Three Simple Secrets for Triple-Digit Returns
The Investment U E-Letter: #334
Monday, May 3, 2004
Three Simple Secrets for Triple-Digit Returns
By Dr. Steve Sjuggerud
President, Investment U
“When you start forgetting about where a stock has been, and start concentrating on what kind of value you’re buying now and where it’s going, you’ll be a lot better off.”
I hear it all the time
“Steve, I can’t buy that stock it was $10 a year ago, and now it is $20. It’s up 100%. It’s too late I’ve missed it!”
Or
“Steve, I can’t buy that stock it was $20 and now it’s $10. It just keeps falling. I can’t buy until it stops falling.”
So what you’re telling me is, you can’t pull the trigger on a stock that’s going up, and you can’t pull the trigger on a stock that’s going down. So when exactly do you buy?
You probably don’t have a good answer. That’s okay. Most people can’t answer that question. Let me try and help. Here’s what I look for when I buy And using this approach has given me triple-digit returns in the past.
The Three “Buy” Criteria: Value, Apathy and Uptrend
I look for three things
1) I want to buy at an extraordinary value. I’m not kidding when I say I want to pay next to nothing for it. I do this because I know I can’t be an expert in everything. But when you can buy a pile of assets super cheap, then you’ve got a good cushion if your idea is wrong you can still make money.
2) The second thing I like to see is investor apathy. I prefer to see very few people doing what I’m doing, or even liking my idea. When you combine these two, you are putting yourself in the position for triple-digit returns.
I don’t mind telling you these things because most people won’t ever do them. Even if they intuitively recognize what I’m talking about, they generally can’t bring themselves to buy that investment. Things are cheapest and most hated when they look awful. If you buy right, you can make a lot of money.
3) The third thing I like to see is the beginning of an uptrend. I want to see this for two reasons. Let me explain them
First, an investment that’s “a good value” at $10 a share can become an “even better value” at $8 a share, a “great deal” at $6 a share, a “screaming bargain” at $4 a share, a “can’t lose opportunity” at $2 a share, and wait a minute where’d my money go? That whole period of time was a period of dead money. And “great values” can remain “great values” for a long period of time.
The uptrend is a glimmer of a sign that it’s time for the value to be unlocked. And since I can’t be an expert in all things, the beginning of an uptrend is a sign that the worst has passed, and that I’m not completely crazy for considering this as an investment. I think it’s a great sign when the investment is in an uptrend and people still hate it. (That was the case with homebuilding stocks and gold coins 12 to 24 months ago, and readers of my newsletter ended up making good money on these.)
Who Cares Where It was a Year Ago?
So there you have it I look for extraordinary value, investor apathy, and the beginning of an uptrend.
Please notice that I don’t care if a stock is down 50% or up 50%. That is not a requirement. I do not care. I want value, apathy, and the glimmer of an uptrend. Where the stock was a year ago means nothing to me.
When you start forgetting about where it’s been, and start concentrating on what kind of value you’re buying now and where it’s going, you’ll be a lot better off. Give it a try. Life will be easier, and your wealth will likely grow faster too.
Today’s IU Cribsheet
- Investor apathy is the most difficult of the three above to determine. When looking at the overall markets, Investors Intelligence (www.investorsintelligence.com) does a nice job of sizing up investor sentiment. Each week Barron’s magazine lists a few different polls of investor sentiment as well (www.barrons.com). Be careful, these readings are only useful at extremes
- A good value in stocks can be hard to find today, with price-to-earnings ratios soaring For more on how to survive and thrive in these conditions, check out IU E-Letter #306 – Where to Invest When There’s “No Place to Hide”
Good investing,
Steve
Related Articles:
- Insider Buying of Stocks: The Strongest Purchasing Signal in the World?
- Jeremy Grantham: Where to Invest When There’s No Place to Hide
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