Newsletter July 12, 2003



It could be argued that the best way to make money in the market is just to somehow identify which stocks are going up and invest in top few stocks that will rise the most in the next day or week. We could then switch to a new crop of rising stocks every day or week or month or whatever. Of course, the problem is that is how to predict the winners. Many investors use charts and momentum strategies to try to do so. The strange thing is, we never really seem to hear about anyone who has gotten truly rich in that fashion.

Another way to make money is to try and figure out what stocks (businesses) are really worth and buy those that are under-valued.

This is part of what Warren Buffett does. But a key point about his methods is that he only attempts to analyze the value of very predictable and profitable companies. If a company is not both predictable and profitable, then Warren is not likely interested – at any price. If it is both predictable and profitable then he might be interested as long as the stock (business) is not over-priced.

For more on this see my new article on how Warren Buffett picks stocks.


Here is my take on why investing is inherently confusing for most people.

Common Sense Investing

Investing in retail companies can be fun because we are all capable of making some common sense judgments.

Consider Wal-Mart, you only have to walk into a store to know that it is a great and well run business. I have not analysed it and don’t know if it is a good investment, but you would have to be blind not to know it is a great business.

I recently heard that Wal-Mart’s mission is to “lower the cost of living for people everywhere”. Now that is an inspirational mission statement! Compare that to company’s who a have a mission to “be in the top 10 in our industry world-wide”. Wal-Mart clearly has an inspirational mission statement that drives

I Used to analyse Hudson’s Bay. I got tired of looking at them because they had such poor results. Now there share price has fallen to the point where they have an attractive looking P/E at about 9.6 and a dividend yield at 3.9%. I believe the stock also sells well below book value. But I’m not going to even consider investing. My experience in their stores is they have no winning strategy. Around February, a plain white shirt that I wanted was out of stock. The clerk explained that they had sold a lot of merchandise around Christmas and it was simply out of stock. No apology was offered. I asked her is she ever thought of apologizing when an item was out of stock. She said no! These people just don’t get it, as a corporation they seem tired and without direction. There is no way I would buy this stock.

Also I checked out a Home-Outfitters store today, a division of the Bay. A lovely building in a brand new “power center”. They had some nicer stuff, but most of the selection was the type of thing available at Wal-Mart. And much of it was on sale at 40 and 50% off. This is sheer stupidity, there is no possible way that they are going to make much money by being a discounter and competing in Wal-Mart’s turf. Why build fancy stores and then fill them with discount items? Again, there is no way that I would invest in Hudson’s Bay stock. A shame too, given that they have been in business for an astounding 333 years and are Canada’s oldest corporation.

I went in to check out a Pier-1 imports store today. They stock all kinds of eclectic and unique items. None of their stock would be available at Wal-Mart. The store was crowded. Nothing was “on sale”. I think it is fairly obvious that Pier-1 has a better business model than the Bay.

Stocks Versus Bonds

I recently updated my article on comparing stock returns to bond returns over different periods of time. I think this article is very enlightening. Bonds have done almost as well as stocks over the last 20 years, and much better in the past 3 years. But the reason bonds did so well was because interest rates kept dropping. As soon as interest rates stop dropping, then bonds will only return their yields which are now very low. And if interest rates start rising then bonds will incur large capital losses. It is important for investors to realize that the next 10 years in the markets is almost guaranteed to look nothing like the past 3 years, or the past 10 to 20 years. This article will help you see some other possible scenarios.

Is the Stock Market Over-Valued?

I recently updated my article that examines if the Dow Jones Industrial Average is over-valued. It appears to be at least moderately over-valued.

Spread-The Word

If you think that this Site and newsletter offers valuable, independent, stock analysis and education then please tell others about it. I need to get the word out so that I can share this with more people.

Note that Performance on the stock picks has been excellent this year and very strong since inception of this site four years ago.

Given that I respect other businesses that make a profit, it is logical that I not give away investorsfriend inc.’s stock picks free of charge. The stock picks are now available only to paid subscribers. This newsletter will remain free of charge and I am glad to have you all on my mailing list.


Shawn Allen
Investorsfriend inc.
July 12, 2003