I just lost $3000 after foolishly signing up for variable life insurance.
I knew nothing about what it was and how it worked. The idea of insurance and an investment sounded too good.
That was back in 06-07.
You see, I was just a 24 year old kid who recently moved to the US with no money, no family, no friends.
Making just $30k a year at the time, I saved my tail off and $3k was a huge part of my net worth.
Before deciding to pull the plug on the insurance, I noticed the market going up really nicely into double digits so I was excited to see what my quarterly performance was going to be like.
LOW single digits.
The investment part of the variable life insurance was supposed to be making me money.
Instead the account, maintenance and administration fees were unbelievably high, the insurance salesmen was getting a fat commission and the mutual fund was charging me excessive fees.
The loss stung badly.
But that’s what motivated me to get started.
You Need to Take Control of Your Own Investments
I started to research and study like a madman on investing because I had never studied anything finance or business related.
All I knew was that I needed to take control of my own investments.
But with so much noise in the investment industry, it was getting so hard to keep track of everything I was learning.
That’s how old school value and the stock analyzer got started.
I’m no genius and there were so many things to remember in investing, my head was spinning.
So I took to writing everything down and started creating models and formulas to make it easier the next time I had to look up companies.
I was just so sick of wasting time manually calculating the same ratios over and over again.
That’s why I love this quote by Einstein because it was the opposite of everything I learned in school.
Never memorize something that you can look up
You’re probably in the same situation.
There’s only a limited amount of time each day, and you don’t want to waste half your time tapping on a calculator or updating your own spreadsheets manually.
Use Pareto’s 80/20 Rule for Maximum Success
Getting back to the story, I lost $3k, started studying like crazy and then got to the point where I was automating all the fundamental analysis.
By doing so I was able to fly through a list of stocks to find the best ones to invest in.
The 80/20 rule states that 80% of the work is done in 20% of the time.
And it’s true.
I was able to go through a list of 30 stocks in a day and get detailed stats while working full time.
Originally it took me 4 days.
I’m not talking about basic stats like PE, PB and ROE.
I was getting highly relevant value investing numbers metrics like NCAV, Magic Formula Yield, Owner Earnings ratios, Piotroski Scores and more in 20% of the time now. Numbers that really made sense in knowing more about a company.
It made it really easy to toss out losers quickly and shortlist potential investments.
Companies Shortlisted for a Portfolio
The purple stocks were some of the ones that were selected.
Then couple of years later, here’s what it looked like. The dark blue line is the portfolio performance. Gray dash line is the market performance.
2010 OSV Fundamentals Portfolio Results
2011 Q2 Fundamentals Portfolio Results
(The site where I was tracking this portfolio shut down so the latest results are gone)
I’ve done this with many stocks for my own portfolio which helped to yield a total of 10x more than my first loss in a couple of years.
It’s all thanks to learning from that first big loss and understanding that nobody cared for my money or portfolio as much as I did.
I just needed the proper methods and tools to help me get on the right path.
Expert Among Friends
Along the way, something funny happened too.
I was suddenly the investing expert among friends.
One day I was talking about Apple Inc. (NASDAQ:AAPL) with a really smart friend and the first thing he asked me was;
“What’s the Beta?”
Completely blew me away. I had zero idea and he grinned at the dumbfounded look on my face.
But remember what Einstein said?
I told him, I’ll look into it and later that day, sent him an image something along these lines.
For some reason, we never talked about investing after that.
Now. How Do I Find Stock Ideas?
I must admit that things have changed since 2007.
Running old school value takes an enormous amount of time and energy. Something has to give and so far, sleep and my investing time suffered because of it. That’s why I need even more efficient and powerful tools to get up to speed.
Just a few weeks ago, I released a complete upgrade to the premium spreadsheet package to make it even better to take control of my investments.
OSV members and I can;
- quickly pull 10 years of data + 16 quarterly statements to identify YoY and QoQ trends
- easily determine whether a stock is a stud or a dud with extra custom ratios and visualizations
- identify red flags before stocks crash with deep inventory analysis
- calculate intrinsic value based on a new EBIT valuation model. I’m against using a single model for every stock because there is no one size fits all. You need to use the right tool for the right job.
Here’s a sample of what the new Analyzer looks like. If you’re looking for something to help you gain control, confidence and save time, you’ll love it.
There are two main ways I use the Analyzer to quickly go through ideas and find stocks to invest in.
1. Find a Good List
Leverage somebody else’s work. No need to reinvent the wheel.
Every year, I try to go through all the stocks in the Forbes Best Small Companies list. I’ve listed a number of sites where you can find quality stock ideas. If you are having a hard time finding ideas, start with this list because there are so many great small companies here. I’ve literally profited from dozens of stocks on this list.
Here’s an example where I identified Synaptics, Incorporated (NASDAQ:SYNA) as a very good value candidate at the beginning of the year.
My intrinsic value ranges were;
- Base case estimate: $45
- Normal case estimate: $62
- Optimistic estimate: $75
Too bad it didn’t drop to my buy price. It’s up 15% on the year already.
So if you do go through a list like this and it has 100 stocks, you can use the OSV Analyzer to shorten it down to 20 or so in no time.
2. Go Through Some Qualitative Factors
With the remaining 20, I