IFB53: Dave and Andrew Debate Negative Net Income (Earnings)

 

Welcome to Investing for Beginners podcast this is episode 53, Andrew and I are going to take a stab at talking about negative earnings. We had some interesting event happened this week in Andrew and I were having a conversation prior to coming on here today and we wanted to talk a little bit about negative earnings.
Just to kind of give you a little of a bit of a backstory, so last week Andrew sent me a text message telling me that one of the companies that he and I both own had negative earnings on their 10k and this caught me completely by surprise. That was shocking and I had no idea that if that happened and I was a little bit like wow Oh crazy and I was it kind of caught me because it I felt like it came from out of out of the blue.
And I had no idea that that this company had happened and you know I wasn’t paying that close of attention honestly and so something that really caught me off guard and as Andrew and I were talking about it it’s you know Andrew and I see eye to eye on almost everything but in this particular case we differed a little bit on our viewpoints of how we handled it and so it was kind of an interesting snapshot into how value investors think about things and it’s not always exactly the same.
And so I had a different viewpoint and Andrew had a different viewpoint I thought it would be interesting for us to talk a little bit about that tonight so Andrew why don’t you go ahead and tell your side of the story if you will and then I can tell mine.
Andrew: well what is this a divorce are we fighting hardly well let me get my lawyer and we’ll have somebody in between and they can relay this message and then you can calm down think it over maybe take a walk cool off.
Yeah but no this will be fun like you said we kind of agree on everything and it’ll be fun to have a little bit of a debate I’m not really going to call it a debate. I’m just going to present how I do it you we kind of talked before coming on them and you talked about some of the reasons why you’re doing what you’re going to do and so I see that side a lot and I think a lot of it has to do with the way we’re structuring our portfolios and the different strategies that we try to take.
For me it’s kind of simple and it’s not much to talk about I’ve talked about over and over again how the way I structure my strategy is I split my portfolio into two basic segments. I have the regular portfolio with a 25% trailing stop attached and those I tend to focus more on the margin when it comes to margin of safety rather than the safety.
In those cases I look for things that are really undervalued they tend to have a lot of negative sentiment around them when they’re so steeply undervalued. So might have to you know buck the trend but also have chances for quick gains. Or you know a stock that has really high growth but because of that they don’t pay much of a dividend or don’t have any dividend growth.
You know I still always buy stocks with dividends but that could be the case as well and that would be a regular position for me. And then obviously I have the dividend Fortresses which are companies that I look for that are growing their dividend looked to grow them for a very long time and obviously still trade the good price and a good safety when it comes to margin of safety with more emphasis on the safety.
Though what one of the rules that I implement and so this is generally just for the dividend fortress sell but this particular position is it’s applying to this position as well and it’s one with a 25% trailing stop. So definitely it’s important to have strict rules for where you’re going to sell.
I think that’s key number one and number two is when you set these rules do not make exceptions so in my case once I once Dave told me the justi...