Investing Fundamentals

Take The Emotion Out Of Buying Stocks

emotion investing

Emotions have no place in investing. You rely on cold, hard data to make investing decisions. Today we’ll talk about ways to take the emotion out of buying stocks.

We interview Al Bentley, wind-surfer, CEO and co-founder of Simply Wall Street, an Australian startup that helps people make better investing decisions by turning complex data into easily understood infographics.

Subscribe to the Show:

Buy and Hold Wins Again

Confirming yet again the advice that LMM has been giving you from the start, Simply Wall Street does not advocate picking individual stocks but rather the buy and hold strategy.

But because there are people who buy individual stocks, Simply Wall Street wants to give them the best information available in a way that is easy to understand so that they can take the emotion out of buying stocks and make right decisions.

The site does get incredibly detailed on individual stocks even looking at things like CEO compensation, but when you visit, you’ll notice that one piece of information they don’t include shares price. It is part of the analysis, but they don’t want people to rely too much on that one bit of data. People get too hung up on price when deciding what stocks to buy.

DIY Fund

Simply Wall Street wants to allow people to pick individual stocks not so they can sell them off quickly, but so they can essentially build their own fund. Individual stocks shouldn’t make up your entire portfolio but using the information that SWS provides makes it easy to have direct shares as a part of your portfolio.

Get our best stuff in your inbox:

Investing for the In-Betweeners

There is certainly no shortage of information available to help you pick stocks, but a lot of it is not easily understood by normal people. And what can be easily understood, previous share price, for example, is not a good indicator. You can’t always predict the future by looking at the past.

It’s important to look at certain ratios like P/E and P/S, but you need context to understand what those numbers are indicating. Some investors rely on things like Google Finance for information, but that was built by finance people for finance people.

SWS wanted to create something for the rest of us, the layperson that doesn’t have all the technical knowledge that some finance people assume everyone has. The founders are not finance guys, so they don’t have those ingrained biases.

They were investors though so understood the problems of investors. There are a lot of resources for brand new investors, things like Betterment and Robin Hood, and things for high-end investors but investors that fall between those two categories are under-served.

Special Snow Flakes

Snow Flake

SWS uses a system that is meant to analyze stocks that will be held long term. If you really want to nerd out, they open sourced their analysis model on Git Hub so you can have a look for yourself. There are five main components;

Value: Value is based on future cash flow and its price relative to the stock market.

Future: The expected performance in the next 1-3 years, based on estimates from up to 50 analysts.

Past: The earnings performance over the previous five years.

Health: A company’s financial health and their level of debt. This marker is critical to long-term investing.

Income: The current dividend yield, its volatility, and sustainability.

There is another factor that SWS looks at that many investors and advisors overlooks; management. How long has the board been serving, is the CEO grossly overcompensated, has there been any insider trading?

Another often overlooked metric is discounted cash flow; the amount of money a company is projected to earn in the future and what the value of that money is today. It’s a way to account for inflation.

 Explore Grid Views

Grid views give investors ideas on where to start and how to invest. The learning element is really important when investing, whether you’re new to it or a veteran. SWS wants to make investing a learning experience for everyone.

advfilter-underval_opt

Grid views are collections of companies (represented by their snowflakes) that fit certain criteria. Some of the grids include Popular, US Trending, and Potentially Overvalued. You can also build your own grid view, like “My First Investment Group.”

When you click on a company, it gives you SWS’s business report. They compile this reports every day for more than 15,000 stocks! You can add company’s report to your portfolio, and you can compare it against another company’s report.

Screen Shot 2016-05-28 at 3.56.03 PM

You’ll see some companies with red in their grids. The colors are added to allow for quick identification of how a stock is rated. Is red bad? Well, it’s a warning. Red means that the company is not hitting the metrics required for a good buy. You can still buy it of course, but you’d better have a good reason for ignoring the data.

Al likens it to paying $1 for a beer in a bar. If you’re paying so little, there is something wrong with that beer! Could be like a roofie in there or something.

How Do You Use SWS?

If you have a portfolio, you can build a grid view of the companies in it on the site. Even if you’ve been investing for a long time, that doesn’t mean you know what you’re doing! SWS can tell you if you have a “sick” portfolio. They can help you understand what you’re holding.

If all you look at is the numbers going up or down each day, you really don’t have enough information to know if having a particular stock is good or bad and this leads to bad, decisions. Seeing the grid views will help take the emotion out of buying stocks. There is no emotion in raw data.

How to Heal Your Sick Portfolio

Many of us know the basics of good investing, but that doesn’t mean we always follow them. SWS can help you with the basics like making sure you’re properly diversified, how to rebalance your portfolio, show you how much a stock has changed since you bought it.

The company doesn’t make recommendations, but can show you things like a stock you hold is over valued, has shown no growth, the company currently has a lot of debt. They give you pretty big hints as to what you should do, but don’t give specific advice.

Get Money, Get Paid

The team spent 18 months building the site but launched it after just 4 in the lean start-up mode. Test each part as you go and let the users give you feedback on what is working and what needs improvement.

The site has a free option, and Al plans to always include that. They offer a paid tier though that gives you access to unlimited plans for a very affordable $58 per year. The company has to buy all of that data they are turning into super cool, easy to understand infographics for you!

Simply Easy To Use

I don’t own any individual stock for the reason a lot of us don’t; I have zero interest in doing all that research and couldn’t understand it if I did do it. But as I was writing this I played around on SWS’s site, and it is really cool. They aren’t exaggerating. It is very easy to understand the data the way they have presented it because if I can understand it, I know you can!

Show Notes

SoFi: Lower interest rates on your student loans or mortgage today.

Boris the Crusher Imperial Stout: A rich beer with the aroma of malt and hops.

Ibotta: Unlock, shop, get cash! Enter code “Money” to get $10 cash back.

What's next?

home podcast popular toolbox search