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Now my question is, how would an average investor find "high risk" stocks to invest in? What criteria would you use to decide if something was high risk? A start up? A penny stock? It really requires a complete rewiring of your investing brain because many of us are used to looking for stong, blue chip, dividend paying companies. What do you guys think?
Personally I would not invest in a high risk securities, however, having said that, here are some of the characteristics that would make a company "high risk" (for me):

1. a high price; price to earnings, price to revenue, price to cash flow
2. erratic revenues/earnings/cash flow
3. negative cash flow
4. high amounts of leverage debt/equity
5. low returns on equity and assets
6. low profit margins; negative profit margins
7. increasing amounts of unsold inventory; asset writedowns
8. non-shareholder CEOs; multimillion dollar pay packages to senior execs
9. a company bleeding cash and using leverage to pay a dividend
10. company uses stock options and new issues to dilute equity
11. large, multi-billion, multi-national company doing business on virtually every continent

That would be a nice risky company. "Blue chip" in and of itself doesn't mean anything to me (good or bad).
 

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Just curious. Wouldn't #11 comprise many of the components of Berkshire Hathaway (apparently one of your principle holdings) - JNJ, American Express, Coca-cola, etc. As for the "Black Swan", I don't know that I agree with the investing style, but I like to hear different points of views, so it sounds interesting -- I ordered it from the library.
Yes, I made a mistake with Berkshire Hathaway. My emotions got ahold of me during the tech crash when the class B shares fell from $2700 p sh to $1400 p sh and I picked up a wack of them at an average cost of $1800 p sh.

I don't like large multi-nationals that need to sell their product to half the world population in order to increase their top and bottom lines.

PS: I've made so many investing mistakes over the last decade that it's embarassing.
 

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Just a small commentary about volatility. Most people dislike volatility, but that is a mistake. With companies that exhibit extreme volatility it is easier to make money. You don't need to be as 'accurate' when picking your buy points.

One of the reasons that it is difficult to make a decent return with Berkshire Hathaway is that it is not very volatile. Your timing actually has to be very good (impossibly good) to make a decent return and my timing is terrible to non-existant.

The example I gave was picking up Berkshire Hathaway class B shares when they fell from $2700 p sh to $1400 p sh at an average cost of $1800 p sh. As you can calculate, the return based on a $1800 p sh cost basis is not great and would be significantly better if I could buy it at $1400 p sh. However, looking back at that time, I don't see how I could possibly have bought the bulk of my shares at $1400 p sh.

One of the reasons I've made so much money with companies like Fossil or The Buckle is that they swing wildly. Once I have evaluated a company like Berkshire Hathaway, The Fossil, The Buckle, or whatever, as something I would like to own, the next 'break' for me is if the stock price swings wildly. As I mentioned with Berkshire Hathaway, a 'wild' swing is pretty narrow and doesn't happen often.

With The Fossil or The Buckle, they can go from $40 p sh to $10 p sh at the drop of a hat (despite improving or stable fundamentals). My timing doesn't need to be very good to make money - I can buy at a number of price points and make a very very good return.

Compared to The Fossil, it is difficult to make a solid return with Berkshire Hathaway:
http://finance.yahoo.com/echarts?s=...on;ohlcvalues=0;logscale=off;source=undefined

"There's no reason we should become fearful if a stock goes down. If a stock goes down 50%, I'd look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month." - Warren Buffett
 
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