Moneyball Investing!

Few weeks back I saw Brad Pitt's movie about Moneyball and I was really impressed with the concept, results and actual movie! If statistics can be applied to baseball and create a team of "undervalued" players which can break 106 year old record of continuous wins, why can't same principle be applied while selecting stocks to invest. I did Google on "Moneyball Investing" and not surprisingly found many well-written articles. So you must be wondering - why one more blog on same topic? Well - it's my take on this concept since I have been doing this in practice for last few years and in fact that's how I started my investing back in India.
Here is my take on Moneyball approach to investing:

• Do detailed analysis and trust your analysis even if market signals are telling different story. That's how you discover "undervalued" stocks
• Don't go for "star" stocks e.g. Internet stocks in 2000, financing/housing stocks in 2005 and so on
• Have discipline - whatever you decide to do, follow thru it. This is especially critical when to sell. Most of us are reasonably good at when to buy but very poor at deciding when to sell. This is where discipline is extremely important. For example: If your strategy is to sell after 100% gains, follow thru it and sell it. It's better to write your strategy whatever it may be, in BOLD where it is visible to you 
• Harvest your long-term holdings by selling "out-of-money" covered calls every month or quarter. This is equivalent of creating a "dividend" stream from your long-term holdings.
• Don't fall in love with your picks. If due to macro/company factors things change, be ready to do your analysis again and sell if you think things have changed significantly. You need to have courage to sell at loss if required. This is critical especially if you are considering technology companies. Check RIMM, NOK as examples. One could have forecasted writing on wall back in 2007 when iPhone was introduced. At that time RIMM was at 125 (90% down) and NOK at 40 (80% down)
• Baseball term: Go for singles and stay on bases without getting out. This means that go for stocks which can give 20-30-40-100% instead of home-runs (1000%). 
• In baseball, staying @ base is important since it has more than 0% chance of making a run. Same goes for stocks. Staying out of bankruptcy has more than 0% chance of positive returns. This is critical to understand if you are looking at stocks with high-leverage. Companies can and do go bankrupt in which case shareholders get wiped out (e.g. EK, AMR, GM and so on). 

Enough about key points - are there some real stocks now which could pass "Moneyball" filter. Here are my picks: CECO ($8), KND ($9), MWW ($9), RDN ($3.60), NFLX ($100), FTR ($4.4). Do your own due-diligence regarding any of these before investing.

One final note: Super Tuesday did not produce any clear winner. So looks like GOP presidential nomination race would continue well into Summer. Here is one interesting idea for GOP.

GOP ticket: Romney-Santorum!

I won't be surprised if this happens.

Have a great weekend!

/Shyam