Benjamin Graham on Value Investing - Book Review

Benjamin Graham on Value Investing: Lessons from the Dean of Wall Street





What Is It About?

This book is obviously about Benjamin Graham, considered the progenitor of value investing. The material covered in this book is a mix of biography and a review of Graham's development and practice of value investing.

What Did I Get Out Of It As A New Investor?

The book provides an insight to Graham's personal background which explains the motivating factors behind the development of value investing. The best part of the book from an investing point of view is Chapter Seven. In that chapter the author provides a 14 point check list of what Graham's ideas are all about. I think the summary is a good overview of the main ideas of Graham and what he is writing about in some of his other books, such as Security Analysis.

The Good News

The book is a good introduction to Benjamin Graham the man and his views on investing. Chapter Seven provides a worth reading summary which introduces the new investor to Graham's main canons.

The Bad News

The book is not a terribly engaging read. The author has created a niche by writing books on successful individuals. The book reads as if it follows a formula for efficiently producing such manuscripts. While the subject matter is definitely interesting, the style of writing shows a bit of fatigue.

The Bottom Line

If you want to learn about Benjamin Graham this is as good a place to start as any. I would recommend you check it out from the library.

Other Related Books:

Blog Review: Howard Lindzon

Another blog I like to read daily is Howard Lindzon. He provides daily posts on a wide range of topics including stocks, the market, business in general, Web 2.0, and some fun but interesting other topics.

The best thing I like about his blog from a stock market point of view is that he does a good job explaining why trends are important when thinking about stocks. The discussion of trends is not limited to just a stocks price history but covers the underlying real world reasons which support the price trend. This is done in a manner that is easy to understand. He is also the founder of Wallstrip.

Enhancing Trader Performance - Book Review

Enhancing Trader Performance: Proven Strategies From the Cutting Edge of Trading Psychology (Wiley Trading)




What Is It About?

As its title suggests, this book is about enhancing your performance in whatever market you wish to participate. To do this the author does not take the well worn path of suggesting external means to achieve greater success, such as looking for better indicators or certain price ratios; rather the author strikes out on a decidedly different course. Dr. Steenbarger places his focus on improving the one thing that most helps or hinders an investors or traders' stock market success: Themselves. By examining what it takes to be successful, how to evaluate performance, and providing a framework which an investor or trader may use to breakthrough mere competence and achieve expertise, Dr. Steenbarger has written a manual useful to all regardless of trading or investing style.


What Did I Get Out Of It As A New Investor?

The maxim that one must never judge a book by its cover applies to this tome. While this book uses examples that deal with more short-term oriented trading, its lessons are not wasted on those who seek long term success. While the book does use many examples based on traders who are short term in nature, it is more a function of clinical practice than deliberate exclusion of other styles.

To reach a clinical understanding of any subject one must have a sufficient sample size. While long-term oriented investors or traders might make one hundred trades in several years (or even one hundred in a single year) short term traders may make several hundred a month or even in a single day. Therefore, in order to understand the psychology behind human decisions in the market in a reasonable amount of time, short-term traders provide the necessary sample. Simply put, much like a clinical researcher who chooses and studies a species whose birth-death cycle begins and ends in 30 to 60 days and then extrapolates the results to the human birth-death cycle, a long term investor who reads this book should not be put off by its short term focus. To do so would exclude a valuable resource.

In reading this book, one develops an understanding that, whether short or long term, individuals to quickly choose how they will trade or invest. The book helps a new investor or trader by forcing them to ask what style of investing and what time frame works for them. Many investors lack Warren Buffett’s success not because they lack skill, but because Mr. Buffett’s performance abilities matched well with the long term style. Ignoring this fact limits your potential success simply because your skills may be better suited to another style or time frame of investing or trading. Much like Michael Jordan, no matter how much you may love baseball, basketball is what you will always be really good at.

This book also addresses the reality that one must continually strive to improve performance and adapt to changes in the markets. An important lesson learned is that bad trades or investments are much more damaging to a new investor over the long term than good trades or investments that lose you money. How so? A trade or investment that makes money but which violates the rules governing the selected system of trading will instill a self-confidence not validated by skill, but by luck. Such hubris can only lead to ones ruin once luck runs out, as it most defiantly always does.

Perhaps the most important lesson of this book is to provide an investor or trader, either short or long term, with a means to establish the discipline to have staying power in whatever market or style undertaken. The book does this by requiring the reader to think long and hard about what it takes to be successful (practice, practice, practice) and how to evaluate performance (thoughtful and objective means of evaluation).

The Good News

Without a doubt, if you fancy yourself a trader this book can improve your performance. Even if you believe you fall in the “investing” camp this book will help you. While the examples used may not directly apply, the psychology behind performance improvement applies to long term investors as it may help them move beyond mere competence to expertise.

The Bad News

Although well written this book is not light reading. It is a serious book meant for serious individuals who want to achieve personal growth and obtain something more than mere competence in whatever market they trade. If an individual is ready to stop searching for some magic tool or indicator and instead develop internal techniques that will aid them far better than any flashing buy or sell signal, than this is the book for you.

The Bottom Line

This book is a must read for a trader and a valuable addition to a trader’s library. Even if one is long-term focused this book is still a worthy read, whether purchased or borrowed, as psychology plays a role in the market no matter what investing time frame is used.

Other Related Books:

Resource Review: Investools

This weekend there are two great posts on Investools by The Kirk Report and Tyro Trader. I thought I would jump on the band wagon (or shout into the echo chamber as Bill Rempel calls it) and offer my own thoughts.

As Mr. Kirk and Mr. Tyro note, Investools provides a fundamental/technical stock screen/research service. They do so I believe for about $50 a month. But as the Kirk and Tyro posts indicate you need to sign up for a $2,000+/- training class. I have seen it reported to sell for more or less depending on where, when, and how hard you bargain.

Here are a few thoughts on Investools:

1. For the best discussion of Investools, what it does, what it does not do, and whether you can find the same stuff for free, you should check out Phil Town's blog. Mr. Town recommends Investools because he feels it provides value ands saves the average investor time. But he does acknowledge and provide citations to other sources that provide the same thing for free, albeit with more time and effort.

2. For an example of the green/red arrows Tyro is talking about just go to Business Weeks's website, enter in any stock symbol, when you get the quote and little chart, click on the chart, on the next screen check the boxes "MACD" "stochastic" and "Moving average" and click enter.

Here is a link to a WMT for a shortcut. Just check the boxes "MACD" "stochastic" and "Moving average" as indicated.

You will see little arrows that are "supposed" to be buy and sell points. As I understand it Investools bought/licensed the software from BW or whoever BW got it from.

Please note that I have never actually tried Investools for the same reasons mentioned by Krik and Tyro. But (shameless plug here LOL) if Investools would like to offer me access like they have Kirk and Tyro I would be more than happy to try it out and report back on the service.

Blog Review: Abnormal Returns

Abnormal Returns is a great blog that I read everyday. While they often post on timely stock market news, the best feature is the end of day link round-up where they post links to several of the best blog posts and news articles of the day. Quick and great way to catch up on anything you might have missed.

Blog Review: The Kirk Report

A website that I read everyday is Charles Kirk's The Kirk Report. Great daily commentary on the market by an obviously accomplished trader. One of the best features is that once or twice a week he does a post where he provides links to articles that cover investing/trading. If I have missed something worth reading, The Kirk Report usually does not.

I mentioned the site today because Kirk has a great review of his experience with trying to find out what Investools is all about.

Book Review Organization

Now that I have finished a few book reviews and with several more on the way I thought I would organize them so that they would all be in one place, making it easier to find what you are looking for.

With much fanfare I am pleased to announce the:

"ValueBlogReview: Book Reviews" website at Valueblogreviewbooks.blogspot.com.

Nothing fancy, just an image of the book reviewed and a handy link back to the my review on this site, but as time goes by it will be useful to have all the book reviews in one spot.

Blog Roll Review

I have been mostly writing about books lately but am trying to work in a review of some of the blogs I read and why.

If you are like me, you read a lot of blog/websites that talk about investing and trading. After a while it can get a bit tedious.

I have found two websites that do a good job of discussing investing and trading but often break it up and mix in a little humor with links to off-beat news stories and other random, but interesting, stuff.

The sites are:

Tale Of The Tape

and

Wall Street Fighter

The Future Of Search?

Cool dude Eddie of The Rad Report left a comment on my last post expressing the opinion that I am pretty good at finding useful websites (thanks Eddie).

I must admit that I am a bit of a search geek. How do I know I am search geek?

Well I can tell you exactly where I was and what I was doing several years ago when I first read about a new search engine called "Google." Yes I like search that much. I actually have fun looking for things or being challenged to find something on the internet by coming up with the right combination of terms. That is why anything that brings a new twist on search is pretty exciting to me.

One such website that I came across today is Flowser (Think flowers + browser to pronounce it). It is a little bit rough to play with at this point, but essentially it takes the next step in searching, away from a written list results format to a "spider-web" or connection based result using graphics.

Right now what it searches is the amazon.com database and produces results across their product lines related to the search term in graphical form. While it is limited to Amazon right now, one can see the potential on any website that is based on connections, like Mybloglog.

I don't know if it is the future of search, bit it is worth a look.

Thanks to the guys at The Stalwart, which is how I first found out about the site.

Resource Review: World Catalog - A Great Way To Find Books

One of my goals in having this blog is to bring you resources that may save you time and money. Obviously, when it comes to books if you are not sure whether you want to buy a book, one of the easiest ways to save a buck is to take a look at it in the local library.

Now sometimes, especially if you live in a smaller town, your local library does not have the book you want. But that does not mean it may not be at another library a reasonable distance away from you. The problem is how do you know?

A really cool website to solve this problem is WorldCat. It is a search engine that states it lists "1.3 billion items in more than 10,000 libraries worldwide."

If you go to the site and type in author, title, or even ISBN number it will search its database. It will then list the results. You then click on the link for your book and on the next page it has a box where you can put your zip or state and it then lists several libraries by distance from your location.

For instance, my local library does not have a book I have been thinking about picking up, James Altucher's Trade Like Warren Buffett (Wiley Trading). So I typed in the title and my zip and found it is available in a public library only 18 miles away from me. The bonus is that this city library does not require that I be a resident of that city, just of California, in order to check books out.

So if you have been frustrated by the selection in your local library give the WorldCat site a try.

BONUS ALERT!! I have put the WorldCat search box on my website above so you can search right away.

Brett Steenbarger's New Book

Brett Steenbarger author of The Psychology of Trading: Tools and Techniques for Minding the Markets has a new book coming out. Whether you are a trader or investor, short or long term, understanding human behavior as it applies to markets is an important endeavor.

The new book is Enhancing Trader Performance: Proven Strategies From the Cutting Edge of Trading Psychology (Wiley Trading) and is out November 3.



You can also visit Steenbarger's blog at TraderFeed

Van Tharp's Update Out In November

The second edition of Van K. Tharp's "Trade Your Way to Financial Freedom" is out November 1, 2006. Great Thanksgiving reading so you don't have to talk to the in-laws. I will be reviewing it the next couple of weeks, but based on the first edition I can say you should get it now.

Kenneth Fisher's New Book

Here is a link to Ken Fisher's new book due out in December 2006.

The Only Three Questions That Count: Investing By Knowing What Others Don't

David Dreman's New Book Out In Fall 2007

Here is a link to Dreman's new book to add to your wish list.

Contrarian Investment Strategies: The New Psychological Breakthrough

Resource Review: Fraser Publishing

Obviously most have heard of Amazon.com. But a nice little bookstore that I found the other day is Fraser Publishing.

As described on the website Fraser Publishing is:

"An extensive selection of books on Wall Street, speculation, investing, business, the stock market, and trading techniques for the creative self-investor, where all prices are discounted at least 30% from retail list price."

They offer books you cannot find on Amazon or at a lower price than Amazon because they are now the publisher. The best thing is that they offer many texts which are classics because they are considered original works that all other ideas flowed from. For instance, many have heard of John Burr Williams' The Theory of Investment Value, but most do not know that Williams also wrote Interest, Growth & Inflation.

If you are looking to build a library of books on trading and investing, as I am, then this bookseller is worth looking at.

Book Review "Pit Bull"

Pit Bull: Lessons from Wall Street's Champion Day Trader





What Is It About?

This book is about trading. Pit Bull is written by and is about Martin Schwartz, a successful trader first profiled in Jack Schwager’s Market Wizards: Interviews with Top Traders. The book is part biography and part how-to manual as the author uses the lessons he has learned both in life and in the market to explain his trading success.


What Did I Get Out Of It As A New Investor?

This book is not about investing. The author is an unabashed trader who buys stocks, commodities, options, and futures, and often sells them hours after purchase. However, the central lesson of this book is important whether you are an investor or a trader. Success in the market can only come where the investor/trader has an edge (a means of seeing a mis-pricing that others cannot or do not see) and is able to recognize and exploit that edge. This concept is one that every new investor and trader must grasp in order to be successful.


The Good News

This well-written book is an enjoyable read. Even those who do not view themselves as traders will enjoy the story told. Moreover, if you are a new trader this is a great book. Not only does it provide an insight into a successful trader’s process, the author provides a concise and well thought out chapter at the end of the book outlining his trading process.


The Bad News

As stated, this book will not teach the tenets of value investing. If you are looking for a tome on value investing, look elsewhere.


The Bottom Line

If you are someone who desires to be a trader then this book may be a worthwhile purchase. For those who are investors rather than traders, but still enjoy reading a good story about Wall Street, this book is definitely worth checking out from your local library.

Other Books About Traders

Coming Soon To A Bookstore Near You...In 2008

I am pleased to provide what I believe is the first link to the new Warren Buffett book. And I do not mean a book about Warren Buffett. I mean the book of all books, the Warren Buffett book Buffett himself is cooperating on. Order yours today, only two more years to go.

Book Review "The Money Game"

The Money Game





What Is It About?

It is an understatement to say this book is about Wall Street. It is more than that. It is an insight into how Wall Street thinks. Simply put, this book reveals to the uninitiated just how mad the market really is.


What Did I Get Out Of It As A New Investor?

If you have wondered why the market is a fickle mistress this book may clear it up for you. There are no get rich quick tips; no how to make a million in a year. Rather, as the title indicates this book informs the new investor about the “Money Game” and just how it is played on Wall Street. Be forewarned, the author tells his tale in a very subtle manner; so much so that one may miss the points being driven home.


The Good News

This book is a great read. Its designation as a classic is well deserved. The overriding lesson taught is that Wall Street may never change, simply because it is repopulated every so often with a new cast of characters who have no memory of the past.

The Bad News

This book is now nearly forty years old. Therefore, one must give thought to the examples given in the book and update them to the present time to provide context to the modern reader.

The Bottom Line

The Money Game is a must read classic. I bought it and you should too. At the very least it should be the next book you check out from the library.

New Website "Valuewiki.com"

I came across this website today. It has the look and feel of wikpedia.com in that it allows users to register and add content.

It appears to have been recently created, so it is a bit light on content, but as more people use this website its utility may become apparent.

For instance, there are links to various Top Ten lists, such as brokers and blogs. Once the site grows and begins to assemble a body of data, it could help people save time when they are looking for relevant information covered by a particular list.

It also lets users post information on individual stocks. Obviously, on larger issues like MSFT and WMT there is ample info, but on some smaller companies and non-listed stocks Valuewiki could grow to be a good place for information.

The only questions I would have would be: 1) how to avoid the biases in users when allowing the creation of content about particular stocks; and 2) for the lesser known issues how will you separate solid information from simple pump and dump posts.

Overall this seems to be a good concept and I look forward to seeing it grow.

Book Review "The Neatest Little Guide to Stock Market Investing"

The Neatest Little Guide to Stock Market Investing (Revised Edition)






What Is It About?

The Neatest Little Guide to Stock Market Investing is written by Jason Kelly. Mr. Kelly has written several books and publishes an advisory newsletter, all of which can be found at JasonKelly.com.

This book is an introductory guide on how to think about the stock market and evaluate stocks. Some of the topics covered include how to make a trade; a study of successful “master” investors such as Peter Lynch, Warren Buffett, William O’Neil, and Phil Fisher; where and how to find research material; and how to build a core portfolio using easy to understand strategies.

What Did I Get Out Of It As A New Investor?

This is an excellent book for a new investor. It provides an overview of the general concepts all investors must grasp and then gives concrete specifics to apply this knowledge.

One of the best parts of this book is Chapter 2 where the author reviews several methodologies of successful investors. What is unique is that the author then provides a section where he highlights the key points of the “master” investors worthy of retention. For example, if the reader is having trouble understanding what it is that made Peter Lynch successful, the author makes it easy by listing those crucial points worthy of retention. For example, he cites Lynch's suggestion that you prepare a two-minute narration as to why you are buying a particular stock to reinforce the decision making process.

This book also offers several different strategies which even a beginning investor can implement. While no investor should blindly follow anyone else’s strategy, having a strategy explained and demonstrated in an easy to understand manner goes a long way in helping a new investor create a template of his own.


The Good News

If you are a new investor looking for a clearly written book which covers most (if not all) the topics you are wondering about, this is a great book. Not only does it answer many of the questions a new investor might have, it also provides “how-to” examples.


The Bad News

If you are not a new investor this book may not be for you. For the new investor caution must be urged. While the author’s track record has been audited (see CXO Advisory Group Guru Grades ) and is above average in comparison to other noted investors, no investor should ever blindly follow any strategy without contemplating whether the strategy is right for their personal needs.


The Bottom Line

The Neatest Little Guide to Stock Market Investing is a great book for new investors. I recommend it for purchase.

Resource Review: Morningstar's Classroom

As I have mentioned before I subscribe to the Morningstar premium service. But they have a lot of stuff that is free without that subscription. A really great and free feature I do not hear much discussion about is the "Investing Classroom" that they have on the website here. It may go unnoticed for the simple fact that it is not easy to find on the Morningstar website.

What is great about it is that it provides interactive tutorials where one can learn about stocks, bonds, mutual funds, and asset allocation. Each course takes you through short study sessions on subjects like how to read financial statements and how to value a company.

Here is how Morningstar describes it:

"Our courses cover everything you need to know, from the basics to advanced techniques. And our courses are conveniently short. You can complete each course in about 10 minutes."

If you are a new investor looking for a structured learning experience this is a good place to start.

Reminiscences of a Stock Operator - Book Review

"Reminiscences of a Stock Operator"







What Is It About?

Reminiscences of a Stock Operator was written by Edwin Lefèvre, a noted financial writer during the first few decades of the twentieth century. The book is a fictionalized account of a prominent trader on Wall Street covering the period from the 1890’s through the original publication date in 1923. While a work of fiction, it is generally accepted that Lefèvre wrote this as a fictional account of the true life experience of Jesse Livermore.

The book is written as a first person narrative. The protagonist takes us through his early beginnings and explains his struggles towards a maturation of his trading process. Along the way, the reader is subtly instructed as to how this transformation was accomplished – as investing lessons are woven into the personal narrative.

What Did I Get Out Of It As A New Investor?

An argument could be made that a book about one of the most (in)famous stock traders ever to have swung on Wall Street can't possibly provide any insight to those who adhere to the tenets of value investing. That is the wrong position to take. This book provides one of the earliest articulations of understanding who is the best friend and worst foe of the trader and investor alike.

While this book provides a valuable learning experience throughout, its true value can be found early on in Chapter 5. Here, the narrative sets forth the realization of our trader that many people on Wall Street do not fail because they are wrong in their decisions; rather it is being right in their analysis but not being able to sit tight and hold fast to their convictions that lead these people to failure.

A selection from the text eloquently sets forth the proposition as follows:

“a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figures it must do…the market does not beat them…they beat themselves, because even though they have brains they cannot sit tight.”

This lesson doesn't apply to stock traders alone. Value investing is, at its core, the purchase of a company through common stock which is undervalued by the market as a whole. Yet how many value investors have bought a stock which reasoned analysis indicates is undervalued, only to grow nervous as the stock price falls, and then to sell too soon? As this book instructs, if one would have merely sat tight they would have been proved right.

Being a value investor is about finding value that others cannot (or do not) see. If your thesis is correct, then the hardest part of practicing value investing is resisting the siren song of the market as it tries to convince you that you are wrong. That is the lesson this book has taught me.


The Good News

Reminiscences of a Stock Operator is considered one of the all-time classics, and after reading it I understand why. It is well written; after 80 years, the book still makes for an interesting and satisfying read. An article in this month's issue of Smart Money (the monthly magazine of The Wall Street Journal) noted that famed investor Bill Miller re-reads this tome every year. Simply put, the book remains fresh no matter how many times it has been read before.


The Bad News

Those who strictly adhere to a value investing methodology may feel that this book is outside their investing framework. That point is not without merit. But whether one is an investor or a trader, understanding the role of emotions in either process is important. In order to gain the full benefit from this book, you must accept that the greatest impediment to successful stock market participation is one's own self. Anything short of that and this book will seem uninteresting.


The Bottom Line

I agree with the general consensus; this book is a classic that offers valuable investing insights. Reminiscences of a Stock Operator belongs on every investor’s and trader's bookshelf. I highly recommend purchasing it.

Resource Review: Value Investing News

George of Fat Pitch Financials has started a new website with a twist. It is Value Investing News. Here is how George describes it:


"Value Investing News is a community driven value investing news site. You can submit links to news items, bid up stories to the front page, bid down stories, and make comments. Members are rewarded for the success of Value Investing News by sharing in the Adsense revenue."

I think it is a great site to quickly see what others are reading and think worth while to share.

Book Review of "Bernard M. Baruch: The Adventures of a Wall Street Legend"

Bernard M. Baruch: The Adventures of a Wall Street Legend



What Is It About?

This biography covers the life of Bernard Baruch. Baruch was a famous stock market participant who made, lost, and made again several millions over several decades on Wall Street. The most interesting aspect of this book is discovering that Mr. Baruch was not only one of the more prominent investors/traders of his day, but was also a leading political player as an economic advisor to several U.S. presidents. The book is well written and presents a balanced narrative of an obviously complex man.

What Did I Learn As A New Investor?

As is the case with many biographies, this book presents a balanced examination of Mr. Baruch’s entire life – not just the part that involved the stock market. The most important part of this book, from an investing/trading perspective is a two page memo Baruch wrote on the basics of investment and speculation.

The memo covers such topics as:

Self Reliance - Do your own thinking. Remove emotions from the process.

Judgment - Consider and think on all facts. Do not let what you want to happen influence you.

Pliability - Be flexible. Recognize when your initial analysis was wrong and act accordingly.

There is also a short, but insightful, discussion of psychology and how it impacts investing and trading. Overall, I think this part of the book provides a new investor/trader with an introduction to the importance of having rules and following them.


The Good News

This is a good biography of an interesting man. The memo (referenced above) is well worth the time to read and study.


The Bad News

As mentioned, there is not much specific information on Bernard Baruch's investment process. While it is a good biography, those looking for a more definitive how-to guide should search elsewhere.


The Bottom Line

For those who like biographies, this book is a good read. For those more focused on searching for a how-to manual, I would recommend simply reading that portion of the book which contains the memo.

Overall this is a good book; but, one I recommend you borrow from the library rather than buy.

Book Review of "Little Book of Value Investing"

"The Little Book of Value Investing"



This is the second in the “Little Book” series by Wiley Publishing. The first book, of course, was the best selling “Magic Formula” book by Joel Greenblatt.




What Is It About?

It will come as no surprise that this book is about value investing; that much is clear from the title. It is written by Christopher Browne, the managing director of Tweedy, Browne Company. Tweedy, Browne’s roots in value investing reach back several decades, most notably as broker to Benjamin Graham and Warren Buffett in the post-war period.


What Did I Get Out of It As A New Investor?

The book is well organized. It provides a road map that introduces value investing, describes what value investing is and is not, how to practice the art of value investing, and why (in the author’s opinion) value investing is the superior method of investing.

I wish this book was available last November when I first began thinking about and exploring investing ideas. The book presents in a straight forward manner a comprehensive overview of what comprises value investing. It does so in a manner that even the newest investor can grasp.

The first several chapters cover the basic thought process behind value investing, i.e. the concept of buying companies that are on sale at bargain prices much like one waits for a bargain sale at their local retailer. The next few chapters discuss exactly why one must purchase stocks at those bargain prices. This is where the book excels.

In Chapters 3 and 4, the book sets forth, in a manner a new investor can easily grasp, several concepts crucial to understanding the rationale behind requiring a “margin of safety” in one’s stock purchase. Can you find this information elsewhere? Yes, but not as clearly stated as in this thin volume. For me these two chapters make the book a worthwhile read.

Later, the book describes common characteristics of stocks suitable for value investors. Browne takes you through a simple but effective explanation on how to identify worthwhile, but inexpensive, companies to invest in. He does this by examining how to weed out the cheap and good from the simply cheap, using the balance sheet, income statement, and an easy to follow checklist for evaluating a company’s competitive advantage.

The last part of the book describes why sitting tight with financially strong, well-run companies provides exceptional returns over time. It does this by contrasting the simplicity of value investing against the more difficult strategy of market timing.

This is not to say that this book is perfect. My enthusiasm for the book springs from my status as a new investor. As a new investor I often struggled with unfamiliar terms and concepts; therefore, any material that simplifies the learning process I deem worthwhile.

However, the more experienced practitioner of value investing, who has experience and knowledge on how to value a company may find this book to be lacking in depth sufficient to provide anything new, other than a refreshing of the key concepts.

This book was not written for the experienced practitioner of value investing. Rather, it is clear that this book was meant for the broader audience who may not have the time or inclination to wade through the more detailed works on security analysis.

This book is a great complement to Joel Greenblatt’s book. “The Little Book That Beats the Market” provided a formula to new investors allowing them to quickly identify high quality, undervalued stocks. “The Little Book of Value Investing” goes one step further by providing the basic tools necessary to refine the results produced by the “magic formula.”

The Good News

If you are struggling to understand the concepts presented in other books on value investing, this book should help clear things up for you. The time saved in gaining this knowledge more than makes up for the cost of this little book.

The Bad News

Simply put, if you have been investing for a number of years, or can quote specific passages from Graham and Dodd's “Security Analysis”, this book may help remind you of the key points, but does not reveal anything new. The book jacket makes this point clear; experienced value investors are not the intended audience.

The Bottom Line

This is a good book for new investors and certainly worth purchasing.

New Links

Last week I tried (and failed) to create a link to the blogs I read at Netvibes.com. They have a way of making it public but is seems no to work for me. So I cam up with a new blog roll (found on the right) of what I am reading on a regular basis.

Dividends Are Not Money In The Bank

Where Is The Yield? has a nice post today on the dangers of sticking around with an ailing company for its dividend. Sometimes the problems the company faces can eventually lead to the dividend being cut. A nice post to read for those who count on dividends in their investment strategy.

Resource Review: SSRN

I found this nice website the other day. It is the Social Science Research Network
SSRN. Basically it contains many papers written by academics and market participants on a wide variety of subjects. You can search it by title, author, or subject.

As an example you can type in "David Dreman" and get a 1997 paper he co-authored. Or type in "value investing" and get more than a few papers that may provoke some thought. It is a nice resource that I enjoy browsing.

Things I Pay For

One of the things that I often wonder about the blogs I like to read is what things (research, newsletters, publications) the writers of those blogs pay for or would pay for if they already get comped on them. I wish more of them would talk about those paid subscriptions they take that actually add value.

Since I wonder that I figured I should do it myself. Most of what I subscribe to is for educational purposes. Some of the things I pay for have actual stock picks, but I read them more for their teaching value. So here goes:

Outstanding Investors Digest

I subscribe to this newsletter. At first the $300 price tag might put you off, but for me I like that it is by issue and not time. Meaning that you are going to get 10 32 page issues (or 5 64 double issues) whether they come in one year or more.

OID has been around for some 20 years, and some have argued that much of its usefulness is irrelevant base don the web. For instance it was one of the only publications that would attend annual meetings like Berkshire's and then report on what WEB and Munger had to say. Well now in the internet age you can get that online for free.

But for me I think there is still tremendous value in OID because it provides perspectives and interviews that are not found on the internet. Overall I really enjoy it and find it very instructive.

Gannon On Investing Newsletter

Geoff Gannon has a great blog where he really shows a new investor what goes into fundamental analysis and some of the key things to look for in evaluating a company. Geoff also publishes a quarterly newsletter which goes for $75 a pop or $275 for a full year prepaid.

I have bought the first two issues and they have been really excellent. While you may or may not agree on the companies he profiles as inclusion in your own portfolio, for a new investor, reading on how value can be evaluated is worth the price.

Bill Fleckenstein

Many of you may be familiar with Bill Fleckenstein from his weekly article on MSN Money here. I read several of his MSN articles, liked what I read and subscribed. It is $120 a year. His newsletter provides a daily summary of his take on the market as well as Fleckenstein's selection of several questions he received from readers along with his answers. If you are looking for a unique perspective and opinion than it is worth it. I have learned a lot and consider it one of my best decisions as his insight as led to a better decision making process.

Morningstar

I subscribe to the premium service of Morningstar which is about $15.00 per month with yearly and multi-year prepaid discounts available. The premium service gets you access to over 1,700 or so analyst reports, their opinion as to the fair value of a company, and the premium stock screener.

The best thing about Morningstar is the fair value estimates and the stock screener. The stock screener lets you set up screens using some nice metrics. The one I like to use is just screening for those stocks Morningstar has as undervalued to quickly see who is on it. I do wish the screener was a little more flexible and easier to use on looking at multiple-year metrics.

I have not read too much on the internet at other blogs to know whether Morningstar's fair value analysis is in the ballpark. I am too new to form an opinion yet. So that is something that I would like to see.

One last thing, as a side note Morningstar does not rate its own stock, which I think a bit funny. I mean I get the whole conflict thing about pumping its own stock. But would that not apply to its advertisers as well. I mean I see ads for St. Joe, MSFT, AMEX, Fidelity, etc. on the site. So is their not a conflict about writing about a company that is driving revenue to you? Do you not have a conflict where your negative report might affect your own bottom line? And if their analysts and the Morningstar process is sound enough that this is not a worry than should not the Morningstar process be objective enough to rate its own stock?


Jason Kelly

This is one of the more recent things I signed up for. It is a newsletter written by Jason Kelly who also wrote a series of books which can be found on his website. The newsletter itself is actually quite reasonable at about $5.50 a month which comes with weekly updates.

This newsletter and the books are really great for the new investor. First, the first month of the newsletter only costs a penny, so your downside is pretty limited if you do not like what you have to read. Second, the newsletter is written in a way that is very readable to a new investor but not so simple as to be something you are going to outgrow. So far I would have to say that this newsletter is actually something that gives more value than you are putting in. I have only been reading for about a month but have already expanded my knowledge far beyond what I paid for.


That’s all I have time for write know. Next time I will talk about some magazines/newspapers I like as well.

Resource Review: Wealth Track

There is a PBS show out there that I do not hear much about. It may not be the most hard hitting show but what I like about it is that it brings in various money managers and interviews them. While you may not like everyone who appears on the show they do get some very well know names such as David Dreman and James Grant.

The show is

Wealthtrack

Besides the interviews with people you may follow, there are actually two really great things about the show.

1) You can sign up to receive a weekly email. Every Friday the show emails you and tells you who is going to be on that weekend (the show airs on my PBS station on Sat or Sun). So you do not have to try and figure out if you want to try and catch it that weekend, you get a heads up which is nice.

2) If you miss the show or just do not have time to watch it, they post a transcript on the website the next week. So you can just go and read what you misssed.

About the only thing I would also want is a way to search the transcripts by guest name and not just by date.

Steven

Davis Dynasty - Book Review

The Davis Dynasty: 50 Years of Successful Investing on Wall Street





What Is It About?

This book is about Shelby Davis. Mr. Davis started with $50,000 in the late forties and by the mid 90's had increased that amount to several hundred million primarily investing in insurance stocks. It is biographical with some discussion of his investment process. The book also discuss the second and third generation of Davis' who have done well in money management; Chris Davis is the most well known of the current generation.


What Did I Learn As A New Investor?

The book is more biographical than investment process oriented. Besides getting an insight into the habits and methods of an obviously successful investor, the best thing about this book is the final chapter where the author reviews a 10 point check list that captures the Davis Dynasty thoughts on investing.


The Good News

Interesting story of a successful investor in the value-growth, buy and hold camp. If you ever wondered how/what Buffett would have done if he just managed his own money this gives you a good idea. The final chapter provides a overview of Davis’ investment process.


The Bad News

The book is not an engaging read. The best part is the last chapter. If you do not like biographies, then you should just skip to the last chapter, make a copy, and peruse it.


The Bottom Line

For those who like biographies, value may be found reading this book. For others, skip ahead to the last chapter. Either way I recommend you check this book out from the library.

Using the Magic Formula

A good blog I found the other day is "Where is The Yield?" The Blog focuses, as the name implies, on dividend paying stocks. There is a nice post today using the magic formula screen to identify dividend payers. Worth a look. Here is the link:

Where is the Yield?

I am back and a link to what I read

So it has been a while since I posted. Been reading a lot, thinking about investing. For those new to investing here is a link to what I read on a daily basis.

A new blog

Just came across a new blog. It is

http://elephantfund.blogspot.com/

Very detailed write ups on various companies. Takes the time to explain approach to security analysis. Goo read for a new investor.

More Thought On Moats: A Subjective or Objective process?

I would like to discuss the process I am going through as I try to think about how to evaluate companies moats (this is a shorthand way of describing if a company has a strong competitive advantage in its industry, Buffett says think a moat around a castle).

Essentially, I am grappling with the identification of a moat in a business. Is it a subjective or objective process, or is it both. And if it is both, which analysis comes first? To date the following is what I have considered.

I have read this



and thought it was a really great book because it provide the best explanation on how to understand what Buffett is talking about when he says stay within your circle of competence.

Buffett (or was sit Munger) has actually discussed reading a book on quotes form Einstein and I think this quote of Einstein's is what forms the basis of Buffett's circle of competence (I may be paraphrasing from my memory)

Einstein said that "everything that counts cannot be counted; everything that can be counted does not count."

Essentially to me the circle of competence is just that...there are a lot of companies that count but I simply will not have enough time to count them properly because of a lack of understanding; and there are a lot of companies that I can count but aren’t worth my time to count because while I understand the business they are not worth counting.

So I began to think how is it that will I be able to identify companies within my circle of competence that have moats, is it an objective or subjective process?

(a simple and quick way to think of the difference between objective and subjective is this: if 100 people break their leg exactly the same way we can use one objective test, x-ray, to confirm all 100 legs are broken; but if we were to ask each person to describe the pain related to the leg breaks that are the same we would get more than one single answer. That is because we can objectively identify what is causing the pain, but cannot measure how that pain is meaningful to each person)

So how does that relate to identifying whether a business has a moat of business?

Well there are objective tests to determine whether a company has a moat (some complex some simple, like using ROIC, ROE, ROA, etc, over a given period of time) but do the objective tests initially help me identify companies I should invest in. For me the answer is no.

Why?

Well I was reading some notes from one of Buffett’s annual meetings…where he questioned the idea that anyone could provide an intrinsic value analysis of each of the 1700 companies in the Value Line Survey.

Which is not to say that that it is not objectively impossible to perform an intrinsic value analysis of all 1700 companies…just that no one person can do it in a meaningful way within the circle of competence paradigm.

As Buffett has often said, he is reluctant to invest in technology stocks not because he disbelieves their value as companies; rather because he cannot form a subjective understanding of the business model in order to apply his objective testing, this even though someone could easily explain to him the business. But Buffett recognizes that Bill Gates can apply that objective testing to an area Gates understands from Gates own subjective point of view.

So this got me thinking about the whole circle of competence thing again…yes I can use objective measures to value companies and to determine moats…

But the subjective reality is that it is impossible for me to do so…if you agree that no one person has a circle of competence wide enough to encompass every company than it does not matter how accurate the objective tests is…because without first understanding from my internal subjective point of view the value of the company as a business…the objective identifiers provide no value to me.

Put a different way, as a man who has grown up in the United Sates I can easily tell you what a “yard” is (three feet) and what it measures (about the width of a standard doorway); but while I can tell you what a “meter” is a (length of measurement in the metric system) I have no idea what it measures. Therefore my knowledge of the objective “meter” has no value to me because I have no means of subjectively understanding it or measuring it (think Green Eggs and Ham, Sam I Am, Is it bigger than a house? or smaller than a mouse?).

Therefore, as a new investor I realize that objective measures can be a trap (“well this company has a low P/E, P/B, P/whatever ratio or high ROIC, ROE, so it must be a good deal”) without first understanding what it is I know, more importantly understanding what it is I do not know, finding companies that fit within my subjective knowledge base, rejecting those that do not, and only THEN applying the objective measurements to determine whether a particular company has a sustainable competitive advantage. To use the objective test without being able to articulate a subjective rationale provides a measurement to me without value. (Of course I am limiting my discussion of identifying companies which form the core of an investment portfolio; I do not mean to say that qualitative factors in and of themselves do not provide an easy way to identify stocks that will provide satisfactory return in the mid to short term).

That’s why to me identifying moats is a first and foremost a subjective identification process followed by an objective confirmation. To me, and maybe not to you, a company has a moat (or does not) because I personally do (or do not) understand the business, regardless of whether someone can try to explain the moat to me in simple terms.

Take care

Steven

Is your moat safe?

I just read an article

http://www.forbes.com/2006/05/23/eppy-awards-newspapers_cx_pm_0523notes.html?partner=yahootix

which got me thinking about moats. To me moats are not static things, they actually need care and feeding. Moats, like the tide can ebb and flow, and sometimes fail.

The article above talks about how newspapers in general were slow to respond to the internet. Instead of thinking of how to use the internet they ignored it...and now are trying to figure out how to stay as relevant in the future as they have in the past.

The best thing about the article is that it uses Target to make a point. Several decades ago when the parent company formed Target it was as a small part of a much larger company. But now the Target division IS the company.

What does this mean to a new investor like me. That in trying to figure out whether a company actually has a moat, it is also important to make sure that the castle itself is still relevant.

I mean think about the whole idea of a "moat" itself...

a moat protects a castle...but what happens if you got a 16 inch cannon which can fire a shell over and over into the castle and lay waste to it? I mean you still got a great moat..but no castle to protect.

Or think about all those forts that were placed at riverheads...they are all national monuments now because they are largely irrelvant...because they guard a passage that no longer controls the flow...everyone just went around them.

So thinking about a company that has had a moat that so far has protected it is pretty useless to me..it's helpful..but I want to think about what company (castle/fort) is going to or will in the future be able to take the necessary steps to protect the castle itself if needed.

Also it means that there are probably a lot of smaller companies which have a moat that has not been recognized. Target was there for everyone to see...most did not...I am sure some did. Figuring out the future moats (or figuring out which castles will stay relevant and/or can respond with newer moats) is the difference between Buffett, Munger, et. al. and everyone else.

Take Care

Steven

Book Review of Rule #1

Rule # 1





This is one of the most recent books on “value” investing. (As used here, my term value investing merely refers to the idea of buying a company or its stock for less than its value; as opposed to other reasons).

Remember I view everything I read through the prism of having only been a student of investing for 4 months now and therefore comment on its utility to me as a new investor. Such comments may have more or less value depending on your own experience. While I at times may offer criticism of the book it is not negative by any means; but rather constructive as the utility of the book from my point as a new investor.

With that said….

Overview
The Book
My Comments


I. Overview

Overall I think this is a very good book for a new investor. This book’s value is not found in the originality of the subject matter, the concept of paying less for what you buy has been covered by Ben Graham, Philip Fisher, and Warren Buffett for many years; but this book is original in that it provides a more accessible way for people to understand those concepts without having to read the original text.

But if for one reason or another they prove too daunting to you then “Rule #1” is a good primer substitute for the original work.

Essentially this book is very similar to Joel GreenBlatt’s Little Blue Book Book in that it provides a simple “formula” in which to find good companies and figure out if they are inexpensive.

The difference between the two is the Rule # 1 provides a more hands on way to apply the theory. Greenblatt’s book does include a theory and a system but the application of that system is dependant on the business which he provides; whereas the Rule #1 book provides a similar theory and system but allows and encourages the independent application of that system. I think both books do a good job in simplifying the theory; Rule #1 just allows a person to be less dependant on a particular information source than Joel Greenblatt’s book does* (which may or may not be a good thing for all people). Essentially Mr. Greenblatt tells you how to find good companies selling at a discount, the only problem is order to do this you have to go through his website, which may not be a negative but it fosters a dependence on him].

Therefore, I think Rule #1 should be read by ever new investor who desires a basic understanding of how to identify good companies and determine if they are selling for a “sale” price.

The Book

The Book can be divided into three separate parts. Essentially the book shows you:

How to evaluate a company as to whether it has a distinct advantage over other companies to determine if it is a “great” company that we should want to own

How to determine what a fair price for the company is on a per share basis and to figure out whether the current price allows for a margin of safety just in case we were over optimistic in our evaluation of just how good this company is

How to apply certain technical indicators to buy and sell stocks.


To identify good companies the author takes you through a multi-step system. The best way to understand it would be to use the link I have on the right to the Phil Town blog and read the last year or so of blogs which uses examples and case studies to show how the concepts are applied. Essentially, you must understand the business and it must be reasonably stable and growing.

I think the book simplifies the process of identifying a great business a bit too much in that of the three steps this one is the hardest to do in my opinion. My opinion is based on the fact that the ability to forecast how the economy may or may not change and that effect on a particular business is the ultimate question. Using the past to demonstrate the soundness of a company today may demonstrate that it is great today and yesterday; but the application of the past to the future is a process that requires caution and more than a bit of humility to understand the limitations of one’s own ability to predict the future.

But as far as explaining the concept Mr. Town does a good job of communicating it to someone with no prior exposure.

To determine a fair price for a company Mr. Town also provides a simple way to perform a discounted cash flow analysis (which is a way to determine the future value of a business today looking into the future). Mr. Town does a good job of is trying to show the new investor that you do not need an advanced understand of math to figure out the present value for a company. The book also does a good job explaining the concept of margin of safety.

The final part of the book is perhaps the most original for a new investor. Mr. Town articulates the idea that several decades past Mr. Market was the collective conscious of millions of investors acting at once. In the last two decades Mr. Town points out that the actions of individual investors has been replaced by mutual funds.

In essence the book argues that mutual funds/institutional investors ARE the market (Mr. Town calls them the Big Boys) now because in many issues they collectively own 30-70% of a companies common stock. Mr. Town believes that the advantage little investors have over the big boys is that we can enter or exit a position much more easily then they can.

In essence in order to maintain an orderly market a mutual fund will have to take 3 weeks or so to accomplish its move. Therefore, when a Big Boy decides to act us little people need to get out of the way in Mr. Town’s opinion.

How do we do that? Well Mr. Town uses three technical indicators which he believes can signal when a stock is going to move up or down.

Prior to the book being published I posted on Mr. Town’s blog on how and why the indicators might work. This is not to say that they do work, just to show that they might be worthy of further study.

You can read it at

http://philtown.typepad.com/phil_towns_blog/2006/02/
getting_out_of_.html


Essentially the indicators are used to avoid losses and to book profits.


My Thoughts

As stated I thing that the book does a real good job of simplifying the Graham/Buffett style of value investing in identifying good or better companies that are selling at a discount. I also think Mr. Town does a good job of not boxing the new investor into having to use one data source or subscribe to one service. Mr. Town does a great job of explaining what he recommends but shows how to get the necessary information for free.

On the other hand I think that new investors should be very cautious when projecting what will be a good business in 10 years. This is the most tricky part to me and one that requires a lot of thought.

Also the use of the technical indicators is bound to be a controversial topic among value investors. In a bull stock it may be a great way to book profits on the highs and reenter on the dips, but in a bear market for that particular stock getting in and out may be tricky for the average person. It also goes against much of what Buffett has said, not that his is the final opinion, but it should not be ignored.

Also trading increases the friction costs of broker fees and if applicable taxes.

The use of indicators though is somewhat interesting because he is not advocating using the indicators as a means to determine whether you should buy a stock; but as a means to determine when the “insiders” are making a move up or down and to get in or out before they finish the move.

I see a lot of talk and posting about what Buffett or Fund Manager X is buying…(see gurufocus.com as an example)…essentially people want to know what the successful investors are doing or thinking… there is really nothing wrong with that because it is simply studying success. So when ever Buffett, et. al. discloses a new or exited position (usually in a quarterly report) everyone looks at it to see what’s going on…

And a lot of times they all follow each other because they don’t want to get left out in the cold (the I am safe in a crowd thought process, as long as I do as good as the other guy I am okay) or the company ios one that has been on value investors rader for a while (Dell Tyco for recent example)

What Mr. Town has done is offer a theory on how to anticipate what the money mangers are going to do in real time based on their limitations on size….

For instance lets you have determined that company X is a good company that you understand and feel can predict what its current value is with a margin of safety. Assuming that it is selling with a suitable MOS (fair price is 50 selling for 25) should you buy it now?

Well if the big boys come to the same conclusion and want to buy a million shares they will take 3 weeks to do it…and other big boys will see the move and do it to…and what MR. Town believes is that when this happens we can see it using certain technical indicators and get in front of it…

The same thing goes for negative movements …Company X might be announcing earnings in a month…we can read about the estimates. but that’s it…

Well the big boys eat, drink, and party (so to speak) with the people who do know (CEO, CFO, COO, etc) and they will get a “whisper” at the club or the golf course…and if a big boy is bailing on a stock (or buying) pre announcement we may see it, using Mr. Town’s selected indicators, because the big boy will have to start the move a few weeks out…

So the little guy like me might not get the whisper directly but if I pay attention I might see it anyway…

If you go back to my post on Mr. Town’s blog you will see what I mean

As you can read from Mr. Town’s blog doing this sounds simple but takes a lot of practice. So as a new investor the idea intrigues me but no system is perfect and I do not have the resource or skill to determine or backrest Mr. Town’s use of the indicators over a wide number of stocks. I would say to anybody to tread very lightly in the use of technical indicators.

So as a new investor I would recommend this book for the following reasons:

If you are not sure how to figure out what is a great business then this book provides a good simple way to think about it

If you are not sure of how to do a discounted cash flow analysis then this book provides a good introduction

And if you have ever wondered if you could use technical indicators to make money than this book talks about that and gives you some ideas

but this book like all books is a starting point for further research.

If you are having a hard time reading Benjamin Graham’s work or understanding what Buffett means than this book could serve to help you get into other works. But this book should not be the last book you read on investing (if there ever is such a book). And you should also read a lot of material form Graham and Buffett as well as others regarding the merits of technical trading even if it has a value basis.

Also just reading Mr. Town’s blog will be great as well or will serve to fill in some gaps he could not address in the book.

Overall this is a good book to get if you are just starting out or find Graham et. al. a little to in-depth at this point.



Take Care

Steven

Another Good Blog

There is a blog that I have mentioned before as a good blog

http://gannononinvesting.com/

(I call it GOI for short) but I have not really talked about why. Now I will.

Geoff Gannon is the publisher of the above blog as well as the producer of podcasts, and the writer of a quarterly newsletter. The blog and the podcasts are free; the newsletter is a paid subscription. I have been reading his blog since I just about started investing...I think I found it sometime in January from Shai's blog (link on the right) regarding a discussion of whether value investing and technical analysis can coexist.

Anyway the blog is a straight blog on value investing, which is not to say there is not a discussion of growth, but that it is a blog on fundamental/quantitative analysis of companies.

GOI does not try to mix any sort of TA or momentum into the value investing paradigm. GOI is all about helping me learn how to find companies with reasonable growth prospects selling at a discount to their intrinsic value using several metrics.

The beauty of GOI is it discusses the complex in a way that is simple to understand. That is not to say that GOI is a simple blog...in fact the points made are often so subtle that one must re-read a blog in order to clearly grasp what has been said. It is just very well written in language even someone like me (only investing since 12/05) can understand. GOI just does a real good job of explaining complex topics in a way which new investors like I can follow along.

The blog does many things well...it does posts on current news...reviews other blogs...provides links to relevant websites...and does in-depth value analysis.

The in-depth analysis is the best part. If you are new like me and struggling to understand how to evaluate a company, what an evaluation looks like, and the things that go into it, GOI sets it all out for you…(GOI has done analysis of LXK, JRN, OSTK, and a few others since the blog started in 12/05).

If that was not enough, GOI also gas a glossary/encyclopedia of investing terms. So when you are reading one of GOI’s posts, if he uses a specific term or investment metric that you are not to sure of, GOI provides a hyperlink to the glossary so that you can understand what he is writing about (for instance the definition of free cash flow). This is very helpful to a new investor.

I have waited this long to write about GOI because I wanted to see what the Gannon Quarterly Newsletter (GQN for short) was all about. The GQN is the subscription newsletter I mentioned at the beginning of the post. After reading GOI for a couple of months, I decided to take a chance and buy the GQN for 1Q 06 (as the name of the publication is the gQn, it is published at the end of each Q with more in-depth discussion of specific companies added or subtracted from the GOI portfolio).

Well I actually took no chance because the GQN met or exceeded my expectations. As it is copyrighted material I really can not go into specific details or quote passages to you (I do this not as a way of teasing you at all, it is just that I respect the author’s desires) but the newsletter is professionally printed, well organized, with graphs and charts as well as meaningful statistics and analysis (essentially each company reviewed is given a one page stat sheet similar to what you might see at Value Line with an accompanying in-depth 8-12 page analysis). GOI also offers a general market commentary as well.

While the company analysis would be well worth the price paid, the true value to me so far is that in reading the general commentary GOI has provided to me a way to think about investments I had not previously thought. Essentially he has helped me understand better what is value investing and what is not (it may sound simple to say but being able to repeat something is not the same as identifying it, e.g., taking medication is easy; knowing what medical problem exits is the hard part). For that alone I feel I got my money’s worth.

Now I must state that over the last few months I have emailed GOI with specific questions which he has always had time to respond to. So I have had “personal” contact (I say that within the confines of the internet, i.e., exchanging emails, as opposed to the non-internet world contact of sharing a cup of coffee for example) with GOI and have not been a passive reader. But I have not ever received anything of value from GOI other than that which everyone else has received, which is his writing on investing at GOI.

Anyway GOI is on my short list of blog’s that I must read. A new investor can do very well just starting at the beginning of his blog posts in December 05 and reading straight through to get a good handle on value investing. Of course reading offline books will always be helpful, but GOI provides a good resource to read, learn, and ask questions. As far as the GQN goes, I think it provides very good value for the money I spent and can recommend it, but a new investor can also do just fine reading GOI. I recommend you check it out.

Take care

Steven

The Best Investment...

The best investment...is you. Or so says Warren Buffett at the last annual meeting accorfding to OID's most recent edition.

What he is talking about...well Buffett says he meets a lot of young adults (probably all those college students from undergrad Business and MBA programs) and many of them he is willing to give $100,000 for 10% of their future earnings..thereby valuing them as a "business" investment that will produce a milion bucks (and probably more) over their life times.

Why does he do this....because at the heart of it..all investment is about investing in people. So Buffett beleives that the best thing you can do with your money is invest in yourself.

What does that have to do with your own persoal investments...for me plenty.

It is the old saying of give a man a fish..or teach him to fish...

Before you figure out what comapny and its people to invest in...take some time and invest in yourself. Read some books on investing, learn how to read financial statements, do a discounted cash flow analysis, etc. Believe me..if your just starting out it will pay off.

We are all CEO's of companies called our families....most of us get a paycheck (revenue or sales of our time) spend money on gas, clothes and food to get that paycheck (cost of goods "our time" sold) spend money to aquire things that will help us keep on making that paycheck like a house, car (capital expenditures) ...i could go on but I think I made my point.

After we pay all the bills we got some money left over..thats the eps ...the decison then is where to distribute it...do we reinvest it into ourselves...and grow our business...or distribute it as a dividend to spend or save?

well for me...Before you figure out what company and its people to invest in...take some time and invest in yourself. Read some books on investing, learn how to read financial statements, do a discounted cash flow analysis, etc. Believe me..if your just starting out you are probably going to get a better return on your money by investing in yourself and growing your knowledge base than you will rushing into investing....or askign someone else to make the decisons for you.

Once you have spent enough time to learn about investing you will get to the point where you will find that you will not be able to acheive any more growth in your knowledge base at a high rate of return (the law of diminshing returns apply here as well...the more you learn the less there is to learn easily...) you will find than that you will have a better use of your money by investing in other people and the companies they run...

I am not saying that you should ever stop growing your knowledge...my point is that when you are starting out like I am it is pretty easy to learn something because you can pick up just about any book on investing and learn something pretty quick...so you might be better off buying a $20 book than a $20 stock...your ROI maybe higher...

once it is not so easy to learn something... your knowledge is no longer a growth stock but a divdend paying stock... than focus on investing those divdends in the stock market...and keep on learning to enhance those invested dividends...

Once you start thinking about yourself as a CEO of a company it gets alot easier to understand what Graham said (and Buffett takes to heart) when he talked about sound investing is most sound when it is business like.

Hope this all helps. Take Care.

Steven