Investorial

So I’m home for the holidays and the last thing I want to do is read or view any financial or investment related media. The markets can get by without my attention for a few days! In fact, I firmly believe in Warren Buffett’s assertion that you should buy a stock only if you can not worry about it for 10 years; even if the stock markets close for 10 years!

I love spending time with family and friends and inevitably my discussion will lead me to talk about investment related topics. My mother is a self-taught investor and we often discuss about little things that she wants to understand, for and from her trading experiences. One interesting topic came up: When should you hold onto a stock?

Now some people may not agree with me, and thank goodness for that! I’ll explain - its only rational for me to hold a stock if the stock can reward you for holding it. In other words, the stock should give you dividends while you own it! Let’s examine this closer!

(more…)

Continuing the bubble watch series on real estate, I just want to point out a recently published article by The Globe & Mail regarding the real-estate scene in the United States. The article does not single out any particular region but takes a national overview. The numbers mentioned in the article are significant and serve to remind everyone that housing prices are really getting out of hand! Considering the interest rate trends these days, it is becoming more than tempting to stay on the side-lines. Eventually, consumers will start thinking better of it. However, never underestimate the power of the American Dream - owning you own home!

Globe&Mail.com: ‘Fewer can buy a house’ by Roma Luciw

Chicken Little is not just the newest Disney movie, it is defined as a confirmed pessimist, particularly one who warns of impending disaster. (Courtesty of Answers.com - a great web resource!).

Normally, people who constantly cry that the “sky is falling” can be very annoying and subject to my dismissal. But some of these “chicken little prophets” actually have many good things worth taking note. Case in point, I wish I had known about Herb Greenberg early in my investing career. Trust me, you want this guy on your side! Herb is an excellent writer whose main topics act as a watch-dog over the under-belly of the financial markets. He brings to light governance issues, accounting problems, suspicious earnings claims with various companies. Most notable is his on-going tussle with Overstock.com CEO Patrick Byrne.

If you are a investing novice, reading Herb’s articles will shorten your learning curve because you will be familiar with what to look for in financial statements and company news releases. If you are a seasoned investing veteran, you may want to subscribe to Herb’s newsletter ‘Herb Greenberg’s Reality Check‘ as his research is extensive and will definitely help you in your stock selection.

It might not be easy to find that flower that truly smells nice in a bed of roses, but Herb can certainly point out which ones are stinking and rotting.

MarketWatch.com: Recent articles by Herb Greenberg

Did you hear this? In an effort to build an in house production studio for movies based on its comic book characters, Marvel essentially mortgaged 10 of its comic intellectual property for a revolving credit line of $525 Million dollars. In return, the financier Merrill Lynch Commercial Finance Corp secured film rights to 10 Marvel characters.

Marvel was tired of sharing profit with other companies. They collaborated with Sony, in a sour deal turned lawsuit, during the “Spider-man” series. The financing deal worked out very well for Marvel. I guess nobody at Merrill Lynch is a comic book fan. Just take a look at the list of Marvel characters involved.

The only characters that have commercial viability are Captain America, The Avengers, Nick Fury, Black Panther, Cloak & Dagger and Dr. Strange. The others are merely fillers for the agreement and will most likely never see one day of movie production. Why would anybody care about Shang-Chi?

Marvel has to get high marks for pulling off a creative financing deal with the help of sub par characters. Or is it that Merrill Lynch was simply operating in unfamiliar territory?

For more details of the financing arrangement, read this article.

Warren Buffett’s mentor, Benjamin Graham, introduced to the world one of the best investment analogy in Mr. Market. Mr. Market can be manic depressant today and a incorrigible optimist the next day - an extreme Jekyll and Hyde. Here is a description of the concept of Mr. Market [excerpt from About.com]

Imagine you are partners in a private business with a man named Mr. Market. Each day, he comes to your office or home and offers to buy your interest in the company or sell you his [the choice is yours]. The catch is, Mr. Market is an emotional wreck. At times, he suffers from excessive highs and at others, suicidal lows. When he is on one of his manic highs, his offering price for the business is high as well, because everything in his world at the time is cheery. His outlook for the company is wonderful, so he is only willing to sell you his stake in the company at a premium. At other times, his mood goes south and all he sees is a dismal future for the company. In fact, he is so concerned, he is willing to sell you his part of the company for far less than it is worth. All the while, the underlying value of the company may not have changed - just Mr. Market’s mood.

The best part of this entire arrangement: you are free to ignore him if you don’t like his price. The next day, he’ll show up at your door with a new one. For your interest, the more manic-depressive he is, the more opportunity you will have to take advantage of him [don't worry, he doesn't have feelings or mind being taken advantage of.] As long as you have a strong conviction of what the company is really worth, you will be able to look at Mr. Market’s offers and reject or accept them… the choice is yours.

Well, Mr. Market’s moods were certainly swinging wildly during hurricane Katrina and hurricane Rita. Yes, the hurricane did impact the operations and profit outlooks of many companies, but do you believe that the majority of the companies in the market will remember the effect of Katrina and Rita 10 years from now? Mr. Market certainly did on those days. I remember flipping the channels through CNBC, and true to the American media ways, the entire day was dedicated to covering a hurricane on a business news network! It is amazing how the media hype machine works to really affect the investors’ psyche. My advice as a value investor - don’t watch CNBC!

They say that hurricanes will be more and more common in the future due to global warming and the warm ocean waters. Does this mean that every year, the markets will swing wildly during the hurricane seasons? A value investor’s dream would include taking advantage of such mass hysteria. You cannot control how the market feels, but you can certainly be the master of your own domain!