Introduction
In this conversation, we have the privilege of speaking with Adam Coup, an award-winning Singaporean entrepreneur, best-selling author, professional investor, and options trader. With over 55 million video views and 2 million subscribers on YouTube, Adam is one of the most watched financial mentors. We delve into his insights on the market, his investment and trading strategies, and his approach to wealth building.
Adam Coup's Background
Adam started investing at 17 years old and has since been through various market cycles and trading styles. In his early years, he focused more on trading due to his smaller capital, engaging in forex trading, day trading, swing trading, and trading stocks and CFDs. As his capital grew, he shifted his focus to long-term investing while still enjoying trading as a hobby.
Market Outlook
Is the Bottom in?
Adam believes that while it's impossible to predict the market with 100% certainty, based on technical analysis, the market has more or less bottomed. He emphasizes that there's no best time to buy, but there are many good times. As an investor, he looks for stocks that are below their intrinsic value and at a support level.
Buying the Dip
Adam suggests that it was a better time to buy last week, but he always tells people that there's no perfect timing. He advises averaging in positions for investing, as opposed to trading, where precision in entries and exits is more crucial.
Recession Concerns
Despite the doom and gloom in the media, Adam remains calm and rational. He believes that investing in high-quality companies with consistent growth in revenue, free cash flow, and high return on capital is a safe bet in the long run. He also points out that a portfolio of at least 10 to 20 great companies is almost impossible to lose money over time.
Investment Strategy
Value vs. Growth Investing
Adam dismisses the categorization of value and growth investing as nonsense. He believes that the proper way to value a stock is to take the present value of its future cash flow, rather than relying on the misleading PE ratio. He looks for companies with huge growth potential that are undervalued.
Stock Selection Criteria
Adam has a seven-step process for stock selection. He first determines if it's a great business by looking at its track record of growth in revenue, profits, and cash flow over the last 5 to 10 years, especially during recessions. He also looks for a sustainable competitive advantage, pricing power, and a strong brand. Additionally, he considers the industry's growth potential, management efficiency, debt levels, and the company's cash position.
Timing the Market
Adam advises against timing the market, especially for investors. He believes that price action is a better indicator than macroeconomic data. However, he also acknowledges that it's impossible to predict the market perfectly and that investors should focus on the long-term fundamentals of the companies they invest in.
Trading Strategy
Option Strategies
Adam's favorite option strategy is selling cash secured puts on high-quality companies. He collects premium by selling insurance to other investors and is obligated to buy the shares at the strike price if the option is exercised. He also uses credit spreads and jade lizards for more speculative trades.
Hedging
Adam used to hedge his portfolio with put options and call options on the VIX, but he no longer does so. He found that hedging was not worth the effort in the long run, as the profits from hedging were often offset by the losses in his long-term investments.
Shorting
Adam has learned from his experience that shorting is a risky strategy with low odds of success. He advises against shorting, especially for long-term investors, as the market is designed to go up over time.
Portfolio Management
Diversification
Adam diversifies his portfolio across different asset classes, including stocks, bonds, REITs, and private credit. He also invests in both growth and value stocks, depending on their fundamentals and valuation.
Cash Allocation
Adam allocates a certain amount of cash to his portfolio every year and uses it to buy stocks at his predetermined buy levels. He also uses his cash to sell puts and earn premium income.
Taking Profits and Cutting Losses
Adam's approach to taking profits and cutting losses is based on the fundamentals of the companies he invests in. He holds on to his winners as long as the business is still growing and undervalued, and he cuts his losses if he believes that the company has lost its competitive advantage or is no longer a great business.
Final Thoughts
Adam's final advice to traders and investors is to pay little or no attention to the macro and focus on the price action and fundamentals of the companies they invest in. He also emphasizes the importance of discipline, patience, and risk management in building wealth over the long term.
In conclusion, Adam Coup's insights and strategies provide valuable lessons for traders and investors alike. By focusing on the long-term fundamentals of the companies they invest in and using sound risk management techniques, investors can build wealth and achieve their financial goals.