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INVEST1000 Case Study And Our Brave Hero

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“Does the Action Score Work?”

“How much money do people make with the Action Score?”

These are two frequently asked questions that I get from visitors.

Of course they are.

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The core purpose of investing in anything is to make a return. But putting a hard number next to any investing methodology is asking to be shot in the foot.

Those who learn the ins and outs and put it into practice will benefit the most. Many people don’t want to put in any effort, call it quits and then label it as a scam.

I revealed my 2017 portfolio and how I put it together, but I’m not going to say you will achieve the same returns.

To be frank, I attribute the returns you see below to luck. These are the latest results at the end of Q2.

In a down market, invert the greens and reds.

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2017 Jae’s Action Score Portfolio

The INVEST1000 Case Study

In order to show you how the Action Score is used and how a portfolio is constructed, INVEST1000 is a case study following the progress of how $1,000 will grow.

It’s a small amount and there are some challenges involved, but the kicker is that this $1,000 is not mine.

A new member has taken upon himself to start small and see how it goes.

We’ll be documenting and tracking, from start to finish, how the portfolio is created by going through the process I take in shortlisting candidates.

I’ve got my fingers crossed that the portfolio will be a success – for obvious reasons.

I could do backtests all day and show you that it’s profitable, but what matters is how it does with real money – in somebody else’s account.

That’s more real and trustworthy right? ?

My own portfolio has benefited by including quant analysis, but how will it do when used by somebody with a very different background?

That’s what INVEST1000 will help us find out.

Meet Lester, our INVEST1000 Case Study Hero

What makes INVEST1000 interesting is that:

  • Lester is a graduate student and new to value investing
  • Lester has more experience with trading and technicals
  • Will be using technical analysis on deciding entry and exit point
  • Limited to $1,000 which will introduce some unique challenges

Over the next couple of weeks, we are going to share our video coaching calls where I walk through the process.

We’ll share Lester’s picks and what his plan of action will be.

First, I did not want to do a case study with somebody

  • who was too busy to even start
  • who was not willing to do the legwork in learning how Old School Value worked
  • who wanted me to tell them what to do
  • who is too risk averse

Lester was a great fit because:

  • He already knew the value of his time
  • He understands his own psyche and temperament (most likely due to his poker and trading)
  • He is very new to value investing
  • He is very motivated and I love his “go get em” attitude
  • Most importantly – easy and fun to talk to

Because it’s so important to look at things in context and to understand how INVEST1000 will work, you have to understand the back story of Lester.

With that said, I’m going to hand the mic over to Lester and let him share his story.

(I swear, I did not ask Lester to mention Old School Value like he did…lol)

My History with Money

When I was kid (grade school), I always liked to save money.

Not for the inherent desire to have it pile up and watch it, but I had an intuitive understanding that having a stockpile of resources could come in handy.

I never really wanted anything big. If it came around, then at least I would have a chance in getting it.

My relatives or family are mostly physicians and nurses, so they never really got into investing or stocks. My guess is they just do whatever their financial adviser tells them to do ?.

When my uncle found out I was a Forex trader, he told me he used to have money in the Medallion Fund, when it was still managed by James Simons. I don’t really have any negative views about money like it being evil or anything.  I just see it as a tool that offers the owner options.

Washington Turmoil Creates Uncertainty For Investors

In my last year of undergraduate, I decided to learn about investing like a responsible adult.

This led me to Rich Dad Poor Dad by Robert Kiyosaki.  I actually signed up for the coaching too, but felt it wasn’t that good for the price.  I don’t like talking bad about his product, since I loved his books so much.

Basically, I learned that I could actually have money work for me.  If I piled enough of it, I could acquire businesses, investments, systems, etc. that could free me from working for a living.

I could be free – at least from the daily need to work to survive.

This newfound belief lead me to get a masters in accounting and financial management (just graduated), study for an MBA, waiting to hear if I got into a MS in financial engineering, and, lastly, a doctorate in business (DBA) with plans to take CFA (Charted Financial Analyst) level 1 this December.

I want to learn everything I can about investing/business, so that I can create a wealth that can free me.

In turn, I can support the causes that I believe in, and directly support hundreds of other families with jobs.

Investing Experience

Two years experience trading the spot foreign currency markets.  I was a discretionary trader, meaning I would make personal trading judgement, if a currency pair would go up or down.  Late last year, I got lucky and found some algorithmic traders.

This allowed me to automate my trading and free up some time.

Personally, I have goals of starting up a multi-strategy hedge fund. In doing so, I need to branch out more than just currencies. I need to learn about more asset classes, so this lead me to stocks – luckily I found Old School Value.

Beliefs About the Stock Market

My beliefs about the stock market is that it is another method to create wealth or (inclusive or) income.

Everybody knows Warren Buffett, and other people have made money through Value Investing.

I am a realist and an empiricist.

So if it worked for others, then it can work for me.

I just have to find the right people and right processes to get there. I think OSV is my new home, or, at least, it’s a good place to start.

My Goals with the $1,000 Investment

My goal with the $1,000 is to profit of course, and to learn how to value invest.

I see this $1,000 as one of the many steps in a thousand miles to reach my destiny of financial freedom – at the very least, give me the options to not worry about working.

Having Doubts as an Investor

Strangely enough, I don’t have any big doubts about being an investor.

I was a professional poker player back in undergraduate.

I learned how to accept risk from that, and it got me used to handling the downside of growing my money in a probabilistic sense. I’m going to do this investing thing and go all in.

If it fails, I’ll just be a manager in some company or a professor.

Best case, I fulfill my life goals.

I guess this unshakable belief or faith partially comes from when I used to hustle chess tournaments for cash in high school.

In chess, you plan everything out and have to do the best you can.

You have to believe in yourself, because you’re all you got in that moment.

If you don’t, that guy across from you will crush you, and you’ll (I mean of course me) end up working at my first terrible data entry job again.

How Old School Value will Help and in What Way

This is probably going to come off as a sales pitch for Old School Value, but whatever.

First off, my impression is Jae to be really good guy. I saw photos of him sponsoring children, he’s super transparent about his process, and he offers great material on value investing.

Did you see his recommend books for value investing?

They are great, and that’s already something coaches would charge around $500/month just to tell you.

OSV also explains how they construct each metric they make. You’re not left in the dark trusting some magic box. You can actually use the information in front of you to hone your craft of the art that is value investing.

My goal is to get ahead of the learning curve and time spent analyzing the universe of stocks. By starting early, the time you would have spent learning how to invest is now spent earning you a return.

Lastly, OSV’s customer service has a great reputation. You don’t get that by being bad. They are good. This is key, since you can get help when you are stuck.

For a value investing noob/beginner like myself, this is a tipping point.

Why I’m Selecting My Own Stocks When the Pros Can’t Beat the Market

I do think the pros can beat the market – just have to look at the right pros.

But seriously, different financial professionals have different motives.

Most of them just try to beat a bench mark like the S&P 500, or are more worried about amassing a large AUM.

I do think there are some good money managers out there, but they are hard to find.

I plan to be one of those good ones, and I have to start sooner or later.

Why not now?

I hate to spit out Warren Buffett quotes like all the other Value Investing seminars, so I’ll just say there are above average returns out there.

You just have to develop the skill and perseverance to do it.

OSV helps by cutting down the analysis time, and letting you focus on the key stocks you want for your portfolio.

Value Investing + Technical Analysis

  1. The goal is to correctly apply Jae’s proposed methodology of value investing.
  2. Fundamental analysis was something I always wanted to get into but never had the chance until now.

Initially, the plan was to use the Action Score to buy into stocks with a diversified portfolio (20-30 stocks) and use technical analysis as an exit.

This idea came to me, when I looked at George Wu’s paper analyzing the Action Score on “A” tier action score stocks.

There were large fluctuations in returns for the 2015 sample.

INVEST1000 Case Study

I think I could reduce the downside by using various technical analysis techniques using Bollinger Bands with support and resistance trend lines.

For now, I plan to do the technical analysis myself without any trading robot.

On a random note, I already looked at the sample for that year, and found that I probably would have exited the losing stocks in the first 3-6 months based on the price action.

As I looked deeper into Wu’s sample, I also had a question of flipping the above mentioned strategy a bit.

Would adding a layer of technical analysis on the entry point of “A” stocks perform better with an exit of 1 year or whenever the Action Score turns into D grade?

If this one worked, it would actually be easier to manage as the work would mostly be on the front end. It’s a method I highly recommend for new people, so their emotions don’t ruin their returns.  For example, getting out of a long stock due to fear of it going lower, only to end up seeing it shoot up.

For those of you wondering what time frame I will be using, I’m picking the daily to weekly chart.

The reason is, I plan to hold these stocks for months, so anything smaller would basically be noise.

Also, I didn’t want to end up swing trading the stocks, or, in other words, get too technical (I know I’m terrible). The reason I picked Bollinger Bands is it’s actually really easy to trade discretionary and leaves a good amount of room for judgement.

I also like support and resistance levels, since they are pretty simple and adds a layer of confidence on trading.

From my experience in creating trading robots, simple is usually more robust/profitable in the long run.

The more simple it is, the less likely it is to mess up. The less we mess up, the more money we make.

  • If you want to reach me, add me on LinkedIn

INVEST1000 Episode 1 Coming Up

Lester and I’ll be going through and discussing the challenges faced with trying to invest $1,000 in a diversified portfolio, which broker will be used, how to shortlist the candidates and coaching tips on reading and interpreting the Action Score to make better judgement calls.

To follow along, make sure you are signed up with your email or the blog.

You don’t want to miss the details and coaching provided in the next episode.

Article by Jae Jun, Old School Value


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