How do you pick stocks?

[Matt]

I didn't want to derail new thread on Stock Picks started by @yuneeq with this question, but as interesting to me as what you are picking is how you are picking it.

I rarely pick single stocks anymore, I lost a bunch and am too busy to analyze. Back in the day when I did pick I use simple rebounding strategies from companies that I think make sense. Very high level, holistic approach, such as looking at the industry and macro level SWOT, factor in competition and look at price swing. I have found the market to be very volatile recently, a small earnings miss creates knee jerk reactions. The last stock I bought like this was ARUN.

These types of purchases I consider pure gambles, and not savings or investments which is why I don't get too involved in selection criteria, it is more a case of 'oh that's 20% off today!' I try to keep all such gambles to a very percentage of my overall wealth, probably the entire single stock portfolio to not more than 2-3% of net worth.

Do you guys use technical or fundamental analysis, or other methods to pick your stocks?

 

[Tom McGhee]

I buy stocks in a ROTH IRA. Buying any stock is like gambling, because if the company goes belly up, you are last to get paid, and in my personal experience, that is never. Being that this is a retirement acct, I don't gamble on stocks that are below $10 with a few exceptions if it is a large company that is well known, and it would be a small percentage of what I typically invest. I look into companies that have little debt, have been around awhile, and are beat up. I don't look at charts as I think it is wishful thinking. I take profits when I make at least a hundred bucks if it is more of a risky investment, and hold on to some more until the hundreds multiply. I miss most of the big gains on stocks, and rarely have big losses. I wouldn't invest in ARUN, because they make no money at the moment. I buy stocks I can understand. Some my current investments: IBM, KO, TGT, PETM, VALE, AAPL.

 

[Matt]

I buy stocks in a ROTH IRA. Buying any stock is like gambling, because if the company goes belly up, you are last to get paid, and in my personal experience, that is never. Being that this is a retirement acct, I don't gamble on stocks that are below $10 with a few exceptions if it is a large company that is well known, and it would be a small percentage of what I typically invest. I look into companies that have little debt, have been around awhile, and are beat up. I don't look at charts as I think it is wishful thinking. I take profits when I make at least a hundred bucks if it is more of a risky investment, and hold on to some more until the hundreds multiply. I miss most of the big gains on stocks, and rarely have big losses. I wouldn't invest in ARUN, because they make no money at the moment. I buy stocks I can understand. Some my current investments: IBM, KO, TGT, PETM, VALE, AAPL.

If we could agree that single stocks are more speculative (especially if you think they may be beat up) why would you locate them in a ROTH rather than a taxable account? Surely they have more chance to decline than an Index fund? Cap Loss strategies and harvesting is a key part of picking stocks, and you lose it in any IRA, other than Rollovers.

 

[Matt]

I think it's pretty cool that 15 minutes after saying I picked ARUN the market opened and it dropped 15% due to poor earnings

 

[yuneeq]

I didn't want to derail new thread on Stock Picks started by @yuneeq with this question, but as interesting to me as what you are picking is how you are picking it.

I rarely pick single stocks anymore, I lost a bunch and am too busy to analyze. Back in the day when I did pick I use simple rebounding strategies from companies that I think make sense. Very high level, holistic approach, such as looking at the industry and macro level SWOT, factor in competition and look at price swing. I have found the market to be very volatile recently, a small earnings miss creates knee jerk reactions. The last stock I bought like this was ARUN.

These types of purchases I consider pure gambles, and not savings or investments which is why I don't get too involved in selection criteria, it is more a case of 'oh that's 20% off today!' I try to keep all such gambles to a very percentage of my overall wealth, probably the entire single stock portfolio to not more than 2-3% of net worth.

Do you guys use technical or fundamental analysis, or other methods to pick your stocks?

I use fundamental analysis to pick all my stocks. If the market was less inflated, I would complement my stock pickings with an index find such as SPY. In the current market, I feel scared that an index fund would lose money or perform pretty poorly in the next year. I don't feel as uncomfortable with stocks that I believe to be fundamentally pretty strong, even if they lost 10-20%.

I have done pretty well the past 12 months. I snagged Alaska Airlines ALK at 57, AAPL at 425, and MSFT at 31.

 

[Tom McGhee]

If we could agree that single stocks are more speculative (especially if you think they may be beat up) why would you locate them in a ROTH rather than a taxable account? Surely they have more chance to decline than an Index fund? Cap Loss strategies and harvesting is a key part of picking stocks, and you lose it in any IRA, other than Rollovers.

I guess you could buy many things outside of a ROTH and take your $3k/yr loss whether it is an index fund, stocks, or bonds. I don't mind paying taxes if i'm making money, and like the idea of any money I make coming out tax free.

 

[Tom McGhee]

I use fundamental analysis to pick all my stocks. If the market was less inflated, I would complement my stock pickings with an index find such as SPY. In the current market, I feel scared that an index fund would lose money or perform pretty poorly in the next year. I don't feel as uncomfortable with stocks that I believe to be fundamentally pretty strong, even if they lost 10-20%.

I have done pretty well the past 12 months. I snagged Alaska Airlines ALK at 57, AAPL at 425, and MSFT at 31.

I agree with your general assesment.

 

[Matt]

I guess you could buy many things outside of a ROTH and take your $3k/yr loss whether it is an index fund, stocks, or bonds. I don't mind paying taxes if i'm making money, and like the idea of any money I make coming out tax free.

It's just something I was thinking about recently. I lost about $10K on a speculative stock and couldn't recoup it. The $3K against regular income is an attractive thing indeed. I wrote up some thoughts on the Roll in/Roll back approach that might be interesting for you:

How to Properly Locate Speculative Stocks

Let me know your thoughts.

 

[yuneeq]

I buy stocks in a ROTH IRA. Buying any stock is like gambling, because if the company goes belly up, you are last to get paid, and in my personal experience, that is never. Being that this is a retirement acct, I don't gamble on stocks that are below $10 with a few exceptions if it is a large company that is well known, and it would be a small percentage of what I typically invest. I look into companies that have little debt, have been around awhile, and are beat up. I don't look at charts as I think it is wishful thinking. I take profits when I make at least a hundred bucks if it is more of a risky investment, and hold on to some more until the hundreds multiply. I miss most of the big gains on stocks, and rarely have big losses. I wouldn't invest in ARUN, because they make no money at the moment. I buy stocks I can understand. Some my current investments: IBM, KO, TGT, PETM, VALE, AAPL.

Buying stocks is gambling?
No, that's wrong. Gambling on stocks is gambling. Investing in stocks is investing.

There's a reason why the same "gamblers" keep piling on the investment gains. They invest in fundamentally sound companies that are undervalued, and they make big money 80% of the time. If you open up a casino with those payouts, I'd be your best customer.

 

[Matt]

I use fundamental analysis to pick all my stocks. If the market was less inflated, I would complement my stock pickings with an index find such as SPY. In the current market, I feel scared that an index fund would lose money or perform pretty poorly in the next year. I don't feel as uncomfortable with stocks that I believe to be fundamentally pretty strong, even if they lost 10-20%.

I have done pretty well the past 12 months. I snagged Alaska Airlines ALK at 57, AAPL at 425, and MSFT at 31.

I'd be keen to see more about what depths you go into - sharing the actual metrics you look at and how you find the information... that sort of stuff would be make for good reading and discussion as everyone can improve their habits based on more insights.

 

[Matt]

Buying stocks is gambling?
No, that's wrong. Gambling on stocks is gambling. Investing in stocks is investing.

There's a reason why the same "gamblers" keep piling on the investment gains. They invest in fundamentally sound companies that are undervalued, and they make big money 80% of the time. If you open up a casino with those payouts, I'd be your best customer.

Were you investing through the bear markets of the last 15 years?

 

[Tom McGhee]

It's just something I was thinking about recently. I lost about $10K on a speculative stock and couldn't recoup it. The $3K against regular income is an attractive thing indeed. I wrote up some thoughts on the Roll in/Roll back approach that might be interesting for you:

How to Properly Locate Speculative Stocks

Let me know your thoughts.

I think the article is well thought out, and I've read similar articles before. I just don't gamble "invest" in things that are speculative. I'm the type of person that is happy playing $20 at a casino and leaving with $20 or more in my pocket. I will always miss the speculative stock gains, but for me, I sleep better at night knowing that companies make money and have money based on their business fundamentals. Twitter doesn't make money, but has a lot of cash due to their IPO. Will they figure out how to make money or be bought out - probably. I don't use twitter except to sync my amex credit cards, so I can't speculate whether it is something that will be around in the future.

 

[yuneeq]

Were you investing through the bear markets of the last 15 years?

I'm not that old

I started investing in 2009-10 and the only stock to tank on me, I doubled down on. Citi dropped to 15 and I originally bought it at 40-45. I thought that the fundamentals were still strong and that value was amazing. Now my holding in C is up about 200% overall.

 

[yuneeq]

I'd be keen to see more about what depths you go into - sharing the actual metrics you look at and how you find the information... that sort of stuff would be make for good reading and discussion as everyone can improve their habits based on more insights.

I don't use anything special, just the plain jane methods described by Benjamin Graham and Warren Buffett. P/E, Book value, yield from dividends and stock buybacks (when stock is low), and looking over the balance sheet and financials to see that everything looks good.

What's also very important to me is to invest in companies that I think I understand their "story" well enough.

 

[Alex1432]

I'm not that old

I started investing in 2009-10 and the only stock to tank on me, I doubled down on. Citi dropped to 15 and I originally bought it at 40-45. I thought that the fundamentals were still strong and that value was amazing. Now my holding in C is up about 200% overall.

From 2009 to now there haven't been any recessions. My portfolios have been doing great for the last four years.

I too don't invest in individual stocks just don't have the time or acumen to find undervalued ones. More power to the people who can I like my mutual funds and etfs. I think my problem is that I may not be diversified enough as some funds in fidelity and vanguard are very similar and I maybe invested to heavily in a certain area.

 

[Matt]

I'm not that old

I started investing in 2009-10 and the only stock to tank on me, I doubled down on. Citi dropped to 15 and I originally bought it at 40-45. I thought that the fundamentals were still strong and that value was amazing. Now my holding in C is up about 200% overall.

Well, don't take this the wrong way, but until you go through one (and I hope you never do) your view to how tight your analysis is might be a little patchy.

I'm just talking from my experience of doing the same thing back in the day and watching all fundamentals and logic fly out of the window as people panic.

It made me realize that individual stocks (heck the market as a whole) is really something of a gamble because they are ultimately traded by sentiment.

What that means, is that even if you find a bargain, you have to have other people realize it too for your selection to be successful.

Ultimately, your analysis may be accurate, or it may be incorrect depending on how well you interpret the data, but it's generally 'safer' to not cherry pick... as I'm sure you know.

Would love you to start a thread on the details of your technical analysis approach - or share your analysis of say C for us to learn from.

 

[yuneeq]

I believe in investing with Benjamin Graham's "margin of safety", and I do so with the outlook that "In the short run, the market is a voting machine but in the long run it is a weighing machine."

I don't care and I don't get scared when in the short term my investments do poorly. I don't care about the sentiment in the marketplace either.

Your notion that trading stocks is like gambling because the sentiment can change is pure folly. If I purchase a building and the price changes due to sentiment, does that mean that such investments are gambles? Is purchasing a business (stocks) any different? Why?

I think I disciplined myself to feel comfortable enough in my investments. I don't check the market every day. I have gone weeks without looking at the scores. And I easily disregard what the rest of the market thinks (TWITTER!! Facebook!! Google!! Netflix!!! BUY!! SELL!!), although that took me some time to work on.

I'm not saying that stock picking works for everyone (as it surely doesn't), though index funds are not a one-size-fits-all solution either.

 

[Matt]

Your notion that trading stocks is like gambling because the sentiment can change is pure folly. If I purchase a building and the price changes due to sentiment, does that mean that such investments are gambles? Is purchasing a business (stocks) any different? Why?

Yes. All investments are gambles - even businesses that you own. The ones that that you don't have operating control over are even more so. The further you are away from the owner/operator the worse they are. Purchasing a building is indeed a gamble.

Further to which, you aren't buying a business when you are buying a listed company, you are buying a stock, which is an entity to itself and can trade without correlation to the company - which is exactly what you are looking for when you seek to emulate Graham.

 

[yuneeq]

Yes. All investments are gambles - even businesses that you own. The ones that that you don't have operating control over are even more so. The further you are away from the owner/operator the worse they are. Purchasing a building is indeed a gamble.

Further to which, you aren't buying a business when you are buying a listed company, you are buying a stock, which is an entity to itself and can trade without correlation to the company - which is exactly what you are looking for when you seek to emulate Graham.

At this point were arguing semantics. For me, anything that makes you money over time can be considered an investment, as long as the risk of losing the principal is not 50% or higher. I personally don't invest when I view the risk to be near 50%, but rather closer to 10-20%.

I don't understand what you mean regarding a companies stock being a separate entity.
1) When you buy shares of a company, you own a percentage of the business. Buy all the shares, and you're the 100% owner if a business. Where's the disconnect?
2) Benjamin Graham's mantra that he repeats over and over, is to view a stock purchase as if you're buying a business, because you in reality, YOU ARE BUYING A BUSINESS! Just because you look for disconnects and discounts in the buy-in price of a great business does not take away the fact you're investing in a business. Unless you're buying twitter or netflix .

 

[Matt]

At this point were arguing semantics. For me, anything that makes you money over time can be considered an investment, as long as the risk of losing the principal is not 50% or higher. I personally don't invest when I view the risk to be near 50%, but rather closer to 80-90%.

I don't understand what you mean regarding a companies stock being a separate entity.
1) When you buy shares of a company, you own a percentage of the business. Buy all the shares, and you're the 100% owner if a business. Where's the disconnect?
2) Benjamin Graham's mantra that he repeats over and over, is to view a stock purchase as if you're buying a business, because you in reality, YOU ARE BUYING A BUSINESS! Just because you look for disconnects and discounts in the buy-in price of a great business does not take away the fact you're investing in a business. Unless you're buying twitter or netflix .

No, we aren't arguing semantics so much as different views on risk- which I think is bigger than semantics. And I really appreciate your perspective and the argument.

We talk often about the Golden Goose (incorrectly but I digress) Graham's Goose was a Net Net. That is a stock that is trading below its value. Which means if it had 100M in the bank plus a building worth 10M 100% of the company traded for less than 110M. That fact alone highlights that there is an inefficiency driven by sentiment between a company and its underlying stock. He was operating through the Great Depression, and was seeking stocks that were so damaged by sentiment that they offered greater value than book. We are in a different world now, and happy to transliterate these theories into a favorable P/E ratio, it's a different game.

You really aren't buying a business when you buy a stock, unless you are buying a controlling share.

Though I do agree you certainly shouldn't buy a share in a business that you think is a poor performer/unstable/crap etc, but unfortunately that doesn't mean buying a stock in a company that you think is good (by whatever measure) means you are buying the business.

 

[BoonDR]

Everyone is making money right now (or should be), I too stay away from single stocks for the most part.

 

[Sunny]

I think my problem is that I may not be diversified enough as some funds in fidelity and vanguard are very similar and I maybe invested to heavily in a certain area.

Personal Capital can help you figure out your true exposure across all accounts and positions.

 

[Matt]

From 2009 to now there haven't been any recessions. My portfolios have been doing great for the last four years.

I too don't invest in individual stocks just don't have the time or acumen to find undervalued ones. More power to the people who can I like my mutual funds and etfs. I think my problem is that I may not be diversified enough as some funds in fidelity and vanguard are very similar and I maybe invested to heavily in a certain area.

Agree - it is very easy to overlap too much and lose control of your exposure, as Sunny mentioned Personal Capital (here's my review http://saverocity.com/products/personal-capital-powerful-free-tool-to-examine-your-investment-accounts/) can help show you that, but the best answer is to simplify - Fidelity can hold Vanguard and Vanguard can hold Fidelity (they have a few low cost options that are good, but do have a higher number of more expensive funds)

 

[cocobird]

Returning to the original question of how does one pick individual stock - I tend to focus on high quality stocks that have been beaten down either through a bear market (2008 through 2009 was a gold mine) or a blip such as missing an earnings call. I have also picked stocks that have a terrible event (admittedly, I missed BP after the oil spill) because over time these stocks tend to recover. I am also a buy and hold person with a lot of patience to wait for the rebound.

I don't panic when there is a drop, which is why I ended up fine after the big bear market.

I believe the stock market is the world biggest gambling arena because so much is out of our control. What we can control is our appetite for risk and reward. I am not necessarily seeking a huge score in the short term because I have an investor mentality.

 

[yuneeq]

No, we aren't arguing semantics so much as different views on risk- which I think is bigger than semantics. And I really appreciate your perspective and the argument.

We talk often about the Golden Goose (incorrectly but I digress) Graham's Goose was a Net Net. That is a stock that is trading below its value. Which means if it had 100M in the bank plus a building worth 10M 100% of the company traded for less than 110M. That fact alone highlights that there is an inefficiency driven by sentiment between a company and its underlying stock. He was operating through the Great Depression, and was seeking stocks that were so damaged by sentiment that they offered greater value than book. We are in a different world now, and happy to transliterate these theories into a favorable P/E ratio, it's a different game.

You really aren't buying a business when you buy a stock, unless you are buying a controlling share.

Though I do agree you certainly shouldn't buy a share in a business that you think is a poor performer/unstable/crap etc, but unfortunately that doesn't mean buying a stock in a company that you think is good (by whatever measure) means you are buying the business.

One of the first things I check is the assets of a company and how they correlate to the market cap (Price/book value). IIRC, Graham didn't only buy Net Net stocks. He bought stocks with low price/book ratio, and sometimes he got lucky and the ratio was below 1. Same with Buffett.

Now in regards to your statement that buying shares isn't buying you into a business, because you aren't buying a controlling share; that's false. Every shareholder has the right to vote and partake in the process of determining the company's future. So in effect they do control, although just a tiny bit in relation to their stake. Are you under the belief that shareholders with >50% stake are the only ones who own part of a business?

 

[Matt]

One of the first things I check is the assets of a company and how they correlate to the market cap (Price/book value). IIRC, Graham didn't only buy Net Net stocks. He bought stocks with low price/book ratio, and sometimes he got lucky and the ratio was below 1. Same with Buffett.

Now in regards to your statement that buying shares isn't buying you into a business, because you aren't buying a controlling share; that's false. Every shareholder has the right to vote and partake in the process of determining the company's future. So in effect they do control, although just a tiny bit in relation to their stake. Are you under the belief that shareholders with >50% stake are the only ones who own part of a business?

I'm sure both he and Buffet bought stocks that weren't net nets, absolutely. All I am saying is that was their golden goose (and Graham for sure found them) simply this means that there is discrepancy between what should be a proportional ownership and what the market sentiment dictates.

Personally I don't think you need 51% to influence a company, but you need an Activist Investor level of ownership (and influence) to do so.

Looking at assets and P/E is a great thing, and good to do, of course I'm sure you know it's only a small piece of the puzzle though.

 

[Nguyen]

This is an interesting topic. My simple formula is I invest in what I can afford to lose and I "understand" the company. Since I am not the financial expert, I do not understand the in and out of "fundamental rules" (even I start investing in the early 90's). I only buy big US companies with diversified products. As I get older, I am planning to consolidate my portfolio and follow WB's advise of having 90% VOO and 10% short-term bond. Thanks.

 

[Ja350z]

This read was a game changer for me personally:
http://www.taodocs.com/p-3731598.html

I've recently started applying these strategies of gap trading in combination with traditional technical analysis, towards options contracts. Has been quite profitable in this recent market.
Also having a good group of people with similar a trading approach to toss your ideas around with, to get another perspective always helps.

I'd be willing to start a private conversation if people are trying to actively discuss new stock ideas & approaches.

 

[Matt]

This read was a game changer for me personally:
http://www.taodocs.com/p-3731598.html

I've recently started applying these strategies of gap trading in combination with traditional technical analysis, towards options contracts. Has been quite profitable in this recent market.
Also having a good group of people with similar a trading approach to toss your ideas around with, to get another perspective always helps.

I'd be willing to start a private conversation if people are trying to actively discuss new stock ideas & approaches.

If you haven't been profitable in recent markets there is something wrong! Please feel free to discuss it in public if you like, I will behave myself

 

[Spencer]

I will share my favorite screen:
-Enterprise value below $1B
-30 day volume avg below 1M
-Security price below $50
-Short Interest % Shares above 10%
-Revenue Growth above 10%
-U.S. Common Stock only

Right now this yields 52 stocks. From this short list I research fundamentals first and technicals second. This screen is meant to uncover lesser-known securities that are not followed by analysts. Low EV and low volume lead to volatile stocks but no risk=no reward.

 

[Ja350z]

If you haven't been profitable in recent markets there is something wrong! Please feel free to discuss it in public if you like, I will behave myself

LJPC is a company I've been building a sizable position in, has a pretty looking chart, nice pipeline, & decent potential upside (bio pharma not for faint of heart, trade with stops!)
http://finance.yahoo.com/news/la-jolla-pharmaceutical-company-announces-200000201.html

Other portfolio holdings as of 7/2:
GOOGL, INVN, CALL, GRPN, CZR, WPRT, CCXI, ANTH, & plenty of options

In terms of options, I've learned a lot from this site without being a member: http://www.optionmillionaires.com

 

[PedroNY]

So to bring this a bit back on topic.

I look at book value first, if it is below 1 (rare in 2014), that deserves a second look and I then read the last filing on EDGAR. Actually, you should always read the annual report before you buy any stock. It surprises me how much time people spend "researching" a TV, furniture or a car purchase and at the same time are willing to plunk down $1,000s or $10,000s on a stock purchase by just doing screens or look at the chart of the stock. If you really going to invest, there is no other way but to read the last years' report. Once you own that stock, you need to keep on reading these reports to keep up on what they are doing.

Cheers,

PedroNY

 

[Kylash]

My friends and family are surprised when I refuse to give them advice on specific names like Google or Apple. To be honest, the majority of my portfolio is simply in commission free index funds. This is primarily because the value of my portfolio is still so small that commission fees would eat up too much of my return. Like PedroNY, I find it incredibly sad how many people spend little to no-time researching investments before they decide to investment even a small portion of their portfolio. If you do not have the time to do your own research (and I believe most do not) I think many investors would do just as well allocating all of their portfolio to index-ETFs.

In regards to sourcing investment opportunities, I would allocate a good chunk of my portfolio to quality large-cap stable dividend plays. Besides that, the growth side of my portfolio would consist of under-valued names with minimal coverage. I feel my best chance at finding value or defining a catalyst that is not already reflected in the price is with companies that most investors may not be familiar with. For idea generation, I recommend everyone check out Seeking Alpha (and in full disclosure, I am a contributing writer). The site has its fair share of junk, but the amount of high quality content (the majority of which is free) is truly unmatched.

Finally, while they often get a bad rap, I find some of the research reports put out by analysts to be an extremely valuable and time saving resource. You may have access to them via your brokerage account, university, or library. They can be a great alternative to going through all the SEC filings yourself, and can give you insights into companies from experts who have been following them every day for years. I recommend gong to website called Institutional Investor to get an idea of the best analysts for each sector.

 

[Jig]

At this point were arguing semantics. For me, anything that makes you money over time can be considered an investment, as long as the risk of losing the principal is not 50% or higher. I personally don't invest when I view the risk to be near 50%, but rather closer to 10-20%

Do you have a metric with significant historical validity that shows you what these risk levels are? US large cap equities have repeatedly shown that they are entirely capable of having 50% drawdowns at the index level, and individual companies have far greater risk than that. CSCO is an example of a large company that has had low price to book for many years now and is down 25% from its 2007 peak after the broad market is at new record highs, although they havent gone out of business or anywhere near it. MSFT has given you less than CDs since 2001 despite being "cheap" the whole time and the dominant enterprise tech company of the last 25 years and more than doubling since the 2009 bottom. You will note that I am ignoring the massive losses the tech stocks have taken from the late 1990s bubble. Japanese equities have been "cheap" since the late 1990s and have given buy and hold investors nothing for 15+ years, which is a step up due to QE fueled gains there for the last year plus.

I don't assume that you are unaware of market cycles other than the uninterrupted US equity bull market in which your investing experience has occurred. However, solely using fundamental valuation metrics for individual US stocks and extrapolating those metrics to guesses about your risk level seems likely to expose you to losses based on changes in the environment for the broader US equity market or in company fundamentals that cannot be measured by those metrics. As has been said many different ways, everyone's a genius in a bull market. CSCO was as loved during the late 90s and early 00s as AAPL has been for the last decade. Japanese equities and companies ruled the world in the 80s.

Can't say much about mitigating the risk of unpredictable company change, it's my main reason for staying away from picking individual stocks. The way to do it is use index funds. They give you the advantages of using Valuation to your advantage without the individual company risk. And that Valuation says that US equities broadly have reached extreme levels in the last 3 months, historically portending losses in the following 12 months. If that happens, I would venture that fundamental low valuations for individual stocks will not protect them much from those losses, since the lowest beta stocks still have 60-70% correlation with the broader index in the US.

However, the point about your discipline is an interesting one. If your response to broad market driven losses in your fundamentally strong and cheap companies is that you will hold them and perhaps buy more, then you need a long time horizon for averaging down and recovery. I would not assume that the 1-2 year length of recent drawdowns in US equities is the norm, despite Federal Reserve activism. 3-7 years is clearly reflected in the historical record of the last 100 years. If you have the mental and financial capability to deal with a 50% drawdown and continue to average in over that timeframe, then Graham Dodd and Buffett style techniques should serve you well. History shows very few can do that.

 

[El Ingeniero]

Manias, Panics and Crashes, 5th Edition by Kindleberger and Aliber should be required reading for people who haven't been through at least 2 market crashes.

One thing that people forget about Buffet, is that he has oodles of cash being thrown off by the dozens of profitable businesses Berkshire-Hathaway owns, not to mention all the money Geico has to invest. When the market declines 50%, he still has cash to invest. When the stock market declines 50%, the rest of us usually don't have any extra to invest.

I've finally given up on the idea of manually doing anything with investments. IMO, automated rules based investing is where it's at, whether you are working with ETFs or individual stocks.