Finding the Best Online Broker for Penny Stocks and the Small Investor
This is really the third in the series of Investing 101, the second of which discussed setting up a Small Investor Portfolio. But the title would have been too long if I left all that in. The first order of business will be to find a good discount online broker. The good news is that [...]
The Chroma Investing Small Investor Portfolio
This is really the second in the series of Investing 101 that I previously started.
It is my intention to start an investing account with just $2000. The reason for this is that it is an amount of money that one could save in a year with less than $200/month. I will add $200/month to the account to mirror what a small investor might be able to do. $2000 is also an amount that you may have on hand, saved from not buying a Starbucks latte every day for a couple of years. O.k., lets not get that extreme. Like all the investments detailed on this website, all trades will be real money, so all gains or losses will be actual and reported on this blog. I will call this the Chroma Investing Small Investor Portfolio.
An account of this size will allow you to hold 3 or 4 equity positions and thus to have a focused value oriented portfolio. Starting with a small amount will also force a certain amount of discipline in buying. Knowing in advance that you will initially only be able to hold 3-4 positions will focus our attention on the quality of the investments to make sure that we are making only the best investment decisions.
The investing philosophy will be straight forward: value investing with an emphasis on NCAV and other deeply discounted asset plays, special situation investments, or other empirically supported value investing approaches, all with an emphasis on maintaining a margin of safety and keeping an eye on understanding the investment risks inherent to each company. I will concentrate on small and micro cap companies, where the smallness of our portfolio is actually an advantage over big money investors. I will look for the best value, and not shy away from Penny Stocks, if that is where the value leads. My intention is to avoid leverage, and any investment involving margins, including options and futures. It is possible in the future that I will develop a value approach that looks at investing against the market or an individual company if I can satisfy myself that such a strategy can be made in a beneficial risk/reward scenario.
I do not intend to invest in mutual funds, ETF’s or bonds. Nor will their be any speculation on commodities, currency or other other bets outside of my ken.
Tomorrow I will begin the search for the best online broker for this account.
Investing 101 for Small or Beginning Investors – Let’s Start
I am starting a new series. I am going to walk investors through the steps of investing. As always I am targeting investors who are just starting out or small money investors. It has been my intention for a while to set up a separate chroma investing account and to use it as an example of how to and not to do things. I have always invested my own cash in every investment idea I suggested.
Does a Risk Free Rate Really Exist?
I was perusing Musings on the Markets, Damodaran’s blog and came across a post entitled Thoughts on the Risk Free Rate. Perhaps, because I am not an academic, I usually reject ideas that seem contrary to logic or that seem designed for an academic and not practical use. The Risk Free rate is one of these notions.
Mistakes in Investing
As yesterdays post on TGAL shows you, we all make mistakes in investing. The question isn’t whether we will make mistakes but how we respond to the mistakes we make. My response was to sell by position in TGAL this morning. Yesterday’s press release with Q3 financials changed my valuation of the company substantially, from one having a comfortable margin of safety, to one with none. Given that TGAL was also losing money made selling at a loss a cinch. I sold at $1.20/share plus $4.95 commission for a loss of $85. Be clear. I am not saying the stock will continue to go down. But the valuation proposition changes so much that it no longer looked like a good investment. When that happens, even if it is only after a matter of days. I sell. I am not in market to hope a company recovers. I am about preservation of capital first, then appreciation of capital. The important thing is to move on.
Intrinsic Value – Beginning Investing Terms
Intrinsic value may be the most important concept in value investing. It is the foundation of everything else. Value Investors all agree that you start with the intrinsic value of a company. Now, how you arrive at that value is a different proposition, there you will have a lot of disagreement.
Montier Bitch Slaps Efficient Market Theory
As readers of my blog know I have never believed in Efficient Market Hypothesis. Here is a speech from the brilliant James Montier humiliating the idea, using cartoon characters in the process. Definitely check it out if you haven’t. I must thank Miguel at Simoleon Sense for leading me to this speech and James Montier in particular.
Ben Graham’s Stock Selection Criteria – Value Investing Series
I found this idea in Tweedy Browne’s What Has Worked in Investing. And after a little more research I have included it in my Value Investing Series. In a “Test of Ben Graham’s Stock selection Criteria,” Henry Oppenheimer studied whether or not a set of Ben Graham’s investing criteria actually worked. Toward the end of Graham’s life he espoused a different, although related criteria to what he espoused in his master works Security Analysis and the Intelligent Investor.
Beginning Investor Terms – Quick Ratio or Acid Test
The Quick Ratio, also known affectionately as the “Acid Test” is a metric used to measure short term solvency. In non jargon it is a formula used to figure out whether or not a company can meet its short term obligations.
What is Focus Investing?
The concept of Focus Investing is devilishly simple. Take the magnifying glass out and focus it on the very best investment ideas you have. Don’t pull the investment trigger unless you can say this is too good to pass up. It is the extreme opposite idea of diversifying your investments in the manner suggested by many financial advisors.
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