Barton Biggs wrote columns to allow for people to help understand how he was seeing the world. For many years he was connected with Morgan Stanley helping to run its research, investment management division and the firm; later he left to manage his families money and others in a hedge fund. His columns from 2010 to 2012 were put together in the book Diary of a Hedgehog, John Wiley & Sons, 2012

One of the columns dealt with two titans in the industry – Paul Tudor Jones of the Tudor Funds and Steve Cohen of SAC. Both have and continue to be successful, Mr. Jones offers insights on his website which makes good reading. Mr. Cohen typically operates at a low public profile. SAC has 100 portfolio managers and 150 analysts, they report to 10 sector heads. The firm closely monitors the Portfolio Manager’s hit rates and when they make big money when they are right and lose less when they are wrong. Mr. Cohen wants good, big ideas and each week starts with phone interrogations Sunday afternoon, and after listening Mr. Cohen picks the best ideas.

When a big idea is selected, a significant bet of 10% and it is made quickly. It takes about 20 days for the process to run and although charts are used, fundamentals override technical. SAC used to have shorter attention spans but now looks for 3 to 6 months, during that time do not fuss with the gainers, but spend most of the time on the positions that are not doing well and listen to what the market is telling you. There are always people out there who know more than you do, if a position is not doing well it is sold quickly. The three things that can kill your business are leverage, excessive concentration and illiquidity.

Linking to dividend paying stocks, it is good to know what the large players are doing,  for they have an effect on the markets. However, if you own profitable dividend paying companies, the price is less important for your holding range is greater than three years, it could be 20 years. For holdings of this length of time as long as the company continues to earn profits and pays a dividend, the stock price will invariably go up (likely will have split) and you will be wealthier.

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

Barton Biggs wrote columns to allow for people to help understand how he was seeing the world. For many years he was connected with Morgan Stanley helping to run its research, investment management division and the firm; later he left to manage his families money and others in a hedge fund. His columns from 2010 to 2012 were put together in the book Diary of a Hedgehog, John Wiley & Sons, 2012

In one of his columns Mr. Biggs wrote about Jessie Livermore and referenced the finest trading book ever written is Reminiscences of a Stock Operator (John Wiley & Sons, 1994), by Edwin LeFevre.  The book deals with lessons learned over a trading lifetime, and Mr. Livermore started with little and at his peak was worth billions of dollars. He passed away in 1940. Mr. Livermore was a speculator – he was a student of the rhythm of the markets and was convinced that you had to know yourself and be able to control your emotions to be successful. You also had to respect and listen to what the markets were saying. The most common and usually fatal ailments of the ordinary speculator was greed, fear and hope.

The game does not change and neither does human nature. In his years on Wall Street it was never my thinking that made me the big money, it was my sitting. Men who can both be right and sit tight are uncommon. The reason is a person can see straight and clearly but become impatient or doubtful when the market takes it time doing as he figured it must do. Many people have lost money, not because the market beat them, but they cannot sit tight. Intelligent patience. Take a position and stick to it.

If you believe you can time the market – buy low and sell high, you will invariably lose money. Never try to sell at the top. It is not wise. Sell after a reaction if there is no rally. Never average down – if you are an active trader, if something goes down about 10% sell, cut your losses and keep your gains. One of the hardest things to do if the stock goes down to do is to do even more research and become an expert on the stock. If you are the expert, you have too much emotion tied into the stock. The better solution understand there is a reason for the stock to go down, admit your mistake and do not try to outwit the supply and demand.

Linking to dividend producing stocks, because you are not trading and the stocks that you normally buy produce a dividend you do not have to follow the above advice. For the stocks you own that do not produce a dividend, follow the rules. The dividend means the company is producing profits which allow for stability in the price and a floor for the lowest price, if the market in general is going down. As the stock price goes down, the yield on the dividend goes up which increases the number of people wanting to buy the stock, there are buying opportunities.

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

Barton Biggs wrote columns to allow for people to help understand how he was seeing the world. For many years he was connected with Morgan Stanley helping to run its research, investment management division and the firm; later he left to manage his families money and others in a hedge fund. His columns from 2010 to 2012 were put together in the book Diary of a Hedgehog, John Wiley & Sons, 2012. Within the book is his analysis of how he saw the release of government statistics and how the stock market preformed and what it is expected to do. The book also gives pointers to remember such as large capitalization, high quality American equities with global franchises and good dividends are a fine place to be in the long run. As with all themes, there are different ways to invest in them – for example if you wish to invest in emerging markets – you can invest directly (Mr. Biggs preference) or you could do what Warren Buffet does, go indirectly knowing great global multinationals are major participants in the developing countries and two examples are Coca-Cola and McDonald’s.

Linking to dividend producing stocks, the markets will move up and down, some stocks will be in favour, some out of favour, but those that consistently make money and pay a dividend will be in the long run advantageous to you. Invariably all companies must make money, starting and staying with proven money makers allows you to concentrate on the other things in your life to make it more rewarding.

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

In reading the book by Extreme Money by Satyajit Das, FT Press, 2012,  the book provides a history of investment banking both the ups and downs, being cynical and the good it provides. Mr. Das includes many diagrams to help understand the complex world. In writing about hedge funds, Mr. Das writes today 30-40% of the hedge fund money comes from the usual suspects – the simply wealthy, Mafia barons, drug lords, arms merchants and despotic dictators. The rest comes from pension funds, insurance companies, mutual funds, foundations, endowment funds and the banks.

Investors were initially attracted by the great returns (the early funds people invested thousands to make millions- although for the past few years most investors after the fees are taken out, the returns are more often average. However for the folks who run the successful funds, the fees are great. Much of the gain comes from the very high use of leverage which accents both gains and losses. Funds Hedge funds have a wonderful ability to take advantage of bad government policy (George Soros and the Bank of England), bad corporate execution and planning, and a host of mismatched pricing of assets. The hedge funds seek out governments which are trying to stimulate their economy by keeping interest rates low, then the funds will come into the market to borrow and buy other governments safer dollars at a higher interest rate for a safe and profitable carry.

Linking to dividend paying stocks, while the headlines will always include a hedge fund, because there are always different views on the data – is the glass half full or half empty? the safer option is a long term one of stocks that have consistently paid dividends over the years. Not only does the price tend to be stable, but it also tends to increase more because to pay dividend implies a profitable company. If the company is not profitable, it will have to cut its dividend. Let the hedge funds look for mispriced securities and trade every second, while you buy very good companies and hold them for their continuing dividends. If hedge funds are interested in your company, a shakeup is in order which can be a good thing at the very least the stock price will be pushed up.

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

In reading the book by Extreme Money by Satyajit Das, FT Press, 2012,  the book provides a history of investment banking both the ups and downs, being cynical and the good it provides. The perspective a reader can gain from reading is understanding that investment banking, financiers did what they had always done – whatever it takes to make money, only they did it with financial alchemy.

For example the concept of securitization or asset-backed mortgages is a wonderful one – it generates fees, it increases the ability of the banks to lend more, and it provides product to investors. Those are all very good things to be in the system. The key to securitization is the allocation of risks between different investors. The issue is divided into 4 segments, each of them carrying higher risks and higher interest rates. The risky piece needs fewer defaults but should not lose all their money because of possible home re-sales. The middle group would only lose money if more than 10% defaulted and everyone loses if all the mortgages went into default. If 2008 some of the bonds had a default rate of greater than 90%. Historically that had never happened before, but with no income, no job and getting a mortgage with payments for the first two years to match your limited income, to be reset in year 3, you have to wonder, that is betting on a lot of hope. The other important aspect is there needs to be  high standards of home owners putting money down (the more the better), the rating of their ability to repay is high, and there are checks and balances in the system to ensure the standards do not go astray. It is one of those situations if one person or 1% of the people cheats, the system can handle it, if everyone cheats in pursuit of greater fees and profits, the system falls apart. The question was and always is who is the policeman to ensure the high standards. In the mortgage crisis all those with the ability to be a policeman passed the responsibility to someone else and we all know who job that is.

Linking to dividend paying stocks, in every self regulating profession, the people who deal out penalties or regulate the profession for very good reasons are reluctant to penalize those in the professions. This is why every few years something goes wrong in an industry, in the financial markets the normal has been 4 year cycles or the Olympic cycle or Presidential cycle. When a company has paid a dividend consistently, there tends to be more people watching the company to ensure it can continue to pay the dividend, if the company can not pay, the President is replaced.

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

The other day the author went into a supermarket to buy food and pick up some ready to eat foods. The process was not clear which meant to stand in line waiting to be served, told to buy the soup cup first before the soup. After filling the container started to look for a spoon, which meant to stand in line to be told over there. Looking around again and asking over where? The spoons were against the wall in a small opening? As a first timer in the store, there were no directions, however it is possible regulars feel the patterns are perfectly good. After leaving the store and sitting on a bench, the patterns for the beer store could be observed. People collect bottles and bring them to the beer store for refunds, however the beer store only wants them in a orderly fashion. The regular collectors go into the store, pick up the trays and then sort their bottles before bringing into the store to receive their refund. A nice and orderly fashion.

Linking to dividend stocks, prior to buying these types of stocks, the prices of others likely went up and down and sometimes it seemed there was no order. Adding the dimension of a dividend often decreases the ups and downs to make it more stable, until something happens of a material making. The material could be acquisitions, mergers, reorganizations all the while earning a profit to pay for the dividend. To add order to your financial life buy dividend producing companies

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

In  reading the book by Extreme Money by Satyajit Das, FT Press, 2012, there is a chapter about the history of the stock market. Everyone believes the market exists the way the do now and seem to be operating.The reality is in 1696, the first exchange in  England, the stockbrokers, known as jobbers, sold shares in frequently dubious companies to investors. Not long after that one of the companies the South Sea Company stock increased over 900% which caused great excitement and a bubble in Europe. In 1720, the great profits promised no longer materialized as the company went bankrupt. Since that time dirty tricks, financial engineering of the books have shown up on a regular basis. Sometimes being cynical means keeping your money.

Linking to dividend paying stocks, one method to avoid the fraud and hucksters on the market is to keep the bulk of your money in stocks in dividend paying ones. All companies have a black mark in their history, but with dividend paying ones at least you know they are consistently profitable over the years. If they have been steadily increasing the dividends, that is even better. There is a place for possible wealth makers, but if you think long term and dividend payments you will achieve wealth.

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

Great stories are wonderful to hear and read and Gabriel Lowenberg wrote a wonderful story in the Globe and Mail “Epiphany on the Triborough Bridge” June 14, 2013. Mr. Lowenberg used to pay a toll to drive into NY via the Triborugh Bridge or now called the Robert F Kennedy Bridge, but the toll remains the same. The idea Mr. Lowenberg saw was people paying a modest sum and using the facility, this allowed the operators to have a predictable stream of cash that was immune to the competition. Depending on the cost of operating, the ownership could be a great investment. With this idea, Mr. Lowenberg invested in the CME Group – the operator of the Chicago Mercantile Exchange. Based on volume the CME is the number one exchange for trading derivative securities or options In addition the government is mandating credit default and interest rate swaps be cleared through a central organization. The organization with the ability is the CME. The profit margin is 60%. Those are great element to any story.

Linking to dividend paying stocks, the bridge example or the CME example is the type of stock you should be looking to own for a long period of time. The company has a high profit margin, has consistent revenues, growth will not come with too many outside costs, and no matter how the options inside the building trade, the middle man or the clearinghouse company will make money.

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

In the book Dark Pools – High Speed Traders, AI Bandits, and the Threat to the Global Financial System by Scott Patterson, Crown Publishing, NY, 2012, Mr. Patterson discusses the rise of high speed traders, artificial intelligence bandits and the global financial system.

Mr.Patterson’s discusses the reason why the small companies were working to defeat the existing system. In a nutshell, it was unfair. In reality, the stock exchange process was heavily tilted towards a particular part of society and since salaries and work were above the normal, it was a closed society. The work was not, but to get in and be part of it was. When a sector, any profitable sector, is seen as unfair, people will be looking for alternatives. With the rise of the Internet, the ability to find alternatives through the loopholes has quickly risen and although it may take a number of years before they cross into mainstream, it is possible. Then the outsiders will become the part of the insiders and want to protect their turf. The reason the origin outsiders were looking to change the stock exchange methods of operation was, in their core (the fire in the belly), they saw the exchanges as being extremely unfair. The exchanges said they were for competition, just not competition against them.

Linking to dividend paying stocks, often the best dividend paying stocks have some sort of monopoly which helps ensure they can pay dividends on a regular basis. On some stages, there will be people trying to find alternatives so customers can either have better service and /or better prices, it also helps if money can be made. The management of the dividend paying companies has to balance making consistent money and ensuring the mainstream is reasonably happy with the choices or the public must feel they have reasonable competition. When the balance is out of order, true competition and the government will change the market landscape.

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