Watch me Beat the marketInvesting for Alpha
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WHAT IS ALPHA
According to Investopia “Alpha” (the Greek letter α) is a term used in investing to describe a strategy’s ability to beat the market, or it’s “edge.” Alpha is thus also often referred to as “excess return” or “abnormal rate of return,” which refers to the idea that markets are efficient, and so there is no way to systematically earn returns that exceed the broad market as a whole.
My mission here is to Invest for Alpha to prove that beating the market is possible. So follow along.
How to achieve Alpha
The stock market has over 8,000 stocks one can invest in. There are always some stocks that will outperform the market by a wide margin. If we want to outperform the market then we need to find some of those market beating stocks.
Using stock screens is one method to sift through the over 8,000 stocks to find those market beaters. I used the prebuilt screens at AAII to come up with a stock in my portfolio, XPEL, which is up 35% in less than one month. Details in upcoming blog post.
Professional advice is a great source of market beating stocks and the cost for such a service is not as expensive as one might think. But we need to be able to determine which stock picking service is worth their salt and which is no better than a snake oil salesmen. I have researched one such service and concluded that their record is indeed as good as their advertised claims. Read about it here.
You can hear about a stock from a friend. I bet you are rolling your eyes just about now and thinking yea right, the hot tip from a friend is going to lead you to the poor house is how that’s going to work out. Well, believe it or not and I have to pinch my self sometimes, my biggest winner to date NIO was a tip from my friend Tim. To be fair, my biggest loser Unlucky Coffee was also a tip from Tim. The tale of these two stocks will be detailed in an upcoming blog post. On the flip side of that, I gave a stock tip to my friend Russell back in 2017. I had seen a glowing earnings report on Square and since Russell often raves about how great Square’s payment service is for his carpet cleaning business, I suggested to him to check the stock out. Unbeknownst to me at the time, he bought it at $25 while I took no action. Today he is holding a multibagger at over $200 and I’m sitting on goose eggs. Lesson here is if you gives someone a mutibagger, stock karma will reward you with a multibagger in return, one day.
I will document each stock that I invest in by using a spreadsheet that is posted below. The data in there is automatically updated with the current prices. I’m going to do my best to put my money on winners. Failing to do so will mean public humiliation so I’m going to avoid that at all cost.
No need to reinvent the wheel here. The winning strategy has already been revealed from the greatest investor of all time, Mr. Warren Buffet.
Some gems from the Oracle of Omaha:
“All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.”
“Our favorite holding period is forever.”
“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
1. Picking good stocks. We are going to look for companies that are in up and coming technologies such as electric vehicles, solar power, software as service, etc. Companies that are in business that have a high barrier to entry, wide moats. Companies that are in the early stages of their business cycle. Companies with very high growth metrics such as growing earnings or growing sales, etc.
2. Buy and Hold. We are not going to do any day trading or swing trading. We will hold the stocks for a number of years not weeks or months. Businesses need time to grow and their stock price will grow accordingly.
As proof that I’m not just blowing hot air out of my tailpipe. I will show screen shots of a few of the transactions from my brokerage accounts below.