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You Bought the Stock. Now What? (part 6) - Curreen Capital - YouTube
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the last thing I wanted to talk about
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was trading because unless you never
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sell anything the story is not over when
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you bought the stock and you you you
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have your position sighs like very few
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people are going to buy something and
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then never sell it and have that be the
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right decision if you bought
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Berkshire Hathaway in the 60s that's one
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of the few if you bought a lot of other
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companies in the 60s it was a bad idea
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if you're never sold so my broad piece
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of advice when it comes to trading and
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thinking about the market is don't look
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at your portfolio too much the way I
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deal with this is that I do not look at
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the value of my portfolio or the stock
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prices of anything that I own until
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Friday evening after the market is
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closed I do this for a couple reasons I
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don't think that I get actionable
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information from looking at the market I
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don't I think it's a distraction if
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anything the way that our brains accept
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gains and losses are that losses hurt
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twice as much as gains so if the stock
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if your portfolio is up three days out
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of five you will feel bad so the more
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you're looking at the value of your
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portfolio the more it is likely to hurt
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you and I don't think that that hurt
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will enable you to think any better I
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also think that as humans we think
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better when we're hunting than when we
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are trying to protect protect ourselves
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from danger and the more you look at
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your portfolio the more you'll want to
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protect it from the evil market whereas
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if you're not looking at it and you're
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looking at things to hunt and kill you
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will be excited by the market doing
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things so so that's that's my one broad
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piece of advice on on trading and
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dealing with the market with your
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portfolio some people are forced to look
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at the value of their portfolio all the
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time and god bless them
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it makes the market less efficient and I
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can benefit from you guys
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I'm sorry ah I'm sorry you're forced to
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deal with that but that's the that's the
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way it is
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when it comes to stocks and stock price
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movements there are two things that have
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academic research behind them showing
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that they that they succeed one is value
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investing buying stuff cheap works it
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works statistically you can see it
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there's there's evidence out there of it
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the other thing that works is momentum
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where a stock price rising keeps rising
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a stock price falling keeps falling and
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that works these two are incompatible so
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momentum tells you if the stock is going
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up you buy it or you don't sell it value
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investing tells you it becomes less
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attractive the higher it goes and you
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want to sell it these are inconsistent
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and likewise on the on the downside if a
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stock is falling momentum says get out
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or stay out and belly investing says get
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excited and buy more and I try to square
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these things in a way that works for me
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because they're both right somehow even
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though it it doesn't go together so when
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a stock I bought goes down I have enough
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respect for momentum that I'm not going
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to fight it or buy more I buy a stock I
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find out next week it went down I don't
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want to do anything and that that's this
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tension between momentum and value
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investing if I bought it at a
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five-to-one upside to downside and it
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goes to six and it goes to seven and it
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goes to eight upside down goes to ten
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upside to downside I want to be
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compelled to buy it so maybe at fifteen
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fifteen upside to downside or even where
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you're it went below my downside
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downside realistic value for the
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business not like stock price dr. stocks
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do everything under the Sun but I want
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to be compelled so at fifteen times or
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something that's really ridiculous and
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I've probably written in my journal
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several times about if I want to buy
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this thing now but at 15 times then I'll
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come in because value investing works on
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my value investor this respect for
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momentum is not absolute it's but it it
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gets me not to fight what the stock
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price is doing and that's how I deal
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with this so don't do anything unless it
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gets crazy if the market is dropping
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if your stock is dropping on you that's
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how I do it you might find other ways
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that are better for you but this is this
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works for me the other outcome is you
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buy a stock and it goes up and there
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again I don't want to be in a rush to
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sell because I have some respect for
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these momentum people they're out there
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they're not completely insane if it goes
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up because there's good information
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change your valuation make sure that
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your values upside and downside remain
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fresh you want it you want to always be
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looking at three to five years so it
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shouldn't be stale numbers you want it
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you want to not have a low upside
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downside ratio because you haven't
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updated the thing and the thing grew
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over the past three years like that's
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that's not a good reason to sell but if
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you get it where the stock has gone up
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and you're upside to downside ratio is
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now three or something like that or two
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and it's not so great and you're not so
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excited about it first off if this was a
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25% position for me and now it should
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probably be a 10% position and I should
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just reduce it but I don't want to be an
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acute rush but take it down to something
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appropriate for for the new upside to
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downside and ratio of the company and
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then evaluate would I rather own
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something else than this and you can
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evaluate these two again because you're
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good at relative valuation between two
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things that you understand so now it's a
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source of funds or you can direct it to
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something better but again I don't want
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to be in a rush to do it if the stock
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price gets to an upside downside ratio
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below one point seven point six
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something like this I might just sell it
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regardless of having something else I
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might just sell it for cash I'll write
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it in my journal I'll write how this
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could be a disaster in two years but at
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that point again I'm being compelled by
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the market to do something like it's
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gone up so high that's when I'll stick
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to my value investing roots and not hold
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off because of some respect for momentum
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so that that's that's how I try to deal
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with momentum versus value investing and
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in the stock market ignore it be don't
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fight momentum
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and yeah c-come back to value investing
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but only at a different level
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then then you came in or at a very high
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price relative to what you really think
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it's worth and the the caveat with this
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was selling is sometimes you will have a
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truly outstanding business with a really
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long runway and a management team that
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you really trust who is building towards
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that long runway and then you hold on to
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it even though you hold your nose
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because the stock price is so high but
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that's rare like you you need to be
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comfortable with that because you're in
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this rarefied air where your downside is
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still there way down here so so so be
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careful with that
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the last broad piece of advice when it
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comes to trading is that you want to
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have some sort of outlet because
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everybody wants to do something Warren
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Buffett has done stupid things because
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he hadn't had anything good to do for
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years he bought champion international
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bonds he bought US Airways bonds right
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around the same time because he didn't
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have anything good to do and it
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frustrated him and he's the best mere
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mortals like us need to have some outlet
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for that very same impulse to do
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something because you look at things
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turn pages all day long eventually you
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do work on something and it doesn't pan
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out you will want to do something don't
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do something stupid so outlets that are
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useful for me I like to look at a lot of
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tender offers every once in a while they
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turn into a great business like credit
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acceptance most of the time it turns
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into 50 bucks or a hundred bucks but it
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allows me to trade once a month just way
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better than zero times a month and it
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gives me something to do that a doesn't
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hurt and B prevents me from doing
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something stupid some people are good at
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merger arbitrage this gives you
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something to do on the occasional deal
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where it might work out your downside is
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limited if you have things like this
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that you understand I think it's
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valuable to do them not because of the
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money that you make but because it
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distracts you from doing something dumb
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because
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it does dumb things when he's bored like
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don't do dumb things just because you're
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bored the second thing that you can do
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go running ride your bike have hobbies
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that take up your time fix guitars like
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make amps whatever people do have these
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outlets it's better to spend time and
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money on an outlet that is interesting
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for you and allows you to refresh your
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mind and get some of your animal spirits
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out than to do something dumb that will
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cost you you know tens of thousands of
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dollars so you can spend lots of money
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going on a yoga retreat if it helps you
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think better and that's money saved if
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you would have lost a ton of money on
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the market because you were so bored and
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freaking out so that that's my last
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piece of advice is don't look at the
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market and have an outlet for for what
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your to prevent you from buying
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something in a dumb way so but thank you
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very much I really appreciate
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