Speculation with Investing
Speculation refers to ‘Guessing’. Speculating is more commonly inferred with gambling than with investing; but in reality, it exists in both to certain degrees.
Lessons/Tutorials/Resources
PUT Options – Leverage Tool for Value Investors
PUT options are an excellent tool to leverage the realized return for a value investment based portfolio of securities. In general, options are very risky financial derivatives and are not recommended for unsophisticated investors. In laymen terms, options are classed as mildly speculative instruments in the world of investing. The key to proper use is to eliminate the risk aspect by only utilizing PUTs in a very restrictive set of circumstances.
Intrinsic Value – Balance Sheet Fundamentals
Novice and unsophisticated investors place greater reliance on net profits over the balance sheet fundamentals to determine intrinsic value.
Intrinsic Value – Definition and Introduction
Intrinsic value’s definition has several different meanings when used in the business context. The word intrinsic refers to ‘innate’ or ‘inherent’.
Value Investing – Industry Principles and Standards (Lesson 25)
Shifting from economic wide factors that impact market price to industry wide standards is essential with understanding and creating decision models for investment with a pool of similar companies.
Value Investing – Concepts of Economics and Business Models (Lesson 19)
With value investing, understanding the concepts of economics allows for a more comprehensive elevation of thought related to financial analysis.
Value Investing – Churning (Lesson 18)
Churning refers to agitating. It is commonly used with the dairy industry to refer to the process of turning liquid cream into butter. The churning process breaks down the fat membranes allowing the fats to join together. In effect, churning means to work the liquid into a solid. With investing, churning has two different connotations. The first is the more common negative connection to brokers getting their clients to buy and sell frequently in order to increase overall commissions for the brokerage. The positive connotation is rarely used and it refers to working one’s portfolio of investments to maximize overall return. That is what this lesson is about. How does a value investor work their portfolio to maximize overall portfolio return?
The ideal method to maximize return is buying low and selling high at the right time with investments that have quick recovery time frames. Ideally, all the cash proceeds from a sale should be immediately reinvested into new opportunities. Often, this is not the case. When the respective markets such as the DOW, S&P 500 or the S&P Composite 1500 experience highs, it is difficult to find good quality investments at low prices. This is further hampered when a value investment fund has limited options. In order to provide ample opportunities for reinvestment of cash, value investment funds require at least five pools of industries and a minimum of 40 stocks. The ideal fund will have around eight pools of potential investments with no less than 60 potential securities.
Value Investing – Monitoring Performance (Lesson 17)
Monitoring performance is the best tool to ensure success with value investing. Comparing results against expectations provides the basis for good decisions.
Intrinsic Value – Application of Discounted Cash Flows
Every student of investing is taught the core principle of discounted cash flows. This business principle is also used with intrinsic value.
Value Investing – Setting Buy and Sell Points (Lesson 16)
Setting buy and sell points for any investment security determines the investment’s final return.