Back on May 2nd I blogged about ‘Merit’. I use the term ‘Merit’ to describe the DTM5’s approach to evaluating the quality of an investment, specifically a publicly traded company.
But assuming we have merit, what else matters? The Time and Price at which an investment is bought! Your investment can have all the merit in the world, but if you screw up the timing of your investments or the price(s) you purchase them at, you decease your odds of winning.
And investing is all about odds. The outcome of investing is binary – profit or loss. But the process of investing is multi-dimensional. It is about positioning as many variables as possible in your favor, on a perpetually changing surface, to get the best odds of a profitable outcome.
That being said , I’m going to cover some pretty basic ideas here. But I believe that the basic ideas are the basis of success.
Lets consider Timing and Price
Timing is when you buy an investment. Opportune timing means that you won’t have to wait as long to earn a profit. It means showing up to the party before it happens, but not too long in advance. There isn’t a hard and fast rule here….you need to enter into investments before or while they are in a secular ascension phase, or before a positive catalyst.
Price is what you pay for an investment. The goal is to buy the investment at a lower price(s) than you think it is worth or will be worth in the future. Which means, you have to determine some sort of fundamental valuation, and purchase your investment at a discount (the larger the better) to this valuation.
Now valuation is another issue althogether, but most of the work is done when merit is determined. Perhaps I’ll talk about that another time.
So, the DTM5 key is to BUY QUALITY INVESTMENTS at LOW PRICES at the RIGHT TIMES. The Merit has to be there. The Price has to be right. And the Timing has to be accurate. Sounds simple. But getting these three factors lined up, at the same time, is tough. Don’t believe me? Check out the performance of most active mutual fund managers. Its pretty glum, relative the general market.
Another interesting way to think of this is as a form of risk control. It is a lot easier to have a concentrated portfolio, with only a few holdings, when I am confident that the investment has merit; is priced right; and the time to own it is opportune.
So, in a nutshell the DTM5 formula is Merit + Asymmetry + Timing + Pricing = Highest Odds of Profit.
Buy a good investment, at the right time, at the right price. Simple sounding, yet so very tough to do.
GLTA!
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