1. How and why did you get started investing? What is your background?
I started investing in the mid-late '90s in a Roth IRA before the dot-com bubble burst. My background is in computers and technology, and I've been a techie since high school. I’ve worked in software development for the past 20 years. I invest in stocks, options and own about a dozen residential real estate investment properties near Raleigh, North Carolina. I’m also an inventor of over 50 granted U.S. patents and growing. Over the past several years I’ve maintained a blog at wayundervalued.com where I identify “way undervalued” stocks. I’m also a husband and father of two wonderful kids, ages 5 and 2.
2. Describe your investing strategy and portfolio organization. What valuation methods do you use? Where do you get your investing ideas from?
Outside of a balanced 401k, my most successful stock investing strategy by far is value investing. Since I’m heavily invested in real estate and I expect it to cover my future retirement, I’m a bit more of a risk-taker when it comes to stock and option investing. I’m comfortable investing a larger portion of my portfolio in individual companies. I honestly create my own investing ideas based on numbers for each company and try to ignore news headlines whether they are good or bad.
- Warning! GuruFocus has detected 6 Warning Signs with PG. Click here to check it out.
- PG 15-Year Financial Data
- The intrinsic value of PG
- Peter Lynch Chart of PG
3. What drew you to that specific strategy? If you only had three valuation metrics, what would they be?
I tried my own method of value investing and it worked better than I could have ever expected. Since it’s been successful for me in the past, I intend to repeat that success in future years.
My primary valuation metric is future earnings. This is of utter importance.
Another important metric for me is sector or industry. Since those probably sound like an odd metrics, let me explain.
Sometimes an entire industry can be dragged down and create great opportunities. One example of this is airline stocks in 2013. Southwest Airlines (LUV) and American Airlines (AA) nearly quadrupled and duodecupled from 2013 to 2016. (I admittedly had to look up the term for “12-tupled”). The S&P returned 42% over the same time period.
Another example of this is chip stocks in 2013. Broadcom, Skyworks Solutions and Qorvo (formerly RF Micro) all returned triple-digit returns over the same period of time.
4. What books or other investors changed the way you think, inspired you, or mentored you? What is the most important lesson learned from them? What investors do you follow today?
Unfortunately, I had little mentoring and I’m kind of self-taught. I’d love to meet more like-minded investors that are willing to take a risk. Warren Buffett is obviously one of the greatest investors and his value investing strategy is something I started chasing many years ago. Lately I try to spent more time following my kids over famous investors since that’s something more valuable than anything and these are years we will never get back.
5. How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?
I’ll hold a stock as long as it’s way undervalued. It can take years to know if I’m right when the stock appreciates. It can take much less time to realize I’m wrong, which happens when future earnings change negatively.
6. How has your investing approach changed over the years?
Early on I bought what I knew, which sounds like great advice… but it turns out I like donuts. I mean that literally: I lost money on Krispy Kreme Doughnuts. I also invested early in Netzero, which I knew very well, and it also turned out quite bad. Twenty years ago, I didn’t have a clue what a company was worth. I’ve been using my own value-based approach for several years now. I made that change because what I was doing before didn’t beat the market, nor did it work.
7. Name some of the things that you do or believe that other investors do not
Invest your retirement safely, but also take some money you can afford to lose and go big with it. As they say, you only have to be right once.
8. What are some of your favorite companies, brands or even CEOs? What do you think are some of the most well run companies? How do you judge the quality of the management?
This is very difficult for most investors, including myself. There’s simply not enough time to fully research companies with a full-time job. I will say that I like several companies such as Google (GOOG), Amazon (NASDAQ:AMZN), etc., that push the innovation boundaries and take calculated risks.
9. Do you use any stock screeners? What are some efficient methods to find undervalued businesses apart from screeners?
Screeners are great, but the problem is they treat every company equal. In reality, each company trades at a P/E ratio unrelated to other companies or industries. At wayundervalued.com, I use a proprietary method of identifying value stocks that factors this in. Anyone can find undervalued companies, but it’s very hard to compare them to one another, which is how I find the most way-undervalued stocks.
10. Name some of the traits that a company must have for you to invest in, such as dividends. What does a high-quality company look like to you and what does a bad investment look like? Talk about what the ideal company to invest in would look like, even if it does not exist.
Dividends are nice but not required. A good investment will typically make more money over the coming years than it is currently priced. For me to consider a company way undervalued, its future earnings must value it more than 100% of its current stock price, sometimes 200% or more. The ideal company has “sibling” companies in the same industry all valued similarly.
11. What kind of checklist or homework do you utilize when investing? Do you have a specific approach, structure, process that you use? Or do you have any hard cut rules?
I now use the same approach every time when it comes to value investing. I describe how this is done at wayundervalued.com. Basically, it involves ranking all companies against each other based on their historical valuations and future earnings.
12. Before making an investment, what kind of research do you do and where do you go for the information? Do you talk to management?
My information is obtained via the same publicly available analyst earnings estimates available to anyone else.
13. How do you go about valuing a stock and how do you decide how you are going to value a specific stock? When is cheap not cheap?
Value traps exist, but it’s not always evident. Some analysts describe the same company as overvalued or undervalued. Typically, this will become evident over time as future earnings either come down to earth or remain sky high.
14. What kind of bargains are you finding in this market? Do you have any favorite sector or avoid certain areas, and why?
Here’s a tip: Health care. Right now, there are too many way undervalued healthcare companies. Look at Teva Pharmaceutical (NYSE:TEVA), Mylan (NASDAQ:MYL), Gilead (GILD) and Allergan (AGN). You could make a lot of money on them in the coming years. They remind me of several chip stocks and airline stocks in 2013, and you know how those turned out.
15. How do you feel about the market today? Do you see it as overvalued? What concerns you the most?
It seems markets are hitting new highs every week. However, I can still find way-undervalued companies.
16. What are some books that you are reading now? What is the most important lesson learned from your favorite one?
Many children’s books fill my time right now. There’s lots of good lessons in them, although it will take me some time to relate them to investing.
17. Any advice to a new value investor? What should they know and what habits should they develop before they start?
Don’t buy something because someone told you to. You should know exactly why you bought a company, otherwise put your money in an index fund.
18. What are some of your favorite value investing resources or tools? Are there any investors that you piggyback or coattail?
There’s a great SMF (Stock Market Functions) add-in to Excel that I find very useful.
As for piggybacking, I’ll point out that I bought airline stocks several years before Warren Buffett did, and still own a good chunk of American Airlines (AAL). In all honesty, I’ve bought several companies that Warren purchased before me and we both did well with them.
19. Describe some of the biggest mistakes you have made value investing. What are your three worst investments that burned you? What did you learn and how do you avoid those mistakes today?
One “kick myself” mistake I made was selling Skyworks Solutions (SWKS) too early. Lesson: Stocks usually don’t move up overnight. In 2013, I purchased Skyworks for about $23 a share. At the time it felt like the stock was taking too long to move up so I sold it for about 10% gain. The fundamentals were still there, it was just an emotional decision. Today the stock trades over $95 a share.
20. How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and fluctuations?
Try not to look at it every day. If the numbers are there, be patient. More importantly, don’t invest money you can’t afford to be without.
21. How does one avoid blowups in value investing?
Are there other sector companies trading similarly? If not, ask yourself why one company would be different.
22. If you are willing to share, what companies do you currently own and why? How have the last five to ten years been for you investing wise compared to the indexes?
I currently own American Airlines (AAL) stock, Gilead (GILD) stock, and Teva/Gilead option LEAPs. I intend to buy more health care stocks.
I also own SunEdison (SUNEQ), although that one has nothing to do with value investing.
I’d say Teva, Mylan, Gilead or Allergan. I would say American Airlines but he already owns over $1 billion of that.