Brownco sold

The consolidation in the US online brokerage industry continued on Thursday with E*Trade Financial agreeing to buy BrownCo from JPMorgan Chase for $1.6bn.

W. D. Gann

Who?

William Delbert Gann, better known the world over as W.D. Gann, is a legend in the world of stock and commodity trading. He was one of the most successful stock and commodity traders that ever lived. Using his own style of technical analysis, W.D. Gann took more than 50 million dollars in profits out of the markets! In today’s markets that would be closer to 500 million dollars!

Here's more.

What works?

Mauldin talks about looking for money managers. He's looking for real world results, yet says past performance is not indicative of future results.

That sounds contradictory. So he's looking for real world results plus something else.

"What do Finn and his team tell us does work? Fundamentals, fundamentals, fundamentals. As they look at scores of managers each year, the common thread for success is how they incorporate some set of fundamental analysis into their systems.

Great track records are not enough. I am going to need to know how you made that track record and then why."

The power of dividends

Question: How high would the Dow be today if dividends had been reinvested?

Answer: 900,000 according to Meir Statman. (It's currently at 10,558.)

Sustainable Growth

[8/6/05] What is the percentage of companies that will show above average growth for 10 years in a row? (scroll to "Where are the Bull Market Geniuses?")

See also Beware of Perfect Earnings

[9/17/05] Out of 1920 firms, Morningstar found 316 of them (16.5%) were able to grow revenue 10 years in a row. Earnings? 61 (3.2%). Free cash flow? 3 (0.2%). Which are the three? BRO, UNH, DHR.

Going further, how many companies have had 25% ROE ten years in a row? 23 (1.2%). How about 20% revenue growth ten years in a row? 2 (APOL, RGF).

[10/14/05] I'm looking at some old notes. Here's one from an old 1999 FDGFX report.

A company's ability to consistently grow its earnings over time is key to stock performance. When certain market sectors are performing well, however, it's easy to get caught up in a state of short-term euphoria.

... When I read that a company expects to generate 20% earnings growth annually over a five-year period, I'm very skeptical. ... In looking at companies that grew their earnings by 20% or greater in 1998, only 1% of those companies would have been able to grow at a minimum of 20% over the next four years. Also past earnings growth is no guarantee of future earnings growth. Of the companies that grew their earnings by 20% or more in each of the last five years, for instance, studies show that only 2% will sustain that level for the next five years. [I wonder what that chances of the sixth 20% year after having done the first five in a row, though.] When a stock has a projected growth rate of 20%, the market typically bids that stock up to a level that is unrealistic. When reality sets in, that stock usually falls out of favor.

Why are 15% successful (temperament)

[3/25/06] What every great investor must have

[3/26/05] Robert Hagstrom writes in the 2004 Legg Mason Growth Trust annual report.

A few weeks ago I attended a meeting with a consultant group in New York. As we were settling into our seats in the conference room one of the consultants immediately launched into a sermon, explaining to me that most portfolio managers not only have a college degree but most have attended graduate school. A large number have earned their Chartered Financial Analysts designate. Practically all institutional-level portfolio managers have several years of investment experience. He then said, ‘‘this is a business where 100% of the people are smart, but only 15% are successful.’’ He turned, looked at me and asked, ‘‘The question, Mr. Hagstrom, is why?’’

There are several reasons why most portfolio managers are not successful at beating the stock market over the long-term. Stock selection process is one. Portfolio management approach is another. Time horizon is a third. But the one reason that stuck in my mind was what Warren Buffett said at the 2004 Berkshire Hathaway annual meeting. When asked whether being smart is all one needs to be successful, he too thought for a moment and then replied, ‘‘Investing does not require extraordinary intelligence, but it does require an extraordinary temperament.’’

I turned back to the consultant and said, ‘‘Temperament.’’ When investing gets tough, and it does get tough from time to time, most portfolio managers do not have the right temperament: the combination of mental and emotional traits that allows an investor to be successful. When investing is easy, temperament may not be so important. But when investing gets difficult, temperament is what separates those who beat the market from those that do not.

[6/22/05] "Success in investing doesn't correlate with IQ -- once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing." - Warren Buffett

[7/20/05] Along the same lines, here's another Buffett quote (or maybe it's the same one?): "The most important quality for an investor is temperament, not intellect".

[9/15/05] Profiting From Temperament: An Illustration

All About Margins

[8/18/05] Traditionally, margins represent the efficiency by which companies capture portions of sales dollars. This article provides an explanation of the difference between gross margin, operating margin, and net margin.

In general, I'd say a high margin is a good thing. But a high margin naturally tends to yield a high price/sales ratio which is not generally considered desirable in value investing. That's probably because high margin businesses are generally high growth businesses. And high growth businesses tend to have high P/Es. So a high margin might be good for the company, but not necessarily for the stock.

[9/12/05] I'm looking at One Up On Wall Street (Some Famous Numbers). Lynch says "as business improves, the companies with the lowest profit margins are the biggest beneficiaries ... This explains why depressed enterprised on the edge of disaster can become very big winners on the rebound ... What you want then is a relatively high profit-margin in a long-term stock that you plan to hold through good times and bad, and a relatively low profit-margin in a successful turnaround."

Value Investing 101

[3/3/05] Value Investing 101 (Bruce Greenwald)

10 Commandments of Value Investing

Contrarian Investing

Value Investing - 5 Key Principals [this was written by Ye of Quovax using Seth Klarman as a reference -- and yeah I know it should be Principles not Principals, but that's what he wrote 3/7/09 a.m.]