From the time I was 13 years old, I always had a summer job.
I’d use the money I made to buy clothes for school. And that money had to last me for the whole rest of the year.
Up until my junior year of high school, I spent every Sunday at a catering hall, working as a waiter.
Then, in my senior year, I got a job with a company that sold clothing to nursing homes. Every day after school, I’d load up their trucks with merchandise and take them to assisted living homes.
It wasn’t glamorous, but it did put money in my pocket and teach me the value of hard work.
Looking back on those times, I’m grateful that I had to work hard for every penny I made. Once I became an investor, those experiences prevented me from making stupid decisions.
Since I didn’t have much, I had to make sure every single investment wouldn’t lose me money … I couldn’t afford to be wrong.
So, before putting even a nickel of my money into a stock, I’d ask myself one thing: “How much could I lose from this trade?”
Risk: It’s Not What You Think
Most people think of risk as market fluctuations.
If they buy a stock at $50 per share and it goes down to $40, they think they’re losing money. But that’s not actually the case.
The market will move your share price all over the place. Most of the time, these price fluctuations are due to short-term noise. But these events have nothing to do with the fundamentals of the company.
Keep in mind that price fluctuations are normal — and don’t mean that you’re dealing with a loss.
After all, you can only lose money on a trade if you sell your stock.
Smart investors measure risk by permanent capital loss instead of price fluctuations. They know that a stock’s price is what the market perceives the worth of that business to be. And that perception is often likely to change, if not be entirely wrong.
Intrinsic value is what your business is worth. So when a company’s stock price is trading well below its intrinsic value … that’s the time to buy.
Let me give you an example.
Take Advantage of Price Fluctuations
To figure out the intrinsic value of the business, I use my Alpha-3 Approach. I take into account the CEO and management team, the industry, and what Wall Street is missing. I’m then able to come up with an estimate of the worth of the business.
Let’s say, based on my Alpha-3 Approach, I value a business at $100 per share. But its stock price is currently trading on the New York Stock Exchange (NYSE) at $75 per share.
That means the market is giving me the opportunity to buy a $100-per-share business for a $25 discount. Talk about a fantastic deal!
Now, let’s say the stock falls to $50 a share.
At that point, I’m able to add to my position at an even greater discount. My $100-per-share business is trading at half the cost!
The thing is, most investors don’t see it this way. They think it’s actually riskier to buy a $100-per-share business at $50 rather than at $75. But it’s actually just the opposite!
In fact, it becomes more prudent for me to buy the stock at $50 because the market is offering me such a great deal. That’s why it’s important to understand what makes an investment risky and what doesn’t.
Price fluctuations don’t equal risk. Instead, I measure risk by what my chances are of losing all my money.
Because if my research shows that a business is financially strong, has great management and is growing by leaps and bounds … my risk of losing all my money is close to zero.
Buy Into Great Businesses Today
It’s not every day that the market severely misprices a company. But when it does, it’s important to take advantage of that opportunity before other investors catch on.
I’ve spent the past 35 years of my career identifying companies the rest of Wall Street overlooked, and now I’m teaching members of my Alpha Investor Report how to do the same.
In fact, earlier this week, I told my readers about four under-the-radar companies quietly fueling the entire marijuana market.
The marijuana market will more than double by 2022 — from $11 billion, where it currently is, to more than $23 billion. I have a list of companies that are going to benefit from this tailwind.
I call these “pick-and-shovel” stocks, because just like the pick- and shovel-makers flourished during the California gold rush, so too will these companies thrive as a result of the marijuana boom.
Better yet, Wall Street has completely mispriced these companies.
It’s not taking into account that each of these businesses will be greatly impacted by the growing pot market … and because of that, their stocks are trading at an incredible discount.
I’ve put together a presentation that explains the potential returns these trades could hand to early investors.
If you too would like to get in on these stocks before their share prices soar, I encourage you to watch my presentation today and then go and get invested.
All my best,
Charles Mizrahi
Editor, Alpha Investor Report