Intelligent Investor Notes
2-5% in gold or precious metals
Buy REITs when older as a defense against inflation (10% is good, treat as bonds - bonds are bad unless in Roth IRA bc you will get taxed when inflation rises, since bonds / TIPs March inflation)
Average S&P p/e over 100 years is 20.8
Around 10 or below means good gains in future
Above the average (22 or so) means prepare for a pullback
Value investors don’t buy growth stock or any stock that has a p/e of 20 or more over the last 12 months
Average common stock returns 6% (30 year average), 4% after annual inflation - 2% earnings, 2% dividend
Portfolio should always be at least 50% stocks, never more than 50% bonds
No more than 10% of portfolio should be used as “mad money” on high risk growth stocks
...75% stock, 25% bond when younger (start acquiring bonds at 40ish)
... when older / retired 50/50 split.
Google how to use the rule of 72 when investing
Zweig says the best defensive portfolio is to put 60% into an S&P 500 index, 20% into a bond index and 20% in an international stock index
Never buy IPOs, always a bad investment
Base p/e on last 7 years, not just latest or next (future) year
Primarily invest in large cap companies (S&P - especially DJIA stocks - top 30)
Dogs of the Dow approach (google this and see if it has working lately)
It is oft times better to not know the current market price during bear markets and if you own a good company, don’t sell even if the price is down. As long as earnings, cash and underlying business are still promising
You don’t win or lose until you sell
Use the “owner earnings” formula to value the long term growth of the company
Forward p/e is garbage.
Multiply the P/E ratio x price-to-book ratio and see if it’s lower than 22.5
How do you find the price to book ratio per share
How to find current assets - liabilities per share
ROIC is more important than earnings per share. 10% is A+, 6-7% at a good company is a B, anything lower is inadvisable
Convertible bonds are better than bonds and give the option too trade to a stock in a bull market, generally a bad choice compared to normal bonds in a high interest Bear market
“Stocks for chickens”
Perform 83% historically of the S&P 500 index
^ need at least $100,000 to diversify accordingly in convertible bonds
Don’t invest in a company that buys a bigger company than it (minnow swallows a whale).... use assets and revenues as a guideline, not price per share.
Or
Don’t invest in serial buyers.
There is no such thing as a good stock, only good stock prices
Earning power can be calculated by dividing 1 from the P/E ratio. (Ie a company with an 11 p/e would have a 9% earning power rate year over year)
Use Margin of Safety when searching for safe stocks:
Actual or Projected Sales - Break Even Sales = MOS
MOS / Actual or Projected Sales for MOS%
Warren Buffet waits sometimes for a 50% MOS to buy a stock