20 Questions for Robert Freedland of Stock Picks Bob’s Advice
Robert Freedland has been a stock market enthusiast longer than he has been a practicing physician. Starting at the age of 13 with a single investment he has developed his own investing and trading strategy drawing from value and earnings momentum writers. Sharing both his passion for investing as well as politics, he started writing online in 1998 on the Delphi Boards. His current blog, Stock Picks Bob’s Advice, has been active since 2003.
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1. Are you a value investor?
Quite frankly, value is an important part of my evaluation of stocks, but not the entire driving force behind deciding on a stock pick. I view myself as an eclectic investor, who is part momentum, part value, and part technician. If I can find a stock that fits my other criteria, I am reassured if I can find everything that I am seeking at a reasonable valuation. Even though I look at price/earnings, price/sales, return on equity, balance sheets, and free cash flow, probably I would be best described as a GARP investor, Growth at a Reasonable Price.
2. What is value investing?
In general, I would suggest that a value investor is someone who is interested in the intrinsic value of assets, minus the liabilities, and what a ‘break-up’ valuation might be for a company. They might be interested in buying stock in companies, as they would say, ‘under book’. I also believe that growth investors need to take into consideration valuation when making purchases which simply suggests that instead of a static, or break-up valuation, they also consider future earnings and cash flow in determining an appropriate valuation of a stock.
3. What is your approach to investing?
There really are three parts to my investment approach. First of all, I have chosen to profile the ‘perfect stock’ that meets my criteria of consistency in financial results. I like to find companies that first of all have good momentum on the day I decide to purchase them; that is, they are on the list of top percentage gainers that particular day. After that, I review the most recent quarter expecting them to have increasing revenue and earnings. If they can exceed expectations that is an added plus. Also, if they raise guidance, I give them extra “points” in my evaluation.
Next, utilizing Morningstar’s “5-Yr Restated” financial page, I check to see that revenue growth is persistent, that is it is more than a one quarter event. I also wish to see persistence in earnings growth, an increasing dividend is a plus, a stable number of shares outstanding, positive and if possible growing free cash flow, and a reasonable balance sheet with a current ratio of 1.25 or greater.
I take a look at valuation, looking for a moderate P/E if possible and a PEG between 1.0 and 1.5 if possible. In addition, I check the price/sales ratio relative to other companies in the same industry. I also review the return on equity. Finally, I take a look at the short interest. If the company has a short interest over 3.0, and if they have just reported good news, I find this encouraging.
The other part of the approach involves deciding when to buy and when to sell shares. And when after selling stock to either ‘sit on my hands’ and shift money into equities or to shift in the other direction. I use the activity of my own portfolio to determine my ‘course of action’. In other words, if I sell stock on ‘good news’ (appreciation targets reached) I use that as a signal to add a new position (unless I am at my maximum of 25). In the same manner, if I sell a stock on ‘bad news’ (either fundamental information or a stock price decline such that it hits my sale target on the downside), I ‘sit on my hands’ shifting money from stock into cash (unless I am at my minimum of 6 positions–in which case I do go ahead and replace the equity).
4. How do you evaluate a stock?
This process is generally fairly quick, using the internet , I can review stocks fairly quickly and pick a stock probably in 10 minutes of work. However, I may go through many individual evaluations before arriving at a suitable candidate.
5. Why do you buy a stock?
I purchase a stock when I have a signal from my portfolio (see question #3) to indicate the ‘need’ to purchase a new stock. After that, I go through my usual screens to find a new name.
6. Why do you sell a stock?
I sell stock either on ‘good news’ or ‘bad news’. My general philosophy involves selling poorly performing stocks quickly and completely and selling appreciating stocks slowly and partially.
On good news, as I like to put it, I sell 1/6th of my holdings at targeted appreciation points: 30, 60, 90, 120, then 180, 240, 300, 360, then 450, 540% etc. appreciation points.
On the downside, I sell a stock if it incurs an 8% loss after an initial purchase, if it goes back to break-even after a single sale at a 30% appreciation target, or if it retraces to 50% of its highest appreciation sale after being sold partially more than once. For instance, if I have sold portions of a holding 4 times (at 30, 60, 90, and 120% appreciation points), I would allow the stock to retrace back to 60% appreciation over my cost before unloading the entire position.
Furthermore, I always retain the right to sell any position on any announcement that I construe as fundamentally ‘bad news’ for the company. This might mean an SEC investigation, lawsuit, or whatever.
7. What investment decision are you most proud of?
Probably my best pick was the Coach (COH) stock that I purchased at a cost basis of $8.33 in February, 2003; I have sold portions of that holding 9 times (at 30, 60, 90, 120, 180, 240, 300, 360, and 450% appreciation points.) Coach closed at $49.98 on February 16, 2007.
8. What investment decision do you most regret?
On July 18, 2003, I wrote a post on Hansen Natural (HANS) when the stock was trading at $5.38. Adjusted for subsequent two-for-one and four-for-one stock splits, this worked out to a basis of $0.6725 for my blog post! With the stock closing on February 16, 2007, at $36.90, this represented a 5,487% increase in price since my post. And I didn’t buy any shares!
9. Why do you blog?
I have been investing and following the stock market for over 39 years. I believe that most individual investors do not have any disciplined approach to investing. I believe that with a little effort and homework, an individual can put together a portfolio of high quality stocks that will outperform the general indices. I write my blog to provide both a discipline for myself to follow my own trading rules, but also to test out my ideas in a public forum. I enjoy sharing ideas with readers, I enjoy the discussions that ensue (like this one) and believe I am a better investor for this effort.
I am also a bit of a dreamer and hope that my writing can lead to something more substantial. I am not sure what this might take the shape of. But I try very hard to give each reader more than what they could expect from a blog and maybe just maybe I can make a difference in the investment world.
10. What’s your best post?
Probably the best idea I ever wrote up was Hansen (see question #8).
11. What’s your worst post?
Quite frankly, with more than 1,000 entries in the blog, I am not sure what the worst idea I ever shared was. However, I continue to review past stock picks, sharing with readers the “good, bad and the ugly” (with apologies to Clint Eastwood).
12. What financial publications do you read?
I read a lot of the popular magazines like Money, Business Week, Fortune, Forbes, Smart Money, and Kiplinger’s. I enjoy reading the Investors Business Daily when I get a chance, and also occasionally read The Wall Street Journal. Much of the financial information I read comes from the internet as well.
13. What investing blogs do you read?
I dabble in reading other blogs. I read Random Roger, Seeking Alpha, 10Q Detective, Mark Cuban, The Kirk Report, The Big Picture, Footnoted.org, Controlled Greed, and of course Gannon On Investing among others.
14. What’s the best investment book you’ve read?
I have to say that my investment philosophy has been shaped by three books, first on the list is “How to Make Money in Stocks” by William O’Neil, then “100 Best Stocks to Own in America”, by Gene Walden, and “How to Make $1,000,000 in the Stock Market—Automatically” by Robert Lichello. These books led me to the concept of profiling stocks for potential appreciation, and also developing a way to respond to the market by examining one’s own portfolio.
15. What’s the last investment book you’ve read?
Probably the last book I read on investing was Pat Dorsey’s “The Five Rules for Successful Stock Investing”.
16. When did you start investing?
I made my first stock purchase at the age of 13 (back in 1967) when I took my Bar Mitzvah gifts (total of $350) and purchased five shares of Global Marine at about $62. My soon-to-be brother-in-law Bart told me he had just purchased 20 shares and it was a great idea. When I was younger, my dad used to have me read out the stock prices to him from the paper. Anyhow, after this purchase, even though the company announced they were suspending gold exploration activity the week after my purchase and the stock price collapsed, I was soon hooked on investing.
A year later I purchased 5 shares of Litton Industries with my odd jobs money and lost that too. I started reading, I believe the first book I read was Louis Engel’s book on the stock market and have been involved since.
17. How have you improved as an investor?
It has taken me literally years to develop any disciplined approach to investing. For years I have been “seat of the pants” buying and selling without any particular strategy. With my blogging and the rules I have developed I have become particularly disciplined and have a successful portfolio as well!
18. How do you need to improve as an investor?
I need to get out of margin once and for all and to segregate my funds so that I am not using my investment portfolio to do things like make payments on my car (I am) or re-roofing my house (I did).
19. Where are the bargains in today’s market?
My entire approach is based on the premise that I allow stocks to present to me for analysis. I do not know what stocks will be “picked” on Tuesday. I respond to market activity rather than presupposing that I can determine where the values are. This attempt, which I call my “Zen” approach to investing, allows me to find stocks that are “coming to me” rather than the other way around. To answer your question, “I don’t know.”
20. What’s the most interesting company we haven’t heard of?
Every once in awhile, I come across a small company that shows up on the top percentage gainers list with great numbers that nobody has ever heard of (almost). A company that I recently wrote up, that I personally do not own any shares (but that my stock club did recently purchase shares in ) is Chase Corporation (CCF). This stock has a relatively low P/E, pays a dividend, and is growing its revenue and earnings fairly consistently. It’s a tiny company with only 4 million shares outstanding yet which has a lot of criteria that fit my “profile” of a successful stock market pick.
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Sites Mentioned
Previous 20 Questions Posts
20 Questions for Bill Rempel (a.k.a. No DooDahs)
20 Questions for MarketWizWannabe of RVB’s Market Musings
20 Questions for George of Fat Pitch Financials
20 Questions for John Bethel of Controlled Greed
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