Blow them away!

In preparing for the new year, I have many books on the list that will be evaluated, and gobs of money will be spent trying to beat the market. This will be the year of the Shotgun Investor!!!!!

Oh the Possibilities!

In Fooled by Randomness, Nassim Nicholas Taleb (real name, not an anagram) discusses how randomness affects almost every daily event and how most do not make sense of it.

The most prominent people in the book are market traders who ignore the random component of their job. He gives multiple funny examples of peole making millions per year, thinking that they are the bomb, and then losing it all by not recognizing that a large component of their success was based on the fact that the trading system they were using was good, unless something "unlucky" happened.

Good stuff. A very entertaining read. He does not pull punches for the likes of George Will, and other media pundits. One point for the nerdy statistician!

My favorite section is when he compares winning ten million dollars playing Russian roulette versus earning the same through dentistry, explains the importance of "multiple probable outcomes," and relates how our brains are thought to interpret such different risks for the same reward. Neat.

The book is written like a blog or journal, and is entertaining and quite a easy read if you pass over all the philosophical name dropping. he also wrote a book called "The Black Swan" which will definitely be on my future reading list.

What to buy? This does not easily lend to a specific trading scheme, so I will sit this one out. Also, I spent my money buying gifts.

Abracadabara!

In looking for investment ideas, it seems as though the world is all too ready to give advice on stock market picks. Everyone wants a simple "magic formula" to investing. Ideally, one would go to a website, click on a button, and have an instantaneous result of a list of stocks to buy that could only go up.

Thankfully, Joel Greenblatt has already done it. Nothing could be more simple for the little guy. In "The Little Book that Beats the Market" a straightforward formula is given that bested the S&P for 30 years.

Basically, he uses the Return on Assets(ROA), and ranks the stocks. Then, he takes the earnings yield, and ranks the stocks. Combining the two lists of rankings, he comes up with a rank of stocks. For example, if Joe Blow company ranked #2 in ROA, and #376 on earnings yield, then overall the stock would gain a rating of #378. From this list, he then eliminates foreign companies, financial companies, and utilities. One should buy 20-30 of these stocks, and hold them for a year minus one day if the they are a loser, and for a full year if they are winners (for tax purposes).

More simply, he has a website that does all this for you, giving you your list.

A good book, only takes a day or two to read. Get it from your local library.

So for my "magic" selection, I have simply visited the site and obtained the stock ICF International, (ICFI) which is a companey that.... well, never mind. You see, you don't even have to know what the company does. See how easy? I'll buy twenty shares on Monday.

Buff-a-what-a-gee?

Buffettology looks at investing from the view point of the big man, Warren Buffet, legendary investor and 2nd richest man in the USA. The author, Mary Buffet, is the ex-wife of Buffet's son. But I guess she kept the name.

Whatever.

She describes his basic investing strategy as "business investing." That means not trading stocks with wild abandon, but rather looking at the entire business and deciding to invest on the merits of holding stock for years, or forever. For example, if you had the money, would you purchase ALL of the company for yourself? In this way, you know that you are dedicated to holding it for the long-term, certain that it will continue to bring in good earnings, and give you a great return on your investment.

He views stocks from the point of view of bond investing. Essentially, a bond gives a fixed rate of return. A stock is reviewed concerning the earnings per share and growth rate. If they are assumed to remain fairly constant, then the earnings of the stock (how much it appreciates over say, ten years) can be equated to a percentage return annually. This can be compared to the annual return on a fixed investment such as bonds. There are numerous examples in the book for you to investigate.

The trick is assuming earnings and growth will continue. this is where the idea of a margin of safety and consumer monopoly comes in. Coca-cola can charge much more than other companies for the same product because of name recognition, and it does not need to invest money in research and development or other capital expenditures in other companies.

What to buy? I looked at some ideas from the buffet letters to shareholders, the buffetwatch blog, and did some searches. I came up with a company Wabco (WBC), that makes vehicle control and stabilization systems.

If it is good enough for Warren, then it is good enough for me!

Where am I now?

O.K., time for an update to see how the old shotgun investor is doing.

So, what with the stock market going to hell, lets see where I stand. Going from the initial account value of $5,000, I bought four investments.

I spent $2,013.52 for IOO, SAM, ASR, and WAG. Now they are worth $1,962.23

This takes into account a $7 commission per trade, but not taxes, because I lost money.

I started this whole shebang on October 29th, 2007.

In that same time, the S&P had a loss of 3.3%, while my scheme gave me a loss of 2.5%.

Whoopee!

This is so easy a monkey could do it.

Watch out Mr. Market! I just re-read the book "A Random Walk Down Wall Street" by Burton G Malkiel. I would have to say that this is an excellent all-around guide to the market. It begins with a history of pretty spectacular market bubbles of the past, including the tulip craze and South Sea Company debacle. A short course in technical analysis and fundamental analysis follows.

The meat of the book is in the in depth coverage of how different investment vehicles work. I thought it was excellent in how much detail was presented. It includes everything from derivatives to zero coupon bonds. He covers many different theories on how the market works, and in essence gives the advice that a random selection of stocks will outperform professionals.

The writing seems to be balanced, whereas most books I tend to pick one idea as the best and only present information to back up their theory.

For anyone that doesn't already have this book, I believe it is a must.

So, for my selection. The actual suggestion in the book is that you buy a global index fund of all the stocks and just hold it indefinitely. But, since I just did that on a previous post, that would be boring and redundant. Therefore, I will pick a stock at random. I used a random number and letter sequencer that I found on the internet, and obtained the result of ASR, completely at random. I have no idea what the stock is all about, but it appears to be some sort of foreign operation that manages airports in southern Mexico. At about fifty bucks per share, I should be able to pick up about ten shares. This being a holiday weekend, I hope there are no surprises for Monday.

I'll Drink to That!!!!!

How to Make Money in Stocks by William J. O'Neil.

This guy talks like he knows the biz, and he has the history to prove it. He started out with a few grand and ended up with enough cash to buy a seat on the NYSE. He lays it all out in front of you, with an eloquence that seems to say, ”this is so easy, anyone can do it, as long as you follow my system.” The only problem is that his instructions are open to great interpretation and are at times, contradictory.

For example, he proposes that stocks that are “market leaders” are the best stocks to buy because they will remain strong in a bear market but goes on to say that these same market leaders will “turn on their heels first.”

But, besides the overall wishy-washy advice, there is some meat in the book. On pages 103-106. Here he gives information on when to sell. Not cut and dry though. 36 separate reasons to dump a stock. You better have them memorized as well, so you don’t make a crucial error and see a head and shoulder pattern when you should have seen a cup with handle pattern.

Overall, I would have to say this is a good book to buy, study, read over and over again, then buy other similar like-minded books, and trade (uh, invest) in some stocks. That is, if you don’t already have a job and are rich enough to not be hurt with all of the commissions etc…

I can’t devote that kind of time, and frankly, I am busy all day. What’s more, how can I be constantly trading and doing all this research into stock patterns and charts and whatnot. It is not for me.

Then, a few chapters in the middle of the book are nothing except an add for Investors Business Daily.

I know this rambles a bit, forgive me, it is late. The overall message is cut your losses early, buy market leaders with good solid earnings, and let your winners ride. Oh, and there are a few pages in the back that say if you don’t want to invest the trememdous amount of time it takes to use his system, then buy some mutual funds, hold them long term, and you will be rich anyway.

So what to buy with my own $500 cash-money based on this book? This is easy. He helpfully compiles a IBD 100 index of great stock buys. So, looking down the list….ah, here we go, SAM. Boston Brewing company. They make Sam Adams beer. Sounds good to me. Buy it and forget it. Case closed. Sorry about the pun.