The Vanachine approach to Stock Market Investing 

Fundamental Principles

  1. Value Investing - the fundamental underlying approach of buying undervalued stock and selling overvalued stock.  It is not trading primarily on charts (though uses these to inform timing) or on sentiment (fear, hope or greed).

  2. Rules Based - all buy or sell decisions should be exactly the same as if a software program had made them based on rules we defined - no emotions (fear, hope or greed).

  3. Risk Averse - Although some of the greatest gains are made on trades with the greatest risk (think bitcoin), so are many of the greatest losses (think bitcoin again).  Rather, this approach assumes that eliminating all but the 20% least risky investment possibilities still leaves plenty of fish in the pond, from which much more certain, considerable gains can be made.  Value investors routinely make more than 10% return on their investments (compared with the 2.5% the banks pay), and often average much more - up to 30% or above, while still taking very little risk.

  4. Contrarian - be risk averse and sell or stay out of the market right when everyone else if getting on the bandwagon and is shouting good news from the mountaintops (i.e. when they are hopeful or greedy).  Buy when everyone else is jumping ship and all news is doom and gloom (i.e. when they are fearful).  (This is another way of saying buy at the bottom and sell at the top).

The Approach

The overarching approach is to:

  • Buy stocks of companies that have sound underlying performance,
  • That are undervalued (the price is >10% less than the underlying stock value),
  • When the economy and market conditions are favourable, and
  • When the stock price is at a low point (at the bottom rather than the top of a cycle)

And to:

  • Sell owned stocks when their price exceeds their underlying value, and
  • The stock price is at a high point (at the top of the cycle), or
  • The economic and market conditions become unfavourable.

And to be patient (no fear, hope or greed) and watch and wait in-between.

The Process

The Vanachine process involves:

  • Ongoing assessment of Market Conditions
  • Screening and Shortlisting of Stocks with sound underlying performance
  • Valuation of those stocks and shortlisting of undervalued ones
  • Ongoing monitoring of those stock's cycles, and buying at the low point.
  • Ongoing monitoring of bought Stock's cycles, and selling at the high point.