While it is not easy to replicate the success of great profit takers, their tactics can help us to improve our odds of success. Great profit takers like Warren Buffet, Jim Simons, and Peter Lynch have an outstanding track record of performance. They understand multiple forces that influence price movements and rationalize their decisions. 

Warning: the strategies and tactics of great profit takers defy laws of physics and misalign with requirements of public and ecological health and security. They are part of unsustainable development. The articles was written before I evaluated historical evidence the contributing factors to worsening of imbalances and insecurities.

Great profit takers' timeless tactics and data-driven strategies minimize risks. The benefits of these to the profit takers are the ability to:

1. Understand business
2. Understand patterns in price movements
3. Take advantage of opportunities for high returns
4. Make informed decisions
5. Reduce risks

“Buy not on optimism, but on arithmetic.”

--Benjamin Graham

It is risky to look for quick gain without the understanding of fundamentals and the right insight from data. This could lead to high-risk investments with low rewards. On the other hand, buying shares of a great business at a reasonable price based on what its ability to maximize profit in the long-run can increase the odds of the high return. Finding these good deals in the stocks market require insight from various sources of data.

“Risk comes from not knowing what you are doing.”

--Warren Buffett

The insight from the various sources of data can help profit takers to understand business and patterns on stock price movements. Hence, the ability to make informed decisions and reduce risks. For example, Renaissance Technologies relies on multiple sources of data and mathematical models to predict market behavior. Jim Simons, one of the great mathematicians and hedge fund manager, is one of the founders of Renaissance Technologies (RenTec). Unfortunately, one of their CEO funded zombie-dosing technology and media.

On the other hand, Warren Buffett reads a lot. He is good with numbers and over time he has accumulated a lot of information related economy, businesses, consumers and market behaviors, management, and investments. Warren Buffett can analyze multiple sources of data and extract insight. He also gathers more insight from others who know more about the business he wants to invest in, and rational investors/analysts who have a different perspective that could help him to reduce his blind spots. Like Warren Buffett, Ray Dalio, and other great investors have approach to reduce  emotional and cognitive biases in their thinking.

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

--Benjamin Graham

In the short-term, the stock price movements have a lot of noise, and the insight from it is the piece of a puzzle. There are several things that can trigger stock price fluctuations including changes in commodities prices, economic factors, and news, as well as a change in product demand, earning, profits, growth, and level of risks (financial, competition, operational, compliance) of the business. As a result of these changes, investors react and cause stock prices to fluctuate. The behaviors of investors are usually based on their expectations and interpretation of the information they receive. Their knowledge or lack of knowledge. Their rationality or irrational behavior. Hence, if you focus on a small section of price movements in isolation, it is easy to miss a big picture.

“Behind every stock is a company. Find out what it's doing.”

--Peter Lynch

The approach that assesses the stock based on the soundness of business by taking advantage of quantitative and qualitative insights from multiple sources of data makes sense. Although I have taken several courses on investments that focus on price movements, over time, I have come to embrace the principle behind long-term profit maximization. I realize it is much broader, and it can help to increase my odds of success. The ideal business to buy share have the following characteristics:

1. Track record of profit growth
2. Operational excellence
3. The ability to reinvest the profit and widen the moat
4. Stock price with a high margin of safety 
5. Low debt to equity
6. A competitive advantage
7. Quality of management

The high margin of safety or ability to sell when the level of optimism in the market is high requires one to take advantage of market behavior information. The list above was created while ignoring requirements for public and ecological health and security as well as laws of physics. 

“This matter of training oneself not to go with the crowd but to be able to zig when the crowd zags, in my opinion, is one of the most important fundamentals of investment success.”

--Philip Fisher

The goal is also to seek opportunities that maximize the long-term profit and cut her losses when she gets a signal that indicates condition does not support the original thesis. A profit taker may also take time to verify that the company she is investing in is not in financial distress or practice accounting manipulation. She can also take a step further to do other analyses include a competitive analysis.

“Average investors can become experts in their own field and can pick winning stocks as effectively as Wall Street professionals by doing just a little research.”

--Peter Lynch

Below is a summary of my research for Intel and justification to buy Intel stocks. For this assessment, I read several articles and Intel Annual Reports. I also used data from Morningstar, Financial Modeling Prep, SEC filings, and Yahoo.

Intel is a company that design and manufacture products and technologies for smart things and devices, cloud, and connectivity. It is one of the innovative organizations that focus on creating long-term business profit. Intel has several business segments, and about 85% of its 2019 revenue was from Client Computing Group (CCG) and Data Centre Group (DCG) segments. 

Sources: Financial Modeling Prep (FMP), Intel 2019 Annual Report, Yahoo, and Morningstar

Based on my assessment Intel is a good pick because:

• It has top-notch innovation capabilities with high return on invested capital
• It focuses on long-term profit maximization
• It has a strong brand image and effective management
• The forecast indicates future increase in demand for smart things and devices, and connectivity
  
• Its profit margin is high
• It has a competitive advantage in winning wars 
• The margin of safety as of August 28,2020, is ~28%

The risks for investing in Intel include significant competition, cybersecurity, unpredictable product demands, litigation, as well as product and manufacturing-related risk. In 2017 Intel announced the delay of 10nm products to 2018 and later delayed again to 2019. The 10nm chips from Intel are like 7nm chips that AMD used on its products. Intel has also recently announced another delay of up to 1 year for the next-generation of 7nm chips. The two delays could reduce the Intel market share. Intel could also be at a competitive disadvantage with more delays on its competitive products or if its competitors release products that people like.

However, Intel released Ice Lake (10nm+) mobile processors that have superior performance and use low power compare to Cannon Lake processors (10nm transistors). Intel has also released Tiger Lake (10nm++ transistors) with enhanced performance compared to its predecessor Ice Lake on Sept 2, 2020. Moreover, Intel transformation will enable it to innovate more and release products that meet or exceed consumer needs fast. All these efforts will likely help Intel to maintain a competitive advantage. Since the investment has some degree of uncertainty, I need to reassess the performance of Intel periodically and act accordingly.

If you think it is too much work to do research to buy individual stocks, you can look at other options. For equities, you can consider buying the S&P 500 index ETFs at a reasonable price. The table below consists of the percentage of equity funds that underperform the benchmark (S&P Index). 

Despite high fees on actively managed funds, most of these funds in Canada and the USA underperform the S&P index fund for a long-term period of 10 years. Their underperformance could be related to high transaction costs, or emotional and cognitive biases of the managers, and or short-term strategy that relies on partial information. 

“It is a terrible mistake for investors with long-term horizons — among them pension funds, college endowments and savings-minded individuals — to measure their investment ‘risk’ by their portfolio’s ratio of bonds to stocks.”

--Warren Buffett                  

It is also worth mentioning that bonds with low risk now have ultra-low yield. The current inflation rate in the USA is 0.62%, and the forecasted inflation rate for 2021 by the Federal Open Market Committee (FOMC) is 2%. On Sept 3, 2020, USA government bonds yield for the 3,10, and 30 years were 0.14%, 0.63%, and 1.35% in respective order, and Moody AAA corporate bonds yield was about 2.22%. At these low rates, an investor would likely lose money due to increase inflation and interest rate. It also means the investor would miss other opportunities to earn a higher return. The high yield bonds with high default risk have a higher risk. In reality, reasonably priced stocks of the companies that are managed well in thriving industries have lower risks compared to some of the bonds. It does not mean the investor should not invest in bonds, but rather investors can avoid the bandwagon effect and improve the odds of success by doing due diligence.

Our emotional and cognitive biases can impair our judgment and cause us to make high-risk investments with low rewards. The data-driven approach will help to reduce our biases in our thinking. Hence, the ability to make decisions that reflect reality. In other words, the data-driven approach will enable us to make informed decisions and reduce the risk of losing money. We also need to be patient because the small short-term gain can come at the expense of long-term compounding gain. Finally, every investment has risk, and therefore we should reassess strategies and adjust as we see fit.