Category: Investing
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How Peter Lynch One-Upped Wall Street
Peter Lynch was one of the most successful stock pickers of the 20thCentury. From 1977 to 1990, his Magellan Fund had an average return of29%. Just let that soak in for a minute: each $1 put into the fund in 1977 would have grown to over $27 by 1990! In his book, One Up On Wall…
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Options Trading Not a Star Strategy
The general public has become more familiar with options trading thanks to Keith Gill’s trading in GameStop (GME), which made him millions of dollars in a relatively short amount of time using the market equivalent of lottery tickets. While options can generate outsized returns, they can also lead to wealth destruction. Options can be thought…
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Expand your investing ability through limit and discipline
Many people think that limits and discipline box you in and, well, limit you. Nothing could be further from the truth. By limiting the entire universe of investments and narrowing things down to just high and sustainable return on capital companies, you limit the universe of investment possibilities down to a much narrower list, true. …
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The Gordon Growth Model and What It Says About Return on Capital
We looked briefly at return on capital and examined how high return on capital companies can produce high returns for the investor. Now I want to delve into this a little deeper. It is well known that the true value of an asset is the net present value of all future cash flows the company…
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How to Select High Quality Companies for Investment
We have now introduced our methodology for investing and explained why we want to go for high quality companies with sustainable high returns on capital. Depending on your level of expertise and desired effort, you should select from index investing (lowest effort), dividend growth investing (moderate effort), and star list investing – investing from your…
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A Case Study in Valuation and Its Effects on Investment Returns
In the last post, we looked at the importance of investing in high quality businesses with durable returns on capital. In that post, we mentioned not needing to depend on valuation changes to make a bundle of money over your investment lifetime. You do hope to buy companies at low valuations, but you do not…
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A Case Study in Return on Capital and High Quality Businesses
Now that we have examined a hypothetical 4 stock portfolio formed using quality as an assessment, we see that quality stocks can perform well even when handicapped (I picked 4 stocks in 1985 that were due to have one or more significant issues over the years between 1985 and 2023). This outperformance is despite the…
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A Case Study of Investing in High Quality Stocks Compared to the S&P 500
Now that we have established some of the methodology for Star List investing, I wanted to take you through a case study of how investing in quality companies, buying and holding for many years, might work. So, I selected a portfolio of 4 quality companies from March of 1985. The date was selected at random and…
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Core Investment Strategies to Earn Superior Returns
Now that we have laid some groundwork for what we are looking for in good investments, I think it is time to go into the overall investment strategy that we will employ to earn excess returns. To summarize from our previous posts on indexing, the Fama and French model, and past successful super-investors, we want…
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Clues for Investing from the Fama and French 5 Factor Model
In the previous 2 posts, we looked at clues from super-investors and index investing for how we will build our successful investing process. Next we turn to another market model for clues to our investing strategy. The Fama and French model is a simple model to describe returns of assets in markets. It is a…