All Kinds of Things
“The person that turns over the most rocks wins the game.” —Peter Lynch
Stock markets closed out both the month and quarter on Friday, and finished both timeframes in negative territory. The S&P 500 was down 4.9% in September, and about 3.7% for the third quarter. The Nasdaq was down 5.8% during the month, and about 4.1% for the quarter.
The S&P 500 is still up a little over 13% for the year, and the Nasdaq a little over 27%.
As we’ve discussed this year, the strong index returns have been driven by a narrow band of large companies. Outside of that band, there are a whole lot of stocks that are down on the year—many significantly down from where they began the year.
And while down stocks aren’t the only place to look for bargains, the best investments are often found when the market extrapolates bad, temporary news about a company as if that news is going to be permanent.
How does one find those kind of ideas? In a recent podcast, author Michael Lewis described his process for finding a good story, which has some similarities to finding good stocks:
“You reminded me of....the way I hunt stories. I will spend all kinds of time on all kinds of things, and then just decide there’s not a story there and move on.... Twenty percent go somewhere and eighty percent don’t.”
In investing, looking at many ideas—and moving on when you come to something you don’t like or don’t understand—is usually a good process for finding a worthy place for one’s capital. And unlike Michael Lewis’ process, where twenty percent go somewhere, you might only have five or ten percent of ideas worth pursuing in-depth.
But that’s part of the game. It takes hard work to try and find great investment ideas before other people do, and to develop insights that are both different from the crowd and also correct. And you can’t find them if you don’t look.
“Plans are only good intentions unless they immediately degenerate into hard work.” —Peter Drucker
Tweets of the Week
In Case You Missed it…
A Conversation with Brian Bares and Connor Haley (video)
15 Questions to Ask Management Teams, Revisited
Billionaire investor Bill Ackman at CNBC's Delivering Alpha Summit (video)
A Conversation with Jamie Dimon (video)
Founders Podcast: #322 Herb Kelleher (Southwest Airlines)
Odd Lots Podcast: Lots More with Matt Levine and Mike Mackenzie
Value Hive Podcast: Toff Capital: Physics, Specialty Chemicals Distribution, and $YAK
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