51 - Psychology of Selling Losers
Release Date: 11/24/2019
The DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management
Purchasing illiquid stocks presents unique challenges. Your buying process should focus on overcoming those challenges. Use limit orders and study price changes to buy sufficient shares.
info_outlineThe DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management
In this episode, I interview Tobias Carlisle, author of The Acquirer's Multiple and fund manager of the ETF ZIG. Listen to an interactive review of this Deep Value Investing book.
info_outlineThe DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management
In this episode, I discuss the psychology involved in selling losing stock positions. A core aspect of behavioral finance is overcoming our weaknesses. Ignoring opportunity cost is a key investing weakness.
info_outlineThe DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management
In this episode, I interview Tim Eriksen and we discuss his investing strategy which involves buying microcap companies. Smaller companies offer higher returns historically. Tim Eriksen also provides insight into Beaver Land Company and its business model. We dive into additional companies including Western Capital Resources, P10 Holdings, and JG Boswell.
info_outlineThe DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management
In this episode, I interview Value Stock Geek and we discuss his investing strategy which involves buying cheap companies with good balance sheets. For ValueStockGeek value is found in a low EV/EBIT multiple. This is the Acquirer's Multiple as named by Tobias Carlisle.
info_outlineThe DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management
My interview with David Flood of Elementary Value focuses on investing in dark stocks. Dark stocks do not report public financial statements to the SEC. Many of these companies are deep value plays that offer attractive rates of return to investors willing to do a little bit of extra research. Scuttlebutt and fundamental analysis are key topics.
info_outlineThe DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management
Illiquid stocks offer substantial opportunity, but can also lead to an inability to purchase as many shares as you would like. This situation, along with a lack of good ideas, can lead you to rationally diversifying your portfolio more than intended. Cash has a high opportunity cost, so it is okay to build small positions in companies that are still high quality, but may not currently trade at wonderful prices. Avoid "Diworsification"
info_outlineThe DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management
The end game has begun in the brokerage price wars. We have reached the zero bound in terms of commissions now at $0 for US and Canadian exchanges. This will have a major impact on the accessibility of investing and will certainly change the recommendations I have made in the past to new investors.
info_outlineThe DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management
In this episode, I interview Geoff Gannon of Focused Compounding Capital Management. Learn about his investing process and the benefit of concentrated investing in overlooked stocks.
info_outlineThe DIY Investing Podcast: Value Investing | Fundamental Analysis | Mental Models | Business Management
Banks are able to operate at a 10-to-1 leverage ratio which can return a return on assets of 1.5% into a 15% return on equity.
info_outlineMental Models discussed in this podcast:
- Opportunity cost
- Loss Aversion
- Diversification vs Concentration
- Price Anchoring
- Zero-Based Budgeting
- Commitment Bias
- Game Theory: Minimax Theorem
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Show Outline
The full show notes for this episode are available at https://www.diyinvesting.org/Episode51
My portfolio Current/Future State
- Owned 11 stocks
- 5 winners
- 5 losers
- 1 borderline loser
- The goal is to reduce to 5 positions
- Sold 4 stocks so far (made money on 2, lost money on 2)
- Not all "losers" lost money. Some made money.
- It's all about future return potential from here
Summary:
It's all about opportunity cost. Use rational analysis to overcome your behavioral biases.