Most investors cannot tolerate a twenty percent or more decline in the value of their stock portfolio. They become emotional about their investments and the fluctuations in the market upset them. Charlie Munger, Vice President of Berkshire Hathaway, was asked at the depths of the 2007-2008 financial crisis how much he was concerned about the […] The post Solomon Neuhardt Reveals the Best of Value Investing – Part 9 appeared first on Sol Neuhardt...

Most investors cannot tolerate a twenty percent or more decline in the value of their stock portfolio. They become emotional about their investments and the fluctuations in the market upset them. Charlie Munger, Vice President of Berkshire Hathaway, was asked at the depths of the 2007-2008 financial crisis how much he was concerned about the fact that Berkshire Hathaway’s stock had declined by fifty percent during that time period. His answer was “zero.” Berkshire had declined fifty percent several times over the fifty years that the company was under the stewardship of Warren Buffett and Charlie Munger.

During the 2007 to 2008 financial crisis many thought that “buy and hold” investing was not a successful strategy anymore. Buy and hold is a method of value investing where the investor buys a stock that he or she believes will outperform the broader market and then holds it for long periods of time (potentially forever).

In 2006, the Dow Jones Industrial Average was over 14,000. At that time many investors were irrationally exuberant about the gains in the stock market. A collapse in the market was coming and most investors didn’t see it. At its low in 2008 the Dow fell to about 8,000. Investors understandably were concerned about a long term bear market like the US experienced from 1966 to 1982. During 1966 to 1982, the Dow went up very few points during that entire time period. The US experienced an oil crisis in the early seventies followed by stagflation. It was obviously a very difficult time for anyone who invested in a index mutual fund that tracked the market. http://www.amazon.com/Invest-Strategies-Futures-Investing-beginners-ebook/dp/B00Q3EWLYU/ref=sr_1_12?ie=UTF8&qid=1442984312&sr=8-12&keywords=investing

The post Solomon Neuhardt Reveals the Best of Value Investing – Part 9 appeared first on Sol Neuhardt Investing.

By October of 2008, the stock market had collapsed under the then existing financial crisis. Investors were in a state of sheer terror or panic. Historically, a correction in the stock market precedes a correction in the economy. Transversely, the stock market tends to rise before the economy has rising GDP (or accelerating much more […] The post Solomon Neuhardt Reveals the Best of Value Investing – Part 8 appeared first on Sol Neuhardt...

By October of 2008, the stock market had collapsed under the then existing financial crisis. Investors were in a state of sheer terror or panic. Historically, a correction in the stock market precedes a correction in the economy. Transversely, the stock market tends to rise before the economy has rising GDP (or accelerating much more than has been historically true). After the financial crisis of 2007-2008 was over (and long before the economy recovered), the stock market took off. In fact, in 2011 the stock market rose by over 30%. Nonetheless, at the bottom of the financial crisis, most investors were selling in a panic.

A good consistent strategy may be a dividend paying company with a very strong balance that is funded at least 50% by shareholder equity (rather than borrowing the money). A dividend paying business provides for a cushion in a downturn of a market. Furthermore, a business should have a high return on invested capital, such as 15%. This is a high hurdle but ensures that the company is investing wisely. Dividends historically have accounted for half of the returns of the S&P 500. Dividends are normally not associated with small companies stocks but they are available in high quality companies. http://www.amazon.com/Rich-Dads-Guide-Investing-Invest/dp/1612680208/ref=sr_1_11?ie=UTF8&qid=1442807904&sr=8-11&keywords=investing

The post Solomon Neuhardt Reveals the Best of Value Investing – Part 8 appeared first on Sol Neuhardt Investing.

Academics believe that stocks in the stock market are efficiently priced (based on the efficient market hypothesis) and great stock pickers think the opposite. Warren Buffett has been consistently rebutting the efficient market hypothesis for his entire career by beating the broader market (such as the S&P 500. There are two possible methods for value […] The post Solomon Neuhardt Reveals the Best of Value Investing – Part 7 appeared first on Sol Neuhardt...

Academics believe that stocks in the stock market are efficiently priced (based on the efficient market hypothesis) and great stock pickers think the opposite. Warren Buffett has been consistently rebutting the efficient market hypothesis for his entire career by beating the broader market (such as the S&P 500.

There are two possible methods for value investing to view stocks. One is intrinsic value for a company. That is, what is the entire company’s assets worth at any point in time. Many investors think of this as an art rather than a science. A second method is called discounted cash flow, where the future earnings of a company are reduced to present day value. The second method is difficult to do because you are making an estimate about future earnings.

When markets get trampled, as they did during the 2007-2008 financial crisis, investors tend to turn to precious metals such as gold. However, the price of gold can vary wildly and historically it has not performed better than the rate of inflation (about 2 percent per year). Gold performed well during the financial crisis but then lagged thereafter.

The post Solomon Neuhardt Reveals the Best of Value Investing – Part 7 appeared first on Sol Neuhardt Investing.

What creates opportunities in the stock market? Most people are constitutionally oriented to buying lottery tickets. They love to buy the dream. When money pours into the dream it is leaving other areas. It is those people who are chasing after the get rich quick opportunities that create opportunities for the plodding careful investors. The […] The post Solomon Neuhardt Reveals the Best of Value Investing – Part 6 appeared first on Sol Neuhardt...

What creates opportunities in the stock market? Most people are constitutionally oriented to buying lottery tickets. They love to buy the dream. When money pours into the dream it is leaving other areas. It is those people who are chasing after the get rich quick opportunities that create opportunities for the plodding careful investors. The careful investor buys stocks over time rather than all at once.

When mutual fund first opens and has little money in it, the fund manager is able to outperform the broader market because they are not hamstrung by large amounts of cash they need to invest. If the fund performs well then cash starts to flood in and the manager is usually stuck with investing like the broader market and is usually not able to outperform it. A manager may then be faced to take on more risk, possibly resulting in large losses and not coming even close to matching the S&P 500.

An important concept in value investing is margin of safety. For example, lets say you believe something is worth between $800 million and $1.2 billion. This is a range of intrinsic value because there is always uncertainty in the future. So would you pay a billion dollars for it? The answer should be no because this is in the range of what you believe it’s worth and doesn’t

The post Solomon Neuhardt Reveals the Best of Value Investing – Part 6 appeared first on Sol Neuhardt Investing.

In the world of investing in stocks and mutual funds, it is an unfortunate truth that sophisticated investors take advantage of unsophisticated investors. Every trade of a stock has both a buyer and a seller. It is fair to say that the unsophisticated investor will more likely than not be buying when he or she […] The post Solomon Neuhardt Reveals the Best of Value Investing – Part 5 appeared first on Sol Neuhardt...

In the world of investing in stocks and mutual funds, it is an unfortunate truth that sophisticated investors take advantage of unsophisticated investors. Every trade of a stock has both a buyer and a seller. It is fair to say that the unsophisticated investor will more likely than not be buying when he or she should be selling and vice versa. Furthermore, the sophisticated investor will be on the other side of these trades.

It is not uncommon for investors to make the same mistakes over and over again. Examples include buying high and selling low, excessive trading, incurring excessive fees such as trading costs or mutual fund expenses, being more confident about the information that the investor is using to make investment decisions and so forth. http://www.amazon.com/Investing-Dummies-Eric-Tyson/dp/1118884922/ref=sr_1_4?ie=UTF8&qid=1442702715&sr=8-4&keywords=investing

If a stock is overvalued, then a wise investor will buy the stock when the price is going down. It is unlikely that a stockbroker will recommend a stock when the price of the stock is going down because it doesn’t seem like a good buy. People naturally want to buy a stock when the price is going up. The broker of course wants you buying and selling as much as possible because that is how they make their living. They don’t really care if you make money or not (except for maybe a few principled ones).

Many will ask how that they “beat the market” (or do better than the S&P 500)? The answer is generally twofold: better stock picking or market timing. Stock picking that beats the broader market has proven to be extremely difficult to do over long periods of time. Maybe a dozen or so professional or amateur investors have consistently beaten the market over time.

Market timing is trying to predict whether the market overall will go up or down. Trying to predict this is like trying to predict the weather or the interest rates six months from now (if you can do this successfully please call me anytime day or night because we are going to be rich).

Managing smaller amounts of money (such as a million dollars) is usually “easier” for a professional investor to generate high returns than smaller amounts of money. Warren Buffett estimates that he could make 50% a year if he was only managing a million dollars. However, Buffett is managing hundreds of billions as the CEO of Berkshire Hathaway. Therefore, in theory, an individual investor should be able to generate very high returns managing small amounts of money. However, this rarely turns out to be the case.

The misjudgment that goes on in stock picking can be stunning at times. Warren Buffett and Charlie Munger, the Vice President of Berkshire Hathaway, liked the pricing of Coca Cola so much that they were buying about one third of the trading volume for several months. Buffett and Munger made billions on their bet. The misjudgment was the seller of Coke stock at that time when they were buying. Unfortunately these types of errors happen daily.

The post Solomon Neuhardt Reveals the Best of Value Investing – Part 5 appeared first on Sol Neuhardt Investing.

A wise professional investor frequently avoids talking to the management of a company he or she is thinking about investing in. One of the problems of course is that management will tell the investor what he or she wants to hear rather than what is necessary or is the truth. One of the driving forces […] The post Solomon Neuhardt Reveals the Best of Value Investing – Part 4 appeared first on Sol Neuhardt...

A wise professional investor frequently avoids talking to the management of a company he or she is thinking about investing in. One of the problems of course is that management will tell the investor what he or she wants to hear rather than what is necessary or is the truth.

One of the driving forces that deters people from picking their own stocks to invest in is called the Efficient Market Hypothesis (“EMH”). The EMH is the belief that it is impossible to “beat the market” because the all the variables that could be factored into the price of a stock are publicly available and that no stock is underpriced. The EMH is the major reason that many people invest in index mutual funds and why most individual and institutional investors are unable to beat the broader market, such as the S&P 500.

The post Solomon Neuhardt Reveals the Best of Value Investing – Part 4 appeared first on Sol Neuhardt Investing.