Monday, December 10, 2018

Martin Whitman

So many wonderful retrospectives were written about Marty Whitman during his lifetime that another seems superfluous—yet we just can’t help ourselves.

Whitman, the founder of Third Avenue Management, died last week at the age of 93. To financial journalists, he was a generous source and teacher about value investing, especially deep value, the kind that really meant investigating a company. He often picked up the phone to share an idea in his gravelly New York voice, or to critique a story. In fact, he loved teaching: He instructed students at Yale School of Management for decades and endowed the Whitman School of Management at Syracuse University.

For investors in his funds, he produced great returns for years and wrote pungent shareholder letters that rivals studied closely. (One from 2013 called the work of that year’s Nobel Prize winner Eugene Fama “utter nonsense” and “unscholarly.”)

Whitman focused on distressed debt years before it became popular. He believed in the primacy of the balance sheet versus the income statement, and read debenture documents as though they were comic books. He believed that companies were wealth-creating machines, partly through what he called “resource conversion,” including mergers and acquisitions and spinoffs. And he rarely sold his stocks. “The idea of selling was absolute anathema to him,” says Amit Wadhwaney, co-founder of Moerus Capital and a protégé.

All of this contributed to him beating the stock market by a wide margin over at least 20 years. He was “like a kid in a candy store when markets were imploding, says Curtis Jensen, a portfolio manager at Robotti & Co. and another protégé. “He was jogging into the trading room hourly to buy stocks that were getting marked down during the Long-Term Capital Management and Russian ruble crisis.”

Before he became a money manager, Whitman was an investment banker who did a hostile takeover of Equity Strategies, a closed-end fund. This became the foundation for Third Avenue Management, which opened its doors in 1986. Once Whitman bought the bankrupt bonds of Anglo Energy, he needled his lawyer, Tony Petrello, to join the new company, asking him, “Do you want to be a principal or an advisor?” Petrello eventually became CEO of Nabors Industries, one of the biggest drilling companies. Whitman served on the Nabors board until 2011.

“Better than most,” says Jensen, “he emphasized that only three to four variables counted in what would drive an investment: The rest is just noise.”

Whitman stepped back from his firm in 2012. Third Avenue has stumbled in recent years, ironically after a downturn in distressed debt sank its Third Avenue Focused Credit fund. Value investing has also struggled since the financial crisis. Assets fell. In a 2015 interview with Barron’s, Whitman said, “I don’t know if you could even call us a success after the 2008 redemptions. We never really came back. It’s been tough.”

Born and raised in the Bronx, Whitman favored sweatshirts and khakis for the office, and forthright, sometimes salty language. Once, chatting with Barron’s about a famous bankruptcy investor, he said, “The bankruptcy fraternity here is very small. [This person] goes out to dinner with them and schmoozes them. In this country, you litigate by day and fornicate by night. He’s very good at fornicating by night. I go home to my wife and children.”

Throughout his 70s, Whitman walked across Central Park daily to the office and back. He had a habit of running across intersections if the traffic light was about to change. In mid-conversation, he might break into a dead run to catch a train. In his later years, he sometimes announced to people, “Let’s make money the old-fashioned way.”

Now, investors must figure out how to do by themselves.

Sunday, December 09, 2018

Buffett: 50% a year

“If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”

 -- Warren Buffett

Berkshire Hathaway track record

Warren Buffett has built a fantastic track record at Berkshire Hathaway, achieving a 20.9% return per year in 53 years, or a 2,404.748% total accumulated return. He did this buying great businesses at reasonable prices. He used insurance leverage, he took advantage of fiscal efficiency and he never paid a dividend.

His strategy evolved over time, as assets grew and he listened more to his partner, Charlie Munger (Trades, Portfolio). He focused on buying great businesses at reasonable prices. He did that investing in publicly traded equities but also in taking over businesses and bringing them under the Berkshire umbrella.

The 50% remark

But when Buffett made the “I think I could make you 50% a year” remark, he was not talking about managing a portfolio of many billions of dollars. He was talking about managing a few million dollars and having the “privilege” of investing in small and illiquid companies.

Buffett invested in this arena when he started his career in the 1950s. In 13 years, he did not achieve a record of 50% per a year (that could probably demand extreme portfolio concentration), but he managed to get close to a remarkable 30% a year. But more than just that, he achieved those returns with a portfolio management structure that maximized returns while controlling risks.

Clues to this type of portfolio management can be found in the master’s published Partnership Letters. These contain valuable insights into implementing investment strategies, identifying individual opportunities and actively managing portfolios.

The Partnerships' track record

Between 1957 and 1969, the Buffett Partnerships achieved an annual compound return of 24.5% net of fees (29.5% before fees). The annual return of the Dow over the same time with dividends was 7.4%. The Partnerships charged no management fee, took 25% of any gains beyond a cumulative 6% and agreed to absorb a percentage of any losses.

Generally, fund managers look to properly diversify their portfolios among sectors and geographies. And more often than not, they tend to stick to one process of investment selection. The problem is that over time, certain investment methods tend to be favored and others neglected.

Having a portfolio structure composed of three different investment strategies allowed Buffett to consistently approach the set of market opportunities with different lenses and choose the most convenient for long-term profit maximization and risk-exposure control.

Three investment strategies

Buffett’s system for managing the Partnerships was composed of three strategies, and each investment in the portfolios was cataloged with one strategy label. The strategies he pursued were: generals, workouts and controls.

They all had in common the fact that Buffett was looking for extreme cheapness and that he was looking mostly in the camp of small or micro caps. But each strategy accomplished one objective, and he masterfully managed the weight in each one according to where the opportunities appeared.
The "generals” category referred to undervalued stocks, the "workouts" category were the investments in special situation events and "controls," although rare, were the investments where the Partnership assumed, over time, an activist position, trying to get management to make moves that would maximize the value of the stock.

Over the next few articles, I will dissect each of these strategies and provide an overview of their adaptation to today’s investment scene.

Saturday, December 08, 2018

Phil Fisher: Common Stocks and Uncommon Profits


Scuttlebutt: then and now

The 15 points, part 1

The 15 points, part 2

Growth stocks vs. cigar-butt stocks

When to buy stocks

When to sell stocks

why all the selling?

Little changed fundamentally over the past two weeks with regard to interest rate expectations, earnings expectations and the potential length of a trade war with China. So why did the last week of November witness some of the strongest historical returns in quite some time and this past Tuesday saw some of the harshest selling in several years?

To understand what is going on you need to focus on psychology. There has been ongoing research trying to explain market sell-offs. Several researchers had an interesting idea to try to explain why intense market selling occurs: instead of looking for an economic explanation - a repricing of earnings due to a policy change or changing expectations of future interest rates - why not instead go and ask institutional investors why they sold during the market downturn.

The findings were fascinating but not surprising - what they discovered is the main reason large institutional portfolio managers sold during market corrections is that stock prices were falling. Investors were reacting to price movements instead of to changing fundamentals - the selling effectively snowballed because large institutional investors sold stocks because other large institutional investors were selling stocks.

The problem for today's market is that this lemming-like behavior of selling stocks because others investors are selling stocks is becoming a self-fulfilling prophecy due to algorithmic trading. If we look at a sample of three of the largest multi-strategy hedge-funds they might collectively manage only $100 billion dollars in assets but through leverage they can deploy half a trillion dollars. Additionally, most of these firms are focused on using leverage to generate returns on a very short-term time horizon.

Essentially, multiple firms, by analyzing past price movements independently through various means, have come to the same conclusion that the psychologists examining market corrections came to - that during large negative market movements selling accelerates.

The key lesson for investors is relatively straightforward - as much as possible try to ignore price movements when making buy and sell decisions and instead focus on changes in fundamentals. The silver lining in the increased volatility is that the higher volatility should result in a higher rate of return for long-term equity investors as they need to be compensated for the volatility which does not look like it can be diversified away.

-- Mitch on the Markets, 12/8/18

Friday, December 07, 2018

America oil exporter

America turned into a net oil exporter last week, breaking almost 75 years of continued dependence on foreign oil and marking a pivotal -- even if likely brief -- moment toward what U.S. President Donald Trump has branded as "energy independence."

The shift to net exports is the dramatic result of an unprecedented boom in American oil production, with thousands of wells pumping from the Permian region of Texas and New Mexico to the Bakken in North Dakota to the Marcellus in Pennsylvania.

While the country has been heading in that direction for years, this week’s dramatic shift came as data showed a sharp drop in imports and a jump in exports to a record high. Given the volatility in weekly data, the U.S. will likely remain a small net importer most of the time.

“We are becoming the dominant energy power in the world,” said Michael Lynch, president of Strategic Energy & Economic Research. “But, because the change is gradual over time, I don’t think it’s going to cause a huge revolution, but you do have to think that OPEC is going to have to take that into account when they think about cutting.”

The shale revolution has transformed oil wildcatters into billionaires and the U.S. into the world’s largest petroleum producer, surpassing Russia and Saudi Arabia. The power of OPEC has been diminished, undercutting one of the major geopolitical forces of the last half century.

Sunday, November 18, 2018

stock market ignorance

Friday's column advocated self-awareness. The stock market's movements seem to be meaningful, but their signals are spurious. Therefore, investment wisdom consists of learning to avoid the temptation to trade. The investor who acknowledges his ignorance is better off than the investor who does not.

A reader, Marvin Menzin, noticed. "Your advice implies that investors should buy and blithely hold. It ignores the possibility they might want to reduce your exposure because of excess stock-market valuations. I think it would be an excellent column if you were to address when investors should rebalance to lower-risk portfolios, especially when it's a retirement account and taxes are not germane. Investors are told to stay the course. The Titanic stayed the course!"

Well, Mr. Menzin, this is that column. Although I must confess, the "when" is exceedingly rare.  Since World War II, I can think of only one clear and obvious occasion when U.S. stock investors should have reduced their exposure.

To start: A portfolio's stock position should indeed be traded regularly, through mechanical rebalancing. If stocks perform well, such that a portfolio that was initially 60% stock/40% bonds becomes 70/30, then it's logical to return to the original allocation. After all, nothing changed from the initial decision.

Rebalancing, however, is more easily said than done, because while maintaining a consistent asset allocation makes economic sense, it's not much fun to implement. Selling winners feels good if stocks then decline, but if they do not, the opportunity cost can sting. Worse yet is the opposite situation. Mr. T had one word to describe how people feel after they buy equities when the headlines are urging otherwise, only to see stocks fall further. Pain indeed.

Thus, rebalancing is best done automatically: Establish a trading rule; follow its instructions devoutly; and suffer no regret if the transaction turns out badly. After all, the decision was the model's, not yours.

Unfortunately, I do not see how mechanical processes can guide investment strategies that are based on stock-market valuations. Those who have tried--most famously by using the Shiller CAPE P/E Ratio, which examines stocks' cyclically adjusted price/earnings ratios--have failed. Such measures work well in hindsight, but they have not been useful predictors. Their explanatory power has been academic rather than actual.

Historical Assessments

For 20 years following the conclusion of World War II, there was no judgment to be applied. Remaining in equities was the correct decision.

Then came 15 terrible years, through the mid-1980s, when the stocks were devastated by inflation. For that stretch, investors would indeed have done well to avoid equities. However, making that choice involved understanding the economy, not judging the level of equity valuations. It wasn't that stock prices were particularly steep. It was instead that inflation spiked far higher than it had been, and also far higher than it would become.

Since the early 1980s, stocks have crashed three times.

Two of those occasions, I believe, were almost impossible to anticipate. Black Monday in 1987 came out of nowhere; even in hindsight, it is difficult to understand why. The 2008 financial crisis, on the other hand, happened for well-documented reasons. But once again, the determinants were economic. Across the globe, banks collapsed and housing markets sunk. No stock-market indicator could have anticipated that.

The one occasion in which judgment served was during the "New Era," when technology stocks posted valuations that still exceed all subsequent levels. Sentiment was equally overheated. That truly was a time to slash one's stock-market exposure. Even then, though, the timing needed to be right. Those who sold equities in 1996 fared worse than those who stayed the course and held through the worst of the downturn.

In short, Friday's column overstated its case. Sometimes stocks do cost too much. But recognizing when that situation arises, and profiting from the knowledge, is a severe task.

-- John Rekenthaler

Wednesday, October 31, 2018

Schwab Choiceology

[5/17/18] Choiceology with Dan Heath

What happens when intuition fails us? Listen in as Dan Heath shares stories of irrational decision making—from historical blunders to the kinds of everyday errors that could affect your future.

Choiceology, an original podcast from Charles Schwab, explores the lessons of behavioral economics, exposing the psychological traps that lead to expensive mistakes.

Episode 1

We can’t all be above average. So why, in certain situations, do we think we’re so special?

Episode 2

It's not always about life-changing decisions—sometimes small changes can make a big impact.

Episode 3

Imagine that you’ve put in effort toward a goal, but things haven’t quite worked out the way you hoped. How do you know when it’s time to let it go?

Episode 4

In a world awash in data, you’d think it would be relatively easy to make informed, objective decisions. But not if you only see what you want to see.

Episode 5

News reports sometimes make it seem as if danger lurks around every corner. And while there’s no doubt that risk is a part of life, do we worry more than we should?

Episode 6

Focusing on a single data point to the exclusion of other information: It’s a tried-and-true negotiating strategy, and it can quickly skew your judgment.

Episode 7

Whether expecting joy or despair, we tend to overestimate the long-term emotional impact of life events.

Season 2 trailer

Season 2 of Choiceology is coming soon! Dan Heath hands the reins over to new host Katy Milkman for this season. Katy brings an incredible depth of knowledge to the show through her work as a professor of Operations, Information & Decisions at The Wharton School. You’ll hear from sports stars, Nobel laureates and everyday people making life-altering choices, and Katy will share useful tools and strategies to improve decision making in your own life. Subscribe for free today on Apple Podcasts, Google Podcasts or wherever you listen. Season 2 launches October 29.

Season 2, episode 1

From ethical behavior to athletic competition, the disproportionate drive not to lose can lead to major mistakes.

Winning feels good. Whether it’s nailing a tricky golf shot or landing a big client for your firm, it’s nice to come out on top. But is it the thrill of victory that pushes you to sink that 10-foot putt or compels you to put in a few extra hours at work? Or is it the fear of losing that motivates you more?

In this episode of Choiceology with Katy Milkman, we examine a bias that affects the irrational way people often react to gains and losses.

Season 2, episode 2

Why is it so tempting to make short-sighted decisions? And what we can do to exert more self-control?

Monday, September 17, 2018

How to lose money in the stock market

[9/17/18] Charlie Munger, the Vice Chairman of Berkshire Hathaway and Warren Buffett’s partner, has a favorite piece of advice, which is to always invert. What he means by that is that we should figure out what we don’t want to do and avoid it in order to get the result that we want. Let’s apply his advice by answering the following question:

What is the most certain way to lose the most money investing in stocks?

1. Invest in Bad Businesses:

Pick businesses in tough, unpredictable industries with rapid change. Make sure they also lack any competitive advantage.

How this helps you lose money:

Investing in businesses that are both subject to rapid change and lack a competitive advantage increases the odds that the business is likely to be a lot less profitable in the future.

2. Invest with Bad Management Teams:

Look for management teams that are trying to make money off of you as opposed to with you, and are skilled at transferring wealth from shareholders to themselves. Lacking any of those, look for teams that are demonstrably bad at both operations and capital allocation.

How this helps you lose money:

Just in case the business managed to make some profits despite your best effort at selecting a bad business, this helps to ensure that the profits will either go to the management team or be squandered by it rather than end up in your pocket.

3. Invest in Companies with Too Much Debt:

Find companies that have so much debt that any adverse development is likely to cause financial distress.

How this helps you lose money:
On the off chance that the management team you carefully chose for its avarice and incompetence left you some money, having too much debt will make it likely that that money will go into the pockets of creditors rather than your own.

4. Pay Too High a Price:

Make sure to pay way more than the intrinsic value of the business.

How this helps you lose money:

If despite your best efforts some money made its way from the business to you, its owner, this will help you to make sure that your rate of return will still be low.

5. Focus Only on the Short-Term:

Don’t think about long-term economics, just focus on short-term trading considerations. (For more on this topic, see How and Why to Be a Long-Term Investor.)

How this helps you lose money:

Shares more of the little money you have managed to get out of your investment with your broker and tax collector.

These are five of the biggest mistakes investors make in the stock market. As Charlie Munger likes to say “Tell me where I will die so that I never go there” – avoid all of the above mistakes, and it will be a lot harder to do poorly at investing.


[2/17/16] There is no doubt that despite the ups and downs of the stock market, it is one of the best way to build wealth over the long-term. Fidelity recently conducted a study as to which accounts had performed the best. What they found interestingly, was that they were dead or had forgotten they had an account at Fidelity! In essence, if you want good investment performance, forget you have an account.

If it is this simple, why does the average investor fare so poorly? It almost always comes down to the fact that our minds work against us. Nothing gets in the way of returns like someone who thinks they can beat the market with a great idea. These 3 mistakes are the most common that new and experienced investors make when it comes to investing and sure-fire ways to lose your money in the stock market.

Mistake 1 – Day Trading. Many believe that buying and selling stocks within a trading day is an easy way to make big profits through small intraday price movements. According to a recent study, over 90% of day traders lose money with the rest breaking even. Only a very small percentage make enough money to do it full-time. Why? Day trading is expensive. If you make 20 round-trip trades a day over the 250 trading days in a year, that will be 5,000 total trades, or 10,000 individual buy and sell trades. If you pay $10 per trade, that is $100,000 in commissions! So even if you make $100,000 in profit day trading, it will all go to commissions! Trading is a zero-sum game. This means that in every trade between two parties, one will win and the other will lose. Professional investment firms have spent millions of dollars to install cables to make their trades nanoseconds faster. Why? By doing this they have a leg up in trading, called “high-frequency trades”, to take advantage of the trends. The odds are stacked against day traders. It is better to leave the trading to professionals and be an investor.

Mistake 2 – Option Speculating. Options can be easy to learn by very difficult to master and extremely risky. Options are also known as derivatives since it “derives” it value from something else. An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an asset at a specific price on a certain date. Using options in a conservative can potentially provide some downside protection and produce a stream of income. However many try to speculate with options in hopes of making lots of money in short period of time. In every situation that I have dealt with, the investor using options instead has lost everything. As I mentioned in mistake 1, investing is zero-sum, so chances are the person on the other side of the options trade is much more experienced. Is there potential to make tons of money? Sure. Is it likely? Not at all.

Mistake 3 – Buying Penny Stocks. I constantly see all kinds of advertisements about how penny stocks can guarantee 500% returns on a penny stock. While there have been some penny stocks have hit it big, it is very rare. Many of these recommended penny stocks trade for as little as $0.0001 per share and the company recommending it look to pump then dump the stock. Some companies will even pay PR firms and analysts to cover it to make it legitimate and when unsuspecting investors take the bait, the company walks away with a nice profit. Anyone heard of the movie “The Wolf of Wall Street?” Perfect example.

Investors lose money when they try to make a quick buck or let their emotions gets the best of them. Building long-term and stable wealth takes time. If it sounds too good to be true, chances are it is!

-- Midweek, February 10, 2016

Thursday, August 30, 2018

top five in 2009

NEW YORK (AP) — The most valuable American companies at the start of the current bull market included an oil company and retail and consumer goods giants, and just one technology company.
The ranking seems very traditional, even a bit old-fashioned, compared to today, when big technology companies dominate the top of the market.

The top five most valuable companies at the end of February 2009 — Exxon Mobil, Walmart, Microsoft, Procter & Gamble and AT&T — includes several in sectors that are generally considered safe, a reflection of investors’ anxieties at a time the market was suffering huge losses.

Today, the top four most valuable companies on the U.S. market are concentrated in technology. They’ve used innovations in commerce, communications and software to change how people spend their time and money, and how they work.

Apple’s iPhone debuted in 2007 and was a fairly new product when the market hit its low point in early 2009. Today, it’s the source of most of Apple’s revenue. Thanks in part to steady sales and the high profitability of the phone, Apple became the first public company valued at $1 trillion earlier this month.

Exxon, P&G, Walmart and AT&T remain among the most valuable companies on the market, but only one company that held a position in the top five in 2009 is still there today: Microsoft, which made huge gains in recent years by branching out into cloud computing.

Amazon, currently the second most valuable U.S. company at $925 billion, may have shaken up more industries than any other. Its focus on fast shipping and delivery to customers has forced companies that sell clothes, groceries, electronics and other goods to follow suit — or risk falling out of favor with investors. Amazon was worth less than $30 billion back in March 2009.

Alphabet has made steady gains during the bull market as Google came to dominate the online search market and the advertising revenue that comes with it. Alphabet also runs several smaller tech businesses including Waymo, a self-driving car company.

Warren Buffett’s conglomerate Berkshire Hathaway is a bit of an anomaly at the top of today’s market.

Berkshire does own a big chunk of Apple stock but isn’t particularly focused on technology. It owns several insurance companies and has investments in railroads, airlines, banks and Coca-Cola. The firm’s value has more than tripled during the bull market as investors rewarded it for deals including its purchase of Precision Castparts and Heinz Foods, which then combined with Kraft.

Tuesday, August 07, 2018

Fidelity zero cost funds

Fidelity shook the investment landscape last week when it announced that it would offer two index funds with zero expense ratios: Fidelity Zero Total Market Index (FZROX) and Fidelity Zero International Index (FZILX). And not months in the future, but right away--they went live on Friday! Also striking is that Fidelity removed investment minimums.

I have a couple of thoughts on why Fidelity would do this and what it means for investors. I'll start with the industry view first.

Loss Leaders

Schwab and Fidelity can afford to offer index funds below their cost because they will make it up with all the other funds and brokerage services that clients will buy. Fidelity has a unique position in the industry in that it is a big player in brokerage, 401(k)s, and both actively and passively managed funds. In addition, Fidelity has always wanted to be the biggest and best. Other parts of the business remain quite profitable. In fact, Schwab and Fidelity have been pushing costs higher in their No Transaction Fee networks by charging fund companies--not investors--ever more to be on their platforms. Thus, I would guess Schwab will follow suit with its own fee cut.

Monday, August 06, 2018

How to start investing

Weeks ago, we posted an infographic that provided an easy introduction to investing, and why it should be a priority.

But how does one actually get into the market?

Today’s infographic is a practical guide that explains and compares four different ways to get started:

Picking Stocks

Picking Managers

Picking Index Funds

Hire a professional planner

Saturday, August 04, 2018

One Trillion Dollars

The maker of the iPhone and other gadgets became the world's first publicly traded company with a market value of $1 trillion on Thursday.

The company reached the milestone a couple of hours into the trading session when its shares reached $207.04. They closed with a gain of 2.9 percent to $207.39. The shares are up 23 percent so far this year.

The achievement seemed unimaginable in September 1997 when Apple teetered on the edge of bankruptcy and founder Steve Jobs rejoined the company. If someone had dared to buy $10,000 worth of Apple stock at that point of desperation, the investment would now be worth about $2.6 million.

Amazon is the second-most valuable company with a market value of $895 billion. Alphabet, the parent company of Google, is third at $863 billion.


Apple milestones

April 1976 Apple is founded by Steve Jobs, Steve Wozniak and Ronald Wayne.

June 1977 The Apple II computer is released.

December 1980 Apple goes public and its stock beings trading on the Nasdaq.

April 1983 Former PepsiCo executive John Sculley becomes Apple’s CEO after being recruited by Steve Jobs.

January 1984 Jobs unveils the Macintosh, the first mass-market personal computer to feature a mouse and a graphical interface on the display screen.

September 1985 Jobs leaves Apple’s board after company’s directors side with CEO John Sculley in a dispute between the two men.

June 1993 Longtime Apple employee Michael Spindler becomes CEO, replacing Sculley, who remains the company’s chairman.

August 1993 Apple releases the Newton, a touch-screen device that was supposed to work like a digital notepad.

October 1993 Sculley steps down as Apple’s chairman after a disappointing earnings report.

February 1996 Apple hires turnaround specialist Gil Amelio as its CEO after Spindler’s efforts to sell the company to Sun Microsystems or IBM unravel.

December 1996 Apple buys Next Software, a company started by Jobs, for about $400 million. Jobs agrees to return to Apple as an adviser.

August 1997 Apple announces it’s getting a $150 million infusion from archrival Microsoft to help keep the company afloat.

September 1997 Apple announces Jobs will serve as its interim CEO.

May 1998 Jobs unveils a new line of personal computers called the iMac.

January 2000 Apple drops the “interim” preface from Jobs’ CEO title.

May 2001 Apple opens its first retail stores in Virginia and California.

October 2001 Jobs unveils a digital music player called the iPod.

April 2003 Jobs unveils iTunes, a digital music store that initially only could be accessed on Apple devices. A version that worked on personal computers powered by Windows software came out six months later to broaden the market.

August 2004 Jobs discloses he had surgery for a rare form of pancreatic cancer.

October 2005 Tim Cook is promoted to chief operating officer.

January 2007 Jobs unveils the iPhone.

March 2008 Jobs announces an app store for the iPhone.

January 2009 Jobs takes a six-month leave of absence to tend to his health, temporarily turning the reins over to Cook.

January 2010 Jobs unveils a tablet computer called the iPad.

January 2011 Jobs takes an indefinite leave of absence, leaving Cook in charge once again.

August 2011 Jobs resigns as CEO and Cook succeeds him.

October 2011 Jobs dies.

March 2012 Apple announces it is restoring a quarterly dividend for the first time since 1995.

September 2014 Apple announces the Apple Watch, its first new product since Jobs’ death.

March 2015 Apple becomes one of the 30 companies comprising the Dow Jones Industrial Average.

June 2015 Apple launches its music-streaming service.

June 2017 Apple announces its first internet-connected speaker, the HomePod.

September 2017 Apple unveils its first $1,000 phone, the iPhone X, in celebration of the product line’s 10th anniversary.

August 2018 Apple becomes the first publicly traded company valued at $1 trillion.

Sunday, July 22, 2018

Bezos no. 2 / make that no. 1

[7/22/18] Just as Prime Day is kicking off, Amazon CEO Jeff Bezos on Monday reportedly became the richest man in modern history.

According to the Bloomberg Billionaires Index, which tracks the net worth of the 500 richest people in the world , Bezos is now worth $150 billion. The staggering number is more than Bill Gates was ever worth, even during the height of the dot-com boom, Bloomberg reported. 

After adjusting for inflation, Microsoft cofounder Bill Gates was worth $149 billion in 1999. 

Bezos and Gates have been duking it out to be the world's richest person for the last few years, but it's worth noting that Gates has donated a sizable part of his fortune to charity — primarily to the Bill and Melinda Gates Foundation. Right now, Gates has a net worth of $95.5 billion, almost $50 billion less than Bezos.

[1/9/18] Bezos made $6.1 billion in five trading days in 2018.  Now worth more than Bill Gates was ever worth.

[7/27/17] Bezos passes Gates this morning to become the richest man in the world.  Asking for ideas on philanthropy.

[7/24/17] For the 30 years FORBES has been tracking global wealth, only five people have ranked on our annual compendium of wealth as the richest person on the planet. At least one other person held the title, but so briefly (just two days), that he never appeared at that rank on FORBES’ annual list of World’s Billionaires.

Now, Amazon CEO Jeff Bezos is poised to join this exclusive single digit club, as Amazon stock continues to soar. The online retailer’s shares climbed 1.3% on Monday, adding $1.1 billion to Bezos’ net worth. Bezos is now a mere $2 billion from assuming the No. 1 spot on FORBES Real-Time Billionaires List, which would put him in the company of an exclusive group of billionaires who have held the title. Bezos has a net worth FORBES estimates at $88.2 billion as of the close of markets on Monday, while Microsoft founder Bill Gates holds the top spot on the list with a $90.1 billion fortune.

[3/30/17] Jeff Bezos has leapt past Amancio Ortega and Warren Buffett to become the world’s second-richest person.

Bezos, 53, added $1.5 billion to his fortune as Inc. rose $18.32 on Wednesday, the day after the e-commerce giant said it plans to buy Dubai-based online retailer Bezos has a net worth of $75.6 billion on the Bloomberg Billionaires Index, $700 million more than Berkshire Hathaway Inc.’s Buffett and $1.3 billion above Ortega, the founder of Inditex S.A. and Europe’s richest person.

Amazon’s founder has added $10.2 billion this year to his wealth and $7 billion since the global equities rally began following the election of Donald Trump as U.S. president on Nov. 8. The rise is the third biggest on the Bloomberg index in 2017, after Chinese parcel-delivery billionaire Wang Wei’s $18.4 billion gain and an $11.4 billion rise for Facebook Inc. founder Mark Zuckerberg.

Buffett, who’s added $1.7 billion in 2017, has shed $4.7 billion since his fortune peaked at $79.6 billion on March 1. Ortega is up $2.1 billion year-to-date. Bezos remains $10.4 billion behind Microsoft co-founder Bill Gates, the world’s richest person with $86 billion.

*** 5/15/17 ***

Jeff Bezos, founder and CEO of Amazon, is one of the most powerful figures in tech, with a net worth of roughly $82 billion.

Today, his "Everything Store" sells more than $136 billion worth of goods a year.

Here's how the former hedge funder got his start and became one of the world's richest people.

Wednesday, July 18, 2018

Peter Lynch

[7/18/18] Robert Abbott reviews One Up on Wall Street:
Introduction - The Power of Common Knowledge
chapter 1 - Great Investors are not born
chapter 2 - The Wall Street Oxymorons (professional investing)
chapter 3 - Speculating or Investing?
chapter 4 - The Mirror Test
chapter 5 - Is this a good market? (don't ask)
chapter 6 - Stalking the Ten-Bagger
chapter 7 - 6 Categories of Stocks
chapter 8 - Finding Companies
chapter 9 - Places to avoid
chapter 10 - It's all about earnings
chapter 11 - the two minute monologue
chapter 12 - getting the facts
chapter 13 - Ratios and Data
chapter 14 - Three phases of a company's life

[7/18/18] You have plenty of time

[6/18/15] 20 Golden Rules

[12/24/14] Stocks to avoid.

[12/24/14] The Perfect Stock

[5/19/14] Picking Stocks Like Peter Lynch (1:10:06 video from gurufocus)

[4/2/14] The Peter Lynch Portfolio 29 (only $79/year from gurufocus)

[6/7/09] Peter Lynch videos (John Templeton and Louis Rukeyser too)

[8/27/07] On market timing: ""I don't remember anybody predicting the market right more than once, and they predict a lot," Lynch said in a PBS interview several years ago. He also likened investing in stocks with a one- or two-year horizon to "betting on red or black at the casino," adding, "What the market's going to do in one or two years, you don't know. Time is on your side in the stock market."

Asked in that same PBS interview whether average investors should follow a "buy-and-hold" strategy, Lynch responded, "They should buy, hold and when the market goes down, add to it. Every time the market goes down 10%, you add to it, [and] you would have better returns than the average of 11%, if you believe in it, if it's money you're not worried about [in the short term]."<! forbes article via russ ->

[8/22/06] Since I am looking at this review of Beating the Street, I figured I'd collect some of the other links to Lynch sprinkled among this blog.

The Wit and Wisdom of Peter Lynch

The different kinds of companies

The Peter Lynch approach to 'Understandable' Stocks

Peters's 21 Principals

Fast grower or low p/e?

Don't invest like Peter Lynch

[9/6/06] Review of One Up on Wall Street

[9/26/06 from mia notes from 3/31/01] Perhaps the most important thing I've learned from Peter Lynch is (to paraphrase) if the earnings keeps growing, the price will eventually follow. ... I'm trying to look up the exact quote and the closest I could come is this paragraph from One Up On Wall Street, Chapter Ten entitled Earnings, Earnings, Earnings:
... it always comes to down to earnings and assets. Especially earnings. Sometimes it takes years for the stock price to catch up to a company's value, and the down periods last so long that investors begin to doubt that will ever happen. But value always win out ...
I'm now looking at the April 1999 Worth and Lynch is featured in an ad for Fidelity Aggressive Growth. Here's his quote,
Despite 9 recessions since WWII, the stock market's up 63-fold because earnings are up 54-fold. Earnings drive the market.
[My question isn't why the correlation, but why the disparity? At first it seems way off because I thought 55-fold would be double of 54-fold. But actually 108-fold is. 63-fold is only 17% higher than 54-fold.]

Here's some more from the Legg Mason Semi-Annual report (6/30/05). Stocks rise with earnings. "Stock prices are highly positive correlated (over 0.90) with the direction of profits, not their rate of group."]

[2/11/13] Here's another similar quote from One Up On Wall Street

"You can see the importance of earnings on any chart that has an earnings line running alongside the stock price. On chart after chart the two lines will move in tandem, or if the stock price strays away from the earnings line, sooner or later it will come back to the earnings." Peter Lynch - 'One Up On Wall Street”

On the other hand, Keith Wibel observes that "Over 10-year periods, the major determinant of stock-price returns isn't growth in corporate profits, but rather changes in price-earnings multiples. The bull market of the 1980s represented a period when multiples in the stock market doubled- then they doubled again in the 1990s. Though earnings of the underlying businesses climbed about 6% per year, stock prices appreciated nearly 14% annually."

Thursday, February 15, 2018

a V bottom?

technician Urban Carmel of The Fat Pitch blog recently undertook a study of 10% drops in the S&P back to 1980.  (In order to capture more cases, he didn't draw the line precisely at 10%, but stayed close to that mark.)

In all, there were 25 instances of an approximately 10% decline in the index.  Of these, only 16% resulted in a V-bounce where the original low for the move was never revisited.

In the other 84% of the situations, the market returned to test its lows.  So the odds are strong, on the historical record at least, that the S&P will creep back to the area of its February 8 closing low (2581) before the market can resume its climb to new all-time highs.

-- Richard Band, 2/15/18

Friday, February 09, 2018

bull and bear markets

Take the long view.

Markets typically go up and down, and you’re likely to experience several significant declines during a long investing career. But even bear markets—that is, periods when the market fell by more than 20%—historically have been relatively short.

The Schwab Center for Financial Research looked at both bull and bear markets, based on the S&P 500 Index, going back to 1966, and found that the average bear market lasted a little longer than a year (505 days). The longest of the bears was roughly two and a half years (915 days), and it was followed by a nearly five-year bull run.

Timing the market’s ups and downs is nearly impossible, but all investors would do well to ignore the noise and stay focused on their plans.

Friday, January 19, 2018

Gates to pay Nigeria's debt

Billionaire philanthropists Bill and Melinda Gates will pay off $76 million of Nigeria's debt.

It's part of a promise the Bill & Melinda Gates Foundation made to the African country in an effort to end polio. The payments, which will be made over the course of 20 years, are due to begin this year.

In 2014, Nigeria borrowed the money from Japan to fund its fight against the preventable disease, Quartz reports. The Gates Foundation had agreed to repay the loan if Nigeria met certain conditions, namely "achieving more than 80% vaccination coverage in at least one round each year in very high risk areas across 80% of the country's local government areas," according to an email from the foundation to Quartz.

Nigeria held up its end of the bargain, and no new cases of polio were reported in the country in 2017. That's a drastic change from 2012, when Nigeria had over half of all polio cases worldwide, according to Quartz.

In a recent blog post, Gates acknowledges the significant strides made towards wiping out the disease globally — 30 years ago, there were 350,000 cases of polio per year worldwide, while last year, that number dropped to just 21.

"The heroes who have made this progress possible are the millions of vaccinators who have gone door to door to immunize more than 2.5 billion children. Thanks to their work, 16 million people who would have been paralyzed are walking today," Gates writes.

Polio is "a crippling and potentially deadly infectious disease," which, after invading the nervous system, can cause paralysis. Among those paralyzed, two to 10 percent die.

The Gates Foundation spent $3 billion in 2017 to help stop the spread of the disease, and names polio eradication one of its "top priorities." The foundation says it has supported the Global Polio Eradication Initiative's efforts to wipe out the disease by contributing technical and financial resources to accelerate targeted vaccination campaigns, community mobilization and routine immunizations.

The Gates' donation is not out of character; in 2017, they gave $4.6 billion to their namesake organization. In addition to its work with polio, the foundation has also spent $1 billion in an effort to send over 20,000 kids to college and has committed millions more toward fighting Alzheimer's and providing resources to women in developing countries.

Thanks in part to his massive philanthropic efforts, Gates is no longer the richest person in the world, a title that he had held for much of the last decade. Jeff Bezos is currently the richest person, with a net worth of more than $108 billion, according to Forbes. Gates is currently worth $92 billion.

However, Bloomberg notes that Gates would have a net worth of $150 billion if he had not been so generous. While Bezos is not know for being particularly philanthropic as billionaires go, in January he announced a $33 million donation toward TheDream.Us, an organization that provides scholarships undocumented immigrants brought to the U.S. as children, known as "dreamers."

Gates also founded The Giving Pledge with Warren Buffett. Its billionaire signers have promised to give away at least half of their wealth.

"We have been blessed with good fortune beyond our wildest expectations, and we are profoundly grateful," Bill and Melinda wrote in their Giving Pledge letter, CNBC Make It previously reported. "But just as these gifts are great, so we feel a great responsibility to use them well."

Sunday, January 14, 2018

stock returns in the next 10 years

As 2017 dawned, few market experts had high hopes for stocks' returns over the next seven to 10 years; after all, the market had already staged a strong run stretching back to March 2009.

With stocks posting another stellar year last year--and with valuations that could hardly be described as cheap--most serious experts are even more circumspect in their long-range return expectations today.

True, economic fundamentals are fine: The economy is solid, unemployment remains low, and corporate earnings growth has been robust. But much of that good news is arguably already priced into stocks' valuations today.

At first blush, forecasting the market's returns, even on a long-term basis, might seem like folly. It's impossible to predict the future, right? But like it or not, market-return assumptions are an essential input for your financial plan. Without some reasonable expectation of what your portfolio will return, you can't know how much you'll need to save and for how long. You can't know whether saving for retirement should be your sole financial preoccupation or whether you can hit other goals, such as college funding, along the way.

To help you arrive at an educated guess of how much the market will contribute to the success of your plans, I've gathered return expectations from market experts both inside and outside of Morningstar. Note that the specifics of these return estimates vary a bit; some of these return expectations are inflation-adjusted while others are not. In addition, some of the experts cited below forecast returns for the next decade, while others employ slightly shorter time horizons. In any case, these return estimates are more intermediate-term than they are long. As such, they're the most relevant to investors whose time horizons are in that ballpark, or to new retirees who face sequence-of-return risk in the next decade.

John C. Bogle, founder of Vanguard Group
Highlights: 4% returns for stocks, 3% returns for bonds over the next decade (October 2017)

Highlights: -4.4% real (inflation-adjusted) returns for U.S. large caps over the next seven years; 2% real returns for emerging markets equities (October 2017).

Morningstar Investment Management
Highlights: 1.8% 10-year nominal returns for U.S. stocks; 2.5% 10-year nominal returns for U.S. bonds (Sept. 30, 2017).

Research AffiliatesHighlights: 0.3% real returns for U.S. large caps during the next 10 years; 0.8% real returns for the Barclays U.S. Aggregate Bond Index (Dec. 31, 2017).

Charles Schwab Investment AdvisoryHighlights: 6.7% expected nominal return from U.S. large-cap stocks from 2017-2026; 3.1% nominal returns from U.S. investment-grade bonds (August 2017)

Highlights: Nominal U.S. equity-market returns in the 3% to 5% range during the next decade; 5.5% to 7.5% returns for non-U.S. equities; 2% to 3% expected returns for global fixed-income markets (December 2017)

Thursday, December 28, 2017

yeah, the market was up but...

As 2017 winds down and 2018 gets ready to begin, now is the perfect time to reflect on how you did this year and how you can improve upon that next year. Even though the market kept going up and up, not all stocks went along for the ride. There were plenty of stocks that underperformed the market. In fact, more than half of the stocks in the S&P underperformed this year. And nearly 25% actually went down and lost money! Hard to believe in such a spectacular year. But it's true.

-- Kevin Matras, Profit from the Pros

Thursday, December 21, 2017

market most overbought in 22 years

It's proved to be a major market theme this year: Stocks are hitting all-time high after all-time high in what appears to be an unstoppable juggernaut of an equity rally. Many say that's cause for concern, as the broader market has seen so few pullbacks this year amid virtually no volatility.

According to one analysis, however, the market's historically overbought condition is no reason to press the sell button.

The S&P 500 is the most overbought in 22 years, as measured by its 14-week relative strength index, said Ryan Detrick, senior market strategist with LPL Financial. The classic overbought/oversold indicator is historically elevated, above 80.

But Detrick found that when the S&P 500 has become this overbought (in 13 times since 1950), the market has risen the following year all but once, seeing an average annual move higher of 11 percent.

"In other words, really strong returns going forward, even after we are so overbought, which is one of those rare times that maybe this could be a continuation of the bull market. Things still look pretty good, even though we are still historically overbought here," Detrick said Wednesday in an interview with CNBC's "Trading Nation."

This is just another stunning statistic to pile into a record year for records. This year has also produced the longest daily streak ever without a 3 percent pullback, and the most all-time high records for the Dow Jones industrial average.

Monday, December 18, 2017


[from Liz Ann Sonders]

There are myriad metrics which can be used to value stocks individually; or the market overall.  It’s admittedly difficult to decide which valuation metrics are the most relevant at any point in time.  I keep a running tab of 13 of them—some of which are quite common, and others likely less well-known.  As you can see in the table below, I’ve arrayed them in descending order, from those which declare the market to be inexpensive to those which declare the market to be extremely over-valued.  The metrics at the top are interest rate- and/or inflation-based; and given today’s still-easy financial conditions, stocks still look fairly reasonably-priced.

But I want to call out one metric in particular—the S&P 500 dividend yield.  I was fooling around with a number of charts and data points last week, and had my research assistant put together a simple chart comparing the 2-year U.S. Treasury yield to the S&P 500’s dividend yield, as you can see below.  Just last week, the former moved above the latter for the first time in about a decade.

My friend Jason Trennert at Strategas Research Partners wrote about this indirectly last week in a research post.  He’s been calling the environment in which we’ve been investing since the financial crisis “TINA” (there is no alternative).  What’s meant by that acronym is that investors have been forced out the risk spectrum and into equities due to the paltry yields offered on safer fixed income securities.  Last week, Jason added an “A” to TINA; because “there is now an alternative” (TINAA), with even shorter-term government debt now yielding more than stocks.

Friday, November 24, 2017

2017 Predictions

We all like to remember our successes and forget our failures, and finance is no different. As investors’ inboxes once again become clogged with annual outlooks from Wall Street’s scribblers, there is little admission of the nearly universal failure to predict what happened this year—even though the things the analysts missed are much more interesting than their forecasts.

There are two big lessons to learn from the mistakes of the year-end crystal-ball gazing. The first is that when everyone agrees that prices can only go in one direction, it is dangerous. The second is more nuanced: We really know an awful lot less about how the economy works than we thought.

Last year almost everyone was bullish about the prospects for the “reflation trade” of higher bond yields, stock prices and the dollar, driven by rising wages and Donald Trump’s tax-cut plans.

A year on and inflation hasn’t materialized, the tax discussion is bogged down in Congress, and almost every analyst was wrong. Benchmark 10-year Treasury yields are down, not up, the dollar is down, not up, and the S&P 500 has delivered more than double the gains of even the most bullish Wall Street prognosticators.

Cynics will look at what happened in the past and wonder why anyone bothers. Predictions have a dire track record, and have been sadly predictable themselves. Treasury yields have been forecast to rise every year for the past decade, according to forecasts collected by Consensus Economics, yet they have gone down more often than not. Even when they went up, the moves were only once anywhere near what was predicted, back in 2009. Forget using a dartboard to plan investments; on average a coin toss would be better.

The same goes for stock prices. Only rarely is the average S&P 500 forecast of strategists anywhere near the actual result. More than half the time since 2000 the miss has been either too high or too low by an amount bigger than the S&P’s 9% long-run annual gain.

Thursday, November 16, 2017

habits of the wealthy

Financial success, and what it means to be wealthy, is in the eye of the beholder—what’s probably not in dispute is that many of us want to learn the habits of the wealthy to reach and maintain our wealth potential.

Different people take different paths to becoming rich, and it’s not just about securing a desk in the C-suite, striking it rich in Silicon Valley, or snagging that lucky lottery ticket.

In fact, many of the to-dos on the path to wealth have little to do with earnings. Wealthy people tend to practice habits that are designed to both protect and grow their investments and help them keep body and mind in balance, experts say.

First, some parameters: Just what is “wealthy”?

Wealth is “definitely a relative term,” says Robert Siuty, Senior Financial Consultant at TD Ameritrade. “Some of my clients with $5 million or more in assets don’t consider themselves wealthy.”

Still, the old “millionaire” tag continues to be synonymous with wealth, Siuty says, so it’s a good benchmark—more precisely, a person with $1 million-plus in ready cash and other liquid assets (as opposed to illiquid assets, such as homes or retirement and brokerage accounts).

So here are a few habits of the wealthy.

Don’t Obsess About Your Salary or Where you Came From

You don’t have to be a high-income one-percenter to be wealthy. Some of Siuty’s clients never made more than $60,000 to $70,000 a year, “but did a very good job of managing overall expenses,” he says.

“They may be sitting on several million dollars simply because they started early, they saved as aggressively as they could afford to, and they invested that money and let that money stay invested over the long haul,” Siuty says. “Wealthy people come from all walks of life—they really, truly do.”

According to the 2016 U.S. Trust Insights on Wealth and Worth report, 77 percent of 684 high net worth adults surveyed said they grew up “middle class or lower,” including 19 percent who grew up “poor.” Just 10 percent of their wealth was inherited. (U.S. Trust is Bank of America’s private wealth management arm.)

#1 Rich People Habits: Pay Yourself First

Basically, it’s about having your financial and budgeting ducks in a row. Wealthy people tend to save a portion of each paycheck. They make sure the usual bills are squared away every month, while setting aside enough to build and maintain an emergency fund. “Anything in excess of that reserve, they invest,” Siuty says.

One key to building wealth is setting a budget and sticking to it. Wealthy people know how to hold the line on discretionary spending items that can help them increase the “invest” portion of their monthly budget.

#2 Look Ahead—Way Ahead—on Your Goals

Wealthy people typically set concrete goals, both personal and financial, and have a long-term focus stretching years, if not decades, down the road—the longer, the better. “Understand that it’s about time—the power of compounding returns, in other words—that allows you to accumulate wealth,” Siuty says.

The rich understand that it starts with personal goals—what you want to get out of life and how you might prioritize your list. And once you have an idea that you want to accomplish personally, you can plot a financial road map to help steer you there.

In other words, the path to wealth can involve starting early and focusing on the long term. If your financial goals are clear and you’ve planned well, you don't necessarily need to follow every market tick. But you should be aware of how your portfolio performed on a quarterly or annual basis and be ready to rebalance assets if necessary.

#3 Do Your Homework, Keep Your Cool

Markets go up, and markets go down—often suddenly and for no apparent reason. Define your comfort level with risk, keep your emotions in check, and recognize what you can and can’t control.

Wealthy people tend to understand the dynamics of the market and avoid making rash decisions, Siuty says. “They don’t let the market rattle them,” he says. “They actually may turn a bear market into advantage by buying assets cheap.”

Siuty says there’s no “secret sauce,” except that to build wealth it helps to “stay disciplined, be methodical, and not let emotions get the better of you.”

#4 Lead a Nonlavish Lifestyle

News flash: Wealthier folks tend to be more value-conscious and budget-driven in their spending and often shy away from big-ticket purchases or expensive toys they may not need.

“Instead of buying the $2 million house, they might buy something that’s one-third or one-quarter of that price,” Siuty says. “Less money to heat it, less to cool it, less in property taxes.”

And wealthy people generally understand the difference between price and value. In other words, they’re not afraid to open the pocketbook, but they tend to expect value in return.

#5 Turn Off the TV, Pick Up a Book

According to Thomas Corley, author of Rich Habits: The Daily Success Habits of Wealthy Individuals, 67 percent of the rich watch TV for one hour or less a day. Only 6 percent of the wealthy watch reality shows, he wrote, while 78 percent of the poor do.

Corley, a CPA and CFP, found that 86 percent of the wealthy “love to read,” with most of them reading for self-improvement.

#6 Get Up Early, Eat Healthy, Exercise

The wealthy tend to get a jump on others and squeeze more out of their days, and they monitor their health and eating closely.

According to Corley, 57 percent of wealthy people count calories every day, while 70 percent eat fewer than 300 calories of junk food per day. Some 76 percent do aerobic exercise at least four days per week. Self-made billionaire Richard Branson, for example, is reported to wake up around 5 a.m. to work out before starting his day.
Correlation, Not Necessarily Causation

Of course, these are tendencies, not guarantees, so practicing yoga, reading a book, and setting your alarm ahead won’t magically grow your investment account balance. But seeking a life of balance in mind and body, as well as in saving and investing, can help put you on the right path and help keep you from straying from that path.

And the earlier you start, the better.

*** [8/13/18]

Wealth comes in many shapes and sizes. In the course of the research for my book, "Rich Habits" — for which I interviewed 233 wealthy individuals and 128 poor individuals over three years, from March 2004 to March 2007 — I identified three main ways people get rich.

-- Tom Corley, 7/13/18

Saturday, October 28, 2017

changing sweep accounts

My E*Trade account is currently earning a measly 0.01% interest (in the E*Trade Financial Extended Insurance Sweep Deposit Account).

However I see you can change the sweep account to HTSXX (JPMorgan 100% US Treasury Securities Money Market Fund) which is currently earning a whipping 0.50%.

Here's how to change your sweep account at E*Trade.

In the very top menu on the broker’s website, select ‘Customer Service’. On the next page, click on ‘Self Service’ and then select ‘Change / Update Uninvested Cash Option’ under ‘Cash Management (Deposits, Transfers and Withdrawals)’. Doing so will produce a new page with a drop-down menu of the available core position options. Select the one you want and follow the prompts.


For Schwab customers, I've noticed on their statements that SWVXX (Schwab Value Advantage Money Fund) is now yielding higher than Schwab Cash Reserves (0.90% to 0.67%).  You can't set it up as a sweep account (as far as I know), but you can transfer back and forth from Cash Reserves to SWVXX.  So that's what I've started to do.


For Fidelity customers, earlier this year (2/13/17) I noticed that my CASH in my Fidelity account was getting 0.01% while my Fidelity Government Cash Reserves (FDRXX) in my IRA was getting 0.27%.  (Looking back it had been at 0.01% as recently as February 2016).

I wasn't able to switch my non-IRA account to FDRXX, the options I saw were SPAXX (Fidelity Government Money Market) and FZFXX (Fidelity Treasury Money Market).  Morningstar reported that FZFXX was yielding 0.16% while SPAXX was yielding 0.20%, so I switched it to SPAXX.

[5/18/18 - Looking back at my log on 2/13/17 -- To change the sweep account, go to positions, and click on the current sweep vehicle.  From there you're presented a button to "Change Core Position."  If only it was this easy at the other brokerages.]

Looking at Morningstar, FDRXX is yielding 0.74%, SPAXX is yielding 0.68%, and FZFXX is yielding 0.69%.  I'll stick with SPAXX for now.


I sure wish E*Trade had told me about this months ago.  I had to find out myself.  I looked because both Schwab and Fidelity were giving me much higher rates than E*Trade and TD Ameritrade.  So far I haven't found a good option for TD Ameritrade cash.  So currently I'm sweeping excess cash to Ally Bank savings (currently paying 1.25%).  The disadvantage is that it takes like 3 days for the transaction to complete.

Friday, October 27, 2017

predicting the market

There are two popular schools of thought re market timing. One is that it is impossible to time the market effectively and a waste of effort to try. The other is that knowing when crashes are coming is so valuable that you just have to give the objective of predicting them your best possible shot.

I hold a third view, a view which I believe is strongly supported by the research of Yale University Economics Professor Robert Shiller and research (including one paper that I did most of the work on myself!) done over the past 32 years (and largely ignored so far!). That view holds that short-term timing (predicting when crashes will come with precision) really is impossible but that predicting in a general way when they will come (long-term timing) is highly doable and absolutely required for those seeking to hold any realistic hope of long-term investing success.

Shiller's model uses valuations to make long-term predictions. Once prices go insanely high, we ALWAYS experience a wipe-out. There has never in 140 years of stock market history ever been an exception. But we CANNOT say with precision when the wipeout will come, only that it is on its way.

There is a wipe-out on its way today, according to the Shiller model. Thus, I think it makes sense to go with a low stock allocation today.

Now --

We may see stock prices double over the next year. If we see that, there are people who will complain that I was "wrong" in my advice.

I don't see it that way. The way I look at it is that the RISK of a crash is high this year. Thus, we all should be going with low stock allocations. It doesn't matter whether stocks actually crash this year or not. The risk is there. That's what matters.

Those who stay in stocks and enjoy another run-up in prices will NOT get to keep the money. They will lose all those gains plus a lot more in the crash that will follow next year or the year after that. So what good do those gains do them? I invest for the long-term. I want gains I can keep. Investors have never earned permanent gains from stock purchases made when stock were selling at the sort of prices at which they are selling today.

The losses you will see if stocks continue to perform in the future anything at all as they have always performed in the past will be devastating. It is hard for people to get their heads around how much one wipeout in a lifetime can hold you back. You lose not only the dollar value taken from your portfolio, you also lose decades of compounding returns on those dollars. Stay heavily in stocks at a time like today and you could easily set your retirement back 10 years, according to the last 30 years of academic research.

The "experts" won't tell you this. Most of the "experts" in this field make money only when people buy stocks. So they are compromised. You need to become personally familiar with what the academic research really says, not just what the people quoted as experts in this field SAY that it says. These are very, very, very different things, in my experience. The conventional wisdom in this field is dangerous stuff.

Rob Bennett, Created The Stock-Return Predictor
Answered May 9, 2013


This answer showed up in my quora feed last night, but was posted on 5/9/13.  The Dow closed at 15,082.62 on that day.  Today it closed at 23,434.19.  Yes, one day/week/month, the market will crash again.  Here's how Buffett prepares.

Wednesday, October 25, 2017

Morningstar ratings

Millions of people trust Morningstar Inc. to help them decide where to put their money.

From pension funds to endowments to financial advisers to individuals, investors rely on Morningstar’s star ratings to help divide $16 trillion among America’s mutual funds, in much the way shoppers use Amazon’s ratings to pick products. A lot of these investors, and the people paid to guide them, take for granted that the number of stars awarded to a mutual fund is a good guide to its future performance.

By and large, it isn’t.

The Wall Street Journal tested Morningstar’s ratings by examining the performance of thousands of funds dating back to 2003, shortly after the company began its current system. Funds that earned high star ratings attracted the vast majority of investor dollars. Most of them failed to perform.

Of funds awarded a coveted five-star overall rating, only 12% did well enough over the next five years to earn a top rating for that period; 10% performed so poorly they were branded with a rock-bottom one-star rating.


As if professional mutual fund managers didn’t have it hard enough.

Not only do they have to contend with the growing popularity of low-cost index funds, which simply buy and hold the entire market, but now here comes another threat: robot stock pickers.

That’s right.

The San Francisco firm EquBot has launched the first retail ETF to be managed using IBM’s Watson supercomputing artificial intelligence technology.

The use of computers to buy stocks isn’t new. So-called “quant funds” (short for quantitative analysis) have been around for years, relying on computer algorithms to identify short-term trading patterns and opportunities in the market.

But the AI Powered Equity ETF (AIEQ), which launched late last week, differs in that it is uses artificial intelligence to pick stocks in much the same way humans have for decades—by ranking investment opportunities on a variety of factors, including fundamentals such as profit growth and valuations.

EquBot notes that its AI technology can do humans one better because it can process over 1 million pieces of information a day—including earnings releases, economic data, consumer trends, industry developments, and headline news—to constantly update its assessment on roughly 6,000 publicly traded companies.

It then uses that computing power to select 30 to 70 stocks to own “based on their probability of benefiting from current economic conditions, trends, and world- and company-specific events,” according to a recent release.

“EquBot AI Technology with Watson has the ability to mimic an army of equity research analysts working around the clock, 365 days a year, while removing human error and bias from the process,” said EquBot CEO and co-founder Chida Khatua.

The fund’s AI technology also benefits from “machine learning,” he added—meaning it can learn as it goes, without having to be reprogrammed by humans.

So far, in its first few days of trading, the fund has gained 0.7%, according to Morningstar. That beats the 0.5% for the S&P 500 index.

Tuesday, October 24, 2017

delayed gratification

A Stanford University experiment demonstrated that one of the most important determinants of a person's future wealth was the capacity for delayed gratification. They put children alone in a room and gave them each a marshmallow and told the children that if they didn't eat the marshmallow they would be given a second marshmallow, and they would then have two. Many years later the children that were able to resist temptation and did not eat the marshmallow were significantly more economically successful than the ones that ate their marshmallow. In fact, the ones that were able to delay gratification tested better in a number of ways, got higher SAT scores, were healthier, and more successful in everything they did.

-- Saulius Muliolis, quora

Tuesday, October 17, 2017

Soros gives away $18 billion

George Soros just gave most of his wealth to his charitable organization, the Wall Street Journal reported Tuesday.

The billionaire philanthropist transferred $18 billion to Open Society Foundations, a sprawling international group of charities that works in more than 100 countries on projects focused on refugee relief, public health and many other topics.

The $18 billion figure amounts to almost 80 percent of the financier's total net worth. Before the transfer, Soros had a net worth of $23 billion, according to a Forbes tally Tuesday. The site ranks him as the 29th wealthiest person in the world.

Soros began his charitable giving in 1979, nine years after launching Soros Fund Management, the hedge fund that would propel him into America's ultrawealthy. He has given away $12 billion in the four decades since, according to his official biography, available on his website.

His first charitable work involved providing black South Africans with scholarships during the country's apartheid. During the Cold War, he provided photocopiers to people living in eastern Europe in order to reprint texts banned by communist governments. He has also underwritten the largest effort to integrate Europe's Roma, according to the biography available on his website.

Tuesday, October 10, 2017

greatest wealth creators since 1926

In the history of the markets since 1926, Apple has generated more profit for investors than any other American company.

In a phone conversation, Professor Bessembinder reminded me that the stock market is a moving target and that his rankings, while valid through the end of 2016, don’t capture the sharp movements of this calendar year. In his 2016 rankings, Exxon Mobil, not Apple, appears at the top, with net wealth creation of more than $1 trillion. Apple lags at about $745 billion.

But it has been a wild year. Exxon Mobil shares have declined more than 11 percent at a time of weak energy prices, while Apple, which just introduced a raft of new iPhones, is on a spectacular stock surge, gaining more than 37 percent.

Run the numbers as I did, and it’s clear that at this moment, Apple has pulled ahead of Exxon Mobil, with total net wealth creation of somewhere in the vicinity of $1 trillion.

As I wrote in July, Amazon, which started trading in 1997, has soared to the 14th spot. Although it hasn’t been in existence long compared with Exxon Mobil, its annualized return is the highest in the list, 37.4 percent through December. A group of young companies have also had remarkable results.

Facebook, which started trading in June 2012, is the youngest on the list, with an annualized return of 34.5 percent. Visa, which had its initial public offering of stock in 2008, is the second-newest company, with a 21 percent annualized return, followed by Alphabet (Google), ranked 11th with a 24.9 percent annualized return.

And then there is that great wealth machine, Microsoft, ranked as the third-greatest wealth creator. Since 1986, it has had an annualized return of 25 percent, making its founder, Bill Gates, the richest man in the world, with a net worth of more than $87 billion, according to Bloomberg.

No list of wealth-generating companies is complete without Berkshire Hathaway. It ranks 12th, just behind Alphabet, with an annualized return of 22.6 percent. By comparison, Exxon Mobil’s annualized return was only 11.94 percent.

Anyone who invested in Apple or Microsoft or, really, in any of these companies at their inception and just held on did extraordinarily well. You might look at that record and conclude that you should just buy the best companies as a foolproof way to get rich.

If only it were that easy.

How do you find those companies? Not here.

“The problem is, I have no idea which companies will generate the best returns over the next 10 or 20 or 30 years, “ Professor Bessembinder said. “Probably it will be some companies we’ve never heard of. Maybe it will be companies that don’t even exist now.”