Skip to main content

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

Comments

Post a Comment

Popular posts from this blog

2025 = Is it going to be 1997 or 2000?

Happy Holidays... After 5 months of hibernation with no real reason than writing block, I decided to use quiet morning of Christmas day to start writing again. Lot has happened in last 5 months - in particular release of Animal Spirits with Fed starting interest rate reduction cycle and historic victory of President Trump for 2nd term. As the year turns into 2025 and stock markets at all time high, one would wonder, what's next?  To answer this, one needs to look back at 1920s and 1990s to give us some context on where markets may be headed. 1920s saw invention of televisions, radio, wider adoption of cars, vacuums, penicillin and many other which we consider household items now. These inventions created roaring 20s with markets going up by 500% eventually leading to crash of 1929. However during mid-20s, markets keep going up due to excitement of these inventions and end of World War-1 and Spanish Flu Pandemic. 1990s also saw many inventions - the key being launch of Netscape in 1...
Post a Comment
Read more

Elections and Rotations!

2024 will be known as an important year in terms of elections (97 nations covering half the population) across the major countries in the world. We are only halfway thru the year and already some key nations have gone thru elections and voters have indicated their preference for change (in a way). Let's take a look at few. India - Modi's BJP started with lots of enthusiasm with slogans of "Modi ki Guarantee" and "400 paar" (more than 400) seats (out of 543). Indian voters (which I considered one of the most smartest) gave reality check to Modi and BJP by reducing BJP count to 240 (from 303 in previous parliament) forcing it to form coalition government. I have lot more detailed hypothesis on these results (but not here). Almost everyone (including me) got their predictions wrong and lost some friendly bets. Indians want balance between "Strong, Prosperous, Proud" India with "Inclusive, Employment and Harmony". Modi and BJP are quick learn...
Post a Comment
Read more

And the Oscar goes to...

It's Oscar Sunday and time for predictions for few categories - before I digress into talking about drama in DC or markets.  First of all, I want to recognize the damage LA fires have done to the beloved areas of Los Angeles and impacted families across all spectrums. My heart goes out to them and wish them recovery and rebuilding of their lives... This year's Oscar nominees and post nomination period had been interesting to say the least. Due to this, the field is wide open in almost all categories and that's what makes prediction game so interesting. Just to set expectations, I would consider a win if I get even 50% predictions correct given the dynamics of nominees this year. So here are my predictions - "And the Oscar goes to..." Best Picture - Anora (surprise could be "The Brutalist") Best Director - Sean Baker for "Anora" (Surprise could be Brady Corbet for "The Brutalist") Best Actor - Adrien Brody for "The Brutalist"...
Post a Comment
Read more