Fortunately my portfolio management methods don’t revolve around frequent trading. One of my kids came up to me recently and said, “What did you do today, Dad?” I said, “I made one trade, and I did a bunch of research.” He then asked, “How often do you trade?” I answered, “That was my first trade in a week, and I haven’t traded much in the last two months, but that’s not normal. There is no normal for me. When the market is really volatile, I trade a lot more, selling when stocks are rising, and buying when they are selling off. When the market is relatively placid, I don’t do much.” He looked at me, kind of smiled, and moved on. Information overload from Dad.
Most people and investment managers trade too often. They sell their winners too rapidly, and panic too soon on their losers. Now, I’m not advocating “buy and forget,” or Buffett’s statement, “Our favorite holding period is forever.” Buffett has had a huge opportunity loss on many of his “permanent” holdings. Granted, when you are managing that much money, it is tough, so I give him a pass, not that he needs it from me. (Rather, I am the needy one. If you ever read me, Mr. Buffett, sir, would you send me an e-mail? I have one favor to ask.)
Measure twice, cut once. Risk control is best done on the front end, analyzing what you will buy, rather than having strict sell rules that limit losses. Many who have strict sell rules die the death of a thousand cuts. Careful selection matters more, in my opinion. What should you aim for at present?
- A strong balance sheet
- Cheap price versus earnings and book
- An industry that is needed even in bad times.
- Earnings quality — low earnings from accrual entries.
Well, at least that is what I am aiming for. The following tickers are my working list of buy candidates. If you have other ideas for me or readers, please post them in the comments. Thanks.
ABC ACE ACGL ACN ACS AEE AEP AGL AHL ALE AMGN APA APC ATI AWH BAX BCR BDX BG BHP BOBE BP CAH CB CNQ COO COV CPWR CSC CSL CTAS CVG CVS D DST DUK ECA ED EE EFX EIX ELNK EME ENH ETP EXC FE FIC FISV HELE HES HI HON HPQ HSC IMO IVC JNJ KCI MCK MDT MGEE MRO MUR NJR NOC NOK NPK NST NTRI OCR OGE PCG PCP PDCO RIG RLI SCG SJM SNPS SO SPR SPW SRE STJ SWY SYK T TCK TFX TGI TLM TOT TRV TYC UGI UL VAR VOD VZ WEC WGL WW XEL ZMH
Full disclosure: I don’t any of the above tickers, I am not short them either.
Three stocks I currently own but am feeling more bullish about recently (and may buy more on dips) are USEG, AYSI.OB, and DSNY.OB. The first one is a diversified natural resources company with solid prospects in a number of areas, ranging from molybdenum (a longer term prospect for it), geothermal, uranium, and oil. It had a large pile of cash from selling most of its uranium assets at the top of the market a couple of years ago, and it just put a chunk of that cash to work in a deal in the Bakken field, with an E&P there that was pressed for cash and time. That deal has the potential to make the company profitable next year, which will give it the luxury of patience while some of its longer-term prospects play out.
The second company, AYSI.OB is based in Australia and sells a best-of-breed wear plate made with a proprietary process to the mining industry. This plate coats bulldozer blades, truck beds, etc., and reduces equipment wear and downtime while increasing efficiency (less ore adheres to the surface of it, so more ore can be processed in one pass). It has sold this material successfully to blue chip mining companies in Australia, and now has a thicker version of it to sell. It took a loss last quarter, but it also announced a sale about 6x as large as that loss, which wasn’t reflected in the quarterly numbers. That sale should return it to profitability next quarter. The CEO of this company still owns most of the company, and runs it very conservatively, financially speaking.
The third company, DSNY.OB, is a Canadian tech company that developed a proprietary system to let record companies electronically distribute new singles while watermarking them, limiting delivery to specified recipients, etc. It has deals with most of the major record labels now, and finally turned a profit last quarter. This one’s a little more speculative, but I think it may have turned a corner on profitability now.
I’ve written more about those on my blog, if you want to take a look. I’m guessing they might be too small for your purposes, David, but perhaps not for some of your readers.
BTW, can you tell us your question for Warren Buffett or is that just between him and you?
Next time, would you mind maybe posting these as a table with columns for company name, industry, enterprise value, EV/EBITDA?
Or, if you have these as an xls, would you mind emailing me? I would like to go over them myself.
Just a quick follow up: one of the three companies I mentioned above (AYSI.OB) is up about 100% today on news that it landed a huge long-term contract to supply its proprietary product to BHP Billiton. I noted this in a blog post earlier today, “The Power of a Positive Press Release”.
Another update: AYSI.OB endued up closing up 154%+ today.
Anyone else have stock ideas to share here besides David?
Not that I predicted any short-term bumps for any of these three stocks, but another company I mentioned above, USEG, closed up 20% today. AYSI.OB was up another 10%, on top of its huge gain yeserday, and DSNY.OB was down about 8%. I may add more to DSNY.OB if it’s down tomorrow.
Have you seen DEG instead of SWY?
Extremely able operator. Some currency diversification as well. I’d like to know your thougts.
Sold DSNY at .45 last week, after buying some more at .305 a few weeks ago.