6 Steps to overcome Investing Paralysis by Analysis

unknown-5

Dear Mr. Market:

It sure seems as though you’re stuck in a rut. Just a few weeks ago Wall Street traders were donning embroidered hats with “Dow 20,000” on them in anticipation of reaching this stock market milestone. As investors approach proverbial milestones, their thinking and decision making process often begins to falter. How was your mindset when the Dow Jones cracked 14,000 in October of 2007 versus not too long afterward when it was at 6,600 in March of 2009?

The number of investors that are still sitting in cash from way back then is mind boggling! Do you take a long time making decisions? Are you worried about making the wrong choice with your investments and therefore don’t take any action? Do you analyze all the options but later on kick yourself seeing that so many opportunities have passed you by?

If any of these questions resonate with you, it’s likely that you suffer from paralysis by analysis! Here are a few steps to consider and break free of this condition:

  1. Crystalize the objective – The first step in overcoming paralysis by analysis is to truly understand your goal and timeline. Not everything is accomplished in one day. Your end goal will come to you by taking action but you must avoid being overwhelmed with a multitude of choices or an instant desire for perfection.
  1. Rip the Band-Aid off! – This is obviously much easier said than done. Advising someone who overanalyzes and is prone to being indecisive, will not likely yield in a comfortable transition. There are occasions, however, where “going all in” makes sense. Practice taking small action steps that lead you to becoming confident and decisive. Once you realize that making small mistakes doesn’t always derail the end goal, you will be that much closer to breaking free of larger decisions that demand your action.
  1. No rearview mirror needed – Paralysis by analysis can creep into your portfolio if you continuously kick yourself for past mistakes. We can learn from history but hanging on to the past can have serious negative consequences. History doesn’t necessarily repeat itself and sometimes a fresh start is exactly what you need to break through. Be forward looking as opposed to focusing so much on what has or has not happened before.
  1. Tip-toe in the water – The typical investing approach to “tip toeing into the water” is basically dollar cost averaging. As opposed to going all in at once you may be more comfortable with more of a phased or stair-step strategy. Another way to implement a plan like this is to invest your idle cash in thirds towards your established target allocation. Ideally you should select trigger points when the market is showing weakness. Keep in mind that once you begin this course of action you must commit to completing it.
  1. Declutter! – Most people can’t park their car in their own garage due to all the junk that has piled up over the years. Your investment portfolio and the decisions (or lack thereof) can become very much like an unusable garage! Simply get rid of what you don’t need. If you have investments that aren’t in line with a solid plan…dump them now and don’t look back. If you’re interviewing financial advisors and there are clearly some poor choices, don’t even meet with them. Why spend time and not advance a decision due to energy being wasted on distractions?
  1. Delegate it to a pro! – Let’s put it this way…. If you had a financial advisor who got nervous at key stock market milestones and stayed in cash far too long while the market took off to set new record highs….you would fire them, right? If that financial advisor is YOU…it might be time to fire yourself! You may be very intelligent, perform tremendous due diligence (almost to a fault), and of course have your best interest in mind; but if you don’t have a clear and decisive investment strategy, you’re simply not capable of optimally managing your investments.

thelegendarybrucelee

 

 

 

 

 

Dean Foods: What did Santa wash down his cookies with?

unknown-4Dear Mr. Market:

Normally we write you a series of letters about the stock market or the economy. As we wrap up 2016, however, we decided to share an article that was recently published on Seeking Alpha. The proverbial ‘Santa Claus rally’ seems to perhaps have taken place before Christmas this year but what opportunities might there be going into 2017?

This interview reviews questions around a stock we’re interested in adding to some portfolios; Dean Foods (DF). Enjoy!

Summary

  • Despite trading at 52-week highs (and ~30% gain over the last three months), DF is still undervalued relative to peers.
  • As the clear market leader in fluid dairy, DF enjoys significant economies of scale – a critical advantage in a commodity-related business.
  • “Skating to wear the puck is going” with leading position in healthy dairy products such as TruMoo.
  • Friendly’s ice cream acquisition was immediately accretive, highly complementary, and further cemented its growing position in branded ice cream.
  • Takeover rumors that surfaced in October provide a floor for the stock.

What is one of your highest conviction ideas right now?

As plain and simple as a glass of milk might sound, we really like Dean Foods (NYSE:DF) right now. With a new year upon us and investors scouring for names that might benefit with a new administration, sometimes the best answer is to look at leading companies that are not in the spotlight but right in your fridge!

Can you provide a brief overview of what the company does?

Dean Foods is a leading U.S. processor and distributor of milk and other dairy products. The company has been around since 1925 and is headquartered in Dallas, TX. DF is surprisingly much larger than its next closest competitor but if you ask most investors to name any companies in this space they may not have a grasp of the landscape. Several of DF’s products are sold under licensed brand names and they have over 50 private-label brands in grocery stores nationwide. DF delivers their products via one of the most extensive direct store delivery (DSD) systems in the U.S.

What led you to take a position?

We actually owned DF several years ago and then sold the position. The catalyst for the sale was the divestiture of WhiteWave Foods Co. (NYSE:WWAV) in July of 2013. From a fundamental standpoint some of the same pricing concerns, intense competition, and inflationary concerns were swirling around the company as they are now. Ironically enough, talks of another potential acquisition also recently surfaced with a report in October of Hongsheng Beverage being potentially interested in buying DF.

Your investment decision-making process involves being value or growth agnostic – what value and growth qualities does DF have?

In our opinion, the greatest advantage of being style agnostic is that it allows you to scan the entire universe for companies and also avoid any preconceived biases. Albeit possibly warranting an entire discussion on its own…the value versus growth debate will always remain, but in general we believe value stocks will outperform over longer periods of time. There is of course always a reversion to the mean but 2016 has clearly seen value trounce growth.

DF just released its third quarter earnings and from a growth perspective it continues to perform well. The company actually has a healthy long-term earnings growth rate of 12%. From a valuation perspective, we believe this is where DF should attract some attention. We believe the company was extremely undervalued in August and early September and even after about a 31% bump since then, we think the stock has much more upside. S&P Capital IQ currently has a fair value calculation of $26 for DF.

Continue reading

10 Rules on Stock Picking

Unknown

Dear Mr. Market:

We’ve written countless letters to you on the ups and downs of the stock market. This time, however, we’d like to share some ‘rules of the road’ and a guideline on how to pick stocks regardless of the environment you’re presenting us.

Click here to read the latest white paper written by My Portfolio Guide, LLC.

Cheers!

PS- If you have questions or would like more information on this white paper or others…please send us a note below:

Target your sell discipline

Target arrow 1Dear Mr. Market:

There you go again Mr. Market … You’ve trumpeted your tempting sirens and lured in people who were deathly scared of the stock market to now jump in. The S&P 500 is once again flirting with all-time highs but is the music about to stop? You make it easy to buy a stock but why is it so hard for you share the catalysts that tell investors to sell? Mr. Market is famous for encouraging you to sell with emotion but isn’t there a better way?

In our opinion, there are three main criteria that should be used in forming a disciplined and repeatable sell decision. In order to be a successful investor you need to master and take them all into account before you ever buy a stock.

So…what are the three main criteria?

  1. Fundamental Analysis: There are a slew of fundamental issues that could warrant a sell decision. If you’re willing to buy a stock you’ll need to monitor fundamental metrics ranging from earnings, valuation, cash flow, and debt, among others. Lumped into this category should be a keen awareness of key changes in management and their effectiveness.
  2. Technical Analysis: Whether you believe in following the charts and trading patterns of a stock or not…you still need to be aware of them. Like it or not, many decisions from the bulk of the investing world are made or triggered due to technical analysis so even if you think it’s hogwash don’t be short-sighted and ignore them.
  3. Investor Sentiment: Ideally, you’ve kicked the tires and performed your due diligence (reasons #1 and #2 above) on what made you buy the stock in the first place. If the honeymoon phase is no longer there, it may be time to sell. Don’t get us wrong here…this is not about selling because everyone else is. The idea here is to analyze whether the trend is moving in a direction that is not going to help you as a shareholder. Of the three criteria this is perhaps the most challenging to master because it forces you to use your eyes and brain as opposed to your emotions.

Continue reading