Just finished skimming through "John Neff on Investing". Enjoyed the book. Apparently was given a cold shoulder on Wall Street, before going on to manager the Windsor fund. Also no MBA just some courses on finance and investing.
Also espouses low p/e strategy like Dreman. Amazing to me in some ways, if so easy why not more millionaires around ? Anyway, maybe this will lean me more toward value investing in the future.
From the book:
Windsor was never fancy. These were its principal elements:
1) a low P/E ratio.
2) Fundamental growth in excess of 7%
3) Yield protection, enhancement in most cases
4)Superior relation of total return to P/E paid.
5)No cyclical exposure without compensating p/e multiple.
6) Solid companies in growing fields.
7) Strong fundamental case.
"total return" described our growth expectations.
total return = earnings growth + yield.
Without these growth expectations, rational investors do not buy equities.
As a way to measure the bang for our investment buck, total return divided by initial p/e could not have been more succinct.
total return ratio = (total return) / (p/e)
We preferred stocks whose total return ratio exceeded the market average by 2 to 1.
e.g
company earnings growth yield total return p/e total return ratio
--------- ----------------- ----- ----------- ---- -----------------
yellow freight 12% 3.5% 15.5% 6X 2.6
1999 market 8% 1.5% 9.5% 27X 0.35
Inflection points abound!!
However most of these take investors by surprise. The market place always becomes momentum-laden as inflection points draw near. In my experience, markets are continuously foolish thanks to investors who forget the past.
So long as fundamentals remain intact, we were not averse to holding stocks for 3-4 years, but that has not prevented us from taking profits right away. There have been times we have owned shares for a month or less.
When you feel like bragging about a stock, its probably time to sell.
In overpriced markets, we periodically went to as much as 20% cash. (A higher percentage wasn't prudent for an equity fund, in my judgement)
Our maximum progress usually occurred after an inflection point.
Conventional wisdom suggests that more information is a blessing and more competition a curse. I'd say the opposite is true. Coping with so much information runs the risk of distracting attention from the few variables that really matter.
If a stock is as terrific as you believe, catching it a quarter point higher is less hazardous than firing before you aim properly. Do homework! Time spent nosing around usually comes handy.
Sunday, May 21, 2006
Sunday, May 14, 2006
From David Dreman's book
- First goal should be a strong defense : preserve capital ! Never lose money.
-Fundamental research has been no more successful than technical analysis. This is because forecasting is the most important factor in security analysis. However, research analysts forecast poorly. This will mean some earnings misses for some stocks in some quarter on another. Higher p/es are punished more and one miss can devstate the price.
- Just how much information a person can handle effectively has come under intense scrutiny in recent years, with striking results. One is that investor's comprehension of large amounts of data about companies, industries or teh economy may not always give him or her that extra "edge". In fact ingesting large amounts of investment information can lead to worse rather than better decisions. People, when swamped by information, may select ony a small portion of the total, and reach a dramatically different conclusion than what the entire data would suggest. Not unlike juggling, each factor is another ball in the air, increasing the difficulty.
- Rule 2 : Respect the difficulty of working with a mass of information. In-depth information does not translate into in-depth profits.
-Under conditions of anxiety, uncertainty and too much information, the market becomes a giant Rorschach test. The investor sees any pattern he wishes.
-In extensive studies, was found that analysts estimates were way off mark, even though they were made less than three months before the end of the quarter for which earnings were reported. The average error was 44%
- Earnings surprises of even a few percentage points can trigger major price reactions. (especially for high p/es)
-Rule 6 : Analsyts forecasts are usually optimistic. Make the appropriate downward adjustment to your earnings estimate.
-Rule 8 : It is impossible, in a dynamic economy to use the past to estimate the future.
-The more data you get, the less information you have.
-Surprise helps unpopular stocks (with low P/Es) and hurts popular ones (with high P/Es)
- Take advantage of the high rate of analyst forecast error by simply investing in out-of-favor stocks.
-Rule 13 : Favored stocks underperform the market, while out of favor companies outperform the market, but the reappraisal often happens slowly, even glacially.
-Avoid stocks that experts or crowds are recommending.
-Sonjoy Basu published a study that found that annual returns decline as one moves from low p/e to high p/e.
-Rule 18 : Invest equally in 20-30 stocks, diversified among 15 or more industries.
-Rule 19 : Buy medium or large sized stocks.
-After picking low P/E, P/B, P/CF or P/Div, don't abandon Security analysis entirely.
1) Check that strong financial position.
2) As many favorable operating and financial ratios as possible
3) A higher rate of earninsg growth than the S&P and the likelihood this will not plummet in the near future.
4) Earnings estimates should always lean to the conservative side.
5) An above average dividend yield which the company can sustain and increase.
Dreman dound indicator 5 above improved performance when used with low P/Es.
-Rule 20: Diversify across industries. Buy the least expensive stocks within an industry regardless of how high or low the general price of the industry group.
-P/E of S&P in 97 was 24.2, P/CF 18.1, P/B 5.4 and yield 1.6%. As a rule of thumb try to use a 20% discount for the first three measures and a yield of atleast 1%. P/CF, P/E and P/B should be available in Value Line.
-Rule 21 : Safest approach is to rely on mechanical guidelines, which filter out much of emotional content. Sell a stock when its P/E approaches that of the overall market, regardless how favorable the prospects may appear. If it reaches that point, grit your teeth and get rid of it. It will probably go higher but why be greedy? Youve made a good gain and that's the whole point.
-How long to wait for a stock to work out? I would say 2.5-3 years or 3.5 years for cyclicals. If after this time the stock still disappoints, sell it. Another important ruke is to sell a stock immediately of the long term fundamentals deteriorate. No matter how much research, things can go wrong. Iam not talking of a temporary surprise or a poor quarter from which a stock will snap back from, but major changes that weaken a companies prospects. Under these conditions, I have found that taking your lumps immediately and moving on results in the smallest loss.
-
-Fundamental research has been no more successful than technical analysis. This is because forecasting is the most important factor in security analysis. However, research analysts forecast poorly. This will mean some earnings misses for some stocks in some quarter on another. Higher p/es are punished more and one miss can devstate the price.
- Just how much information a person can handle effectively has come under intense scrutiny in recent years, with striking results. One is that investor's comprehension of large amounts of data about companies, industries or teh economy may not always give him or her that extra "edge". In fact ingesting large amounts of investment information can lead to worse rather than better decisions. People, when swamped by information, may select ony a small portion of the total, and reach a dramatically different conclusion than what the entire data would suggest. Not unlike juggling, each factor is another ball in the air, increasing the difficulty.
- Rule 2 : Respect the difficulty of working with a mass of information. In-depth information does not translate into in-depth profits.
-Under conditions of anxiety, uncertainty and too much information, the market becomes a giant Rorschach test. The investor sees any pattern he wishes.
-In extensive studies, was found that analysts estimates were way off mark, even though they were made less than three months before the end of the quarter for which earnings were reported. The average error was 44%
- Earnings surprises of even a few percentage points can trigger major price reactions. (especially for high p/es)
-Rule 6 : Analsyts forecasts are usually optimistic. Make the appropriate downward adjustment to your earnings estimate.
-Rule 8 : It is impossible, in a dynamic economy to use the past to estimate the future.
-The more data you get, the less information you have.
-Surprise helps unpopular stocks (with low P/Es) and hurts popular ones (with high P/Es)
- Take advantage of the high rate of analyst forecast error by simply investing in out-of-favor stocks.
-Rule 13 : Favored stocks underperform the market, while out of favor companies outperform the market, but the reappraisal often happens slowly, even glacially.
-Avoid stocks that experts or crowds are recommending.
-Sonjoy Basu published a study that found that annual returns decline as one moves from low p/e to high p/e.
-Rule 18 : Invest equally in 20-30 stocks, diversified among 15 or more industries.
-Rule 19 : Buy medium or large sized stocks.
-After picking low P/E, P/B, P/CF or P/Div, don't abandon Security analysis entirely.
1) Check that strong financial position.
2) As many favorable operating and financial ratios as possible
3) A higher rate of earninsg growth than the S&P and the likelihood this will not plummet in the near future.
4) Earnings estimates should always lean to the conservative side.
5) An above average dividend yield which the company can sustain and increase.
Dreman dound indicator 5 above improved performance when used with low P/Es.
-Rule 20: Diversify across industries. Buy the least expensive stocks within an industry regardless of how high or low the general price of the industry group.
-P/E of S&P in 97 was 24.2, P/CF 18.1, P/B 5.4 and yield 1.6%. As a rule of thumb try to use a 20% discount for the first three measures and a yield of atleast 1%. P/CF, P/E and P/B should be available in Value Line.
-Rule 21 : Safest approach is to rely on mechanical guidelines, which filter out much of emotional content. Sell a stock when its P/E approaches that of the overall market, regardless how favorable the prospects may appear. If it reaches that point, grit your teeth and get rid of it. It will probably go higher but why be greedy? Youve made a good gain and that's the whole point.
-How long to wait for a stock to work out? I would say 2.5-3 years or 3.5 years for cyclicals. If after this time the stock still disappoints, sell it. Another important ruke is to sell a stock immediately of the long term fundamentals deteriorate. No matter how much research, things can go wrong. Iam not talking of a temporary surprise or a poor quarter from which a stock will snap back from, but major changes that weaken a companies prospects. Under these conditions, I have found that taking your lumps immediately and moving on results in the smallest loss.
-
Tuesday, May 09, 2006
Lynch from Investment Guru interview :
You could have bought Wal-mart 10 years after it went public. Let's say you're very cautious. You wait another 10 years. This was not a startup any more, even then you would have made 30 times your money. The reason is that after 10 years it had reached only 15% of te country.
You could say, this company has minimal costs, they're efficient, all competition says they're great, the balance sheet is great, products are terrific and they're self-funding. Why can't they go to 25%? Think of that and buy and hold. You have to ask: why can't this company go from 20 stores to 400 stores?
Q Some people say there is no point in trying to beat the market. Academics say that Lynch and Buffett are the outliers on the right tail of the distribution curve, the lucky orangutans that do things by luck. How do you answer this ?
Lynch : Well you could say that there are going to be a million tennis matches this weekend. And 500,000 people will lose and 500,000 people will win. Therefore should people not practice their backhand or serve? The question is : why not be a winner rather than a loser? You could be a better investor if you look at the balance sheet, if you knew what the company did, if you use the information you have. You would simply do a better job . Just like you would be a better tennis player if you worked on your weakness and improved strengths. The concept is maybe we should ban tennis, since half the people are going to lose so the other half can win.
Q What do you think of technical analysis?
Lynch : I like only one formation. The stock goes from 50 to 8. Then sideways for a few years between 8 and 11. Such stocks may make a nice research list. Now see what the situation is, if you're right it'll go up, if not it'll go sideways and you won't lose money.
PB Remember : The key is to increase your odds. Get more favorable odds. I'd like to believe that my odds are getting better with education. You can't be perfect but can increase odds only.
The fact that you're working with just a small part of the market and avoiding the whole (which includes bad ones) can translate in bettering the market if due diligence is done.
e.g. if I had read a bit about market P/Es etc, would maybe not have purchased tech stocks in 1998-99.
You could have bought Wal-mart 10 years after it went public. Let's say you're very cautious. You wait another 10 years. This was not a startup any more, even then you would have made 30 times your money. The reason is that after 10 years it had reached only 15% of te country.
You could say, this company has minimal costs, they're efficient, all competition says they're great, the balance sheet is great, products are terrific and they're self-funding. Why can't they go to 25%? Think of that and buy and hold. You have to ask: why can't this company go from 20 stores to 400 stores?
Q Some people say there is no point in trying to beat the market. Academics say that Lynch and Buffett are the outliers on the right tail of the distribution curve, the lucky orangutans that do things by luck. How do you answer this ?
Lynch : Well you could say that there are going to be a million tennis matches this weekend. And 500,000 people will lose and 500,000 people will win. Therefore should people not practice their backhand or serve? The question is : why not be a winner rather than a loser? You could be a better investor if you look at the balance sheet, if you knew what the company did, if you use the information you have. You would simply do a better job . Just like you would be a better tennis player if you worked on your weakness and improved strengths. The concept is maybe we should ban tennis, since half the people are going to lose so the other half can win.
Q What do you think of technical analysis?
Lynch : I like only one formation. The stock goes from 50 to 8. Then sideways for a few years between 8 and 11. Such stocks may make a nice research list. Now see what the situation is, if you're right it'll go up, if not it'll go sideways and you won't lose money.
PB Remember : The key is to increase your odds. Get more favorable odds. I'd like to believe that my odds are getting better with education. You can't be perfect but can increase odds only.
The fact that you're working with just a small part of the market and avoiding the whole (which includes bad ones) can translate in bettering the market if due diligence is done.
e.g. if I had read a bit about market P/Es etc, would maybe not have purchased tech stocks in 1998-99.
From Benjamin Franklin's autobiography:
-Be encouraged to due diligence in thy calling, and distrust not Providence (and yourself).
-I wish to acknowledge luck and God for setting me down the right path and giving me success. My belief in such guidance leads me to hope that this same goodness will continue to bless me.
-Be encouraged to due diligence in thy calling, and distrust not Providence (and yourself).
-I wish to acknowledge luck and God for setting me down the right path and giving me success. My belief in such guidance leads me to hope that this same goodness will continue to bless me.
Sunday, May 07, 2006
The easiest way invariably is the best way. I don't think you can get to be a really good investor without doing a massive amount of reading. Each year at the annual meeting Munger recommends a wide range of reading material. These include Value Line charts, Cialdini's "Influence", Hagstrom's the WB portfolio: Mastering the Power of Focus Investing.
Frequently you look at a business having fabulous results. And the question is "How long can this continue? Think about why the results are occurring now and about what will make these results to stop occurring."
This helps spot a company that has a franchise on a certain product, a so called "moat" around its business.
Observing business over time gives an investor greater perspective on investing. Some simple changes in the way we live can alter the long term value of a business.
"Modern Portfolio Theory? Its demented!" proclaims Munger. "I also ignore Beta since we think it is nonsense. We just want favorable odds, as long as these are in our favor and we're not risking evrything on one throw of the dice, we don't mind volatility"
I have never taken a course in chemistry, economis, psychology or business. Early elemntary physics and math helped me assimilate the fundamental ethos of hard science, which I therafter pushed further and further into softer and softer subjects. Early exposure to hard skills is essential. Mastery of psychology and accounting should be required.
Frequently you look at a business having fabulous results. And the question is "How long can this continue? Think about why the results are occurring now and about what will make these results to stop occurring."
This helps spot a company that has a franchise on a certain product, a so called "moat" around its business.
Observing business over time gives an investor greater perspective on investing. Some simple changes in the way we live can alter the long term value of a business.
"Modern Portfolio Theory? Its demented!" proclaims Munger. "I also ignore Beta since we think it is nonsense. We just want favorable odds, as long as these are in our favor and we're not risking evrything on one throw of the dice, we don't mind volatility"
I have never taken a course in chemistry, economis, psychology or business. Early elemntary physics and math helped me assimilate the fundamental ethos of hard science, which I therafter pushed further and further into softer and softer subjects. Early exposure to hard skills is essential. Mastery of psychology and accounting should be required.
Saturday, May 06, 2006
I have been reading "Damn Right!" by Janet Lowe. Some interesting tidbits from the book :
Charlie did not share the special admiration ?Buffett felt for Graham. Munger said "Graham had blind spots.He had too low an appreciation of the fact that some businesses were worth paying big premiums for".
Yet Charlie agreed with his most fundamental teachings and they have been part of the Buffett-Munger success formula from the start. "The basic concept of value to a private owner and beig motivated when you're buying and selling securities by reference to intrinsic value instead of price momentum-I don't think that will ever be outdated", said Munger.
I never want to overpay for an asset i.e pay more than its intrinsic value. Howeverthere are very rare exceptions for whom it is worth paying up a bit to get in with for the long term advantage.
Buffett : Charlie shoved me in the direction of not just buying bargains, as Graham had taught me. It took a powerful force to move me on from Graham's limiting view. It was the power of Charlie's mind. He expanded my horizons. Boy, if I had listened only to Ben, would I have been a lot poorer. Now I became interested in buying a wonderful business at a moderate price".
Charlie to his daughter when she was rebellious "I see you've decided to raise yourself, I hope you'll do a good job".
It was a relief to Munger to quit the law. I preferred making my own decisions and gambling my own money. I usually thought I knew better than the client anyway, so why should I have to do it his way? So partly, it was having an opinionated personality and partly it was a desire to get resources permitting independence". Munger came to understand that to be truly wealthy, a person needed to build up an ownership in a business.
By the time he quit law in 1965, " I had more confidence that Wheeler, Munger would work out, and I had much greater wealth" - Munger. I was not very surprised when he gave up the law said Munger's sister Carol, "That'swhat happens when someone finds something that is his real love".
What Charlie finds interesting is how few big decisions were involved in creating billions of dollars, fewer than one every three years. "I think the record shows the advantage of a particular mind-set-not seeking action for its ow sake, but instead combining extreme patience with extreme decisiveness".
The lesson of his business life is that you don't want to do business with people you can't trust. The economis are irrelevant if yoo don't have trust.
When See's turned out to be an excellent ongoing business, M & B realized how much easier and pleasanter it was t obuy a good business and just let it roll along, than to buy a deeply discounted but struggling business and spend time, energy and more money to set it straight.
Munger says he and Buffett should have seen the advantages of paying for quality much earlier.
"IF we hadn't bought See's, we wouldn't have bought Coke", says Buffett, "I've had windmills and second rate department stores, pumps and textile mills and all these were as problematic as windmills".
Munger told Berkshire that there are a lot of companies in America that throw off a lot of cash but which can't be expanded very much. To try and expand would be to throw money down a rat hole. Such businesses don't stir acquisition desires but they are welcome at Berkshire because he and Buffett can take the capital and invest it elsewhere.
Charlie did not share the special admiration ?Buffett felt for Graham. Munger said "Graham had blind spots.He had too low an appreciation of the fact that some businesses were worth paying big premiums for".
Yet Charlie agreed with his most fundamental teachings and they have been part of the Buffett-Munger success formula from the start. "The basic concept of value to a private owner and beig motivated when you're buying and selling securities by reference to intrinsic value instead of price momentum-I don't think that will ever be outdated", said Munger.
I never want to overpay for an asset i.e pay more than its intrinsic value. Howeverthere are very rare exceptions for whom it is worth paying up a bit to get in with for the long term advantage.
Buffett : Charlie shoved me in the direction of not just buying bargains, as Graham had taught me. It took a powerful force to move me on from Graham's limiting view. It was the power of Charlie's mind. He expanded my horizons. Boy, if I had listened only to Ben, would I have been a lot poorer. Now I became interested in buying a wonderful business at a moderate price".
Charlie to his daughter when she was rebellious "I see you've decided to raise yourself, I hope you'll do a good job".
It was a relief to Munger to quit the law. I preferred making my own decisions and gambling my own money. I usually thought I knew better than the client anyway, so why should I have to do it his way? So partly, it was having an opinionated personality and partly it was a desire to get resources permitting independence". Munger came to understand that to be truly wealthy, a person needed to build up an ownership in a business.
By the time he quit law in 1965, " I had more confidence that Wheeler, Munger would work out, and I had much greater wealth" - Munger. I was not very surprised when he gave up the law said Munger's sister Carol, "That'swhat happens when someone finds something that is his real love".
What Charlie finds interesting is how few big decisions were involved in creating billions of dollars, fewer than one every three years. "I think the record shows the advantage of a particular mind-set-not seeking action for its ow sake, but instead combining extreme patience with extreme decisiveness".
The lesson of his business life is that you don't want to do business with people you can't trust. The economis are irrelevant if yoo don't have trust.
When See's turned out to be an excellent ongoing business, M & B realized how much easier and pleasanter it was t obuy a good business and just let it roll along, than to buy a deeply discounted but struggling business and spend time, energy and more money to set it straight.
Munger says he and Buffett should have seen the advantages of paying for quality much earlier.
"IF we hadn't bought See's, we wouldn't have bought Coke", says Buffett, "I've had windmills and second rate department stores, pumps and textile mills and all these were as problematic as windmills".
Munger told Berkshire that there are a lot of companies in America that throw off a lot of cash but which can't be expanded very much. To try and expand would be to throw money down a rat hole. Such businesses don't stir acquisition desires but they are welcome at Berkshire because he and Buffett can take the capital and invest it elsewhere.
Wednesday, April 19, 2006
The rally from yesterday continued today. Trying hard not to become very exuberant. Checked on scottrade balances more than I would have liked to.
BBI also went up to $4.80. The options are now worth $2000, doubled since purchase. But, I doubt the price will go to $5 + by Friday. It helped that Jim Cramer praised BBI today.
BBI also went up to $4.80. The options are now worth $2000, doubled since purchase. But, I doubt the price will go to $5 + by Friday. It helped that Jim Cramer praised BBI today.
Tuesday, April 18, 2006
What is the contract size of an equity option? The contract size of an option refers to the amount of the underlying asset covered by the options contract. For each unadjusted equity call or put option, 100 shares of stock will change hands when one contract is exercised by its owner. These 100 shares of underlying stock are also referred to as the contract's "unit of trade."
So 200 options == 200 X 100 == 20,000 shares
to exercise, you have to purchase 20000 * strike price.
IF the stock goes up by $1, then you have just made 20000 * 1 = $20,000
So 200 options == 200 X 100 == 20,000 shares
to exercise, you have to purchase 20000 * strike price.
IF the stock goes up by $1, then you have just made 20000 * 1 = $20,000
Sunday, April 16, 2006
Discovered the Value Line Investment Survey newsletter in the library the other day. Turned out that UPL and GWR have current timeliness ratings of 2. Also was pleased to find BTU and EXP with timeliness rating of 1. Seemed a bit of a confirmation for picking these.
Am going to check these out in the future for new issues to investigate and buy.
In a little bit of a dilemma about UPL, wondering if should sell, P/E is 44 which seems a bit high.
Also got an email from Logan, was encouraging regarding investing so far but also advised against margin and options. Advised to stay put on longer term strategies and not quick money.
Also was encouraging about the fact that have started on this part-time and not full-time.
Tried to read "Random Walk on Wall Street". Didn't enjoy it at all and think it'll be a waste of time. Better to re-read my blog and accounting instead I think. Also re-reading Phil Fisher in more detail.
Am going to check these out in the future for new issues to investigate and buy.
In a little bit of a dilemma about UPL, wondering if should sell, P/E is 44 which seems a bit high.
Also got an email from Logan, was encouraging regarding investing so far but also advised against margin and options. Advised to stay put on longer term strategies and not quick money.
Also was encouraging about the fact that have started on this part-time and not full-time.
Tried to read "Random Walk on Wall Street". Didn't enjoy it at all and think it'll be a waste of time. Better to re-read my blog and accounting instead I think. Also re-reading Phil Fisher in more detail.
Thursday, April 06, 2006
Had gone to downtown MV last evening and happened to come across John Rothchild's "The Bear Book- Survive and Profit in Ferocious Markets" in the used bookstore. Seems interesting, picked it up and started reading it on the way back in the light rail. From it :
* Lynch sell signal:
When the yield on the thirty-year government bond exceeds the yield on the stocks in the
S&P 500 by more than six percentage points, sell stocks and buy bonds.
* Dow Theory
Not really a theory. Based on some editorials written by this WilliamHamilton- a disciple of Charles Dow. He tried to separate the momentary advance or retreat from a long march that carried stock prices in one direction for a meaningful stretch. A long march, he believed could only occur if the averages were heading in the same direction together and therefore confirmed each other's ups and downs. If the Industrials reached a new high while the Trasports faltered, it put the future progress of both indexes in doubt.
Soon after writing the obituary for the bull market on Oct 25, 1929, he died.
Robert Rhea, George Schaefer, Richard Russell are followers of this. Richard Russell's Dow Theory newsletter has a huge following. These three folks had correctly predicted oncoming bear and bull markets.
* Sell small cap if :
T Rowe New Horizons P/E
----------------------------
s&p 500 P/E
much greater than 1. Varies between 0.4-2+. Lower numbers are better times for small caps.
Called New Horizons small-cap gauge.
* Inverted yield curve
Problem may be present if short term interest rates higher than long term interest rates.
Colonel Ayres observed that stocks declined whenever the short-term interest rates rose higher than long-term rates-the "inverted yield curve" sell signal, which he issued in January 1929.
* Zweig's 3 key characteristics of a bear market : bear markets share atleast one of these three :
* Lynch sell signal:
When the yield on the thirty-year government bond exceeds the yield on the stocks in the
S&P 500 by more than six percentage points, sell stocks and buy bonds.
* Dow Theory
Not really a theory. Based on some editorials written by this WilliamHamilton- a disciple of Charles Dow. He tried to separate the momentary advance or retreat from a long march that carried stock prices in one direction for a meaningful stretch. A long march, he believed could only occur if the averages were heading in the same direction together and therefore confirmed each other's ups and downs. If the Industrials reached a new high while the Trasports faltered, it put the future progress of both indexes in doubt.
Soon after writing the obituary for the bull market on Oct 25, 1929, he died.
Robert Rhea, George Schaefer, Richard Russell are followers of this. Richard Russell's Dow Theory newsletter has a huge following. These three folks had correctly predicted oncoming bear and bull markets.
* Sell small cap if :
T Rowe New Horizons P/E
----------------------------
s&p 500 P/E
much greater than 1. Varies between 0.4-2+. Lower numbers are better times for small caps.
Called New Horizons small-cap gauge.
* Inverted yield curve
Problem may be present if short term interest rates higher than long term interest rates.
Colonel Ayres observed that stocks declined whenever the short-term interest rates rose higher than long-term rates-the "inverted yield curve" sell signal, which he issued in January 1929.
* Zweig's 3 key characteristics of a bear market : bear markets share atleast one of these three :
- Extreme Deflation Things are getting cheaper, and the CPI is falling fast. Whenever consumer prices have dropped 10% over six months, bear market alert
- Extravagant Multiples If Dow or S&P is selling for 20 times earnings, setback likely. Only applies in a perky economy when earnings are robust. In a recession when earnings are sub-par, high p/e's may not be a cause for concern.
- Inverted yield curve Temporary is ok but if lingers, then stocks will disappoint. Only one bear market had all three strikes (1929-1932). Every bear since 1929 had atleast 1 strike.
Friday, March 31, 2006
I completed Siegel's book so no more tidbits from there.
Some other interesting quotes I read in Warren Buffett Speaks.
-
Everybody engaged in complicated work needs colleagues. Just the discipline of having to put your thoughts in order with somebody else is a very useful thing.
-
Munger has mastered short answers. "Charlie is not paid by the word" explains Buffett.
-
Retirement plans? About 5-10 years after I die.
-I feel like tap-dancing all the time. We tap-dance to work.
-Any string of impressive figures multiplied by a single zero is still a zero.
-
With enough insider information and a million dollars you can go broke in a year.
-
That which is not worth doing is not worth doing well.
-
I went to Dale Carnegie not to prevent my knees from knocking when public speakig but to do public speaking while my knees were knocking.
-
Rule No. 1: Never lose money. Rule No.2 : Never forget Rule No. 1
-
-I has been helpful to me to have tens of thousands (of students) turned out of business schools taught that it didn't do any good to think (EMT)
-Its only when the tide goes out that you learn who's been swimming naked.
-Forecasts usually tell us more of the forecaster than of the future.
-
When you combine ignorance and borrowed money, the consequences can get interesting.
-do a lot of reading. I read annual reports pf the company Iam looking at and of competitors, that is the main source of material.
-
I'd rather have a $10 million business making 15 percent than a $100 million dollar business making 5 percent.
-Don't take the performance of your stock personally, after all : A stock doesn't know you own it.
-Never buy an airline stock.
Thursday, March 30, 2006
Jeremy Siegel book takeaways
Some things I read in Jeremy Siegel's book yesterday :
10) If there is significant evidence that a sector has become overpriced relative to its fundamentals then alter. A warning sign is when a sector achieves a 30% or greater weight in S&P500 Index. Oil in 1980 and technology in 2000 are examples. Subsequent returns to both sectors were very poor.
13) Investor's Intelligence has published one of the long-standing indicators of investor sentiment. They have evaluated scores of newsletters determining if bullish, bearish or neutral.
When investor sentiment is lowest, the returns have ben highest. And when investor sentiment has been highest, worst returns in the market. Sentiment = bullish newsletters/bearish newsletters
Sentiment Return (70 thrugh 00)
0.2-0.3 Return = 20%
0.9-1.0 Return = -10%
14) It is of note that the volatility index (VIX) the measure of implied market volatility computed from option prices, spikes upward at virtually the same time that investor sentiment drops. Anxiety in the market which can be measured from the premiums on options prices, is strongly correlated with investor bearishness.
15) Another indicator of investor sentiment :
Whenever the recommended allocation to stocks falls below 50% by portfolio managers, returns in actuality have been high. (Richard Bernstein)
16) Out-of-favor stocks : Dogs of the Dow (Dow 10 strategy)
10) If there is significant evidence that a sector has become overpriced relative to its fundamentals then alter. A warning sign is when a sector achieves a 30% or greater weight in S&P500 Index. Oil in 1980 and technology in 2000 are examples. Subsequent returns to both sectors were very poor.
13) Investor's Intelligence has published one of the long-standing indicators of investor sentiment. They have evaluated scores of newsletters determining if bullish, bearish or neutral.
When investor sentiment is lowest, the returns have ben highest. And when investor sentiment has been highest, worst returns in the market. Sentiment = bullish newsletters/bearish newsletters
Sentiment Return (70 thrugh 00)
0.2-0.3 Return = 20%
0.9-1.0 Return = -10%
14) It is of note that the volatility index (VIX) the measure of implied market volatility computed from option prices, spikes upward at virtually the same time that investor sentiment drops. Anxiety in the market which can be measured from the premiums on options prices, is strongly correlated with investor bearishness.
15) Another indicator of investor sentiment :
Whenever the recommended allocation to stocks falls below 50% by portfolio managers, returns in actuality have been high. (Richard Bernstein)
16) Out-of-favor stocks : Dogs of the Dow (Dow 10 strategy)
Thursday, March 23, 2006
I finally found the AWESOMEST tool to calculate the return of my portfolio. I had been losing a lot of sleep over this and was trying to figure out whether I should even keep actively investing at all or just leave it all (the meagre all ;) in index funds... But all my doubts are resolved for now!!!
Anyway this absolutely sublime tool is called XIRR. A nice description of it is at :
http://www.fool.com/ddow/1998/ddow980227.htm
Over the past 3 years, my return was 18.2% . Its probably not the best and have been very lucky so far and it may go down from now on, but still is encouraging enough to continue to invest myself. :)
Am so incredibly happy. Love XIRR and finally see the point of Excel.
Jim Cramer apparently mentioned SVI last night, had exchanged emails with someone at NBC about the possibility of calling and speaking to him about it on air. On balance Iam glad they didn't call, not sure if I would have managed to sound loud and hearty convincingly.
Anyway this absolutely sublime tool is called XIRR. A nice description of it is at :
http://www.fool.com/ddow/1998/ddow980227.htm
Over the past 3 years, my return was 18.2% . Its probably not the best and have been very lucky so far and it may go down from now on, but still is encouraging enough to continue to invest myself. :)
Am so incredibly happy. Love XIRR and finally see the point of Excel.
Jim Cramer apparently mentioned SVI last night, had exchanged emails with someone at NBC about the possibility of calling and speaking to him about it on air. On balance Iam glad they didn't call, not sure if I would have managed to sound loud and hearty convincingly.
Thursday, March 16, 2006
Monday, March 06, 2006
Just started my blog today. Need to start my device driver code this evening. Going to fiddle around with the Linux PC which I setup last week. Got the company's website up and running on the other machine. Need Windows on webserver PC since it is T's computer and he has tons of stuff stored on it. Website looking elegant but need to work on portfolio and misc links. So now let's work on building an actual product. Looked at craigslist and am amazed how many Linux "experts for hire " there are out there. That model ain't gonna work.
Meeting A and daughter in the evening, long overdue on that too. Just bought CMG today, hopefully a good decision. Sold PLCE at about 31 percent gain, thought it was overpriced. PLCE stores don't look very crowded to me, and was looking at a good exit price which I thought was today. Hmm, let's see if sell a good idea or not, but anyway as Buffett says, stick to your guns after doing your own analysis. My analysis said overvalued. (unlike CRI sell which was a sub-optimal decision but was made before reading The Intelligent Investor and Common Stocks, Uncommon Gains) . Let's see if these books help my portfolio any or as dad says, maybe its all luck in which case I should just get my horoscope done ;)
Going to Kabul for lunch on Friday with K. Should be fun, should get some news about the higher-ups. Not that it matters, except for gaining an insight into the latest corporate silliness
in my company.
Meeting A and daughter in the evening, long overdue on that too. Just bought CMG today, hopefully a good decision. Sold PLCE at about 31 percent gain, thought it was overpriced. PLCE stores don't look very crowded to me, and was looking at a good exit price which I thought was today. Hmm, let's see if sell a good idea or not, but anyway as Buffett says, stick to your guns after doing your own analysis. My analysis said overvalued. (unlike CRI sell which was a sub-optimal decision but was made before reading The Intelligent Investor and Common Stocks, Uncommon Gains) . Let's see if these books help my portfolio any or as dad says, maybe its all luck in which case I should just get my horoscope done ;)
Going to Kabul for lunch on Friday with K. Should be fun, should get some news about the higher-ups. Not that it matters, except for gaining an insight into the latest corporate silliness
in my company.