Monday, January 3, 2022

The Biggest Lesson I Learned While Earning a PhD in Finance

By Steve Sjuggerud

Editor's note: Empire Financial Daily editor Berna Barshay is traveling today, so we're sharing some timeless wisdom from our good friend Dr. Steve Sjuggerud. Longtime readers know that Steve is one of the most accomplished (and longest-tenured) analysts in our industry who has made a name for himself over the years by nailing some of the biggest calls in the market. Today, he's back to share an important lesson he learned along the way...


"If my professors are so smart, why aren't they rich?"

It's a question I asked myself over and over as I worked through school.

My undergraduate degree was in finance. Then I got an MBA. And I finished my PhD in finance while working as a broker.

I spent plenty of time in classrooms, learning about the markets. My professors always seemed to make things simple. They explained the world of finance and how people got rich in a regimented, simple way.

It never made sense to me, considering how messy the world actually is... and seemed to me, even back then. Plus, I kept asking myself that question...

If things really are this simple, why are these folks teaching? Why aren't they out there getting rich themselves?

Today, I'll share the answer I learned along the way... and most important, how it shaped my investing...

To make it simple, my professors weren't getting rich because at the time, the "efficient markets theory" was all the rage...

The theory was that you can't predict future stock prices because all the information known about stocks today is already baked into the current price.

I understood what they meant when they said this. But I'd also been studying the history of finance. And I knew there were plenty of guys who were beating the market... year after year.

So I decided that if I wanted to make money in the markets, I needed to learn from the right people. Not my professors, who said it couldn't be done... but the guys who had actually done it and consistently succeeded.

What I found is that while many of the best traders use different strategies, there's something that unifies almost all of them...

I got my first glimpse of it in 1990...

That's when I read Martin Zweig's book Winning on Wall Street. The book's subtitle is How to Spot Market Trends Early, Which Stocks to Pick, and When to Buy and Sell for Peak Profits and Minimum Risk.

He built many simple systems that either beat the market or (more typically) equaled the market's return – but with a lot lower risk.

Zweig wasn't the first to do this... But he found me at the right time. And I started building systems, too.

As my subscribers know, I have a mathematical mind. And the math that Zweig outlined made sense to me...

He showed that you could consistently outperform using plenty of different strategies... from buying cheap, to focusing on return on equity, to simply following the trend. The key was finding what worked for you... and sticking with it.

All I had to do was keep it simple... and keep it logical. The goal was to beat – or at least tie – the markets while taking on a lot less risk.

Basically, what I found was that Zweig was right and my professors were wrong...

My professors said you couldn't beat the markets... that they were so efficient, nobody could generate above-average returns. But I've spent decades building an investment system that does just that.

Study any successful investor, and you'll find something similar... an investment system that helps them sort through mountains of information to make decisions. There are plenty of different ways the best investors do it. But in all cases, a system is in place, guiding them through.

The key to successful investing isn't what you'd expect...

You don't need to understand everything. You don't have to look at every number. And you can certainly know too much – which often leads to your ego getting in the way of common sense.

Instead, the key is finding the right things to study.

You simply need to figure out what really matters... what works... and then forget the rest. Everything else is just noise. And focusing on the noise will distract you from what's important.

I've spent thousands of hours researching what works in investing. And I've come up with a simple concept that has proven to be an incredibly successful way to make money.

I built it into a simple system of my own. It can do what my finance professors always said was impossible: consistently beat the market.

If you're familiar with my work, then my investing system might sound familiar...

I buy things that are...

  1. Cheap,
  2. Hated, and
  3. In an uptrend. 

That might seem simple. But finding investments that are cheap, hated, and in an uptrend is hard. They don't come around often. And when they do, it certainly doesn't feel good buying them.

But these are the pieces that matter if you really want to succeed when investing. And to me, they're all that matters when making any investment...

First, you've got to understand value. You want to understand what you're buying and how much you're paying for it. The exact valuation measure isn't what's important. But getting a feel for value – including the value relative to other assets – is crucial.

Then, you want to buy something when others aren't interested... when it seems like the world hates your idea. When that happens, the worst of a decline is likely over. After all, who's left to sell if everyone hates an investment?

Now, here's a very important detail...

Neither of the above pieces matter if prices are still falling...

If there's one thing I've learned in nearly 30 years of investing, it's that prices can always fall further than you'd imagine. And that means you must wait for prices to begin moving higher. That's the market's way of telling you that things have turned a corner.

When this all works, you end up buying at a great price... and at the perfect time.

That's exactly what happened in 2010, when I started pounding the table on real estate...

The whole world had given up on real estate after the housing crash and the financial crisis it sparked.

But for me, the crash was the most obvious buying opportunity I'd ever seen. Real estate was dirt-cheap and completely hated, but the worst was behind us. Things were already getting better. But no one could see it.

I spent the next few years buying up as many properties as I could... many of which I still own. And I sold several for hefty profits along the way.

I bought a cheap, hated asset in the start of an uptrend. It was my investment system in action. And it has worked out perfectly as real estate prices soared in value.

Now, you don't need to follow my investment system to make money in the markets. But I do urge you to find what works for you – and stick with it.

By focusing on assets that are cheap, hated, and in an uptrend, I've been able to book huge gains for my readers in both bull and bear markets...

And when it's time to sell, I rely on an entirely different powerful system to protect my portfolio.

It's a one-of-a-kind tool that helps you overcome your emotions and ignore the market noise – keeping you invested for the remaining upside while limiting your downside.

If you're ready to get started on the path toward lower risk... higher rewards... and less financial worry, you must listen to my urgent message today. Learn more here.

Regards,

Steve Sjuggerud
January 3, 2022

Whitney Tilson Daily

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