An Investor’s Second Competitive Advantage

I have written before that one of the best advantages that an investor possesses compared to the rest of the world is the ability to think long term. If you buy a stock that is expected to grow earnings over five years that would suggest a doubling in value, it is no big deal if nothing happens during the first three years and all the gains come in the latter two. In fact, if the company pays a dividend that you reinvest or repurchases its own stock, this method of delivering value would be preferable since you get an accelerator benefit when earnings growth travels at a faster rate than stock prices.

But there is another advantage that is rarely discussed which a retail investor can harness: the ability to go value investing when a company cuts its dividend due to a natural cycle that the company experiences. I spent … Read the rest of this article!

The Psychological Bias Surrounding Disney Stock

When I first wrote about Disney’s risk related to ESPN subscriber loss about a month or so ago, I meant to write an immediate follow-up post that discussed three factors that makes Disney a good case study right now for studying the psychological factors that affect people’s investment perceptions: (1) headline risk, (2) groupthink, and (3) the tendency to “secure” quick short-term gains at the risk of making substantially more money over a 20+ year holding period.

Before we talk about headline risk, you should pause and read this excellent piece by Maria Konnikova in the December 2014 New Yorker titled “How Headlines Change The Way Think” that discusses some University of Western Australia studies on how the specific headlines we encounter has a disproportionate impact on the conclusions that we draw from reading the articles. Although there have been a decent amount of Star Wars articles written … Read the rest of this article!