Investorial

Forbes.com ran an article today on 7 Financial Planning Diseases, capitalizing on the New Years Resolutions atmosphere to capture reader attention. Personal Finance For Dummies author, Eric Tyson, explains that many people twist the fundamentals of personal money management and get themselves into trouble. Here’s a summary and my self-analysis. (Read the article for more details)

1. Excessive Spending
2. Workaholism
3. Herd Following & Information Junkies
4. Extreme Save-ism
5. Procrastination
6. Mismatched Style (between couples)
7. Adolescent-Onset Budgeting Woes

My self-analysis
This list is geared more towards adults with a family and kids. As a single guy, #6 and #7 do not apply to me, but will be something I have to be mindful in the future. Striking a balance between #1 and #4 is a struggle for most people. I believe I am doing well in that area. I don’t spend money often. But when something is worth spending, I won’t sacrifice quality for thriftiness. I still don’t understand how #2 works or fits in this list. #5 is an admitted failing of mine. Often I’d have many ideas to blog on Investorial, but my procrastination renders these ideas usely in the think-tank. Some times, I forget to pay bills with that attitude too!

I’m leaving #3, “Herd Following & Information Junkies”, for last because this is certainly one of the reasons why Investorial began as a hobby. I do not necessary think being an information junkie is a sin. Both herd followers and contrarians have a habit of gathering a lot of information. The difference is how they process that information! Herd followers get excited about the news that they want to hear, and are more apt to jump on the bandwagon without performing further analysis. Their preconceived conclusions and quick-to-judge attitude leaves them as vulnerable ripe pickings for contrarians and skeptics who often dig and uncover for facts that are more-than-meets-the-eye.

Are you a herd follower or a contrarian? Sound off please!

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I highly regard Sir John Templeton’s history as a value investor. Even at the age of 93, he’s still very actively investing and when he speaks, the invesment world listens! Here’s a list of 5 Steps to Financial Success from Sir John. Take calculated risks. Save, don’t spend. Shop for value investments. Take advantage of international free markets. Minimize your taxes.

The only one that doesn’t move me much is the idea of taking advantage of international free markets. It is a good idea, but one that consumes much more resources and attention than I can afford at the moment. I guess, if you got the will, you’ll find a way!

View the entire article, with detailed explanations, here [via TheStreet.com]

‘The Intelligent Investor‘ is a highly recommended book for any investor of any investing style; especially value investing. It is my personal favorite investment literature. When the second richest man in the world, Warren Buffett - the only one on that distinguished list who made his fortune through stock investments, recommends a book to you, aren’t you the least bit curious why he did so?

Warren Buffett: “I read the first edition of this book in 1950, when I was nineteen. I thought then that it was by far the best book about investing ever written. I still think it is.”

The latest edition of ‘The Intelligent Investor’ has been revised by senior Money magazine writer and guest columnist for Time Magazine and CNN.com, Jason Zweig. Zweig brings a very balanced updated approach to reading the book since the original author, the father of value investing - Benjamin Graham, originally published the book in 1949.

For most of us, if you don’t want to buy the book, you can take a trip to the local bookstore, sit down and enjoy a coffee while scanning the literature. Or you can read the first 3 chapters for free courtesy of JasonZwieg.com. I recommend that you buy a copy for your book collection, since from time to time we all need a refresher course! (Canadians can buy from Amazon.ca here!) [via Wealth Junkie]

As the dust settles, Income trust investors are temporarily victorious over the federal government in the issue of Income Trust taxation. Turmoil has gripped the investment community ever since finance minister, Ralph Goodale, announced that he was re-examining the issue and suspended advance-tax rulings to companies that wanted to convert to an income trust structure.

Today, in a blatant pre-election move, Ralph Goodale succumbed to political and the financial community’s pressure, and announced that no taxes will be planned on trusts. Certainly, the pressures were more political in nature as the minority government prepares to be defeated in the House of Commons in the near future.

The finance minister, still looking for ways to level the playing field for corporations, cut dividend taxes - a move that has been much demanded by shareholders for a while. A winter election is inevitable and making the public happy with favourable tax policies is a survival tatic that must be employed by the Liberals.

My two cents? I am certainly in favour of (more…)

It’s Monday Night! The best night to take your mind off investments and finance by watching wrestling entertainment on television. But I did not imagine how wrestling and value investing could come together so interestingly!

John Bradshaw Layfield plays a rich tycoon heel on WWE’s SmackDown! For those who don’t know the term, a wrestler is a heel if he plays the bad guy. Imagine my surprise when I saw who the author was for an article about value investing at TheStreet.com.

In the article, JBL (as he’s called) talks about 2 blue chip stocks that have seen their fair share of controversy as of late. There are a breed of value investors, with Warren Buffett being the most famous, that love to look for strong brand names that will weather toughest of storms. Pfizer is absolutely the strongest player in the pharmaceutical field currently. Walmart’s strangle hold on retail distribtuion is unmatched.

The article proves interesting but I am more tickled by JBL’s analysis which is half decent! It seems he’s just started in October with a few articles with TheStreet.com. His style is very down to earth, easy to understand and filled with wrestling analogies. I feel that investment and finance should be explained in a simple way. Will he be a regular? Check it out!

TheStreet.com: ‘The Strong Survive’ by John Bradshaw Layfield

Do good value Stocks have to be from good businesses or good companies? Most value investing gurus will make the case to search for a fallen company that is fundamentally a good business. However, my favourite fund manager - Irwin Michael suggests the contrary as is his nature. I always enjoy Irwin’s writing, not because of his tremendous track record, but because I am opened to new ideas for value investing through his logical analysis of common stocks for uncommon return.

I don’t forget about a stock when I sell it. Instead, I file it in my mental Rolodex. I often check back to see how it’s doing since we parted company. And I frequently find that stocks I’ve bought and sold are tempting to buy again after they’ve settled back to bargain levels.

Irwin is also one of the most forthcoming fund manaagers out there, offering tremendous transparency of his stock selection process through ValueInvestigator.com. I wish more fund managers are more like him so that the public can learn from the managers and be able to evaluate them as well.

MoneySense.ca: ‘Why I Love Sequels’ by Irwin Michael

A September 19th Forbes.com article titled “Cash Is Trash” criticizes the abundance of cash sitting on the side lines of many value fund managers. The articles writes:

Some value fund managers, flush with an influx of new money from clients, are letting it pile up rather than investing it in value stocks they view as too pricey. While they wait for a better day, other value managers say letting money sit around in cash is sinful, and they swear good buys still can be had.

My first thought about that paragraph was thinking who are these “other value managers”? Oh wait, Megan Johnston must be mentioning those fund managers that always jump on the trend of the times. Those managers who called themselves “growth managers” or “tech managers” are the same ones now declaring that they are “value managers”. The paragraph did not describe anything close to a true value manager and sets the tone for an article that caters to hype and only serves to wet the appetite of investors who will hear what they want to hear.

Megan goes on in the article to say:

Worse, the cash claque really amounts to indulging in market timing, the belief that one can know when a market turn is coming. But the market and individual stocks have fooled many a stock-picking genius before, and those faux turning points were bitterly illuminating.

I was certain that Megan does not have a clue about value investing. Value managers are indeed market timers! But Megan is still referring to that term as a growth manager would! A true value manager does not care how the overall market is performing! They are making the timing on the individual stocks on their watch lists. They are looking for an undervalued situation, an oversell, a misvaluation, a potential situation that will unlock hidden value for shareholders, and times when the markets are overreacting to bad news that do little to affect the business fundamentals.

Value managers are absolutely making their purchases based on timing! Doing this successfully requires the manager to more or less be contrarian to what the market is doing. In plain english, true value managers love the opportunity to go against the market because they are the ones who truly care about buying low - as low as possible versus the company’s intrinsic value, in order to sell high later. Therefore, the number 1 rule to engage in such practices is to always make cash preservation the highest priority!

The article does correctly state that value investing has a better proven record than any other style over the long term. The articles comments that some of the most recognized value managers of Tweedy, Clipper and Longleaf were seeing their short term performance lagging their category peers. Well, that’s the market hype machine working at its best. Value investors are not a crowd that care about short term performance. These managers are hired for their expertise in keeping and growing money over the long term and are considered some of the best.

Warren Buffett, arguably the most notable value investor, has always said that the best time to sell a stock pick is never. If you can buy a stock, allow the market to close for 10 years and still be happy about the pick, then you should buy it. Value managers more or less follow that creedo, and they view the battle as half won if they are able to pick a good entry point; hence timing on an individual company basis!

The most successful value managers have been great managers of large amounts of cash at one time or another. Megan’s article served little purpose but to show her ignorance of what true value investing really is all about.

Related Links

Forbes.com: ‘Cash Is Trash’ by Megan Johnston