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“Because Buffett did” is not an investment strategy

Apr 07, 2022

Good morning!

The markets are comparatively flat after two hard days of selling. Makes sense given the Fed’s apparently gone “all hawkish.”

What’s an investor to do?

Here’s my playbook.

1 – Buy on cannons, sell on trumpets

Big down days are scary but they’re exactly what you want to see every now and then if you’re a serious investor. Sure, they suck and they’re scary but that doesn’t change the fact that “buy low, sell high” is how you play the game.

The fabulous Charles Payne and I spoke about that yesterday on his show for a few moments. I also shared my thinking and my shopping list. (Watch)

Abject bearishness is actually super bullish!

2 – “Because Buffett did” is not an investment strategy

HP has struggled for years; CEO Enrique Lores has a turnaround on his hands. Profit forecasts are muted. Commercial computer and printer sales rose 26% and 9% respectively YoY but consumer sales of those same items dropped -1% and -23% respectively. The company’s been buying its own stock like a Viking eats at an all you can eat buffet. (Read)

Yet, shares are up big today because “Buffett’s buying.”

There are two reasons to be cautious … he’s taken an 11.4% stake worth $4.2 billion. That’s a) a rounding error for Berkshire, probably not a core position and b) you have no idea how his acquisition is structured which means buying “because he did” is exceptionally dangerous.

3 - Pot stocks are hot, but still a “not”

There is no doubt the cannabis industry will grow but it is very unlikely any company will achieve the scale needed to build a singularly large consumer brand.Marijuana is a crop … just like carrots, corn, or pineapples.

Legal or not, the odds that any one cannabis company will ever achieve Coke/Pepsi-like status are infinitesimally small because it’s a commodity. I’ve never seen a carrot speciality store and am willing to bet you haven’t either.

The industry is facing margin compression and even bigger losses. Companies are cutting prices in an attempt to compete but that’s a death spiral when it comes to profits.

This has understandably led to significant volatility in cannabis-related stocks. (Here’s a Toronto exchange study that’s pretty interesting)

The bottom line is that there are better choices unless you’ve got money to burn. In which case you may as well roll it and light it!

4 – GM’s new “WTF mode”

I’m not a fan of GM’s stock but I may have to rethink that if what the company is doing with its new electric Hummer filters over into the rest of GM.

The EV Hummer has a prominently placed button that does absolutely nothing, which is apparently a dig at Tesla’s cybertruck (which is still delayed) and a “WTF mode” that will enable 0-60mph in under 3 seconds. It’s also got a slew of hidden features, long a Tesla staple. (Read)

Can’t wait to see Tesla’s response!

5 – That was Fast

It’s a far more common tale than most think. Led by a flamboyant, skydiving, wakeboarding, fast car lovin’ CEO named Domm Holland, Fast was supposed to “forever” change online commerce through “revolutionary” one-click checkouts.

Fast apparently raised $124+ million and was so good at giving itself props that the company was valued at $1 billion in November 2020 according to Forbes … despite having reportedly burned more than $10 million a month and making just $600,000 last year. (Read)

Now, they’ve reportedly imploded.

The lesson here is one that most people in search of a quick buck learn the hard way … money losers will eventually go broke no matter how impressive their “tech” appears to be.

At the risk of sounding like a broken record, that’s why I recommend investing and trading only the very “best, not the rest.” That’s where the liquidity concentrates and the profit potential is highest!

There are all kinds of ways of sorting this out. Some folks use valuation while others use purely technical means. Internet sites are filled with “screeners” some of which are actually pretty good.

I prefer a quantimetric approach that allows me a more predictive look when it comes to sorting out the “heroes” from the “zeroes” at the touch of a button. You can learn more (here) if you’re interested.

What you use is ultimately your choice.

The point I want to make is that you have absolutely, positively got to have a method to your madness if you want to succeed in today’s markets.

Quality matters a lot more than most people think!