That Looks Like a Good Idea! What To Do Next

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Today I start my quarterly analysis of my portfolio.  I do it once per quarter to take the emotion out of it and make it businesslike.

But in-between analyses, I read.  I read a lot of stuff, and occasionally I see ideas where I say, “That looks like a good idea!”  After that, I record the ticker symbol and throw away the reason why it seemed good.

Why do I do it this way?  Several reasons:

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1) Quick decisions are rarely good ones.  Lots of people have slick pitches.  Far better to wait a while, and analyze the opportunity coldly, and compare it against other ideas.

2) If I buy this, what should I sell?  Not that you have to sell but it is a good exercise to make you improve the portfolio.  It might indeed be a good idea, but you may have better ideas still in your current portfolio.

3) I need to analyze all opportunities through the same prism, and I need to understand them myself, not just what someone else told me.  If I don’t understand why I am buying, I will not understand when to sell.

The truth is, the need for urgency in investing is overrated.  If an idea is good today, it will likely be good three months from now.  Few investment ideas move linearly, and many ideas seem to fail before succeeding.  Most companies that I have averaged down on have proven to be successes.

So take your time, analyze dispassionately, and compare new possibilities versus existing positions.  And don’t trade much.  It takes time for most investment these to work out.  So choose a small number of new ideas to enter your portfolio, while selling a similar number of old ideas.

I don’t normally do this, and I might not do it in the future, but here are the tickers for the companies that looked like a good idea over the last three months:

ABC, ADP, AGN, AGU, ALTV, AMED, AMGN, ANH, APD, BAGL, BAM, BAX, BBBY, BBT, BCR, BCS, BWP, CAM, CAN, CDI, CHL, CHRW, CLR, COH, COP, CTXS, CVU, DDEJF, DDS, DGSE, DLLR, DLR, DRI, EFII, EGAS, EOG, EP, ESRX, FDO, FSYS, FUL, FWM, GCI, GEL, GG, HA, HK, HLF, HRB, ICE, INOD, INVC, JBLU, JSAIY, KM, KMI, KMP, KR, LH, LNCO, LNVGF, LNVGY, LUK, MAT, MCD, MCO, MFA, MGA, MHLD, MOD, MON, MRO, MSG, MU, MUR, NABZY, NBL, NCR, NOG, NOK, NSANY, NSIT, NSRGF, NTE, OGZPY, OPY, ORCL, OXY, OZM, PBI, PCL, PCM, PDCO, PEP, PERY, PLAB, POT, PZE, QBCRF, RAD, RCII, RCKY, REP, ROST, RYN, SAFM, SANM, SE, SLW, SNBC, SNTA, SWM, SYK, TEN, TGT, TSN, TSO, TU, UCFC, UL, UNP, URBN, VE, VOD, WACLY, WHR, WLP, WMB, WMT, WSBC, XEC

As with anything I write, do your own “due diligence.”  But thanks for reading me.  I appreciate all of my readers.

By David Merkel, CFA of alephblog

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

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