How To Invest $1000 – 6 Rules For Investing Your First 1000 Dollars

Before discussing the 7 rules to follow when investing $1000 and an example of where I am investing my $1000s, I first want to ask you a question that is extremely important when it comes to making the first steps in the stock market, a question that many stock market beginners overlook.

Do you just want to make a little money on stocks or do you want to create long lasting wealth, become rich?

Let me explain the difference. Making a little money on stocks means buying Tesla’s stock (TSLA) at $178 and selling it a month later at $215.

1 tesla stock

That would give you $200 on your $1000 investment which is a 20% return. Not bad, but that’s not investing, that’s betting. Many did the same in December of 2018 hoping to make 20% on TSLA.

2 tesla stock price

Their loss, as I am writing this, is 43%. If you want to make money trading stocks, I can’t help you as I don’t have a crystal ball. Trading can make you some money, but it is unlikely it will make you rich in the long term.

If you want to invest your first $1000, in a way to develop an investing mindset that is going to create long lasting wealth for you, then I can help as there are some simple rules to follow.

A great book about how to become wealthy, financially independent, live where you want to live and how you wish to live, is the Millionaire next door. The book describes how the real millionaires are not those with flashy cars, expensive clothes, living in Belair etc. The millionaires are those that save their money, let it work for them over time, invest their time and energy to make what they know, own or manage, more efficient, avoid crazy risks and build their wealth over a lifetime.

3 millionaire next door

Source: Millionaire next door

Similar rules can be applied to investing and I am going to share 7 rules that are going to help you create a long-term, wealth-building investing mindset.

7 Rules To Become A Stock Market Millionaire Starting With $1000

These 7 rules will help you on how to invest your first $1000 to develop a long-term wealth building mindset.

  • Make your $1000 work for you

When investing, the key question to ask is what do I get as a return on my investment? Investing is not about buying a stock that goes up and down in value. Investing is about owning a business that creates some kind of value. Over the last 20 years, investors putting their money into Amazon (AMZN), have in return received the best e-commerce ecosystem in the world. Some other businesses pay large dividends like Coca-Cola (KO) has been doing for Buffett over the past 30 years. His dividend now is above 60% per year on what he invested in 1988.

Focus on what are you getting back on your $1000, it could be dividends, buybacks or it could be some new value that is being created. Then, when you know what is the return, you let it compound.

  • Let it compound

When you find something that creates value, you have to let it compound over time. The key when it comes to investing for the long-term to become rich is compound interest.

4 compound interest

Compound interest is extremely powerful, you just need the patience and right mindset to take advantage of it.

$1,000 invested at 15% per year over 40-years becomes $267,863. That is the power of compounding. Now you are going to say that it is hard to get 15% per year and I agree with you. But you will hopefully invest $1000 many times over in your lifetime and some of those $1000 investments might even hit 20% per year, some will hit 5%, but some will definitely do amazingly. Just 4 investments that compound at 20% per year, something Buffett did over 50 years, thus $4,000, would become $5,879,086 in 40 years. And let’s say you invest $1000 one hundred times in a period, 4 of those 100 investments might give you 20% per year or even more. I invest 1000 per month and I must say how I really enjoy the compounding created over time in the form of business development, higher dividends, reinvested dividends.

This is just to show the power of compounding. And I’ll also tell you the only thing that is certain, if you don’t invest you will surely not take advantage of any kind of compounding. Therefore, invest and let compounding interest do the work for you.

  • Even more important than investing is saving, so add up

5 saving money

Source: AZ Quotes

Charlie Munges is a person that says it clearly. Save, thus spend less than you make, invest it and you have nothing to worry. Invest the money in something offering a return, possibly exponential over the long term and that is it. How to find such investments? This is a bit controversial, but I’ll say go into depth.

  • Go in depth versus width

Most financial advisers and talking heads tell you to diversify. They tell you that so that they can make you listen to that talk show for longer as there is more to talk about. However, too much diversification is actually diworsification.

If you understand the risks of an investment, i.e. what can go wrong where the best thing is to think about worst case scenarios, and understand the rewards you will likely get. The rewards in the form of dividends, growth, reinvested earnings, a business model that will compound over time, then it is better to go in depth rather than width.

The key is to specialize in a few areas, I am currently researching REITs (Real Estate Investment Trusts) and if I find something interesting to follow, I’ll start learning more about the specifics of the business over the next few years. I might invest only once in 10 years in a REIT stock, but I’ll probably know it very well before investing. Knowing something very well allows you to understand the risks and rewards of an investment. This makes it much easier to invest the $1000 you have.

Give yourself time and learn about 5 or 10 things to invest in over the next decade. This is mastering only one thing, sector or investment vehicle per year. I can guarantee that when you become an expert, you will be able to find those 15% investments that others might overlook. This can be in real estate, stocks, commodities, businesses…

Over time I have built my specialism in emerging markets, commodities as from time to time Wall Street doesn’t like commodities nor emerging markets. When Wall Street doesn’t like something, prices are usually cheap. For example, something that is going to be developed over the next 3 years is usually extremely under-priced. Most investors are so focused on stock prices that they omit long-term business developments, something we can take advantage of.

  • Buy businesses, not stocks – a quick example from my portfolio, a stock to buy

The key when it comes to investing is to be a business owner. Let’s say you own a nice hotel in Paris.

6 paris hotel

As an owner, would you constantly watch real estate prices to see whether you made something? Or, as a real owner investors do, you would not have any intention of selling such a property and the only thing you would care about is how to increase prices or occupancy rates and manage costs.

The downside to buying stocks is that there is a price that changes every second. However, what you are buying is a business that develops and grows over time.

Let me give you an example. I am a happy owner of a company called Lundin Mining (TSX: LUN, OTC: LUNMF) because of the following reasons:

  • I am bullish on copper as I see demand for it rising due to all the electrification that awaits us, due to all the Teslas, a growing global population, especially in emerging markets.
  • The company is family owned and the owners are conservative. This means that debt levels are carefully assessed and the goal is to create a vehicle that will grow and increase dividends over time. The current yield is low at 1.78% but a buyback has been announced and they are investing in growth.
  • Large investments in the future is what Wall Street rarely focuses on until those investments start to produce cash. They have invested a lot in 2018 and will invest another $745 million in 2019.

7 2019 investments

Source: Lundin Mining

Plus, they have recently invested another billion into a newly acquired mine.

8 chapada

Source: Lundin Mining

All of the investments will likely significantly increase production over the next few years, increase cash flows and probably lead to higher dividends.

9 production profile

Source: Lundin Mining

Given the 30% expected increase in production over the next few years, I expect a similar increase in the value of the investment, be it through higher dividends or through a higher stock price. Their cash dedicated to investments will significantly decline and therefore there could be much more for dividends or more acquisitions.

I like the management and their style and therefore I am happy holding this for the very long term. My expectations on current prices is for a 12% yearly long-term investing return. I am happy with that and over the past year I have invested $1000 in Lundin twice in my portfolio where I add $1000 on a monthly basis. That is also my plan, I’ll keep buying businesses that I like

  • Invest for the long-term

Lundin Mining, the company discussed above had a market capitalization of $14.5 million in the early 2000s and now has one of $3.7 billion. Both Amazon’s and Apple’s market capitalizations were below $100 billion in 2009 with AMZN’s being below $25 billion.

10 market capitalization

Source: MarketWatch

Their current market capitalizations are around $900 billion and might surpass the trillion for good in the future. This is a perfect example of how Wall Street focuses on what will happen in the next quarter, the longest term analysts might look a few quarters or a year ahead, but few think about how will the business they own look in 10 or more years.

By thinking about how will your investment look like in 10 years, investing becomes easy. You don’t waste time on noise like the current trade war discussions that were about tax breaks a year ago or about going to war with North Korea two years ago. You focus on what is important, the acquisition the management just made, the small but constant increases in dividends, the new facility that is being build etc or you see big structural risks like declining demographics in some countries, piling government debt or trends that take of market share like e-commerce is doing for retail.

By using a long-term common sense perspective, you can eliminate the short term bets from your portfolio and concentrate it on long-term businesses with positive tailwinds. Just think about what will the worlds and the business you own look like in 10 years.

  • Compare the investments you own with the rest of your finances

Do you have credit card debt of 11% or student debt of 8%? Pay that because it is an immediate return of 8% risk free. Investing in stocks, be it just $1000 requires a clean personal balance sheet. By clean personal balance sheet, I mean:

  • You don’t need the money, ever. If you need the money in a few years or something, you might behave irrationally and sell at the wrong moment in time. Unfortunately, most investors sell in fear of seeing their investments decline further. If you know you don’t need the money and you can weather storms, you can let the investments compound over the long term for you.
  • If you have any kind of debt with a high interest rate, pay that first and invest the monthly costs you save in stocks. This gives you an immediate return and gives you also piece of mind.
  • You know your life, income etc. doesn’t depend on your investments. If it does, you are again not able to make rational decisions when investing as there are outside, or better to say personal influences that unable you to buy when others are selling for example.

Summary

If you wish to develop a long-term wealth building investing mindset please subscribe to my channel. In this article I have given you the 7 key mindset tools to use long term and an example of how I do it.

The key is to have a long-term orientation even if investing just $1000 because your long-term financial success depends on the mindset you have. A correct mindset means focusing on investing in various good businesses of which I have given you an example of a business I am invested in and finally, the key is to have your stock market investments detached from your personal finances. Sounds easy when written like this but very few adhere to that. The result of not following such simple rules are terrible investment returns.

The average investor did 1.9% per year over the last 10 years even if all other classes did much better. If you have $1000 to invest, start building a vehicle that will make you rich in the long term by having the correct mindset.

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Tesla Stock Crash – My Message To Tesla Investors 

I’ve been a Tesla stock bear over the last years and I would always receive a lot of hate when I would do a video on Tesla and also lose hundreds of subscribers. However, now that the risks are materializing and the stock is down, I think I can actually add value to Tesla investors because I know a thing or two about buying or holding a stock that is crashing.

I want to discuss 3 things that should help:

  • Forget about market noise
  • Growth stocks strategy
  • Buy or sell solution

pastedGraphic.png

Source: CNN Money

The reason for the above decline is simply psychological, I don’t think the risk reward ratio when it comes to Tesla has changed much over the last 5 months. Tesla has always been a risky play but now the sentiment has turned negative and it is all doom and gloom.

pastedGraphic_1.png

So, in just 5 months, the stock went from being a market darling with $3,000 price targets to being the most hated with $10 price targets.

pastedGraphic_2.png

In such a crazy environment you have to focus on 3 things:

  1. The reason you bought the stock in the first place – forget about the noise

If you know why you bought in the first place and nothing spectacular has happened with the business, short term stock market fluctuations don’t matter at all. The key is that you understand the risk and rewards well, the likelihood of the positive and negative scenarios unravelling. Focus on that and forget about the news and the market’s noise.

If we take a look at what institutional investors think, we see that such jumps in yields are normal and related to the market’s sentiment.

pastedGraphic_3.png

Source: Borse Berlin

  1. Tesla is a risky growth stock – have a strategy

I assume many of the Tesla investors have always had a strategy and I hope it was always part of a plan. Tesla is a growth stock, which means there will always be fluctuations in the stock price.

pastedGraphic_4.png

Such fluctuations have to be accepted as given. The key is what are you going to do about them. Having a set portfolio allocation helps, having a set portfolio allocation to growth stocks helps even more.

Portfolio – 100%

Value Investing – 40% (5 stocks)

Growth/Tech Investing – 40% (10 stocks)

Cash balance – 20%

The above is just an indication and is something I wish every investor should have in relation to one’s preferences. The key message is that growth investing should be part of a strategy, a long term strategy where I would go to Peter Lynch as the best guide.

Lynch’s strategy was to hold many growth stocks for a very long time, this would allow him to find the 10 baggers. If you own 10 such stocks and only 2 don’t go bust and actually become 10 baggers, you will double your money.

Plus, you might buy such stocks when those are cheap, because it is part of your strategy. Interesting enough, Tesla is still a 10 bagger for the early growth investors. 

pastedGraphic_5.png

If growth is part of your strategy, the likelihood of finding growth stocks early increases significantly. Don’t chase market darlings.

  1. Buy more or sell

This is the hardest question to answer but if you can leave emotions aside, it is possible to answer it. If you are looking at your Tesla stock and you feel bad, it means that you are under the influence of emotions. Being under the influence of emotions is not good when investing in stocks. 

Try to rationally estimate what can happen. You probably know more about Tesla than I do, therefore also understand the value of it better. So, try to create scenarios, from the worst case one, to the best case one, attach probabilities to those and see how would such scenarios affect your portfolio, personal finances etc. Understanding the risk and reward in relation to your personal situation and portfolio will give you the answer to whether buy more, hold or sell.

If you need help with a worst case scenario for Tesla, you can always watch one of my old videos.

So, to conclude, I am not happy to see what is going on with Tesla because it is people’s hard earned money there and it is never nice, plus it can be painful. I keep having the picture of my former students that have been playing with Tesla’s stock. My message is pretty simple: Have a strategy so that whatever happens you are ok. Be objective in assessing the situation. Try to really see how this fits your portfolio and forget about the noise.

Further, if this doesn’t work well, don’t be pushed away from investing, just keep in mind the risk and reward next time and allocate your money adequately.

Tomorrow I’ll discuss my general stock market crash strategy so you might want to consider subscribing as I think it will be very valuable. 

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Apple Stock Analysis – Focus on Long Term Investing

  • As a Buffett fan, I like to follow what he does and try to understand why he buys what he buys.
  • When it comes to Apple, the key is that Buffett is buying the business, while most others are speculating with the stock.
  • Having a business attitude when investing in Apple, will make things easier to grasp.

The first article I wrote about apple was in April 2016, on Apple’s 40th birthday. In 2018, I wrote another on why I think Buffett has been investing in Apple (AAPL). Since then, not much has changed for the business as AAPL is still printing cash, doing buybacks, paying dividends and strengthening its moat by enlarging its ecosystem.

The recent, China related revenue warning issue is significant, as lower guidance always is, but I would argue that AAPL is still the same business as it was in 2018, when the stock was above $200 and in 2016, when the stock was below $100. The media noise surrounding AAPL makes it really difficult to remain focused on an AAPL’s investment thesis, and makes it easy to shift your focus towards speculation. As would Buffett say about living in Omaha:

I like the lack of stimulation here, we get facts here.

Being an investor, means that you look at facts; earnings, which actually didn’t fall in comparison to Q4 2017, didn’t go negative as some are saying and the company bought back approximately 8% of shares over the last 12 months.

For more information, please check my video where I share my views on Apple:

0:00 Long term focus on AAPL
3:27 Why is Buffett buying AAPL
10:00 Apple’s stock and you!
10:36 The market on AAPL
11:27 Quarterly earnings comparison
12:28 Will AAPL go bust?

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How am I investing and how much research I do?

Investing is a very important topic for all of us. However, not all of you can dedicate a lot of time to it. I do research all day long and still the time is never enough. Plus, given a Ph.D. in financial risk management, 3 years of teaching International financial accounting at university level and researching stocks, listening to conference calls and reading annual reports day in and day out, I think I have some skills that few retail, part-time investors have. That is normal for the way we live, I am sure you are much better than me at surgery if you are a surgeon, law if you are a lawyer, software if you are a engineer or in whatever your specialty is.

In the follow video I discuss what I do and how I go about investing.

For those interested in more information, please check my Stock Market Research Platform here:

https://sven-carlin-research-platform.teachable.com/p/stock-market-research-platform

How to invest in businesses with dr. Per Jenster

I recently had the privilege to interview dr. Per Jenster. He is a Fullbright scolar, author of many books, former dean of the Kopenhagen Business school, entrepreneur with more than 20 ventures of which many went public for hundreds of millions and he is an investor that has his own hedge fund. A person from whom we can learn very much. Enjoy the interview.

In case you want to reach Prof Jenster or know more about how he invests, please go to … http://nichemastersfund.com

Here is the video and you can find the discussion topics below the video.

0:27 Who is Per Jenster

1:33 What to look when investing in a business

3:59 Fund based on a niche strategy

6:01 Companies we are investing in

8:30 Management

10:00 HIGHER PE for HIGH ROIC

10:44 Index funds

13:10 Trading

14:24 Strategic focus

15:57 Current stock market

18:25 Diversification

20:31 Investing education

21:36 Modern investing

23:32 Learn to be better at investing

 

Nassim Taleb is warnings us – situation worse than in 2007

  • The US government has $21 trillion of debt, but few know and think about the $49 trillion in hidden debt.
  • The global economy is not stable because the core is cracking already, think Italy.
  • Taleb compares this debt environment with a Ponzi or Maddoff scheme.
  • The main message is to be protected (gold, real assets, puts).

In a recent Bloomberg video, Nassim Taleb, the author of Black Swan and probably one of the best estimators of risk, is warning us that the financial situation is worse than it was in 2007.

As Taleb doesn’t share much data in his interview, I have researched each of his statements and attached a few facts to them.

The topics he discusses and I dig deeper into are:

  • (0:00) Introduction
  • (1:23) The bigger debt pile that has just been transferred from housing to governments.
  • (4:16) The hidden debt few are taking into account.
  • (5:48) How the economy is already cracking in some places.
  • (6:32) The high probability of a global currency collapse.
  • (8:01) What will happen and how will it pan out? Inflation.
  • (9:36) 4 ways to protect yourself.

Enjoy the video.

ARE THE STOCK MARKET AND ECONOMY IN A BUBBLE? 7 FACTOR EXPLANATION

I recently summarized Dalio’s last book, Big DEBT CRISES and there he shares his questions, check list, to see whether the stock market or economy is in a bubble or not. In today’s article, in light of the FED’s tightening, we are going to go through his questions, to see whether we are in a bubble or not.

1 bubble questions

Source: Big Debt Crises

Good day fellow investors,

my name is Sven Carlin and I am an independent investor, independent thinker who doesn’t really like to follow the crowd, that has served me well in my life and, I have the feeling it will serve me well in the future too. Let’s go through Dalio’s questions one by one and then conclude with what to do, where Dalio’s option is to have an all-weather portfolio.

We are going to look at whether the US economy and stock market are in a bubble. As for Europe, I’ll make a special article about it due to the many economies.

  1. PRICES ARE HIGH RELATIVE TO TRADITIONAL MEASURES

The US stock market is expensive and prices are much higher than traditional measures.

2 stock market price

Source: Multpl

A look at the cyclically adjusted price to earnings ratio for the S&P 500 that takes into account 10 years of earnings, shows how stock prices were higher only during the dot-com bubble. But, let’s not focus only on stocks, let’s look at housing.

3 house price to income ratio

Source: Longtermtrends

The home price to income ratio is not higher than it was in 2007 but is getting close to it and it is much higher than it was in the past 50 years. Incomes were low in the 1950s so that isn’t really comparable.

To answer question one: yes, prices are high relative to historical measures.

2. PRICES ARE DISCOUNTING FUTURE RAPID PRICE APPRECIATION FROM THESE HIGH LEVELS

If we take a look at the S&P 500 and at S&P 500 forward expected earnings, all we can see is fast growth.

4 price and earnings

Source: FACTSET

So, huge growth is expected, S&P 500 actual earnings are at 116 points while the market expects them to be at 175 points in the next 12 months.

5 s&p 500 actual earnings

Source: Multpl

As for home prices, the huge run up in prices up to 2018 showed bubble characteristics but it has been cooling of as interest rates go up.

6 new home prices in the us

Source: FRED

So, perhaps what we have seen up to December of 2017 will again be called a bubble as higher interest rates inevitably put pressure on asset prices. Not yet on stocks as the sentiment is still strong but you can’t escape when it comes to housing.

ANSWER: YES, prices are discounting fast future price appreciation, certainly in stocks, whereas it might be over for housing.

3. THERE IS BROAD BULLISH SENTIMENT

Let’s see, Kudlow states the US economy is crushing it.

7 kudlow

Source: CNBC

While consumer confidence is close to record highs.

8 consumer confidence

Source: FRED

Answer: YES, sentiment is bullish! Even with stocks, the sentiment has been extremely greedy in 2018.

9 greed

Source: CNN

4. PURCHASES ARE BEING FINANCED BY HIGH LEVERAGE

This is not in a bubble, consumer credit is just 50% higher than where it was in 2008 and is just 10 times higher than where it was in 1980. (allow for some irony here)

10 consumer credit

Source: FRED

As for the stock market, margin debt is at historical highs. Just to mention as a comparative note, margin debt was $263 billion in February of 2010 and $314 billion in July of 2008.

11 margin debt

Source: FINRA

Answer: YES, purchases are increasingly being financed by debt.

5. BUYERS HAVE MADE EXTENDED FORWARD PURCHASES

If we look at the level of business inventories, those are 33% higher than in 2008 and I don’t think the economy grew 33% since 2008.

12 inventories

Source: FRED

Answer: a mild yes in this case.

6. NEW BUYERS HAVE ENTERED THE MARKET

Now, the percentage of Americans owning stocks didn’t really go up that much lately as millennials don’t invest that much in stocks.

13 people invested

Source: Gallup

The middle class left after 2008, typical behaviour, buying high and selling low. If we see another bump like in 2007 where the participation jumped from 61% to 65%, we will know it’s a bubble. Those aged 35 and above are investing a bit but not yet like it had been the case.

14 americans invested

Source: Gallup

However, not investing in stocks but definitely saving for a house. New buyers are rushing into the home market.

15 new mortgages

Source: Bloomberg

Answer: with stocks it is a no but with houses it is a yes. Also, it is important to note the widening wealth gap where those that have invest more and push stocks higher while those that don’t have, simply don’t have to invest.

7. STIMULATIVE MONETARY POLICY THREATENS TO INFLATE THE BUBBLE EVEN MORE (and tight policy to cause its popping)

Interest rates have been already tightening and we can expect more in December.

16 interest rate

Source: FRED

However, just take a look at historical interest rates.

17 historical interest rates

Source: FRED

On top of monetary stimulus, there is huge fiscal stimulus.

18 budged deficit

Source: FRED

On top of the already huge deficit, the deficit is expected to breach $1 trillion in 2019.

So, to summarize on the questions:

19 summary

WHAT TO DO:

Now, that depends on where you are in your life, about to retire or just starting, but in any case, an all-weather portfolio is the key as we are in the late part of the cycle.

debt dalio

Source: Big Debt Crises

We are at bubble top – so a lot of opportunities to diversify by selling what is in a bubble and buying what is in depression. In a global world you can do that today.

If you wish to check how am I building my portfolio as I cashed out of most my long investments during 2015-to 2018, the last being Nevsun – you might want to check my Stock market research platform where I am slowly building my model portfolio that should do very well in this environment.

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Ray Dalio – Big Debt Crises – Summary (video/audio)

Ray Dalio, the legendary hedge fund manager is out with a new book. After the success he achieved with his book on Principles, he has now summarized Bridgewater’s research on debt crises in a new book called Big Debt Crises.

Ray Dalio – Big Debt Crises

The book contains 48 case studies on inflationary and deflationary crises and the first 61 pages summarize the findings. I urge you to read at least the first 61 pages but if you want an intro for it and perhaps prefer listening, here is a summary:

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Mohnish Pabrai – 5 Investing Tips

What I like and admire with Pabrai is his concentrated portfolio. Sometimes, I also have stocks that make more than 50% of my portfolio. So, I always listen when Pabrai speaks. I am connected with him on Linkedin where he shared an article (connect with me if you wish, always nice to meet people) about a recent interview. In this article I’ll go through what he is saying and give my perspective on what we, value investors can learn.

The investing tips discussed are  (5 quotes used too):

  • CONCENTRATED PORTFOLIO AT A PE RATIO OF 1 OR LESS
  • 3 REASONS WHY INVESTMENTS DON’T WORK OUT (CHECK LIST)
  • CLONING STOCK INVESTMENTS
  • DON’T THINK ABOUT MACRO
  • NO INTEREST IN THE US
  • TAKE A NAP

Concentrated portfolio and PE ratios of 1

As I already mentioned, Pabrai has an extremely concentrated portfolio. He buys companies at what he calls PE ratios of 1 or less. He does that by looking at unfavourable industries, like the car industry in 2012, he finds companies that will not go bust and have potential to deliver high earnings in the future. For example, in 2012, he was buying Fiat-Chrysler (FCAU) at an average price of $4. The current EPS is $2.22. If we deduct 40% of the 2012 purchase price as the value gotten from Ferrari, we get to a PE ratio close to 1. Needless to say, FCAU’s stock is now at $17. On top of that, we have to add the Ferrari spinoff that has a market cap almost as big as FCAU. Double the gain there for Pabrai.

FCAU stock price:

FCAU STOCK PRICE

As for finding such stocks, Pabrai tells us how we have to keep our eyes open as such opportunities arise once every few years.

To quote:

What I found over a 19-20 year investing history is that these, what I call the PE of 1s, tend to show up an idea every two or three years.

The last similar opportunity he took advantage off was in Indian real estate in Mumbai. He bought 10% of the company Sunteck.

Pabrai bought Sunteck after the demonetization process hit the Indian economy:

sunteck stock

3 reasons why investments don’t work out for investors?

Pabrai discloses 3 reasons:

The single biggest reason why investments don’t work out for investors is leverage.

This is followed by misunderstanding of the comparative advantage of the moat where investors think there is one but there really isn’t. And the third reason is management. Quality management is what makes the difference between great and mediocre investments.

Cloning stock investments – Portfolio Crown Jewels of other investors

Pabrai discusses how he still hates the auto industry due to high capex, unions and consumer tastes. However, he is humble to say that the only reason he owns Fiat Chrysler is because he studied two investors he admires who had a position in General Motors. As discussed in the video here, Einhorn also opened a position in GM in 2012.

Also, he is so humble to share that he found Rain Industries because someone sent him an extremely well written report:

rain industries

Don’t think about macro

Investors should spend zero time thinking about macro anything. Just completely ignore it because it is hard enough to figure out the future of one business. In almost all cases micro will trump macro in a major way.

Here I must say I agree, the micro will trump the macro in a major way. Over the long term, good businesses will do great and that is what we have to understand. Nobody can time a recession or a bear market. However, Pabrai discloses also how he has lots of cash at the moment. This is probably not due to the macro, but because of the lack of opportunities.

No Interest in the US

The US is becoming harder and harder to invest in.

The number of stocks in the US declined from 8,000 twenty years ago to less than 3,500. Thus, a smaller number of companies and more analysts following those. This makes it difficult to find gems. Up to 5 years ago, 80% to 90% of his portfolio was in the US.

Take an afternoon nap

Usually, I take an afternoon nap on most days.

Pabrai believes you can increase your productivity by taking an afternoon nap and that even Buffett has a nap room in his office.

I always love to learn from the best investors out there, I am not taking naps, I don’t think I need them, but I spend most of my time doing research and looking for undervalued stocks. I am currently looking at the complete list of Chinese stocks traded in the US, trying to find good investments in China, where stocks are still relatively cheap. However, I am intrigued by Pabrai’s less than 1 PE ratio investing which is something possible to do when I think about it. The last time I was buying a stock at a PE ratio of 1 was Cemig (NYSE: CIG) in January of 2016.

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