In a paper entitled “Worried About the Downside?”, Richard Bernstein did a fascinating analysis of asset classes tracking how each did in
both an upside (bull market) and downside (bear market) environment. His
findings were a real eye-opener. First, very few asset classes actually
provide downside protection. His research shows most asset classes
capture both the upside and downside of bull and bear markets.
Second, only long-term US treasuries had a negative correlation –
meaning they lost value in a bull market but gained in a bear market.
Last, hedge funds – named because of their capabilities – actually
aren’t very good hedges against a bear market.
So what has been Wall Street’s answer to these findings? In typical
form they have developed a plethora of high cost strategies that include
Constant Proportion Portfolio Insurance (CPPI), Volatility Cap
Strategies, Volatility Options (VIX Options), Third Party Indices,
Variance Swaps, Put Options, Dynamic Asset Allocation Hedging, and
something called Interest Rate Swaptions.
Frankly, we are at a loss to describe what these strategies are
doing, let alone how they function. We believe Wall Street in general is
looking at market corrections and downside protection in exactly the
wrong way. At Nintai we see market corrections more as an opportunity
than an event to fear. As long-term investors, what could be better than
to invest in great companies at a cheaper price? We strongly believe it
is far better to be value oriented and use the correction as an
opportunity, than spend high amounts of dollars attempting to avoid what
might be your best investing prospects in years.
Tuesday, April 28, 2015
Monday, April 27, 2015
Joel Greenblatt on value investing
[11/24/13] Well, actually the secret to value investing is patience, and that's
generally in short supply now. The reason it doesn't get arbitraged away
is that in typical arbitrage, the usual explanation is that you buy
gold in New York and simultaneously sell it in London for $1 more. And
what tends to happen in typical arbitrage, there are professionals out
there who see those price difference, and so they'll keep buying gold in
New York and selling it in London until the prices converge. That
happens so fast that individual investors certainly can't take advantage
of it, a few very quick institutional investors can.
But if I told you as a value investor that you could buy gold in New York today and sometime in the next two or three years, it's likely you'll be able to sell it for a profit, but you may lose 40% while you are waiting around for that to happen, it's much harder to find someone to arbitrage that away. Time horizons are actually shrinking over the last 20-30 years even. So, things are actually getting better for value investors, not worse. The world is becoming more institutionalized, there is more access to performance information, it's much easier to trade. So, patience is in short supply, and it really makes it much nicer for patient value investors.
If value investing worked every day and every month and every year, of course, it would get arbitraged away, but it doesn't. It works over time, and it's quite irregular. But it does still work like clockwork; your clock has to be really slow.
...
Dasaro: How do you avoid investing in stocks where the numbers may disagree with the story behind the stock?
Greenblatt: Oh, value traps, right. Well, we're very tough on cash flows, is what I would say. Ben Graham said, buy cheap. Figure out what something's worth and pay a lot less. And Warren Buffett, Graham's most famous student, made one little twist that made him one of the richest people in the world. And he said, if I can buy a good business cheap, even better.
*** [4/27/15]
The point is that Greenblatt’s favorite ideas were the ones where he felt there was very little chance of losing money — not necessarily the highest potential returns.
In the video below, he emphasizes this point. (By the way, thanks to Joe Koster who posted this video—I found it on his site—and Joe also emphasized this quote, which is a good one):
“My largest positions are not the ones I think I'm going to make the most money from. My largest positions are the ones I don't think I'm going to lose money in.”
[The article also discusses Druckenmiller.]
But if I told you as a value investor that you could buy gold in New York today and sometime in the next two or three years, it's likely you'll be able to sell it for a profit, but you may lose 40% while you are waiting around for that to happen, it's much harder to find someone to arbitrage that away. Time horizons are actually shrinking over the last 20-30 years even. So, things are actually getting better for value investors, not worse. The world is becoming more institutionalized, there is more access to performance information, it's much easier to trade. So, patience is in short supply, and it really makes it much nicer for patient value investors.
If value investing worked every day and every month and every year, of course, it would get arbitraged away, but it doesn't. It works over time, and it's quite irregular. But it does still work like clockwork; your clock has to be really slow.
...
Dasaro: How do you avoid investing in stocks where the numbers may disagree with the story behind the stock?
Greenblatt: Oh, value traps, right. Well, we're very tough on cash flows, is what I would say. Ben Graham said, buy cheap. Figure out what something's worth and pay a lot less. And Warren Buffett, Graham's most famous student, made one little twist that made him one of the richest people in the world. And he said, if I can buy a good business cheap, even better.
*** [4/27/15]
The point is that Greenblatt’s favorite ideas were the ones where he felt there was very little chance of losing money — not necessarily the highest potential returns.
In the video below, he emphasizes this point. (By the way, thanks to Joe Koster who posted this video—I found it on his site—and Joe also emphasized this quote, which is a good one):
“My largest positions are not the ones I think I'm going to make the most money from. My largest positions are the ones I don't think I'm going to lose money in.”
[The article also discusses Druckenmiller.]
consider the downside
most people suffer from the hindsight problem. If you continue
buying, and it works out, they say, “See? He was bold when he needed to
be bold, seized opportunity, and was rewarded.” If it doesn’t work
out, they say, “See? He was reckless and foolish, getting what he
deserved.”
To begin, always consider the downside. If you need motivation, watch the clip of Season 3, Episode 1 of Downton Abbey when Earl Grantham is called to his advisor’s office to discuss the estate’s railroad holdings. That scene has played out throughout all of history, over and over, among many cultures. That is what you are seeking to avoid. If your affairs are managed in a way such an outcome can occur, you are failing your primary responsibility.
We live in a world where crazy things can happen. There was a point in the past century when companies like Coca-Cola traded for less than the cash in the corporate bank account because it was so undervalued. There was also a point when that same company traded at an earnings yield significantly less than inflation because it was so overvalued. There are unexpected earthquakes and fires, tornados and hurricanes, political changes to the tax code and riots, wars and terrorist attacks, technological disruption and shifts in consumer tastes.
Be honest with yourself. Is your motivation to make money or is it the rush of speculation? If it is a gambling thing, setup a separate, isolated account, with no margin debt, funded with a fixed amount of money that never touches your actual investment portfolio. If you find yourself in a situation where you are consistently putting more than 20% of your entire net worth in a single asset at cost (not market), you have the heart of a gambler and need to protect yourself accordingly.
Why word it so strongly? There are more than 14,000 publicly traded stocks and with a $100,000 portfolio, the entire world of them is open to you. If you can only find one – a single issue – that is worth such a high percentage of your assets, you aren’t looking hard enough or you are caught in an adrenaline rush.
To begin, always consider the downside. If you need motivation, watch the clip of Season 3, Episode 1 of Downton Abbey when Earl Grantham is called to his advisor’s office to discuss the estate’s railroad holdings. That scene has played out throughout all of history, over and over, among many cultures. That is what you are seeking to avoid. If your affairs are managed in a way such an outcome can occur, you are failing your primary responsibility.
We live in a world where crazy things can happen. There was a point in the past century when companies like Coca-Cola traded for less than the cash in the corporate bank account because it was so undervalued. There was also a point when that same company traded at an earnings yield significantly less than inflation because it was so overvalued. There are unexpected earthquakes and fires, tornados and hurricanes, political changes to the tax code and riots, wars and terrorist attacks, technological disruption and shifts in consumer tastes.
Be honest with yourself. Is your motivation to make money or is it the rush of speculation? If it is a gambling thing, setup a separate, isolated account, with no margin debt, funded with a fixed amount of money that never touches your actual investment portfolio. If you find yourself in a situation where you are consistently putting more than 20% of your entire net worth in a single asset at cost (not market), you have the heart of a gambler and need to protect yourself accordingly.
Why word it so strongly? There are more than 14,000 publicly traded stocks and with a $100,000 portfolio, the entire world of them is open to you. If you can only find one – a single issue – that is worth such a high percentage of your assets, you aren’t looking hard enough or you are caught in an adrenaline rush.
Thursday, April 23, 2015
Nasdaq sets record high
U.S. stocks traded near highs on Thursday as investors eyed a heavy day of earnings and some economic data.
The S&P 500 attempted to hold above its record close of 2,117.39 but below its record intra-day high of 2,119.59. The Nasdaq traded above its record close of 5,048.62 from March 2000 as all the major indices turned higher around noon.
The Dow Jones industrial average was within 1 percent of its record close.
***
I'm checking (at 8:07 HST). Today's intra-day high for the Nasdaq is 5062.45. The all-time intra-day high was 5132.52 set on March 10, 2000. So not really close to that yet.
So the Nasdaq might indeed set a record high today, but hasn't hit the all-time high yet.
***
It took more than 5,500 days and a helluva lot of help from Apple (AAPL, Tech30), but the Nasdaq is finally celebrating a new all-time closing high. The index that's home to tech stars like Facebook (FB, Tech30), Google (GOOGL, Tech30) and Amazon (AMZN, Tech30) climbed to 5,056 on Thursday. That's the highest level the Nasdaq has ever closed at, whipping out the previous record set on March 10, 2000 of 5,048.62.
Today marks a major milestone in the investing world, in part because it means the Nasdaq has finally gotten over the Dot-com bubble that popped in early 2000.
"It's an enormous deal psychologically," said Peter Kenny, chief market strategist at the Clearpool Group.
It's also getting closer to its intraday record level of 5,132.52 that was also set on March 10, 2000.
This is especially momentous because the Dow and S&P 500 hit record territory years ago, but it took the Nasdaq a long time to climb back from the bursting of the bubble.
Related: Why this tech party isn't like 1999
Another bubble in tech? The Nasdaq record may also serve as a spooky reminder for many investors about what can go wrong in the market. Fifteen years ago people were going crazy over money-losing tech stocks like Pets.com (and bad Ricky Martin songs) that eventually imploded, hurting the retirement accounts of millions of Americans.
The S&P 500 attempted to hold above its record close of 2,117.39 but below its record intra-day high of 2,119.59. The Nasdaq traded above its record close of 5,048.62 from March 2000 as all the major indices turned higher around noon.
The Dow Jones industrial average was within 1 percent of its record close.
***
I'm checking (at 8:07 HST). Today's intra-day high for the Nasdaq is 5062.45. The all-time intra-day high was 5132.52 set on March 10, 2000. So not really close to that yet.
So the Nasdaq might indeed set a record high today, but hasn't hit the all-time high yet.
***
It took more than 5,500 days and a helluva lot of help from Apple (AAPL, Tech30), but the Nasdaq is finally celebrating a new all-time closing high. The index that's home to tech stars like Facebook (FB, Tech30), Google (GOOGL, Tech30) and Amazon (AMZN, Tech30) climbed to 5,056 on Thursday. That's the highest level the Nasdaq has ever closed at, whipping out the previous record set on March 10, 2000 of 5,048.62.
Today marks a major milestone in the investing world, in part because it means the Nasdaq has finally gotten over the Dot-com bubble that popped in early 2000.
"It's an enormous deal psychologically," said Peter Kenny, chief market strategist at the Clearpool Group.
It's also getting closer to its intraday record level of 5,132.52 that was also set on March 10, 2000.
This is especially momentous because the Dow and S&P 500 hit record territory years ago, but it took the Nasdaq a long time to climb back from the bursting of the bubble.
Related: Why this tech party isn't like 1999
Another bubble in tech? The Nasdaq record may also serve as a spooky reminder for many investors about what can go wrong in the market. Fifteen years ago people were going crazy over money-losing tech stocks like Pets.com (and bad Ricky Martin songs) that eventually imploded, hurting the retirement accounts of millions of Americans.
Wednesday, April 22, 2015
Stanley Druckenmiller is a pig / (on diversification)
Recently, fellow GuruFocus contributor Canadian Value posted the
transcript from Stanley Druckenmiller’s speech to the Lost Tree Club
from earlier in the year (link).
Let’s start with why you should care what he has to say: According to Sam Reeves, who introduced the speaker, Mr. Druckenmiller generated after tax returns for his shareholders of nearly 21% per annum over his 30 years managing outside funds (through 2010); at that rate, each $1,000 managed by Mr. Druckenmiller at Duquesne Capital was worth roughly $300,000 three decades later (fees aren’t mentioned in the transcript). And for the kicker, Mr. Druckenmiller never reported a down year over that period. [I find that hard to believe.]
In the speech to the Lost Tree Club, Mr. Druckenmiller spent a lot of time answering a question all of us are undoubtedly wondering: How the heck did he manage to do so well for so long?
I won’t waste your time by copying his entire speech, which is a must read; I want to focus on a single factor that he addressed in some detail:
"The third thing I’d say is I developed a very unique risk management system. The first thing I heard when I got in the business – not from my mentor – was bulls make money, bears make money, and pigs get slaughtered. I’m here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. I think diversification and all the stuff they’re teaching at business school today is probably the most misguided concept ever.
"And if you look at all the great investors that are as different as Warren Buffett (Trades, Portfolio), Carl Icahn (Trades, Portfolio), Ken Langone, they tend to be very, very concentrated bets. They see something, they bet it, and they bet the ranch on it. And that’s kind of the way my philosophy evolved… The mistake I’d say 98% of money managers and individuals make is they feel like they’ve got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch the basket carefully."
Later on in the speech, Mr. Druckenmiller tells a story from his early days as a fund manager:
"When I started at Duquesne, Ronald Reagan had become president, and we had a radical man named Paul Volcker running the Federal Reserve. And inflation was 12%. The whole world thought it was going to go through the roof, and Paul Volker had other ideas. And he had raised interest rates to 18 percent on the short end, and I could see that there was no way this man was going to let inflation go. So I had just started Duquesne and had a small amount of capital: I took 50% of the capital and put it in 30-year treasury bonds yielding 14% – and I owned nothing else… And sure enough, the bonds went up despite a bear market in equities.
"It shaped my philosophy: you don’t need 15 stocks or this currency or that. If you see it, you’ve got to go for it because that’s a better bet than 90% of the other stuff you would add onto it."
If you’ve read my writing in the past, you know I agree with that sentiment wholeheartedly; as usual, I think Warren Buffett (Trades, Portfolio) put it best: “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”
***
Greenblatt’s strategy is nothing like Druckenmiller's, but there are a few philosophical similarities, namely that Greenblatt tended to put most of his capital into the 5 to 8 best ideas he had at any one time. He felt strongly that beyond this level, diversification didn’t really reduce any additional risk, but did water down results.
*** [me]
The key words are "if you know what you are doing." Obviously Buffett and Munger know what they're doing, But I'd say the majority don't really know what they're doing. So, IMHO, not diversifying could be a recipe for disaster. Buffett actually recommends an index fund for most investors.
And how diversified is Buffett anyway? Berkshire Hathaway owns 59 wholly owned (or practically owned) subsidiaries. They also have 47 stocks in their portfolio, though 63% of that portolio is in four stocks (WFC, KO, AXP, IBM).
Looking at the 2014 letter, Berkshire's stocks were worth $117 billion. They hold $42 billion in cash. And according to celebritynetworth, Berkshire Hathaway is worth $144 billion. So that means the businesses are worth less than zero (which can't be right). This article calculates the business value at $91 billion (assuming a P/E of 10 on earnings). So that would make Berkshire worth approximately $250 billion. They have 2 million shares outstanding (according to Morningstar), so that would make the stock worth $125,000 (current quote $215,000).
Well I guess he used to be less diversified in the early days.
Let’s start with why you should care what he has to say: According to Sam Reeves, who introduced the speaker, Mr. Druckenmiller generated after tax returns for his shareholders of nearly 21% per annum over his 30 years managing outside funds (through 2010); at that rate, each $1,000 managed by Mr. Druckenmiller at Duquesne Capital was worth roughly $300,000 three decades later (fees aren’t mentioned in the transcript). And for the kicker, Mr. Druckenmiller never reported a down year over that period. [I find that hard to believe.]
In the speech to the Lost Tree Club, Mr. Druckenmiller spent a lot of time answering a question all of us are undoubtedly wondering: How the heck did he manage to do so well for so long?
I won’t waste your time by copying his entire speech, which is a must read; I want to focus on a single factor that he addressed in some detail:
"The third thing I’d say is I developed a very unique risk management system. The first thing I heard when I got in the business – not from my mentor – was bulls make money, bears make money, and pigs get slaughtered. I’m here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. I think diversification and all the stuff they’re teaching at business school today is probably the most misguided concept ever.
"And if you look at all the great investors that are as different as Warren Buffett (Trades, Portfolio), Carl Icahn (Trades, Portfolio), Ken Langone, they tend to be very, very concentrated bets. They see something, they bet it, and they bet the ranch on it. And that’s kind of the way my philosophy evolved… The mistake I’d say 98% of money managers and individuals make is they feel like they’ve got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch the basket carefully."
Later on in the speech, Mr. Druckenmiller tells a story from his early days as a fund manager:
"When I started at Duquesne, Ronald Reagan had become president, and we had a radical man named Paul Volcker running the Federal Reserve. And inflation was 12%. The whole world thought it was going to go through the roof, and Paul Volker had other ideas. And he had raised interest rates to 18 percent on the short end, and I could see that there was no way this man was going to let inflation go. So I had just started Duquesne and had a small amount of capital: I took 50% of the capital and put it in 30-year treasury bonds yielding 14% – and I owned nothing else… And sure enough, the bonds went up despite a bear market in equities.
"It shaped my philosophy: you don’t need 15 stocks or this currency or that. If you see it, you’ve got to go for it because that’s a better bet than 90% of the other stuff you would add onto it."
If you’ve read my writing in the past, you know I agree with that sentiment wholeheartedly; as usual, I think Warren Buffett (Trades, Portfolio) put it best: “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”
***
Greenblatt’s strategy is nothing like Druckenmiller's, but there are a few philosophical similarities, namely that Greenblatt tended to put most of his capital into the 5 to 8 best ideas he had at any one time. He felt strongly that beyond this level, diversification didn’t really reduce any additional risk, but did water down results.
*** [me]
The key words are "if you know what you are doing." Obviously Buffett and Munger know what they're doing, But I'd say the majority don't really know what they're doing. So, IMHO, not diversifying could be a recipe for disaster. Buffett actually recommends an index fund for most investors.
And how diversified is Buffett anyway? Berkshire Hathaway owns 59 wholly owned (or practically owned) subsidiaries. They also have 47 stocks in their portfolio, though 63% of that portolio is in four stocks (WFC, KO, AXP, IBM).
Looking at the 2014 letter, Berkshire's stocks were worth $117 billion. They hold $42 billion in cash. And according to celebritynetworth, Berkshire Hathaway is worth $144 billion. So that means the businesses are worth less than zero (which can't be right). This article calculates the business value at $91 billion (assuming a P/E of 10 on earnings). So that would make Berkshire worth approximately $250 billion. They have 2 million shares outstanding (according to Morningstar), so that would make the stock worth $125,000 (current quote $215,000).
Well I guess he used to be less diversified in the early days.
Tuesday, April 21, 2015
signs that you're too cheap
Everyone loves to save but some people take penny-pinching way too far. Here are 5 signs you’re too cheap.
Skimping on your health.
If you’d rather “self medicate” or you’ve ever cut your pills in half
to save money on medicine, then here’s a wake-up call: you’re cheap!
Health care is ridiculously expensive, we get that, but you shouldn’t
sacrifice your health to save a buck. Not taking the right dose of
medication now or skipping the doctor's office when you're ill could
lead to bigger -- and more expensive -- health issues later.
Wasting time saving money.
You shouldn’t have to sacrifice your time and sanity just to save
money. When you spend money on a housekeeper, a laundry service, or a
REAL plumber to fix that leaky faucet, you’re buying yourself something
valuable in return — time.
Not investing in activities that make you happy.
What good is saving money if you’re completely miserable all the time?
You should spend money on activities and things that you actually value.
You may not find double coupons for a relaxing day at the spa, but
there is value in investing in activities that make you HAPPY. You can’t
put a price tag on a relaxation.
You choose cost over quality.
There are some things in life that are worth the extra cash — go ahead
and splurge on a quality pair of shoes or a suit that will last you many
years. Treat yourself to a decent meal once in a while and stop hitting
up the $1 menu. Your body’s got to last you a few more decades, right?
You buy fixer-uppers.
Whether it’s an extreme fixer-upper home or a used bike, don’t kid
yourself into thinking you can handle repairs by yourself (unless, of
course, you're a veritable MacGyver, then by all means, buy the run-down
house with the leaky roof). You may save money, but you might only make
your problems worse in the process – and wind up hiring a professional
to clean up after you anyway.
Monday, April 20, 2015
freaks and misfits
There is no shortage of hypesters and hucksters offering the
"secret" to getting rich. The reality is that all kinds of people get
rich in all kinds of ways, most of them involving being the right person
in the right place at the right time.
Sure, working hard, being smart, overcoming failure and breaking convention can all play a role. But lots of people do those things and never get rich.
Yet billionaires often share common attributes. And one of those traits is eloquently explained by Justine Musk, the ex-wife of billionaire inventor Elon Musk.
In a piece in Quora, Justine Musk said that "extreme success results from an extreme personality," and that billionaires like Elon Musk or Bill Gates "tend to be freaks and misfits" who developed extreme strategies for survival as kids and later applied those strategies to business.
But their chief characteristic can be summed up in two words: "Be obsessed."
"If you're not obsessed, then stop what you're doing and find whatever does obsess you," she said. "It helps to have an ego, but you must be in service to something bigger if you are to inspire the people you need to help you (and make no mistake, you will need them)."
She said that people who are obsessed with a problem or issue can work through all the distractions and barriers that life puts in their way. And that obsession needs to be your own, to the point where it borders on insanity.
Sure, working hard, being smart, overcoming failure and breaking convention can all play a role. But lots of people do those things and never get rich.
Yet billionaires often share common attributes. And one of those traits is eloquently explained by Justine Musk, the ex-wife of billionaire inventor Elon Musk.
In a piece in Quora, Justine Musk said that "extreme success results from an extreme personality," and that billionaires like Elon Musk or Bill Gates "tend to be freaks and misfits" who developed extreme strategies for survival as kids and later applied those strategies to business.
But their chief characteristic can be summed up in two words: "Be obsessed."
"If you're not obsessed, then stop what you're doing and find whatever does obsess you," she said. "It helps to have an ego, but you must be in service to something bigger if you are to inspire the people you need to help you (and make no mistake, you will need them)."
She said that people who are obsessed with a problem or issue can work through all the distractions and barriers that life puts in their way. And that obsession needs to be your own, to the point where it borders on insanity.
Saturday, April 04, 2015
Morningstar's moats
What is the difference between a wide moat and a narrow moat?
Morningstar assigns an economic moat rating based on the degree to which a company has sustainable competitive advantages. All of the nearly 1,500 companies covered by Morningstar's equity analysts receive a moat rating of wide, narrow, or no moat based on the degree to which these competitive advantages are present. (Sources of economic moat include intangible assets, switching costs, and network effect, as described in this document and this video.)
The distinction between companies with wide and narrow economic moats is one of duration rather than degree and is arguably less important than the distinction between those with moats and those without them. According to the methodology Morningstar uses to calculate moats (described in this paper), companies with wide moats are expected to earn excess returns on capital for at least 20 years, while those with narrow moats are expected to do so for at least 15 years. Or, to put it another way, a wide-moat company's sustainable competitive advantages are projected to last longer than those of a narrow-moat company.
Morningstar assigns an economic moat rating based on the degree to which a company has sustainable competitive advantages. All of the nearly 1,500 companies covered by Morningstar's equity analysts receive a moat rating of wide, narrow, or no moat based on the degree to which these competitive advantages are present. (Sources of economic moat include intangible assets, switching costs, and network effect, as described in this document and this video.)
The distinction between companies with wide and narrow economic moats is one of duration rather than degree and is arguably less important than the distinction between those with moats and those without them. According to the methodology Morningstar uses to calculate moats (described in this paper), companies with wide moats are expected to earn excess returns on capital for at least 20 years, while those with narrow moats are expected to do so for at least 15 years. Or, to put it another way, a wide-moat company's sustainable competitive advantages are projected to last longer than those of a narrow-moat company.
Friday, April 03, 2015
if I had only bought Microsoft and Oracle back then...
Microsoft celebrates their 40th anniversary, but only went public in 1986. Oracle interestingly had their IPO one day previous. CNBC looks back at what they've done since. Let me take a look too.
Checking Yahoo, MSFT first day of trading was on 3/13/86 (a mere 29 years ago). It opened at 25.50 which was the low of the day, hit a high of 29.25, and closed at 28.00. [Bloomberg says it closed at 27.75.]
So say you bought 100 shares of MSFT at the closing price that day. So you paid $2800. The split adjusted price of MSFT on that day is 7 cents. Which means the stock increased 28/.07 or 400 times. So your $2800 would now be worth $1.12 million!
How about Oracle? Interestingly, Yahoo has their first day of trading on that same day of 3/13/86. It opened at 21.00 which was the low for the day, hit a high of 21.25, and closed at 21.00. (So it really didn't do much that day.)
So say you bought 100 shares that day, paying $2100. Yahoo has the adjusted close at 6 cents. So the stock has increased 2100/.06 = 350 times. So your $2100 would be now worth $735,000.
Those figures might not be exactly right since CNBC said MSFT gained 33% on the first day and ORCL gained 37%. And they said that ORCL has outperformed MSFT, gaining 92600% vs. 64000%. That's quite a bit off my calculations. But why quibble with your (near) million bucks?
Oddly, looking at Google, they have ORCL's price at 5.14 on that 3/12/86. And Google has MSFT's price at .10 on 3/13/86. I dunno, but I trust Yahoo more in this case.
***
Then again, if you had sold on 12/1/99...
Checking Yahoo, MSFT first day of trading was on 3/13/86 (a mere 29 years ago). It opened at 25.50 which was the low of the day, hit a high of 29.25, and closed at 28.00. [Bloomberg says it closed at 27.75.]
So say you bought 100 shares of MSFT at the closing price that day. So you paid $2800. The split adjusted price of MSFT on that day is 7 cents. Which means the stock increased 28/.07 or 400 times. So your $2800 would now be worth $1.12 million!
How about Oracle? Interestingly, Yahoo has their first day of trading on that same day of 3/13/86. It opened at 21.00 which was the low for the day, hit a high of 21.25, and closed at 21.00. (So it really didn't do much that day.)
So say you bought 100 shares that day, paying $2100. Yahoo has the adjusted close at 6 cents. So the stock has increased 2100/.06 = 350 times. So your $2100 would be now worth $735,000.
Those figures might not be exactly right since CNBC said MSFT gained 33% on the first day and ORCL gained 37%. And they said that ORCL has outperformed MSFT, gaining 92600% vs. 64000%. That's quite a bit off my calculations. But why quibble with your (near) million bucks?
Oddly, looking at Google, they have ORCL's price at 5.14 on that 3/12/86. And Google has MSFT's price at .10 on 3/13/86. I dunno, but I trust Yahoo more in this case.
***
Then again, if you had sold on 12/1/99...
Wednesday, April 01, 2015
the current dividend yield of the market
What's the current dividend yield of the S&P 500, I wondered. Look it up.
OK, here's a good site.
The average yield of all S&P 500 stocks is 1.97%.
The highest yielders in the S&P 500 are Integrys Energy Group (3.78%), Weyerhauser (3.77%), Public Serv. Enterprise (3.77%). Not really all that high.
That doesn't seem right, VZ is yielding 4.0% for example. Ah, I see S&P 500 complained and they aren't showing all the stocks.
Look it up. Don't see a list with all the stock, but here's a list of the top ten from January: FCX, WMB, CTL, T, OKE, FTR, NE, ESV, WIN, RIG. At the time of the writing, RIG was yielding 19.57%. They have since cut the dividend from $3.00 to $0.60. Current yield is now 4.0%.
Back to the first site, they also have the yield for the Dow 30 which is a pretty high 2.7%. The top yielding stock is VZ at 4.65%. (OK, I better update my spreadsheet for VZ dividend. My spreadsheet calculates 4.5% for VZ which matches Yahoo's number. What gives? Ah, I see their yield is an estimated yield based on the estimated dividend for the coming year. So they're figuring an increase in the dividend.)
But the current market dividend yield is pretty low historically.
OK, here's a good site.
The average yield of all S&P 500 stocks is 1.97%.
The highest yielders in the S&P 500 are Integrys Energy Group (3.78%), Weyerhauser (3.77%), Public Serv. Enterprise (3.77%). Not really all that high.
That doesn't seem right, VZ is yielding 4.0% for example. Ah, I see S&P 500 complained and they aren't showing all the stocks.
Look it up. Don't see a list with all the stock, but here's a list of the top ten from January: FCX, WMB, CTL, T, OKE, FTR, NE, ESV, WIN, RIG. At the time of the writing, RIG was yielding 19.57%. They have since cut the dividend from $3.00 to $0.60. Current yield is now 4.0%.
Back to the first site, they also have the yield for the Dow 30 which is a pretty high 2.7%. The top yielding stock is VZ at 4.65%. (OK, I better update my spreadsheet for VZ dividend. My spreadsheet calculates 4.5% for VZ which matches Yahoo's number. What gives? Ah, I see their yield is an estimated yield based on the estimated dividend for the coming year. So they're figuring an increase in the dividend.)
But the current market dividend yield is pretty low historically.
Thursday, March 26, 2015
Getting Rich Quick (is not necessarily good)
Today’s culture glorifies getting rich as quickly as possible.
This is why many people try to take shortcuts and fall for rich-quick scams. Despite the Nigerian type of scams being around since the 18th century (this is where the sender asks you to help them get a very large sum of money out of the country), people still fall for them.
The media also highlight young entrepreneurs who hit it big with the latest startup. It’s easy to see people like Facebook founder Mark Zuckerberg, who became a billionaire at 23, and feel as though we are behind the power curve.
So how long should it take?
According to Tom Corley, author of Rich Habits: The Daily Success Habits of Wealthy Individuals, it took a minimum of 32 years for the average rich person to become rich.
It took the vast majority almost four decades, with 52 percent taking 38 years and 21 percent taking 42 years to become rich.
In fact, only 4 percent became wealthy in less than 27 years!
Becoming wealthy didn’t happen overnight; it required years of discipline, hard work and patience.
Corley states, “The path to riches is a long, lonely one, paved with many potholes and numerous dead ends. Those few who do make it are seasoned veterans in the world of entrepreneurs, deserving of their own, well-deserved catchphrase.”
Many are looking to hit a home run or grand slam to wealth.
While it definitely is more exciting and tends to make front page news, almost all will end up striking out. Getting rich quickly is a rare phenomenon, and many who do end up worse off than before.
Just look at some lottery winners and professional athletes, who end up bankrupt only a few years after either winning or retiring from their sport.
To use my baseball analogy, being consistent with singles, walks, bunts and maybe the occasional double is far more effective over time in winning the game. You don’t want to count on that grand slam to achieve your goals.
-- David Chang, MidWeek, March 18, 2015
***
According to the U.S. Census Bureau, the median net worth for households under the age of 35 is $6,682. This makes sense, since many in this age group have student loans and are just getting started with their careers. The 70th percentile of those under 35 (meaning their net worth is greater than 70 percent of households their age) is $33,477.
Here is information for the other age brackets. Visit artofthinkingsmart.com/networth for more detailed information!
Age: 35-44
• Median: $35,000
• 70th percentile: $128,430
Age: 45-54
• Median: $84,542
• 70th percentile: $228,708
Age: 55-64
• Median: $144,200
• 70th percentile: $333,750
Age: 65 and up
• Median: $171,135
• 70th percentile: $334,870
The difference between the median and those in the 70th percentile is anywhere from two to four times the median amount. I didn’t include the 90th percentile, but if I did, the difference would be significantly greater.
Why the large disparity? Is it education, inheritance or just plain luck?
There are many theories, but recent research shows that people near the top have different personality traits than people near the bottom. It isn’t just about the ability to save or make more money. Studies show that our psychological makeup and character traits are the reasons for our wealth (or lack thereof), not the result of our wealth.
Here are four common traits those in the higher net worth group have among their peers.
1) Keep track of their finances diligently. This is an obvious one, of course, but more than 60 percent of Americans don’t keep track of their money! Without knowing how much is coming in and out, it is difficult to know how much to save. Also, by not paying attention to where your money goes, it is easy to let your emotions govern your spending habits. Splurging and trying to keep up with the Joneses is one of the reasons why only 18 percent are confident about retirement. Many don’t like to budget, since it can seem tedious. But the goal isn’t necessarily to track every penny, but to make sure you spend less than you make, and then invest the difference.
2) Have a long-term view. One of the top regrets retirees have is not saving enough. You don’t need a significant amount of money to invest, you just need to be consistent and use the magic of compound interest. Time is the most important factor! Sacrificing a little now can reap significant benefits in the future.
3) Are not afraid to take risks. You don’t want to take any risk, but you want to take smart risks. We all have some form of fear when it comes to money, but the key is how you deal with that fear. Some experience “paralysis by analysis” and never take any steps forward. Taking smart risks means to ask for that raise, start a business, change jobs or invest your long-term money in stocks. It is about pushing yourself out of your comfort zone.
4) Have a healthy amount of self-esteem. This isn’t about being arrogant but about believing in themselves. They are confident and not afraid to take that smart risk to make and accumulate more money. They are more optimistic in the decisions they make and despite failures, are able to bounce back even stronger.
david@artofthinkingsmart.com
***
According to the U.S. Census Bureau, the median net worth for households under the age of 35 is $6,682. This makes sense, since many in this age group have student loans and are just getting started with their careers. The 70th percentile of those under 35 (meaning their net worth is greater than 70 percent of households their age) is $33,477.
Here is information for the other age brackets. Visit artofthinkingsmart.com/networth for more detailed information!
Age: 35-44
• Median: $35,000
• 70th percentile: $128,430
Age: 45-54
• Median: $84,542
• 70th percentile: $228,708
Age: 55-64
• Median: $144,200
• 70th percentile: $333,750
Age: 65 and up
• Median: $171,135
• 70th percentile: $334,870
The difference between the median and those in the 70th percentile is anywhere from two to four times the median amount. I didn’t include the 90th percentile, but if I did, the difference would be significantly greater.
Why the large disparity? Is it education, inheritance or just plain luck?
There are many theories, but recent research shows that people near the top have different personality traits than people near the bottom. It isn’t just about the ability to save or make more money. Studies show that our psychological makeup and character traits are the reasons for our wealth (or lack thereof), not the result of our wealth.
Here are four common traits those in the higher net worth group have among their peers.
1) Keep track of their finances diligently. This is an obvious one, of course, but more than 60 percent of Americans don’t keep track of their money! Without knowing how much is coming in and out, it is difficult to know how much to save. Also, by not paying attention to where your money goes, it is easy to let your emotions govern your spending habits. Splurging and trying to keep up with the Joneses is one of the reasons why only 18 percent are confident about retirement. Many don’t like to budget, since it can seem tedious. But the goal isn’t necessarily to track every penny, but to make sure you spend less than you make, and then invest the difference.
2) Have a long-term view. One of the top regrets retirees have is not saving enough. You don’t need a significant amount of money to invest, you just need to be consistent and use the magic of compound interest. Time is the most important factor! Sacrificing a little now can reap significant benefits in the future.
3) Are not afraid to take risks. You don’t want to take any risk, but you want to take smart risks. We all have some form of fear when it comes to money, but the key is how you deal with that fear. Some experience “paralysis by analysis” and never take any steps forward. Taking smart risks means to ask for that raise, start a business, change jobs or invest your long-term money in stocks. It is about pushing yourself out of your comfort zone.
4) Have a healthy amount of self-esteem. This isn’t about being arrogant but about believing in themselves. They are confident and not afraid to take that smart risk to make and accumulate more money. They are more optimistic in the decisions they make and despite failures, are able to bounce back even stronger.
david@artofthinkingsmart.com
Wednesday, March 25, 2015
Warren Buffett believes in bad food
Warren Buffett knows you are weak. Even if you hit the gym regularly and demonstrate Buffett- esque discipline with your investments, sooner or later you’re going gulp down a sugary soda and put your money into mac-and- cheese with a bright orange hue.
Buffett believes in bad food, both as a consumer and an investor. While there might be no long-term reward in risky eating, there's relatively little risk in buying best-of-breed junk food holdings—at least if Berkshire Hathaway returns are any measure. Omaha has made a mint on artery-based arbitrage.
Let’s take a stroll down Buffett’s bad-for-you buffet:
* 1940: Buffett has been a Coca-Cola investor since he sold the stuff door-to-door in his childhood. At the end of 2014, Berkshire owned 9.2 percent of Coke shares
* 1972: Berkshire Hathaway buys See’s Candies for $25 million
* 1998: Dairy Queen, which had 5,790 outlets at the time, becomes a Berkshire Hathaway holding for $585 million
* 2008: Berkshire Hathaway put up $6.5 billion to help Mars purchase of chewing-gum maker Wm. Wrigley Jr.
* 2013: Buffett pours $12.25 billion into a deal to take ketchup- and-packaged-food giant HJ Heinz private under 3G Capital, a Brazil-based private-equity firm.
* 2014: Berkshire Hathaway provides $3 billion financing for Burger King’s purchase of the Tim Hortons donut empire. It is getting a 9 percent annual return.
Today, of course, Buffett is back at it again, working with 3G to bring together Kraft Foods Group and Heinz. The deal creates the third-largest food and beverage company in North America—a veritable mountain of ketchup, cold cuts, Kool-Aid, and lots and lots of cheese.
While cutting these deals, Buffet was putting his mouth where his money was. His diet consists of Cheetos, licorice and—most often—Utz potato chips as an important source of vegetables. The even investor is known to drink Coke at breakfast, a meal for which the main even is occasionally ice cream.
When asked about his diet, Buffett has said he aims to eat like a 6-year-old because that’s the age at which mortality is least likely. In terms of investing, his junk-food strategy is even more straightforward: People like to indulge. “No business has ever failed with happy customers,” Buffett said at Coke’s annual meeting in 2013.
Buffett believes in bad food, both as a consumer and an investor. While there might be no long-term reward in risky eating, there's relatively little risk in buying best-of-breed junk food holdings—at least if Berkshire Hathaway returns are any measure. Omaha has made a mint on artery-based arbitrage.
Let’s take a stroll down Buffett’s bad-for-you buffet:
* 1940: Buffett has been a Coca-Cola investor since he sold the stuff door-to-door in his childhood. At the end of 2014, Berkshire owned 9.2 percent of Coke shares
* 1972: Berkshire Hathaway buys See’s Candies for $25 million
* 1998: Dairy Queen, which had 5,790 outlets at the time, becomes a Berkshire Hathaway holding for $585 million
* 2008: Berkshire Hathaway put up $6.5 billion to help Mars purchase of chewing-gum maker Wm. Wrigley Jr.
* 2013: Buffett pours $12.25 billion into a deal to take ketchup- and-packaged-food giant HJ Heinz private under 3G Capital, a Brazil-based private-equity firm.
* 2014: Berkshire Hathaway provides $3 billion financing for Burger King’s purchase of the Tim Hortons donut empire. It is getting a 9 percent annual return.
Today, of course, Buffett is back at it again, working with 3G to bring together Kraft Foods Group and Heinz. The deal creates the third-largest food and beverage company in North America—a veritable mountain of ketchup, cold cuts, Kool-Aid, and lots and lots of cheese.
While cutting these deals, Buffet was putting his mouth where his money was. His diet consists of Cheetos, licorice and—most often—Utz potato chips as an important source of vegetables. The even investor is known to drink Coke at breakfast, a meal for which the main even is occasionally ice cream.
When asked about his diet, Buffett has said he aims to eat like a 6-year-old because that’s the age at which mortality is least likely. In terms of investing, his junk-food strategy is even more straightforward: People like to indulge. “No business has ever failed with happy customers,” Buffett said at Coke’s annual meeting in 2013.
Saturday, March 14, 2015
profiting from rising rates
Following another strong jobs report, the Federal Reserve is widely
expected to drop the word "patient" from its monetary policy statement
next Wednesday, signaling that a rate hike is likely coming soon.
Whether it happens in June or September, higher interest rates appear to
be finally coming.
Be prepared before that happens. Because by the time our central bank officially announces it is raising rates, many stocks will already have the move priced in.
There will be clear winners and losers during a rising interest rate environment. Investors looking to profit from a rate hike, or simply avoid significant underperformance, should consider shifting their portfolio now.
Rate Hike Losers
The Fed has stated if the economy continues to improve, rates will rise. After a stellar February jobs report blew away expectations, it's looking very likely that rates could rise sooner rather than later.
It's well known that a rising interest rate environment is bad for bonds overall, as their prices move opposite of rates. This is especially true for long duration, low coupon bonds. However, the impact on stocks will be much more mixed.
Some areas of the market are likely to suffer. Here are the areas I would avoid:
• High Yielders: As interest rates march higher, dividend yields will look comparatively less attractive to income investors than the yields on fixed income and money market accounts. Areas like real estate investment trusts (REITs) and utilities meet these criteria, as do Master Limited Partnerships (MLPs) and some stodgy consumers staples. The "reach for yield" trade that drove the valuations of many of these high yielders to record levels is likely coming to an end soon.
• Highly Leveraged Firms: Companies with highly leveraged balance sheets that rely heavily on debt financing are likely to underperform too. That's especially true for firms who are constantly issuing short-term debt to meet their obligations. Higher interest rates means higher interest expenses for these firms, and less profits. Once again, both real estate investment trusts (REITs) and utilities generally fit this description. It should come as no surprise that both areas significantly underperformed the S&P 500 during the second half of 2013 as long-term rates rose amid taper talks.
• Exporters: While our central bank is looking to raise interest rates, much of the rest of the world is trying to lower theirs. This could very likely lead to continued strength in the U.S. dollar, which would make our goods comparatively more expensive overseas. That would create a headwind for large multinational firms that derive a majority of their revenue from outside of the United States.
Rate Hike Winners
However, there are some industries that are clamoring for higher interest rates:
• Insurers: One particular beneficiary of higher rates is the insurance industry. Insurance companies take in premiums from customers, invest them - usually in fixed income securities like bonds - and then pay out claims in the future. Much of their profits are made on the interest income from their investments. When rates rise, they will be able to earn more interest from their investments. While it's true the value of their existing bond holdings would decline when rates rise, insurers with a relatively short duration on their investment portfolios should be relatively immune.
• Brokers: Other companies anxiously waiting for rates to rise are brokerage firms. Brokerages earn interest income on un-invested cash in customer accounts. So when rates rise, they can invest this cash at higher rates. While they will have to pay more interest on those cash balances, the spread between what they earn and what they pay out should widen from where it is today.
• Banks: Banks could also benefit from rising interest rates, as long as long-term rates move up more than short-term rates. Think about a bank's business model: they pay interest on deposits and loan that money out at higher rates. The interest rates on deposits are typically tied to short-term rates while loans are often tied to long-term rates. In other words, banks benefit from a steep yield curve, meaning when the spread between long-term and short-term rates is wide. So if the Fed hikes short-term rates, but long-term rates like the 10-year stay put, this will actually hurt net interest margins.
However, keep in mind that if the Fed raises rates, it will be because the economy is improving and inflation expectations are rising. Both of these conditions typically drive up long-term interest rates too, likely by more than the Fed raises short-term rates (usually in 25 basis point increments). Also, an improving economy means that credit quality is likely improving, which is great for banks' bottom lines as well.
Small cap banks should benefit the most from a steeper yield curve since a larger chunk of their profits come from interest income than large cap banks, which usually have more diversified revenue streams and are less susceptible to the yield curve.
The Bottom Line
If the U.S. economy continues to improve, then expect the Federal Reserve to finally increase interest rates from their rock-bottom levels relatively soon. Be prepared for the rate hike by shifting your portfolio now before it gets fully priced in. While some areas of the stock market are likely to underperform, others are well-positioned to profit. You should be too.
-- Todd Bunton, Weekend Wisdom
Be prepared before that happens. Because by the time our central bank officially announces it is raising rates, many stocks will already have the move priced in.
There will be clear winners and losers during a rising interest rate environment. Investors looking to profit from a rate hike, or simply avoid significant underperformance, should consider shifting their portfolio now.
Rate Hike Losers
The Fed has stated if the economy continues to improve, rates will rise. After a stellar February jobs report blew away expectations, it's looking very likely that rates could rise sooner rather than later.
It's well known that a rising interest rate environment is bad for bonds overall, as their prices move opposite of rates. This is especially true for long duration, low coupon bonds. However, the impact on stocks will be much more mixed.
Some areas of the market are likely to suffer. Here are the areas I would avoid:
• High Yielders: As interest rates march higher, dividend yields will look comparatively less attractive to income investors than the yields on fixed income and money market accounts. Areas like real estate investment trusts (REITs) and utilities meet these criteria, as do Master Limited Partnerships (MLPs) and some stodgy consumers staples. The "reach for yield" trade that drove the valuations of many of these high yielders to record levels is likely coming to an end soon.
• Highly Leveraged Firms: Companies with highly leveraged balance sheets that rely heavily on debt financing are likely to underperform too. That's especially true for firms who are constantly issuing short-term debt to meet their obligations. Higher interest rates means higher interest expenses for these firms, and less profits. Once again, both real estate investment trusts (REITs) and utilities generally fit this description. It should come as no surprise that both areas significantly underperformed the S&P 500 during the second half of 2013 as long-term rates rose amid taper talks.
• Exporters: While our central bank is looking to raise interest rates, much of the rest of the world is trying to lower theirs. This could very likely lead to continued strength in the U.S. dollar, which would make our goods comparatively more expensive overseas. That would create a headwind for large multinational firms that derive a majority of their revenue from outside of the United States.
Rate Hike Winners
However, there are some industries that are clamoring for higher interest rates:
• Insurers: One particular beneficiary of higher rates is the insurance industry. Insurance companies take in premiums from customers, invest them - usually in fixed income securities like bonds - and then pay out claims in the future. Much of their profits are made on the interest income from their investments. When rates rise, they will be able to earn more interest from their investments. While it's true the value of their existing bond holdings would decline when rates rise, insurers with a relatively short duration on their investment portfolios should be relatively immune.
• Brokers: Other companies anxiously waiting for rates to rise are brokerage firms. Brokerages earn interest income on un-invested cash in customer accounts. So when rates rise, they can invest this cash at higher rates. While they will have to pay more interest on those cash balances, the spread between what they earn and what they pay out should widen from where it is today.
• Banks: Banks could also benefit from rising interest rates, as long as long-term rates move up more than short-term rates. Think about a bank's business model: they pay interest on deposits and loan that money out at higher rates. The interest rates on deposits are typically tied to short-term rates while loans are often tied to long-term rates. In other words, banks benefit from a steep yield curve, meaning when the spread between long-term and short-term rates is wide. So if the Fed hikes short-term rates, but long-term rates like the 10-year stay put, this will actually hurt net interest margins.
However, keep in mind that if the Fed raises rates, it will be because the economy is improving and inflation expectations are rising. Both of these conditions typically drive up long-term interest rates too, likely by more than the Fed raises short-term rates (usually in 25 basis point increments). Also, an improving economy means that credit quality is likely improving, which is great for banks' bottom lines as well.
Small cap banks should benefit the most from a steeper yield curve since a larger chunk of their profits come from interest income than large cap banks, which usually have more diversified revenue streams and are less susceptible to the yield curve.
The Bottom Line
If the U.S. economy continues to improve, then expect the Federal Reserve to finally increase interest rates from their rock-bottom levels relatively soon. Be prepared for the rate hike by shifting your portfolio now before it gets fully priced in. While some areas of the stock market are likely to underperform, others are well-positioned to profit. You should be too.
-- Todd Bunton, Weekend Wisdom
rich habits
According to a recent study by Tom Corley, author of Rich Habits: The Daily Success Habits Of Wealthy Individuals, there are few key habits that separate the rich from the poor.
What was one of the “rich” habits? Reading. While both groups read roughly the same amount, the key difference was what they read. The financially successful people read for self-improvement, while the less-successful primarily read for entertainment.
The study found that 85 percent of rich people read two or more books on education, self-improvement or career advancing a month, compared to only 15 percent for the poor; 94 percent of the rich read news-related publications, compared to 11 percent of the poor; and 11 percent of the rich read for entertainment, compared to 79 percent of the poor.
Becoming rich doesn’t happen overnight. But by constantly improving upon your knowledge, experience and skill set, you acquire the expertise needed to become wealthy and, more importantly, stay that way. This is why many athletes, lottery winners and movie stars declare bankruptcy after initially achieving their riches.
Another key habit is having a mentor — 93 percent of the rich who had mentors stated that their mentors were responsible for their wealth. Their mentor’s hindsight became their foresight, avoiding unnecessary mistakes, opening up doors of opportunity and providing the support needed. For those who didn’t have a mentor, Corley writes that they mentored themselves through books, experience and the school of hard knocks.
With the Internet, technology and many professional organizations out there, anyone can have easy access to the books and mentors people should have and need!
-- David Chang, Midweek, March 11, 2015
What was one of the “rich” habits? Reading. While both groups read roughly the same amount, the key difference was what they read. The financially successful people read for self-improvement, while the less-successful primarily read for entertainment.
The study found that 85 percent of rich people read two or more books on education, self-improvement or career advancing a month, compared to only 15 percent for the poor; 94 percent of the rich read news-related publications, compared to 11 percent of the poor; and 11 percent of the rich read for entertainment, compared to 79 percent of the poor.
Becoming rich doesn’t happen overnight. But by constantly improving upon your knowledge, experience and skill set, you acquire the expertise needed to become wealthy and, more importantly, stay that way. This is why many athletes, lottery winners and movie stars declare bankruptcy after initially achieving their riches.
Another key habit is having a mentor — 93 percent of the rich who had mentors stated that their mentors were responsible for their wealth. Their mentor’s hindsight became their foresight, avoiding unnecessary mistakes, opening up doors of opportunity and providing the support needed. For those who didn’t have a mentor, Corley writes that they mentored themselves through books, experience and the school of hard knocks.
With the Internet, technology and many professional organizations out there, anyone can have easy access to the books and mentors people should have and need!
-- David Chang, Midweek, March 11, 2015
Sunday, March 08, 2015
gold stocks
Since gold peaked around $1900 per ounce in 2011, gold stocks have
endured a challenging three years. In 2014, things started promisingly
enough as gold stocks began to stage a recovery in the first half of the
year. This was before weakness in global currencies, versus the U.S.
dollar, and expectations of a Fed rate hike combined to reverse the
momentum. And then, towards the end of last year, sentiment tumbled to
all-time lows creating a unique opportunity for contrarian investors.
However, while gold declined slightly in USD terms during 2014, it actually posted respectable gains in most foreign currencies.
Gold has historically had an inverse relationship with the US dollar. Because gold is priced in USD, as the greenback strengthens the gold price typically weakens. However, in the first two months of 2015 this hasn’t been the case. Why? Well, a number of factors have driven renewed investor interest in both gold and gold equities. This includes stubbornly low inflation, fears of outright deflation in Europe and Japan, the ongoing conflict in the Ukraine and continued uncertainty surrounding Greece’s future as an EU member nation.
In a bid to stimulate growth, several central banks have enacted negative interest rate policies leading to approximately $2 trillion of government debt globally that has a negative yield. This diminishes the opportunity cost of holding gold at a zero yield.
Increasingly, investors are also growing concerned about the unforeseen consequences of central bank policies. Most recently, the markets were rattled when the Swiss Central Bank abandoned its commitment to peg its currency to the Euro. As a result, investors have begun to return to the sector. For the first time in several years, inflows to gold ETFs have turned positive and gold equities have been strong performers year-to-date.
So, why should investors consider gold stocks? The primary reason is portfolio diversification. Historically, the correlation between gold stocks and traditional stocks is very low. With the S&P 500 and Dow Jones indexes at all-time highs, it could be a good time to consider an asset class that typically does well during stock market corrections.
-- Mitch Zacks, Market Insights, Zacks Investment Management
However, while gold declined slightly in USD terms during 2014, it actually posted respectable gains in most foreign currencies.
Gold has historically had an inverse relationship with the US dollar. Because gold is priced in USD, as the greenback strengthens the gold price typically weakens. However, in the first two months of 2015 this hasn’t been the case. Why? Well, a number of factors have driven renewed investor interest in both gold and gold equities. This includes stubbornly low inflation, fears of outright deflation in Europe and Japan, the ongoing conflict in the Ukraine and continued uncertainty surrounding Greece’s future as an EU member nation.
In a bid to stimulate growth, several central banks have enacted negative interest rate policies leading to approximately $2 trillion of government debt globally that has a negative yield. This diminishes the opportunity cost of holding gold at a zero yield.
Increasingly, investors are also growing concerned about the unforeseen consequences of central bank policies. Most recently, the markets were rattled when the Swiss Central Bank abandoned its commitment to peg its currency to the Euro. As a result, investors have begun to return to the sector. For the first time in several years, inflows to gold ETFs have turned positive and gold equities have been strong performers year-to-date.
So, why should investors consider gold stocks? The primary reason is portfolio diversification. Historically, the correlation between gold stocks and traditional stocks is very low. With the S&P 500 and Dow Jones indexes at all-time highs, it could be a good time to consider an asset class that typically does well during stock market corrections.
-- Mitch Zacks, Market Insights, Zacks Investment Management
Friday, March 06, 2015
the Dow of Apple
(Reuters) - Apple Inc (AAPL.O), the largest U.S. company by market value, will join the storied Dow Jones industrial average .DJI, replacing AT&T Inc (T.N), in a change that reflects the dominant position of iPhone maker in the U.S. economy and society.
The decision to nudge aside AT&T, which has been part of the Dow for the better part of a century, is a recognition of the way in which communications and technology have evolved over the last several decades.
The action, by S&P Dow Jones Indices, had been widely expected since Apple split its shares seven-for-one in June 2014.
The Dow industrials is the oldest U.S. stock average, first been published in 1896. Its compact size - just 30 names - and its mission to reflect the U.S. economy mean it has a familiarity for retail investors that other indexes that cover a greater portion of the market's value do not.
Even though professional managers generally benchmark against the S&P 500, additions and removals from the Dow are still seen as a big event. It was last altered in September 2013 when Goldman Sachs Group Inc (GS.N), Visa Inc (V.N) and Nike Inc (NKE.N) were added.
AT&T was added in 1916, the year after the first-ever transcontinental telephone call. It was removed in 2004. After SBC Communications renamed itself AT&T following a 2005 merger, it was reinstated.
"It was a new way of life: telephones, back then 100 years ago, these talking machines," said Howard Silverblatt, chief index analyst at S&P Dow Jones Indices.
In a twist of fate, Apple owes some of its success to its partnership with AT&T over the iPhone, the device that propelled Apple's dominance. The iPhone first hit the market in 2007 with AT&T as its exclusive carrier, a deal that continued for more than three years.
Kevin Landis, chief investment officer of Firsthand Capital Management, a Silicon Valley-based technology-investing specialist with $300 million in assets under management, said he hopes that this is not a sign that Apple is past its prime.
“The Dow Jones is such a backwards-looking list, I cringed when Intel (INTC.O) and Microsoft (MSFT.O) were added," Landis said. "I'm cringing today. Let's hope Apple can defy the forces of history."
Intel and Microsoft joined the average in November 1999, and their performance was weak for years following.
*** [3/11/15]
Another stat/factoid being tossed about for your consideration: Companies added to the Dow outperform the S&P 500 by 3% in the 30 days after the announcement, according to Bernstein Research.
But that outperformance tends to be short-lived. There is a “clear pattern” of good performance leading up to the addition then “bad performance following,” Jason Goepfert, president of Sundial Capital Research, tells Marketwatch.
Goepfert examined the 20 days before and after an addition but recent history suggests the index tends to add stocks when they're peaking, and occasionally before big falls. Notable examples include Intel and Microsoft, added to the Dow in November 1999, and Bank of America, which was added in February 2008. On the flip side, stocks often perform well after being booted from the index, with Hewlett-Packard being the most obvious recent example. (The stock is up about 55% since being dropped from the Dow in September 2013.)
This is by no means a recommendation or a forecast but I can assure you some professional investors are right now looking into a paired trade: Short Apple-Long AT&T. (Update: In 32 of 50 Dow changes from 1928 to 2005, the deleted Dow stock outperformed the added name, and the portfolio of stocks removed gained 19% over next 250 trading days vs. a 3% gain for stocks added, according to this 2005 academic study by economists at Pomona College.)
The decision to nudge aside AT&T, which has been part of the Dow for the better part of a century, is a recognition of the way in which communications and technology have evolved over the last several decades.
The action, by S&P Dow Jones Indices, had been widely expected since Apple split its shares seven-for-one in June 2014.
The Dow industrials is the oldest U.S. stock average, first been published in 1896. Its compact size - just 30 names - and its mission to reflect the U.S. economy mean it has a familiarity for retail investors that other indexes that cover a greater portion of the market's value do not.
Even though professional managers generally benchmark against the S&P 500, additions and removals from the Dow are still seen as a big event. It was last altered in September 2013 when Goldman Sachs Group Inc (GS.N), Visa Inc (V.N) and Nike Inc (NKE.N) were added.
AT&T was added in 1916, the year after the first-ever transcontinental telephone call. It was removed in 2004. After SBC Communications renamed itself AT&T following a 2005 merger, it was reinstated.
"It was a new way of life: telephones, back then 100 years ago, these talking machines," said Howard Silverblatt, chief index analyst at S&P Dow Jones Indices.
In a twist of fate, Apple owes some of its success to its partnership with AT&T over the iPhone, the device that propelled Apple's dominance. The iPhone first hit the market in 2007 with AT&T as its exclusive carrier, a deal that continued for more than three years.
Kevin Landis, chief investment officer of Firsthand Capital Management, a Silicon Valley-based technology-investing specialist with $300 million in assets under management, said he hopes that this is not a sign that Apple is past its prime.
“The Dow Jones is such a backwards-looking list, I cringed when Intel (INTC.O) and Microsoft (MSFT.O) were added," Landis said. "I'm cringing today. Let's hope Apple can defy the forces of history."
Intel and Microsoft joined the average in November 1999, and their performance was weak for years following.
*** [3/11/15]
Another stat/factoid being tossed about for your consideration: Companies added to the Dow outperform the S&P 500 by 3% in the 30 days after the announcement, according to Bernstein Research.
But that outperformance tends to be short-lived. There is a “clear pattern” of good performance leading up to the addition then “bad performance following,” Jason Goepfert, president of Sundial Capital Research, tells Marketwatch.
Goepfert examined the 20 days before and after an addition but recent history suggests the index tends to add stocks when they're peaking, and occasionally before big falls. Notable examples include Intel and Microsoft, added to the Dow in November 1999, and Bank of America, which was added in February 2008. On the flip side, stocks often perform well after being booted from the index, with Hewlett-Packard being the most obvious recent example. (The stock is up about 55% since being dropped from the Dow in September 2013.)
This is by no means a recommendation or a forecast but I can assure you some professional investors are right now looking into a paired trade: Short Apple-Long AT&T. (Update: In 32 of 50 Dow changes from 1928 to 2005, the deleted Dow stock outperformed the added name, and the portfolio of stocks removed gained 19% over next 250 trading days vs. a 3% gain for stocks added, according to this 2005 academic study by economists at Pomona College.)
Wednesday, March 04, 2015
this fund buys & holds
(Reuters) -
Equity investors pursuing a buy-and-hold strategy might want to check
out a fund that hasn't made an original stock market bet in 80 years.
The Voya Corporate Leaders Trust Fund, now run by a unit of Voya Financial Inc bought equal amounts of stock in 30 major U.S. corporations in 1935 and hasn't picked a new stock since.
Some of its holdings are unchanged, including DuPont, General Electric, Procter & Gamble and Union Pacific. Others were spun off from or acquired from original components, including Berkshire Hathaway (successor to the Atchison Topeka and Santa Fe Railway); CBS (acquired by Westinghouse Electric and renamed); and Honeywell (which bought Allied Chemical and Dye). Some are just gone, including the Pennsylvania Railroad Co. and American Can. Twenty-one stocks remain in the fund.
The plan is simple, and the results have been good. Light on banks and heavy on industrials and energy, the fund has beaten 98 percent of its peers, known as large value funds, over both the past five and ten years, according to Morningstar.
***
Assuming I have the symbol right, the fund has 21 stock holdings with turnover of 0%.
The Voya Corporate Leaders Trust Fund, now run by a unit of Voya Financial Inc bought equal amounts of stock in 30 major U.S. corporations in 1935 and hasn't picked a new stock since.
Some of its holdings are unchanged, including DuPont, General Electric, Procter & Gamble and Union Pacific. Others were spun off from or acquired from original components, including Berkshire Hathaway (successor to the Atchison Topeka and Santa Fe Railway); CBS (acquired by Westinghouse Electric and renamed); and Honeywell (which bought Allied Chemical and Dye). Some are just gone, including the Pennsylvania Railroad Co. and American Can. Twenty-one stocks remain in the fund.
The plan is simple, and the results have been good. Light on banks and heavy on industrials and energy, the fund has beaten 98 percent of its peers, known as large value funds, over both the past five and ten years, according to Morningstar.
***
Assuming I have the symbol right, the fund has 21 stock holdings with turnover of 0%.
Nasdaq 5000
Finally! The Nasdaq topped the 5,000 level Monday for the first time since March 2000.
The Nasdaq closed at 5,008. It is only the third time it has ever finished above 5,000. Believe it or not, the Nasdaq is now just 2.4% from the all-time peak of 5,132.52 it notched during the Dot-com bubble.
A lot of people have concerns that this might be a warning sign that stocks are back at lofty levels again, but much is different now versus the Dot-com era. Many of the companies leading the charge this time are well established and have a lot of cash on hand.
Apple has more than $175 billion in cash, for example. And the stock is only trading at about 15 times earnings estimates for this fiscal year. In 2000, some leading tech companies were valued at more than 100 times profit forecasts.
History lesson: Tech stocks plummeted in 2000 as prices for technology companies, particularly relatively new Internet firms, got way too high in a relatively quick fashion. It was a classic bubble.
Several Internet stocks went out of business because they spent too much and did not have solid business plans. Who could forget the likes of Pets.com and its sock puppet in a Super Bowl ad?
The plunge was breathtaking. By October 2002, the Nasdaq had fallen to around 1,108 -- nearly 80% below its all-time high.
But tech stocks have come roaring back since the broader market bottomed nearly six years ago during the Great Recession.
The mobile and social media revolutions have helped lead the way as Apple, Google and Facebook (FB, Tech30) have all emerged as some of the leading tech companies in the world.
Deja vu all over again? Still, there are some eerie comparisons to15 years ago. Apple is now worth more than $750 billion and some experts are predicting that the company will one day top the $1 trillion market value level.
Back in 2000, many were saying the same thing about Cisco Systems (CSCO, Tech30). That didn't happen. Cisco is no slouch. It's even in the Dow. But its stock has not gotten back to 2000 levels. Its market value is $150 billion.
Even though a lot of the leading publicly traded tech companies are trading at reasonable valuations, the same can't be said for all firms.
Twitter (TWTR, Tech30) and Netflix (NFLX, Tech30) trade for more than 125 times earnings estimates for 2015. Electric car maker Tesla (TSLA) is valued at about 200 times this year's profit forecasts.
lending money
Many of us may have been in a situation where a family member or friend has asked to borrow money. In 2011, 7 percent of homebuyers borrowed from a relative or friend to help purchase a house, and 14 percent of business owners also borrowed from family and friends to help cover costs. Lending money can help someone in need and create goodwill. But lending money also can be cause for harm in a relationship or lifestyle.
Here are some tips on how to lend money and still keep the relationship on track:
1) Don’t lend money you can’t afford. If you are struggling with your finances, lending money to another person struggling with finances will not only hurt the relationship if it is not paid back but also will set you back financially, resulting in a double whammy. Make sure you prioritize your personal finances so the money will not adversely affect your living situation.
2) Consider it a gift. If you can afford to lend it, it is safe to assume that the money will not be paid back. If the person borrowing doesn’t pay it back, you will not be disappointed and it will not affect the relationship. If you are willing to take the risk, the gift can be seen as a nice gesture to help someone in need. Relationships are more important than money, so if you do end up getting paid back, it will be a nice surprise.
4) Know when to say no. Consider why the person needs the money. If you feel the person is borrowing to fund their lifestyle as opposed to paying for emergencies, you are only supporting their habits. Saying no may force them to re-evaluate their own financial situation. In the long run you will be helping them out.
***
and more
[4/14/15] The first rule of loaning money to friends.
Here are some tips on how to lend money and still keep the relationship on track:
1) Don’t lend money you can’t afford. If you are struggling with your finances, lending money to another person struggling with finances will not only hurt the relationship if it is not paid back but also will set you back financially, resulting in a double whammy. Make sure you prioritize your personal finances so the money will not adversely affect your living situation.
2) Consider it a gift. If you can afford to lend it, it is safe to assume that the money will not be paid back. If the person borrowing doesn’t pay it back, you will not be disappointed and it will not affect the relationship. If you are willing to take the risk, the gift can be seen as a nice gesture to help someone in need. Relationships are more important than money, so if you do end up getting paid back, it will be a nice surprise.
4) Know when to say no. Consider why the person needs the money. If you feel the person is borrowing to fund their lifestyle as opposed to paying for emergencies, you are only supporting their habits. Saying no may force them to re-evaluate their own financial situation. In the long run you will be helping them out.
***
and more
[4/14/15] The first rule of loaning money to friends.
Thursday, February 26, 2015
oil prices?
After falling by more than half since last June, oil prices are not
likely to recover to previous highs for a long time and the energy
sector may remain under pressure for an extended period, possibly years,
says Shinwoo Kim, a T. Rowe Price energy analyst.
Mr. Kim says a recovery in oil prices, which declined from over $100 per barrel last summer to the mid-$40s in January—"could take longer than people think. What's clear is that we're not going back to $100 oil. I think the new range will be around $50 to $70 a barrel."
One factor that may prolong the recovery is the surge in U.S. shale oil production from horizontal drilling and hydraulic fracturing, or fracking, as well as the slowdown in global economic growth, particularly in China.
"The productivity in U.S. production has really been surprising people massively on the upside," Mr. Kim says. "The U.S. has become the swing producer in global oil, more so than Saudi Arabia, which gave up that role when it decided not to cut production and to leave it up to the market to work it out.
"The Saudi decision was really the catalyst for lower oil prices," he adds. "It accelerated the oil price deflation, which was already in the works and would have happened over time."
Mr. Kim notes that U.S. oil production, after a multi-decade period of decline, has boomed in recent years to about 12 million barrels per day now, placing it among the world's largest oil producers, along with Saudi Arabia and Russia.
"Now, the problem is the U.S. will also respond to lower prices, so we won't grow at the same rate that we have, and that will be part of the natural correction mechanism. But I think the productivity gains that are still fairly early on in the U.S. will continue, and so oil prices will sort of be capped in the near term."
While cheaper oil prices have benefited the overall economy, they have posed a huge challenge for energy stocks, particularly oil and gas exploration and production (E&P) companies. The overall energy sector in the S&P 500 Index plunged about 18% over the second half of 2014 and almost 5% in January 2015.
Mr. Kim says it could take years before the sector fully recovers. "Some expect a sort of V-shaped recovery into the second half of this year," he says. "I think it will take much longer because we have a supply problem with oil, not just a demand problem. If it was just demand, we've seen cycles where the recoveries have been very quick. Oversupply takes much longer to fix."
As a result, Mr. Kim expects earnings of energy companies to be even worse than analysts have forecast. "Because it's a supply problem, I expect to see multiple levels of cuts," he says. "The service companies will probably get hit a little harder than the E&P companies, but I think we're just seeing the start of earnings revisions. I don't think we're done yet."
Mr. Kim says a recovery in oil prices, which declined from over $100 per barrel last summer to the mid-$40s in January—"could take longer than people think. What's clear is that we're not going back to $100 oil. I think the new range will be around $50 to $70 a barrel."
One factor that may prolong the recovery is the surge in U.S. shale oil production from horizontal drilling and hydraulic fracturing, or fracking, as well as the slowdown in global economic growth, particularly in China.
"The productivity in U.S. production has really been surprising people massively on the upside," Mr. Kim says. "The U.S. has become the swing producer in global oil, more so than Saudi Arabia, which gave up that role when it decided not to cut production and to leave it up to the market to work it out.
"The Saudi decision was really the catalyst for lower oil prices," he adds. "It accelerated the oil price deflation, which was already in the works and would have happened over time."
Mr. Kim notes that U.S. oil production, after a multi-decade period of decline, has boomed in recent years to about 12 million barrels per day now, placing it among the world's largest oil producers, along with Saudi Arabia and Russia.
"Now, the problem is the U.S. will also respond to lower prices, so we won't grow at the same rate that we have, and that will be part of the natural correction mechanism. But I think the productivity gains that are still fairly early on in the U.S. will continue, and so oil prices will sort of be capped in the near term."
While cheaper oil prices have benefited the overall economy, they have posed a huge challenge for energy stocks, particularly oil and gas exploration and production (E&P) companies. The overall energy sector in the S&P 500 Index plunged about 18% over the second half of 2014 and almost 5% in January 2015.
Mr. Kim says it could take years before the sector fully recovers. "Some expect a sort of V-shaped recovery into the second half of this year," he says. "I think it will take much longer because we have a supply problem with oil, not just a demand problem. If it was just demand, we've seen cycles where the recoveries have been very quick. Oversupply takes much longer to fix."
As a result, Mr. Kim expects earnings of energy companies to be even worse than analysts have forecast. "Because it's a supply problem, I expect to see multiple levels of cuts," he says. "The service companies will probably get hit a little harder than the E&P companies, but I think we're just seeing the start of earnings revisions. I don't think we're done yet."
Irving Kahn
*** [2/26/15]
(Bloomberg) -- Irving Kahn, the Manhattan money manager whose astounding longevity enabled him to carry firsthand lessons from the Great Depression well into the 21st century, has died. He was 109.
He died on Feb. 24 at his apartment in Manhattan, his grandson, Andrew Kahn, said Thursday.
A studious, patient investor from a family whose durability drew the attention of scientists, Kahn was co-founder and chairman of Kahn Brothers Group Inc., a broker-dealer and investment adviser with about $1 billion under management.
Last year, at 108, he was still working three days a week, commuting one mile from his Upper East Side apartment to the firm’s midtown office. There, he shared his thoughts on investment positions with his son, Thomas Kahn, the firm’s president, and grandson Andrew, vice president and research analyst. The cold New York City winter kept Kahn away from the office the past several months, his grandson said.
“I prefer to be slow and steady,” Kahn said in a 2014 interview with the U.K. Telegraph. “I study companies and think about what they might return over, say, four or five years. If a stock goes down, I have time to weather the storm, maybe buy more at the lower price. If my arguments for the investment haven’t changed, then I should like the stock even more when it goes down.”
Kahn worked to stay mentally agile, reading three newspapers daily and watching C-SPAN, according to a 2011 article in New York magazine.
Among the memories he filed away was his work with Benjamin Graham, the stock picker and Columbia Business School professor whose belief in value investing influenced a generation of traders including Warren Buffett. Graham, who died in 1976, distinguished between investors, to whom he addressed his advice, with mere “speculators.”
Kahn assisted Graham and his co-author, David Dodd, in the research for “Security Analysis,” their seminal work on finding undervalued stocks and bonds, which was first published in 1934. In the book’s second edition, published in 1940, the authors credited Kahn for guiding a study on the significance of a stock’s relative price and earnings.
Irving Kahn was born in Manhattan on Dec. 19, 1905, to Saul Kahn, a salesman of electric fixtures, and his wife, Mamie. He graduated from DeWitt Clinton High School in the Bronx and attended City College for two years before dropping out to go into business.
In 1928, working as a clerk at the Wall Street brokerage Kuhn, Loeb & Co., Kahn heard about a trader named Graham who seemed to know how to outperform the market. Kahn visited Graham’s office at the New York Cotton Exchange, and an alliance was born.
“I learned from Ben Graham that one could study financial statements to find stocks that were a ‘dollar selling for 50 cents,’” Kahn told the Telegraph. “He called this the ‘margin of safety’ and it’s still the most important concept related to risk.”
In June 1929, Kahn sold short 50 shares of Magma Copper, betting $300 -- more than $4,000 in today’s dollars -- that the price would fall. Four months later, on Oct. 29, 1929, the market crashed. Kahn’s $300 investment would triple in value.
He had counted on a downturn, he later explained, because he was watching traders bid the price of stocks higher and higher.
“I wasn’t smart,” he said in a 2006 interview with National Public Radio, now known as NPR. “But even a dumb young kid could see these guys were gambling. They were all borrowing money and having a good time and being right for a few months, and after that, you know what happened.”
After trading closed for the day, he would ride the subway with Graham to Columbia and sit in on Graham’s investing classes. He became Graham’s part-time teaching assistant.
He scouted potential investments for Graham’s partnership, Graham-Newman, and worked on Graham’s “The Intelligent Investor” (1949).
When Graham retired from his investment partnership in 1956, he recommended Kahn to clients seeking a new adviser. By then Kahn was a partner at Abraham & Co., which was later bought by Lehman Brothers. With sons Alan and Thomas, he parted with Lehman in 1978 to open Kahn Brothers.
*** [12/17/05]
Who's Irving Kahn?
Irving Kahn works 8 hours a day, 5 days a week, at his Madison Avenue investment advisory firm. This would hardly be noteworthy, except for his age: 99 [now 100]. When scientists gave him a mental fitness exam two years ago, Kahn showed no signs of cognitive decline. "I don't seem to have that problem," Kahn says.
Kahn, the chairman of Kahn Brothers, a low-profile New York investment firm, might be Wall Street's oldest active investor. He's in the office every business day, reading scientific periodicals, annual reports and newspapers in search of undervalued stocks in the tradition of his friend and mentor, Benjamin Graham, widely considered the father of value investing.
***
[11/24/11] Except for the occasional doctor’s appointment or bad cold, Irving Kahn hasn’t skipped a day of work in more years than he can remember. And he can remember plenty of them: He’s 105.
It helps that he is wealthy enough to have full-time attendants. Also, perhaps, that he has always been a “low liver,” without flamboyant tastes, as his brown, pointy-collared shirt and brown patterned tie attest. He goes to bed at eight, gets up at seven, takes vitamins because his attendants tell him to. (He drew the line at Lipitor, though, when a doctor suggested it a few years back.) He wastes few gestures; as we speak, his hands remain elegantly folded on his desk.
Still, a man who at 105—he’ll be 106 on December 19—has never had a life-threatening disease, who takes no cholesterol or blood-pressure medications and can give himself a clean shave each morning (not to mention a “serious sponge bath with vigorous rubbing all around”), invites certain questions. Is there something about his habits that predisposed a long and healthy life? (He smoked for years.) Is there something about his attitude? (He thinks maybe.) Is there something about his genes? (He thinks not.) And here he cuts me off. He’s not interested in his longevity.
But scientists are.
*** [9/2/14 via trbaby]
(Bloomberg) -- Irving Kahn, the Manhattan money manager whose astounding longevity enabled him to carry firsthand lessons from the Great Depression well into the 21st century, has died. He was 109.
He died on Feb. 24 at his apartment in Manhattan, his grandson, Andrew Kahn, said Thursday.
A studious, patient investor from a family whose durability drew the attention of scientists, Kahn was co-founder and chairman of Kahn Brothers Group Inc., a broker-dealer and investment adviser with about $1 billion under management.
Last year, at 108, he was still working three days a week, commuting one mile from his Upper East Side apartment to the firm’s midtown office. There, he shared his thoughts on investment positions with his son, Thomas Kahn, the firm’s president, and grandson Andrew, vice president and research analyst. The cold New York City winter kept Kahn away from the office the past several months, his grandson said.
“I prefer to be slow and steady,” Kahn said in a 2014 interview with the U.K. Telegraph. “I study companies and think about what they might return over, say, four or five years. If a stock goes down, I have time to weather the storm, maybe buy more at the lower price. If my arguments for the investment haven’t changed, then I should like the stock even more when it goes down.”
Kahn worked to stay mentally agile, reading three newspapers daily and watching C-SPAN, according to a 2011 article in New York magazine.
Among the memories he filed away was his work with Benjamin Graham, the stock picker and Columbia Business School professor whose belief in value investing influenced a generation of traders including Warren Buffett. Graham, who died in 1976, distinguished between investors, to whom he addressed his advice, with mere “speculators.”
Kahn assisted Graham and his co-author, David Dodd, in the research for “Security Analysis,” their seminal work on finding undervalued stocks and bonds, which was first published in 1934. In the book’s second edition, published in 1940, the authors credited Kahn for guiding a study on the significance of a stock’s relative price and earnings.
Irving Kahn was born in Manhattan on Dec. 19, 1905, to Saul Kahn, a salesman of electric fixtures, and his wife, Mamie. He graduated from DeWitt Clinton High School in the Bronx and attended City College for two years before dropping out to go into business.
In 1928, working as a clerk at the Wall Street brokerage Kuhn, Loeb & Co., Kahn heard about a trader named Graham who seemed to know how to outperform the market. Kahn visited Graham’s office at the New York Cotton Exchange, and an alliance was born.
“I learned from Ben Graham that one could study financial statements to find stocks that were a ‘dollar selling for 50 cents,’” Kahn told the Telegraph. “He called this the ‘margin of safety’ and it’s still the most important concept related to risk.”
In June 1929, Kahn sold short 50 shares of Magma Copper, betting $300 -- more than $4,000 in today’s dollars -- that the price would fall. Four months later, on Oct. 29, 1929, the market crashed. Kahn’s $300 investment would triple in value.
He had counted on a downturn, he later explained, because he was watching traders bid the price of stocks higher and higher.
“I wasn’t smart,” he said in a 2006 interview with National Public Radio, now known as NPR. “But even a dumb young kid could see these guys were gambling. They were all borrowing money and having a good time and being right for a few months, and after that, you know what happened.”
After trading closed for the day, he would ride the subway with Graham to Columbia and sit in on Graham’s investing classes. He became Graham’s part-time teaching assistant.
He scouted potential investments for Graham’s partnership, Graham-Newman, and worked on Graham’s “The Intelligent Investor” (1949).
When Graham retired from his investment partnership in 1956, he recommended Kahn to clients seeking a new adviser. By then Kahn was a partner at Abraham & Co., which was later bought by Lehman Brothers. With sons Alan and Thomas, he parted with Lehman in 1978 to open Kahn Brothers.
*** [12/17/05]
Who's Irving Kahn?
Irving Kahn works 8 hours a day, 5 days a week, at his Madison Avenue investment advisory firm. This would hardly be noteworthy, except for his age: 99 [now 100]. When scientists gave him a mental fitness exam two years ago, Kahn showed no signs of cognitive decline. "I don't seem to have that problem," Kahn says.
Kahn, the chairman of Kahn Brothers, a low-profile New York investment firm, might be Wall Street's oldest active investor. He's in the office every business day, reading scientific periodicals, annual reports and newspapers in search of undervalued stocks in the tradition of his friend and mentor, Benjamin Graham, widely considered the father of value investing.
***
[11/24/11] Except for the occasional doctor’s appointment or bad cold, Irving Kahn hasn’t skipped a day of work in more years than he can remember. And he can remember plenty of them: He’s 105.
It helps that he is wealthy enough to have full-time attendants. Also, perhaps, that he has always been a “low liver,” without flamboyant tastes, as his brown, pointy-collared shirt and brown patterned tie attest. He goes to bed at eight, gets up at seven, takes vitamins because his attendants tell him to. (He drew the line at Lipitor, though, when a doctor suggested it a few years back.) He wastes few gestures; as we speak, his hands remain elegantly folded on his desk.
Still, a man who at 105—he’ll be 106 on December 19—has never had a life-threatening disease, who takes no cholesterol or blood-pressure medications and can give himself a clean shave each morning (not to mention a “serious sponge bath with vigorous rubbing all around”), invites certain questions. Is there something about his habits that predisposed a long and healthy life? (He smoked for years.) Is there something about his attitude? (He thinks maybe.) Is there something about his genes? (He thinks not.) And here he cuts me off. He’s not interested in his longevity.
But scientists are.
*** [9/2/14 via trbaby]
Three days a week, Irving Kahn takes a taxi from his flat in Manhattan for the
short ride to the offices of his investment firm, Kahn Brothers.
Nothing surprising about that, you might think. But Mr Kahn is 108 years old.
Many professional investors stress the importance of a long-term approach but few are in a position to speak about it with as much authority as Mr Kahn.
“One of my clearest memories is of my first trade, a short sale in a mining company, Magma Copper,” he remembered. “I borrowed money from an in-law who was certain I would lose it but was still kind enough to lend it. He said only a fool would bet against the bull market.” But by the time the Wall Street crash took hold in the autumn, Mr Kahn had nearly doubled his money. “This is a good example of how great enthusiasm in a company or industry is usually a sign of great risk,” he said.
But after Mr Kahn’s early success in the risky business of short-selling, his approach changed to one of finding solid companies that were undervalued by the stock market and then holding on to them. He also turned his back on borrowing money to invest (leverage). “I invested conservatively and tried to avoid leverage. Living a modest lifestyle didn’t hurt, either,” he said.
The catalyst for the change was his collaboration with Benjamin Graham, the inventor of “value investing”.
Mr Kahn said: “In the Thirties Ben Graham and others developed security analysis and the concept of value investing, which has been the focus of my life ever since. Value investing was the blueprint for analytical investing, as opposed to speculation.”
Graham was a lecturer at Columbia University in New York, where his pupils included Warren Buffett, and Mr Kahn was his teaching assistant. “They’d take the subway to Columbia together,” said Tom Kahn, Irving Kahn’s son, who also works for the family investment firm.
He added: “There are always good companies that are overpriced. A disciplined investor avoids them. As Warren Buffett has correctly said, a good investor has the opposite temperament to that prevailing in the market. Throughout all the crashes, sticking to value investing helped me to preserve and grow my capital.
“Investors must remember that their first job is to preserve their capital. After they’ve dealt with that, they can approach the second job, seeking a return on that capital.”
The market today
Mr Kahn said he was finding few bargains in today’s markets, in which America’s benchmark S&P 500 index has hit repeated record highs.
“I try not to pontificate about the market, but I can say that my son and I find very few instances of value when we look at the market today. That is usually a sign of widespread speculation,” he said.
“But no one knows when the tide will turn. Those who are leveraged, trade short-term and have bought at a high prices will be exposed to permanent loss of capital. I prefer to be slow and steady. I study companies and think about what they might return over, say, four or five years. If a stock goes down, I have time to weather the storm, maybe buy more at the lower price. If my arguments for the investment haven’t changed, then I should like the stock even more when it goes down.”
He explained how investment decisions are reached at Kahn Brothers. “Tom runs the firm and my grandson Andrew is one of our analysts. The three of us and our team enjoy debating the merits of companies. Sometimes we have different opinions, which makes it interesting.
“We basically look for value where others have missed it. Our ideas have to be different from the prevailing views of the market. When investors flee, we look for reasonable purchases that will be fruitful over many years. Our goal has always been to seek reasonable returns over a very long period of time. I don’t know why anyone would look at a short time horizon. In my life, I invested over decades. Looking for short-term gains doesn’t aid this process.”
“You must have the discipline and temperament to resist your impulses. Human beings have precisely the wrong instincts when it comes to the markets. If you recognise this, you can resist the urge to buy into a rally and sell into a decline. It’s also helpful to remember the power of compounding. You don’t need to stretch for returns to grow your capital over the course of your life.”
Many professional investors stress the importance of a long-term approach but few are in a position to speak about it with as much authority as Mr Kahn.
“One of my clearest memories is of my first trade, a short sale in a mining company, Magma Copper,” he remembered. “I borrowed money from an in-law who was certain I would lose it but was still kind enough to lend it. He said only a fool would bet against the bull market.” But by the time the Wall Street crash took hold in the autumn, Mr Kahn had nearly doubled his money. “This is a good example of how great enthusiasm in a company or industry is usually a sign of great risk,” he said.
But after Mr Kahn’s early success in the risky business of short-selling, his approach changed to one of finding solid companies that were undervalued by the stock market and then holding on to them. He also turned his back on borrowing money to invest (leverage). “I invested conservatively and tried to avoid leverage. Living a modest lifestyle didn’t hurt, either,” he said.
The catalyst for the change was his collaboration with Benjamin Graham, the inventor of “value investing”.
Mr Kahn said: “In the Thirties Ben Graham and others developed security analysis and the concept of value investing, which has been the focus of my life ever since. Value investing was the blueprint for analytical investing, as opposed to speculation.”
Graham was a lecturer at Columbia University in New York, where his pupils included Warren Buffett, and Mr Kahn was his teaching assistant. “They’d take the subway to Columbia together,” said Tom Kahn, Irving Kahn’s son, who also works for the family investment firm.
He added: “There are always good companies that are overpriced. A disciplined investor avoids them. As Warren Buffett has correctly said, a good investor has the opposite temperament to that prevailing in the market. Throughout all the crashes, sticking to value investing helped me to preserve and grow my capital.
“Investors must remember that their first job is to preserve their capital. After they’ve dealt with that, they can approach the second job, seeking a return on that capital.”
The market today
Mr Kahn said he was finding few bargains in today’s markets, in which America’s benchmark S&P 500 index has hit repeated record highs.
“I try not to pontificate about the market, but I can say that my son and I find very few instances of value when we look at the market today. That is usually a sign of widespread speculation,” he said.
“But no one knows when the tide will turn. Those who are leveraged, trade short-term and have bought at a high prices will be exposed to permanent loss of capital. I prefer to be slow and steady. I study companies and think about what they might return over, say, four or five years. If a stock goes down, I have time to weather the storm, maybe buy more at the lower price. If my arguments for the investment haven’t changed, then I should like the stock even more when it goes down.”
He explained how investment decisions are reached at Kahn Brothers. “Tom runs the firm and my grandson Andrew is one of our analysts. The three of us and our team enjoy debating the merits of companies. Sometimes we have different opinions, which makes it interesting.
“We basically look for value where others have missed it. Our ideas have to be different from the prevailing views of the market. When investors flee, we look for reasonable purchases that will be fruitful over many years. Our goal has always been to seek reasonable returns over a very long period of time. I don’t know why anyone would look at a short time horizon. In my life, I invested over decades. Looking for short-term gains doesn’t aid this process.”
“You must have the discipline and temperament to resist your impulses. Human beings have precisely the wrong instincts when it comes to the markets. If you recognise this, you can resist the urge to buy into a rally and sell into a decline. It’s also helpful to remember the power of compounding. You don’t need to stretch for returns to grow your capital over the course of your life.”
Wednesday, February 25, 2015
are we headed toward a bubble?
Could the market really be headed toward a bubble?
To find out, Cramer compared the market then versus now to see if the situations are alike. First, there is the market leader, Apple. Cisco was the leader back in in 2000, with a market cap of $550 million. Apple now has a $736 billion market cap.
Yet anyone who follows Cramer knows that he values stocks by looking at their price-to-earnings multiple. While the average stock is trading at just 18 times earnings currently, Apple now sells at approximately 15 times earnings.
In the last bubble, Cramer argues that Cisco sold at about 80 times earnings. That is a huge difference!
To find out, Cramer compared the market then versus now to see if the situations are alike. First, there is the market leader, Apple. Cisco was the leader back in in 2000, with a market cap of $550 million. Apple now has a $736 billion market cap.
Yet anyone who follows Cramer knows that he values stocks by looking at their price-to-earnings multiple. While the average stock is trading at just 18 times earnings currently, Apple now sells at approximately 15 times earnings.
In the last bubble, Cramer argues that Cisco sold at about 80 times earnings. That is a huge difference!
Monday, February 16, 2015
Cokeefe
This guy (I assume it's a guy) posted an article on gurufocus boasting 303% performance in the past six years or 25% compounded. He claims to have beat the S&P 500 by 157% or an average of 22% a year.
How did he do it?
"I approach investing as an owner of the companies that I am buying. This impacts how I buy and hold stocks.
I evaluate buying marketable equity shares of companies in much the same way I would evaluate a business for acquisition entirely. I want the business to be (a) easy to understand, (b) run by able and honest managers, (c) with an enduring competitive advantage (moat) and favorable long-term prospects, and (d) at an attractive price (discount to its intrinsic value which is the discounted value of the cash that can be taken out of the business during its remaining life).
There is a tremendous advantage of being an individual investor. Portions of outstanding businesses sometimes sell in the securities markets at very large discounts from the prices they would command in negotiated transactions involving selling the entire business. Consequently, bargains in business ownership, which are typically not available directly through corporate acquisition, can be obtained indirectly through stock ownership.
In terms of selling I don't. I want to own these superstar companies as long possible. This also removes the concern over guessing about what is happening, or might happen, with the overall economy. In other words, if you owned 100% of a great company generating incredible returns on invested capital, you would not sell simply because there is an economic problem in Europe. With that said, why sell partial ownership shares of solid companies if there is a problem with the overall economy? The only thing that I worry about, after buying partial ownership of great companies, is whether the aforementioned reasons for buying are preserved. I only sell if the company no longer provides excellent economics or is run by able and honest management.
It took me several years to learn how to properly value a business. You cannot simply go by Earnings per Share (EPS) because the quality and sources of the earnings can be quite different amongst companies. My favorite metric is Return on Invested Capital (ROIC). It measures how much each dollar re-invested can produce in earnings. For example, a 24% ROIC will tell you that for every $1.00 the company re-invests it has produced 24 cents of earnings.
Patience, discipline, and emotional intelligence (self-awareness) are the main factors in investing on your own. Most investors are their own worst enemies – buying and selling too often, ignoring the boundaries of their mental horsepower. Individual investors tend to buy with the herd after prices are already highly inflated and sell in a panic when the market drops. Instead, focus on buying great companies with the aforementioned qualities when the market price is publicly trading at a discount to its intrinsic value. This is where the individual investor has a huge advantage over the professional; most fund managers don’t have the leeway to patiently wait for exceptional opportunities.
***
Sounds good to me, but contributor Dr. Paul Price is skeptical because his return sounds too good to be true.
Call me skeptical.
You have no profile on view and no link(s) to any website or newsletter. This is the first article you have published here on GuruFocus.
There is not a single example of the stocks you own or owned. Your claimed results would have been statistically improbable or impossible to achieve in a diversified portfolio with any substantial size.
If what you detailed is true you likley had a very small starting amount of capital, stayed incredibly concentrated, highly levered or some combination of all those factors. Or... it could all be made up.
Unless you show some supporting data, nobody reading your article has any reason to believe the gains which you claim to have accomplished were real.
***
Cokeefe then supplied a link to a previous (and nearly the same) article which provides more information on his holdings.
Here were author's 21 holdings:
Visa
Gilead
National Oilwell Varco
Ebix
Fiat Chrysler
Cummins
Syntel
Walgreen
Netease
Microsoft
Illinois Toolworks
American Tower
Apple
HDFC
Blackrock
eBay
Intercontinental Exchange
Intel
Total
Intuitive Surgical
Citigroup
And here's his current portfolio at Morningstar. The one change is that he sold Fiat Chrysler and bought Biglari Holdings. Interesting to see a slight variance between the year-by-year performance at the two sites. That wouldn't make sense unless it adjusts your performance if you bought or sold a holding (which also wouldn't make sense.) And a wide variance in the 2010 and 2011 returns in the gurufocus article vs. the valuewalk article.
So let's take him at his word and say he never sold any of these stocks (even though he just sold Fiat Chrysler) and bought all of them five years ago (unlikely, but let's just say he did). Let's see how well they performed.
2010 2011 2012 2013 2014
Visa (V) -18.93 45.21 50.27 47.82 18.50
Gilead (GILD) -16.25 12.94 79.45 104.49 25.51
National Oilwell Varco (NOV) 53.46 1.77 1.25 17.69 -6.32
Ebix (EBIX) 45.42 -6.46 -26.20 -8.28 17.54
Cummins (CMI) 141.79 -18.78 25.15 32.18 4.26
Syntel (SYNT) 27.64 -1.65 19.99 69.59 -1.09
Walgreen (WBA) 7.80 -13.09 14.97 58.39 34.93
Netease (NTES) -3.90 24.07 -5.17 87.16 29.27
Microsoft (MSFT) -6.63 -4.55 6.09 43.69 27.24
Illinois Tool Works (ITW) 13.98 -9.91 33.35 40.90 14.78
American Tower (AMT) 19.51 16.89 30.26 4.72 25.60
Apple (AAPL) 53.07 25.56 32.71 7.64 40.03
Averages 26.42 6.00 21.84 42.17 19.19
Reported 50.31 33.55 24.62 43.05 17.91
S&P 15.06 2.11 16.00 32.39 13.69
I just chose the first twelve stocks because I was lazy but wanted to include AAPL which has had a nice five year run. And I'll use the valuewalk figures for the reported return instead of the gurufocus figures.
Looking at the results, my first observation is that the averages did indeed beat the S&P 500 every year and by a significant margin. The second observation is that 2012-2014 averages were in the ballpark of the reported returns, but the 2010 and 2011 averages did not come close.
To reconcile this, one would have to assume that he didn't own all the stocks during those years. 2011 is hard to reconcile though as Visa was the only stock of the twelve I looked at, that beat the reported average.
I suppose his portfolio could possibly be legitimate if one assumes he didn't own very many stocks during 2010 and 2011 and he just happened happened to own the right few stocks during those years (and probably owned some stocks that I didn't include above).
If legitimate, I would think that his portfolio will probably drift more toward the average as time goes on. But still his philosophy seems sound and he will probably do fine.
| 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |
| Return | 74.22% | 58.65% | 50.31% | 24.62% | 43.05% | 18.67% |
| +/- S&P 500 | 47.76% | 43.59% | 35.25% | 8.66% | 10.66% | 3.25% |
How did he do it?
"I approach investing as an owner of the companies that I am buying. This impacts how I buy and hold stocks.
I evaluate buying marketable equity shares of companies in much the same way I would evaluate a business for acquisition entirely. I want the business to be (a) easy to understand, (b) run by able and honest managers, (c) with an enduring competitive advantage (moat) and favorable long-term prospects, and (d) at an attractive price (discount to its intrinsic value which is the discounted value of the cash that can be taken out of the business during its remaining life).
There is a tremendous advantage of being an individual investor. Portions of outstanding businesses sometimes sell in the securities markets at very large discounts from the prices they would command in negotiated transactions involving selling the entire business. Consequently, bargains in business ownership, which are typically not available directly through corporate acquisition, can be obtained indirectly through stock ownership.
In terms of selling I don't. I want to own these superstar companies as long possible. This also removes the concern over guessing about what is happening, or might happen, with the overall economy. In other words, if you owned 100% of a great company generating incredible returns on invested capital, you would not sell simply because there is an economic problem in Europe. With that said, why sell partial ownership shares of solid companies if there is a problem with the overall economy? The only thing that I worry about, after buying partial ownership of great companies, is whether the aforementioned reasons for buying are preserved. I only sell if the company no longer provides excellent economics or is run by able and honest management.
It took me several years to learn how to properly value a business. You cannot simply go by Earnings per Share (EPS) because the quality and sources of the earnings can be quite different amongst companies. My favorite metric is Return on Invested Capital (ROIC). It measures how much each dollar re-invested can produce in earnings. For example, a 24% ROIC will tell you that for every $1.00 the company re-invests it has produced 24 cents of earnings.
Patience, discipline, and emotional intelligence (self-awareness) are the main factors in investing on your own. Most investors are their own worst enemies – buying and selling too often, ignoring the boundaries of their mental horsepower. Individual investors tend to buy with the herd after prices are already highly inflated and sell in a panic when the market drops. Instead, focus on buying great companies with the aforementioned qualities when the market price is publicly trading at a discount to its intrinsic value. This is where the individual investor has a huge advantage over the professional; most fund managers don’t have the leeway to patiently wait for exceptional opportunities.
***
Sounds good to me, but contributor Dr. Paul Price is skeptical because his return sounds too good to be true.
Call me skeptical.
You have no profile on view and no link(s) to any website or newsletter. This is the first article you have published here on GuruFocus.
There is not a single example of the stocks you own or owned. Your claimed results would have been statistically improbable or impossible to achieve in a diversified portfolio with any substantial size.
If what you detailed is true you likley had a very small starting amount of capital, stayed incredibly concentrated, highly levered or some combination of all those factors. Or... it could all be made up.
Unless you show some supporting data, nobody reading your article has any reason to believe the gains which you claim to have accomplished were real.
***
Cokeefe then supplied a link to a previous (and nearly the same) article which provides more information on his holdings.
Here were author's 21 holdings:
Visa
Gilead
National Oilwell Varco
Ebix
Fiat Chrysler
Cummins
Syntel
Walgreen
Netease
Microsoft
Illinois Toolworks
American Tower
Apple
HDFC
Blackrock
eBay
Intercontinental Exchange
Intel
Total
Intuitive Surgical
Citigroup
And here's his current portfolio at Morningstar. The one change is that he sold Fiat Chrysler and bought Biglari Holdings. Interesting to see a slight variance between the year-by-year performance at the two sites. That wouldn't make sense unless it adjusts your performance if you bought or sold a holding (which also wouldn't make sense.) And a wide variance in the 2010 and 2011 returns in the gurufocus article vs. the valuewalk article.
So let's take him at his word and say he never sold any of these stocks (even though he just sold Fiat Chrysler) and bought all of them five years ago (unlikely, but let's just say he did). Let's see how well they performed.
2010 2011 2012 2013 2014
Visa (V) -18.93 45.21 50.27 47.82 18.50
Gilead (GILD) -16.25 12.94 79.45 104.49 25.51
National Oilwell Varco (NOV) 53.46 1.77 1.25 17.69 -6.32
Ebix (EBIX) 45.42 -6.46 -26.20 -8.28 17.54
Cummins (CMI) 141.79 -18.78 25.15 32.18 4.26
Syntel (SYNT) 27.64 -1.65 19.99 69.59 -1.09
Walgreen (WBA) 7.80 -13.09 14.97 58.39 34.93
Netease (NTES) -3.90 24.07 -5.17 87.16 29.27
Microsoft (MSFT) -6.63 -4.55 6.09 43.69 27.24
Illinois Tool Works (ITW) 13.98 -9.91 33.35 40.90 14.78
American Tower (AMT) 19.51 16.89 30.26 4.72 25.60
Apple (AAPL) 53.07 25.56 32.71 7.64 40.03
Averages 26.42 6.00 21.84 42.17 19.19
Reported 50.31 33.55 24.62 43.05 17.91
S&P 15.06 2.11 16.00 32.39 13.69
I just chose the first twelve stocks because I was lazy but wanted to include AAPL which has had a nice five year run. And I'll use the valuewalk figures for the reported return instead of the gurufocus figures.
Looking at the results, my first observation is that the averages did indeed beat the S&P 500 every year and by a significant margin. The second observation is that 2012-2014 averages were in the ballpark of the reported returns, but the 2010 and 2011 averages did not come close.
To reconcile this, one would have to assume that he didn't own all the stocks during those years. 2011 is hard to reconcile though as Visa was the only stock of the twelve I looked at, that beat the reported average.
I suppose his portfolio could possibly be legitimate if one assumes he didn't own very many stocks during 2010 and 2011 and he just happened happened to own the right few stocks during those years (and probably owned some stocks that I didn't include above).
If legitimate, I would think that his portfolio will probably drift more toward the average as time goes on. But still his philosophy seems sound and he will probably do fine.