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How To Pick Stocks Guide

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Nov 18

So, maybe you like basketball and enjoyed the article for that reason but still are a bit skeptical of the concept we are trying to convey through this investing metaphor. I mean, come on, Rick Barry and Canyon Barry are great basketball players but this concept seems a little far fetched, doesn’t it? Well, we will push back on that line a little further and even take the metaphor a step further as well. Canyon Barry isn’t just a good basketball player he’s also studying to be a nuclear physicist. Even hedge funders will begrudgingly admit that sounds pretty smart. Canyon took pride in his families  signature shot. After all how many families have their own basketball shot? So, he mixed his trade and his game and started perusing scientific journal articles trying to find anything relevant to the “Granny Shot”. He found the work of a Professor in North Carolina State’s mechanical and aerospace engineering department named Larry Silverberg. Dr. Silverberg did not find that underhanded shooting is more effective, in fact, he found the opposite that it is more effective to shoot overhand if a player has the same consistency with both techniques. That’s a big if, even bigger if you apply the concept to investing. Allow us to explain why. You see, while it is technically possible to shoot better overhand the technique is physically much more complex and therefore more difficult. Shooting underhand is a better option for those who can’t shoot overhand well. So if you can’t shoot overhand (like maybe you don’t have your own Bloomberg terminal and staffed trading desk, let alone the benefit which computerized algorithms bring) then maybe you should try a ‘Granny Shot’. Dr. Silverberg puts it pretty eloquently and we’ll let him take us home. “The beauty of the underhand shot is that the underhand shot is a smooth motion, and it’s easier to become consistent with it if you want to change your habits.”  Silverberg continues, “If the person is maybe a 40, 50 percent shooter in the free throw, changing to an underhand can make a lot of sense. The underhand has that advantage that it’s not a bad option for a coach with a player who is a really bad shooter.” So are there any examples of this advice working? Well, Wilt Chamberlain was a notoriously bad free throw shooter, like worse than Shaq. He turned to the ‘Granny Shot’ method to help him get a higher percentage. In the 1961-1962 season he used this method to great avail, in fact he had the highest scoring game in the history of basketball; the famous hundred point game. He made an amazing, particularly for Chamberlain, 28/32 free throws which comes out to 87.5% and was also the most free-throws ever scored in a single game. So how does one of the worst free throw shooters and most macho players in the league go on to set the all-time free throw record? With Granny Shots folks. Quick Navigation on this series How To Pick Stocks Guide: Part 1 - How to Pick Stocks? The birth of “Granny Shots”? How To Pick Stocks Guide: Part 2 - How We Apply 'Granny Shots' To The Stock Market? How To Pick Stocks Guide: Part 3 - How Does The 'Granny Shot' Work In Investing? How To Pick Stocks Guide: Part 4 - Impact on Technology, Digital transformation and Artificial Intelligence in the Stock Market How To Pick Stocks Guide: Part 5 - Impacts on Inflation and Portfolios How To Pick Stocks Guide: Part 6 - How to allocate and create Tactical Portfolios? How To Pick Stocks Guide: Part 7 - How to create Seasonality allocations and portfolios? How To Pick Stocks Guide: Part 8 - How does Granny shots brings it all together? < Previous

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Nov 18

How To Pick Stocks Guide: Part 6 - How to allocate and create Tactical Portfolios?

Our Tactical Portfolios are also an important tool we use to manage a bit more actively. We generally construct these with a 6 to 12 month time horizon in mind. We have three tactical portfolios consisting of our Style Tilt between Value and Growth, our Seasonality Measure, and our PMI Recovery Above/Below 50. We’ll discuss our thinking on each of these briefly. Based on many of our proprietary indicators, we see a golden age of Value dawning. While we still like many growth stocks, we do not believe these champions of the COVID-19 era will lead the averages to new and impressive highs. We believe pure value plays and value cyclicals will lead this move to new ATHs. We think that the market has rediscovered valuation risk in the wake of coronavirus. We recommend getting exposure to pure value stocks and value cyclicals, especially to take advantage of this changing dynamic. We believe that as the strength of the virus diminishes that much of the wall of money that has gone into the big tech stocks over the last 9 months will rapidly and violently shift to these two groups of stocks.  Many people tend to forget what is in the present value of a stock. Most equity analysts and economists use discounting future cash flows to arrive at the stock's current value. What this means is that although current and near-term quarters should be weighted more than subsequent quarters because the cash-flow from these periods is more certain that even for a stock with a lower P/E ratio the future quarters are so many that they constitute a larger portion of present value than many investors realize. For example, if a stock has P/E ratio of 15 times earnings, then you should be discounting 60 quarters of future growth, and even though this quarter and next quarter might have severely depressed, or uncertain, results as a result of the virus, the following 58 likely will not. Obviously, the better the financial condition, balance sheet and management of the company the truer this is. In March, the market panic created many opportunities and beat down a lot of stocks that are undeniably undervalued by key fundamental metrics, particularly when incorporating discounted cash-flow analysis and proven survivability. We also like to follow the activity in adjacent markets like those for derivatives and debt to get a sense where the equities are going; developments in these areas are largely supportive of our portfolio theses. Quick Navigation on this series How To Pick Stocks Guide: Part 1 - How to Pick Stocks? The birth of “Granny Shots”? How To Pick Stocks Guide: Part 2 - How We Apply 'Granny Shots' To The Stock Market? How To Pick Stocks Guide: Part 3 - How Does The 'Granny Shot' Work In Investing? How To Pick Stocks Guide: Part 4 - Impact on Technology, Digital transformation and Artificial Intelligence in the Stock Market How To Pick Stocks Guide: Part 5 - Impacts on Inflation and Portfolios How To Pick Stocks Guide: Part 6 - How to allocate and create Tactical Portfolios? How To Pick Stocks Guide: Part 7 - How to create Seasonality allocations and portfolios? How To Pick Stocks Guide: Part 8 - How does Granny shots brings it all together? < Previous Next >

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Nov 18

How To Pick Stocks Guide: Part 7 - How to create Seasonality allocations and portfolios?

Seasonality and economic cycles have obviously been dramatically impacted by the first-ever coordinated global shutdown of economies worldwide. This unprecedented action and associated changes in consumer behavior significantly altered what were once far more predictable consumption activity patterns. However, in some ways, COVID-19 has created its own type of “new seasonality”, and we pay careful attention to the companies that have been made winners in the new environment. We are currently seeing some strong beneficiaries of the viral economy in Tech Hardware, Household Product and Retail, Fertilizers, Homebuilders, Online Retail, and Electronics. We think the strongest players within these sub-industries are very attractive equities to own. From where some of the highest-flying stocks of the year are now, you have to remember to go up 50% would be a Herculean task given all the gains they have had this year. However, given where much of the worst-affected cyclicals are, a rise of 50% would simply bring them back to pre-COVID levels. We think that they will also reach these pre-COVID levels with better profitability and operating leverage than before. Not only that, they have proven that they can survive the worst-case scenario. This greater survivability will inevitably mean more robust valuations, which in our opinion are deserved. We think new consumer trends regarding housing, which have remained resilient throughout much of the virus due to changing demand patterns and low rates, and de-urbanization will significantly benefit these sectors. As we always are looking through a multi-faceted lens, we also think that this 'new seasonality' as we call it, will also  be accelerated by one of our strategic portfolio trends since millennials are responsible for many of the new home purchases. PMI Recovery- PMI Above 50        The Purchasing Managers Index is a simple but reliable indicator of how businesses feel about upcoming periods compared with current ones. If the PMI goes above 50, it indicates that managers in various industries feel more optimistic about their prospects than in the previous month. This often means that companies benefitting from the expansive side of economic cycles will do better than if the number were contracting (or was below 50).  We have done some significant analysis of PMI and its correlations to various sectors comprising the S&P 500. We have looked at the data and determined that since 1949 every time the PMI goes above 50, there is a measurable outperformance by Cyclicals and Value. Even more interesting is a trend that we’ve noticed over the last 25 years that we believe will continue. The three groups that consistently outperform are Technology, Energy, and Value. While we are not constructive on Energy at this time given some idiosyncratic risks we see as unresolved, we are very bullish on Tech and Value due to PMI being above 50 since July. This is the final tactical portfolio trend we use to select our Granny Shots portfolio. Quick Navigation on this series How To Pick Stocks Guide: Part 1 - How to Pick Stocks? The birth of “Granny Shots”? How To Pick Stocks Guide: Part 2 - How We Apply 'Granny Shots' To The Stock Market? How To Pick Stocks Guide: Part 3 - How Does The 'Granny Shot' Work In Investing? How To Pick Stocks Guide: Part 4 - Impact on Technology, Digital transformation and Artificial Intelligence in the Stock Market How To Pick Stocks Guide: Part 5 - Impacts on Inflation and Portfolios How To Pick Stocks Guide: Part 6 - How to allocate and create Tactical Portfolios? How To Pick Stocks Guide: Part 7 - How to create Seasonality allocations and portfolios? How To Pick Stocks Guide: Part 8 - How does Granny shots brings it all together? < Previous Next >

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Nov 18

How To Pick Stocks Guide: Part 5 - Impacts on Inflation and Portfolios

Inflation is a perennial portfolio threat. Equities have been consistently one of the best ways to beat it over time. Asset-intensity has to do with how a business makes its money. Is a company selling a flat-subscription for a service? Or are they selling smart-phones. How these different companies will respond to rising inflation is very different. You see companies that sell goods and use a high-asset intensity and significant investment in capital to achieve production goals will be more naturally hedged against inflation than the former. Even prior to COVID-19, we were predicting a secular period of the ‘return of inflation’. For reasons not entirely known, inflation has been subdued over the past years. We believe it will be returning with a vengeance in the coming years and it certainly won’t be slowed down by the Federal Reserve’s new AIT framework in which the FOMC stated it would not let inflation run high than in the past, like perhaps even as high as 2.5%. While inflation is incredibly difficult to predict with reliability or to ‘market-time’, you can protect yourself by owning companies that use assets efficiently to achieve profitability. One good metric to evaluate how effectively a management team is using assets to get to the finish line is Return on Assets. A higher number on this reading will mean companies are using their assets efficiently. Unprecedented government spending levels are another factor that motivate our call for using certain equity strategies to hedge against a reflating macroeconomic environment. How do we advise doing this? We suggest owning companies with high asset intensity, meaning their business models favor investment in capital and assets over operating leverage to achieve profitability. We think the upcoming period of reflation will boost asset-heavy companies. Quick Navigation on this series How To Pick Stocks Guide: Part 1 - How to Pick Stocks? The birth of “Granny Shots”? How To Pick Stocks Guide: Part 2 - How We Apply 'Granny Shots' To The Stock Market? How To Pick Stocks Guide: Part 3 - How Does The 'Granny Shot' Work In Investing? How To Pick Stocks Guide: Part 4 - Impact on Technology, Digital transformation and Artificial Intelligence in the Stock Market How To Pick Stocks Guide: Part 5 - Impacts on Inflation and Portfolios How To Pick Stocks Guide: Part 6 - How to allocate and create Tactical Portfolios? How To Pick Stocks Guide: Part 7 - How to create Seasonality allocations and portfolios? How To Pick Stocks Guide: Part 8 - How does Granny shots brings it all together? < Previous Next >

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Nov 18

How To Pick Stocks Guide: Part 4 - Impact on Technology, Digital transformation and Artificial Intelligence in the Stock Market

Even though it may not seem like there is a global labor shortage because of the enormous unemployment rates we see, there is. This may be even more exacerbated if geo-political tensions and developments around COVID-19 continue to hamper and act as a regressive force on globalization. When there are not enough workers, one thing that will inevitably happen on a macroeconomic level is that managers will seek labor solutions that reduce, to the extent it will boost profitability, reliance on human labor. This tends to lead to managers using automation and artificial intelligence not to replace human labor completely but to supplement it and act as a major force multiplier. The world is short nearly a hundred million workers, and that number may increase as a result of COVID-19. In addition to the already ongoing global labor supply shortage, the pressure on many sectors of the economy to increase operating leverage can also augment and accelerate the forces that were already in motion. Besides being a bullish harbinger for the companies that supply the cutting-edge, labor-replacing technology that will be widely needed by firms, this generally benefits the United States. After all, Silicon Valley will be one of the prime beneficiaries of this secular labor shortage. This is one of the reasons we continue to be bullish on US equities generally. We think there a few key forces that will result in the US decoupling from and exceeding the rate of growth in much of the rest of the world not possessing the same advantages like reserve currency status and deep, developed capital markets. The bottom line is that since 1970 there was a 33% worker surplus over GDP output. We predict the next 35 years will see a massive deficit and it has already begun. Quick Navigation on this series How To Pick Stocks Guide: Part 1 - How to Pick Stocks? The birth of “Granny Shots”? How To Pick Stocks Guide: Part 2 - How We Apply 'Granny Shots' To The Stock Market? How To Pick Stocks Guide: Part 3 - How Does The 'Granny Shot' Work In Investing? How To Pick Stocks Guide: Part 4 - Impact on Technology, Digital transformation and Artificial Intelligence in the Stock Market How To Pick Stocks Guide: Part 5 - Impacts on Inflation and Portfolios How To Pick Stocks Guide: Part 6 - How to allocate and create Tactical Portfolios? How To Pick Stocks Guide: Part 7 - How to create Seasonality allocations and portfolios? How To Pick Stocks Guide: Part 8 - How does Granny shots brings it all together? < Previous Next >

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Nov 18

How To Pick Stocks Guide: Part 3 - How Does The 'Granny Shot' Work In Investing?

Since the inception of the 'Granny Shots' portfolio methodology, we have beat the S&P 500 by 4,260 bps since inception. On a YTD basis, the S&P 500 has returned 9.4% while our Granny Shots portfolio has returned 34.1%, more than three-fold of what the broader index did. YTD Granny Shots is beating the S&P 500 by 2,540 bps. Our 'Granny Shots' portfolio selects stocks by aligning our tactical 6-12 month stock portfolios with our thematic strategic portfolios, which have a horizon of 3-5 years. We have three of each. Based on our analysis, the more portfolios a stock is in, the better. We have four treasured stocks that we recommend to our subscribers that come across 4 categories. To understand 'Granny Shots' better, we will give you a little background on each of our themes for 2020. Millennial Prime Earning Years/Wealth Transfer From Baby Boomers One of the key thematic investing strategies we are implementing over the next 3-5 years will be the enormous transfer of wealth from baby boomers to millennials and millennials entering their prime 'leverage' years. The millennial generation will be making the key purchases that drive cyclical economic expansion in a way that only a large generation replacing a smaller one can. In the United States, millennials significantly outnumber Gen-X. They will soon be buying houses, cars, and other core needs consumers spend on as they advance through their lifecycle on a scale rarely, if ever, seen. This consumption will be fueled by the massive transfer of wealth from the Baby-Boomer generation through inheritance and other transfers to help support their progeny's economic advancement and security. The vast majority of 75 trillion dollars in wealth held by boomers will eventually be passed to millennials. This wealth will be coming to them, let’s remember, in addition to their own earning power, which has the potential to be greater than any previous generation. This will affect markets and the wider economy in profound ways, as massive generational shifts always do. We believe that generational effects on the stock market are amongst the least appreciated but also the most reliable and perennial drivers of markets and growth. The predictable patterns and needs of generations as they advance from one stage of life to another is a powerful economic force. Accordingly, millennials will also be the primary drivers of credit expansion. As millennials get more and more leveraged, they will begin to drive more GDP growth. Given that millennials are the most highly educated generation in history, their earning power should reflect this and opens the possibility that their days in the lifecycle limelight, so to speak, could lead to one of the most robust bull markets in history. Quick Navigation on this series How To Pick Stocks Guide: Part 1 - How to Pick Stocks? The birth of “Granny Shots”? How To Pick Stocks Guide: Part 2 - How We Apply 'Granny Shots' To The Stock Market? How To Pick Stocks Guide: Part 3 - How Does The 'Granny Shot' Work In Investing? How To Pick Stocks Guide: Part 4 - Impact on Technology, Digital transformation and Artificial Intelligence in the Stock Market How To Pick Stocks Guide: Part 5 - Impacts on Inflation and Portfolios How To Pick Stocks Guide: Part 6 - How to allocate and create Tactical Portfolios? How To Pick Stocks Guide: Part 7 - How to create Seasonality allocations and portfolios? How To Pick Stocks Guide: Part 8 - How does Granny shots brings it all together? < Previous Next >

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Nov 18

How To Pick Stocks Guide: Part 2 - How We Apply 'Granny Shots' To The Stock Market?

Wall Street is supposed to be full of smart people with smart ideas. Sometimes it is. Sometimes an idea's complexity can be misidentified as credibility or the potential for prosperity. We think, particularly in the wake of the pandemic, some clear winners whose advantages and congruence with our key investing strategies open them to similar criticism to those taking the easier and more consistent 'granny shots.' We aren’t showboats though, we are trying to make our subscribers money.  That’s why we recommend many relatively safe names to our subscribers because of the relatively straightforward intersection with at least two of our six active portfolios. Some of these companies may be seen as 'bland' or 'easy' recommendations for stocks, and they may be relative to what some are buying, but since our inception, our 'Granny Shots' portfolio has significantly outperformed the S&P 500. So, as Rick Barry’s father told him, you can’t make fun of us because we’re making our shots. Though you will find names like AAPL and TSLA, you will also find less-known names that we believe are investable stocks that you will want to buy to own. This means we recommend these to be bought and held, not traded. To illustrate the spirit of our Granny Shots investing strategy, we'll give a quote from both Rick Barry and his son, who uses his famous 'granny shot' to explain the wisdom of the strategy. The elder Rick Barry, always known for flare and directness, put it like this, 'I don't understand. I really truly can't comprehend the aversion that people have to try something that could be very effective for them. After all, the ultimate goal is to make the high[est] percentage you can!' The younger Barry, Canyon, put it a bit more subtle but perhaps makes an even more forceful point for our purposes of using their signature shot as an investing metaphor. I think nowadays image is big. People are super into fashion, you know, how they look, kind of how they're portrayed. But at the same time, is it macho shooting 40 percent from a line versus 80% from a line and your team winning six more games in the NBA season? To me, I think that's more important than being macho or considered manly. We couldn't agree more with the sage young Gator. Investing is about returns. An idea is not bad because its efficacy is widely acknowledged or the thesis isn't about anything shiny and new. Granny Shot investing is about companies where the numbers keep showing up quarter after quarter and shareholders keep getting rewarded. Still, some investors show a definite prejudice against 'crowded trades' or investments they think are too obvious. They think they should have a more creative alternative than that when clients ask, but if they weren’t so worried about impressions maybe clients wouldn’t be asking in the first place. We would point to the returns and the earnings put up by some of the best tech stocks like AMZN, AAPL, and GOOG, all of which have been on our Granny Shots list for quite some time, so if you're a retail investor who has been suffering from average or sub-par returns than try a straight play with some of our safest Granny Shots. Like Rick Barry and the spirit of our investment selection product, we won't make you take our word for it. We’ll just give you the numbers, and if you're doing better than our conservative product, then don't worry about considering a subscription. Though many of the names may be considered conservative or safe plays, it certainly doesn't sound conservative that we're beating the S&P by well over 20% on a YTD basis. Quick Navigation on this series How To Pick Stocks Guide: Part 1 - How to Pick Stocks? The birth of “Granny Shots”? How To Pick Stocks Guide: Part 2 - How We Apply 'Granny Shots' To The Stock Market? How To Pick Stocks Guide: Part 3 - How Does The 'Granny Shot' Work In Investing? How To Pick Stocks Guide: Part 4 - Impact on Technology, Digital transformation and Artificial Intelligence in the Stock Market How To Pick Stocks Guide: Part 5 - Impacts on Inflation and Portfolios How To Pick Stocks Guide: Part 6 - How to allocate and create Tactical Portfolios? How To Pick Stocks Guide: Part 7 - How to create Seasonality allocations and portfolios? How To Pick Stocks Guide: Part 8 - How does Granny shots brings it all together? < Previous Next >

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Nov 18

How To Pick Stocks Guide: Part 1 - How to Pick Stocks? The birth of “Granny Shots”?

A peculiar scene erupted at a high-school basketball game in Colorado Springs close to a decade ago now. A young and wiry player sat at the free-throw line and lined up his shot, although if you're picturing a typical free-throw line-up, shooting the ball above the shoulders, you'd be picturing it wrong. He was winding up an underhanded shot, colloquially and disparagingly referred to as a Granny Shot. He sinks the first one using this indecorous but effective method. The second one he misses, and in the tune of a typical sports-chant, the parents and fans in the opposing bleachers chanted You-Re Ad-Op-Td-Ed! The player on the court takes the quip in good humor; he laughs pretty hysterically in response. What possibly could be the explanation for this odd exchange? That young high-school player was Canyon Barry, son of one of Basketball's greatest ever players and one of the best free-throw shooters in its history, Rick Barry. He neared an unparalleled 95% rate in his last seasons, although his career total was 89.31%. His son wisely accepted his father's instruction; For me, it was kind of like one of those things where logic would dictate if you had one of the greatest free-throw shooters of all time as your personal free-throw coach, you should at least give it a try, said Cameron in a 2017 interview on  NPR that he appeared in with his father entitled Why Rick and Canyon Barry Stay True to The 'Granny Shot.' The elder Mr. Barry, who also is one of the top-scoring players of all time, explained how his father (Canyon’s grandfather) taught him how to shoot free-throws the same way women commonly did it at the time in the 1950s; underhanded. A young Rick Barry complained about potentially being made fun of. 'Son,' the eldest Barry said, 'They can't make fun of you if you're making all your shots.' This ridiculed technique has been passed through three generations with great success. In February 2017, Canyon Barry broke the Florida Gators record for consecutive free-throws using the 'Granny Shot' made famous by his old man. Quick Navigation on this series How To Pick Stocks Guide: Part 1 - How to Pick Stocks? The birth of “Granny Shots”? How To Pick Stocks Guide: Part 2 - How We Apply 'Granny Shots' To The Stock Market? How To Pick Stocks Guide: Part 3 - How Does The 'Granny Shot' Work In Investing? How To Pick Stocks Guide: Part 4 - Impact on Technology, Digital transformation and Artificial Intelligence in the Stock Market How To Pick Stocks Guide: Part 5 - Impacts on Inflation and Portfolios How To Pick Stocks Guide: Part 6 - How to allocate and create Tactical Portfolios? How To Pick Stocks Guide: Part 7 - How to create Seasonality allocations and portfolios? How To Pick Stocks Guide: Part 8 - How does Granny shots brings it all together? Next >

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