Tag Archive: Peter Lynch


Pass the Maalox!

The Dow lost 651 points on Xmas Eve.

The Dow gained a record 1,066 points the day after Christmas.

The Dow lost 611 points Thursday morning only to finish up 260 points in the very same afternoon.

What’s the lesson for retail investors competing in an unfair market?

Don’t go all wobbly over the Dow Jones.

More to the point: Never panic.

And let’s not forget: Don’t morph into Gloomy Gus or Negative Nancy when the market gyrates downward.

Just as important, never become a Pollyanna when the markets surge. Stay grounded.

Since October 3, the ever-downward market psychology has resulted in traders selling the rallies as opposed to buying the dips.

Buy Low, Sell High has been redefined … at least for now.

Algos Giveth; Algos Taketh Away

Almost DailyBrett clearly recognizes the Wall Street playing field is not level; it tilts downward to the “institutions,” the Buy-Side and the Sell-Side traders.

Similar to Oakland Athletics general manager Billy Beane (played by Brad Pitt) in “Money Ball,” the Charles Schwab retail investor (e.g., me) is competing in an unfair game.

Isn’t the easy solution to simple not invest in Wall Street, stick your money in a bank with pathetic interest rates or maybe even under the mattress?

Having said all of the above, the markets remain the choice investment vehicle for the 54 percent of Americans who constitute the Investor Class. These optimists about America’s future devote discretionary revenues in stocks and stock based mutual funds to pay for retirement, health care, children’s education or that dream vacation.

There is a ton of advice out there about taming the markets – some counsel is sound, other “advice” is dubious.

What is the humble advice from Almost DailyBrett, who has invested in markets for 25 years and who taught Corporate Communications and Investor Relations at two major universities?

There are Bulls. There are Bears. And Pigs Get Slaughtered

 “Know what you own, and know why you own it.” – Investor Peter Lynch

  • Your author believes in building your own mutual fund, instead of always paying a fee for someone else (e.g., Fidelity) to manage your money. And when you do structure your very own mutual fund make sure you know why you own each stock (thank you Peter), and make sure you diversify these holdings (everything can’t be tech).

For example, Almost DailyBrett presently owns Apple, McDonald’s, Nike and Salesforce; just sold Boeing. Two are differing tech stocks, one feeds 1 percent of the world each day, and the swoosh just does it as the leader in athletic apparel.

  • Passive investing is a loser. Building wealth is work. Far too many just purchase mutual funds at work through pensions and 401Ks or IRAs at home and literally forget about them. Really? This is your money. What is being done with your money? What are your returns? Forget passive. Be active.
  • Use or consume the product/service of the companies you own (i.e., Apple iPhones, McDonald’s Big Macs, Nike running shoes …). Understand very clearly how a company makes money. If you can’t comprehend why shares are increasing (e.g., Bitcoin), don’t invest. There is a world of difference between investing and gambling.
  • The harder mental gymnastics is not when to buy, but when to sell. Think of it this way: On Wall Street, there are bulls, there are bears … and pigs get slaughtered. Set upside-and-downside sell targets for your stocks. When they reach these points, ring the register. Sure wish your author always followed his own advice.
  • Accept the algorithms. The big institutions (not you) have pre-programmed servers with instruction algorithms that automatically to the nanosecond buy or sell large blocks of stocks whenever certain market price points are triggered. The game is not fair. Accept it.
  • For the longest time the bulls have been running (e.g., November 2016 – October 2018), and corresponding market psychology has been optimistic (bad news discounted). Since the start of the bear market on October 3, the psychology has dramatically shifted to the negative (good news is irrelevant). If you invest, you will experience both moods.
  • Most of all: Don’t panic. Stay active. Remain calm. Sometimes strategic retreat is necessary. Sell underperformers and convert to liquid. Cash is always king. There will be a bottom. There will be a day to buy low with the hopes of selling high.
  • Know your level of risk. If you can’t accept gaining $10,000 one day, and giving $9,000 back in the next day (a $1,000 gain for those scoring at home), you shouldn’t be investing in markets. Pathetic bank interest rates or under the mattress is right for you.

Yes there will be a day when it is time to buy the dip, while those who try to sell the rally end up losing their … fill in the blank.

Mark Parker of Nike is also one of my mutual fund advisors.

Ditto for Marc Benioff of Salesforce.com

Let’s not forget of Dennis Muilenburg of Boeing.

Can’t tell you how many times Almost DailyBrett has been told to invest anything and everything into mutual funds.

For the record 70 percent of your author’s Charles Schwab portfolio is held in mutual funds, the largest amount managed by William Danoff of the Fidelity Contrafund.

Having made this point, let’s take a contrarian stand.

Why can’t investors create their own mutual fund comprised of individual and diversified stocks within their own portfolios?

Whoa … aren’t you the investor taking on too much … risk? Shouldn’t you diversify?

The humble answers are “not necessarily” and “yes.”

As legendary investor Peter Lynch once said: “Know what you own, and know why you own it.”

When it comes to investing and in the spirit of Lynch’s axiom, Almost DailyBrett follows these self-formulated rules:

  • Never invest in a stock in which you personally detest/loathe the lead executive (e.g., Oracle’s Larry Ellison)
  • Buy shares in firms you personally use or have a 100 percent understanding of how the company makes money (e.g., Apple).

For example, ever cutesy Scott McNealy of extinct Sun Microsystems once labeled Microsoft’s Steve Ballmer and Bill Gates as Ballmer and Butthead. McNealy would have been funny, if his company stock wasn’t trading at the very same time at $3 per share.

Whatever happened to Scott McNealy? His company was devoured by Oracle.

Another example: your author won’t touch Bitcoin because even though it is the choice of money launderers around the world, the crypto currency is not associated with any country and there is zero logical explanation of how it makes money.

Isn’t Tim Cook A CEO?

Why is Tim Cook my mutual fund portfolio manager?

Doesn’t Cook run the largest capitalized – $1 trillion-plus – publicly traded company in the world? Absolutely.

Almost DailyBrett clearly understands that Apple is not a mutual fund, but still it offers the complexity, confidence and diversity of a mutual fund.

Apple plays in the hardware (i.e., smart phones, tablets, wearables, PCs) space. Ditto for software (e.g., iOS) and services (e.g., iTunes). Think of it this way, Apple has as many if more investors as any mutual fund … including mutual funds themselves – both buy side and sell side institutional investors – and 75 million shares recently bought by Warren Buffett too.

And who runs this diversified enterprise with the expectation of $60 billion to $62 billion on the top line in the next (fourth) quarter? Revenues grew 17 percent year-over-year. Gross margin remained steady at 38 percent. EPS jumped year-over-year from $1.67 to $2.34 and dividends grew from $0.63 to $0.73.

The dilemma for every Apple investor, particularly today, is when is it time to ring the register at least for a portion of the shares? Almost DailyBrett does not hear very many bells clanging.

There is little doubt that Apple is tearing the cover off the ball. Apple has proven it is not necessarily the number of smart phones sold – even though these mobile devices are an absolute must for our lives – in many ways it is the average sales price, climbing closer to four figures for every unit.

Back to Danoff and Fidelity Contrafund. Today it has a reported $130 billion in assets under management. Cook counters with $1 trillion in investor confidence in Apple’s shares.

Which “mutual fund” manager would you choose, if you could only select, one?

And for diversification, you package Apple with Boeing (U.S. commercial airliner and defense aircraft innovator and manufacturer) …

And Nike, the #1 athletic apparel manufacturer in die Welt.

Finally, Almost DailyBrett has bought Salesforce.com nine times and sold eight times for a profit. To describe Salesforce.com as business software company seriously understates its business strategy.

With all due respect to Satya Nadella of Microsoft, Salesforce.com is THE Cloud pioneer selling software as a service (SaaS) to enterprises around the world.

Let’s see: Apple, Boeing, Nike and Salesforce.com in the Almost DailyBrett mutual fund.

Is your author right? Only time will tell. Will this “mutual fund” adjust and change its holdings? No doubt.

Here’s the point: As Ken Fisher of Fisher Investments would say, it’s time to “graduate” from pure mutual funds.

There is risk associated with selecting stocks for your portfolio, but isn’t that also the case for mutual funds? Some think that mutual funds are no brainers. Not true, and let’s not forget the fees.

When it comes to my “mutual fund” portfolio — AAPL, BA, NKE, CRM — the only fees yours truly pays are $4.95 per trade.

Not bad, not bad at all.

https://fundresearch.fidelity.com/mutual-funds/summary/316071109

https://www.apple.com/newsroom/2018/07/apple-reports-third-quarter-results/

Investing without research is like playing stud poker and never looking at the cards.” – Über-investor and former Fidelity Magellan Fund manager Peter Lynch

peterlynch1

Couldn’t help but note Lynch’s gambling metaphor when it comes to investing in global markets.

There are many who absolutely contend, and will not be convinced otherwise, that investing in Wall Street is nothing more and nothing less than gambling. They even talk about playing the market.

Are the Manhattan-based NYSE and the NASDAQ stock markets, Las Vegas East?

Or is Las Vegas, Wall Street West?

Can’t say the author of Almost DailyBrett is an expert about either gambling (never been to Lost Wages) or investing, but I do know enough about Wall Street to be dangerous.

And based upon this finite knowledge, let me proclaim IMHO: Investing in Wall Street is not gambling, provided that you do your homework, and as Peter Lynch has stated, “Invest in what you know.”

Strategic Business/Financial Communications

The academic paper for my M.A. project at the University of Oregon School of Journalism and Communication provided the backdrop for the creation of an upper division college course: Strategic Business/Financial Communications. I was privileged to teach the course that I created.

Many students thought that Strategic Business was a math class. Ahh … I flunked geometry in high school. Screw the Pythagorean Theorem. Yours (left-brain challenged) truly cannot and will not ever teach a math class. Instead, communications’ students learned a new language – speaking, writing, hearing, reading – the lexicon of Wall Street.

There is a reason why financial communications/investor relations are easily the highest compensated segments of the public relations profession. According to Salary.com, IR directors received in the range of $97,753 to $201,565 annually in 2013. Corporate PR directors received $86,469 to $167,836 in the same year.

This is serious money, not including stock purchase plans and options. And why is that? Both jobs demand qualitative excellence (e.g., developing relationships with analysts, investors, reporters, employees) and quantitative skills (e.g., reading income statements, balance sheets and cash-flow statements).

investorrelations

Which brings us back to the point as to why Wall Street is investing and not gambling. The answer lies with responding to a basic question: How does a company make money?

Microsoft sells software and video game consoles. Boeing produces airplanes. Google is the No. 1 search engine. Apple is Macs, iPods, iPhones and iPads. Nike makes athletic shoes. Amazon is the No. 1 digital retailer etc.

And backing up the answer to these questions is a plethora of facts, figures and information. Looking up a stock on Yahoo Finance, CNBC, Wall Street Journal, Reuters, MarketWatch.com, The Street.com and others is the easy part.

There are also the aforementioned income statements (revenues and net income…there is a major top-line and bottom-line difference), balance sheets (assets and liabilities), CEO letters, annual reports, analyst reports and more. The sheer volume of this data can be overwhelming, but it is all there, free of charge.

Leading or Trailing Indicator?

“ … Don’t care where a stock has been, only where it’s going.” – CNBC Mad Money Jim Cramer.

Cramer is fond of stating that he really does not care about a stock’s past, only its future. That answers the leading vs. trailing indicator question. Stock prices are an indicator of the expected/anticipated/projected/forecasted upward or downward direction of a company’s business prospects.

cramerbuy

How do we know whether a company is doing well or not? Certainly there are oodles of information online, maybe even too much data. There is also your personal experience.

Ever observe the perpetual line out the door at Starbucks as people queue to pay $4.00 for that overpriced grande mocha with no whip.

Ever notice that Southwest Airlines only offers peanuts and a soda; you can choose your own seat; the airline only flies Boeing 737s; and the flight attendants are actually Pharrell Williams Happy?

Ever note the high prices, superior quality, commitment to service and high-traffic stores at Nordstrom?

And did you ever wonder about all the hoopla about “The Cloud” or the access of Big Data contained in mega servers and offered in manageable chunks by a company such as Salesforce.com?

When one mentions “Hog,” your mind may conjure a barnyard or you may think about high-performance, big muscle motorcycles. Want to invest in one of the country’s great comeback stories? Just enter NYSE: HOG or Harley Davidson into the search engine.

“The House Always Wins”

When one is mathematically challenged, it is best to stay away from Texas hold-em or the black-jack table. Can’t tell you how many times I have heard the phrase: “The House always wins.”

wallstreetgambling

That’s not to say that there are not legitimate complaints about Wall Street, particularly as it applies to executive compensation for underperforming CEOs. And there are those who contend the market is rigged against the little guy, the retail investor.

There is no doubt that cash is king. And the buy-side (e.g., PERS, Fidelity, Putnam) and the sell-side (e.g., Goldman Sachs, Morgan Stanley, J.P. Morgan) own the lion’s share of company shares. The respective analysts for these investment houses naturally draw the most attention from publicly traded company execs.

Having said all of the above, there are still opportunities for the retail (e.g. Charles Schwab, eTrade, TD Waterhouse) investors. The time-tested tenets of diversification, doing your homework, know who you are buying and why, still apply.

Sure beats investing in a 0.02 percent passbook account, plunging hundreds of thousands into real estate that could go underwater, stuffing dollars under the mattress or even playing the Roulette wheel in Vegas.

http://en.wikipedia.org/wiki/Peter_Lynch

http://25iq.com/2013/07/28/a-dozen-things-ive-learned-about-investing-from-peter-lynch/

http://www.cnbc.com/id/15838187

http://www.thedigeratilife.com/blog/jim-cramer-stock-picks-money-tips/

http://www.salary.com/

 

 

 

Ten years ago, a friend of mine was getting his knickers in a twist about a hugely successful, $101 billion energy-trading company from Houston, Texas that had just completed a takeover of his firm, a Pacific Northwest public utility.

He told me that these Texans were so friggin’ smart, in fact they were “The Smartest Guys in the Room” – I believe their names were Ken, Andrew, and Jeffrey – and that I needed to buy stock in their company pronto.

So I did some homework. And even more homework. And still some more homework…And I just couldn’t for the life of me figure out how this company made money. And the more I read, the more dazed and confused I became. Why would anyone pay gobs of money to this company to broker energy deals…sounds like a very expensive middle man?

Out of frustration because of my lack of business acumen, I didn’t invest a dime in this company. I think it was called…Enron (NYSE: ENE).

Which brings me to Somali Pirates and the question of whether there should be an IPO (Initial Public Offering) for their business?

somali

A cursory check on the CNBC website indicates that no NYSE-member company has the ticker symbol, PRT, or Pirate, and no NASDAQ-member has the ticker symbol, PIRS, for Pirates.

More importantly Somali Pirates has a “devastatingly effective business model,” according to the most recent edition of The Economist. The UN estimates that the annual cost of piracy lies somewhere between $5 billion and $7 billion (top line?). The Economist reported that Somali Pirate “earnings” (bottom line?) reached $238 million. To top it off, the pirates are now accepting ransom payments via electronic funds transfer.

“Great Investor” Peter Lynch has repeatedly stated that the difference between investing and gambling is that investors need to clearly understand a company’s business model and why they are buying shares. CNBC’s Jim “Mad Money” Cramer has repeatedly reminds his viewers that share prices are a leading indicator of the anticipated direction of a stock and that he is not interested in a stock’s past, only its future.

If you take both Lynch and Cramer at face value, and many other Wall Street talking heads, then you have to be excited about investing in Somali Pirates. We can all figure out how they make money (e.g. seize shipping, demand ransom, receive revenues either in cold, hard cash or via EFT). Got it. Wish that Enron was that clear…or maybe not.

Better yet, they are a minority-run-and-operated business. Do you think they would receive preferential treatment from the federal government?

What are the COGS (Cost of Goods Sold) on the financial statement for Somali Pirates? Mostly speed boats, AK-47s, rocket-propelled grenade launchers and scaling ladders. They have reduced these costs somewhat by using “mother ships,” often captured deep-sea fishing vessels that they use as floating bases for their fast skiffs. Even though there are no hard-and-fast COGS numbers, there is every indication that the gross margin for Somali Pirates is expanding, not contracting (WallStreetease…).

What about personnel costs? Somali Pirates hail from the ultimate low-cost state (or more accurately, no state), Somalia. They don’t need to outsource to India. Let’s see that means that we can enter almost zero next to the line on the financial statement for SG&A (selling, general and administrative), unless you consider demanding ransoms to be “selling.”

How about R&D? The response by naval forces in the region about the size of Western Europe poses a risk to the business model of Somali Pirates, forcing them to operate further and further away from Somalia. Obviously some more work needs to go into supply over such long distances. And apparently they have not been successful catching up to ships making 18 knots or more…Sounds like they need to invest in competitive research focused on speed-boat technology.

Okay, so now we should have an operating income figure. Which brings us to taxes? What taxes? How about GAAP reporting? What’s Generally Accepted Accounting Principles to a bunch of pirates?

And finally, what about the threats to the business model of Somali Pirates? And will they prefer, similar to Facebook, to remain private…at least for the time being? There is a very real possibility that there will never be an IPO for Somali Pirates.

Maybe Goldman Sachs will just set up a hedge fund and invite wealthy investors to take their own stakes in privately held Somali Pirates. Besides who needs the headaches associated with quarterly earnings reports, pre-announcements, chairman’s letters, annual meetings of shareholders, SEC enforcement and the prospect of corporate raiders?

Think of it this way, if Wall Street-types could embrace Enron with irrational exuberance, then what’s to stop them from investing in a bunch of pirates?

http://en.wikipedia.org/wiki/Enron:_The_Smartest_Guys_in_the_Room

http://www.investopedia.com/university/greatest/peterlynch.asp

http://www.cramers-mad-money.com/

http://www.economist.com/node/21015664

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