Monday, February 25, 2013

Useful Tax Publications for investors

Useful IRS publications for investors include:

• Publication 969 -- Health Savings Accounts and Other Tax-Favored Health Plans;

• Publication 550 -- Investment Income and Expenses (Including Capital Gains and Losses);

• Publication 590 -- Individual Retirement Arrangements (IRAs);

• Publication 575 -- Pensions and Annuities;

• Instructions for Form 1040 (Schedule B) -- Interest and Ordinary Dividends; and

• Instructions for Form 1040 (Schedule D) -- Capital Gains and Losses.)

Monday, February 18, 2013

16-year-old day trader, Rachel Fox

You know the market is topping when the media puts out stories like these.

16-year old actress, Rachel Fox, placed 338 trades last year. She did well, a 30.4 percent return, but the market did well last year too -- though not as well, around 16 percent. Take out taxes from her return, say a third, because her returns would be taxed hard because of short-term gains, and her return drops precipitously, but still, to be fair, she did quite well. We also do not know if her returns exclude expenses, though I suspect they do.

Nevertheless, this reminds me very much of stories that come out when the market is topping. Remember the truck-drivers planning to buy their own islands during the late 1990's? Bull markets make geniuses of us all. They make geniuses of newbies as well -- Rachel Fox only started trading in November 2011. Either she's incredibly lucky or she's incredibly gifted. I'll reserve judgment and say she's incredibly lucky. She needs to experience a bear market and then a couple more.


The market at any given point suits certain personality types best. But few personalities are mutable, few personalities can adapt to the market's ever-changing state. Thus, there will be plenty of occasions when a certain personality type that does well in one type of market loses his or her shirt in a different type of market.



Friday, February 15, 2013

Dividend reinvestment

When you reinvest your dividends, the highest percentage increase in income occurs when the share price is lowest on the prior reinvestment date.

This is the result of the reinvested dividends buying the most number of shares when the share price is low.


Conversely, the lowest percentage increase in income occurs when the share price is highest on the prior reinvestment date.

This is the result of the reinvested dividends buying the least number of shares when the share price is high.


This is nothing but a variant of "buy low, get more."

Thursday, February 14, 2013

Of Models and Simplicity in the Stock Market

Because we cannot know much about the future, we must appeal to models invoking simplicity when investing; but don't make things so simple that they become simplistic -- and wrong.

Judging individual stocks based on their PEG ratios is one instance of simple models becoming simplistic and wrong.

Wednesday, February 13, 2013

Never confuse a bull market with brains...

Never confuse a bull market with brains. Just because someone does well in a bull market does not mean they will do well over the long term.

Over a decade or two, investing success is far from guaranteed.

Bear markets punish the unwary; strategies that worked well during one bull market become the reason for failure the next; the speculative star of one bull market becomes the pariah the next.

Few recognize the change; even fewer adapt.

Tuesday, February 12, 2013

When stock prices fall

If a stock with a low standard deviation of returns falls by a small amount then in some ways that is equivalent to a much larger fall in a stock with a higher standard deviation of returns.


True, ipso facto, you lose less when anything falls less...

But that's not the point here....

What is interesting is that from a probabilistic point of view, a stock with a standard deviation of returns of (say) half that of another stock is falling the "equivalent" amount, again in a probabilistic sense, when it falls half as much as the second stock.

In other words, when you buy a stock, you're not just buying the return, you're also buying the risk.

Monday, February 11, 2013

The incompleteness of P/E and P/S models

Neither the P/E models nor the P/S models account for growth. That's problematic.

Why should we pay the same for a one percent grower as a ten percent grower? We shouldn't.

Friday, February 8, 2013

Bigger is better

All else equal (valuations for instance!), pick the biggest and most dominant company in any competitive segment. You'll be far better off.

Two competitors with 80 percent of the market is the type of business to look for.

One competitor with 80 percent is even better -- but, except for a handful of first movers in nascent industries, that's quite rare.

Thursday, February 7, 2013

A comprehensive stock screener, Finviz

When you've got 61 fields to choose from, including a wealth of technical screening criteria, you rock:

Screener: Finviz

Wednesday, February 6, 2013

One-letter Stock Symbols

UPDATED (12/29/2015): Twenty-four of the 26 letters in the alphabet are taken. The only letters without associated stock symbols are J and U:
  • A, Agilent Technologies
  • B, Barnes Group
  • C, Citigroup
  • D, Dominion Resources
  • E, Eni SpA
  • F, Ford
  • G, Genpact
  • H, Hyatt Hotels
  • I, Intelsat S.A.
  • J
  • K, Kellogg
  • L, Loews
  • M, Macy's
  • N, NetSuite
  • O, Realty Income
  • P, Pandora Media
  • Q, Quintiles
  • R, Ryder System
  • S, Sprint Nextel
  • T, AT&T
  • U
  • V, Visa
  • W, Wayfair
  • X, US Steel
  • Y, Alleghany
  • Z, Zillow

Tuesday, February 5, 2013

The Quality of Management, Warren Buffett

When you invest in a company, the overarching intangible is the quality of its management.

Management pulls all of the strings.

Without superior management, companies cannot succeed.

Warren Buffett will not invest in a company if he does not believe in the quality of its management.

Friday, February 1, 2013

Fervid stocks. Sell into the mania.

During the Dot Com Boom everyone believed that demand for bandwidth would never end. Believing management forecasts, shareholders poured money into seemingly stratospherically-valued companies.

Of course, it had to end badly. Many stocks crashed to zero or almost zero. Many shareholders lost all of their investment or almost all.

Instead of bandwidth demand showing no rest, it has taken years and the likes of Netflix and YouTube for the excess bandwidth to be consumed, finally.

The moral of this story: Be wary of trees that grow to the sky. They never do. Sell fervid stocks when the going is good. You will regret it immediately. It is hard to do. A year later you'll be happy.