Backtesting is one of those things that in a lot of cases doesn’t mean a whole lot, especially since there was no guarantee that you would have been looking at a particular stock at the time you are testing. In any case, we’ll take a look at how FAST performed if we were to make trades according to Big Moat indicators. For the purposes of our test all stock purchases or sales are made on the market open on the day after each of the indicators go green. The dates tested are January 1, 2003 - October 18, 2006 and the initial dollar amout invested is $10,000.
# of Trades: 27
# of Winning Trades: 10
# of Losing Trades: 17
$ of Profit: $1863.38
Total Return %: 18.63%
Largest Single Winning Trade: $2442.34
Largest Single Losing Trade: ($1636.04)
A lot of today’s population is made up of people who have gone to school, got a job and show up for work each day like they were told they were supposed to do. Many people have aspirations of doing more and making more but never reach the heights they desire. Many of these people even make a habit of complaining about “the rich” or “the man” keeping them from getting their due.
Its no secret that today’s world is a world of debt and a population that has come to expect their right to a job and a steady paycheck and insurance benefits. My belief is that 40 hours of work and saving whatever you can is simply not going to be enough in the coming years. Only those who take control of their own financial destination are going to live the way they truly want. Ben Stein, the actor/economist, has written an excellent column (registration required) for the NY Times on how to get your piece of the pie. In the column he says,
You are always better off working in a field where torrents of money are sloshing through and you can grab a handful as it goes by. That means Wall Street. Finance is the ultimate great business. (Warren E. Buffett famously said that you are always better off being mediocre in a great business than great in a mediocre business, and he easily could have been talking about Wall Street.)
Even if you’ll never have a Wall Street job, you can see why it important to take control of your own finances and investments. You can invest a little now to gain a lot later, but you have to be ready to take your share when the money comes passing by.
Today’s Wallstrip converstation covers Research in Motion, the makers of Blackberry. Looking at RIMM from a Big Moat perspective, the first thing to notice is that RIMM is immediately considered a risky biz because of the lack of 10 years of history. Of all the numbers, Sales have been huge which is completely expected of a fairly new technology that is now called a Crackberry. Equity has been up and down with the most recent year being less than 10%. EPS has also been up and down over the time measured. Currently, RIMM is not considered a true Big Moat candidate, but the popularity of the technology cannot be denied so this may be a company you’re willing to invest in as part of your Risky Biz portfolio.
Click to view RIMM’s Big Moat Numbers full size
Wallstrip is a site where a stock of the day is introduced and discussed each day by several leading stock bloggers. Today they look at Apple (AAPL) and we get to see the opinions of long term investors, day traders and options traders. Its definitely worth checking out!
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.
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.
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.
