Newsletter November 7, 2010
InvestorsFriend Inc. Newsletter November 7, 2010
Makin’ Hay and Makin’ Money
The old saying is “make hay while the sun shines”. Well the sun has been shining brightly on our Stock Picks. So… I will “make hay” by taking the opportunity to tell you about that.
As of August 1, the stocks that we had rated Buy or higher at the start of this year were actually down about 2% after having had a spectacular year in 2009 when they were up 37%. However, in these last three months, the sun has been shining and our Stock Picks are up 11% in the last three months. Our long-term performance record is summarized here.
With this kind of recent and long-term performance I am understandably pumped about the prospects of making ever larger amounts of money by investing rationally in stocks. There are no guarantees, especially for the short term. But I for one am excited about the prospects.
With the Q3 earnings reports rolling in I am busy updating InvestorsFriend Inc.’s ratings for our stable of Stock Picks. Every year at this time we make a special effort to update as many of our reports as we can so that we will have current ratings on all the Stocks Picks for the start of the new year. Although we rate stocks all year, we measure the performance based on the performance in calendar years and that is one reason to get everything as up to date as possible for the new year.
So… if you are not already a Subscriber to our Stock Picks or your subscription has lapsed, then right now is a very good time to subscribe. Click to check out the details. We accept payments by credit card through PayPal (our highly service owned by eBay) or by cheque. But, as always there is no pressure to subscribe to the paid service and we are gratified also by all those who choose to allow this free newsletter into their busy lives and inboxes.
Stock Analysis Education
One of the best sources of education on how to select stocks is the collection of annual letter to shareholders written by Warren Buffett, the world’s most successful investor. Investors who bought Berkshire Hathaway shares around 1964 when Buffett was taking control of the company have seen the share price rise almost 1 million percent, from the $12 to $14 range to a current $125,560. An early investor (and the now wealthy heirs) in his partnerships from the late 50’s who stuck with Buffett and rolled the Partnership money into Berkshire shares when the Partnerships were wound up in in 1969 are up, by my estimate, somewhere in the order of 10 million percent.
So yeah, I am a HUGE Buffett fan. I did not start out that way. I started out simply applying my knowledge of finance and business and accounting to stock picking. I did calculations to figure out, for example, what kind of Price Earnings ratio was rational to pay. As I started to read a little of Buffett’s work I realized that my own thinking was already largely in line with his. And where my thinking differed, I soon found after a bit more thinking and analysis that Buffett’s thinking was correct.
I soon started reading his annual letters when they came out each year. At first I did not read his older letters which I figured would mostly focus on things specific to those years and not be relevant today. But when I looked at a few of the old letters I realized that much of the material was completely timeless. Each of the old letters contained material that was in effect a chapter of an investing book by the world’s greatest and most intelligent investor.
So… I printed off copies of all those letter and put them in a binder and have read them all. This year I decided to read them all again. I started with his brief old Partnership letter from 1957 and I am currently reading the 1994 letter. It may sound odd to re-read this material multiple times. But after all this is absolutely brilliant material. A scholar does not read a classic text only once, he studies it. As a scholar of investing, I will not merely read Buffett’s work, I will study it.
And I have been amazed at how much I am picking up on this third reading. Great pearls of business and investing wisdom. Every investor should read this material. You can find links to it on our links page. Other than the most avid Buffett fans can probably dispense with the very early letters. Start with the group of letters on Berkshire’s Web Site those from 1977 forward. I found the letter from the 80’s to be particularly full of educational material. These letters constitute a free investment book by the greatest investor ever. This is must-read material.
When Forgetting the Past Can be a Good Thing
If you are like me, you have a hard time buying a stock at say $30 if you had the chance to buy it previously at $15 and thought about it but did not buy. In this situation I get a sort of mental block against making the purchase. It’s as if by buying at $30 today I would be admitting I was a fool to have not bought at $15 sometime in the past when I had the chance. An even if it was some years in the past the mental block surfaces.
Similarly, I think most of us experience a very large mental block against selling a stock for $15 if we paid more than that for the stock. And the more we paid the bigger the mental block. Our minds tell us that this stock owes us money.
Logically the price we paid for a stock has no bearing on what it is worth today. And the fact that we passed on buying a stock at $15 should logically have no bearing at all on whether or not it is a good value today at $30.
In cases like this we need to forget our past history with a stock’s price and simply focus on whether the stock should be bought or sold today.
In my own case I find that when I update a stock report on this site and go through all the numbers and the other factors that usually allows me to do a sort of mental reset. If the analysis says I should buy at $30, I am then able to let go of the fact that I failed to buy at $15 (after thinking about it) sometime in the recent or (more likely) distant past.
Not surprisingly, Warren Buffett is able to forget his past mistakes and focus on today’s price and value. In his 1985 letter he admits that he sold Berkshire’s Capital Cities shares at $43 in 1978-1980. But then he bought back all those shares and a lot more in early 1986 at $172.50 (four times the price!) Well it’s a good thing Buffett was able to “forget about” his sale at $43 and remove any mental block to the purchase at four times the price. That investment at $172.50 worked out absolutely brilliantly.
And Now For Some Editorial Content
I will sometimes include material in this free newsletter that is not related to investing but rather is something I think might be interesting to readers, humorous or is just something I want to say.
You Get No Respect and Maybe it’s a Good Thing
The late comedian Rodney Dangerfield made something of a career pointing out all the examples where he got no respect.
Rodney was onto something.
I am willing to bet that all of you have experienced what feels like an appalling lack of respect on numerous occasions. Kids often fail to respect parents, teachers and other authority. Young people fail to respect their elders. Experts on various topics are dismissed by people who know nothing.
Even the greats of our society are routinely treated with a lack of respect. Not only do people routinely rail against the polices of sitting Presidents. They go well beyond that to question their integrity, intelligence, fidelity and anything else that comes into their minds. Bring up Warren Buffett’s name as a great investor and many will point out that Berkshire Hathaway’s stock has not risen much in the past decade. For at least 20 years many have dismissed Buffett as yesterday’s man. Many (while knowing nothing about it) will criticize his lack of conspicuous consumption over the years.
At the end of the day this is human nature. No man or woman ever wants to admit being inferior to another. Finding success in this life demands that each of present ourselves as worthy individuals. It seems ingrained in our brains that praising others detracts from ourselves. Our first instinct is to speculate on why the greats of this world are not in fact so great after all.
And maybe all of this lack of respect is a good thing. Kids need to find their own way in this world. A blind adherence to the views of teachers, parents, and other authorities will not make kids independent thinkers. New inventions will come from independent thinking not from blind respect to the old theories.
So… if you are sometimes frustrated by a lack of respect, take comfort that you are not alone. Nobody in this world gets the respect they are due, let alone what they think they are due. Too much respect goes against human nature and it’s a good thing.
Okay, this is a weird topic but one that I wanted to write about for a long time but figured people might think me strange for my views. But so what? here goes.
Another name for a washroom is a privy. And privy means private.
Well maybe I can’t expect public washrooms to be very private but I think they could be a good deal more private than is usually the case.
Why are public washroom partitions almost always made out of thin flimsy material that does not extend from the floor to the ceiling? Worse than that are the cracks at the door which you can usually see through while occupying these facilities. Even in a fancy office tower, shopping mall or restaurant this will often (though not always) be the case.
I have heard some reasons or excuses for it. Cost may be an excuse. But I don’t think so. It simply does not cost that much to build proper partitions with proper doors. Another excuse is it easier to clean the floor if the walls don’t reach the floor. A lame excuse given what society pays cleaners. Yet another excuse is that the usual setup allows someone to quickly check if the bathroom is occupied or not – as in when trying to catch a crook or in a fire evacuation situation. Well it would not be that hard to install doors that can only be closed and locked from the inside and then if the door is closed and locked it is occupied, otherwise not.
Oprah Winfrey was brave enough to discuss this matter and mentions that she does not like public washrooms because people can see and hear her in there.
So if you are responsible for such matters, please install real partitions and real doors in your next public washroom project. And if you have some existing ones, consider upgrading for better privacy. Your customers or tenants or visitors will appreciate it.
Moving on to Urinals
It is almost beyond belief that most urinals do not even have a privacy partition between them. Many do, but probably most don’t. Even at brand new installations. So a 12 year old is required to expose himself to the possibly prying eyes of whatever person sidles up next to him, fine upstanding citizen, or dirty old man, as the case may be. This is too stupid for words. Privacy partitions should be installed forthwith.
Am I the only one who has never greeted with enthusiasm the fact that in a health club or public pool situation we are supposed to get and even shower naked with whoever else happens to be there? Men and boys required to be naked in front of each other? Has the average health club ever stopped to think that, for example, a middle aged man in dire need of exercise might not want to be naked in front of his friends colleagues and whatever teenagers might be there? Is this not all too incredibly stupid for words?
How about some common sense and independent thinking when it comes to washrooms. You don’t need to blindly build it in a criminally stupid way just because that’s the way it’s always been done.
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Shawn Allen, President
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