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What Makes an Expert?

Written by Jason Williams
Posted April 12, 2019

When people ask me how I got into this career — writing about investing, that is — I often tell them I “Forrest Gump-ed” my way into it.

By that I mean I didn’t start down this path with the intention of becoming a writer.

I’ve got no “formal” training as a writer. I didn’t take any literature courses in college. My background is numbers, not words.

And having worked in this business for a while now, I can tell you it’s a lot easier to teach numbers to a writer than words to an economist.

I got my start by a combination of timing and luck.

Get. Me. Outta. Here.

I’d gotten tired of working in investment banking. The hours were grueling, which was fine when I was younger, but it was starting to take a toll.

But it was the culture that really got me looking for a new career. It’s a dog-eat-dog world. Not many people are interested in helping each other.

It’s all about who can make the most money and get those big bonuses. And people found all sorts of ways to make money. Even if it meant taking another team or trader down in the process.

There’s likely more honor among thieves than among investment bankers.

There were a few good apples, though. I’m not saying everyone is terrible. But, like Hollywood’s sexual scandals, if you allow a culture to thrive — even if you don’t participate — you’re still culpable.

So I needed to make a change. And since I couldn’t change Wall Street on my own, I decided to pivot away from banking and look for ways to get closer to retail investors.

A Crash Course in Newsletters

One of the first opportunities away from the Street came from a financial publisher.

One of its subsidiaries needed someone with a financial background to analyze numbers for its editors and advertisers.

I got a recommendation from a business acquaintance and went in for an interview. They were impressed with my resume and my answers. And they offered me the job of “senior financial analyst.”

Over the next few weeks, I got a crash course in everything it takes to run a successful newsletter. I figured it was just great stock picks.

It’s WAY more. There’s an IT team making sure the websites run and the emails go out. There are copy editors checking every article and blog post. There are graphic designers creating images and setting up PDFs. Not to mention the production teams, copywriters, marketing teams, customer service representatives, accountants...

Everyone plays a role in keeping the business growing.

And the whole time I was learning about the ins and outs of the business, I was getting into my role as the lead analyst, too.

It was a pretty exciting time. The company was growing very quickly. The only limits were the ones you put on yourself.

So, when one of the editors wasn’t able to make his deadline and the editor in chief asked if I could write, I said, “Well, I send you guys emails.”

And the rest, as they say, is history. I did that first article, and it went over so well that I started to be a featured writer more and more.

Finally, they hired a junior analyst to handle a lot of the number crunching and gave me my own trading service.

Fast-forward several years, and here we are.

What Makes an Expert?

After hearing my story, you can see what I mean by Forrest Gump-ing my way into it. He just always seemed to be in the right place at the right time for the right thing to happen.

And that’s how I feel when I look back.

What if I’d taken Morgan Stanley’s higher offer and stuck around Wall Street? What if I’d said no when they asked me to write that first article? What if I’d waited just a month longer to start looking for a new career? What if that guy never got sick and missed his deadline?

Everything would be different if just one piece of the timing had been off.

I couldn’t be happier with how everything worked out. But I’m still a little amazed.

Especially when someone calls me an expert. I still feel like me: a kid from Cecil County who likes math and fishing.

But I also still feel like I’m in my early 20s. And I’m closer to 50 than 20 now.

I guess expertise is kind of like age in that aspect. It sneaks up on you.

One day, you’re a kid fresh out of college trying to find your place in the world. The next, you’re a grown man with decades of experiences under your belt.

Malcolm Gladwell says it takes someone 10,000 hours — or 10 years — of “deliberate practice” to become an expert.

I’m a little shy of a decade on the writing part. And I'm sure my copy editors will tell you I’m not an expert writer by any stretch of the imagination.

But I do have more than a decade of investing under my belt.

So, every once in a while, I need to look and see if I’m really as good as some people give me credit for being.

And yesterday, I did just that...

What a Difference a Year Makes

About a year ago, I opened a new investment account. I’ve styled it as a retirement account. That means I’m not trading frequently, but rather investing for the long run.

I opened it mostly as another place to save for my own golden years. But it’s also serving as a good barometer for the investing strategies I use here.

I funded the account with $11,000 at the end of last March. And I added another $3,000 this January. So, all told, I’ve contributed $14,000 to the account.

Every stock I’m holding is one I’ve either written about here in Wealth Daily or recommended to the members of The Wealth Advisory, an investment newsletter I co-author.

And it’s looking so nice that even I’m starting to believe this expert nonsense...

test account screenshots

Those are actual screen shots of the account from yesterday morning. You can see the funding hitting at the end of last March. And you can see the infusion in January.

But what’s more important is that you can see the gains and losses — yeah, I’ve got those, too. But, as you can see, I've got small losses.

You make money by getting small gains and big gains. And you protect it by only taking small losses

Since I opened that account, my $14,000 has grown to over $18,000. I’m looking at a 35% average gain.

To put that into perspective, the S&P 500 is up about 10% since I started this account...

S&P vs IRA

If I’d invested the same $11,000 in an S&P 500 ETF last March and then added another $3,000 in January, I’d be looking at about $15,500 in my account.

That’s $1,500 of profit versus $4,500 of free money.

I’ll take the latter, thanks for asking.

So how do I do it? Well, part of it I already explained: small losses. The rest is...

70% Practice, 15% Talent, 10% Gut, & 5% Luck

Honestly, some of it does come down to luck. Especially when I nail the bottom for a stock or industry.

I’ll be the first to tell you that nobody can time the market accurately.

Anyone who tells you they’re right all the time is lying to you. Anyone who thinks he can time the market all the time is crazy.

And part of it's gut. That’s not really something you can teach. It’s something you’ll learn and develop as you get more experience.

And you’ll learn to trust it more often than not.

I threw 15% talent into the equation because, hey, I’ve got to be my biggest cheerleader, right?

But the majority of what I do is all about practice and developing a strategy for finding the best investments in the best markets. You know what they say: “Hard work beats talent when talent doesn’t work hard.”

And there’s a lot that goes into my research before I’ll recommend or invest in a stock myself — far too much to fit into the space I’ve got here.

But I’ll give you a few metrics I use to filter out the stocks that are worth a closer look. And I’ll let you in on a few companies I’ve used that strategy to identify that can get your portfolio looking even better than mine...

Find Great Companies

Over the past 10 years, the top three best-performing sectors in the S&P 500 were Technology, Health Care, and Consumer Discretionary.

Two of those may seem a little surprising at first glance. After all, competition in the retail market is usually pretty fierce. Consumer loyalties can easily sway to the lowest prices. Technology is always evolving and very cyclical.

But at the same time, companies in these spaces are the ones that have the highest potential to become ubiquitous global brands.

This helped me identify Stanley Black & Decker (NYSE: SWK) as a company poised to boost revenue growth.

But they don’t have to be global brand powerhouses like Stanley in order to be a great investment. Prominent brands can be found at the national and even the regional level, too.

Imagine companies that can easily charge 10% more for their products and not suffer a meaningful decline in revenue...

Undervalued Overdelivers

Always look at valuation metrics. And use the ratios so you can accurately compare large and small companies.

It’s tough to compare Walmart’s $514.4 billion in revenues to Target’s $74.43 billion or Dollar Tree’s $22.82 billion.

But if you use ratios to normalize things, you can compare even the smallest company to the leader of the pack.

It's good to start by comparing stock price to earnings per share. This tells you how much investors are willing to pay for each dollar the company earns. And it’s easy to compare across companies in an industry.

I used it to identify cannabis company Cronos (NASDAQ: CRON) as one of the only undervalued growers last year. I’ve been rewarded by seeing the share price more than double.

But Cronos is valued near the rest of the industry now, so I’m looking for a new place for those funds to grow.

C.R.E.A.M: Cash (Flow) Rules Everything Around Me

Earnings per share is a great way to see how profitable a company is, but there are a lot of accounting tricks you can use to “massage” those numbers. But if a company can’t pay its debt, it can’t keep growing.

So operating cash flow and free cash flow are two very important metrics for picking your stocks.

Operating cash flow is what pays the bills. It’s what’s left after the company collects revenues from sales and pays off its suppliers.

Free cash flow is what’s left after interest payments on debt get paid. A company that only has a little debt only pays a little interest. And it’s got more left to either grow or send back to shareholders.

This one has helped me avoid countless investments that were poised to crash thanks to contracting cash flows and shrinking access to credit.

A Sum Far Greater Than Its Parts

On their own, those three metrics will help you find good investments. Combined, they’ll help you find great ones.

And stacked on top of our other criteria for new companies, they’ve helped my partner and me identify countless incredible profit opportunities.

And they’ve kept our readers’ average gain well above 60% for several years. They’re also what has helped us beat the market year after year — since founding The Wealth Advisory in 2008.

They’re also what we’ve used to identify three of the most lucrative real estate investments that are already making our readers even richer.

We’ve put them together in a report you can access by clicking this link.

Or if you’re not interested in real estate but do want to know how you can harness our strategy as well, just click here.

You can join us and thousands of other like-minded investors at The Wealth Advisory.

I hope to see your name on my list when I write my next update to the TWA Nation on Monday.

But if you can’t make it by then, just be sure to join us before Wednesday...

I’ll be sending out our latest investment recommendation. It promises to be another big winner. You won't want to miss it.

To your wealth,

jason-williams-signature-transparent

Jason Williams

follow basic@TheReal_JayDubs

After graduating Cum Laude in finance and economics, Jason analyzed complex projects and budgets for the U.S. Army. Then, at Morgan Stanley, he led the assistants' team for the North American repo sales desk, responsible for hundreds of multibillion-dollar trades every day. Jason is the assistant editor for The Wealth Advisory income stock newsletter. He also contributes regularly to Wealth Daily. To learn more about Jason, click here.

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