Cash flow generation, debt-free balance sheets and a significant and sustainable competitive advantage in the marketplace are some of the reasons great companies stand out from the pack.
What is it that separates companies that thrive for decades from the ones that flounder for years?
The answer may lie in what is referred to as a company's economic moat, a phrase popularized by investing legend Warren Buffett. In this article, we'll introduce you to the concept and explain why it is so important to consider as a long-term investor.
What is an Economic Moat?
Economic moat refers to the character and longevity of a corporation's competitive advantage over similar companies competing in the same industry. If Company A is producing excess profits, competitors B, C and D will soon take note and attempt to enter the industry and do the same. As capital flows into the industry, the new competition will erode their profits, unless Company A has an advantage over its competitors.
An economic moat is a barrier that protects a firm and its profits from competing firms. Just like a medieval castle, the moat serves to protect those inside the fortress and their riches from outsiders. Without a wide economic moat, there is little to prevent competitors from stealing market share and thus profits.
Not All Moats are Created Equally
However, not all competitive advantages are created equal. Some companies' economic moats are sustained for decades while others disappear quickly. The trick is determining the difference. In addition, it is important to know when a company actually has an economic moat and when it does not. For example, some investors mistake a technological advancement with an economic moat.
Take, for example, Palm Inc.'s (Nasdaq:PALM) Palm Pilot product line. For a while, PALM enjoyed a considerable advantage, until competitors realized how lucrative this type of product was and entered with a vengeance. Once names like Sony (NYSE:SNE), Hewlett Packard (NYSE:HPQ), Research in Motion (Nasdaq:RIMM), Nokia (NYSE:NOK), and even Microsoft (Nasdaq:MSFT) stepped in, PALM's success was all but over and its share price dropped sharply.
This is an example of a company without an economic moat. If competitors are easily able to compete with little or no barriers to entry, a moat does not exist.
In contrast, other companies enjoy wide economic moats for long periods of time, reaping huge profits for many years. An example of a sustainable competitive advantage is Wal-Mart (NYSE:WMT). Wal-Mart's rise to massive market capitalization from its modest beginnings was largely a result of its aggressive cost controls and subsequent low price advantage over competing retail outlets.
Once Wal-Mart grew to a mega cap company, it enjoyed further cost advantages afforded by its size, buying power and enviable distribution network. Retailers that have attempted to go head to head with Wal-Mart on a price basis have not fared well. Wal-Mart's buying power and infrastructure have created a wide and sustainable economic moat. Competition cannot easily recreate the brand recognition, economies of scale and technical marvel that is Wal-Mart's distribution network.
A company's economic moat represents a qualitative measurement of its ability to keep competitors at bay for an extended period of time. This translates into prolonged profits in the future. Economic moats are difficult to express quantitatively because they have no obvious dollar value, but are a vital qualitative factor in a company's long-term success or failure and a vital factor in the selection of stocks.
How Moats Are Created
There are several ways in which a company creates an economic moat that allows it to have a significant advantage over its competitors. Below we will explore some different ways in which moats are created.
Cost Advantage
As exemplified by Wal-Mart's prolonged success, a cost advantage, which competitors cannot replicate, can be a very effective economic moat. Companies with significant cost advantages can undercut the prices of any competitors that attempts to move into their industry, either forcing the competitor to leave the industry or at least slowing or stopping its growth. Companies with sustainable cost advantages can maintain a very large market share of their industry by squeezing out any new competitors who try to move in.
Size Advantage
Being big can sometimes, in itself, create an economic moat for a company. At a certain size, a firm achieves economies of scale. This is when more units of a good or service can be produced on a larger scale with lower input costs. This reduces overhead costs in areas such as financing, advertising, production, etc. (To learn more, read What Are Economies Of Scale?)
Large companies that compete in a given industry tend to dominate the core market share of that industry, while smaller players are forced to either leave the industry or occupy smaller "niche" roles. Two examples of industry giants are Microsoftand Wal-Mart.
High Switching Costs
Being the big fish in the pond has its advantages. When a company is able to establish itself in an industry, suppliers and customers can be subject to high switching costs should they choose to do business with a new competitor. Competitors have a very difficult time taking market share away from the industry leader because of these cumbersome switching costs.
An example of a switching cost would be changing your cable or satellite provider. Whether its Comcast (Nasdaq:CMSCA), DirecTV (Nasdaq:DTV) or EchoStar Communications (Nasdaq:DISH) providing your service, once you have that company's system in place, the switching costs can be a big deterrent to changing providers.
Intangibles
Another type of economic moat can be created through a firm's intangible assets, which includes items such as patents, brand recognition, government licenses and others. Strong brand name recognition, enjoyed by companies like Coca-Cola (NYSE:KO), McDonald's(NYSE:MCD) and Nike (NYSE:NKE), allows these types of companies to charge a premium for their products over other competitor's goods, which boosts their profits. (For more on this, see Advertising, Crocodiles And Moats and The Hidden Value Of Intangibles.)
For another example, consider drug companies like Pfizer (NYSE:PFE), Merck (NYSE:MRK), GlaxoSmithKline(NYSE:GSK) or Novartis (NYSE:NVS) and the intellectual patents on specific drugs they hold. Their rights to specific pharmaceutical products can effectively bar all competition from successful drugs for the duration of the patent, giving the company guaranteed long-term profits and market share. Once the patents run out, they are susceptible to competition from generic drug manufacturers.
Soft Moats
Some of the reasons a company might have an economic moat are more difficult to identify. For example, soft moats may be created by exceptional management or a unique corporate culture. In contrast to a wide moat, the strength and impact of the competitive advantage aren't as considerable and are more susceptible to competitive pressures.
While difficult to describe, a unique leadership and corporate environment may partially contribute to a corporation's prolonged economic success, even while operating in a less than robust industry. (For more insight, read Governance Pays.)
An example of unique corporate culture transferring to the bottom line might be the story of Google (Nasdaq:GOOG); many people attribute the company's unconventionally open and innovative corporate culture as a contributor to its success.
Difficult to Define But Vital
Economic moats are generally difficult to pinpoint at the time they are being created. Their effects are much more easily observed in hindsight, once a company has risen to great heights. Indeed, many of the retail outlets that were decimated by Wal-Mart's historic growth in size did not see the threat coming until it was much too late.
From an investor's view, it is ideal to invest in growing companies just as they begin to reap the benefits of a wide and sustainable economic moat. In this case, the most important factor is the longevity of the moat. The longer a company can harvest profits, the greater the benefits for itself and its shareholders!
By Chris Gallant on October 04, 2009
http://www.investopedia.com/articles/fundamental-analysis/08/moats.asp
Thursday 6 March 2014
What is the difference between investing and trading?
Investing and trading are two very different methods of attempting to profit in the financial markets. The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, baskets of stocks, mutual funds, bonds and other investment instruments. Investors often enhance their profits through compounding, or reinvesting any profits and dividends into additional shares of stock. Investments are often held for a period of years, or even decades, taking advantage of perks like interest, dividends and stock splits along the way. While markets inevitably fluctuate, investors will "ride out" the downtrends with the expectation that prices will rebound and any losses will eventually be recovered. Investors are typically more concerned with market fundamentals, such as price/earnings ratios and management forecasts.
Trading, on the other hand, involves the more frequent buying and selling of stock, commodities, currency pairs or other instruments, with the goal of generating returns that outperform buy-and-hold investing. While investors may be content with a 10 to 15% annual return, traders might seek a 10% return each month. Trading profits are generated through buying at a lower price and selling at a higher price within a relatively short period of time. The reverse is also true: trading profits are made by selling at a higher price and buying to cover at a lower price (known as "selling short") to profit in falling markets. Where buy-and-hold investors wait out less profitable positions, traders must make profits (or take losses) within a specified period of time, and often use a protective stop loss order to automatically close out losing positions at a predetermined price level. Traders often employ technical analysis tools, such as moving averages and stochastic oscillators, to find high-probability trading setups.
A trader's "style" refers to the timeframe or holding period in which stocks, commodities or other trading instruments are bought and sold. Traders generally fall into one of four categories:
Position Trader – positions are held from months to years
Swing Trader – positions are held from days to weeks
Day Trader – positions are held throughout the day only with no overnight positions
Scalp Trader – positions are held for seconds to minutes with no overnight positions
Traders often choose their trading style based on factors including: account size, amount of time that can be dedicated to trading, level of trading experience, personality and risk tolerance. Both investors and traders seek profits through market participation. In general, investors seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter timeframe, taking smaller, more frequent profits.
http://www.investopedia.com/ask/answers/12/difference-investing-trading.asp
Trading, on the other hand, involves the more frequent buying and selling of stock, commodities, currency pairs or other instruments, with the goal of generating returns that outperform buy-and-hold investing. While investors may be content with a 10 to 15% annual return, traders might seek a 10% return each month. Trading profits are generated through buying at a lower price and selling at a higher price within a relatively short period of time. The reverse is also true: trading profits are made by selling at a higher price and buying to cover at a lower price (known as "selling short") to profit in falling markets. Where buy-and-hold investors wait out less profitable positions, traders must make profits (or take losses) within a specified period of time, and often use a protective stop loss order to automatically close out losing positions at a predetermined price level. Traders often employ technical analysis tools, such as moving averages and stochastic oscillators, to find high-probability trading setups.
A trader's "style" refers to the timeframe or holding period in which stocks, commodities or other trading instruments are bought and sold. Traders generally fall into one of four categories:
Position Trader – positions are held from months to years
Swing Trader – positions are held from days to weeks
Day Trader – positions are held throughout the day only with no overnight positions
Scalp Trader – positions are held for seconds to minutes with no overnight positions
Traders often choose their trading style based on factors including: account size, amount of time that can be dedicated to trading, level of trading experience, personality and risk tolerance. Both investors and traders seek profits through market participation. In general, investors seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter timeframe, taking smaller, more frequent profits.
http://www.investopedia.com/ask/answers/12/difference-investing-trading.asp
Wednesday 5 March 2014
Warren Buffett Intrinsic Value Calculation - A stock must be undervalued
"Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life." - Warren Buffett
"As our definition suggests, intrinsic value is an estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates mover or forecasts of future cash flows are revised. Two people looking at the same set of facts, will almost inevitably come up with at least slightly different intrinsic value figures." - Warren Buffett
"The cash that can be taken out of a business during its remaining life." - Warren Buffett
"In other words, the percentage change in book value in any given year is likely to be reasonably close to that year's change in intrinsic value." - Warren Buffett
@ 20.15 Finding intrinsic value of Disney (using MSN Money)
BuffettsBooks.com. calculator
http://www.buffettsbooks.com/intelligent-investor/stocks/intrinsic-value-calculator.html
Warren Buffett Stock Basics
Warren Buffett Stock Basics
Warren Buffett only has 4 rules
1. A stock must be stable and understandable
2. A stock must have long term prospects
3. A stock must be managed by vigilant leaders.
4. A stock must be undervalued.
ALL 4 rules must be met before buying the company.
A quick valuation tool by Graham.
@ 13.00
Look for
P/E < 15 and P/BV < 1.5
or
P/E * P/BV < 22.5
Then this is a company you need to look at.
https://www.youtube.com/watch?v=_uQjGz6jp2E&list=PL8u0bnZsL5kmAFryBYc9YzLNIENnvLAJF
Use the News - Maria Bartiromo
Use the News
Maria Bartiromo - The first person to report live from the NYSE.
@ 52.40 Jim Cramer
@ 53.40 Day Trading, its not investing.
@ 1.13.00 Sources of business news.
How to make money from the stock market: Wall Street Insiders' Investment Secrets (2001)
Tuesday 4 March 2014
Kenanga: PPB to gain from Wilmar’s earnings recovery
Kenanga: PPB to gain from Wilmar’s earnings recovery
KUALA LUMPUR (Mar 3): PPB Group Bhd is expected to benefit its 18.3%-owned Singapore-listed Wilmar International Ltd's earnings recovery as crude palm oil (CPO)prices rise, according to Kenanga Investment Bank Bhd.
In a note today, Kenanga analyst Alan Lim Seong Chun said PPB was also expected to gain from Indonesia's biofuel policy. This is because Wilmar is the largest biodiesel producer in Indonesia.
"(PPB's) FY14 earnings outlook is bright as Wilmar should benefit from higher CPO prices and the rapid implementation of biodiesel policy in Indonesia.
"PPB’s own operations are also expected to do well in line with better GDP growth in Malaysia," Lim said.
Lim Seong Chun said Kenanga had maintained its core net profit forecast for PPB. Kenanga had also retained its "outperform" call for PPB shares with an unchanged target price of RM17.
At 10.10am, PPB shares fell 12 sen or 0.8% to RM15.80.
Kenanga's note followed PPB's announcement of its FY13 fourth-quarter and full-year financials.
PPB reported last Friday net profit fell 8% to RM280.7 million in the fourth quarter ended December 31, 2013 from RM306 million a year earlier. Revenue however rose to RM900.2 million from RM782.6 million.
Full-year net profit climbed to RM994.2 million from RM842.2 million a year earlier while revenue was higher at RM3.31 billion versus RM3.02 billion.
PPB plans to pay a dividend of 17 sen a share for the quarter in review. This brings full-year dividends to 25 sen a share.
Today, Lim said PPB's FY13 core net profit of RM962 million was "broadly within expectations". He said PPB's core figures accounted for 101% and 108% of consensus and Kenanga's forecast respectively.
"(PPB's core net profit) Excluded one-off gain of RM17m resulting from sale of an investment property, and RM16m from the sale of Tradewinds shares," Lim said.
The Edge Malaysia
By Chong Jin Hun of theedgemalaysia.com
KUALA LUMPUR (Mar 3): PPB Group Bhd is expected to benefit its 18.3%-owned Singapore-listed Wilmar International Ltd's earnings recovery as crude palm oil (CPO)prices rise, according to Kenanga Investment Bank Bhd.
In a note today, Kenanga analyst Alan Lim Seong Chun said PPB was also expected to gain from Indonesia's biofuel policy. This is because Wilmar is the largest biodiesel producer in Indonesia.
"(PPB's) FY14 earnings outlook is bright as Wilmar should benefit from higher CPO prices and the rapid implementation of biodiesel policy in Indonesia.
"PPB’s own operations are also expected to do well in line with better GDP growth in Malaysia," Lim said.
Lim Seong Chun said Kenanga had maintained its core net profit forecast for PPB. Kenanga had also retained its "outperform" call for PPB shares with an unchanged target price of RM17.
At 10.10am, PPB shares fell 12 sen or 0.8% to RM15.80.
Kenanga's note followed PPB's announcement of its FY13 fourth-quarter and full-year financials.
PPB reported last Friday net profit fell 8% to RM280.7 million in the fourth quarter ended December 31, 2013 from RM306 million a year earlier. Revenue however rose to RM900.2 million from RM782.6 million.
Full-year net profit climbed to RM994.2 million from RM842.2 million a year earlier while revenue was higher at RM3.31 billion versus RM3.02 billion.
PPB plans to pay a dividend of 17 sen a share for the quarter in review. This brings full-year dividends to 25 sen a share.
Today, Lim said PPB's FY13 core net profit of RM962 million was "broadly within expectations". He said PPB's core figures accounted for 101% and 108% of consensus and Kenanga's forecast respectively.
"(PPB's core net profit) Excluded one-off gain of RM17m resulting from sale of an investment property, and RM16m from the sale of Tradewinds shares," Lim said.
The Edge Malaysia
By Chong Jin Hun of theedgemalaysia.com
Bond Valuation in 2 Easy Steps
Bond Valuation in 2 Easy Steps: How to Value a Bond Valuation Lecture and Calculate Bond Value
Part 2 of 2 Bond Valuation - How to Calculate Bond Value or Valuing Bonds
Part 2 of 2 Bond Valuation - How to Calculate Bond Value or Valuing Bonds
How to Value a Company in 3 Easy Steps
How to Value a Company in 3 Easy Steps - Valuing a Business Valuation Methods Capital Budgeting
Valuing a Business
How much is a business worth?
Don't care about the 'asset value' or 'owner equity' of the business.
We look at the present value of its net free cash flows (FCF) plus present value of its horizon value".
Step2 - How to Value a Company for Valuing a Business Valuation Methods Capital Budgeting
Step3 How to Value a Compay for Valuing a Business Valuation Methods Capital Budgeting
Valuing a Business
How much is a business worth?
Don't care about the 'asset value' or 'owner equity' of the business.
We look at the present value of its net free cash flows (FCF) plus present value of its horizon value".
Step2 - How to Value a Company for Valuing a Business Valuation Methods Capital Budgeting
Step3 How to Value a Compay for Valuing a Business Valuation Methods Capital Budgeting
Uploaded on 15 Mar 2010
Clicked here http://www.MBAbullshit.com/ and OMG wow! I'm SHOCKED how easy..
Just for instance I possessed a company comprising of a neighborhood store. To put together that center, I invested $1,000 one year ago on apparatus along with other assets. The equipment in addition to other assets have depreciated by 10% in a single year, so now they're valued at only $900 inside the accounting books. In case I was going to make an effort to offer you this company, what amount would an accountant value it? Relatively easy! $900. The cost of the whole set of assets (less liabilities, if any) can give accountants the "book value" of a typical organization, and such is systematically how accountants observe the worth of an enterprise or company. (We employ the use of the word "book" because the worth of the assets are penned within the company's accounting "books.")
http://www.youtube.com/watch?v=6pCXd4...
However, imagine this unique company is earning a juicy cash income of $2,000 annually. You would be landing a mighty incredible deal in the event I sold it to you for just $900, right? I, on the flip side, might be taking out a pretty sour pact in the event I offered it to you for just $900, on the grounds that as a result I will take $900 but I will shed $2,000 per annum! Due to this, business directors (dissimilar to accountants), don't make use of merely a company's book value when assessing the value of an organization.So how do they see how much it really is worth? To replace utilizing a business' books or even net worth (the market price of the firm's assets minus the business enterprise's liabilities), financial managers opt to source enterprise worth on how much money it gets in relation to cash flow (real cash acquired... contrary to only "net income" that may not generally be in the format of cash). Basically, a company making $1,000 "free cash flow" monthly having assets worth a very small $1 would remain to be worth a great deal more versus a larger company with substantial assets of $500 in the event the humongous company is attaining only $1 yearly.So far, how do we achieve the exact value of your business? The simplest way would be to mainly look for the net present value of the total amount of long run "free cash flows" (cash inflow less cash outflow).Needless to say, you will come across much more sophisticated formulas to find the value of a company (which you wouldn't genuinely need to learn in detail, since there are numerous gratis calculators on the web), but practically all of such formulas are in a way driven by net present value of cash flows, plus they are likely to take into consideration a few factors for example growth level, intrinsic risk of the company, plus others.
http://www.youtube.com/watch?v=6pCXd4...
However, imagine this unique company is earning a juicy cash income of $2,000 annually. You would be landing a mighty incredible deal in the event I sold it to you for just $900, right? I, on the flip side, might be taking out a pretty sour pact in the event I offered it to you for just $900, on the grounds that as a result I will take $900 but I will shed $2,000 per annum! Due to this, business directors (dissimilar to accountants), don't make use of merely a company's book value when assessing the value of an organization.So how do they see how much it really is worth? To replace utilizing a business' books or even net worth (the market price of the firm's assets minus the business enterprise's liabilities), financial managers opt to source enterprise worth on how much money it gets in relation to cash flow (real cash acquired... contrary to only "net income" that may not generally be in the format of cash). Basically, a company making $1,000 "free cash flow" monthly having assets worth a very small $1 would remain to be worth a great deal more versus a larger company with substantial assets of $500 in the event the humongous company is attaining only $1 yearly.So far, how do we achieve the exact value of your business? The simplest way would be to mainly look for the net present value of the total amount of long run "free cash flows" (cash inflow less cash outflow).Needless to say, you will come across much more sophisticated formulas to find the value of a company (which you wouldn't genuinely need to learn in detail, since there are numerous gratis calculators on the web), but practically all of such formulas are in a way driven by net present value of cash flows, plus they are likely to take into consideration a few factors for example growth level, intrinsic risk of the company, plus others.
Monday 3 March 2014
Benjamin Graham's advice to guide investors in a falling market
If You Think Worst Is Over, Take Benjamin Graham's Advice
By JASON ZWEIG
May 26, 2009
It is sometimes said that to be an intelligent investor, you must be unemotional. That isn't true; instead, you should be inversely emotional.
Even after recent turbulence, the Dow Jones Industrial Average is up roughly 30% since its low in March. It is natural for you to feel happy or relieved about that. But Benjamin Graham believed, instead, that you should train yourself to feel worried about such events.
At this moment, consulting Mr. Graham's wisdom is especially fitting. Sixty years ago, on May 25, 1949, the founder of financial analysis published his book, "The Intelligent Investor," in whose honor this column is named. And today the market seems to be in just the kind of mood that would have worried Mr. Graham: a jittery optimism, an insecure and almost desperate need to believe that the worst is over.
You can't turn off your feelings, of course. But you can, and should, turn them inside out.
Stocks have suddenly become more expensive to accumulate. Since March, according to data from Robert Shiller of Yale, the price/earnings ratio of the S&P 500 index has jumped from 13.1 to 15.5. That's the sharpest, fastest rise in almost a quarter-century. (As Graham suggested, Prof. Shiller uses a 10-year average P/E ratio, adjusted for inflation.)
Over the course of 10 weeks, stocks have moved from the edge of the bargain bin to the full-price rack. So, unless you are retired and living off your investments, you shouldn't be celebrating, you should be worrying.
Mr. Graham worked diligently to resist being swept up in the mood swings of "Mr. Market" -- his metaphor for the collective mind of investors, euphoric when stocks go up and miserable when they go down.
In an autobiographical sketch, Mr. Graham wrote that he "embraced stoicism as a gospel sent to him from heaven." Among the main components of his "internal equipment," he also said, were a "certain aloofness" and "unruffled serenity."
Mr. Graham's last wife described him as "humane, but not human." I asked his son, Benjamin Graham Jr., what that meant. "His mind was elsewhere, and he did have a little difficulty in relating to others," "Buz" Graham said of his father. "He was always internally multitasking. Maybe people who go into investing are especially well-suited for it if they have that distance or detachment."
Mr. Graham's immersion in literature, mathematics and philosophy, he once remarked, helped him view the markets "from the standpoint of eternity, rather than day-to-day."
Perhaps as a result, he almost invariably read the enthusiasm of others as a yellow caution light, and he took their misery as a sign of hope.
His knack for inverting emotions helped him see when markets had run to extremes. In late 1945, as the market was rising 36%, he warned investors to cut back on stocks; the next year, the market fell 8%. As stocks took off in 1958-59, Mr. Graham was again pessimistic; years of jagged returns followed. In late 1971, he counseled caution, just before the worst bear market in decades hit.
In the depths of that crash, near the end of 1974, Mr. Graham gave a speech in which he correctly forecast a period of "many years" in which "stock prices may languish."
Then he startled his listeners by pointing out this was good news, not bad: "The true investor would be pleased, rather than discouraged, at the prospect of investing his new savings on very satisfactory terms." Mr. Graham added a more startling note: Investors would be "enviably fortunate" to benefit from the "advantages" of a long bear market.
Today, it has become trendy to declare that "buy and hold is dead." Some critics regard dollar-cost averaging, or automatically investing a fixed amount every month, as foolish.
Asked if dollar-cost averaging could ensure long-term success, Mr. Graham wrote in 1962: "Such a policy will pay off ultimately, regardless of when it is begun, provided that it is adhered to conscientiously and courageously under all intervening conditions."
For that to be true, however, the dollar-cost averaging investor must "be a different sort of person from the rest of us ... not subject to the alternations of exhilaration and deep gloom that have accompanied the gyrations of the stock market for generations past."
"This," Mr. Graham concluded, "I greatly doubt."
He didn't mean that no one can resist being swept up in the gyrating emotions of the crowd. He meant that few people can. To be an intelligent investor, you must cultivate what Mr. Graham called "firmness of character" -- the ability to keep your own emotional counsel.
Above all, that means resisting the contagion of Mr. Market's enthusiasm when stocks are suddenly no longer cheap.
http://online.wsj.com/news/articles/SB124302634866648217?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB124302634866648217.html
By JASON ZWEIG
May 26, 2009
It is sometimes said that to be an intelligent investor, you must be unemotional. That isn't true; instead, you should be inversely emotional.
Even after recent turbulence, the Dow Jones Industrial Average is up roughly 30% since its low in March. It is natural for you to feel happy or relieved about that. But Benjamin Graham believed, instead, that you should train yourself to feel worried about such events.
At this moment, consulting Mr. Graham's wisdom is especially fitting. Sixty years ago, on May 25, 1949, the founder of financial analysis published his book, "The Intelligent Investor," in whose honor this column is named. And today the market seems to be in just the kind of mood that would have worried Mr. Graham: a jittery optimism, an insecure and almost desperate need to believe that the worst is over.
You can't turn off your feelings, of course. But you can, and should, turn them inside out.
Stocks have suddenly become more expensive to accumulate. Since March, according to data from Robert Shiller of Yale, the price/earnings ratio of the S&P 500 index has jumped from 13.1 to 15.5. That's the sharpest, fastest rise in almost a quarter-century. (As Graham suggested, Prof. Shiller uses a 10-year average P/E ratio, adjusted for inflation.)
Over the course of 10 weeks, stocks have moved from the edge of the bargain bin to the full-price rack. So, unless you are retired and living off your investments, you shouldn't be celebrating, you should be worrying.
Mr. Graham worked diligently to resist being swept up in the mood swings of "Mr. Market" -- his metaphor for the collective mind of investors, euphoric when stocks go up and miserable when they go down.
In an autobiographical sketch, Mr. Graham wrote that he "embraced stoicism as a gospel sent to him from heaven." Among the main components of his "internal equipment," he also said, were a "certain aloofness" and "unruffled serenity."
Mr. Graham's last wife described him as "humane, but not human." I asked his son, Benjamin Graham Jr., what that meant. "His mind was elsewhere, and he did have a little difficulty in relating to others," "Buz" Graham said of his father. "He was always internally multitasking. Maybe people who go into investing are especially well-suited for it if they have that distance or detachment."
Mr. Graham's immersion in literature, mathematics and philosophy, he once remarked, helped him view the markets "from the standpoint of eternity, rather than day-to-day."
Perhaps as a result, he almost invariably read the enthusiasm of others as a yellow caution light, and he took their misery as a sign of hope.
His knack for inverting emotions helped him see when markets had run to extremes. In late 1945, as the market was rising 36%, he warned investors to cut back on stocks; the next year, the market fell 8%. As stocks took off in 1958-59, Mr. Graham was again pessimistic; years of jagged returns followed. In late 1971, he counseled caution, just before the worst bear market in decades hit.
In the depths of that crash, near the end of 1974, Mr. Graham gave a speech in which he correctly forecast a period of "many years" in which "stock prices may languish."
Then he startled his listeners by pointing out this was good news, not bad: "The true investor would be pleased, rather than discouraged, at the prospect of investing his new savings on very satisfactory terms." Mr. Graham added a more startling note: Investors would be "enviably fortunate" to benefit from the "advantages" of a long bear market.
Today, it has become trendy to declare that "buy and hold is dead." Some critics regard dollar-cost averaging, or automatically investing a fixed amount every month, as foolish.
Asked if dollar-cost averaging could ensure long-term success, Mr. Graham wrote in 1962: "Such a policy will pay off ultimately, regardless of when it is begun, provided that it is adhered to conscientiously and courageously under all intervening conditions."
For that to be true, however, the dollar-cost averaging investor must "be a different sort of person from the rest of us ... not subject to the alternations of exhilaration and deep gloom that have accompanied the gyrations of the stock market for generations past."
"This," Mr. Graham concluded, "I greatly doubt."
He didn't mean that no one can resist being swept up in the gyrating emotions of the crowd. He meant that few people can. To be an intelligent investor, you must cultivate what Mr. Graham called "firmness of character" -- the ability to keep your own emotional counsel.
Above all, that means resisting the contagion of Mr. Market's enthusiasm when stocks are suddenly no longer cheap.
http://online.wsj.com/news/articles/SB124302634866648217?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB124302634866648217.html
Buy & Hold Investing? Give It Time
Uploaded on 18 Feb 2009
The Wall Street Journal's Jason Zweig shares his unique perspective on buy and hold investing, concluding that one should look at it differently.
Is buy and hold dead?
I don't think it is right.
That is exactly what people say right before buy and hold comes back to life.
Nobody says that when the Dow was over 14,000 when buy and holding was a dangerous idea.
They only started saying this when the Dow was nearer 8,000.
But it is cheap now and it is inconceivable that buy and hold is a bad idea at Dow 8,000 than at Dow 14,000.
What about the idea of the market being in a long term bear market that could go on for years, like from 1966 to 1982?
Anytime you buy, it is going to take you years to get back to where you were and people should invest more actively.
We may enter at a protracted period when the returns from the market are below average, that doesn't mean that more active trading in and out of stocks are going to increase your returns.
Though the trading costs are lower now than before, the costs are still real.
If you can buy and hold through a protracted period of low returns, the flip side to this is, you are buying at lower market valuation than before.
People who bought and held from 1966 to 1982, or from 1929 to 1940s and 1950s, did quite well.
It was the people who only held who suffered.
If you are going to retire, you had a big problem.
But if you are younger, buying and holding is a spectacular idea.
But when people said to buy and hold, they do not mean, buy once and then do not put another dime in, and wait for it to go up.
They mean buying steadily, not trying to decide where you think the bottom has bottomed, but keep buying at lower prices regularly.
Maybe we should not talk about investing.
Instead use the term savings.
If you think of putting money into the financial market in the form of savings, you don't expect to get your returns right away.
You expect to get it over time and certainly that tricks people up.
Certainly, the returns had been terrible recently and if it is going to pay off, you must give it time.
Buffett: I would vastly prefer to own common stocks than fixed dollar income investments.
Stocks versus bonds, commodities.
Speculation versus investing.
I like to see what assets produce, rather than what they are worth.
I don't like fixed dollar investments at all.
Real test of asset is if you want it even if price were never quoted again.
I would rather have all the farmland in the U.S. than all the world's gold.
As an investor, I don't worry about where oil prices are going.
Stocks not as cheap as they were, but they still look attractive.
Sentiment has fluctuated while underlying fundamentals steady.
Good businesses are resilient and withstand inflation.
Railroad business is about 60% of the way back from bottom.
U.S. Companies saw great improvement in productivity during downturn.
ublished on 16 Jan 2014
View the original blog post: http://warrenbuffettnews.com/warren-b...
Warren Buffett: You should never sell a good business just to get money, this does not sense.
Warren Buffett on How to Buy a Business: Private Companies vs. Stock Market, Investing
A fair price to us is one where we get our money's worth in terms of future earnings.
Its easier for us to buy private businesses than public businesses.
If we have to pay 20% premium to market, we will generally do not wish to buy them.
If someone with a wonderful company wishes to sell and asked for my advice, I will asked them to just keep it.
If you own a wonderful business in life, the best thing is just keep it.
All you are going to do is to trade your wonderful business for a whole bunch of cash, which isn't as good as the business.
Then you have the problem of investing in other businesses and you probably have to pay the tax in between.
If you can figure out a way to keep your wonderful business, keep it.
Why do people sell? Family dynamics. Sometime, the person loses interest in the business.
YOU SHOULD NEVER SELL A GOOD BUSINESS JUST TO GET MONEY, THIS DOES NOT MAKE SENSE.
PAYING PREMIUMS FOR ELEPHANTS DOES NOT MAKE SENSE.
I DON'T CARE ABOUT LOCATION OF ANY POTENTIAL ACQUISITION.
A fair price to us is one where we get our money's worth in terms of future earnings.
Its easier for us to buy private businesses than public businesses.
If we have to pay 20% premium to market, we will generally do not wish to buy them.
If someone with a wonderful company wishes to sell and asked for my advice, I will asked them to just keep it.
If you own a wonderful business in life, the best thing is just keep it.
All you are going to do is to trade your wonderful business for a whole bunch of cash, which isn't as good as the business.
Then you have the problem of investing in other businesses and you probably have to pay the tax in between.
If you can figure out a way to keep your wonderful business, keep it.
Why do people sell? Family dynamics. Sometime, the person loses interest in the business.
YOU SHOULD NEVER SELL A GOOD BUSINESS JUST TO GET MONEY, THIS DOES NOT MAKE SENSE.
PAYING PREMIUMS FOR ELEPHANTS DOES NOT MAKE SENSE.
I DON'T CARE ABOUT LOCATION OF ANY POTENTIAL ACQUISITION.
Warren Buffett talks market all-time highs, says stocks "in a zone of reasonableness"
Market is in a zone of reasonableness at moment. In 5 years time, it will be higher.
"It is very important to talk to children about money very early on."
Warren Buffett
The younger the age at which a person starts his/her businesss determines his/her success.
Charlie Munger: I have seen so many idiots getting rich on easy businesses. Don't buy cheap bargains, but look for very good companies.
Don't buy cheap bargains, but look for very good companies.
I have observed what would work and what would not.
I have seen so many idiots getting rich on easy businesses.
Surely, I am interested in the easy businesses.
Alice Schroeder on How Buffett Values a Business and Invests
On November 20, 2008, Alice Schrooder, author of “The Snowball: Warren Buffett and the Business of Life”, spoke at the Value Investing Conference at the Darden School of Business. She gave some fascinating insights into how Buffett invests that are not in the book. I hope you find them useful.
- Much of Buffett’s success has come from training himself to practice good habits. His first and most important habit is to work hard. He dug up SEC documents long before they were online. He went to the state insurance commission to dig up facts. He was visiting companies long before he was known and persisting in the face of rejection.
- He was always thinking what more he could do to get an edge on the other guy.
- Schroeder rejects those who argue that working harder will not give you an edge today because so much is available online.
- Buffett is a “learning machine”. This learning has been cumulative over his entire life covering thousands of businesses and many different industries. This storehouse of knowledge allows Buffett to make decisions quickly.
- Schroeder uses a case study on Mid-Continent Tab Card Company in which Buffett invested privately to illustrate how Buffett invests.
- In the 1950′s, IBM was forced to divest itself of the computer tab card business as part of an anti-trust settlement with the Justice Department. The computer tab card business was IBM’s most profitable business with profit margins of 50%.
- Buffett was approached by some friends to invest in Mid-Continent Tab Card Company which was a start-up setup to compete in the tab card business. Buffett declined because of the real risk that the start-up could fail.
- This illustrates a fundamental principle of how Buffett invests: first focus on what you can lose and then, and only then, think about return. Once Buffett concluded he could lose money, he quit thinking and said “no”. This is his first filter.
- Schroder argues that most investors do just the opposite: they first focus on the upside and then give passing thought to risk.
- Later, after the start-up was successfully established and competing, Buffett was again approached to invest capital to grow the business. The company needed money to purchase additional machines to make the tab cards. The business now had 40% profit margins and was making enough that a new machine could pay for itself in a year.
- Schroeder points out that already in 1959, long before Buffett had established himself as an expert stock picker, people were coming to him with special deals, just like they do now with Goldman Sachs and GE. The reason is that having started so young in business he already had both capital and business knowledge/acumen.
- Unlike most investors, Buffett did not create a model of the business. In fact, based on going through pretty much all of Buffett’s files, Schroder never saw that Buffett had created a model of a business.
- Instead, Buffett thought like a horse handicapper. He isolated the one or two factors upon which the success of Mid American hinged. In this case, sales growth and cost advantage.
- He then laid out the quarterly data for these factors for all of Mid Continent’s factories and those of its competitors, as best he could determine it, on sheets of a legal pad and intently studied the data.
- He established his hurdle of a 15% return and asked himself if he could get it based on the company’s 36% profit margins and 70% growth. It was a simple yes or no decision and he determined that he could get the 15% return so he invested.
- According to Schroder, 15% is what Buffett wants from day 1 on an investment and then for it to compound from there.
- This is how Buffett does a discounted cash flow. There are no discounted cash flow models. Buffett simply looks at detailed long-term historical data and determines, based on the price he has to pay, if he can get at least a 15% return. (This is why Charlie Munger has said he has never seen Buffett do a discounted cash flow model.)
- There was a big margin of safety in the numbers of Mid Continent.
- Buffett invested $60,000 of personal money or about 20% of his net worth. It was an easy decision for him. No projections – only historical data.
- He held the investment for 18 years and put another $1 million into the business over time. The investment earned 33% over the 18 years.
- It was a vivid example of a Phil Fisher investment at a Ben Graham price.
- Buffett is very risk averse and follows Firestone’s Law of forecasting: “Chicken Little only has to be right once.” This is why Berkshire Hathaway is not dealing with a lot of the problems other companies are dealing with because he avoids the risk of catastrophe.
- He is very realistic and never tries to talk himself out of a decision if he sees that it has cat risk.
- Buffett said he thought the market was attractive in the fall of 2008 because it was at 70%-80% of GDP. This gave him a margin of safety based on historical data. He is handicapping. He doesn’t care if it goes up or down in the short term. Buying at these levels stacks the odds in his favor over time.
- Buffett has never advocated the concept of dollar cost averaging because it involves buying the market at regular intervals – regardless of how overvalued the market may be. This is something Buffett would never support.
Here is a link to the video: http://www.youtube.com/watch?v=PnTm2F6kiRQ
http://www.valueinvestingfundamentals.com/?p=96
How to Invest in High Growth and Great Value Stocks with Accelerated Returns
Published on 18 Oct 2012
Kathlyn Toh - professional investor and trader in the U.S. and global stock market shared how we can invest into the greatest companies in the world by paying only 10% of the stock price and getting 10X faster returns.
Value Investing and dividend growth investing (Webinar)
Simple Definitions of Value Investing
Value investing is buying QUALITY STOCKS when they are UNDERVALUED.
Value investing is buying GOOD COMPANIES when they are available at SENSIBLE PRICES.
Summary:
Buy quality companies when they are undervalued.
Dividends are key; especially increasing dividends.
Investing is not risky if you know what you are doing.#
Modest realistic aim:
To achieve a double digit dividend yield return based on your cost price over a reasonable number of years of investing in a stock.
# Invest in recession proof companies that are increasing dividend payments year after year.
More videos:
https://www.youtube.com/watch?v=GB6KQ_gvum0&list=PL8D865987D9956CD9
Value investing is buying QUALITY STOCKS when they are UNDERVALUED.
Value investing is buying GOOD COMPANIES when they are available at SENSIBLE PRICES.
Summary:
Buy quality companies when they are undervalued.
Dividends are key; especially increasing dividends.
Investing is not risky if you know what you are doing.#
Modest realistic aim:
To achieve a double digit dividend yield return based on your cost price over a reasonable number of years of investing in a stock.
# Invest in recession proof companies that are increasing dividend payments year after year.
More videos:
https://www.youtube.com/watch?v=GB6KQ_gvum0&list=PL8D865987D9956CD9
Friday 28 February 2014
The Benefits of Dollar-Cost Averaging in a Volatile Market
The Benefits of Dollar-Cost Averaging
Volatile Market that ends up flat
Period Amount Price No of shares
Invested $ $ Purchased
1 1,000 100 10.00
2 1,000 80 12.50
3 1,000 60 16.67
4 1,000 80 12.50
5 1,000 100 10.00
Total Invested 5,000
Total shares purchased 61.67
Average cost of shares purchased $ 81.08
Value at period 5 ($) 6,166.67
Ebullient Market that rises continually
Period Amount Price No of shares
Invested $ $ Purchased
1 1,000 100 10.00
2 1,000 110 9.09
3 1,000 120 8.33
4 1,000 130 7.69
5 1,000 140 7.14
Total Invested 5,000
Total shares purchased 42.26
Average cost of shares purchased $ 118.32
Value at period 5 ($) 5,916.32
The table above shows that you actually end up with more money in the scenario where the market is very volatile and ends up exactly where it began.
In both cases, a total of $5,000 is invested over the 5 periods.
In the flat volatile market, the investor ends up with $6,167, while in the scenario where market prices rise continually, the investor's final fund stake is only $5,915.
Learning Points:
Warren Buffett, has a nice way of showing that you might actually wish for lower stock prices (at least for awhile) after you begin your investment program.
He writes:
If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a care from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.
But now for the final exam: If you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
Volatile Market that ends up flat
Period Amount Price No of shares
Invested $ $ Purchased
1 1,000 100 10.00
2 1,000 80 12.50
3 1,000 60 16.67
4 1,000 80 12.50
5 1,000 100 10.00
Total Invested 5,000
Total shares purchased 61.67
Average cost of shares purchased $ 81.08
Value at period 5 ($) 6,166.67
Ebullient Market that rises continually
Period Amount Price No of shares
Invested $ $ Purchased
1 1,000 100 10.00
2 1,000 110 9.09
3 1,000 120 8.33
4 1,000 130 7.69
5 1,000 140 7.14
Total Invested 5,000
Total shares purchased 42.26
Average cost of shares purchased $ 118.32
Value at period 5 ($) 5,916.32
The table above shows that you actually end up with more money in the scenario where the market is very volatile and ends up exactly where it began.
In both cases, a total of $5,000 is invested over the 5 periods.
In the flat volatile market, the investor ends up with $6,167, while in the scenario where market prices rise continually, the investor's final fund stake is only $5,915.
Learning Points:
Warren Buffett, has a nice way of showing that you might actually wish for lower stock prices (at least for awhile) after you begin your investment program.
He writes:
If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a care from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.
But now for the final exam: If you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
How to be a millionaire? Save regularly and save early.
Dollar Cost Averaging Can Reduce the Risks of Investing in Stocks and Bonds
Dollar cost averaging is not a panacea that eliminates the risk of investing in common stocks.
It will not save your investment plan from a devastating fall in value during a year such as 2008, because no plan can protect you from a punishing bear market.
You must have both the cash and the confidence to continue making the periodic investments even when the sky is the darkest.
No matter how scary the financial news, no matter how difficult it is to see any signs of optimism, you must not interrupt the automatic pilot nature of the program.
Because if you do, you will lose the benefit of buying at least some of your shares after a sharp market decline when they are for sale at low prices.
Dollar cost averaging will give you this bargain. Your average price per share will be lower than the average price at which you bought shares.
Why? Because you will buy more shares at low prices and fewer at high prices.
Some investment advisers are not fans of dollar cost averaging, because the strategy is not optimal if the market does go straight up. (You would have been better off putting all $5,000 into the market at the beginning of the period.).
But it does provide a reasonable insurance policy against poor future stock markets.
And it does minimize the regret that inevitably follows if you were unlucky enough to have put all your money into the stock market during a peak period such as March of 2000 or October of 2007.
There is tremendous potential gains possible from consistently following a dollar-cost averaging program.
Because there is a long-term uptrend in common stock prices, this technique is not necessarily appropriate if you need to invest a lump sum such as a bequest.
If possible, keep a small reserve (in money fund) to take advantage of market declines and buy a few extra shares if the market is down sharply.
Though you should not try to forecast the market, it is usually a good time to buy after the market has fallen out of bed.
Just as hope and greed can sometimes feed on themselves to produce speculative bubbles, so do pessimism and despair react to produce market panics.
The greatest market panics are just as unfounded as the most pathological speculative explosions.
For the stock market as a whole (not for individual stocks), Newton's law has always worked in reverse: What goes down has come back up.
(A Random Walk Down Wall Street, by Burton Malkiel)
Thursday 27 February 2014
Roller coaster ride of the stock market (Market Volatility).
What is Financial Planning and How Can We Fix It
Cash Flow Investments
Cash-Flowing Investments
Private Equity
Hedge Funds
Alternative Strategies
Mortgages
Real Estates
High-Yield Bonds
versus
Volatile Stock Market
Fundamentals of Wealth Management - The Complete Lesson
Published on 7 May 2012
The complete lesson.
Dow Wealth Management offers the services of a world-class investment firm dedicated to improving clients' financial lives and making their futures more secure. As an independent firm, Dow Wealth Management provides objective advice and is committed to excellence for its clients. The Dow family has been investing traditionally in the securities markets since 1937.
Before attempting to structure a portfolio that might be capable of delivering long-term investment success, we must first understand the nature of the financial markets in which we will operate and the inherent limitations we are sure to confront as investors.
This video, Fundamentals in Wealth Management, will help to acquaint the investor with these dynamics and then illustrate how Dow Wealth Management seeks to position its clients' portfolios for long-term investment success. We could call it "How to survive bad markets...and thrive in good ones."
@6.08 The 3 issues addressed in this video.
1. The Life Cycle of Family Wealth: Accumulation, Preservation and Growth of Mature Wealth. Wealth preservation and growth became more important than wealth accumulation.
2. Defining the Investment Problem: The Dow Wealth Management Analysis
3. The Dow Wealth Management Approach
Burton Malkiel: How to Invest
Uploaded on 12 Feb 2010
Princeton economist Burton Malkiel says simplicity is key to a successful portfolio. He discusses emerging markets, index funds, and more with Eric Schurenberg
Random Walk Down Wall Street by Burton Malkiel
Uploaded on 13 Sep 2011
Dr. Burton G. Malkiel, the Chemical Bank Chairman of Economics at Princeton University and author of the widely read investment book, A Random Walk Down Wall Street, shared his investment views and strategies in a talk on September 12 to SIEPR Associates.
The fundamentals of portfolio management
Lessons In Financial Literacy: In this show, Anil Chopra, Group CEO & Director of Bajaj Capital Ltd and Gaurav Mashruwala, a financial planner, share their views to understand the subject of financial planning better. The show talks about the importance of investment planning, investment planning steps and ideal saving break-up.
Country Guide: Malaysia
https://globalconnections.hsbc.com/global/en/tools-data/country-guides/my-march-2013?utm_source=outbrain&utm_medium=click&utm_content=1&utm_campaign=global+gc+2013
Country Guide: Malaysia
In association with PwC
Malaysia’s export-driven economy is spurred by high technology, knowledge-based and capital-intensive industries. Political and economic stability, investor-friendly business policies, cost-productive workforce, and a host of other amenities, makes this country an enticing place for foreign investment - especially in areas such as manufacturing, and particularly in high- technology, biotechnology industries.
CFA Level I Portfolio Management An Overview Video Lecture
Uploaded on 26 Sep 2011
This CFA Level I video covers concepts related to:
• Portfolio Perspective
• Portfolio Definition
• Diversification
• Investment's Contribution to Risk and Return
• Markowitz Framework: Standard Deviation as a measure of Risk
• Diversification Ratio
For more updated CFA videos, Please visit www.arifirfanullah.com.
Wednesday 26 February 2014
Create a Portfolio You Don't Have to Babysit
Great Q&A starting @ 42 min. Very insightful
Published on 14 Jun 2012
In this special one-hour presentation, Morningstar director of personal finance Christine Benz and ETF expert Mike Rawson discuss how to build a low-maintenance, hands-free portfolio that will help you reach your financial goals.
Note to viewers: Filmed in late April 2012, this Morningstar presentation was part of Money Smart Week, a series of free classes and activities organized by the Federal Reserve Bank of Chicago and designed to help consumers better manage their personal finances. Morningstar is a Money Smart Week partner.
Download the presentation slides here:
http://im.mstar.com/im/moneysmartweek_presentation.pdf
John C. Bogle - The Battle for the Soul of Capitalism
Dean Lawrence R Velvel interviews John C. Bogle, founder of the Vanguard Group, Inc. and president of the Bogle Financial Markets Research Center, about his book The Battle for the Soul of Capitalism. Bogle analyses what went wrong in corporate america, from pension plans to corporate profits to mutual funds to stock options to corporate greed.
2 markets: Business market and the Expectation market
@ 34.30 min - Owner capitalism is now transformed into a pathological mutant form where the managers have taken far too large a proportion of the share of the profits. Today financial institutions own 68% of all stocks; they are traders and speculators mainly, playing in the expectation market.
@ 49.30 min - Costs of mutual funds.
@ 53 min - The magic of compounding returns. The tyranny of compounding costs. The tyranny of compounding costs overwhelmed the magic of compounding returns. Get rid of costs and emotions.
Mr. John Bogle speaks on many issues related to investing. Don's listen to history.
Lange-Bogle 1: Investment vs. Speculation
Published on 4 Feb 2013
Noted IRA expert and estate planning attorney, James Lange, interviews Vanguard Group founder, John Bogle. Here, Jim discusses Mr. Bogle's history as a leader in the financial world and delves into a discussion of his newest book, The Clash of the Cultures: Investment vs. Speculation. Mr. Bogle explains his definitions of investment and speculation and tells us why he feels only one of these path creates wealth.
Lange-Bogle 2: Speculation - A Loser's Game
IRA expert and best-selling author, Jim Lange and John Bogle, founder of Vanguard, discuss the cultures of investment and speculation. Investment is about long-term wealth creation by investing in the growth of corporations. The culture of speculation is akin to betting, and in John Bogle's perspective, the house always wins!
Lange-Bogle 3: What Hurts the Everyday Investor Now
James Lange, CPA/Attorney and host of The Lange Money Hour and John Bogle, founder of Vanguard, go over the hard facts. Of the 33 trillion dollars that change hands every year in the markets, only 250 billion of it can be characterized as true investing. John Bogle speaks plainly about the mess Wall Street is in, and the role speculation has played in getting it there.
Lange-Bogle 4: Conflict of Interest in Our Broken System
John Bogle, founder of Vanguard, shares with Attorney and CPA Jim Lange, where he feels the system is broken and how we find ourselves in our current speculative culture. There is a critical conflict of interest that prevents our money managers, agents, and financial institutions from being true fiduciaries. Who is looking out for the interests of the shareholders?
Lange-Bogle 5: The 10 Gatekeepers of our Financial System
Noted IRA expert and estate planning attorney, James Lange and John Bogle, founder of Vanguard, discuss Bogle's broad indictment of the gatekeepers of our financial system in his newest book, "The Clash of the Cultures: Investment vs. Speculation." The gatekeepers of our system, according to Bogle, are more interested in the current price of stock, the speculative aspect of it, rather than the support of thriving companies and creation of long-term wealth for shareholders.
Lange-Bogle 6: The Cause of the Recession and How to Fix It
John Bogle, founder and former CEO of Vanguard, talks to Attorney and CPA, Jim Lange, about the terrible fraud perpetrated by mortgage companies and how the severed link between the borrower and the lender sent our economy into a tail spin. If Bogle were Czar, he would pass a federal statute eliminating conflicts of interest and demanding fiduciary duty of money managers.
Lange-Bogle 7: The Need for Full Disclosure
IRA expert and best-selling author, Jim Lange and John Bogle, founder of Vanguard, discuss the need for an industry standard for full disclosure of not only potential conflicts of interest, but also the true cost of unreasonable fees and commissions. John Bogle feels that fees are often underestimated and if the public truly understood the costs of the investment choices they made, the world would be a different place in which to live and invest.
Lange-Bogle 8: "Don't do something, just stand there!"
James Lange, CPA/Attorney and host of The Lange Money Hour and John Bogle, founder of Vanguard, talk about the history of success in indexing and how the passive strategy behind "Bogle's Folly" (the Vanguard 500 Index) went from foolishness to genius with decades of proven results. Active managers do not beat their benchmarks a strong majority of the time. Owning all the companies and holding them forever has been proven a winning strategy and, in Bogle's opinion, is the only way of being a true investor.
Lange-Bogle 9: Time is Your Friend, Impulse is Your Enemy.
James Lange, CPA/Attorney and host of The Lange Money Hour and John Bogle, founder of Vanguard, talk about the importance of not relying on past performance to predict future results and the miracle of compounding interest. Like the Law of Gravity, Reversion to the Mean is an eternal rule. What goes up must go down, even in the stock markets. Time is your friend (the miracle of compounding pays off hugely). Focus on the long term. Resist the impulse during periods of adversity and fear.
Lange-Bogle 10: Simple Rules for Investment Success
Noted IRA expert and estate planning attorney, James Lange and John Bogle, founder of Vanguard, go over a few of the "10 Simple Rules" laid out in Bogle's newest book, The Clash of the Cultures: Investment vs. Speculation. These are some new twists on classic Bogle investment advice, or "Bogleisms," including: "Buy Right and Hold Tight," "The Bagel and the Donut," "Forget the Needle, Buy the Haystack," and "Minimize the Croupiers Take." Beware of your market returns being overwhelmed by the tyranny of long term compounding of your costs.
Lange-Bogle 11: There is No Escaping Risk
Less volatility doesn't mean less risk. It means different risk. IRA expert and best-selling author, Jim Lange and John Bogle, founder of Vanguard, discuss the dangers of ignoring inflation risk. Many retired people do not want to incur any risk, but there is no escaping it. Over time inflation eats away at the value and purchasing power of your money. John Bogle explains that you need to incur some volatility and investment risk in order to build a retirement fund.
In this video, John Bogle, founder of Vanguard and CPA, attorney and best-selling author Jim Lange, review some of the investment wisdom imparted in Bogle's most recent book, The Clash of the Cultures: Investment vs. Speculation. Mr. Bogle warns us not to listen to history! As interesting as it may be, where investment is concerned, it doesn't repeat itself. The founder of Vanguard also suggests something you may not expect... throw your statements away and don't ever look at them! Fox versus hedgehog. The foxes know a lot of things but the hedgehogs know only ONE great thing.
James Lange Talks to John Bogle
John Bogle, founder of The Vanguard Group, tells James Lange his most important piece of advice for investors.
John Bogle: Keep Investing
2 Oct 2008
The founder and former CEO of Vanguard talks to Morningstar's Christine Benz about why to stay the course amid the financial crisis.
Wealth, fame and power. One should re-define what success should be other than these.
Burton Malkiel: How to Invest
12 Feb 2010
Princeton economist Burton Malkiel says simplicity is key to a successful portfolio. He discusses emerging markets, index funds, and more with Eric Schurenberg.
Burton Malkiel: Timeless Lessons for Investors
1. Buy and Hold. Don't time the market
He started his talk by tackling the issue : "In the light of the 2008 Global Financial Crisis when the market dropped almost 50%, is buy and hold is now dead?"
The best days in the market that gave the best returns were usually the few days that leaped from the bottom of the market.
Don't try to time the market. It is dangerous. You can't do it and you will make mistakes.
2. Dollar Cost Averaging
You make more likely to make more money in a volatile time than a steadily rising market, but this is not always the case. Of course, if you know the market is going to be steadily rising, you will make more money if you invest a lump sum at the beginning..
3. Rebalance your portfolio.
He advises rebalancing your portfolio once yearly, example, 60% stock and 40% bond target and rebalancing in January every year. In a volatile market, rebalancing reduces the volatility and may also increase the return of your portfolio. In a rising market, rebalancing will reduce the volatiltiy and may reduce the return of your portfolio slightly.
4. Diversification
In 2008 and early 2009, there were few places to hide. Many people opined that diversification doesn't work anymore.
Diversification works when the asset classes are not correlated. Though many asset classes are now more correlated, you can still diversify, example, buying emerging markets and bonds. How do you access China? Why not through index funds? (@39 min)
5. Costs matter
The lower the costs charged by the purveyor of the investment service, the better and the more is left for you. "You get what you don't pay for!" Cost you pay is the one thing you can control and you may increase your return by up to 2% per year just by ensuing the cost is low. He advocates index funds. Stock market is a zero sum game and costs of mutual funds of >1% shift the distribution of the stock market to that of a negative sum game. 90% of professional managed mutual funds are beaten by the index benchmark. In his study of mutual funds over many years, less than 5 mutual funds have beaten the market by 2% or more ( @ 29 min). Buy the index funds. "It is like searching for the needle in the haystack. Buy the haystack instead.".
Two-third of bond active managers are beaten by bond-index funds. His advice is that the core of your portfolio should be in low cost index funds. (You can have more leeway in a satellite portfolio too.)
Q&A:
@ 43 min Lump sum investing early or Dollar Cost Averaging when you have a big sum of money to invest.
Potential regret of getting into the high of the market. Reduction in volatility. Might not always be optimal. At least some of this big sum of money should still put into the market in dollar cost averaging manner. Can you advise how long to spread this dollar cost averaging? Depends on the returns from the alternative investments. Spread your investing over a shorter period now, since the alternative investment return (interest rate) is low.
@ 48 min. Missing the 10 best days or missing the 10 worst days. Some bias in presentation.
@50.30 min. Corporate governance.
@53 min. Dividend yield stocks of Warren Buffett. Buffett is really the needle in the haystack. Vanguard REIT - a good diversifier.
@1.04.50 min. How would you invest $1 million?
@1.08.30 min. What are the target percentages people of various ages should save? Answer: MORE. If you start early, you may have to save a lot due to the compounding effect. Those who did not save early, probably need to save a lot more to catch up (20% or more). The opportunity cost of not saving $1 in your 20s might be $10 or $15 when you are in your 50s.
Uploaded on 1 Jun 2010
Dr. Burton G. Malkiel, the Chemical Bank Chairman's Professor of Economics at Princeton University, is the author of the widely read investment book, A Random Walk Down Wall Street. He has also authored several other books, including the recently published The Elements of Investing.
Dr. Malkiel has long held professorships in economics at Princeton, where he was also chairman of the Economics Department. He also served as the dean of the Yale School of Management and William S. Beinecke Professor of Management Studies. Dr. Malkiel is a past president of the American Finance Association and the International Atlantic Economic Association, and a past appointee to the President's Council of Economic Advisors. He continues to serve on several corporate and investment management boards.
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