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    Stop Checking the Price!
    Stop Checking the Price!
    Stop Checking the Price!
    Ebook153 pages2 hours

    Stop Checking the Price!

    By J. F. Dodaro

    ()

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    About this ebook

    Bestseller on Amazon! Now available on all major platforms.

     

    Do you check your account every day and feel like you're always losing money? Worried the next recession will crash your portfolio? Pulling out your hair while the daily news fills you with fear? Then you are a VICTIM OF INFORMATION OVERLOAD!

     

    This book provides a simple trading strategy to Preserve And Grow Your Wealth by filtering the noise to get more valuable information in less time, reducing your stock research and trading effort by over 99%, and betting on long-term value creation to achieve financial success!

    We are told the money managers on Wall Street who spend all day checking every stock price movement, every CEO tweet, and every company filing footnote have an edge in the stock market...

    But the pixelated truth is that information has mathematical limits: zooming into a single blurry pixel of an image tells you nothing about the big picture – the stock market is no different. Spending hours upon hours researching a business teaches you more & more about less & less until you know everything about nothing! And even if we did know every detail of the business, the laws of nature tell us we can't predict the future stock price in a complex marketplace anyway!

    Benjamin Franklin said an "investment in knowledge" pays the best dividend – but being an intelligent investor doesn't mean knowing every fact about the stock market universe!

     

    Consider a different option trading stocks: investing for beginners without the complicated financial engineering, portfolio management, and mutual funds mumbo jumbo. In "Stop Checking The Price" you will LEARN HOW TO:

     

    • Follow the 1st Law of Investing for maximum long-term compounding… And why the "risk-return trade-off" is backwards. 
    • Use the famous "80-20 Rule" to cut your research time and stock trading effort down by 99%. 
    • Filter bad apples (stocks) before they spoil the whole barrel (portfolio). 
    • Steal a page from the venture capitalist's playbook for explosive growth… And how to beat Warren Buffett! 
    • Set a timer and evaluate any stock in 60 seconds from a data snapshot. 

    Don't get lost in the blurry pixels – ZOOM OUT!

    LanguageEnglish
    PublisherFirst Principles Publishing
    Release dateOct 24, 2023
    ISBN9798223560784
    Stop Checking the Price!

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      Book preview

      Stop Checking the Price! - J. F. Dodaro

      1

      INTRODUCTION: THE PIXELATED TRUTH

      You open up the app on your phone. You log in the account on your computer. You check the price... down again . Just like the day before, and the day before that. A burst of good luck here and there, but things never seem to just move smoothly in the direction you want. These are good companies, right ? Everyone else certainly seems to think so. They make a good product, the founders are super-rich, and you have a good feeling about their future growth potential... And yet just by looking it feels like you have single-handedly pushed the price down further! Forget growing wealth — it’s hard enough to preserve wealth! Could it be time to switch over to that stock you keeping hearing about in the news? The price just keeps going up... What if that was the good company all along?

      You ask yourself: did I not do enough research? Maybe if I had dug deeper I would have discovered some hidden gem in their business model, bought in early before everyone else, and would already be living the good life by now! Is buy low, sell high really this complicated? If the talking heads on the daily news say the crash is right around the corner, should I be getting out? Or does that mean it's time to get in? What if my next pick crashes again! But don’t you have to take the big risks to get the big rewards? At some point you feel so frustrated you even contemplate pushing all your chips into the latest crypto buzz coin – that is how your friend of a friend of a friend made their millions... Or so it feels that way.

      If you have asked yourself any of these questions, then welcome to the club. We live in an information overload society, and the noise does not work in our favor. We're all led to believe the secret to financial success in investing is more information – not just a tip-off about a new ticker making waves, but the deep dives: plunging into the depths of financial data to find patterns in the numbers. Spending hours learning about the business model, the company's competitive moat, the executive team's vision, the latest earnings growth numbers. Surely at some point we will have enough information to make the right bet on the right company. But if more research is the key, then how can any of us keep up? Warren Buffett starts his morning with stacks of newspapers and reads 500 pages every day. There are countless investors, traders, and analysts who spend all day studying every single detail about your favorite stocks – how could we possibly compete and work harder than someone who's full-time job is to live and breathe the stock market? With the news constantly changing every day, we are then shoehorned into two solutions. The first solution is to find a financial advisor to handle our money for us: get someone who knows the ins & outs of the markets. Someone who is watching every time the Fed chairman sneezes, who knows when it's too volatile, how to diversify, which companies are going to take off next year... and yet after their fees and bad picks we end up worse off than the market! So the second solution is to let the broader market handle our money for us: buy a low-cost index fund, tell yourself that no one knows anything, and ride the waves up and down with everyone else... compounding so that we can all retire with $1 billion in our account in the year 3000.

      So we have information overload, handing cash to the money manager, or riding the index with everyone else... How about Choice (D) – none of the above! Let me paint a different picture: any time someone gives you a stock ticker, you can evaluate the company in 60 seconds. You don't even need to know the details of what they do, but you can already decide if this company is a hard pass or a good investment worth learning more about – maybe even another minute of your time. You don't need to check the stock price daily or keep up with the nonsense news trying to explain every price fluctuation. Every 3 months you reassess your portfolio, let the good companies come to you, and make trades if necessary... then go about your business for the next 3 months knowing that you are invested in good companies. Your stock research time and effort is reduced by 99%, yet you are still confident you have enough information to make decisions on your own.

      I want to tell you the pixelated truth: the stock picking game is not about how much you know, but about how much you knowingly choose not to know! ¹

      Think of information just like an image on your phone with pixels. If you want to learn more, then you just zoom in. But as you keep zooming you will eventually be stuck looking at a blur… a single pixel that carries barely any information on its own. No matter how closely you stare at that pixel, you don’t learn any more about the important features of the image. Even by spending hours zoomed-in analyzing every single pixel in detail, you would have a hard time understanding the image as a whole since you cannot easily see how it connects to the bigger picture. If you can understand this idea, then you have already captured the essence of this book!

      Everyone and their dog has a theory for how to beat the market. The simple strategy we discuss here is not designed to factor in all of the complexities of the world – quite the opposite. The strategy is to remain as agnostic as possible to avoid overinterpreting the blurred pixels all around us. We want to avoid being drawn into narratives that sound good, but don't actually carry useful information or predict the future. In that sense, the power comes from not checking.

      Forbidden fruit from the tree of pixelated knowledge.

      Bring Great Companies To You With 99% Less Effort

      The detective Sherlock Holmes uses logical reasoning and deduction to crack the case: When you have eliminated the impossible, whatever remains, however improbable, must be the truth. Deduction means drawing specific, logical conclusions from general assumptions. This is the opposite of induction: starting with the specific and trying to expand to the general. Deduction can also mean to reduce, to subtract – it is about what you remove from the problem to get a clearer perspective on what is left. This strategy doesn’t just work for solving murder mysteries; it is the best approach to cut through the noise. It is the bedrock foundation on top of which our stock picking strategy is built. By filtering the useless information, biased narratives, and meaningless predictions about the future we are left with simple, meaningful, and measurable facts.

      Peter Lynch, one of the greatest investors of all time, suggests investing in what you know because that little slice is where you have an edge. That is inductive thinking: you look at the world around you and try to collect the specific stocks as you encounter them. But more troubling, that approach can become narrative-dependent. You must tell yourself a story about how you personally experience the company, which may not be the reality of the bigger picture. Anecdotal evidence is powerful, but we need hard numbers, not emotion and story-telling, to back up our bets.

      Instead I am advocating for a contrarian position: invest in what you don’t have to know – and don't bother learning it! We are investors, not subject matter experts on everything we invest in… and even if we were subject matter experts, we are not the ones in the boardroom making decisions about the future of the company… and even if we were in the boardroom making the decisions, we cannot predict the future anyway! No one knows what will happen next, so why miss opportunities outside of your area of expertise?

      In this book we follow a deductive approach: start with the whole universe, the entire stock market, including all of the information that you don't know. The strategy is then very simple: remove the rotten apples (bad companies) so they don't spoil the whole barrel (your portfolio). We put the famous 80/20 Rule into practice, compressing information, so that we can quickly & efficiently filter the bad apples with a fraction of the effort. In fact, we will simplify to a single number that determines if a stock is good or bad! We will see how trading only 4 times a year not only makes it easy to manage a stock portfolio, but avoids overtrading on information overload to stop hurting our long-term growth. We will learn how to take a snapshot of any stock, reducing the entire business to a single image, and form a quick opinion using measurable and meaningful information.

      This is by no means the only stock picking strategy that works; it's a big market and there are many ways to win – and lose. Plenty of investors have proposed various stock screens, but these can get so complicated, with dozens of parameters, that great business babies are thrown out with the bathwater. There will always be the computational whiz-kid method searching for hidden correlations in the noise, as well as the lotto ticket YOLO (gambling) approach, that will get great returns

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