I love downturns.
And with current financial regulation they are assured and plentiful. Higher highs from overstimulation, lower lows from reduced accountability and toothless oversight. A tragedy for the American people and retirement accounts everywhere, a boon for the patient with cash. Some pun intended.
What being an Opportunist investor means is a portfolio made of stocks, bonds, and cash well positioned to take advantage of the downturns and ride bull markets alike. Stocks and bonds should never fall below 20 to 30% of the portfolio and be rebalanced at least annually. Key in Opportunist investing is buying stocks, bonds, and indices when they're on sale. Most financial instruments will be incorrectly valued at some point, the key is to pick them up when they're cheaper than they should be and that is the heart of opportunistic investing.
The tenants are simple: Cost average into financial instruments, keep a balanced portfolio, and pick up discounted financial instruments.
That's basically it. 20% minimums in Bonds & Stocks, 10% minimum cash (plus up to 50 leverage), and 70% Maximum in any asset class in an investment portfolio. The first part was true in 1970, it's true now, and there's little disagreement on it. The second part might be a matter of some debate as "market timing" is notoriously difficult and that's essentially what I'm advocating. However with today's "investment" more a matter of trading on reactionary movements using heavily leveraged assets that cannot bear the volatility they create, I argue it's easier than ever before. Not to mention the effect of high frequency trading. When most traders, computer or human, need to get to an even position by the end of the day or week, having the vision to hold onto assets longer can be profitable even for those without million dollar backing.
It's actually quite silly how fast a stock can turn around, news or wild speculation can draw down a stock in a few minutes or hours, perhaps over the course of a few days but then the traders forget and the stock returns to it's former position within a month. The myopia is staggering, but the pratfalls obviously work both ways. While an investment in BP after the deepwater horizon disaster could have payed off greatly if you have 20/20 hindsight, investments in other contemporary oil companies that literally had nothing to do with the disaster would have also payed off well. With every Tom, Dick, and Harry scrambling to make a buck in the stock market they inadvertently discount solid performers. My investment in USB for during the financial crisis has risen over 140% and it was discounted because investors presumably were both overleveraged and believed USB had exposure to failing mortgages. Or how on Sep 13, 2010 Visa dropped to $65 due to a flash crash as well as pending banking regulation that never happened and was back up almost 5% by the end of the day. Within a month it hit $79, and while it's true that there was another buy in point in December it soon after hit $90 and has scarcely looked back since. Walmart with it's 10% pull back when the allegations of Mexican impropriety hit, and Twitter with it's employee's sales. All short term down turns of otherwise solid companies that returned to their previous price within the quarter, all that was needed was a little cash on hand to take advantage and the gall to buy a crashing stock. An investor didn't even need to hold these companies a year or more, but they easily could have reaping even more reward (and avoiding some capital gains). Visa doubled by the time I sold it and Walmart was up 30% plus dividends, and I could've easily held onto each.
But to know what stocks are being discounted you have to be paying attention and keeping tabs on the news is important, though not as time consuming as you might think. Financial news is almost entirely worthless in this day and age, due to the influence of the trading mentality discussed here. However when financial news reaches more mainstream news networks I consider that a good indicator to start researching the situation and it's effects. I listen to financial news to learn about world events, and local and world news for financial info. Otherwise there's too much noise in the signal. Daily wrap ups are good, if you listen to more than an hour or so of news a day you're wasting your time - only an hour's worth of news can happen per day and often a lot less than that. I find podcasts very helpful in this matter as you can download the programs you like and then run that at high speed to shorten the broadcast to a tolerable level. It is important that you listen virtually every day, as these turnarounds can happen very quickly and it's not a good use of your cash on hand if you're not utilizing it for these purposes. But most days won't have anything useful for you, so you can easily stand to miss a few days or listen every few days. The Daily Show with Jon Stewart is not sufficient, but I do find value in the BBC world news, DW, Al Jazeera, and RT. If you can listen or read reports in multiple languages that also can prove quite valuable.
Obviously you can't time a flash crash or short term downturn but the solution to this is simply having a lot of open limit orders. Key here then is analyzing equities of interest and placing limit orders at a fair price. Most quality stocks have been 5% to 10% overvalued at any random point in time since the 90%, some as much as 20% or more, though it's never clear when they'll run up or down. And if the risk for a stock is estimated to be higher, the Opportunist investor must set a price lower to accommodate that. While high frequency trading exists rarely is there an advantage to opening a position at market price, so fairly priced open limit orders should be just about the only orders ever placed by the Opportunistic investor. Considering this: the reality is that many of the stocks you choose will never reach the fair price you've set for them and you'll "miss out". Fear not, opportunity abounds. Each missed opportunity merely leaves the door open for other opportunities. Occasionally you'll still over pay, but hopefully your research is solid and the stock will still rebound enough such that you'll merely lament is not initiating (or adding to) your position at the lower price. Having a lot of open limit orders requires enough cash or leverage to assure your brokerage you won't overextend yourself, interesting that the individual must satisfy this requirement but large firms muddy the line to obscurity. Being able to cover your orders is a sound strategy that any investing entity should closely observe, failing to do so can lead to panic selling - a phenomena that lets the opportunistic investor buy stock at a discount from those with a little less foresight. My IRA has virtually nothing in cash equivalents, using only rebalancing and cost averaging a proven strategy covered in the "intelligent investor". On the other hand my investment account has up to 50% in cash and easily cashed instrument coverage in addition to being a margin account (high yield savings, treasuries). I limit my "limit orders" to 50% of my investment account's total value, covered in leverage initially (margin) but upon any purchase I convert my reserve low risk interest earning assets into cash to avoid the fees. My cash equivalents earn 2 to 4%, but I also hold GLD and treasuries for this purpose if necessary.
As stated it's virtually required to have cash on hand that keeps growing to utilize these strategies. A job or dividend stocks are additional ways to keep the reserve cash regularly supplemented but with at least 20% of a portfolio in bonds cash flow should be attainable. Bond funds, bonds, income funds, consumer staples, telecoms & utilities, and all the income earning equities are good tools to use to ensure adequate cash reserves. Frankly, bonds are an interesting way to save money to buy stocks with and stocks in turn are a way to earn surplus cash with which to purchase bonds. I find that the strategy I'm laying out here is superior to dividend reinvestment and thus do not partake in that option. As another alternative to dividend reinvestment, cost averaging into index funds monthly is a viable solution. Alternatively having a margin account and ordering on margin is quite useful, provided the investor can avoid high fees either by covering actual purchases with cash from another source or the loan rate is sufficiently low.
Cost averaging into stocks is critical. If you're unfamiliar with this particular strategy, know that it is the concrete base of my strategy so I'll hit the basics here but you should familiarize yourself with it. At it's core it's simple. Every month you invest a set amount in a fund or a group of funds. $10, $100, $500, $1000, the amount matters far less than the consistency. I invest in the S&P500, a bond fund, and a sector fund, 0.1% of my portfolio value each month into each fund. For this to work, a no transaction fee fund is critical but there are plenty of them. All brokerages make cost averaging in part of your pay check into an IRA simple, though this strategy as written applies more to trusts and investment accounts where manual cost averaging is still the backbone of any solid investment strategy.
That's it, buy overly discounted stock on news and events, then sell or hold them based on your overall investment plan, accumulate assets in good and great companies over time, keep a cash reserve, and rebalance asset classes regularly.
And with current financial regulation they are assured and plentiful. Higher highs from overstimulation, lower lows from reduced accountability and toothless oversight. A tragedy for the American people and retirement accounts everywhere, a boon for the patient with cash. Some pun intended.
What being an Opportunist investor means is a portfolio made of stocks, bonds, and cash well positioned to take advantage of the downturns and ride bull markets alike. Stocks and bonds should never fall below 20 to 30% of the portfolio and be rebalanced at least annually. Key in Opportunist investing is buying stocks, bonds, and indices when they're on sale. Most financial instruments will be incorrectly valued at some point, the key is to pick them up when they're cheaper than they should be and that is the heart of opportunistic investing.
The tenants are simple: Cost average into financial instruments, keep a balanced portfolio, and pick up discounted financial instruments.
That's basically it. 20% minimums in Bonds & Stocks, 10% minimum cash (plus up to 50 leverage), and 70% Maximum in any asset class in an investment portfolio. The first part was true in 1970, it's true now, and there's little disagreement on it. The second part might be a matter of some debate as "market timing" is notoriously difficult and that's essentially what I'm advocating. However with today's "investment" more a matter of trading on reactionary movements using heavily leveraged assets that cannot bear the volatility they create, I argue it's easier than ever before. Not to mention the effect of high frequency trading. When most traders, computer or human, need to get to an even position by the end of the day or week, having the vision to hold onto assets longer can be profitable even for those without million dollar backing.
It's actually quite silly how fast a stock can turn around, news or wild speculation can draw down a stock in a few minutes or hours, perhaps over the course of a few days but then the traders forget and the stock returns to it's former position within a month. The myopia is staggering, but the pratfalls obviously work both ways. While an investment in BP after the deepwater horizon disaster could have payed off greatly if you have 20/20 hindsight, investments in other contemporary oil companies that literally had nothing to do with the disaster would have also payed off well. With every Tom, Dick, and Harry scrambling to make a buck in the stock market they inadvertently discount solid performers. My investment in USB for during the financial crisis has risen over 140% and it was discounted because investors presumably were both overleveraged and believed USB had exposure to failing mortgages. Or how on Sep 13, 2010 Visa dropped to $65 due to a flash crash as well as pending banking regulation that never happened and was back up almost 5% by the end of the day. Within a month it hit $79, and while it's true that there was another buy in point in December it soon after hit $90 and has scarcely looked back since. Walmart with it's 10% pull back when the allegations of Mexican impropriety hit, and Twitter with it's employee's sales. All short term down turns of otherwise solid companies that returned to their previous price within the quarter, all that was needed was a little cash on hand to take advantage and the gall to buy a crashing stock. An investor didn't even need to hold these companies a year or more, but they easily could have reaping even more reward (and avoiding some capital gains). Visa doubled by the time I sold it and Walmart was up 30% plus dividends, and I could've easily held onto each.
But to know what stocks are being discounted you have to be paying attention and keeping tabs on the news is important, though not as time consuming as you might think. Financial news is almost entirely worthless in this day and age, due to the influence of the trading mentality discussed here. However when financial news reaches more mainstream news networks I consider that a good indicator to start researching the situation and it's effects. I listen to financial news to learn about world events, and local and world news for financial info. Otherwise there's too much noise in the signal. Daily wrap ups are good, if you listen to more than an hour or so of news a day you're wasting your time - only an hour's worth of news can happen per day and often a lot less than that. I find podcasts very helpful in this matter as you can download the programs you like and then run that at high speed to shorten the broadcast to a tolerable level. It is important that you listen virtually every day, as these turnarounds can happen very quickly and it's not a good use of your cash on hand if you're not utilizing it for these purposes. But most days won't have anything useful for you, so you can easily stand to miss a few days or listen every few days. The Daily Show with Jon Stewart is not sufficient, but I do find value in the BBC world news, DW, Al Jazeera, and RT. If you can listen or read reports in multiple languages that also can prove quite valuable.
Obviously you can't time a flash crash or short term downturn but the solution to this is simply having a lot of open limit orders. Key here then is analyzing equities of interest and placing limit orders at a fair price. Most quality stocks have been 5% to 10% overvalued at any random point in time since the 90%, some as much as 20% or more, though it's never clear when they'll run up or down. And if the risk for a stock is estimated to be higher, the Opportunist investor must set a price lower to accommodate that. While high frequency trading exists rarely is there an advantage to opening a position at market price, so fairly priced open limit orders should be just about the only orders ever placed by the Opportunistic investor. Considering this: the reality is that many of the stocks you choose will never reach the fair price you've set for them and you'll "miss out". Fear not, opportunity abounds. Each missed opportunity merely leaves the door open for other opportunities. Occasionally you'll still over pay, but hopefully your research is solid and the stock will still rebound enough such that you'll merely lament is not initiating (or adding to) your position at the lower price. Having a lot of open limit orders requires enough cash or leverage to assure your brokerage you won't overextend yourself, interesting that the individual must satisfy this requirement but large firms muddy the line to obscurity. Being able to cover your orders is a sound strategy that any investing entity should closely observe, failing to do so can lead to panic selling - a phenomena that lets the opportunistic investor buy stock at a discount from those with a little less foresight. My IRA has virtually nothing in cash equivalents, using only rebalancing and cost averaging a proven strategy covered in the "intelligent investor". On the other hand my investment account has up to 50% in cash and easily cashed instrument coverage in addition to being a margin account (high yield savings, treasuries). I limit my "limit orders" to 50% of my investment account's total value, covered in leverage initially (margin) but upon any purchase I convert my reserve low risk interest earning assets into cash to avoid the fees. My cash equivalents earn 2 to 4%, but I also hold GLD and treasuries for this purpose if necessary.
As stated it's virtually required to have cash on hand that keeps growing to utilize these strategies. A job or dividend stocks are additional ways to keep the reserve cash regularly supplemented but with at least 20% of a portfolio in bonds cash flow should be attainable. Bond funds, bonds, income funds, consumer staples, telecoms & utilities, and all the income earning equities are good tools to use to ensure adequate cash reserves. Frankly, bonds are an interesting way to save money to buy stocks with and stocks in turn are a way to earn surplus cash with which to purchase bonds. I find that the strategy I'm laying out here is superior to dividend reinvestment and thus do not partake in that option. As another alternative to dividend reinvestment, cost averaging into index funds monthly is a viable solution. Alternatively having a margin account and ordering on margin is quite useful, provided the investor can avoid high fees either by covering actual purchases with cash from another source or the loan rate is sufficiently low.
Cost averaging into stocks is critical. If you're unfamiliar with this particular strategy, know that it is the concrete base of my strategy so I'll hit the basics here but you should familiarize yourself with it. At it's core it's simple. Every month you invest a set amount in a fund or a group of funds. $10, $100, $500, $1000, the amount matters far less than the consistency. I invest in the S&P500, a bond fund, and a sector fund, 0.1% of my portfolio value each month into each fund. For this to work, a no transaction fee fund is critical but there are plenty of them. All brokerages make cost averaging in part of your pay check into an IRA simple, though this strategy as written applies more to trusts and investment accounts where manual cost averaging is still the backbone of any solid investment strategy.
That's it, buy overly discounted stock on news and events, then sell or hold them based on your overall investment plan, accumulate assets in good and great companies over time, keep a cash reserve, and rebalance asset classes regularly.