4 Lessons From Buffett That Every Investor Needs To Know

Behind each trade or investment, they are there… lurking, waiting to reveal themselves during a moment of weakness.

They are the four fears of investing.

I learned about these early into my trading career, and I’ve been a victim of each one over time. All drama aside, they affect every investor or trader who actively manages his or her own money.

In no particular order, the four fears are as follows:

1. Fear Of Loss
2. Fear Of Missing Out
3. Fear Of Letting A Profit Turn Into A Loss
4. Fear Of Being Wrong

Despite their prevalence, there are fortunately many methods to help conquer each of these fears. One of these tools comes from the long career and immortalized wisdom of the Oracle of Omaha himself.

While I can’t be 100% sure what Warren Buffett would say in regard to each of these problems, we can use his bank of interview quotes and newsletter excerpts to infer what the billionaire would say about understanding and conquering each problem.

1. Fear Of Loss
I have seen the fear of loss paralyze and end more trading careers than I’d like to recall. When buying a stock, there’s an overwhelming chance you won’t pick the exact bottom, which means losing money before hopefully turning a profit. Taking risk and experiencing loss are part of the game.

This fear keeps many from executing a position in the first place. Alternatively, seeing your recent purchase fall can cause enough anxiety for an investor to exit their position and take quick losses. This is a quick way to nickel and dime your accounts.

Note that lacking this fear completely could be even more disastrous. Feeling immune to the fear of loss and ignoring stops can see an investment drop to $0 (or worse, if it’s a short position).

Buffett’s take: “Risk comes from not knowing what you’re doing.” “Time is the friend of the wonderful business, the enemy of the mediocre.”

Solution: Patience is key. Being patient before buying may make for a more comfortable entry and can give your trade enough room to grow — even if that means a missed opportunity. Always keep a realistic and appropriate stop-loss and commit to it. Keeping the quality of your trades high will limit this fear.

….read 2 thru 4 HERE

Investors are fast discovering that stocks go down as well as up. 

They’re also discovering why stock investors get paid: to shoulder risk. 

It’s not for nothing that there is something known as the “equity risk premium.” 

This is Wall Street speak for the excess return the stock market provides over supposedly “risk free” bonds. 

On average, this has worked out at about 3% a year. 

That’s the deal. 

In return for the risk of owning stocks over bonds, shareholders earn higher returns than bondholders. 

And even though it can sometimes seem that way – take 2013, for example – this isn’t a free lunch. Sometimes the bill comes due. Sometimes shareholders have to stomach a lot of nerve-rattling volatility. 

That’s why it makes no sense to get upset when stocks start to bounce up and down. If they didn’t from time to time become so volatile, they wouldn’t pay so well. 

The secret is to get used to the rollercoaster ride. 

This isn’t just an opinion, either. 

Fidelity Investments ran a study to see which of their account holders performed best over time. 

The winner: folks who’d forgotten they had an account. In other words, folks who didn’t watch the market… didn’t try to beat the market… didn’t try to time the market… and didn’t trade. 

They just let their accounts compound over time. 

That’s why Bill Bonner’s investment motto is: “Think a lot. Do very little.” 

Sure, you want to invest intelligently. You want to buy when assets are on sale and sell when they rise back to fair value. You want to own a diversified portfolio. You want to keep your costs low. 

But these are all proactive decisions. 

What you want to avoid is reacting to every bump in the road. This will not only give you sleepless nights, it will also almost certainly leave you poorer. 

Research Philosophy 

The more we attend conferences across North America one of the many questions we continually entertain is that of our particular “investment philosophy.” Essentially, investors like to know what approach or style we use to uncover the stocks we recommend to our clients.

GARP (Growth at a Reasonable Price)

A significant portion of our strategy involves the search for GARP or Growth at a Reasonable Price. This means that we will recommend a stock because we believe the company to be a strong business that will grow over time and because we believe we are buying this company at a price that is significantly below its real or ‘intrinsic’ value (undervalued). The paragraphs below provide descriptions of a few of the attributes to which we pay very close attention.

Resilient Business Model

One thing we look at very closely is the resilience of a company’s business model. The business model is the plan that a company uses to convert whatever it does (product or service) into positive cash flow. There are a multitude of different types of business models out there, some of which are highly risky and some of which don’t make sense at all

(a common criticism of technology companies during the dot com boom). We look for business models that make sense and provide their respective companies with a great chance of growing during strong markets and at the very least, surviving during challenging markets. A resilient business model provides a unique or even essential product or service to customers that can easily afford to pay for it. An example would be a company that provides linen cleaning services under contract to hospitals. Another would be a company that owns and operates ATMs (automated teller machines) in strategic locations across the country. Yet another would be a company that processes and packages food products for distribution to international markets.

Profitability and Earnings Growth

As fundamental investors, first and foremost, we require that a company we research already be profitable and at the very least, provide strong potential for earnings growth. The earnings growth is what will drive the stock over the long term and provide the company with flexibility to grow their dividends. There are numerous companies in the market that are not profitable (may never have been profitable), but will attract themselves to investors under the promise of future profitability. The problem is that until these companies have achieved profitability, they will be entirely dependent on the market for raising funds to finance their survival (pay wages, pay bills, and invest in the business). If the markets, or that company’s particular industry, encounter any kind of danger, the very survival of the unprofitable company will be in serious jeopardy, as they will be unable to raise money or will be forced to raise money at terms injurious to the current shareholders. So for us, the unprofitable companies present too much risk.

Acceptable Level of Financial Risk – Healthy Balance Sheet

Financial risk refers primarily to the level of debt a company has incurred. All things equal, more debt means more financial risk and a higher likelihood of financial distress. A good deal of this risk is captured in the company’s balance sheet, which lists assets and liabilities. Ideally, we are looking for companies with large cash balances and little or no debt. Some companies that we research do maintain a debt balance; however, we believe this balance to reasonable respective to the company’s financial position. We look at the total debt balance, the regular interest payments, and the required principle payments and ascertain whether or not the company will have problems meeting its obligations. If debt is too high, the company is at high risk of suffering financial distress should the market enter a downturn. We therefore look for companies with acceptable levels of financial risk.

Strong Management Teams

Everyone has heard that they should invest in companies with strong management teams, but what exactly does that mean? What constitutes a strong management team? Analyzing management can be one of the more difficult steps in the research process. It means more than just getting along with the CEO. For us, we look not at what management is saying but what they are doing and what they have done. Analyzing management involves looking back as far as you can and tracking the correlation of what they have said they were going to do with what they have actually done. Have they made targets and met them? Have they managed the company prudently? Do they have a demonstrated track record of providing value to shareholders? Perhaps most importantly, do they hold significant shares in their own company – aligning their interests with shareholders.

Value – What We Pay For is What We Get

Value is the final ingredient in our investment equation. Understanding the value is important because “a good company is not necessarily a good stock.” What makes a good company a good stock is the price you pay for it. As a rule, we are looking for companies that we can buy at a significant discount. To ascertain this, we use a variety of tools including: ratios such as dividend yield, price-to-earnings, price-to-cash flow, and price-to-tangible book value. If our research tells us that we are getting a great deal on a stock then we may buy it. Conversely, if we own the stock and our research tells us that it is becoming overpriced, we may sell it.

For more insight on our philosophy in reference to our two key areas of research, click on the links below.

KeyStone’s Small-Cap Service

KeyStone’s Income Stock Service

KeyStone’s Latest Reports Section

10/6/2014
CASH RICH COMMUNICATIONS SOFTWARE COMPANY POSTS SOLID Q3 2014, EXPECT FURTHER ACCRETIVE ACQUISITION IN 2014-15 – RATING MAINTAINED – GAINS OVER 350%

10/3/2014
UNIQUE IP COMPANY REPORTS NEGATIVE LITIGATION RULING, NEAR-TERM WEAKNESS PROVIDES LONG-TERM OPPORTUNITY – MAINTAIN RATING

10/1/2014
CASH RICH BROADBAND EQUIPMENT DEVELOPER AND MANUFACTURER POSTS SOLID FISCAL 2014, INITIATES DIVIDEND, EXPECTS SOLID FISCAL 2015 – MAINTAIN RATING

9/4/2014
CASH RICH ($140 MILLION) TECH SMALL-CAP WITH ZERO DEBT, IMPROVING FINANCIALS & NEW STRATEGIC BUSINESS MODEL & 4.8% DIVIDEND – UPGRADE TO BUY (FOCUS BUY)

9/4/2014
HIGH RISK-HIGH POTENTIAL REWARD, CASH RICH BASE METAL PRODUCER – STRONG CASH GENERATOR WITH HIGH CASH BALANCE & NO DEBT – INITIATE COVERAGE WITH SPEC BUY

You’ve likely heard that multitasking is problematic, but new studies show that it kills your performance and may even damage your brain.

Research conducted at Stanford University found that multitasking is less productive than doing a single thing at a time. The researchers also found that people who are regularly bombarded with several streams of electronic information cannot pay attention, recall information, or switch from one job to another as well as those who complete one task at a time.

A Special Skill?

But what if some people have a special gift for multitasking? The Stanford researchers compared groups of people based on their tendency to multitask and their belief that it helps their performance. They found that heavy multitaskers—those who multitask a lot and feel that it boosts their performance—were actually worse at multitasking than those who like to do a single thing at a time. The frequent multitaskers performed worse because they had more trouble organizing their thoughts and filtering out irrelevant information, and they were slower at switching from one task to another. Ouch.

—-read more HERE

Who’s got the best deal in exchange-traded funds? If it’s large-capitalization U.S. stocks you want, there’s no better choice than the Schwab U.S. Broad Market index fund (ticker, SCHB). Putting $10,000 into that for a decade will cost you only $49.

You want long-term bonds? The cheap product is from Vanguard Group, whose Long Term Bond Index fund (BLV) costs $171 over a decade for a $10,000 investment.

Among portfolios of small growth companies, the screaming bargain is from BlackRock’s iShares family. Its Russell 2000 Growth ETF (IWO) will cost you, we figure, a negative $153 per $10,000. That neat trick is a consequence of BlackRock’s securities lending operation. The lending fees it hauls in on behalf of fund investors more than cover the management expense.

Such are the numbers from our third annual Best ETF survey. 

…..continue reading the criteria HERE

Results by category:

Best ETFs: Large-cap Funds

Best ETFs: Mid-Cap and Small-Cap

Best ETFs: Sector Funds

Best ETFs: Diversified International Funds

Best ETFs: Regional International Funds

Best ETFs: Commodity and Currency Funds

Best ETFs: Short-Term Bond Funds

Best ETFs: Medium-Term Bond Funds

Best ETFs: Long-Term Bond Funds

Best ETFs: Inflation-Protected Bond Funds

Best ETFs: Municipal Bond Funds

Best ETFs: International Bond Funds