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Using the Kelly criterion for sizing stock positions – Part 2
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In the previous post, we discussed the Kelly criterion as a useful tool to determine allocations of stocks. To briefly recap, the Kelly criterion is as follows: f = p – (1-p)/b Where, f is the fraction of the bankroll or portfolio value to wager, p is the probability of a win (1-p is the
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Using the Kelly criterion for sizing stock positions – Part 1
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We have focused a lot on how to pick stocks and the idea of buy and hold. Now we should take a look at asset allocations and how much of our portfolio we should put into each stock. There will be a lot to talk about, so we will do this over the next two
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The wheel – an option selling value strategy that you should avoid
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In the last several posts, we discussed options and why you should virtually never buy options. We also talked about how selling options can be a part of a value strategy, and why there are fewer situations than you think where option selling is the right thing to do for your long term investing success.
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Why selling options as part of a value strategy may not always be a good idea
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The last couple of posts were dedicated to the introductory level primer on what options are, what buying and selling an option means, and how selling options can be part of a value strategy. Many value investors think that selling options is a great part of their strategy to buy and sell stocks with some
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The basics of selling stock options as part of a value strategy
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In the last post, we talked about buying options and why the time value decay of the option as it gets close to expiration leads to a loss of value. If the stock does not move in the direction that you need it to, the option will expire worthless or with substantially less value due
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What are stock options and why should you avoid buying options?
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In the next few posts, I want to talk about stock options and various strategies surrounding stock options and why most of them are bad. But before I do that, I want to make sure everyone understands what stock options are. So, the next two posts will be more basic explanation of these instruments, and
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You are not smarter than a hedge fund
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I see a lot of people recommending “hidden gems” on value investing forums. They pour over financial reports of cigar butts and net-nets to try to uncover these gems that everyone else has somehow missed. I am here to tell you that it’s unlikely that hedge funds and other savvy investors missed anything. The odds
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Behavioral and emotional temperament necessary for successful investing
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We have talked a bit about the mechanics of investing and some of the rules to follow while investing. However, an often overlooked aspect of successful investing is the emotional and behavioral aspect. It is one thing to know that you should have a buy and hold attitude through thick or thin, but it is
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How to know when to sell a stock
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In the last post, we examined the conditions under which we want to buy a stock. We develop our Star List of ultra-high quality companies, and then we buy those that have the best combination of value along with quality at each point. But how can we know when to sell? As we have examined,
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Valuation – How to decide when to buy a stock from your Star List
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In the previous 4 posts, we analyzed the income statement, cash flow statement, and balance sheet looking for key measures of a good company, and we also looked at those same measures for a bad company. The purpose of this analysis was to help us decide which companies to add to our ultra-exclusive list of