Jean-Pierre Winandy

Investing in Stocks Jean-Pierre Winandy

Investing in stocks, as opposed to speculating in a collection of asset classes, is the art of reconciling the search for yield (in the form of dividends and capital gains) with the risks of losing a large part (or even the entirety) of the risk capital any stockholder puts at the disposal of the company they invest in. Selection of stocks with the potential of becoming 10-baggers (and more) consists in searching for companies with large moats giving them competitive advantages allowing them not only to survive but to grow and prosper over the long term. Although the Efficient Market Theory claims that searching for stocks with such competitive advantages is a loser's game (because allegedly markets do always fully discount any information available), successful practicians strongly disagree and legendary investors claim that markets may be inefficient even over longer periods in this way allowing for prices prevailing which offer a high margin of safety. If diversification is sometimes claimed to be the free lunch of efficient markets and of CAPM, practicians again disagree and they go for a concentrated portfolio. Shorting of stocks and its shortcomings are explained in detail. Buying stocks at low prices conveys a margin of safety which ensures not only higher future returns but at the same time lower risks. Beta, deemed to be an expression of risk, is in fact a measure of volatility and is not automatically increased but reduced if prices decrease which translates into a rise of future yields. The successful investor, with a long term perspective will incur lower trading costs, lower taxes (by deferring the tax liability for decades) and if managing their portfolio themselves no management fees, increases their chances to generate alpha when compared to the benchmark indices, say, the S& P 500.