Richard, over at Move the Markets, has several portfolio recommendations for value investors….especially those who think that daytrading is a fast trip to the poor house.
Richard’s Portfolio for Value Investors
…very funny stuff.
Archive
Bank of America announced today that they will offer 30 free trades a month to customers who meet the minimum account requirements of $25,000 in deposits or other accounts with them. Will this lead to a price war among brokers and drive down commissions? It’ll be interesting to see.
Your goal as an investor should simply be to purchase, at a rational
price, a part interest in an easily-understandable business whose
earnings are virtually certain to be materially higher five, ten and
twenty years from now. Over time, you will find only a few companies
that meet these standards - so when you see one that qualifies, you
should buy a meaningful amount of stock. You must also resist the
temptation to stray from your guidelines: If you aren’t willing to own a
stock for ten years, don’t even think about owning it for ten minutes.
Put together a portfolio of companies whose aggregate earnings march
upward over the years, and so also will the portfolio’s market value.
For the final post in the 4 M’s of Fastenal series, we’ll run the numbers and determine the margin of safety price for purchasing Fastenal stock. In a previous post, we’ve seen that Fastenal has a solid track record with all of the numbers except for cash flow. Looking more closely at the numbers though, we’ll see that Fastenal’s equity/BVPS has been decreasing steadily over the previous 10 years. Almost immediately, according to big-moat’s rules, this would rule out Fastenal as a Big Moat company.
After calculating the margin of safety, it looks like Fastenal has a MOS price of approximately $22 and the current price is $38.41. In this case, it looks like Mr. Market has the stock priced at full price. At this time, given the concerns over the decreasing equity and being nowhere near the MOS, Fastenal is not currently a Big Moat stock.
A new site that plans to offer free stock trades, Zecco.com, is now in beta. Their hook is that they plan to offer free trades while supporting the site though an active user community and ads. In theory, this sounds like a great plan but like many things it sounds too good to be true. My advice is to wait until they establish themselves because they have already been accused of doing some unfriendly things such as spamming web site owners. Additionally, the last thing you need to worry about is whether your trading platform is going to perform as desired. If they establish themselves in the months or years to come, then we will all have an opportunity to jump on board.
One of the good things about the Big Moat concept of investing is that once you do your research on a company, running the numbers and executing buy/sell orders using the tools takes a lot of the “thinking” out of investing. I imagine this is why Big Moat investing appeals to a lot of people who might not have traded in the stock market before or to people who may have not done so well with their investing in the past. The Big Moat concept works especially well in the minds of new investors when their first few trades go well, some people may even get the feeling that they can’t lose, and that’s a great feeling.
The problem arises when the first loss does roll around, and it will. There’s just no avoiding it. Hopefully it won’t be a big loss or, lord forbid, a overnight gap down like we saw with Chico’s as few weeks back. This one losing trade may be enough for many people to take all of their money out of the market and throw their hands up and scream that it doesn’t work. So what do you do to avoid this happening to you? In a post today, Brett Steenbarger offers a solution that is simple in its concept but will be difficult to actually follow. If his idea is something you can instill in yourself, it will allow you to become a better investor. His concept is to accept that you will lose money on the trade you’re about to execute. By making the loss the expected event, a winning trade will have much more significance which is the way it should be. If you’re expecting the loss and the trade is in fact a loss, then you got what you expected - no harm/no foul, just move on to the next trade when the tools show its time to buy.
A few weeks ago, many Big Moat investors were caught by Chicho’s (CHS) big opening gap down. Yahoo! (YHOO), another stock that is mentioned often by those looking at Big Moat companies, took a big midday hit earlier this week on their announcement that ad revenues would not meet expectations for the auto and financial markets.
A recent post on the Global Growth Investor website gives two reasons why you should not have had any money in Yahoo! when the drop occurred. Once again, it has to do with investing only with the trend. The advice they give is to not invest in any stock that has a dropping 200 day moving average or a dropping 50 day moving average. Yahoo! had both.
This advice is the perfect tool to add to your Big Moat arsenal when making that final decision of whether you should invest your money. Just remember, even if the stock is trending down it is not disqualified from being a Big Moat company. It just means that a stock you like will soon be on sale!
link via Trader Mike
Fastenal has several executives who have been with the company for quite some time and have been promoted from within. The Chairman of the Board, Robert Kierlin, is the founder of the company. This is all very positive for investors because having management with this type of history with the company lends itself to having their interests aligned with the shareholders interests.
Executive compensation for Fastenal management is actually lower than a lot of its competitors. The history has shown that Fastenal has always had one of the lowest CEO salaries for quite some time. In 2004, Kierlin’s bonus as CEO was dropped from $121,500 to $71,214 even though the stock price was up more than $17 from the start of 2003.
The one thing I couldn’t find when doing my research is what big-moat likes to call the “Big Audacious Goal” (BAG) of Fastenal. The CEO references their commitment to improve the customer’s experience but this is the goal of every company in this industry. To sustain the growth they have had in the past and to take market share from competitors, I want to see something different than what everyone else is doing.
Last week was interesting in that I was sitting in a tire store to have a tire replaced on my car and I met someone who had an interesting rags to riches story. He was a general contractor who ended up broke and lost his homebuilding business because he couldn’t pay his creditors. Once this happened, many banks wouldn’t even open a checking account for him so he opened an account with an online broker with checkwriting privileges. After opening this account he started researching stock trading and purchasing options. After paper trading for six months, he began trading options. He’s now in his 40’s, semi-retired and was in the tire store to have new tires put on his car that he was giving to a single mother.
The most interesting thing from our conversation is the very first thing he told me when I asked him what strategy he used. His response was, “the trend is your friend“.
Apparently professional investors don’t remember this rule all the time either as this article from TheStreet.com points out. It says:
…MotherRock, a two-year-old fund that once had nearly $450 million in assets, shut its doors in late July after losing nearly half of its value. Led by former New York Mercantile Exchange President J. Robert “Bo” Collins, MotherRock also bet wrong on natural gas prices.
…MotherRock got caught betting that natural gas would fall at a time that the commodity was soaring to new heights. The irony is that if MotherRock could have held on for another few months, it might have recovered much of its losses.
After playing around a little more with Firefox and Yahoo Charts as I talked about yesterday, I found that the easiest way to keep from having to go through setting up the three tools for each stock was to copy the url of an existing chart after it was set up. Then click File - New Tab and paste the url into the address bar. Before you hit the go or Enter button, change the part of the url that has the stock symbol.
For example, if I was looking at Fastenal’s chart I would see this in the url: …#chart1:symbol=fast;…
Simply replace ‘fast’ with ‘chs’ if you want to see the Chicos chart. It would look like this: …#chart1:symbol=chs;…. Be sure not to remove any of the other punctuation from the url. After you have entered the new stock symbol, click the green Go button and it will show the new chart.
