Benjamin Graham, David Dodd, Security Analysis - Principles And Technique, p. 66
When the Oracle of Ottawa bought his first stock he was called a fool, then later on, having survived and thrived, he was called lucky, continuing on until the time of this writing, people just call the Oracle of Ottawa "Sir". As mentioned many times before in this humble blog, stocks have been very good to the Oracle of Ottawa. Now the Oracle of Ottawa is not Warren Buffet, nor does he ever want to be. The Oracle of Ottawa has no desire to be listed as one of the richest Canadians. The Oracle of Ottawa just wants to enjoy a benevolent level of prosperity, read all the books he has never read, so far, and write the truth to power in his blog, completely unowned by any corporate whore.
|Capitalism? Nuttin' to it!|
Right from the start the Oracle of Ottawa had no trouble on what and when to buy. There is a ton of literature and success stories on that. The Oracle of Ottawa is an old time value investor. He simply seeks a stock that is priced at or below its book value, between two and ten dollars and with a P/E ratio of less than 10, with a dividend between 2 and 55 percent and recently, a P/S ratio less then 3. The Oracle picks one stock every month, which he calls "Stock of the Month". Been doing it for years and years.
Soon the Oracle of Ottawa had a pretty wacking portfolio of stocks very deep into the money. But the great Oracle sweated on when to sell a stock. The Oracle of Ottawa found the decision to sell much much harder then the decision to buy. Oddly enough, every one else the Oracle knows, has the same problem in reverse. They always sell a double right away and sweat about what to buy next. Don't be like everyone else. Taking a mere double will never make you rich. The Oracle discovered that buy and hold is still very powerful, and that it is not unusual to get a ten to fifteen bagger! Ya, you read that right, 1,000 to 1,500 percent profit is not out of the ordinary with the Oracle of Ottawa.
Then, after much gifted thought, as the Oracle of Ottawa is an "85", he realized that it could all be reduced to a simple rule of thumb (ROT), or what the undergraduate text books refer to as heuristics. And the rule of thumb is: NEVER OWN A STOCK YOU WOULDN'T BUY. When the statement arrives at the end of the month, the Oracle lists all his stocks in the money by percentage difference of book to market value. Then he lists the top 19 stocks in order for the month past. Yeah it does take a while to do it by hand, especially when you own way over 100 different stocks! Then you go through the list checking the fundamentals on your favorite quote sight, and you sell the stock that has gained the most, but appears to be at the point of being unsustainable. i.e. Sell that stock that you presently own, but would never buy.
The Oracle of Ottawa will provide a simple example of two stocks. One is a very large REIT that the Oracle purchased many years ago when it was not a very large REIT. He paid $2.60 a share at the time. Today the REIT is one of the TSX 300 stocks, and is selling for nearly $27.00 a share. Another ten bagger. But it is still paying a monthly dividend with an annual yield of nearly 7 % ! And its P/E ratio is under 7! Aside from the price, this is still a value stock. Keep this one. Now going done the list, the Oracle sees that he has another stock that he bought for around two bucks that is now pushing 15 bucks a share, and the dividend yield is only a lousy 1.4%, and worst of all it is at 100 times earnings. The Oracle will sell this stock as soon as possible. It is now a growth, momentum darling. Never Own A Stock You Wouldn't Buy! Get it?