Friday, May 22, 2020

Go Long!

I wrote this for an article on long term investing - full disclosure: I am long the stocks I wrote about. And happy as hell that I am.

Now is the time to start LONG TERM investing in stocks. But before you can do it - you need to understand the company. 

1. Assume the crisis will last a year and the recovery will take five years. It probably won't play out like that, but you have to have a long term focus. If you need the money before then, don't buy stocks.

2. Make a list of industries that may not survive, or will certainly be hurt for the long term. That is the start of your do not buy list. For me that list was some Airlines, some (maybe a lot) Cruise lines, some retail brick and mortar stores, some restaurant chains and Hotels. Not all companies within those industries will be hurt - but I don't want to spend time figuring out who will survive.

3. Make a list of industries that will survive, and likely thrive in the long term. That is the list that will have your targets. Companies on this list will benefit from the above collapses - the money has to go somewhere. For me that was grocery stores (especially those with delivery), online retailers and computers / phones / online entertainment.

4. Pick the strongest companies within those categories. Who has the most cash to survive this? Who are YOU doing business with right now? More importantly - who do you ENJOY doing business with? Who will you stay with after the crisis? For me that was Kroger, Amazon and Apple. (Note - I already held Kroger. Their stock price went up when this started, so I didn't buy any more.)

5. Take a look at their finances - I don't get hung up on this one. I read a really good book on the subject (Phil Town, Rule #1) - it's a simple approach to investing (I further simplified it). For the sake of today's analysis, I asked one question: Who has enough cash to survive this crisis? Amazon and Apple have around $100 billion each. They're okay.

6. Buy on dips. Amazon and Apple both had significant price dips during this crisis. Sure I'm in it for the long term, but I still like to get things on sale.

7. Don't follow the prices every day. That will mess up your strategy.

8. Diversify. I've been really really right on two stock picks (Apple and Amazon). And I've been really really wrong on way more than two picks (like the time I bought BP just before the tanker spill). And I've been somewhere between right and wrong on a bunch of picks. The two winners have more than made up for all the missteps. There's always the temptation to say "Damn - if I had put all the money in Apple..." But there's also the idea that "Damn - if I had put all the money in BP." 

A final note: If you don't understand it, don't buy. I don't understand banks, oil stocks (as I proved many years ago with the BP purchase) or medical stocks. They might do fine in this crisis but they're not for me.

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