How Informed Are Your Investments?

Have you done your research?

When you select a security to invest in, you want to make sure you've done your research.  There are hundreds of sources, from your financial advisor to your buddy with the hot stock tip.  The question is, how reliable is each source and how informed are they?  The bottom line is that everyone, from Warren Buffet down to the casual Journal reader, can be wrong.  If this wasn't the case, and someone had the market penned down, we'd be following their advice and not worrying about doing research.  But we also know that the average person with full-time job doesn't have time to do hours and hours of research.  At Informed Investments, we do the research for you and provide you with the bottom line.  Instead of having pages and pages to read through, we simply give you an argument for or against a stock as well as a counterargument.  After that it's up to you to do whatever additional research you need to feel comfortable taking up a position.  The reason we provide a bull and bear argument is that you may well disagree with us and take a counter-position to our recommendation (ie. we go long, you go short).  That's perfectly fine, and at times you are sure to be right and us wrong.  Our goal is, for all our picks, to be on average right more often than wrong, and in particular, to beat the returns of the S&P 500.  Why the S&P 500 and why are we focusing solely on stocks?

Why stocks, and why the S&P 500?

The simple reason to prefer stocks over mutual funds, bonds, or treasury notes is their exceedingly higher return.  Since the S&P 500's inception, 80% of mutual funds have underperformed the index.  That's basically saying that by spending five minutes investing in an index fund, you could have performed better than the overpaid fund managers working all day to market poorly performing funds.  And for all that work that goes into losing people's money mutual fund managers get compensated with fees (that also come out of your pocket), which further erodes your returns.  Finally, the funds are traded to the point where you are paying higher capital gains tax, and they are loaded to the point where they are so overdiversified that you might as well be buying an index fund.

What if the market heads south?

As with any investment, there is always a chance that you will lose your shorts and then some.  The key is to only invest money that you can afford to lose.  In other words, allocate a small portion of your salary each month to put towards your investments.  The key to growing your investment is regularly contributing to your portfolio and keeping up to date with what your stock picks are doing, so you're able to sell when the time is right.  If you are hesitant over investing in a market that is potentially heading into a recession, you can always short stocks (betting that they will go down).  Even better, you can ride it out.  The big losses are always incurred when people sell too soon.  The worst recession of our time (1929) was ridden out by savvy investors that waited patently for the economy to recover.

How "informed" are our recommendations?

Glad you asked.  We have been investing for nearly a decade now, earning market beating returns on our stock recommendations.  We use a variety of investment sources to gather our knowledge, including but not limited to The Motley Fool, investment magazines, Marketocracy investors, financial bulletin boards, newspapers, and more.  Basically what we do is amass as much information on companies as we can, and then, after thoroughly evaluating a stock, we buy some for our portfolio.  What we offer on this site is a look at our recommendations, which we open with a long or short call.  We clearly state our buying date and price, and provide basic stock information as well as our bull and bear arguments.  You can then decide for yourself which side of the fence you fall on.  The big advantage to you is that instead of rehashing everything we've learned, we provide you simply with the meat of our research, enabling you to quickly find stocks that interest you; which you can then further research and evaluate before investing in.  Note that there's no way for us to guarantee any type of return, and as with any investment, you are taking on risk and the possibility of losing your shorts and then some.  Read our terms of use before making any investment decision based on our recommendations.

Targeted Investments - take out the fear factor

We expand on the typical "buy and hold" investment approach advocated by most investment services by factoring in the element of time. That is, instead of simply buying and holding a security, or selling short and covering a security based on the performance and valuation of the company, we also take into account exactly where we wish to close our positions. And by doing so, we remove the element of human error from the equation. We do so by setting a closing price (to sell a long position or buy to cover a short position) immediately after we take up a position in a stock. We set the closing price as GTC (Good Until Canceled) and let the market do the rest. This way we don't need to worry about finding the right time to close our position.

Targeted Investments - taking into account human intuition

And the best part? Stock markets, and stock prices, act unpredictably. That is why there is no one person that has ever correctly predicted a series of stock prices or has always been right about a company's valuation. The reason for this is the human element, or emotional attachment. Humans will always buy and sell for reasons that can't be rationally explained. I guess that's what makes us human. At Informed Investments, we try and take advantage of this uncertainty using our targeted investing approach. As described above, if our closing price is met, our position closes and we reap the profits. The beauty with this model is that our closing price might be met for reasons that have nothing to do with the company's actual performance, but instead reflect changes in stock price based purely on human sentiment, or hedge fund plays, or short squeezes, etc. At the same time, if our investment goes in the other direction, we simply hang on until our target price is met - even if that doesn't occur until several years down the road. This is especially useful during recessionary times, when it can be easy to be overwhelmed with market hype and close positions out of fear.

Can I run my own portfolio?

Yes!  By signing up to become a member, you can follow and track your own stock picks.  This is just one of the many benefits of becoming an Informed Investments member.  Signing up is free - what are you waiting for?  Click here to get started.