should you wait for a crash?

before buying?

Geoff Gannon gives us his answer:

Take your time.

But don’t wait for a market crash.

Just wait for an obviously wonderful business selling for the kind of price a normal stock sells for in normal times.

[Looking back on some of my picks, I bought some good companies (or what I thought were good companies) initially too high, but then bought more as they declined. For example, Costco (which has worked out). Walgreen (which hasn't so far).]

Dow breaks 13000

Bolstered by rising consumer confidence and a decline in oil prices, the Dow Jones industrial average closed above 13,000 for the first time in nearly four years on Tuesday.

The rising stock market is a sign that investors are feeling more confident that the economy will be improving for at least the short-term. And that could have ramifications beyond Wall Street.

“Higher stock prices might lead people to be more optimistic about the economy,” said Allan Timmerman, finance professor at the University of California, San Diego.

But Timmerman warned that the market “doesn’t have the best track record for predicting economic growth, even if it is a very noisy indicator.”

The Dow, which had been flirting with the 13,000 mark for the past week, rose 23.61 points on Tuesday, or 0.2 percent, to close at 13,005.12.

The Dow last closed above 13,000 in May 2008, four months before the fall of the Lehman Brothers investment bank and the worst of the global financial crisis.

The other major indexes sit at multi-year highs as well. The Standard & Poor's 500 closed Tuesday at its highest level since June 2008, and the Nasdaq has not traded so high since December 2000, during the bursting of the bubble in technology stocks.

***

[Looking at bigcharts.com, the all-time high is slightly north of 14K set in 2007. It looks that it's about doubled from the March 09 low.]

(However, adjusting for dividends, it DID hit an all-time high.)

A class on Value Investing

Hi Geoff,

Assuming someone had the temperament, interest and work ethic to be a good investor. What would you prescribe as a curriculum?

Which books, articles, shareholder letters, blogs, websites, etc. If you were going to have an extensive class on value investing, what would the materials list look like?

Thanks,
Ryan

Here is what I would make required reading:

· Warren Buffett’s Letter to Shareholders (1977-Present)

· Warren Buffett’s Letter to Partners (1959-1969)

· The Snowball: Warren Buffett and the Business of Life

· Buffett: The Making of An American Capitalist

· Poor Charlie’s Almanack

· Common Stocks and Uncommon Profits (by Phil Fisher)

· The Interpretation of Financial Statements (by Ben Graham)

· The Intelligent Investor (1949 Edition)

· Security Analysis (1940 Edition)

· Benjamin Graham on Investing

· Benjamin Graham: The Memoirs of the Dean of Wall Street

· One Up on Wall Street (by Peter Lynch)

· Beating the Street (by Peter Lynch)

· You Can Be a Stock Market Genius (by Joel Greenblatt)

· The Little Book That Beats the Market (by Joel Greenblatt)

· There’s Always Something to Do (about Peter Cundill)

· The Money Masters

· Money Masters of Our Time

· Hidden Champions of the Twenty-First Century

· Jim Collins Books (Built to Last, Good to Great, How the Mighty Fall, and Great by Choice)

· Distant Force (about Henry Singleton)

· Kuhn’s The Structure of Scientific Revolutions and The Essential Tension

Part of the class would require reading some material about extreme stock market conditions like:

· The Big Short

· Too Big to Fail

· This Time is Different

· When Genius Failed

· The Panic of 1907

This part of the class would revolve around contemporary sources. Students would read newspaper articles from the various crashes. They’d also read newspapers around the time of the various market bottoms. Historical case studies should be based on sources that were present and available to investors, CEOs, etc., at the time. So, if you’re studying an investment Ben Graham made in 1942 – you should be using The New York Times archives to find articles printed in 1942 and you should be getting your data from a Moody’s Manual from 1942.

This is critical.

And many people have never done it. Many investors have never gone back through old Moody’s Manuals, newspaper articles, etc. If you think you know enough about 1929 and yet you’ve never read something written in 1929 – you’re idea of knowing is too intellectual and external. Knowing is understanding what the paper looked like every morning to folks who were as blind to the future as you are now. You have to internalize what it feels like to be in the middle of all that.

***

[Assuming that Geoff has done all this (impressive already to me), I wonder how successful he actually is at investing? Here's a hint, he moved to Texas and is now working full-time for gurufocus. (So he still "works" for a living.)

Walter Schloss

Walter Schloss, the money manager who earned accolades from Warren Buffett (BRK/A) for the steady returns he achieved by applying lessons learned directly from the father of value investing, Benjamin Graham, has died. He was 95.

He died on Feb. 19 at his home in Manhattan, according to his son, Edwin. The cause was leukemia.

From 1955 to 2002, by Schloss’s estimate, his investments returned 16 percent annually on average after fees, compared with 10 percent for the Standard & Poor’s 500 Index. (SPX) His firm, Walter J. Schloss Associates, became a partnership, Walter & Edwin Schloss Associates, when his son joined him in 1973. Schloss retired in 2002.

Buffett, a Graham disciple whose stewardship of Berkshire Hathaway Inc. has made him one of the world’s richest men and most emulated investors, called Schloss a “superinvestor” in a 1984 speech at Columbia Business School. He again saluted Schloss as “one of the good guys of Wall Street” in his 2006 letter to Berkshire Hathaway shareholders.

“Walter Schloss was a very close friend for 61 years,” Buffett said yesterday in a statement. “He had an extraordinary investment record, but even more important, he set an example for integrity in investment management. Walter never made a dime off of his investors unless they themselves made significant money. He charged no fixed fee at all and merely shared in their profits. His fiduciary sense was every bit the equal of his investment skills.”

***

America lost an investing icon over the weekend; although few individuals outside the small fraternity of Graham and Doddsville are privy to the unique brilliance which Walter Schloss possessed. That fact is almost as sad as his passing.

The genius of Mr. Schloss was rooted in simplicity and tempered with patience. But above all, his stunning success was a direct result of his fundamental sense of value and his practice of self-reliance. You see, Schloss never relied on anyone but himself to achieve his stellar results. He never cared what others were buying and he never lost heart if the overall market outperformed his holdings in the short term. In the long term, he waxed the overall market for decades and left virtually every other investment and fund manager in his wake.

***

Walter Schloss – like Warren Buffett – was a student of Ben Graham. However, Schloss took a more arithmetical approach to investing. Schloss remained more quantitative than Warren Buffett. He was never quite comfortable with the Phil Fisher’s scuttlebutt approach. In this way, Schloss stuck closer to Ben Graham’s teachings than Warren Buffett did.

This is what Warren Buffett said of Walter Schloss in his 2006 letter to shareholders:

“Walter did not go to business school, or for that matter, college. His office contained one file cabinet in 1956; the number mushroomed to four by 2002. Walter worked without a secretary, clerk or bookkeeper, his only associate being his son, Edwin…Walter and Edwin never came within a mile of inside information. Indeed, they used ‘outside’ information only sparingly, generally selecting securities by certain simple statistical methods Walter learned while working for Ben Graham.”

And, finally, this is what Warren Buffett said of Walter Schloss in 1984:

“… He knows how to identify securities that sell at considerably less than their value to a private owner… He simply says, if a business is worth a dollar and I can buy it for 40 cents, something good may happen to me. And he does it over and over and over again. He owns many more stocks than I do – and is far less interested in the underlying nature of the business; I don't seem to have very much influence on Walter. That's one of his strengths; no one has much influence on him.”

Gold relative to S&P 500 (and comments)

In January 1980, gold reached 6x the S&P 500. It is currently 1.4. (Though well above the low set around 2000.)

The instructions on using the comments section is particular notable..

Comments

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

[via pbo]

Obama's proposed budget

President Barack Obama released his 2013 budget proposal yesterday. "This Budget is a step in the right direction," he wrote in the introduction. "And I hope it will help serve as a roadmap for how we can grow the economy, create jobs, and give Americans everywhere the security they deserve."

But that's where the easy reading ends. The rest of the proposal is a mammoth 251 pages of tables, charts, footnotes, appendixes, assumptions, and calculations. Some items are mandatory, others discretionary. Some departments are sub-departments of other departments, making it easy to double count and undercount. Phrases like "discretionary cap adjustment" are used liberally. It's not written with the average American in mind.

After reading about a dozen articles analyzing the budget, I was miffed that none offered a simple table showing how much money the proposal wants to spend, and where. So I did just that, with a little context:

As a percentage of GDP, safety-net programs like Social Security, Medicare, and income security are all above the long-term average -- due mainly to a weak economy and an aging population -- while defense spending is actually below average. All other budget categories are about in line with historic norms, if not below. That's an important point that often goes misunderstood: The majority of government spending that is currently in excess of historic averages is on programs that are very popular with voters, like Social Security. As The New York Times reported this week, about half of Americans live in a household that receives government benefits.

So that's spending. What about taxes? Here's what Obama proposes:

Total taxes are as a percentage of GDP will still be below the historic average in 2013 -- and even that relies on an assumption that various tax proposals like allowing the Bush tax cuts on high-income earners will be allowed to expire. Politically, that's probably not going to happen. And without those reforms, deficits will be much wider. Current tax revenue is far below normal, totaling 15.4% of GDP. If tax revenue were at a historic norm, the budget deficit would be $400 billion lower this year, erasing about one-third of the shortfall.

Coddling the Super-Rich?

In August of 2011 legendary investor Warren Buffett wrote an editorial in the New York Times entitled, “Stop Coddling the Super-Rich.” In the editorial Buffett argued that the rich have not been asked to pay their fair share and should have their taxes increased. What really resonated with many was Buffett’s argument that he should not be paying a lower tax rate than his secretary. President Obama quickly adopted the phrase and used it in support of his position of increasing taxes on the upper class.

In the editorial Buffett asserts that he paid a 17.4% tax rate in 2010 while others in his office averaged a 36% rate. Instead of shock and/or anger, the numbers triggered a red flag for me. The U.S. has a progressive taxation system - rates progress higher as your income increases. Buffett’s rate was unusually low. he average effective income tax rate for a person making over $10,000,000 in 2009 was 27% (see chart below). I also knew that a 36% average effective rate seemed unusually high. Something was amiss.

[oddly no comments yet]

***

Warren Buffett isn’t the only rich guy who wants to higher taxes on the rich. [who's writing this, Cesar Millan?]

A new survey from Spectrem Group found that 68% of millionaires (those with investments of $1 million or more)  support raising taxes on those with $1 million or more in income. Fully 61% of those with net worths of $5 million or more support the tax on million-plus earners.

Buffett, as you might recall, has proposed raising taxes on million-plus earners, saying the ultra-rich pay lower rates than everyday workers.

Rich people’s opinions of Buffett remain fairly positive in the wake of his tax-me-more crusade. More than a third of millionaires and ultra-high-net-worths said they have a more positive opinion of Buffett after his tax proposal. Only 19% of millionaires and 22% of the $5 million -plus group said they had a more negative opinion of him after the proposal.

why stocks beat gold and bonds

The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer's hope that someone else -- who also knows that the assets will be forever unproductive -- will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As "bandwagon" investors join any party, they create their own truth -- for a while.

Today the world's gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce -- gold's price as I write this -- its value would be about $9.6 trillion. Call this cube pile A.

Let's now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil (XOM) will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it's likely many will still rush to gold. I'm confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

-- by Warren Buffett (via gurufocus)

TRON is ready to run

"TRON IS READY TO RUN -- Rarely does an opportunity so ripe present itself! The possibility for huge gains is immense -- Read below"

Toron Inc is (TICKER: TRON) poised for huge growth. Many experts and Wall Street Professionals are stating that it could run as high as 7.50 in the next 60 days. If that is true (which we believe it could be), the gains would be even bigger than our last 3,000 percent gainer.

Facebook by the numbers

Unless you spent the better part of the week under a rock, you probably heard that Facebook, the game-changing social media giant, officially filed its paperwork to go public this week. Founded in 2004 by Mark Zuckerberg, the company proceeded to ignite a social phenomenon that drastically altered the way that people interact and connect.

And while its social implications are already well documented, its clout as a business and investment have largely gone unknown to the general public (although some very wealthy investors have gotten their hands on shares in the meantime). The filing gave most observers their first real peek into the real business that is Facebook, revealing some interesting figures at the same time, which we break down here in our most recent infographic -- Facebook's Amazing IPO By The Numbers.

Here are some highlights:

Valuation has gone from 0 in 2004 to $100 billion.
The second most visited site on the internet, next to Google. 6.2 billion to 4.8 billion monthly visitors.
24% owned by Mark Zuckerberg.
Zuckerberg figures to make $24 billion in the IPO.

P/E ratio of 100 (compared to 13 for Apple) [or maybe 150?]