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35+ years as a private investor, college finance/economics adjunct lecturer, corporate project engineer and business development strategist, individual and small business tax preparation. Corporate experience in communications and energy BS Mechanical Engineering - Carnegie Mellon University MBA... More
  • The Three M's 0 comments
    Jun 26, 2013 6:59 PM

    The best tip in all of stock market history has been "Do not take any tips.". Do your own investigation before you make any investments. Minimize risk to your comfort level. Invest in what you know and are familiar with. Peter Lynch got his best tips from his wife and daughters, quizzing them on where they shopped and what was hot. But he did not stop there. He went to the stores, talked to the sales people and visited senior management at their headquarters. He studied the competition, and visited their management, stores, offices and factories, too.

    Investigate before you invest:

    The three M's provide a good "bottoms up" approach to studying the wherewithal of a potential investment.

    • Management
    • Markets
    • Money, i.e. the balance sheets, cash flow and income statements. Top line growth, bottom line growth, profit margins. Sufficient operating capital, ownership by institutions, key individuals and management. Who is buying and who is selling.

    Peter Lynch, Marty Zweig, Frank Cappielo, John Templeton, all members of Louis Rukeyser's Hall of Fame readily admitted to making mistakes, plenty of them. They all took advice from people they worked with, but they minimized their losses and never quit.

    You do not have to profit from all of your investments. You just have to win more than you loose and cut your losses when your investment idea/notion/concept begins to unravel due to fundamental changes in data and strategy.

    To get a good handle on strategy, there is still nothing better than the 1980 book "Competitive Strategy" by Michael Porter, the engineering student turned Business School Professor. Start with Figure 1-1, the Forces Driving Competitive Strategy and you will be on your way to slicing and dicing how managements matter, markets meander and money moves.

    Most people panic out of investments much faster than they gingerly move into them, unless they are tip takers, who move much too quickly in both directions. The pain of loss is many times greater than the thrill of victory to the point where many investors just won't invest anymore...and there is always buyer's remorse or second guessing oneself. And if you doubt yourself, imagine what a well equipped wordsmith can do to your confidence with equivocation, dubious data and slight of "pen." It does not take much to make you wonder about the return of your capital, never mind the return on your capital.

    The next time someone gives you a hot investment tip, make sure you do not act based on that advice alone. If you do, you fall prey to the shorts or those looking to get a great price on a valuable company. You will have your finger on the sell trigger at the slightest hint of negativity. Instead, seek out the three M's, know enough of what you are getting into so that when you do invest, it will be because you are an informed owner of that business asset.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I have no business or other relationship with the authors, analysts or investment managers mentioned.

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