How To Beat Markets Like A Crooked Politician
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Invest Like The Best
While the majority of us here don’t have the luxury of regulating industries we invest in (hint hint, Nancy) there are still some great legal ways to potentially outperform in the market.
Everyone’s investing style is different. There are growth investors. Swing traders. Options traders. Buy and hold value investors. Investors who focus on commodities. Real estate. Merger and arbitrage guys. SPAC Investors. High dividend growth investors. The list goes on and on.
I always tell newbies to pick a strategy they like and get really good at it. If you want to become a professional investor play in one sector and learn it all.
My strategy is to invest in the smallest most illiquid stocks that I can find. I love stocks that large institutional hedge funds cannot buy. Stocks so small that anyone dealing with size would have to buy the entire company if they wanted to make it a meaningful position.
I love stocks that are hated. I screen for industries that other investors won’t touch. When a stock is trading at a multi-decade low I get interested. I will look closely at any stock that falls over 30% in one trading session. Usually the market is overly pessimistic when bad things happen, and overly optimistic when good things happen.
I’m also a big value investor by heart. All of my focus is on the future free cash flows a company will generate. Nothing else matters in the long-run. Most of the time if I can make my money back in 2-3 years I will underwrite a position. I focus on the downside first and let the upside take care of itself. Never lose money. Never, ever, lose money.
I keep my portfolio fairly concentrated. I only want to invest in the absolute best investments that I can. The eleventh and twelfth stock in my portfolio doesn’t really matter. It is the top 4-5 stocks that should provide the highest alpha. If I am confident in the fundamentals I want to bet heavy. You don’t get rich off a diversified portfolio of 30 names. You get rich by betting heavy when the odds are massively in your favor.
Fundamental analysis is where it is at. Learn how to read financials and learn how to model. Slapping a multiple on the trailing twelve month earnings will not cut it if you want to outperform. All of the pros build models. Emulate the pros and learn the drivers of a business.
The majority of investors focus on the biggest companies out there. The most popular names (think Tesla, Amazon, Zoom, Netflix, etc.). They stay highly diversified. Never make large concentrated bets that can change their life. Invest in what everyone else is investing in.
If you want to make money in the markets you have to be a black sheep. Invest in out of favor stocks. Buy stocks your favorite hedge fund manager is not buying. Invest in the companies where you don’t have to worry about what the terminal value is, because you will make your money back in 2-3 years. Focus on free cash flow and double down when a position moves against you if nothing has fundamentally changed.
I focus on all of these points in Alpha Letter Pro. Alpha Letter Pro is a service that allows subscribers to see what stocks I am investing in and all of my research on these stocks. Currently there are over 1,150 investors subscribed to the service.
I have recently published a quick blurb on a stock I have been buying. The company just initiated an asset sale that will bring in a large amount of cash sometime early next year. According to the management team, they plan to use this cash to return to investors. At the current valuation, I think the stock can still double, despite the massive run-up.
Since this news has been released I have been trimming or completely selling some prior positions to allocate as much capital as I can to this idea. I think the downside is minimal and it could easily double. Once the market figures out this valuation, I think it will re-rate pretty quickly.
If you want access to this idea and all of my prior research, consider becoming a Pro subscriber. The price for Alpha Letter Pro will doubling after today. Prices will never be this low again. Get subscribed to Alpha Letter Pro for only $10 dollars per month and be locked in for life.
If you have any questions please don’t hesitate to reach out. I can send a few copies of my prior research if you ever wanted to check it out, free of charge.