You Can Be a Stock Market Genius
You Can Be a Stock Market Genius

You Can Be a Stock Market Genius

only those occasions when they have a clear conviction. It makes sense that if you limit your investments to those situations where you are knowledgeable and confident, and only those situations, your success rate will be very high. (Location 263)

The strategy of putting all your eggs in one basket and watching that basket is less risky than you might think. (Location 268)

Ideally, your decisions to buy and sell stocks should be based solely on the investment merits. (Location 312)

Leaving some of your assets on the sidelines (i.e., out of the stock market) should be your compromise to prudent diversification. (Location 313)

From time to time, this selective strategy may result in slightly wider swings in performance than a strategy based on owning a few shares of everything, or what’s known as an indexing approach. (Location 316)

Comparing the risk of loss in an investment to the potential gain is what investing is all about. (Location 344)

downside risk severely by investing in situations that have a large margin of safety. The upside, while still difficult to quantify, will usually take care of itself. In other words, look down, not up, when making your initial investment decision. If you don’t lose money, most of the remaining alternatives are good ones. (Location 356)

The explanation for this may be that individuals and professionals systematically overrate the long-term prospects of companies that have done well recently, and at the same time underestimate the value of companies that are under-performing or unpopular at the moment. (Location 380)

Buffett tries to focus on well-managed companies that have a strong franchise, brand name, or market niche. In addition, his investments are concentrated in businesses that he understands well and that possess attractive underlying economic (that is, they generate lots of cash) and competitive characteristics. (Location 390)

he also benefits from the future increase in value generated by owning all or part of a business that is well situated. Graham’s statistical bargains generally do not benefit from this added kicker. (Location 392)

The challenges you face in choosing the few stellar businesses that will stand out in the future will be even harder than the ones faced by Buffett when he was building his fortune. Are you up to the task? Do you have to be? (Location 440)

A widely diversified portfolio of stocks with low P/E ratios and low price-to-book ratios still produces excellent results and is relatively easy to emulate. (Location 446)

The first you know: it will take some work. The good news is that you will be well paid. (Location 457)

Your investment advantage is usually at its greatest immediately before, during and right after the corporate event or change. Your window of opportunity may be short and therefore your holding period may also be short. (Location 459)

Spinoffs can take many forms but the end result is usually the same: A corporation takes a subsidiary, division, or part of its business and separates it from the parent company by creating a new, independent, free-standing company. (Location 493)

significantly and consistently outperform the market averages. One study completed at Penn State, covering a twenty-five-year period ending in 1988, found that stocks of spinoff companies outperformed their industry peers and the Standard & Poor’s 500 by about 10 percent per year in their first three-years of independence.* (Location 498)

Another reason spinoffs do so well is that capitalism, with all its drawbacks, actually works. (Location 556)

more direct incentives take their natural course. (Location 558)

In the Penn State study, the largest stock gains for spinoff companies took place not in the first year after the spinoff but in the second. (Location 560)

More likely, though, it’s not until the year after a spinoff that many of the entrepreneurial changes and initiatives can kick in and begin to be recognized by the marketplace. (Location 562)

Logic, common sense, and a little experience are all that’s required. (Location 581)

Most professional investors don’t even think about individual spinoff situations. (Location 582)

The crowd, after all, could be right. (Location 614)

On the other hand, there were a few things about this situation beyond its obvious contrarian appeal (it looked awful) that made me willing, even excited, to look a bit further. (Location 615)

Host was going to own hotels; whereas the business that attracted most Marriott investors was hotel management. (Location 631)

technical), it will be more helpful to think of Host—the entity comprising 10 to 15 percent of Marriott’s original stock market valuation—as the spinoff.) (Location 637)

In the case of Host, though, I noticed a different kind of opportunity: tremendous leverage. (Location 655)

Add to this the facts that Marriott International, the “good” company, would be on the hook to lend Host up to $600 million, the Marriott family would still own 25 percent of Host, and Bollenbach would be heading up the new company— (Location 664)

Believe it or not, far from being a one-time insight, tremendous leverage is an attribute found in many spinoff situations. (Location 667)

$1 is also the amount of your maximum loss. (Location 672)

Extraordinary results from looking at a situation that practically everyone else gave up on. (Location 687)

Whenever a parent company announces the spinoff of a division engaged in a highly regulated industry (like broadcasting, insurance, or banking), it pays to take a close look at the parent. The spinoff may be a prelude to a takeover of the parent company. (Location 869)

As a general rule, even if institutional investors are attracted to a parent company because an undesirable business is being spun off, they will wait until after the spinoff is completed before buying stock in the parent. (Location 970)

While you’ll have even more opportunities to invest in LEAPS (since LEAPS are always trading on hundreds of companies), investing more than 10 or 15 percent of your portfolio in these instruments at any one time would, because of their leveraged nature, almost always be ill advised. (Location 2506)