The Intelligent Investor

The world you desired can be won

2010-05-09T01:23:00.000-07:00

“In the name of the best within you, do not sacrifice this world to those who are its worst. In the name of the values that keep you alive, do not let your vision of man be distorted by the ugly, the cowardly, the mindless in those who have never achieved his title. Do not lose your knowledge that man's proper estate is an upright posture, an intransigent mind and a step that travels unlimited roads. Do not let your fire go out, spark by irreplaceable spark, in the hopeless swamps of the approximate, the not-quite, the not-yet, the not-at-all. Do not let the hero in your soul perish, in lonely frustration for the life you deserved, but have never been able to reach. The world you desired can be won, it exists, it is real, it is possible, it's yours.” - John Galt speech, Ayn Rand

My Favorite Article by far on this whole gay thing!

2008-11-18T09:53:00.000-08:00

Radical Homosexuals Trample a Cross, Harass a Granny, Crash a Church, and Threaten Joe the Plumber's Life:

http://www.gather.com/viewArticle.jsp?articleId=281474977510102

The Greater Depression?

2008-10-29T09:10:00.001-07:00

New York City in 1929

New York City in October, 2008

Our Power

2008-09-30T08:47:00.000-07:00

" That which we persist in doing becomes easier for us to do; not that the nature of the thing itself is changed, but that our power to do so is increased." - Talph Waldo Emerson

NO FEAR OF FAILURE!

2008-09-28T10:40:00.000-07:00

"I have no fear of failure, provided I use my heart and head, hands and feet — and work like hell." - Charles E. Merrill, January 6, 1914.

Who are you not to be?

2008-09-24T09:11:00.000-07:00

"Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our light, not our darkness, that most frightens us. We ask ourselves, 'Who am I to be brilliant, gorgeous, talented, fabulous?' Actually, who are you not to be? You are a child of God. Your playing small doesn't serve the world. Thee's nothing enlightened about shrinking so that other people won't feel insecure around you. We are all meant to shine as children do. We were born to make manifest the glory of God that is within us. It's not just in some of us, it's in everyone. And as we let our own light shine, we unconsciously give other people permission to do the same. As we're liberated from our own fear, our presence automatically liberates others."

Marianne Williamson, quoted by Nelson Mandela

The Odd Lott Rule

2008-06-03T18:52:00.000-07:00

Have you ever been in a situation as the man at the bus stop above? Do you feel like that now? If you do, please don’t move over to where the crowd is standing. Principle Number 5: “Just because everyone thinks something is right does not make it right!” In fact, when it comes to investing: just when everyone thinks something is a good buy, it might be the best time to sell. Please do not confuse this with the contrarians’ theory; rather it is called the Odd-Lot Rule.

I mentioned in my rather long introduction to my “Intelligent Investor” blog, that I wish to focus on objective information or thoughts I find to be objective and informative for myself and the readers. The Intelligent Investor is the title of the so proclaimed greatest book ever written on investing by Benjamin Graham, the father of value investing. Graham was the teacher of Warren Buffett at the Columbia MBA School. It was Graham’s principle of value investing that sparked an interest in Buffett to make his initial investment (about 90% of Buffett’s liquid net worth at the time) into a company which Graham deemed to be fairly undervalued: Geico insurance corporation. Upon graduating from his MBA, Buffett asked Graham if he could work for him for free, to which Graham refused by indicating that Buffett was overvalued.

The title of the blog indicates that as I study personal finance and investment principles, I wish to overweight my writings with the principles of sound traditional investing as taught by Graham and Dodd. This is due to my firm belief in what many in Wall Street may consider old-fashioned, but traditional investing principles. At the base of these principles lies what is termed the Odd-Lot Theory, which I would rather rename to the Odd-Lot Rule. Theories are simply principles or modules in finances which often do not work in practice, here I would like to focus on “rules” rather than theories, because when followed rules add disciplined value to the traditional investor and create a guide for a successful journey into the world of personal finance.

The Odd-Lot rule, put it very simply, indicates that the regular individual buying and selling securities (such as stocks or bonds) is always wrong. Controversial? Not really. The theory is that the non-informed individual, who Graham prefers to define as a speculator, rather than an investor, always buys when prices are at high and sells when prices are at low. (Remember also that a speculator is also referred to some Wall Street brokers, and may be an appropriate title to even the most well educated investment bankers and advisors. I have seen in my short experience working at wall street and handling literally hundreds of some highly and some atrociously managed portfolios by both regular individuals and by the experts, that some individuals with discipline and following rules and guidelines which they have created for themselves were able to achieve greater returns and accumulate wealth much more successfully than many so called experts in Finance.) With this said however, the vast majority of the public is always under the impression that when times are good they are going to be always good, when times are bad they are going to be always bad. This is completely the opposite in practice.

Contrary to the public and media view, in reality risk and price movement have a positive relationship. When prices go up the risk of owning those securities increases, and when prices go down the risk of owning those securities decreases. Graham calls this “shopping for securities as your groceries, rather than your perfume.” Consider for example the price of oil stocks today, many of them are trading above thirty times their book values. The average public is considering today to purchase some of those securities with a false guide that those prices will keep going up and that this is a good time. However, in reality the forward-looking prices of those securities are already well built into the prices of those securities. Which leads us to a very important point, which I will discuss in the future: that is, just because a company has a solid business that does not mean that the stock of the price already does not include the public perception. For example consider Chevron, which is probably one of the most stable companies in the world, but today’s price of chevron may well be as overvalued as public perception of the company.

So to cut this short, remember: The public perception is a very poor indication of a good buy in securities. When you hear in the media or from friends that something is a good buy know that it is already too late to get in because the high prices already reflect the intrinsic value of those securities. However, I wish to caution the reader to not simply follow the contrarians. The odd lot rule does not indicate to transact contrary to public perception. It only cautions us against following the crowd.

The Intelligent Investor

2008-05-29T22:28:00.000-07:00

"An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." - Benjamin Graham

Have you ever gambled before? No but I mean really gambled, such as went to a casino and put some money in the slot machines. And I don't even mean at your local Indian store (that is if you live around one). I am talking about going to Vegas to gamble. And not only just to have fun and enjoy some cheap food during which you might play a little; although somewhere in the back of your mind you might think its against your morals, or even against your religion. I mean have you ever decided to pick up your hard earned dollars, drive to Las Vegas in order to make money. If you haven't would you? Again, I am not meaning this for entertainment or just for the fun of it, but what if you really thought that you could save for your retirement or accumulate education funds for your children by taking your hard earned savings dollars and gamble it in a casino. You don't think you would be willing to do that?

Well, many of us would be surprised to find out that a vast majority of the Americans do the very same thing with their savings and investments. Only some of us don’t know that that’s what we are doing. In today's world of deteriorating pension plans and social security, virtually every single family needs some form of a retirement plan. Those of us who have young children are faced with an even scarier dilemma of saving for our children's education, when education costs are more than quadrupling core inflation figures each year. And yet, instead of carefully considering and thoroughly analyzing our options we are willing to gamble it all away, except this time we are fooling ourselves.

For so long we have been willing to be entertained rather than be informed that we accept the false minority opinion magnified with image and ratings obsessed media as the facts upon which we base majority of our decisions. We are often so obsessed with ridiculous shows like “Flip that House” and celebrities (notice, the emphasis on celebrities by no means experts) like Donald Trump, Maria Bartolome, Suzie Orman and others that we accept their “entertainment” as facts or truths of how we should manage our money weather we can afford certain things or not. And then we wonder why our recent investment in a home didn’t pan out so successfully and why the housing market had its worst year in the entire US’s 200-year history. You see we are more concerned with the daily foibles of Lindsey Lohan and Brittany Spears than we are about alternative energy solutions. And then we wonder why gas is 4 bucks a gallon. According to Bill Gross, we are more concerned about who is going to win the American Idol than we are about the deterioriating nature of our healthcare system. And then we wonder why we can’t afford to cover hospital bills after a child delivery. We are willing to be more entertained by stand up comedians like Jim Cramer than to truly learn and understand that according to the Harvard Endowment study 90% of your portfolio performance is due to asset allocation and only the 4% due to selection of individual securities. But see that 4% is what sells more commercials and fills our entertainment hungry minds, and then we wonder why our IRA portfolios are not going anywhere.

You see we are more interested in how popular our colleges say some financial firms are ranked than we are at looking at their actual financials and figuring out their expansive exposure to some terrible loans and bad business practices, and then we wonder why the financial crisis cut our equity holdings in half, and why a company like Bear Sterms could virtually plummet in less than 24 hours. You see we are more interested in the rankings of financial companies and municipal bonds according to some clubs like MBIA and AMBAC, who by the way can’t even afford to hire some descent analysts let alone rate the credit worthiness of already stable municipals. See we are more interesting in these rankings than the actual objective numbers of their exposure to no down payment mortgages and then we wonder why so many government bonds, considered to be the most secure investments possible outside of bank CDs have all of a sudden become questionable and almost riskier than equities.

And because of our such obsession, we are going to be more interested in hearing from our neighbors and a local real estate agent that housing prices are a great deal or not, who by the way probably have no solid evidence than media news or their own agency hype, than we are at looking at actual sub prime reset dates and reason that if the United States mortgage firms have had only 400 million in sub prime loans so far reset which has brought this atrocious housing crises, isn’t the upcoming 900 million (more than twice the reset that we have had so far) which we will have coming this October (2008) and next February (2009) going to impact even more? You see those boring numbers and common sense are not as entertaining as the media news and foreclosure signs, so exaggerated by the media and so minimized by our neighbors and jobless real estate agents. You see we have been fooling ourselves for so long and filling our minds with garbage analogies such as “oh you cannot recreate land so housing prices must always have be moving upwards” or “Those large US financial corporations can’t go down because our government will never allow such mass disappointments.” Oh come on! Do you really think if a person can hardly afford to pay his own rent and yet gets a no down payment loan is going to all of a sudden get a promotion in this recessionary period when many are loosing jobs and afford the higher reset values coming up soon?

If you are still following my writ till here, you are either bored or think that I am nothing more than a pessimist. And if you are into the terms, you probably think this is going to be a “Bear” blog. Well, that couldn’t be farther from the truth. I am as bullish on America as Charlie Merrill was when he created the bull in the middle of some of the worst periods in the history of the stock market. I am positive that we as a group of people are above all this and that contrary what many might think the decade of the United States is not over, and the next decade is not the decade of China or the East or even the BRIC nations, but that American markets will shine through and the dollar will triumph again as the most trusted currency of the nations.

However, with that said, I think its time that we face the facts. As Bill Gross of PIMCO (in my opinion one of the smartest investors living today), recently put it in his 2008 outlook: “Let’s get off the couch and shape up – physically, intellectually, and institutionally – and begin to make some informed choices about our future. Lincoln didn’t say it, but might have agreed, that the worst part about being fooled is fooling yourself, and as a nation, we’ve been doing a pretty good job of that for a long time now.”

Hopefully, if I am not too bogged down, I plan to discuss in this blog continuously some of the informed decisions that we can be making as individuals, mostly in terms of financial decisions, that can help us shape up physically, intellectually and financially. Despite my opinionateness, I have really not finalized my opinions. And unlike my theological beliefs (which are concrete and absolute), my financial opinions are really a work in progress and no strategy or idea is absolute.

Furthermore, I absolutely do not expect a single reader of this blog to return for a second peak since I will assume that most of us like to be entertained rather than to be bored with objective information. (Except maybe, my lovely wife but then only to enjoy correcting my spelling and grammatical errors). Hence, I will simply consider this my scratch work, or journal notes and thoughts.