By: Tim Melvin
One of the most dangerous endeavors that individual investors and “wannabe” traders can engage in is options trading.
Stock and index options bring with them a degree of leverage and time restrictions that have the capability to blow up an account in pretty short order, something that happens on a pretty regular basis. It is hard enough to pick stocks that go up, but to do so in a fixed time frame is even more difficult. To top it off, if you pick the wrong strike price you can get the direction and timing right and still lose money.
The individual trader is trading against large institutions with pricing, modeling and trading capabilities that are far beyond their own. All too often the retail trader's role in the options market is to provide lunch money for the trading desks and market makers.
Start With A Company's Business Valuation
There is a way that individual investors can use options to earn higher returns and add to the overall return of their current portfolio. This strategy takes advantage of the fact that most option traders think only about the value of the option and not the value of the underlying business.
At the same time, most value-oriented investors are not fans of options, as they view it as a high-risk leveraged trading activity. We can take advantage of these two groups' lack of interest in each others strategy to use options to enhance a value portfolio. Continue reading "2 Tips To Find A Valuable Options Strategy" →
By: Tim Melvin
It was Sir Isaac Newton who famously said, "If I have seen further than certain other men, it is by standing upon the shoulders of giants."
Those who came before us in life have left a huge treasure trove of knowledge, but it seems few ever take the time to study what those great minds have already learned.
Nowhere is this truer than in the markets, particularly when it comes to investing in the financial markets.
There have been some wildly successful investors who have been embarrassingly generous about sharing their secrets of making money, but almost no one takes the time to read the body of work.
The Legends And Their Myths
Most people know who some of these legends are but have never read the material. Most investors have heard of Benjamin Graham, but very few have ever read The Intelligent Investor, and even fewer have ever cracked the cover of Security Analysis. Continue reading "Free Advice From Seth Klarman & Charlie Munger" →
By: Tim Melvin
Have you read the book There's Always Something to Do by Christopher Russo-Gill?
If not, it should move right to the top of your summer reading list. It is the accumulated reflections of Peter Cundill. A Canadian value investor, Cundill used the Graham Deep Value Approach to return a little more than 15 percent, on average annually, to investors for almost 30 years.
Cundill once described his approach as looking to buy dollars for $0.40, and he focused almost entirely on the balance sheet. He once commented that he did liquidation analysis and liquidation analysis only. He wanted to buy stocks in companies that traded below where he estimated they could be profitably liquidated.
1. Things To Do
Cundill looked all over the world for ideas, and felt that most of the time he could find enough bargain issues to get his funds invested in such bargain issues and provide above average returns. However, he was not afraid to hoard cash when he could not find enough true bargains to get fully invested.
Value investors today, however, find themselves facing a situation where it is very difficult to get fully invested, because of a lack of opportunities in the aftermath of a five-year rally in global equities. There are a few things to do, however, even in an overheated market.
The most obvious opportunity for those who favor a deep-value approach is the U.S. community banks. Many of these smaller banks face challenges that will push them toward the inevitable conclusion: they need to sell to a larger institution rather than go it alone. The avalanche of regulations is pressuring the bottom line as compliance costs spiral out of control and make it difficult to earn sufficient profits to justify independence.
2. A 'Perfect Storm' For Regional Banks
Continue reading "5 Minimal Peter Cundill-Like Moves For Your Portfolio" →
By: Tim Melvin
Tickers: AINV, APO, ARO, KKR
Most individual investors pay very little attention to what's going on in the world of private equity.
The shadowy world of private equity and buyout investing is seen as the province of large institutions and well-heeled big money types -- and of little interest to those looking to catch the next 10 point move in Apple.
It's of even less interest of those middle of the road investors who have some stock and mutual funds in their retirement plans and just do not spend a lot of time thinking about the markets. While most will never have big money invested in private equity funds, tracking this industry should be at the top of every investor's regular activities list.
Popularity Is Not Always Key Continue reading "4 Tips For Investors To Learn More About Private Equity" →
By: Tim Melvin
Everybody knows that Benjamin Graham was the father of value investing.
He was the first set down for the public the idea of buying stocks and bonds when they traded at a discount to their real value. His writings are still used as the primary text for value investors around the world, and his classroom at Columbia University has produced some of the greatest investors in the history of the markets.
Investors who were taught the craft by Graham's students have also done very well over the years, and some of the top-performing investment managers today can trace their heritage back to Graham's classroom.
But most investors today are not aware the idea of value investing also has a cantankerous grandmother figure.
Hetty Green will never be mistaken for the warm, cuddly grandmother of fairy tales. By most accounts she was extremely litigious, and was constantly suing people who crossed her in some fashion of another. Continue reading "The Grandmother Of Value Investing" →