What You’ll Learn
- How to read and interpret the scores and value metrics you see
- Would you choose Gamestop (GME) or Facebook (FB)?
- What brokerage will be used to buy the portfolio
- Tips on how to pick stocks with $1000
INVEST1000 is officially underway.
Lester got things started by sharing his thoughts on how he plans to invest his $1,000 fund.
After the intro was published, I received a few thoughts from people wondering whether technicals will work.
As it’s not my money, and I don’t plan to tell Lester what to do, we will have to see how it works.
The main goal is to provide the advice and coaching required to work through finding which stocks to invest in, how to interpret the basic stock info and properly allocate the funds.
In this first episode of INVEST1000, we go through all that.
How to Pick Stocks with $1000
Watch the video for the full details (2x speed makes it easier) or skip to the coaching call notes below.
Episode 1 of INVEST1000 is best suited if:
- you want a quick overview of how the Action Score works
- you are new to the value investing and looking for a way to invest without overwhelming yourself
- you are currently an OSV insider and want to know how to generate a shortlist of ideas quickly
Video Table of Contents
[00:39] General overview of the Action Score System
[01:23] How the Action Score works
[03:37] Core metrics we use in Old School Value
[07:31] Focus on higher grade stocks
[11:36] Focus on high Action Scores
[13:24] What is a Trifecta stock?
[14:20] B Grade stocks (Sleeper, Munger, and GARP stocks)
[17:11] C-D Grade stocks (Mom & Pop, Value Trap, Darlings)
[17:57] F Grade stocks (Red flag stocks)
[18:27] Additional reasons for red flag stocks
[20:28] Comparison of A Grade and B Grade companies (GME & FB)
[22:42] Controversial picks (GILD & NUS)
[25:24] Things to keep in mind when creating your shortlist
[32:12] General rules of thumb
[37:17] Rules for buying & Selling
[39:52] Lester’s mission for episode 2
Notes from the Coaching Call
I’ve laid out the info on the overall concept of how the Action Score works and how it is made. You will see the components that make up the Quality, Value and Growth score.
By revealing the metrics I use, the point is to understand the types of stocks it will bring up. This way, you’ll have confidence in the types of companies that show up on the list. The goal is to go after the stocks with high Action Scores.
Focus on the ones that are graded A or B. I reach down to the C’s sometimes, but not often.
Buffett says to wait for a “fat pitch”. That doesn’t mean each fat pitch will be a home run every time.
But the stock allows you to be very selective and wait for companies with limited downside. This is why I look for a well rounded company. Not just value or quality or growth.
Look for combinations.
More often, the A and B stocks will turn into a C, as stock prices run up or quarterly financials change the scores.
There are Trifecta stocks (where Quality, Value and Growth are all graded A’s), but it doesn’t guarantee a positive return. If you see guarantees offered for any investment strategy – RUN.
It’s a Ponzi scheme.
A lot of the times, it’s easier to work backwards.
Work through a list of stocks and eliminate the bad ones. There are certain red flags that make your work faster.
e.g. consistently negative FCF, over leveraged with debt, management with history of bad execution, fad products.
It’s easier to start looking at a pool of stocks that meet your criteria, rather than try to sift through the entire universe for fat pitches.
Here’s an example between GameStop (GME) and Facebook (FB).
GameStop looks good on paper, but if you could only choose one of these two stocks, which would you buy?
Although Facebook is a B, the potential for Facebook is much greater than GameStop.
What about Gilead Sciences (GILD) vs Nu Skin (NUS)?
This is a tougher choice. Knowing that it’s a one year holding period, GILD will likely continue having negative sentiment that could extend beyond the 1 year holding period.
That’s the downside with a yearly rebalance. You don’t always get the benefit of letting time sort things out.
Many value stocks take 2-3 years before it starts to meet intrinsic value.
At the same time, Nu Skin has some baggage next to its name. Don’t let opinions sway you.
The advice provided to Lester to create his stock shortlist is to
- define how many stocks he plans to hold
- the universe of stocks he will be searching in
- build an initial list of 2x the number of stocks he wants to hold
- use the 3 export or data accessibility methods via OSV Online
Difficulties that Lester will have trying to invest $1,000 are fees, the numbers of shares he can purchase, the stock price and whether OTC stocks are supported.
To combat these issues, Lester will be using RobinHood to trade. There are no commissions which obviously help with a small portfolio.
Coming Up in Episode Two
In episode two, we reveal the initial shortlist and final list of stocks Lester came up with.
We go through how he chose the stocks he did, and I provide my second coaching call of how to analyze a stock by the fundamentals if checking up on a company.
The portfolio of the holdings will also be shared for you to follow.
You don’t want to miss the juicy details in the next episode.
- Action Score backtest and simulations report
- Piotroski F Score paper
- Cash Return on Invested Capital CROIC
- The Gross Profitability Premium
- Link to Presentation
What is Old School Value?
Old School Value is a suite of value investing tools designed to fatten your portfolio by identifying what stocks to buy and sell.
It is a stock grader, value screener, and valuation tools for the busy investor designed to help you pick stocks 4x faster.
Check out the live preview of AMZN, MSFT, BAC, AAPL and FB.