How to invest like Warren Buffet....

Financial books are normally dry and boring, but 'The Big Secret for the Small Investor' by Joel Greenblatt is quite the opposite: funny, engaging, and a quick read, I thoroughly recommend it. Greenblatt talks about advice given by Warren Buffetts' mentor, Benjamin Graham, which is to buy value stocks, in other words, stocks that are cheap, compared to the value of the assets in that company. He suggests that company valuation is very difficult (who is interested, anyway?) and therefore recommends investing in ETFs that use value measurements for picking the stocks that they contain, and then buying those ETFs as part of your investment strategy. I emphasise the last part, because if you flip through the book, it's pretty easy to miss this bit of advice. He suggests making a decision about what percentage of your investments you want to be in  the stock market, and then maintaining that percentage. Essentially this is an asset allocation strategy, as advocated by Harry Browne. Some of you will remember that last year I did a video about how I use this technique for my pension investments.

Anyway, I was thinking about whether I could use Greenblatt's ideas about value investing, so I had a look to see how the value -based ETFs that he discusses, perform when compared to the market. For the market, I used the S+P 500, as used in the SPY ETF. I used the Vanguard  (well-known for their low charges) Value index fund, VTV. In the 10-yr chart below, you can see that there have been times where VTV has out-performed the market, but plenty of times that it hasn't.

2015 03 29 VTV and SPY

Certainly over the past 10 years, investing in VTV has not been as succesful as simply investing in the market. Maybe investing in the market itself is all you need to do? Interestingly, Warren Buffet suggested that upon his death his cash should be invested 90% in the Vanguard S+P 500 tracker fund, and 10% in short-term government bonds. Even Warren Buffet thinks that most investors cannot beat the market........

Anyway, back to trend trading. The markets have been all over the place, as you can see in this video (4 mins). My trades have mostly fallen back a bit during the past week, and one of my positions has closed. However, the position that closed did not lose me any money, because of the type of trailing stop-loss that I like to use. You'll need to see the video to find out more (8mins).

My plan during this next week is to go long an AIM listed company called Plus500, who  are one of the first CFD platform providers to retail clients. They are an Israeli company, although listed in the UK, and have been operating since 2008.

2015 03 29 Plus500

Why am I buying Plus 500?

  • There are a series of higher lows (arrows) and higher highs in place over the past 6 months

  • The MA20 is above the MA50

  • Both MAs are rising

  • It has a stockrank of 98 on Stockopedia, which is a high score (100 is max)

  • It looks like its trending upwards!

Will it make me loads of money? Who knows!

Have a great week.


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