The headlines this week are all about China woes, and how that domino has started a sell off throughout world markets. While pessimist blood runs in the streets, an optimist is gleeful about being give an entry point opportunity.
I’ve always been a “Growth-At-a-Reasonable-Price” investor, commonly referred to as GARP. Adding to my GARP formula, I like to invest in companies that have a “unique moat” that makes threat of obsolescence from competition or immediate technology innovation hard to imagine (I guess I’m a GARPUM investor). Lastly, I believe you must know your investment thesis… GARPUMIT — For the first time in a while, a few momentum companies that have been on fire (and therefore outside my GARP radar) have been discounted.
People often become paralyzed trying to pick the absolute bottom of a market which is both logical and illogical. It is logical to have this desire, but logic also says that your odds of buying a stock at its low is close to impossible and determined by luck, not skill. Like it or not, irrational price swings exist and will continue to exist, efficient market theory be damned: there is plenty of evidence.
Let’s check where these issues will be on January 2017. If I’m right, they will be up 30 – 50% in only 18 months and should double in four years (by September 2019). I like putting it in writing so that all of us can learn from opportunities. GARP Stocks to consider, IMHO:
Apple @ $105
Starbucks @ $52 — in truth, this is not as much of a sale but still a worth buy
Nike @ $105
Optimists have the innate ability to be brave because they have hope. Optimists buy when investments are cheap. Did you buy?
So, time to see what actually happened after my picks (updating on March 29, 2020). Note that so split action happened (seen on the charts) so this is must not be compared in dollar per share terms.
Here is Apple, the best performer of the three in the long run although it trailed for the first year plus as Mr. Market argued that the iPhone trend was going to end (compared to the S&P 500) — important to note that AAPL saw dramatic PE expansion above its previous 14 – 16 historical level which drove the price acceleration (picture taken on March 29, 2020):
Here is Starbucks. It popped, but then went sideways for several years even though the chain grew — note that its PE is now far below its previous historical average (and therefore might pop again):
And here is Nike… it struggled but them started to shine after the Street realized that it still in the 800 lb. gorilla of athletic wear:
If you had split your money across all three, you would have handily beat the SPY / S&P 500 over the 5 year period, although my original prediction that you would be doing great in 18 months, was a bit too optimistic. Still, there is a lesson to be learned — GARPUMIT investing works if you give your stocks time to grow.