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I thought this was great. Perhaps you guys will as well.
Fallen Angel Stocks:
Warren Buffett Vs. Shaq
Dylan Jovine
WARREN BUFFETT AND SHAQ HAVE A LOT MORE IN COMMON THAN YOU THINK.
No, I'm not talking about the fact that everybody who sees them standing next to each other thinks that they're twins.
Nor am I talking about the fact that everybody who meets them wants their autographs.
What I happen to be talking about is that each one has made a career, and a fortune, out of taking "high percentage" shots.
In Shaq's case, his high percentage shots come from underneath the basket where he can sink 70% of his attempts (versus 30% for outside shooters).
In Buffett's case, his high percentage shots come from buying stocks so cheap that he's essentially "standing under the basket" all day.
This point was reinforced to me recently when I was sent the following question from one of our prospective subscribers:
QUESTION:
Why do you only recommend stocks when their shares have dropped? Isn't it more dangerous to buy a stock when it's dropping than when it's rising?
ANSWER:
Thanks for your question, Jonathan.
I understand how counter-intuitive it can be to try to buy shares of a company when a stock is actually dropping.
In fact, it seems that almost every investor, whether professional or not, starts investing by using technical analysis.
I’m no different, I spent the first two years of my career trying to predict the direction of stock prices by reading charts.
It’s clear now in hindsight to see why I, as most others people, begin that way: learning technical analysis is easy.
In fact, that’s why most people get into it. I can’t tell you how many new investors I’ve met in my career who are fascinated by the visual appeal of a graph with squiggly lines and arrows.
And when you see how much you could have made had you bought at one of the past “buy points” on the chart, then it almost seems foolproof.
Who in their right mind wouldn’t want to make what looks like easy money by reading something as simple as a chart?
But let's look at the cold, hard facts.
Investing is about making money. And the way investors “keep score” is by determining how much money they make investing. Thus it was disturbing when, two years into my career, I realized that there wasn’t one technical stock analyst on the Forbes 400 list.
Sure, there were macro traders, such as George Soros and Steven Cohen.
But there wasn't one investor who made the list who used technical analysis to trade stocks.
I know it’s hard to believe, but it’s true: even William O’Neil, owner of Investor's Business Daily and the biggest proponent of the craft, is nowhere to be found. Neither are any of his most famous “students” that he mentions in his book.
Perhaps even more disturbing, when you really think about it, is that technical analysts advocate the use of pricing and volume to determine whether you should even buy a stock in the first place.
If a stock breaks out to a higher price on heavy volume, that typically means that you should purchase it.
If a stock drops in price, that means you should sell it.
I think that's silly. Let me explain why:
When you purchase a stock, you're buying shares of an actual business, not a floating piece of paper. And technical analysts believe it is better to buy a piece of a business at a higher price
than at a lower price!
Imagine you took that approach to buying a new house? Or a car? Or a watch?
Think about it for a moment.
Would you run out and buy a new home just because its price was 50% higher today than it was yesterday?
Would you avoid your dream home just because its price was 50% lower today than it was yesterday?
(No wonder they’re not on the Forbes 400 list; the art of financial suicide doesn’t pay over the long term.)
Nope. When I wanted to learn how to invest, I started by studying the most successful investor in history - Warren Buffett.
And then I went back in time to the people that HE learned from.
Ben Graham. Phillip Fisher. David Dodd. J.M. Keynes. C. Kindleberger. Michael Porter, and others.
By the time I was finished, I had read books on valuation and investment theory dating back to the 1500's.
What I learned astounded me.
I learned that if done properly, investing in stocks was actually very simple if you followed FIVE RULES.
And it was these five rules that each of the wealthiest investors on the Forbes 400 list seemed to follow consistently:
RULE 1. ALWAYS PROTECT YOUR MONEY FIRST.
RULE 2. NEVER FORGET RULE NUMBER ONE.
RULE 3. VIEW INVESTING IN STOCKS THE EXACT SAME WAY YOU VIEW BUYING AN ENTIRE COMPANY.
RULE 4. ONCE YOU FIND A BUSINESS YOU LIKE, DETERMINE ITS VALUE.
RULE 5. THE ONLY WAY TO PROTECT YOUR MONEY IS TO BUY THE BUSINESS WHEN IT'S SELLING FOR A SIGNIFICANT DISCOUNT TO ITS VALUE.
And that leads me to the art of buying $1 for 50 cents.
If I offered to sell you $1, would you be happier paying 50 cents for it or 75 cents for it?
Most of us would be happier paying 50 cents for it.
Why?
Because we'd all like to pocket the extra money.
What we do here at Fallen Angel Stocks is similar: we have a list of great companies with very strong underlying businesses.
But instead of paying 90 cents on the $1, we try to buy them for 50 cents on the dollar.
And that means we oftentimes have to wait for a short-term problem to send the stock low enough for us to buy a real bargain.
But when we get a chance to buy a good company at a cheap price, our chances of making money are VERY HIGH.
And that brings me to Miami Heat Center, SHAQ.
Arguably the most important reason that Shaq is the most dominant player in basketball is that his sheer size allows him to sit virtually underneath the basket and make high percentage shots all day long.
In fact, Shaq scores 60% of the time he shoots (#1 in the NBA.)
In contrast, Damon Jones, formerly from the Miami Heat, is arguably the best 3-point shooter in the NBA.
He makes 40% of his shots.
What does this prove? It proves that the closer you are to the basket, the more likely you are to get it in.
And the way we get "close to the basket" is to buy Fallen Angel Stocks for 50 cents on the dollar.
--Enjoy, Dylan Jovine
Fallen Angel Stocks:
Warren Buffett Vs. Shaq
Dylan Jovine
WARREN BUFFETT AND SHAQ HAVE A LOT MORE IN COMMON THAN YOU THINK.
No, I'm not talking about the fact that everybody who sees them standing next to each other thinks that they're twins.
Nor am I talking about the fact that everybody who meets them wants their autographs.
What I happen to be talking about is that each one has made a career, and a fortune, out of taking "high percentage" shots.
In Shaq's case, his high percentage shots come from underneath the basket where he can sink 70% of his attempts (versus 30% for outside shooters).
In Buffett's case, his high percentage shots come from buying stocks so cheap that he's essentially "standing under the basket" all day.
This point was reinforced to me recently when I was sent the following question from one of our prospective subscribers:
QUESTION:
Why do you only recommend stocks when their shares have dropped? Isn't it more dangerous to buy a stock when it's dropping than when it's rising?
ANSWER:
Thanks for your question, Jonathan.
I understand how counter-intuitive it can be to try to buy shares of a company when a stock is actually dropping.
In fact, it seems that almost every investor, whether professional or not, starts investing by using technical analysis.
I’m no different, I spent the first two years of my career trying to predict the direction of stock prices by reading charts.
It’s clear now in hindsight to see why I, as most others people, begin that way: learning technical analysis is easy.
In fact, that’s why most people get into it. I can’t tell you how many new investors I’ve met in my career who are fascinated by the visual appeal of a graph with squiggly lines and arrows.
And when you see how much you could have made had you bought at one of the past “buy points” on the chart, then it almost seems foolproof.
Who in their right mind wouldn’t want to make what looks like easy money by reading something as simple as a chart?
But let's look at the cold, hard facts.
Investing is about making money. And the way investors “keep score” is by determining how much money they make investing. Thus it was disturbing when, two years into my career, I realized that there wasn’t one technical stock analyst on the Forbes 400 list.
Sure, there were macro traders, such as George Soros and Steven Cohen.
But there wasn't one investor who made the list who used technical analysis to trade stocks.
I know it’s hard to believe, but it’s true: even William O’Neil, owner of Investor's Business Daily and the biggest proponent of the craft, is nowhere to be found. Neither are any of his most famous “students” that he mentions in his book.
Perhaps even more disturbing, when you really think about it, is that technical analysts advocate the use of pricing and volume to determine whether you should even buy a stock in the first place.
If a stock breaks out to a higher price on heavy volume, that typically means that you should purchase it.
If a stock drops in price, that means you should sell it.
I think that's silly. Let me explain why:
When you purchase a stock, you're buying shares of an actual business, not a floating piece of paper. And technical analysts believe it is better to buy a piece of a business at a higher price
than at a lower price!
Imagine you took that approach to buying a new house? Or a car? Or a watch?
Think about it for a moment.
Would you run out and buy a new home just because its price was 50% higher today than it was yesterday?
Would you avoid your dream home just because its price was 50% lower today than it was yesterday?
(No wonder they’re not on the Forbes 400 list; the art of financial suicide doesn’t pay over the long term.)
Nope. When I wanted to learn how to invest, I started by studying the most successful investor in history - Warren Buffett.
And then I went back in time to the people that HE learned from.
Ben Graham. Phillip Fisher. David Dodd. J.M. Keynes. C. Kindleberger. Michael Porter, and others.
By the time I was finished, I had read books on valuation and investment theory dating back to the 1500's.
What I learned astounded me.
I learned that if done properly, investing in stocks was actually very simple if you followed FIVE RULES.
And it was these five rules that each of the wealthiest investors on the Forbes 400 list seemed to follow consistently:
RULE 1. ALWAYS PROTECT YOUR MONEY FIRST.
RULE 2. NEVER FORGET RULE NUMBER ONE.
RULE 3. VIEW INVESTING IN STOCKS THE EXACT SAME WAY YOU VIEW BUYING AN ENTIRE COMPANY.
RULE 4. ONCE YOU FIND A BUSINESS YOU LIKE, DETERMINE ITS VALUE.
RULE 5. THE ONLY WAY TO PROTECT YOUR MONEY IS TO BUY THE BUSINESS WHEN IT'S SELLING FOR A SIGNIFICANT DISCOUNT TO ITS VALUE.
And that leads me to the art of buying $1 for 50 cents.
If I offered to sell you $1, would you be happier paying 50 cents for it or 75 cents for it?
Most of us would be happier paying 50 cents for it.
Why?
Because we'd all like to pocket the extra money.
What we do here at Fallen Angel Stocks is similar: we have a list of great companies with very strong underlying businesses.
But instead of paying 90 cents on the $1, we try to buy them for 50 cents on the dollar.
And that means we oftentimes have to wait for a short-term problem to send the stock low enough for us to buy a real bargain.
But when we get a chance to buy a good company at a cheap price, our chances of making money are VERY HIGH.
And that brings me to Miami Heat Center, SHAQ.
Arguably the most important reason that Shaq is the most dominant player in basketball is that his sheer size allows him to sit virtually underneath the basket and make high percentage shots all day long.
In fact, Shaq scores 60% of the time he shoots (#1 in the NBA.)
In contrast, Damon Jones, formerly from the Miami Heat, is arguably the best 3-point shooter in the NBA.
He makes 40% of his shots.
What does this prove? It proves that the closer you are to the basket, the more likely you are to get it in.
And the way we get "close to the basket" is to buy Fallen Angel Stocks for 50 cents on the dollar.
--Enjoy, Dylan Jovine
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