Archive for February, 2009

Trust your teammates! (The Financial Athlete #106)

February 27, 2009

In team sports,  it’s very clear who’s on your team. They wear the same uniform, only with different numbers. You learn early on to trust your teammates, especially the better players.

Although investing is mostly a lonely profession, investors also should rely on teammates for expertise. Good teammates for investors are accountants, real estate attorneys, and estate planning attorneys.

The problem lies in that many investors rely on others who are not really “teammates”, although they say they are. (If only it were as easy as sports to identify teammates by uniform!) Anybody who is in sales in the stock market is not your teammate. These people always recommend to go long (buy and hold). Instead, for the broad stock market, pay attention to statistics in regards to the secular market.

Investopedia defines a secular market as such: “A market driven by forces that could be in place for many years, causing the price of a particular investment or asset class to rise or fall over a long period of time. In a secular bull market, strong investor sentiment drives prices higher, as there are more net buyers than sellers. In a secular bear market, weak sentiment causes selling pressure over an extended period of time.”

It’s important to understand the current average p/e ratio of the S&P 500 as compared to its historical average, and to understand where this p/e ratio is trending by looking at multi-year charts or data.

Trusting the valuable teammate called “secular market”, with swings typically lasting 15-20 years, should boost your long-term returns. This is a “timing the market” methodology. The standard advise is to not time the market, but to stay the course in the long-term. This is bad advise for investors because volatility can be tremendous. If you perceive the market to be in the beginning or midst of a secular bear, limit your investments in the stock market to only several individual stocks of strong companies. Stay out of index funds. Focus more on return of principle rather than return on principle. Then you will be prepared for an aggressive re-entry into the stock market at greater bargains in the future. Your timing will not be perfect to buy at rock bottom prices, but that does not matter when you hold for the long-term for companies that remain solid.

‘People always notice what is far away, not what is right under their noses.’ — Heidaviga saga Ch. 14

This is Ska!

February 25, 2009

Too funny to pass up on…

Ska is the happiest music on the planet. The next video gives us an idea of what the ska scene was like in the early 1960’s.

‘War Ina Babylon’ by Max Romeo

February 24, 2009

Listen to the old studio recording.

Here’s a recent live version. Skip to 32 seconds to hear the song.

For those of you who can’t enough of this great tune, here’s another recent live version.

Read more about Max Romeo on his profile on myspace.com.

And in the end… (The Financial Athlete #105)

February 24, 2009

What have you learned from investing? More importantly, what have you learned about yourself from the process of investing? Have you developed the capacity for self-control? Have you learned to evaluate situations effectively and adapt to change? Are you grounded in reality and yet have not shattered your dreams?

People resist self-discovery for lack of courage to face what is unpleasant within. To unleash self-discovery, be honest with yourself. From self-discovery comes self-knowledge. From self-knowledge comes development of character. A mark of character is giving with no desire of something in return. Share the wealth of knowledge you acquired to those eager to learn. Invest in others to improve their lives. Receiving is only complete with giving. This forms the circle of true riches.

“No man can become rich without himself enriching others.”
–Andrew Carnegie

Nationalize the banks temporarily?

February 23, 2009

Nouriel Roubini is the economist whose opinions I follow most closely. Read this Wall Street Journal (WSJ) article for some details about his plan to temporarily nationalize the giant, U.S. banks. If you don’t subscribe to the WSJ, then go to Roubini’s RG Monitor blog, which you can find in my blogroll.

See the links posted under comments for an enriched discussion on this issue.

And for entertainment to go with the theme of nationalization,  listen to Max Romeo’s ‘Socialism is Love’.

Free of tension (The Financial Athlete #104)

February 22, 2009

My Pilates instructor told the class, “Lock your hips. Now walk with the hips locked.”

After the class walked around the room in this unnatural way, she asked, “”What did it feel like?”

“Tension,” someone volunteered.

“Yes. Tension. And there are people who carry this tension by locking their hips as they walk. The natural way to walk is to move slightly the left hip forward with every step of the left foot and to move slightly the right hip forward with every step of the right foot. To lock the hips is to cut of the flow of energy in the body. This creates tension.”

And so on that day we learned how to walk without tension in the pelvic area.

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An investor of stocks inadvertently invites tension in his life with a purchase of  a thinly traded stock, or for a stock of a company operating deep in the red or with a poor Balance Sheet. Real estate investors also invite tension with the purchase of a vacant, commercial property in a ghost town, or for a home priced high to reflect a market with exorbitant ratios of medium home prices to medium rents,  and medium home prices to medium income.

In a metaphysical sense, many stocks and real estate carry “bad karma”. When you buy it, you take on some of this “bad karma”. The more you buy, the more of this karma you take on. Stated conventionally, the problems plaguing the company or property become your problems.

Why is an investor attracted to toxic assets? He craves drama in his life. He welcomes the tension to fight boredom, and in his dreamy mind all this tension will end happily-ever-after with a miraculous turnaround.

Don’t invest to kill boredom. Play ball for that.

“In the business world, the rearview mirror is always clearer than the windshield.” — Warren Buffett

(Above picture: Dance Hermitage by Matisse)

Hiking for answers (The Financial Athlete #103)

February 18, 2009

Move your body in nature
rather than be confined in artificial environments
on a treadmill there are no roots of trees and rocks to step upon
on an elliptical machine there are no hills of grass to climb
on a row machine there is no river, sea, or ocean to row on
on a stationary bike there are no wildflowers to pass by

To move in nature does more than exercise the body
nature nourishes the spirit
and renews the mind

Enter nature to feel truly alive

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Hiking the fire road above the Arroyo Seco gorge for about 2 miles leads to a short path just past a bridge. At the end of this path, the Arroyo Seco River flows between granite boulders. To the left, the river flows gently. Here the water runs deep in an oval pool. I sat on a flat surface of the boulder alongside the deep side of the river and marveled at this moment of serenity and natural beauty.

I had come as though to visit an Oracle. I was in search of an answer to a big decision concerning on an investment. At this breathtaking spot, all the debating thoughts trafficking through my mind for days suddenly vanished. The stillness of this place now permeated into my mind. Although no audible sound directed me on what to do, the answer “sell” came to me quietly. Oh, the Oracle of nature did not fail me.

(Click here for source of photo.)

Run Dem Down by the Wailing Souls

February 13, 2009

Such a nice soothin riddim…from 1991’s Fire House Rock LP.

Every ride is unique (The Financial Athlete #102)

February 10, 2009

Long ago, a friend who regularly surfed until sunset told me, “Every wave you ride is unique. Other waves may feel similar, but you’ll never repeat the same, glorious experience.”

There are investors who try to repeat the same experience of a spectacular gain with the same stock. After selling their position, they keep it on their watch list and wait for it to retrench 30%+. If it retrenches as much, they jump back in, expecting another exhilarating ride. More often than not, they find themselves buying a stock which declines further or trades sideways for a long time.

To try to repeat success with the same stock is usually a failed approach. Market conditions change. For example, since you sold the competition has intensified or the company’s products are toward the end of the product life cycle.

Higher historical prices do not point to where the stock price is headed. If you reinvest in the same stock, do so after doing fresh due diligence with a skeptical eye, as though you are studying the stock for the first time. Don’t let emotions of gratitude for past success hamper your judgment. Be impartial.

Causes and effect (The Financial Athlete #101)

February 9, 2009

When analysts review why a football team won or lost, they never pinpoint one cause. They compare statistics on a multilevel with turnovers, penalties, 3rd down conversions, time of possession, sacks, and so on. More than one cause produces the effect of winning.

A simple minded investor of a stock stops due diligence with one hoped-for cause to predict the effect of a substantial price gain. This is his magic answer toward prosperity. It may be breakthrough patent, or a huge contract, or a buy-out priced at a steep premium to the market price.

Never settle for a magic answer as the sole reason to buy an equity. Consider the effect of the stock price if the magic answer fails to materialize. Will there be a sell off?

Stocks should be chosen based on a good price and the merits of the company (fait accompli) which will carry them toward further growth. Think of the magic answer as only a potential bonus.