9 Rules for Better Stock Investing


This week’s AAII Weekly Digest highlights these “must-read” AAII articles:

The various characteristics of stocks that generate higher returns than what the capital asset pricing model (CAPM) would predict are known as “stock market anomalies.” Two of the most famous anomalies are size and value. This article sets out to explain why, historically, value has outperformed growth when it comes to picking stocks.

An investment strategy that is long-term and focused on quality faces inexorable challenges, such as resisting temptations to respond to short-term dynamics and standing by qualitative judgments. This articles analyzes these challenges and focuses on two common categories of mistakes: those made when buying and those made when deciding to continue to hold, instead of sell, a stock.

Inversion. Such a simple concept. If there is a problem to solve, consider all the solutions that won’t work. In so doing, the correct answer reveals itself. Want to lose weight? Think of all the behaviors that will lead to obesity and do the reverse. Want to be a better father? Think of the things that would turn one’s kids away and do the opposite. The same may be true with investing: looking for stocks that will outperform the market? Look where others aren’t.

Guy Spier, manager of the Aquamarine Fund, believes that the best way to overcome the shortcomings of our inadequate brains is to carefully structure our environment to eliminate the Wall Street noise and adhere consistently to some simple guidelines. Spier believes that these nine rules are key to a better investment process.

 Our Member Question for this week is:


Do you think analyzing ESG (environmental, social and governance) factors can boost investment returns?


Vote to answer this week’s Special Question: Do a company’s policies on its corporate governance, the environment or social issues impact your decisions to buy its product or services or invest in it?

Last Week’s Results:


Last week we asked our readers whether they they invest in fixed income instruments and what they primary reason was for investing in them or not. Visit the AAII Blog for a summary of the responses.

Using Multiples to Gauge Value

One of the goals of stock analysis is to determine whether a company’s stock is “cheap” or “rich,” given its current stock price and financial situation. Popular methods of stock valuation include the use of a variety of ratios or multiples that compare a stock’s current price per share to an element of a firm’s financial statements—such as earnings, sales, book value, cash flow, or dividends. This issue of Stock Investor News looks at how to use Stock Investor Pro, AAII’s fundamental stock screening and research database program, to help assess a stock’s worth.

The AAII Weekly Digest is one of the many benefits of AAII membership. To learn more, consider a risk-free 30-day Trial AAII Membership to start becoming an effective manager of your own assets.


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