Before I get to this week’s post, three quick notes:
- If you haven’t subscribed to the blog yet so that you receive new posts in your email inbox, and would like to do so, you can find a “Subscribe” option in the right margin of the website (you may need to scroll down a bit). Just enter your email address in the box provided and then complete the additional (short) steps to confirm it.
- Even though I have repeatedly expressed doubts about Twitter‘s viability as a publicly traded company, you can still follow me @DeadCompaniesWalking.
- Thanks to everyone who has bought the book recently and commented on it online or by writing in to me directly. I’ve been extremely busy lately running my fund, so it’s been difficult for me to respond to email messages and/or comments on my articles, but I am hoping to write a post soon addressing some of the questions I have received.
Okay, on to this week’s post …
Study after study has shown that most individual investors underperform the indexes. Why? They neglect a few simple rules. The first, as I have repeatedly warned, is never to buy a stock below $5. These junkyard stocks are usually over, not undervalued, and most are heading to oblivion. The second rule is to avoid excessively valued stocks in “cult” industries. Today, social media stocks fit this description, as do Tesla and many companies in the renewable energy space.
So, where should an investor place his or her chips? One place to look is companies paying meaningful (but not excessive) dividends. Historically, those stocks have outperformed the indexes. A second winning strategy is to identify companies that generate big cash flows but trade at low multiples of earnings. I recently traveled to Reno, Nevada to meet with the managements of two regional gaming companies that fall into that category: Eldorado Resorts (ERI) and Monarch Casino (MCRI). I purchased shares in both companies shortly after those meetings.