Investing 
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What is a Ten-Bagger?

I was reading my latest issue of the Motley Fool Stock Advisor when I saw them use a term I’ve always found entertaining – ten-bagger. The newsletter itself was talking about how Netflix has become a ten-bagger since David Gardner’s recommendation in 2004. The term ten-bagger refers to a stock that is worth 10 times more than its original purchase price, or an appreciation of 900% over the holding period.

The origins of the term are from One Up On Wall Street by Peter Lynch and it’s most often cited by long and hold investors because it’s so hard to do. Before a stock is worth 900% more than what you paid for it, it has to be worth 200% and 300% and 500%. All the while you have to stick with it, before it’ll reach 900%. And when it does become a ten-bagger, that doesn’t mean you should sell it, it’s as meaningless a benchmark as any other (the market has no idea where you purchased it).

The closest I’ve ever come is a hair over 200% on shares of Apple stock I purchased early last year when Steve Jobs took medical leave in early 2009.

Do you have a ten-bagger?


 Your Take 
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Your Take: Your Favorite Personal Finance Book

Every year, hundreds of personal finance books are published. Every year, personal finance bloggers, experts, and columnists always refer back to a handful of books that have stood the test of time. Many bloggers are fans of Your Money or Your Life and the Richest Man in Babylon, many investors call The Intelligent Investor their Bible, and lots of people look up to the books of Suze Orman, Dave Ramsey, and Robert Kiyosaki.

I want to know, what is your favorite personal finance book ever? It can be the book that has had the most impact on your life, the book that you most enjoy reading, or the book you’d most likely recommend to a friend.

I’ve listed my must read personal finance books and even written one sentence summaries of ten personal finance books, but have I ever told you my absolute favorite?

The Motley Fool’s Money Guide by Selena Maranjian. As they say, you never forget your first. This book was the first personal finance book I ever read, back in 2003 when I started my first job, and it gave me all the tools to help me succeed. The best thing about the book was how broad it was. It gave me a sense of the landscape and enough of a vocabulary that I could learn anything Maranjian missed by researching it on my own. Is it the best book? That I can’t say, but I do know it’s my favorite.

So what’s yours?


 Investing 
4
comments

Resources to Learn About Stock Market Investing

If you know nothing about the stock market, consider yourself lucky.

If you think the stock market is a scary place that you don’t understand, you’re actually in good shape.

I learned about the stock market in a time of prosperity, in pieces, and probably in the worst possible way and it’s burned me on numerous occasions. When everything is going up and there’s an irrational exuberance, you are afforded the opportunity to have good results come out of bad decisions and that can lead to the development of bad habits. So, if you know nothing about the stock market and are scared of it, that’s actually the best time to start learning about it.

So, if you’re scared and I have bad habits, why should you read anything I have to say about investing? I don’t actually talk much about investing outside of discussing ideas and theories (and recommending index funds from Vanguard) but today I’ll outline a few good resources I’ve found to help you learn more about investing in the stock market.

Morningstar Investing Classroom

Morningstar is great. The number one best place to start, if you know absolutely nothing, is with Morningstar’s Investing Classroom. They have four areas of beginner study – Stocks, Funds, Portfolio and Bonds. Each classroom has five levels of study with the exception of Bonds, it only has two, and each level has anywhere from five to eleven courses. I’ve taken several of the courses and they begin with the basics and move onto progressively more advanced topics.

As a bonus, you earn points for answering the quizzes following each course and can redeem those points for various rewards (you have to be a free registered member to earn these credits).

Motley Fool’s Investing Basics

If you’ve completed all of Morningstar’s Investing Classroom courses, Motley Fool’s Investing Basics is a great place to reinforce those ideas but with a witty and humorous twist. Depending on how quickly you went through the Morningstar site, you probably glossed over a few topics or forgotten others, so review can’t hurt. Plus they’re entertaining to read.

Decisions Decisions Decisions…

At this point, armed with the basics, you have to make a decision. Do you want to invest the your stock allocation in index/mutual funds or do you want to try to go your own way and invest in individual stocks? If the answer is index and mutual funds, you probably are armed with enough information go forth and conquer. Open an account with a Vanguard or a Fidelity and have it (those two always seem to dominate Top Fund lists). If you want to go after individual stocks… there is more learning ahead. (some would say there is more to learn but from here but between Morningstar and Fool, you have enough information to Google search from here)

Securities and Exchange Commission

The SEC has a great guide to financial statements, which you’re going to have to decipher and interpret if you hope to be able to pick some winners in the stock market. I would also get myself familiar with EDGAR, which is the SEC’s database of company filings (EDGAR Quick Guide, Comprehensive EDGAR Guide). EDGAR is far more versatile (and comprehensive) than navigating company websites for their filings. They also have a pretty extensive Publications section that has all sorts of valuable information.

Google Finance

If you want a very quick snapshot of a particular company, I think Google Finance has the most amount of information on a single page and provides the easiest interface to reach it. Simply type in the ticker or name of the company and you can get a wealth of information on one page. You can access their related companies, their latest financials, recent and future events, key stats & ratios, a brief summary as well as links on their company website, list of officers and directors, as well as links to other resource reports such as SEC filings, MSN Money’s listed major holders, etc. All that information is one page, that’s why I like it over other similar services like Yahoo Finance (Yahoo Finance’s advantage is that you can add a lot of technical indicators to their charting services).

Wall Street Journal Markets Data Center

So, armed with that information, you probably have enough to go out and do some serious damage to your portfolio (take that any way you’d like :) ). Are you ready to be inundated with market data? If so, and my inundated I mean like drinking from a fire hose, then check out the Wall Street Journal Markets Data Center. Pages and pages and pages of financial information at your finger tips. (if it’s intimidating, but that’s okay… and that’s just the home page, you can drill down even more!) It’s absolutely stunning… now go forth and conquer!


 Investing 
10
comments

Are Investment Newsletters Worth It?

I have having lunch with a co-worker last week when he mentioned he was considering signing up for Motley Fool’s Hidden Gems newsletter run by Tom Gardner himself. A single year’s subscription to the newsletter costs $199 a year! Is it worth it?

I have no idea, but I know who might, the resident investment blogger that I talk to on a semi-regular basis and the only one I’ve actually met in person – George of Fat Pitch Financials (you may remember he gave me a sneak peek at his Contributor’s Corner). What did George say?

I’ve tried most of the MF investment newsletter subscriptions. The Hidden Gems research is pretty good and they use to have a great message board back when I tried it out. The subscriptions also give you access to the Fool forums. The only drawback with Hidden Gems that I’ve heard of is that the members often drive up the price of these small cap stock picks real quick when they are selected and the price can drop dramatically when the stock is no longer recommended. The picks also often tend to be higher risk growth stocks.



I think the biggest drawback of the Motley Fool products is that you only get research on a few stocks each month. I like MorningStar as an alternative because they cover 1500+ stocks. I think for even less than the cost of a MF subscription, you get a lot more with the MorningStar Premium Subscription.

Sounds like the newsletter is certainly of value but there are certainly very obvious drawbacks. While there appears to be value in the MF Hidden Gems one specifically, I can see how most of those drawbacks are systemic problems for all newsletters. Just think of the picks Jim Cramer gives away for free on his television show, the stocks spike the next day and any value that was there is quickly diminished. While the picks may or may not be good in the long run, in the short run they are made “less good” by virtue of being broadcast on CNBC. The only mitigating factor (to the popularity issue) of Hidden Gems is that the annual entrance fee of $199 dissuades many an investor so you won’t get the throng that pant over Jim Cramer’s daily selections.

Beyond the short term spike, George mentions something that may be obvious if you think about it – they tend to pick higher risk growth stocks. Well they’re looking for hidden gems, so they’ll probably be picking riskier propositions but ones with long term potential. With venture capital, the old maxim is that you pick one home run, four treadwaters, and five busts (something like that… I’m not a VC); so if you apply that to stock picking, you don’t have to be mega-successful percentage-wise to be mega-successful dollar-wise. All it takes is one twelve-bagger…

Lastly, there is also the issue of coverage, since the newsletter has to make certain picks, it can’t cover the whole field and provide extensive research on a lot of securities. Also, what if there aren’t any hidden gems or they don’t find any? There is the possibility that right now there are no hidden gems worth taking a shot at, so do they trot out something or just research a bunch of securities and let you have at them? It’s an interesting question that I don’t know if anyone has asked them yet. That’s why George recommended Morningstar, especially if you’re a more active investor because you get significantly more information.

Lastly, I do have to give a shoutout to George’s Contributor’s Corner (especially since his email was very thorough), it certainly has value and comes with a cheaper sticker price of only a hundred dollars a year. George finds all sorts of arbitrage opportunities that come with little risk and requires quite a bit of work on George’s part. Making back the $100 is a cinch through the various going private, reverse split, and buyout opportunities he digs up. (George isn’t cutting me in on the action though :) )

Anyone out there use MF Hidden Gems or any other investment newsletter and care to share their experiences? MF Hidden Gems does have a 30 day trial so my friend might dip his toe in to see how it is, I’ll report back if and when he does.


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