Gannon on Investing

GANNON ON INVESTING

Insider Buying vs. Insider Incentives

December 17, 2017 by Geoff Gannon A blog reader sent me this email: “Do you ever pay attention to insider transactions when analyzing a company?” I do read through lists of insider buys from time-to-time. I follow a blog that covers these kind of transactions. But, I can’t think of any situation where I incorporated insider buying or selling into my analysis.     Learn How Executives are Compensated I can, however, think of situations where a change in how insiders were compensated was included in my analysis.

How to Quantify Quality

By Geoff Gannon on November 2, 2013   Someone who reads the blog sent me this email: I kind of understand the quantitative part of stock analysis (such as number crunching, valuation) but really struggle to understand the qualitative aspects which determine quality. What kinds of questions to ask yourself in order to gain more insights into the qualitative? A qualitative analysis does not have to be any less evidence based than a quantitative analysis. However, you do have to gather the evidence yourself. What counts as

Why I Don’t Use WACC

December 14, 2017 by Geoff Gannon A blog reader emailed me this question about why I appraise stocks using a pure enterprise value approach – as if debt and equity had the same “cost of capital” – instead of using a Weighted Average Cost of Capital (WACC) approach:   “…debt and equity have different costs. In businesses with a (large) amount of the capital provided by debt at low rates, this would distort the business value. In essence I am asking why do you not determine

How Safe Can You Really Make a 5-Stock Portfolio?

By GEOFF GANNON Investors often overestimate the reduction in volatility they will get from diversification and underestimate the reduction in volatility they will get from simply owning stocks with a beta less than 1.   Over the last 10-11 years, I’ve owned 5 or fewer stocks in about 90%+ of all quarters. My portfolio’s returns have had a lower standard deviation in terms of returns than the S&P 500. And in terms of just “downside volatility” – which is what most investors mean when they…...

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When Should You Diversify?

MAY 19, 2015 by Geoff Gannon   Someone who reads the blog sent me this email:   “I have been thinking about portfolio construction lately.  …due to the strict standards you have, I thought it was very natural to just hold mainly four stocks…unfortunately, this method has shown its short comings lately. Both because of (your) mistake in picking CLUB/WTW instead of the other winners discussed in Avid Hog/Singular Diligence, and also because I am currently getting in touch with a lot more very cheap opportunities

All About Edge

December 23, 2017 by Geoff Gannon Richard Beddard recently wrote a blog post about company strategy. And Nate Tobik recently wrote one about how you – as a stock picker – have no edge. I’d like you to read both those posts first. Then, come back here. Because I have something to say that combines these two ideas. It’ll be 3,000 words before our two storylines intersect, but I promise it’ll be worth it.   Stock Picking is Like Playing the Ponies – Only Better Horse races use

How to Judge a Business’s Durability

Originally written by Geoff Gannon on June 13, 2015   My last post listed examples of threats to a company’s durability. This post will be about how we assess those threats. You can always imagine a threat. Is it a realistic threat? How do you judge that? There are some industries where durability is pretty much perfect. The business doesn’t change much. Barriers to entry are high. The future development of substitutes is unlikely. Location advantages are big. A good example is lime. Lime is

Should We Care Why the Stocks We Buy are Cheap?

SEPTEMBER 2, 2015 by Geoff Gannon One of my favorite blogs, Value and Opportunity, recently did a post about how the best value stocks are often those that are not cheap by the most obvious numbers (P/E, P/B, etc.). The post is entitled “Value Investing Strategy: Cheap for a Reason”. The basic argument of the post is that: “…Especially in a market environment like now, cheap stocks are cheap for a reason.It is very unlikely that ‘you’ are the first and only one who knows how to run