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Using Kelly Criterion for Maximal Portfolio Growth

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Kelly Criterion was developed by John Kelly at Bell Labs. It has been proven to maximize the portfolio growth over time compared to any other strategy.

It is rumored that Warren Buffett and Bill Gross use Kelly Criterion or some modified version of it.

Lessons from Jim O’Shaughnessy

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  • However, we do make forecasts based on very long-term time in the market.” “I don’t know how the market will perform this year.
  • Sometimes people like me have enough data to make decisions based on statistical factors, but is not the normal case.
  • Some people want to own more things.

Some links

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  • It’s half-year report time:

Cash and portfolio rotation

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  • In some cases, the expected returns of the new position may still be the same, but the company has more avenues of growth and has shown consistent performance in the past.
  • We now have over 30% cash in the portfolio which is slightly higher than the start of the year.
  • As the market continues to fall, several good quality companies have started to become attractive and we will deploy our cash when I am comfortable with these companies.

Week 366: The Wishy Washy Portfolio

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  • I didn’t buy Overstock as a quick trade to capture a short pop on speculation of GSR.
  • If the business works the 2 million shares is not going to matter much to where the price goes.
  • Back in May when I last talked about the gold stocks I own I wrote:

Time; A Deep Value Investor’s Perspective

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  • Seneca, in a beautifully worded passage, strongly disagrees: “It is not that we have a short time to live, but that we waste a lot of it.
  • So it is: we are not given a short life but we make it short, and we are not ill-supplied but wasteful of it… Life is long if you know how to use it.”
  • Life doesn’t have to be short.

Johnson & Johnson (JNJ) Dividend Stock Analysis

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Linked here is a detailed quantitative analysis of Johnson & Johnson (JNJ). Below are some highlights from the above linked analysis:

Company Description: Johnson & Johnson is a leader in the pharmaceutical, medical device, and consumer products industries...

This Week’s Best Investing Reads 07/20/2018

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  • Here is a list of this week’s best investing reads:
  • Some of the Best Q2 2018 Commentaries
  • This week’s best investing research reads:

H1-2018 Wexboy Portfolio Performance

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  • Since that peak, the entire crypto market has collapsed almost 70% , with its end-June market cap now barely exceeding $250 billion.
  • By far, KR1’s actually delivered the best crypto performance , right across the board.
  • While it did suffer a significant reversal vs. its early-2018 high, overall it’s racked up a cumulative 159% gain since last year (plus an additional 18% gain to-date in H2-2018).

Stock Analysis and the Illusion of Control

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  • Illusion of Control in Investing Illusion of control is also seen in stock investing, when investors who do a lot of hard work before picking up stocks believe that their hard analysis and knowledge gives them control over the future of stocks they own.
  • How much business understanding is enough before making an investment decision?” Can I invest in a stock without a perfect understanding of its business?
  • But information generally follows the well-known 80/20 rule: the first 80% of the available information is gathered in the first 20% of the time spent.

Gold in $US to be at $0.00 in 2020; TREASURE CHEST!; Breaking Biases

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  • However, it is clear that stocks cannot forever overperform their underlying businesses, as they have so dramatically done for some time, and that fact makes us quite confident of our forecast that the rewards from investing in stocks over the next decade will be significantly smaller than they were in the last.
  • What is surprising, however, is that, despite that fact that it’s long-term (20-year) performance still crushes that of the broad stock market, gold has become so maligned among investors of all stripes, including gold bugs themselves.
  • futures shorts.

TC Pipelines (Trans-Canada Pipelines) MLP and FERC Ruling

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  • Today was a very interesting day for TC Pipelines MLP (NYSE: TCP ) which is the USA MLP arm of TransCanada Corporation (TSX: TRP ).
  • Today, the FERC partially backpedaled on this change announced in March for natural gas pipelines only (nothing mentioned on oil pipelines).
  • Does this warrant a 700bps or 500bps spread over debt?

Thoughts on Share Repurchases and Capital Allocation

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  • Capital can be returned to shareholders through dividends or share repurchases.
  • Chairman Warren Buffett has been able to reallocate capital within Berkshire as a whole, taking free cash flow from cash cows like See’s Candies and directing that cash flow toward other existing subsidiaries that have reinvestment opportunities, purchasing new wholly owned subsidiaries, or investing the cash in publicly traded securities.

TAM Stock Screener – Stocks Appearing in Greenblatt, Griffin, Cohen Portfolios

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  • One of the new weekly additions here at The Acquirer’s Multiple features some of the top picks from our Stock Screeners and some top investors who are holding these same picks in their portfolios.
  • Investors such as Warren Buffett, Joel Greenblatt, Carl Icahn, Jim Simons, Prem Watsa, Jeremy Grantham, Seth Klarman, Ray Dalio, and Howard Marks.
  • From January 2, 1999 to November 29, 2017, the Large Cap 1000 Stock Screener generated a total return of 2,797 percent, or a compound growth rate (CAGR) of 19.3 percent per year.

TAM Stock Screener – Undervalued Louisiana-Pacific Corporation (NYSE: LPX)

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  • If we consider that Louisiana-Pacific currently has a market cap of $3.982 Billion, when we subtract the net cash totaling $520 Million, that equates to an Enterprise Value of $3.462 Billion.
  • If we move over to the company’s latest income statements we can see that Louisiana-Pacific has $588 Million* in trailing twelve month operating earnings which means that the company is currently trading on an Acquirer’s Multiple of 5.89, or 5.89 times operating earnings.
  • That equates to $318 Million in trailing twelve month free cash flow, or a FCF/EV Yield of 9%.

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