ELIAS'S STORY (Stock Market Investing Case Study 6 of 8)
Elias started investing over 30 years ago just before starting university. Today, the bulk of his investable assets are in the stock market.
Motivated by the possibility of making money, he bought his first stock when he was 17 or 18. It was a junior gold mining exploration company. Elias made some money selling some shares when it went up in value but in the end the stock didn’t perform well and eventually the company went bankrupt. He made a second investment a few years later in another junior mining stock. This one turned out extremely well because the company discovered a large gold mine. When he sold, the profit helped pay for his MBA degree.
After graduating from business school, Elias invested primarily in low fee index funds. He started his adult life by putting his spare cash to work in the stock market and when he bought a house with his wife a few years later it was an all-cash purchase. Elias notes that real estate was much cheaper at that time which helped. The next phase was borrowing against the house and re-investing back into the stock market, then paying the mortgage debt back down over time.
Efficient market theory
School did a great job of drilling the belief into him that the stock market was the right place to invest and that it was “efficient” (the efficient-market hypothesis assumes that stocks always trade at their fair value; that at any given time, prices fully reflect all available information; and, that it is impossible to “beat the market”).
When Elias buys a new position he usually starts with 50% of his target investment amount, holding on to the remaining cash to buy more of the same stock if its price declines (his time horizon is usually 12 months or more). But if the price doesn’t go down, he re-allocates the funds to a different purchase. He tries to stay impartial one way or the other. He has no regrets wishing he had bought more in the first place – there is little emotional attachment and he moves on.
With more than 30 years investing in the stock market, Elias saw some of his investments go to zero, and others more than double. He doesn’t concern himself with volatility. In fact, he believes that the best results are achieved when volatility is high. He also doesn’t worry about negative outlooks, noting that if everybody thinks the world is coming to an end, it probably isn’t.
Elias not only invests in the stock market personally, he also works in the industry. As a research analyst, his role is to formulate buy, hold, and sell recommendations on behalf of the brokerage firm he works with. His advisories are available to the firm’s clients who are pension funds, money managers and retail investors. They are also available for a fee through various news services.
Currently, he covers about 15 companies that provide services within the energy sector. The time horizon for his picks usually ranges from six months to one year. Earnings season, which occurs four times per year, is an exceptionally busy time (he takes a vacation after or slows down). He also puts out advisories when there are special circumstances such as takeover rumors or acquisitions or other material events.
Like the tides in the ocean
Elias looks at the overall market like the tide in the ocean: is the tide coming in or going out? In other words, is the market (and/or his sector) in the upswing or downswing? The economists at his firm provide an opinion on the overall economic outlook, then Elias analyses the individual companies within that sector.
He knows from experience that research analysts aren’t always in agreement. Sometimes it is a matter of opinion. Often, however, the opinions differ because the time horizon is different, or the analysts weigh the individual facts or consider the macro-economic outlook differently. For example, if one analyst recommends a “buy” and another a “sell” for the same company, it could be that one recommendation is based on a three-month outlook, while the other is looking out beyond 12 months or it could be that facts are weighted differently.
Based on his long experience, Elias offers the following insights:
* Case study based on September 28, 2015 interview conducted by Y. Gagnon
About this blog
This is a blog about investing for beginners. You can count on quality information
Yvanne wrote a 2-part book series about investing for beginners. She is an investor with an entrepreneurial character and a creative spirit. In the context of her career, she was trained as an analyst, and later as a manager. Find out more here.