The World According to GALP

By Kirk Spano - October 30, 2011 | 0 Comments

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My cousin GARP is a regular in these parts.  And while I have been around, most people hang with my cuz.  He is a wild and crazy guy who likes to do a lot of things.  I am a bit safer.  My name is GALP. 

GARP, short for what is mother calls him when he goofs, Growth At Reasonable Prices, is a philosophical investor.  GARP believes that when you can find something that is pretty good and not too expensive, go ahead and invest, give it a try.  Well, maybe he is a bit more selective than that, but not much from what I have seen.  He is actually a bit of a sell out in my opinion.   

You see, GARP is built for investors who have to invest a lot of money.  Generally in the nine, ten or eleven figures.  GARP is tight with mutual fund managers, who because they have a lot to invest default to GARP's way of thinking. The problem with that of course, is that the bigger the mutual fund, the less cheap and less reasonable the purchase prices of their stocks become.  We all know what mutual fund track records are.  Mutual funds are mediocre for the most part, worse quite often, and do little to limit risk for the middle class folks who invest there.  GARP has been co-opted.

Me, I am down to earth guy.  Most of my friends are not the hoity-toity silk socks crowd, but the down to earth poly blend folks.  My friends, except in their 401k or 403b because they have to, do not use mutual funds very much.  My friends invest in a handful of well researched "A" list ideas.  If they end up with a "B" list idea or worse, it is not because they had to buy it, they just made a mistake and do the logical thing and cut their losses.  My friends ignore the market for the most part, except when Mr. Market (second cousin once removed) gives them an opportunity to buy low.  My friends invest in Growth At Low Prices, in my honor of course. 

So, how do I, GALP, really invest? 

First, I make a list.  A pretty long one.  On it are companies with various criteria for growth and stability.  I will use the Magic Formula.  I will use some Buffet and Graham type screens.  I create my own screens based upon free cash flow, return on investment and other financial thingys.  I even add a few development stage companies that have some ideas that I just think are really great.  I have even subscribed to a Foolish stock letter from time to time.

Next, I wait and review. 

Then, I whittle my list a bit and maybe add a few new names. 

Then, I usually wait some more. 

Eventually, Mr. Market gives me a chance to set some limit prices that are nearing super low prices or, if I am not positive what super low is (as is often the case) and am a little afraid of trying to catch a knife (which is usually the case), I sell my favorite type of option, the slightly out of the money cash secured put.  I really love selling cash secured puts actually because using that investment tool allows me to set a limit price for entry and get paid while I wait.  I don't always end up with the stock I was targeting, but I always end up with a little cash.

As it usually happens, I more often than not, end up buying several stocks or sector ETFs (the vanilla non-leveraged type for reasons we can talk about later if you like) in a short period of time because there is quite a bit of correlation lately.  It is nice to get a lot done at once sometimes. 

The GALP way is not very exciting.  It requires homework on a lot of stocks and sectors I might never own.  That is alright though, because the ones I do end up owning, I generally buy low.  And you know what else, over time, that buy low approach, adds a margin of safety than instant on broad mutual fund diversification never would.  Even nicer, because I use limits and cash secured puts, I do not have to sit in front of a monitor waiting for a trade, I can do other things with my time, like write to my friends.  Would you like to be my friend?

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