Comments on: Buy Prices, Ratios , Market Timing and Technicals http://www.oldschoolvalue.com/investing-perspective/buy-price-investment-ratio-market-timing-technicals/?source=rss Excel DCF Stock Valuation Spreadsheet and Calculator Thu, 11 Mar 2010 15:01:05 +0000 http://wordpress.org/?v=2.9 hourly 1 By: Jae Jun http://www.oldschoolvalue.com/investing-perspective/buy-price-investment-ratio-market-timing-technicals/comment-page-1/#comment-165 Jae Jun Mon, 07 Jul 2008 04:48:42 +0000 http://www.oldschoolvalue.com/?p=98#comment-165 Hi Luis, Thanks for taking the time to comment. Im glad you're finding the information helpful. Well I started this blog because I needed a way to document my processes, thoughts and analysis. After being burned by a financial advisor who constantly stuck me in 3-4% expense mutual funds on a variable life insurance, I needed my views to be reviewed and/or questioned. I also believe that writing things down and having witnesses to it, helps me to stick with it. Of course, if a better idea comes along, I'll be more than happy to replace an old one. Nice business you have there. Im a keen photographer and web wannabe. Just got started with After Effects for videos too. Hi Luis,
Thanks for taking the time to comment. Im glad you’re finding the information helpful.

Well I started this blog because I needed a way to document my processes, thoughts and analysis. After being burned by a financial advisor who constantly stuck me in 3-4% expense mutual funds on a variable life insurance, I needed my views to be reviewed and/or questioned.

I also believe that writing things down and having witnesses to it, helps me to stick with it. Of course, if a better idea comes along, I’ll be more than happy to replace an old one.

Nice business you have there. Im a keen photographer and web wannabe. Just got started with After Effects for videos too.

]]> By: Luis http://www.oldschoolvalue.com/investing-perspective/buy-price-investment-ratio-market-timing-technicals/comment-page-1/#comment-164 Luis Mon, 07 Jul 2008 02:56:43 +0000 http://www.oldschoolvalue.com/?p=98#comment-164 Great post. Jae, your calculators, post, insight have been very helpful to me. Keep up the great work. Just curious, why did you start this blog? Great post. Jae, your calculators, post, insight have been very helpful to me. Keep up the great work. Just curious, why did you start this blog?

]]> By: Jae Jun http://www.oldschoolvalue.com/investing-perspective/buy-price-investment-ratio-market-timing-technicals/comment-page-1/#comment-162 Jae Jun Thu, 03 Jul 2008 07:07:56 +0000 http://www.oldschoolvalue.com/?p=98#comment-162 Thanks! Thanks!

]]> By: Dividends4Life http://www.oldschoolvalue.com/investing-perspective/buy-price-investment-ratio-market-timing-technicals/comment-page-1/#comment-157 Dividends4Life Wed, 02 Jul 2008 18:13:25 +0000 http://www.oldschoolvalue.com/?p=98#comment-157 Nice post! Best Wishes, D4L Nice post!

Best Wishes,
D4L

]]> By: Jae Jun http://www.oldschoolvalue.com/investing-perspective/buy-price-investment-ratio-market-timing-technicals/comment-page-1/#comment-156 Jae Jun Wed, 02 Jul 2008 16:48:20 +0000 http://www.oldschoolvalue.com/?p=98#comment-156 Sorry if I misunderstood you :) Regarding the Kelly formula, I have thought about it but I've never actually applied it to my capital allocation. Reason being, since I tend to look for overly depressed companies, if I apply the Kelly formula to what I deem to be super value, I would have to put close to 100% of my money in. I've put in 40% of my total portfolio into a company and I have no worries about doing it again but 95% or 97% is too much for me. I find the Kelly formula to be a great idea and formula for dice and friendly wagers with friends, but investment wise, I believe the idea is what we should apply. Joe Ponzio also wrote specifically about the Kelly Formula which you would find very informative. http://www.fwallstreet.com/blog/70.htm Sorry if I misunderstood you :)
Regarding the Kelly formula, I have thought about it but I’ve never actually applied it to my capital allocation. Reason being, since I tend to look for overly depressed companies, if I apply the Kelly formula to what I deem to be super value, I would have to put close to 100% of my money in.

I’ve put in 40% of my total portfolio into a company and I have no worries about doing it again but 95% or 97% is too much for me.

I find the Kelly formula to be a great idea and formula for dice and friendly wagers with friends, but investment wise, I believe the idea is what we should apply.

Joe Ponzio also wrote specifically about the Kelly Formula which you would find very informative.
http://www.fwallstreet.com/blog/70.htm

]]> By: joe http://www.oldschoolvalue.com/investing-perspective/buy-price-investment-ratio-market-timing-technicals/comment-page-1/#comment-155 joe Wed, 02 Jul 2008 13:39:24 +0000 http://www.oldschoolvalue.com/?p=98#comment-155 Thanks for the reply. No worries about making it a topic. That's why I come back to your site, for the new topics. My original question was more geared towards getting a comfort level with probabilities (down side risk and upside reward) so that it can be used to know how much to put into a company once you have found what you believe to be a discounted price of its intrinsic value, instead of trying to figure out when to buy or sell with indicators. Maybe I should have read Dhandho Investor (which is on my to do list) before I posted the question, but I was just wondering your take on how to use the Kelly formula in the stock market. In your example, you know you have a great company that has fallen under speculation, so the market over reacts and drops the stock price. You get ready to load up on what you have found to be a price that offers a great margin of safety on a company you really want in your portfolio. How do you you know how much to buy? If we overreact to Mr.Market's overreaction and buy too much, we put ourselves at risk of losing too much of our bankroll and not having enough to spread out on other/future opportunities. If we don't buy enough, we might miss out on making as much as we could on a great deal. Then when we see the price drop more, but our valuation of the company is the same, it would seem that your upside reward has grown over your downside risk and you should buy more than you did the first time. So that was what I was trying to get at, how can we come up with the #'s to plug into the Kelly formula? The Kelly formula works fine when betting on a dice game, but I am trying to apply it to the stock market. In order to do so, you have to come up with some sort of estimation of upside/downside estimates. I know that these are going to be assumptions of future performance, but there is no way of getting around that when investing in stocks. I guess my assumption was that since you have read and recommended The Dhandho Investor, that you have at least thought about using the Kelly formula. Thanks for your help Thanks for the reply. No worries about making it a topic. That’s why I come back to your site, for the new topics.

My original question was more geared towards getting a comfort level with probabilities (down side risk and upside reward) so that it can be used to know how much to put into a company once you have found what you believe to be a discounted price of its intrinsic value, instead of trying to figure out when to buy or sell with indicators.

Maybe I should have read Dhandho Investor (which is on my to do list) before I posted the question, but I was just wondering your take on how to use the Kelly formula in the stock market.

In your example, you know you have a great company that has fallen under speculation, so the market over reacts and drops the stock price. You get ready to load up on what you have found to be a price that offers a great margin of safety on a company you really want in your portfolio. How do you you know how much to buy? If we overreact to Mr.Market’s overreaction and buy too much, we put ourselves at risk of losing too much of our bankroll and not having enough to spread out on other/future opportunities. If we don’t buy enough, we might miss out on making as much as we could on a great deal. Then when we see the price drop more, but our valuation of the company is the same, it would seem that your upside reward has grown over your downside risk and you should buy more than you did the first time. So that was what I was trying to get at, how can we come up with the #’s to plug into the Kelly formula?

The Kelly formula works fine when betting on a dice game, but I am trying to apply it to the stock market. In order to do so, you have to come up with some sort of estimation of upside/downside estimates. I know that these are going to be assumptions of future performance, but there is no way of getting around that when investing in stocks.

I guess my assumption was that since you have read and recommended The Dhandho Investor, that you have at least thought about using the Kelly formula.

Thanks for your help

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