Principles of Long-Term Investing

This is a basic overview by David Chang, but it doesn't hurt to review...

Part 1

1) Focus on total return

2) Invest for longevity

3) Avoid chasing the crowd

Part 2

4) Be flexible and diversified

5) Buy value, not future economic outlook

6) Take the proper amount of risks

Part 3

7) Learn from your mistakes

the Womack Strategy

Back in 1978, market observer and money manager John Train wrote an article for Fortune magazine titled, How Mr. Womack Made a Killing. The article should be mandatory reading for investors who seem to have an almost desperate need to learn how to buy low and sell high.

The article tells of a young investor meeting a man who never on balance had lost money in the stock market. In fact he had made quite an enormous amount of money over the years. The investor was not a fund manager or trader of great renown, but a farmer who grew rice and raised pigs.

Mr. Womack had a simple approach to the stock market. When he read in the papers that the market was down and the pundits of the day were predicting further collapse and calamity, he would take a break and sit down with a copy of the Standard & Poor's Stock Guide. He would find a bunch of solid dividend-paying companies with strong financials that had dropped to single digits and drive into town and buy a package of them. If they fell a bunch more, he would add to his package.

When he was done buying, Mr. Womack went back to the farm tended the fields and fed the pigs and did not spend much time thinking about stock except to cash his dividend checks. In a few years' time when the daily paper was full of exciting comments about the stock market and predictions of eternal prosperity, he would drive back into town and sell all his stocks.

Mr. Womack told his young friend that stocks were much like pigs. If he could buy them when prices were depressed and keep them until market prices were much higher, he stood to make much more money from his farming operations.

***

I was familiar with this story, but never thought of it as the "Womack strategy" (never realized the guy had a name).  I believe I first read about in John Train's book, The Craft of Investing, where it is included in the appendix.

The other thing I note now, is that in the last paragraph, Train writes "I remind the reader that although this feeling for the rhythm of markets is a useful one to acquire, it is ont the only strategy or even the best strategy.  Probably Mr. Womack would have done just as well by buying and holding growth stocks.  [like Berkshire Hathaway for example, had it been available at the time]

See Grace Groner and Hetty Green and Anne Scheiber as examples of long-term investors.

Joe Granville

When the stock market prognosticator Joseph E. Granville talked, his subscribers listened.

In early 1981, for instance, the Dow Jones industrial average dived 2.4 percent, on what was then the heaviest trading day in history, after Mr. Granville urged his newsletter followers to “sell everything and go short.” It rebounded in the following weeks before tumbling more than 20 percent over the next 15 months.

Mr. Granville, who died on Sept. 7 at 90, was perhaps the most famous of a generation of market seers who made their own fortunes in the less risky venue of the newsletter business, in his case The Granville Market Letter, which he began publishing in 1963.

“I’m paid to put you in at the bottom and take you out at the top,” he declared as he barnstormed the country with a showman’s flair, drumming up subscribers at investment seminars choreographed like Broadway shows.

He once slid to the stage on a 100-foot-long wire wearing his standard After Six tuxedo. He used puppets and clown outfits. He often played a blues song on the piano with lyrics that underscored his contention that Wall Street brokerages were just out to make money off their customers.

Mr. Granville wrote a daily market letter for E. F. Hutton & Company before striking out on his own. At its peak, in the early 1980s, his near-weekly newsletter had 13,000 subscribers. They paid $250 a year — and $500 more for urgent alerts by phone and Telex — as Mr. Granville sought to time the biggest gyrations in the markets.

Louis R. Rukeyser, who often had Mr. Granville on his PBS program, “Wall Street Week,” told People magazine in 1981 that Mr. Granville was “the most controversial man in American finance.”

But while Mr. Granville correctly called a bear market in the late 1970s and the implosion of technology stocks in 2000, he missed other major turns, like the start of an epic bull run in 1982.

And like many other market forecasters, his overall performance was “very poor” compared with that of basic stock index funds, said Mark Hulbert, editor of The Hulbert Financial Digest, which has tracked the performance of investment advisory newsletters since 1980.

Mr. Hulbert said that from 1980 through January 2005, Mr. Granville’s stock tips for investors lost 0.5 percent on an annualized basis, compared with an 11.9 percent average yearly gain for a general stock index. Mr. Granville’s tips for more aggressive traders lost an average 10 percent a year over that period, Mr. Hulbert said.

Mr. Granville, who continued to produce the newsletter until his death, did not provide enough trading details after January 2005 to track his performance as precisely. But he got enough of the broad turns in the market right, Mr. Hulbert said, that if investors had ignored his stock picks and bought or sold an index fund with each major call, they would have earned 8.5 percent a year since 1980.

“He deserves some credit for insight into the market,” Mr. Hulbert said, adding that Mr. Granville created technical indicators still used by many market analysts.

He died in a hospice in Kansas City, Mo., where he was being treated for pneumonia, his wife, Karen E. Granville, said.

Obama to name Yellen as next fed chair

(Reuters) - President Barack Obama will announce his choice of Federal Reserve Vice Chairwoman Janet Yellen to be the next head of the U.S. central bank on Wednesday, putting her on course to be the first woman to lead the institution in its 100-year history.

If confirmed by the U.S. Senate, Yellen would replace Ben Bernanke, whose second four-year term as head of the Fed expires on January 31.

Obama is due to make the announcement at the White House at 3 p.m. EDT, a White House official said on Tuesday. Bernanke is also scheduled to attend.

Yellen has been a forceful advocate of aggressive action to drive down unemployment and would provide continuity with the policies the Fed has established under Bernanke. Now her main challenge will be to steer policy back to a more normal footing and slowly wind down the extraordinary measures taken in the five years since the financial crisis.

does Obama want a market selloff?

President Barack Obama's best friend could be Wall Street's worst nightmare.

A little market crisis -- not enough to crash the economy into recession but enough to stir public fear that would push Republicans to the negotiating table -- could be just what settles the impasse in Washington and reopens the government, according to investing pros and market observers.

In an exclusive interview with CNBC, the president warned Wall Street that this shutdown could be different. Previous halts in nonessential government activities have caused little market reaction, with major averages actually rising most of the time in the month after the shutdowns are settled.

Obama's remarks indicated to some observers that he is trying to push investors out of the relative complacency they have shown so far. Futures were broadly lower Thursday, indicating markets may be taking heed.

"They feel that a severe market selloff would be helpful to break the logjam," said Greg Valliere, chief political strategist at Potomac Research Group in Washington. "It would be helpful in making the Republicans sue for peace. Obama and [Senate minority leader] Harry Reid believe that."

Twitter was abuzz about the interview, with some sharing Valliere's opinion.