find a stock like that every day. In the case of stocks that go up all the time but are still cheap, I look for a reason to support more growth than Wall Street predicts. I will also look for one particular technical setup for investing. With that one setup, I need very little fundamental confirmation, however, it does require some fundamental stability. I also still do some trading, but again, that is completely different than investing – it’s just hard to not take a trade when you see it right in front of you.
6. Why do you sell a stock?
I sell because of several reasons. 1) When everyone jumps on the bandwagon, who is left to buy? So, when a stock has reached the point where it has become invincible, I get out. I think Google (GOOG) is there now, but I could be early on that call. This means that I will allow the momentum players to push a stock higher for me, even if I don’t think it has great value at that point. 2) If the technicals are simply ugly, I will get out and reassess later. I can always change my mind. 3) If I believe the market has fairly priced the stock and I see no advantage to holding on, I’ll sell it.
7. What investment decision are you most proud of?
Leaving my engineering job in the big cog of corporate America. Just a short 7 months later, it has already been the best investment I have ever made in my health and happiness. It’s amazing how much career happiness or unhappiness flows over into personal lives. Too many people do things they don’t like – and to me it’s just not worth it.
8. What investment decision do you most regret?
Honestly, I can’t say that I’ve ever regretted an investment. The reason is that I actually learn more from investments that go awry. I have bought my share of losers – to that there is no doubt. But, when the market humbles you, it is a beautiful thing because there is an important lesson to be learned. I know I will lose on more investments in the future. I am completely ok with that.
9. Why do you blog?
I love to write, plus given my background the web development piece is easy and still fun. I also want to try to help others figure out this complicated Wall Street world because there are so many people who have money in places that they don’t understand. I have some former co-workers who visit my blog, so I try to link to definitions as much as possible. I used to have money in places I didn’t understand too, which is a bit of an unsettling feeling. The notion of having been a client of investment funds without understanding them certainly provides me with more motivation in my newly chosen path. Most importantly, though, the blog allows me to be me, even if for only a few minutes a day.
10. What’s your best post?
I like the post you linked to, about the value vs. growth battle that investors like to get into. It’s a silly battle. I also had a post early on in my blog about “The Investment Mindset” or something like that about how average Americans would complain that gas costs were rising yet didn’t think to maybe hedge their costs.
11. What’s your worst post?
Oh, I probably have a lot of posts that I don’t like, but I will keep them up there – that’s what my blog is about – continual learning.
12. What financial publications do you read?
Investor’s Business Daily and The Motley Fool. That’s it. I get everything else from the web. My Bloglines subscription list is long.
13. What investing blogs do you read?
Here’s my full list:
Hard Right Edge’s Morning Trader
14. What’s the best investment book you’ve read?
Despite the fact that the book is written for traders, Trading in the Zone, by Mark Douglass is the best investment book ever. It’s all about getting your mind ready to play in the markets, because, in reality an investment can only do three things – go up, down, or stay flat.
15. What’s the last investment book you’ve read?
I am just a few pages away from finishing The Warren Buffet Way, by Robert Hagstrom.
16. When did you start investing?
In 2000, the world was different. At age 23 I began my engineering job and almost immediately had extra cash because my salary was more than enough to live off of – for a recent college grad. I am not a guy who has lots of material needs, so I opened an E-Trade account and bought Nokia (NOK) shares in January of 2001 – and lost half of my investment. It didn’t matter, I never was comfortable with buying funds when I don’t really know what those guys do on a day-to-day basis, nor what they are motivated by. Ever since then I got serious about learning about the markets – so much so that I found my true passion and it should hopefully be a full time career for me - provided I get a job!
17. How have you improved as an investor?
I’m more patient when looking to buy something I like. I also don’t chase stories for the sake of chasing them, like a lot of people do. Doing that is silly.
18. How do you need to improve as an investor?
I haven’t found that one thing that I am great at yet. So, I guess you could say that I haven’t found my favorite investing style yet. Maybe I will stay that way because of my belief that all common methods are good and can be applied – but knowing when and how is hard. Hopefully I will find ways to combine ideas and develop my overall style. I started this game more as a trader than an investor, but trading and investing are not the same thing. There are many parallels, but I need to get better at understanding what the true value of a company is. I’m very analytical, but sometimes I do rely on the “art” part a little bit too much.
19. Where are the bargains in today’s market?
Small caps, but only the good ones. I think this will always be the case, because they are less looked at. If you’re just looking for typical bargain basement prices, I also think that there are some financial companies who are bargains as well – some have been beaten down because of all of this rate hike talk. Rates are low. If we see a recession soon, I think it’ll be the softest recession in a while. Check out Accredited Home Lenders (LEND), or Impac Mortgage Holdings (IMH). The investing community hates IMH - and for good reason from what I understand with their internal practices - but it’s probably worth more than $8.80 per share. Yet the “hatred” is what has pushed the P/E under 2. On the flipside, Institutions love LEND, yet it’s still awfully cheap. Take your pick.
20. What’s the most interesting company we haven’t heard of?
Raven Industries (RAVN). It’s a tiny conglomerate, which sounds like a contradiction in terms…but as a value investor you might want to watch for a bargain on the stock. It’s somewhat undervalued in my opinion, but there’s not a big margin of safety at $32. Maybe you can get lucky and they’ll make another acquisition that sends the stock down $10 bucks, which is what I was able to find about a year ago.
If you write a value investing blog and would like to be featured in an upcoming 20 questions post, please send an email to geoff@gannononinvesting.com with the URL of your blog. I can’t promise you will be featured, but I can promise a response within 24 – 48 hours.
Likewise, if you want to suggest a possible candidate for a future 20 questions post (or propose better questions to ask) send an email to geoff@gannononinvesting.com.