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IFB41: What I’ve Learned from My Biggest Stock Losers Up to This Point

 

stock losers

Welcome to Investing for Beginners podcast, I’m Dave Ahern, and Andrew Sather is here with us as well. Welcome to episode 41, tonight we’re going to talk to Brad Conway who’s coming all the way from merry old England. Brad is a newer investor, and he’s got some great questions for us tonight.

So without any further ado, I’m going to hand it over to Andrew and Brad. A special note I had some audio difficulties with my speaking tonight, my computer was not working so I had to use my phone. So the audio quality for me will not be so great, so I apologize for that in advance, thank you for your patience, and I hope you guys enjoy the show.

  • How trailing stops and the best ways to utilize them
  • Lessons we learned from our stock losers
  • Margin of safety, emphasis on safety
  • Debt to equity, price to book and other important metrics

 

Brad: excellent yeah, thanks, Dave. So the first question and I want to ask is around stopgaps and there are you know listen to all the podcasts and you talk about I believe you said it’s 25% less of the value that you bought it out of stock and we’re on though is when that gets triggered and are you instantly just selling or do you do little bit of digging around what’s the reasons behind that?

Andrew: so this is very personal depending on how people want to utilize trailing stops I’ve talked on the podcast in the past about how I split my portfolio into two.

So I have the part of the portfolio that’s strict with trailing stops and then the part that is more of like what you’re talking about where if something goes wrong I’m going to dig into a deeper look to see if the stock price that’s fallen is really because of bad fundamentals, bad company financials, or if it’s just because the crowds kind of lost their mind.

In a sense where they’ve had pessimism, but you know that from a fundamental standpoint it’s just temporary and that the company will be able to recover over the long-term health. If the company is not compromised when I saw when I do trailing stops I stick very strictly to those and that is because I’m making that portfolio I talk about how sometimes it’s a little bit more risky in the sense that I’ll maybe chase stocks with less of a track record of like growing the dividend for example.

Maybe less stability, I’ll get more of more of the margin part of the margin of safety but always within the context of having a good balance sheet, having low debt. So because that’s the parameters of those stocks that I’m picking, then I’m super strict to the trailing stop.

It’s once the end of day closes at 25% loss or greater then I’m selling that next business day. Other people can kind of look at trailing stops in a different way you can approach trailing stops differently if you’re let’s say like another way that I could see somebody doing it that would work out well.

Would be to do trailing stops and be flexible on the upside and not the downside. So what I mean by that is let’s say a stock just went straight down 25 percent when you bought it don’t you know that you that trailing stop is there to protect your downside. So don’t let that like don’t debate it at all just follow the challenge stop at that point.

But let’s say your stock went up 50% and then lost 25%, maybe at that point you want to say okay well I’m already up on the position I don’t have to be as strict necessarily.

I’m protecting my downside because the stocks already made such a great profit and then kind of dig in from there and see okay do I see this as just a short obstacle that I will eventually overcome and that the company will eventually overcome, and so it turns out I was right with the pic, and maybe I’m going to ride it out longer.

That’s maybe the scenario that I would see of maybe being flexible on using the trailing stops. No matter which policy you go with I’ll tell you right now you’re going to have times where the challenge saw it worked out for you really well and times when it doesn’t so I’ll just say keep that in mind that don’t get caught up in maybe feel like you’re missing out or regretting that you made the wrong decision.

Just understand that’s part of the game and understand that the trailing stop is there to your downside. I also like how it gives you an exit point because it’s really hard to say it’s really easy to say oh you know I’ll just sell at the top in practice and actuality it’s almost impossible.

So it’s nice to have a system that will tell you that you’re going to collect these profits basically. It’s cool to see a stock that goes up let’s say 75%, and you know that no matter what the stock does tomorrow I’m going to gain at least 50% because I’ve had a 25% trailing stop attached to that mentally.

That’s cool it prevents you from the kind of over-analyzing and getting caught up in the actual results. So that’s really nice but I can also see ways where you can be flexible with the trailing stop on the profit side to really maybe maximize those gains even further especially if I would say even more so if you’re doing a stock that’s already paid you great dividends and you’ve been able to reinvest those dividends, and you have like a sizeable portfolio, not portfolio but a sizeable like position size on that stock.

I can see where maybe you’d be more hesitant to be so strict with the trailing stop, but for my purposes again that’s why when I do the dividend fortress’s those don’t have a turn up at all, so I have complete flexibility in the sense that I’m going to ride this thing out through bear markets and that’s how much confidence I have in these companies.

Brad: yeah great, so you sort of like is assessing the risk isn’t it? I suppose that that’s what it sounds to be so if you’ve already made a good amount of it then suppose there’s less risk in losing that 25% then there is if you’ve just bought it and then lost tight bucks and a little bit uncertain.

Andrew: Exactly.

Brad: thanks, Andrew.

Andrew: yeah and you don’t want to have like a stock because if you get you will have some they’re just wrong like nobody hits a hundred percent right so it would be tragic to be flexible on the downside and be like well you know I really think the stocks going to go higher and to see it go from 25 to 50 to minus 75 percent. It kind of defeats the purpose.

Dave: yeah and well one thing I’d like to add to that is one of the biggest mistakes that beginners make is not to sell a losing position and you know as Andrew has talked about before in the past. If you don’t get out of the position and it drops down to almost nothing or if the company goes bankrupt.

You lose all your money and to try to gain that back it’s just, it’s almost impossible. So having a trailing stop and being very firm on that percentage whatever percentage it is that you set will help alleviate some of that loss through the long-term, and yes it sucks to lose 25 percent on investment.

But like Andrew said we’re not going to bat 100 every single time and so not having that will help from time to time.

Brad: thanks for that. The next ones around them, so I’m over here in the UK. up in stock screeners and on your advice and sort of been set my levels around some of us advised in an intelligent investor, Mr. Graham you say so a PE of 20 to 25 sorry less than 25, price-to-book of around somewhere two or three ish, and that talk to below zero. And obviously a borough I’m sorry and then-then any dividend yield.

And I’ve really struggled with anything coming in I think last time I run it I’ve got about seven companies within the filter in the whole of the UK and then five of them or high percentage of them were basically like venture capital companies who are investing in small really small businesses which aren’t where I really want to be.

So I suppose the question is if that’s the case do you maybe loosen some of those filters or is it may be the case of this is not the best time to buy and maybe hold out a bit longer?

Andrew: love the question it shows you have progressed and you’re understanding, you’re running into this problem that’s a good problem to have because it means you’re doing it right. So I’ve seen times like pretty much so I’ve been in the market for three years in the sense of having the eletter in the real money portfolio I’ve been buying stocks for longer than that.

But I’ve seen running these screeners as I talked about in the free ebook and having like a small group of stocks a lot of times you’ll see depending on like depending on what parameters you use.

So I like to play around with them a little bit, there’s a ratio called the current ratio which will tell you to have a high enough current ratio would filter out companies that tend to be highly leveraged but might not show a high debt-to-equity.

So I know this is getting technical, and I apologize for people who maybe aren’t this far ahead, but I’ve seen a lot of insurance companies, for example, come up on the screen. I’ve seen a lot of banks come upon a lot of these type of screens.

What you want to do is its find metrics kind of like the current ratio which filters a lot of those out another thing to do. I do this a lot because I like to I like to filter on price to cash so that can be problematic depending on what screener you use and I’ll tell you why the screener I use is called finviz, and so they have the option to filter under price to cash, so they’ll let you press the cash under five under six under seven all the way up to under ten.

But then there’s no option to go like under twenty because I’d still like a company that had a price to cash of let’s say 11 or fifteen. So since there’s no like middle ground option to do that I actually a lot of the times we’ll just leave that one and open and then let the screen or run and then I’ll usually get maybe 20 of the 30 stocks rather than like five or six and then from there kind of do a double check and be like okay is this price to cash not ridiculous and as long as it’s not then I’m okay.

You talked about your screener and six all in the same industry that’s obviously a problem I don’t know that it might be the price to book. How do you remember how low you were filtering price to book for?

Brad: I think I started two and I think I wrote about three okay I’ve got a couple of companies in that we’re at in different industries at that point.

Andrew: okay so I tend to do under three or even under four sometimes you can get some just above three that another nice PE I’m always doing it under 30, under 25 is ideal, but 26, 27, 28 that’s not necessarily a game breaker.

So price to earnings, price to book those two are you don’t want to go any higher than like under 30 or like under four like. Yeah, I wouldn’t say anything about four would be good.

I definitely wouldn’t the debt-to-equity, that one can be very tricky because the way that ratio is calculated it varies depending on who you talk to and which screen is used. So I know the screener I use again it’s finviz, they calculate it based on of long-term debt divided by equity.

So it doesn’t, it’s not conservative enough for what I want so my show me companies that don’t have the asset liability mix that I want to see.

Other than that you know I’m trying to think I don’t think the UK markets that much overvalued than the US market so I think there has to be something else that we can play with to get you a bigger group of stocks to choose from. Do you remember any other parameters that you were?

Brad: it was just so it was the debt to equity, price to book, price to cash and it was anything that’s paying a dividend based on some of the stuff that you’ve been saying. That was sort of what I want to be looking for, but maybe it’s the stock screen I’m using. That might be something I need to look into.

Andrew: yeah look into that too because I know mine will show at least when the things where it’s like five thousand stocks. So yeah if it’s only showing you like the top 500, even then that’s like you’re missing out on 90% of potential stocks that are out there.

But yeah those are some of the things I would think of price earnings, price-to-book is probably the strictest ones you want to be on. Debt to equities kind of can be weird, so maybe that’s something you filter for on your own.

Price to sales price to case this sorry in certain jobs in deep the depth effects is that something that you face may be in the industry necessarily. It has to be well so. Obviously, you’ve got some industries that have a higher debt than others. Yes and no so I’ve bought companies where the debt-equity might be like around to as far as you know.

And keep in mind this isn’t like a common viewpoint this is one of the things that kind of differentiates me and for better or for worse it’s going to be the hill I die on but I prefer because I’m so debt averse I prefer even to ignore companies like banks who their whole business model depends on taking in liabilities. Which at the end of the day is the way I look at that when I calculate that to equity.

I’m looking at the whole picture and all of their liabilities. If you think about like a consumer bank how do they make money, how do they build assets? They attract customers the customers come in and they deposit money into their checking account.

So now the bank has that money but whatever they deposited add a adds a liability to the bank because they still owe that money to the customer and the customer can withdraw it whenever they want. So because that is their principal business model they almost always have so many more liabilities.

And then regular businesses I think it’s I remember it being somewhere to the scale of like ten to one so when you’re looking at the bank you think that you want to think of it as compared to a normal company they’re ten times more leveraged because that’s just the way the business model is now.

I’m not at all trying to say that every single bank with a debt-equity of 10 is going to go bankrupt. Obviously that’s not the case, and obviously, there’s plenty of companies and businesses that do run and do very well with higher debt loads. I’m just in the camp where I don’t want to put on that much risk and because I’m a very conservative stock picker that’s why I tend to do now that’s not to say that I don’t I automatically don’t get any exposure to the financial sector.

There are insurance companies, and a lot of those have similar debt-to-equity ratios as the banks. But I’ve I’ll tell you now I’ve picked up insurance an insurance stock in the past that did well for me and I still had that debt to equity kind of that debt to equity range that I’m always shooting for.

Also, I have a dividend fortress right now that is an asset management space, so they are in an industry that tends to take on a lot of debt as well. But they have a great balance sheet, and I’ve loaded up on that company because they have a lot of cash. They have a great balance sheet; they were very lowly priced when I bought it and pretty undervalued.

So there’s this kind of diamonds in the rough that you can find and still get exposure to the finance industry without having to necessarily buy these stocks that have debt equities in the tens are higher.

Yes it’s going to differ on industry but a lot of times even in industries where companies tend to run higher debt levels there will be exceptions to the rule where there will be companies who are kind of more I don’t know if you want to say like old-fashioned or traditional or even if just the word conservative is the right way to put it.

But there are well companies in these particular industries that have that kind of low debt levels and still do very well. One of them right now this is currently the best position I have in my letter. It’s I believe it’s it cross over 200 percent I don’t know if it’s still there I’m going to be checking on the portfolio again at the end of the month.

But that was a technology company, and as I think a lot of us know, the technology industry tends to carry a lot of high debt as well really. They kind of think of themselves as special because you know they don’t need the factories and the big assets that these traditional companies need in a lot of its maybe in the cloud or due to like IP, but there’s still you know it’s in a space that where there’s companies that are really leveraging themselves and acquiring other companies swallowing up the small fish and growing in that way.

Basically growing from debt being thrown in the fire and just fueling that’s how they’re fueling their growth but there are other companies that just don’t do that, and so that’s why I’ve seen it happen and I’ve been able to pick up stocks like that, and that’s why I continue to do to kind of approach it in that way.

Sure I’m missing out on a lot, and sure it’s a lot more work and a lot more filtering. But at the end of the day, it gives me that peace of mind and I think there’s still fantastic opportunities in getting stocks that are not as leverages as their peers.

Brad: great thanks, Andrew. Your tagline at the end of your episodes is the margin of safety emphasis on the safety. I was hoping you could both elaborate on that. So obviously if I understand the margin is safety to be the difference of the market price the intrinsic value of the company. Do you mean by then put some safeties it doesn’t worry so much about how far is the way more the actual intrinsic to the company that’s a good company as Warren Buffett says or is it they ask me quite a bit below the price?

Andrew: quite a bit but I the intrinsic value you hit the nail on the head. It’s funny because you know we’ve taken this term margin of safety that’s really like kind of a central theme of value and kind of split it and defined it in a better way.

There are both ways to reduce your risk, when I say the margin of safety with emphasis on the safety that kind of goes back to what I was talking about just a couple minutes ago with low debt-to-equity, very conservative balance sheet, and low leverage.

When a lot of value investors talk about margin of safety they’ll talk about how cheap the stock is compared to maybe how many assets they have or how much cash flow they generate, basically being undervalued and so there’s a lot of wisdom and going in both directions and obviously if you can get both then why not have your cake and ea tit too.

I think that’s it’s something to capitalize on but understand that it’s just not and then it’s not feasible to see that all of the time.

So margin of safety the emphasis on the safety I’m basically talking about having a good balance sheet and also avoiding the bankruptcies, so I talk about this all throughout the value trap indicator book what are the characteristics of bankruptcies, what did a lot of them what did their financial statements do and how did that materialized in the years leading up to their bankruptcy.

Use those lessons and then combine it with everything else, make sure that it doesn’t look like the companies that look bankrupt make sure you’re not trying to catch a falling knife make sure you’re not buying into stocks just because they are hated because a lot of times there can be good reasons for why they’re hated and why they’re dropping and also obviously go for the stocks that don’t have a lot of debt.

Dave: and I would agree with that. You know the big part of what we do is value investors as we try to find out what the intrinsic value is versus what the stock market is pricing it at. And the bigger the gap that there is then the obviously the more of, the larger the margin of safety or going to be looking for. I remember reading early on that Warren Buffett insisted on a 50% margin of safety when his first start got started and depended on where the market is that is a feasible number to look for.

In today’s market that may be a lot harder to find as Andrew was saying to find a hated company that is actually not needed for our good reason you know for whatever reason it’s falling out of favor and having a large margin of safety like that can be a challenge in the market as it is today.

Because it is so overheated and so finding that bigger difference is going to be kind of for me the way I look at it it’s a hedge against me making a mistake in my calculations. It’s a hedge against me miss reading what I’m looking for, and the company went on reading the 10k and looking at the management.

It’s another way of hedging against the confirmation bias or any other bias that I may be buying into because I’ve fallen in love with this company and I want to buy it, and I am finding reasons to buy it so the larger the market in a safety or the hedge that I have against that the better I’m going to be.

And the easier it is going to be for me to sleep at night because if I’ve made a mistake I’m not going to lose a large portion of my money because I was being irrational or making a bad choice, and I think you know for me with a safety part of the that’s really where it comes in to is that it’s a hedge against all those factors that go into us making a decision to buy a company.

It’s really no different than buying a toothbrush they says there’s a whole lot more money involved when we’re buying company a versus an enterprise so margin is safety on a toothbrush nobody gets too disappointed that the bristles aren’t the greatest but if you buy a company and you lose all your money because you missed a detail or you made a bad calculation on your intrinsic value then that can really hurt you and when you talk about making a calculation on intrinsic value.

There’s no one magical way to calculate that so there is a chance that even the way that you’re calculating an intrinsic value for that specific company isn’t applicable at this particular time.

Andrew: there’s just so many unknowns that having that margin of safety and having that cushion like you said Dave with how Buffett kind of explained it really it lowers your chances of one of those unknowns and one of the things that are maybe really outside of your control from affecting you into negative of a fashion to the point where you’re losing a lot of money.

Dave: exactly and with the calculation part of it whether you do a discounting of cash flow whether you do the bank graham formula whether you do a dividend discount model. Whatever formula or model that you use any of those numbers that you a lot of those numbers that you’re going to be pulling into that are going to be estimated.

So they’re going to be you know growth that you’re going to base on estimates that you may get from either calculation you do yourselves or from other numbers that you may pull from somebody else’s work and so you know there’s never going to be a finite two plus two equals four. There’s always going to be so a little bit of uncertainty into it and that’s where having a margin of safety could be so critical to what you’re trying to do and you know their thing about working with intrinsic value and a margin of safety is you don’t have to buy a stock every single day you know you can be patient, and I think that’s one of the things that Warren Buffett and Charlie Munger talk lot about in their meetings and their writings is patience.

Being patient finding something that you want and then going really big into that and that’s a big reason why they’ve been so successful is because they’ve been patient and I think that’s one of the things that we always need to remember is that we just need to be patient and look for what we want you to know in baseball terminology to you look for your pitch, and then once you get it you really take a whack at it.

Brad: Yeah, great thanks that and does market capitalization come in to sort of helping you find that margin of safety as well I mean I know a lot of companies I found on stock screeners a really low market capitalization and even when you dig a bit more you’ll see oh they’ve actually I’ve got balance sheet. They seem to be doing well for a few years but maybe would you stay away from those companies in because they are so loaded like capitalization so low like in the sense that maybe they’re too small.

Andrew: yeah, yeah a hundred percent I that’s the thing it’s like we talked about the small fish big fish a lot of times and it’s a way to put them at a four into the different stocks in the market and when you’re just so small it’s you’re kind of subject to what the big fish are doing.

And you could just find yourself swimming along and doing great and then getting swallowed up because a while happen the brief next to you so I think that’s what can happen with a lot of these really small companies and you see it a lot I always try to do at least two billion dollars or more. It’s it starts to be the point where kind of Wall Street starts to pay attention.

Obviously once a stock maybe reaches the S&P 500 there they get classified as a mid-cap or a large-cap or maybe even have like ten billion in market cap than a lot you tend to see a lot of analysts coming in and giving these stocks attention but up until that point there is that risk of like I said. You can a lot of things can go wrong, and they don’t have maybe as strong of us a foundation and as much of a stranglehold on even just the market itself.

You have to think businesses market to consumers whether that’s the everyday customer or whether that’s another business. And so there are markets for these for these places and these products and these services and if you’re just nibbling on a small piece of the pie, and you don’t have the same competitive advantage that a bigger company might have then you’re really at the whims of the market and you don’t have as much I think it’s a good way to put it actually.

the way you’re kind of making you’re adding it to this discussion a margin of safety and it’s a very critical point it’s having not only a good financial situation but having like a having a moat and having that cushion there where there’s really just more of a stability and a safeness that then then what you’ll see if you’re not one of these companies and businesses.

So to me that the sweet spots really like 2 billion to 10 billion, sometimes 20 billion. I like that in the sense of where they’re very secure and they have a lot of assets and they have generally they tend to have a good piece of market share. Whatever market they’re competing in but they also have a very bright future and could go for decades and compound money for a very long time and at a very great rate.

Whereas I think it’s safe to say you know even though Apples of a fantastic company and I mean, I could see them going to a trillion in market cap. But I think it’s safe to say that we’ll never see them ten bags I don’t see them going to ten trillion at least you know at least for 2030 for the years something like that they’re not going to it’s going to be a lot harder for a company like that to ten bag and to grow to have a 10xreturn then it would be a company that’s a two billion just because there’s only so many people in this world and so much money in this world and then so there is a cap on the growth.

So again you want to find that sweet spot of not too small, not too big and I think there’s a lot of opportunities when you’re doing that excellence.

Brad: so I guess what you say then if you want them to sort of have that foundation in place so they can deal with adversity in the mark you know within the industry because obviously if they’re a bit smaller that’s why they’ve got to be the first ones maybe to fail because they haven’t got that foundation there.

Andrew: yeah absolutely and I mean there when you talk about stocks that are under a hundred million market cap. Especially just the fact that some big investor like a Buffet or a Soros could buy a competitor and flush it with cash and then completely squeeze out the other company.

Whereas it might be harder for them to do that with a company that’s a little bit more established and not to say buffer their source I’m just using them as examples they don’t do stuff like that as far as at least in the public eye that we’re aware of. But they’re you know the smaller you go, the more of a chance of those type of things happening in like hostile takeovers and just kind of ugly things that you won’t see at a higher level.

Another thing people want to keep this in mind, so we’ve definitely seen this in the past it’s been written about a lot, and it always gets brushed under the rug until it’s too late and it becomes a scandal again, but you’ll have investment newsletters that focus on penny stocks and so penny stocks is really what we’re talking about when we’re talking about sub 100 million market cap.

Companies and what they’ll do is they’ll build up a subscriber base some of these investors and what they’ll do is they’ll buy up a bunch of shares of a company, and they call the pump and dump. So they’ll buy up a bunch of shares then send up this newsletter and call it some special secret access where you know if they have this innovation the stocks going to go up like crazy and you got to buy, and you got to buy in.

And so there becomes a hype and because the stock is so small, it doesn’t need that many people and that much capital to push it higher like that. So what these guys will do is they’ll pump it, they’ll buy at the beginning pump it and then they’ll sell it at the end and then it just creates chaos because then once the pump and dump gets revealed people the market realizes oh wow this stock didn’t go up because of anything that happened with the company it was just a fad there was just a hype or it was because of this pump and dump fraud and then you’ll just see the stock price completely collapse and so that’s another thing to kind of keep in mind when as a reason to keep away from those really small cap stocks.

Brad: excellent, thanks for that then and sort of my final question then is around what you have learned from obviously the stock picked in the eLetter, what have you learned for the stocks that haven’t gone so well.

Is there any trends that you’ve spotted or is it hard to spot that?

Andrew: yeah I love it this is such a fantastic question because it’s so easy to talk about the winners and just to brush the losers away.

But the only way an investor will become better and create more skills and become stronger at what they do is to examine what went wrong and what you can do in the future to learn from that.

So I’ll tell you because these are stocks that have already sold out of and so currently eLetter subscribers probably aren’t invested, and we’re not looking at these right now to buy into.

I’ll tell you I bought Footlocker at $67 and a penny I don’t know if this was I guess this was Friday because I’m on Google Finance right now and they’re showing they were up 28% in the day which I saw the headline. I was like oh man really but the thing about that stock it was one of those situations where I am I got it wrong because I bought it as I said around 67 its’s now trading around 43 so and that’s after the stock went up 28%.

That this was just one of the stocks that I just got completely wrong the trend that I saw is I tried to pick up a lot of retail stocks, and it’s the bottom hadn’t formed on some of them.

I’ll give you another one I did Best Buy at $34.65. Unfortunately, it’s now at $55.83, so it’s up you know $20, $30. But I had the trailing stop, and I stopped out with like a 23% loss so there’s a there’s another situation where you might get the story right. But because you buy it the wrong time I wasn’t able to pick the bottom quote-unquote. So it still had further to fall and then once it was done falling, once I guess once I decided to sell then they’re like okay we can go back up now and so that’s what happened then, and I missed out.

And I have one other one there was Tiffany, the jewelry company that makes those blue boxes that chicas just love to buy or receive as gifts. I bought that one at $79.94, and it’s now at 94. But again I had stopped out from flying into the stock too early. So while it might sound like oh man well you should have just these trailing stops suck because you lost 20-25 percent and you know you were right about these stocks.

Well, that was the case with Best Buy and Tiffany, but with Foot Locker remember I stopped out 25 percent below like almost 70. So it continued to fall I don’t know what the exact stop point was, but there was maybe around 55 that I got out, and then they continued to drop all the way down to like 30.

So that’s a situation where I was like you know what sure I lost out on Tiffany sure I lost out on Best Buy but I got saved from losing the ton of money on Foot Locker, and I’m okay with that.

So kind of back to what you were talking about in the beginning about the trailing stop and how the how they use that into your strategy is it’s okay to have these stocks like oh that might go higher after you sell out or continue to go lower. It’s just what’s going to happen and so I kind of learned that I like these trailing stops and I like being strict to these trailing stops.

Because even though Foot Locker had all sorts of great valuations I mean it still has a strong balance sheet. It’s just I may be underestimated the retail bloodbath that was going to happen and then so I bought into these retail stocks a little bit too early so I mean there’s three right there that I lost out on.

I’ve had three, and I’ve talked about on the podcast before I’ve had in the same period there’s been other stocks of gained 50% 60% and some percentages in between there as well.

So what’s nice is I have these trailing stops up to this date I haven’t lost anything more than 25%, and I’ve been seeing a good mix of winners and losers so it’s been it’s nice and he’s been there have been some good lessons. I did go into oil and gas a couple of issues ago, so I fear that the same mistake I made with retailing to make with oil and gas because it’s clear that there hasn’t been the bottom yet of course.

It’s never clear that the bottom was hit until after the bottoms already gone right so you just kind of don’t know what those with these type of things but I think moving forward I’m going to kind of try to call these bottoms less and while I’m still going to definitely buy companies like this who are so heavily discounted because they are in industries that are really hated by Wall Street.

I might limit it a little bit more moving forward, and maybe instead of doing like three stocks and retail, for example, I might just do one or something like that you know obviously these are spread out over months, but this is something to keep in mind.

Maybe like for the oil and gas thing that I just did I just couldn’t help myself from pulling the trigger and there were just such great valuations but if another one like that has a similar kind of characteristic pops up maybe I’ll be more likely to shun it and just be like you know there are other opportunities elsewhere. I don’t have to be this hero who’s calling the bottom in every industry and you know to throw my two cents in on that.

Dave: when I first started investing I was following the advice of another newsletter, and I didn’t do any research, I didn’t really don’t know what I was doing, I just know I wanted to invest in some companies and so I got caught up in the glitz and the glam of what this person was advertising and talking about in touting his success record.

And so the two companies that I bought one was Westport innovations which were a company that builds catalytic converters for diesel engines using natural gas. And if I bought into it as I believe it was like $5 and it jumped up to $14 a few months after I bought it and I thought wow this is awesome.

But then it started just to start to go down and down and down and down, and now I believe it’s around a dollar or so. I never I didn’t sell out of it until I got down to about a $1.50 or so and so because I kept thinking it would come back it would come back.

It never did, and it was just a lesson I learned along with another one that I bought which was called Sierra Wireless and it was an Internet of Things company where they connect two different devices to your home and things of that nature. And I bought into that company at $20 a share, and it jumped up to 48 dollars a share about three months after that, and again I thought you know hey this investing thing is easy.

This is awesome why have already been doing this longer, and then it started to fall and fall and fall and fall, and now I believe it’s around $15. I got out around 16 bucks, and so I didn’t lose my shirt on that one so much but if I’d had a trailing stop on either one of them you know the first one I both of them I would have made because it would have triggered after it had gotten to the top.

So I guess the thing I learned from both of those examples was I needed to do more research, I needed to know what I was doing, and that’s really what led me to value investing in Andrew and Warren Buffett, and you know Peter Lynch and Mohnish Pabrai and all these guys that I really look up to.

It and have studied that really led me to do a lot more research and figuring out what intrinsic value was and trying to find in a margin of safety and doing my due diligence reading the 10k spending time learning about the companies. As opposed to reading a one-paragraph you know are about the article about the company and in deciding oh I like the color of their logo and buying the company.

I mean that’s as real as shallow as it was and you know so my it really created an investment philosophies for me out of the pain of making those mistakes, and you know so it’s you know that to me was really what I learned from losing and like Andrew said people don’t talk about those because it’s not glamorous and you know they think it could be embarrassing.

But where Buffett talks all the time about the extra shoes so that you know the entirely micro bought into that company and a company ended up going bankrupt they also bought it into a retail company they bought into like a mall. I don’t remember the name of the company off the top of my head, but it was kind of like a Macy’s or Yonkers or something that.

They ended up going bankrupt as well, so you know even the great ones make mistakes from time to time so it’s okay to make a mistake, but the biggest thing is you got to try to learn from it.

Brad: Yeah excellent thanks we’re just one I guess there’s lessons for me around really is when you when these companies are getting beaten down and beaten down it’s maybe waiting around a bit to see where that bottom is and on the other side.

David, just do your research a bit more I suppose that’s their really good lessons.

Andrew: yes yeah excellent thank you very much we appreciate you coming on Brad questions were fantastic I always like to say that if one person has a question and they vocalize it, there are ten more who have the same question. They just haven’t around the vocalizing that so I know there’s going to be a lot of people who are on a similar path and trajectory as you and you know it’s encouraging it’s exciting I’ve been in doing this investing thing and stock thing for quite a while now and so it’s coolt o see these questions that I can   remember when I had these questions come up myself and so it’s obviously sometimes you just get things that come up and you won’t think of the question until you’re actually in they’re kind of in the trenches going through numbers going through the screeners and so it’s great to be able to answer those because it’s impossible to predict any of those things until they come up really.

So hopefully this has been helpful. Hopefully, it becomes another toolkit in a way at the very least and inspires you to continue to do your research as Dave said.

I know we talked before we got on the air here Brad and you’re talking you talked about how you read Graham and a lot of the other guys who are telling you about this more conservative kind of approach to picking stocks and so I think it’s fantastic.

I definitely encourage pursuing that continually and continuing to do that and I think you’ll find more and more it’s interesting how the more risk-averse you are and the more of a focus on the safety on the margin of safety you are it tends to be that the same type of guys who are also making a lot of money in the market so I mean look at the Benjamin Graham look at the Warren Buffett look at all those type of guys and try to emulate them.

And obviously having the skills to be able to understand the trailing stop master it use it to learn from the lessons of others it’s all good stuff and it’s all going to help you along your journey and hopefully get you to the goal of financial freedom which is the whole point of this podcast at the end of the day so and it was a great conversation and good to have you on.

I know it’s provided a ton of value for the people who are listening in trying to achieve the same things as well.

Brad: No excellent thank you both and thanks for all information as an avid listener to the podcast just watch say you know great thanks. But on the information you’ve given me, it’s been invaluable personally thanks you.

Dave: you’re welcome it’s our pleasure, we enjoy doing this, and we enjoy talking to the people, and the bottom line is we like helping people. And the more you know, the more goodwill we can spread out there the better it is for everybody.

Brad: yeah excellent, keep up the good work.

Dave:  thank you. Well alright, folks well that’s going to wrap it up for us tonight I hope you enjoyed our conversation with Brad.

Brad, thank you very much for coming on the show we appreciate it, and again I want to apologize for the poor quality of my voice with my technical difficulties. Hopefully didn’t detract too much from the conversation and the great questions that Andrew was answering from Brad, again thank you very much for coming on the show and you know the quality of your questions from a quote-unquote beginner was outstanding and we really appreciate you taking the time to talk to us today and without any further ado once you guys go out and find some great intrinsic value, invest with a margin of safety emphasis on the safety and have a great weekend. We’ll talk to you next week.,