Recently Ken Fisher’s book The Making of a Market Guru, John Wiley & Sons, 2009 was read. The book is a collection of Mr. Fisher’s Forbes magazine columns from 1984 to 2009.

In one of many Mr. Fisher’s columns he reflected on what separates the very successful on the Forbes 400 list from the rest of us. One thing is what they do or do not do. The really smart ones do not get sucked into the trend of the day or week or the month. They tend to stick to what made them wealthy in the first place, by avoiding the fads. The very rich do have problems, much of their wealth is tied in big, illiquid chunks of businesses. They are still very rich, but they can not sell and move on when valuations change for their businesses. For the non Forbes 400 list, building a business is the best way to get rich, owning stocks helps you maintain the wealth.

When you look at a market how do you know when it is peaked? The answer is no one knows until you look back and see all the signs. A potentially better solution is to wait for clear signals that the market has peaked and still come out ahead. Generally market peaks roll over, they do not spike. Generally markets drop slowly at first and most of the drop is in the last third of a bear market. The thing to do is when the market begins to turn is to use 3 month averages to see if you see a top. Then look to the future to see if you see problems. If you see them, turn bearish. You will give a little on the pullbacks, but very few in the market consistently time markets.

Portfolio management has 4 basic rules: 1. Use a benchmark – Mr. Fisher uses the Morgan Stanley World Index. the index is used  to compare your results against what would happen if you put the funds in an index fund; 2. Analyze your benchmark components – for each stock you own think about expected return and risk. Think about what you do not own as much as you much as you do own. (what could you be missing out and is that ok); 3. Know that you may be wrong – no style can always be right. 4. Build insurance into your investments – seek something that should go up should other things go down, but the insurance really does reduce your risk.

Attitude in investing is about better investing. If you do well, your confidence builds and you will tend to think you are great and you will do it again. The market knows you are overconfident, it baits you with opportunity, you will take a bite and lose. The lesson is to learn from your failures. No one  is successful all the time, unless they trade on insider information. Up until the 1930’s it was acceptable practice, now the regulators will track you. A healthy respect of the markets and the people in the industry will help you.

Linking to dividend producing stocks, there is no magic bullet, but time has shown buying good fundamental companies with a monopoly like competitive position and paying a dividend leads to long term success. The markets move in cycles and good companies are recognized with higher stock prices. One of the keys continues to be asking the questions why do you own a stock? If the short answer to your question includes the stock has been paying dividends for the past number of years and is expected to continue paying, and if you are not planning on selling, the daily price changes do not matter. Everyday it seems we can assess information in new and exciting ways, sometimes it is very desirable, with dividend stocks it is a nice feature.

There are more questions than answers, till next time  – to raising questions

Recently Ken Fisher’s book The Making of a Market Guru, John Wiley & Sons, 2009 was read. The book is a collection of Mr. Fisher’s Forbes magazine columns from 1984 to 2009.

There is always a quest to find companies with an unfair advantage. Years ago, the author worked for a company that owned 2 others in the same business, but their customers did not know it. The customers would go back and forth between the 3 companies, not realizing the money ended in the same pot. Unfair advantage means companies that are so firmly entrenched in their markets than their competitors are at a permanent disadvantage. An example is company with a 40% market share, next biggest is 20% and others fight for the rest. The company with the 40% has a great  advantage in pricing, advertising, costs per unit over the competition and that should allow it to stay at or near 40%. When you see those types of advantages and the stock is out of favour, Mr. Fisher is looking to buy. If management does a poor job, they can lose the advantage, think of GM. It is much harder to get the advantage back once lost.

Some companies will have advantages that the stock market does not add value at the moment. As with most things in life there are advantages and disadvantages to doing something. For example, some companies have more debt than others. In a low interest rate environment, having manageable debt is a very good thing. Having no debt may mean the company is not doing enough or there is takeover potential. There are very good plus and minuses for both actions, often the market values companies at the same multiples. When market condition changes the market decides one is more valuable than the other. Part of your analysis is to find the hidden gems, which will enable the stock price to go up. In terms of debt, at what interest rate is debt too much? and what rate is it okay?

Mr. Fisher was taught by his dad to look for two P’s – quality in management people and strategic position. Those two p’s never change. No matter what company or organization it is, examining the people in charge or decision makers and the company’s strategic position is never out of step. It is easier with the Internet to gain a feel or understanding of both. Another thing which never changes is in all markets there is rotation of what is popular and what is not. Each group has its day, rises, gets frothy and fades to be followed by another group. That is called market rotation. This means if you are in a group before it becomes popular, it will rise without you doing anything. That is a good thing and you can consider taking some profits.

Linking to dividend paying stocks, knowing market rotation happens being buffered by a dividend is a great reason to own the shares. The dividend helps through the cycles of the market. Stocks will go up, they go down for a variety of reasons, Mr. Fisher talks about surprises (the company does something to surprise the market), but if the company pays a dividend the stock tends to fall less. Also with the dividend you can reinvest in the stock or other stocks as cash continues to come into your account. The key is always start with a good company with a solid market share and think long term.

There are more questions than answers, till next time – to raising questions

Recently Ken Fisher’s book The Making of a Market Guru, John Wiley & Sons, 2009 was read. The book is a collection of Mr. Fisher’s Forbes magazine columns from 1984 to 2009.

While many of the columns are commentary about the US stock markets and economy, some of the columns outline the tools Mr. Fisher uses in his search for undervalued companies. To have success, you must be able to narrow the focus and one of the tools is the stock’s price/sales ratio (PSR). To figure it out multiply the stock price by the number of shares outstanding and express the resulting sum as a percentage of revenues. Thus a company with a market capitalization of $100 million and revenues of $200 million would have a PSR of 0.5. A high number means unless there is a really compelling reason to buy, others companies would be a better choice. A low number suggests a strong balance sheet and at least you know the company should have a reasonable good year and if they do the stock price could rise.

Every year, Forbes has its columnists tell the readers how they did. Not everything goes up, but you can learn from making mistakes. Some lessons to be learned include if someone suggests a long list of companies to buy, be wary. The list should be short with reasons for each pick. You can always dispute the reasons, at least you know there is conviction and research done into the list. Another lesson to learn is do not buy themes – buy good companies. Remember small mistakes do not kill you, not learning from them does.

Linking to dividend paying stocks, stock prices will go up and down, picking stocks and learning lessons is a key. There are thousands of people trying to find value everyday which is a great thing. The ability to do it gets easier every year, which is great for the non institutional investor. We all bring something to the table, a great place to start is with the larger companies that are well run and paying a dividend. Learn from the professionals – the basics of a well managed company with a competitive advantage over its competition never changes.

There are more questions than answers, till the next time – to asking questions.

Many years ago, for a school project, the author looked through a couple years of back history of a small town newspaper. The great thing about it was to see the events happening on an annual basis, and gain an understanding of what goes on in the town. It was with that perspective Ken Fisher’s book The Making of a Market Guru, John Wiley & Sons, 2009 was read. Ken Fisher has been writing a column in Forbes magazine as well as investing money for his firm and both are still thriving. Over the years he has given a wealth of knowledge, and hopefully you if you do not read him, you will put him on your reading list. This particular book focuses on the years from 1984 to 2009, which is and was an exciting time to be focused on Wall Street.

Originally Mr. Fisher focused on smaller growth companies because they have advantages that larger companies find it hard to do. Regional companies can do all the things a large company can do, but being under the radar of the national brand companies, the regional company can monopolized the regional market. In every region, the locals are cheering for the local companies, even though they often use the national companies. By looking at regional markets leaders, the price of the shares are sometimes undervalued because they are not in the correct big cities. The trick is always to look for good companies without overpaying, over-trading or getting over your head. The tried and true method is before deciding to invest ask questions? Many of the answers are on line, but you can call the company and often they will tell you answers. The questions include what exactly does your product do for your customers? why do they buy yours instead of your competition? what is your market share? who are the leading competitors? how important is pricing to your customers? service? product features?  When you gain the answers you will have a good idea of the strengths and weakness of the company.

Linking to dividend producing stocks, Mr. Fisher focused on growth stocks that are undervalued, but well managed and have competitive advantages, if you focus on dividend companies, the answers to the above questions will help to tell you how safe the dividend is. In dividend companies, the idea is to hold them for a number of years all the while receiving a dividend and over time the shares will go up and down, but more up than down because of the quality reasons you bought it for.

There are more questions than answers, till the next time – to raising questions

Peter Grandich wrote Confessions of a Wall Street Whiz Kid in 2011 to talk about his journey from humble beginnings to riches and from material wealth to spiritual wealth

In continuation from part 2 are the final four biggest investment mistakes:

4. Trusting financial institutions – there are very good reasons to use them, however behind the big columns also lies deceit and fraud. Blind trust should not be given, check your statements, find good people.

3. Hope is not an investment strategy. If you invested in a stock and the price went down, hoping it will come back (unless the company is profitable) is similar to buying a lottery ticket and hoping you will win. It could happen, but stocks usually go down in price for a reason.

2. No written financial strategy at all – write it down, it helps. You can also look at the  piece of paper on a semi-annually or annually basis to see how you are doing. One of the first things a person should do is record where you spend every dollar for a month. Add up the amounts in various headings – food, mortgage/rent, car, entertainment, clothes, etc. If you want to change, start making a change. 3 months later write down all your expenses , have you changed? Two overriding principles should be pay the fewest fees possible (fees included interest)  and live on less than you make.

1. Procrastination – putting off dealing with your finances is the single biggest investment mistake. The most powerful investment tool is compound interest working for you. As the years go by, the money will keep multiplying but you need to start early to get the greatest effect. Start early, stay out of debt and let your money for you.

Things to Do

Diversify, seek Good Counsel and Be Ethical in Your Investing

Linking to dividend producing stocks, although much of the information is available to everyone, people do many things very well, but when it comes to money, the simple information is the best information. It is the opinion of this author that dividend producing stocks can fit well into your investment needs. You can easily diversify and have good yields; you number one counsel is whether the company paid a dividend, if not sell, if yes do you wish to continue to hold? and with a range of companies that do pay dividends, you can fit your ethics to suit as long as your ethics remain on the right side of the law.

There are more questions than answers, till the next time – to raising questions

Peter Grandich wrote Confessions of a Wall Street Whiz Kid in 2011 to talk about his journey from humble beginnings to riches and from material wealth to spiritual wealth.

In his book Mr. Grandich discusses how being in the media helped his career. In order to gain more clients, Mr. Grandich started a newsletter, which lead to interviews, which lead to more interviews in the TV financial press, which lead to more clients.

The middle chapters deal with his spiritual journey and the last chapters deal with lessons he has learnt being in the business.

Everyone should have a financial plan, however the important thing to know about all plans is they are dependent on 4 major economic factors: interest rates, tax rates, inflation rates, and rates of return. If any of them change in your forecasting, all the numbers change. It is also very difficult to forecast the 4 factors, so assumptions in dealing with your financial plan will have to be made and highlighted.

Mr. Grandich made a top ten list of the 10 Biggest Investment Mistakes

10. Hot potato buying – buying the latest get-rich quick scheme

9. Believing publications – headlines that say 10 sure-fire ways to riches will not happen.

8. Failing to consider spouse’s view – family planning is a team even

7. Believing money is evil – the love of money yes, money no.

6. Not fully understanding what you are doing – the less you know, the more you lose.

5. Inability to judge worthiness of risk – if it is too good to be true, it is too good to be true. Look at the bank rate, compare it too what you are being offered, why are you so fortunate?

The top 4 will be in tomorrow’s post.

Linking to dividend producing stocks, you might see a pattern developing, slow and steady win the race. We all want the quick way to riches, except for the proven way is ensure you get a return (dividends) and compound interest will help you.

There are more questions than answers, till the next time – to raising questions

Peter Grandich wrote Confessions of a Wall Street Whiz Kid in 2011 to talk about his journey from humble beginnings to riches and from material wealth to spiritual wealth. In his book, the telling parts for investors is at the beginning and lessons learned. When Mr. Grandich started his career in 1984, he started in what were called penny stockbrokers – they specialize in stocks trading at less than $5.00. The problem for investors is for the stocks that are touted, the stockbroker is the market. It is very easy for investors to buy (the inventory) but difficult to sell (the brokers would have to buy the inventory back). The stocks will rise because the company is selling their inventory and once acceptable levels of shares have been sold, the company moves to the next “hot” stock and the old one drops back to pennies a share. It is very rare for any of the companies to actually have a significant breakthrough and actually make money, although it has happened. When that happens the larger stock brokerage companies start acting like penny stockbrokers.

Every stockbroker makes money on the IPO market or initial public offering. When the IPO is active, there are many companies issuing stock, one method to gage whether they will be successful is by the spread of the food that was put out at the meeting. The better the spread, the worse the success. Companies working for all the shareholders spend less on all the countless meetings. If you are going to be active in IPO markets, you have to have to buy and sell options.

Linking to dividend producing stocks, all the above can make you lots of money, it can also lose you lots of money. If you stick with dividend paying stocks, the losing will be much lower. Often you will miss the highs and lows, but a steady stream of income or dividends offsets the roller coaster ride. Stock brokers are an important part of the process, just understand how they work and make money and more important how you make money. Understanding a dividend producing stock is relative easy.

There are more questions than answers, till the next time – to raising questions

For non financial reading, the author picked up the book Among the Truthers by Jonathan Kay, HarperCollins, 2011. The book is a journey into the people who believe the government and others are trying to do cover up something or have a conspiracy theory. In many cases, there are some facts, just not all the facts that back up the theory. Yesterday the column discussed the public and goodwill, for this column, the similarities between growth stocks which offer a new product or service and conspiracy theories are loosely linked. Everyday something new and improved is offered, it may will be a great thing, but is it a good thing for the users? Does the new service or product deliver the needed internal investment return? or is within the accepted standards and built in barriers? By rejecting the new service or product is it a conspiracy against new products and services? maybe or maybe not.

Linking to dividend paying stocks, one method to figure out which is which is start with companies already paying dividends. If a company is paying dividends it is profitable.  When you start with these companies, it eliminates many of the others because they do not qualify. The companies may use the new technology, they many embrace parts of the new but within the realm of a profitable company. By investing in dividend paying companies you allow management to make decisions about which technology and processes to implement. If they are successful, the stock price rises. If the new technology is not so successful, the stock prices still rises, for the dividend is still paid.

There are more questions than answers, till the next time – to raising questions

For non financial reading, the author picked up the book Among the Truthers by Jonathan Kay, HarperCollins, 2011. The book is a journey into the people who believe the government and others are trying to do cover up something or have a conspiracy theory. In many cases, there are some facts, just not all the facts that back up the theory. The classic example is the shooting of JFK or President Kennedy. It is hard to believe the official reason about the lone gunman. Having said that, the logistics that people believe must have happened and for none of it to leak out in the years since is quite remarkable. The are many conspiracy theories and they are needed for there are many competing interests on all issues. Years ago, as a public, we were willing to believe that the end result that was implemented was the best choice for all. Sometimes we are not sure, for goodwill to the public is not always the first choice on the list. In terms of companies, it is important, unless the market is a very isolated one, to be successful companies need the public goodwill.

Linking to dividend paying stocks, all of these companies operate in the goodwill space of the public. There are very good reasons why the near monopoly exist and need to exist. Sometimes it is general safety, in order to ensure a high degree of safety and compliance with regulators, competition is limited. The expectation on the dividend paying company is with the limited competition, public goodwill needs to be very high on the expected outcomes. However no company is perfect and when they are not even close, movies which tell the story similar to Erin Brockovich, where the underdog beats the public utility to help the good people that were damaged by the company and to ensure the company keeps the goodwill of the public at the forefront of its values – do no harm are important. If you watch the movie do a timeline of the work and effort needed to do fix something that should have never been allowed to happen in the first place is one  of the reasons why conspiracy theories will always have a place in the news.

There are more questions than answers, till the next time – to raising questions