Via Pope Brar
How to become an Investment Guru
1. Develop an Investment Process
Alluvial Fund performance update for the month ended May 2021. Q1 2021 hedge fund letters, conferences and more Dear Partners and Colleagues, Alluvial Fund, LP returned 5.4% in May, compared to 0.2% for the Russell 2000 and 1.0% for the MSCI World Small+MicroCap . . . SORRY! This content is exclusively for paying members. SIGN UP Read More
Make a presentation of about 10 to 15 slides that details your investment process. Start with how you select stocks, then describe how you manage the portfolio. Do you hold a concentrated or diverse portfolio? How you do manage risk? What is your average holding period? What are the key investment principles? When do you buy and sell?
2. Build an Investment Track Record
To test your investment strategy, build a track record over at least 2-3 years. Track it against an appropriate benchmark such as the S&P 500 if domestic, or the MSCI World Index, if global. Successful outperformance over the long term reinforces effectiveness of the investment strategy.
3. Analyze 13F Filings
Start by reading 13F filings from the SEC. 13F’s list investment transactions of large investors. Select a few that have a good long term track record. If the investor has a substantial position, analyze and reverse engineer for hidden value. Websites such as Sec.gov, Gurufocus.com, and Dataroma.com track 13F filings from the world’s top investors.
4. Study Special Situations
Read special situation publications to learn about upcoming (and past) spinoffs, bankruptcies, and rights offerings. This area of the market is ignored due to poor analyst coverage and lack of historic data. To become a special situations expert, read Joel Greenblatt’s How To Be A Stock Market Genius.
5. Use Investment Checklists
Use an investment checklist to stress test or potentially “kill” the company’s business model and potentially reduce investment mistakes. Visit our website for an extensive investment checklist. It covers mistakes of investment guru’s such as Seth Klarman, Peter Lynch, Bruce Berkowitz, Warren Buffett, and others.
6. Reverse Engineer
Select an investment made by a top investor and determine the catalysts. Start by reading the annual report, news, and conference call transcripts. Visit websites such as SumZero and Value Investor’s Club to find sample investment cases.
7. Observe Macro Valuation Indicators
Inflated and underpriced market environments can be determined with a few reliable indicators. Total Market Cap to GDP is a variable that Buffett utilizes to determine market valuations. Visit the following link for details: http://www.gurufocus.com/stock-market-valuations.php. Another indicator is the historic PE ratio of the S&P 500 Index, found here: http://www.multpl.com . Other indicators are market specific. For example, during overpriced markets created by rising house prices (see 2007-2008), it may help to look at the house price to consumer income ratio.
8. Visit Great Investors
Attend shareholder meetings of notable investors. Ask for an invite to their annual meeting. They may discuss their investment process, portfolio, and current market conditions. One can also potentially meet other like-minded investors.
9. Read Investment Books
For starters, One Up on Wall Street by Peter Lynch is a practical read. The Intelligent Investor by Ben Graham is quoted as the best investment book. One can also diversify into other valuable books such as Security Analysis by Ben Graham, The Dhandho Investor by Mohnish Pabrai, and for special situation investing How To Be A Stock Market Genius by Joel Greenblatt.
10. Read Financial Magazines
Regularly read Barrons, Forbes, and Businessweek. The magazines contain industry developments, investment ideas, and global economics.
11. Read Newspapers
“In my whole life, I have known no wise people who didn’t read all the time — none, zero.” – Charlie Munger
Regularly read newspapers such as Wall Street Journal, Financial Times, along with a local newspaper for regional insight. Newspapers announce shifts in industries before Wall Street prices in news on a large scale. In addition, it may help to invest in a speed reading course to read efficiently and save time. A top investor such as Warren Buffett reads more than 5 newspapers daily.
12. Observe Surroundings
Peter Lynch often said that Wall Street analysts are better served by visit a mall than sitting in front of a Bloomberg terminal. Observing your environment can provide you with valuable insight that an investment institution may get only after quarters or years. Observe clothes your family and friends wear, cars they drive, restaurants they dine.
13. Rationalize Your Mind
Take a short midday nap to refresh the mind. Similarly, meditation is a valuable exercise to increase one’s focus and allow for rational thought.
14. Read Annual Letters
Choose top 5 investors that you admire and subscribed to their annual letters. You can also visit websites such as GuruFocus, Dataroma, or Market Folly where letters of top investors are publicized.
15. Learn From an Experienced Mentor
Choose an investor that you admire and emulate their method. This invaluable practice saves years of self-education and mistakes.