Best Stock Ideas From The Warren Buffetts Next Door - Best Stock Ideas From The Warren Buffetts Next Door - Forbes.com
Several years ago Jack Weyland of Reno found he had a knack for picking biotech stocks. He's logged an average annual return of 37% on his stock portfolio since July 2002. Weyland, now 33, is a former trucker who used his laptop and a wireless card while on the road to research stocks.Christopher Rees is another self-taught value investor but runs a concentrated portfolio of only ten stocks; his average annual return for the last decade is 23%. British-born Rees never attended college and spent most of his adult life as a hippie vagabond, traveling around the globe earning just enough to get by. Today he invests full-time from the north coast of the Dominican Republic.
Adapted from The Warren Buffetts Next Door: The World's Greatest Investors You've Never Heard of and What You Can Learn From Them (John Wiley & Sons). Find more athttp://blogs.forbes.com/schifrin
Years of digital innovation means you don't need an M.B.A. or hedge fund job to become a superstar investor.
In February 2000, at the peak of the bubble in dot-com stocks, I wrote an article in FORBES that posed the question: "Will the Web produce the next Warren Buffett?" The story profiled amateur investors who had made small fortunes in tech stocks during that crazy ride to the top of the market. Some had already quit their day jobs. A little more than a month later the bubble popped, and tech stocks crashed. The party was over for these bull market heroes. Or was it?
When I wrote that story there were 5 million online investors. Currently there are an estimated 50 million. Those fleeting dot-com-stock millionaires were merely an early wave in the gathering army of self-directed investors.
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Today the playing field has been leveled for ordinary investors. Instantaneous access to information, as well as quality tools and analytics, once available only to professionals, are a few clicks away. Our digital immersion--from laptops and BlackBerrys to iPads and Droids--has spawned rapid-fire innovation in retail financial services. Trades cost $7 at Scottrade, $8 at Fidelity.com. Want hedge-fund-style analytics? The free site RiskGrades.com will run a diagnostic on all the assets in your portfolio using sophisticated econometric modeling to tell you if each holding is worth the risk. Looking to learn from the topflight managers and analysts? Try ValueInvestorsClub.com, Alphaclone.com or SumZero.com.
In Pictures: Best Stock Ideas From The Warren Buffetts Next Door
Don't doubt the power of Web tools. In 2001 Michael Koza, a civil engineer working in the waste management department in Sacramento County, Calif., decided to fire his Morgan Stanley( MS - news - people ) stockbroker because his $100,000 nest egg was languishing in high-fee mutual funds. "I had a full-service broker because I thought that was the way you were supposed to do it," says Koza, now 51.
But Koza's wife, Maria, had told him he was crazy and urged him to become a do-it-yourselfer. Koza immersed himself in Web research, spending hours each morning before work, during lunch breaks and evenings looking into stocks and devouring company documents online. On the weekends he listened to downloaded recordings of management conference calls in his car. Nine years later the Kozas' stock portfolio has grown to more than $3 million, and Michael and Maria have purchased a new home and several investment properties.
Michael Koza is one of a new breed of investors I write about in a forthcoming book, The Warren Buffetts Next Door: The World's Greatest Investors You've Never Heard Of (John Wiley & Sons). Since February 2001 his average annual portfolio return has been 30%, compared with 0.8% for the S&P 500, according to Marketocracy.com. His five-year performance trumps every single stock fund in Lipper's database. Koza's approach is a mix of contrarian value and distressed investing--not unlike that of billionaires David Tepper and Andrew Beal.
Several years ago Jack Weyland of Reno found he had a knack for picking biotech stocks. He's logged an average annual return of 37% on his stock portfolio since July 2002. Weyland, now 33, is a former trucker who used his laptop and a wireless card while on the road to research stocks.Christopher Rees is another self-taught value investor but runs a concentrated portfolio of only ten stocks; his average annual return for the last decade is 23%. British-born Rees never attended college and spent most of his adult life as a hippie vagabond, traveling around the globe earning just enough to get by. Today he invests full-time from the north coast of the Dominican Republic.
Alan T. Hill thrives on a mix of yield investments and low-priced speculative stocks he gleans from message boards (see "Peer-to-Peer Profits"). Six years ago a single smart stock pick--Bancolombia, S.A.--created enough of a windfall for him to build an adobe-style dream home in the hills of Placitas, N.M. But Hill, 71, is no one-stock wonder. Since retiring in 2005 he is making more money investing than he ever did during his career.
Sidebar:
Peer-to-Peer Profits
Peer-to-Peer Profits
In the age of YouTube and Facebook attending an elite business school or working at an exclusive hedge fund are no longer the only tickets for acquiring the wisdom of greats like Warren Buffett and Julian Robertson. If you know where to look, the Web is chock-full of legendary investor incubators.
The only real requirement for becoming a good investor is committing the time. Invest in yourself--tap your inner Buffett. More than ever, it's possible to achieve superior investment returns and meet your financial goals.
Adapted from The Warren Buffetts Next Door: The World's Greatest Investors You've Never Heard of and What You Can Learn From Them (John Wiley & Sons). Find more athttp://blogs.forbes.com/schifrin
Chris Rees, Puerto Plata, Dominican Republic
Investment Strategy: Deep value, special situations
Performance since October 2000: Average annual return 23% vs. 2% for the S&P 500
Source: Marketocracy.com
Performance since October 2000: Average annual return 23% vs. 2% for the S&P 500
Source: Marketocracy.com
Bank of America (BAC) is a too big to fail basket case. However, sometime in the next year or two I expect it to earn better than $2 a share. Put a 10 multiple on that and you have a $20 stock. Also, as run rate earnings hit $2, BAC could start paying a dividend of around 60 cents a share. My estimate of tangible book is $10. My cost basis is $12. BAC is my largest position
Mike Koza, Sacremento, Calif.
Investment Strategy: Turnarounds and other special situations
Performance since 2001: Average annual return 32% vs. 3% for the S&P 500
Source: Marketocracy.com
JinkoSolar (JKS) is a fast-growing upstart solar company. It came public via IPO just nine months ago, but the stock has already quadrupled and then halved during that time span. It is led by executives with significant solar industry experience and is rapidly transforming from a wafer manufacturer to a vertically integrated photovoltaic solar company, resulting in improving margins
Andrew Swann, San Miguel de Allende, Mexico
Investment Strategy: Junior gold stocks, oil, gas, hard assets
Performance since September 2004: Cumulative return 264% vs. 27% for the S&P 500
Source: ValueForum.com, stock contests results.
East Asia Minerals (EAS) is a very large gold discovery in Indonesia. Yes, there is some risk but very manageable in my estimation. This is the best risk/reward setup I have seen in a very long time. Baring some unforeseen catastrophic failure--which I rate at about 1% chance--I think the downside on this stock is worst case $2.00cdn and the upside is $40.00+. I will make that bet all day long; EAS is the largest holding in both the portfolios I manage.
Justin Uyehara, Elk Grove, Calif.
Investment Strategy: Active trend trading
Performance since January 2003: Average annual return 33% vs. 8% for the S&P 500
Source: Marketocracy.com
Energy Transfer Partners (ETP): Although I am waiting for the price of ETP to pull back before establishing a position in my fund, I remain very bullish on the prospect of all Master Limited Partnerships, most notably ETP. In addition to its near 7% yield, I am intrigued at the prospect of ETP. The recent discovery of several large natural gas fields is a game changer; it's only a matter time before industries shift to using natural gas in lieu of oil as it is less costly and much cleaner.
Alan Hill, Placitas, New Mexico
Investment Strategy: Micro-caps, yield-oriented stocks
Performance since July 2005: Cumulative return 819% vs. 46% for the S&P 500
Source: ValueForum.com, stock contest returns
Far East Energy (FEEC): TheHouston based corporation exploits, develops and produces coal bed methane with a Chinese partner in a total area of more than 1,000 square kilometers in China. China is the world's largest energy consumer and plans to double its production of unconventional gas in five years to meet rising demand for cleaner-burning fuels. FEEC is a longer term development project, but as more gas is proved up it becomes a very attractive takeover prospect for a major oil company. Please note this is a high risk micro-cap.
Bob Krebs, Orange County, Calif.
Investment Strategy: Income investing for total return using put and call options
Performance since September 2004: Cumulative return 365% vs. 27% for the S&P 500
Source: ValueForum.com, stock contest results.
RAIT Financial Trust (RAS) is a commercial, retail and multi-family REIT that had a terrible 2008 and has been recovering ever since. RAS just reinstated its dividend and is a very deep value as long as the economy is on the mend. There are lots of option possibilities with this one. Covered calls is a good way to gain income while waiting for further recovery. I have done all of these options trades personally and have a relatively large position in the stock. I got into the stock at $1.50-$1.80
John Navin, Boulder, Colo.
Investment Strategy: Technical analysis, Elliott Wave
Performance since May 2001: Average annual return 8% vs. 2% for the S&P 500
Source: Marketocracy.com
Most of the Warren Buffetts Next Door are value investors. However, John Navin is one person profiled in the book who had managed a relatively impressive performance record as pure technical analyst. Recently his bearish stance has hurt his performance. For 2011 John likes bullish dollar ETF, PowerShares DB U.S. Dollar Index Bullish Trust (UUP) and the double-short Russell 2000 ETF, ProShares UltraShort Russell 2000 (TWM).
John Navin, Boulder, Colo.
Investment Strategy: Technical analysis, Elliott Wave
Performance since May 2001: Average annual return 8% vs. 2% for the S&P 500
Source: Marketocracy.com
Most of the Warren Buffetts Next Door are value investors. However, John Navin is one person profiled in the book who had managed a relatively impressive performance record as pure technical analyst. Recently his bearish stance has hurt his performance. For 2011 John likes bullish dollar ETF, PowerShares DB U.S. Dollar Index Bullish Trust (UUP) and the double-short Russell 2000 ETF, ProShares UltraShort Russell 2000 (TWM).
Kai Petainen, Ann Arbor, Mich.
Investment Strategy: Eclectic mix of leading academic quantitative theories
Performance since February 2003: Average annual return 19% vs. 8% for the S&P 500
Source: Marketocracy.com
Kai is a self-taught quant who screens for stocks using a formula that incorporates fundamental attributes that he has cribbed from leading B-School academics. The screening incorporates 11 criteria seeking to find stocks that combine "value, smart money, growth, momentum and quality." All of the specific fundamental values he screens for are detailed in The Warren Buffetts Next Door. His current top picks include Vishay Intertechnology (VSH) and Gannett (GCI).
Jack Weyland, Reno, Nev.
Investment Strategy: Value investing, biotech stocks
Performance since July 2002: Average annual return 37% vs. 8% for the S&P 500
Source: Marketocracy.com
Depomed (DEPO) is a drug delivery specialty firm whose shares have traded wildly recently because of the prospects of its new drug Gralise, which is for people suffering from nerve pain associated with shingles. There is some concern about DEPO's partnership with Abbott Labs, but Weyland reckons that Abbott will either market and distribute Gralise, or another big distributor will jump in. Either way DEPO gets paid. Weyland has been a buyer of Depomed since mid-2005 and has purchased shares as low as $1.52.
Randy McDuff, Winnupeg, Manitoba
Investment Strategy: Value with a global macro twist, "Warren Buffett meets John Templeton"
Performance since July 2000: Average annual return 19% vs. 1% for the S&P 500
Source: Marketocracy.com
During 2010 Randy had strong performance from stocks such as Novo Nordisk (NVO), Kansas City Southern (KSU), and Companhia Distribuicao (CBD). His top two Marketocracy holdings currently are MasterCard (MA) and Novo Nordisk (NVO).
