Compounding investing wisdom...
by Jon
John Bogle talked about his biggest mistake during a 2006 interview.
A unique set of circumstances — starting with the “Go-Go” Sixties and ending with the brutal 1973 – 1974 bear market — led him to put his cost matters hypothesis to the test and change the investing landscape forever.
It’s an interesting story with a happy ending and a few lessons strung throughout.
Here’s Bogle: Continue Reading…
by Jon
Journaling your investments is a tip that pops up a lot because it’s common sense. Aside from being cathartic, writing gives you an idea of how well you understand an investment.
And once written, you have a handy reference — a reminder of why you’re doing what you’re doing — for whenever an investment deviates from your expectations. It becomes a short term aid to help avoid typical emotional mistakes.
Writing it down also works in tracking your emotions. How did you feel about the market correction or spike in volatility or other latest market event? What action did you want to take? Did you follow through? Why or why not?
Because large gaps can happen between these events, and investors tend to forget, you now have a reminder of how you felt the last time it happened. You might even notice patterns of stupidity (or brilliance?) — your unique cycle of emotions — to help stop any repeated mistakes.
Gerald Loeb covers writing about investment in his book The Battle for Investment Survival. He refers to stocks but it works for any investments, asset allocations, or strategies too. Here’s what he had to say: Continue Reading…
by Jon
Carol Loomis wrote about the benefit of buybacks in 1985:
Working with the 1,660 stocks covered by the Value Line Investment Survey, we identified companies that bought significant amounts of their own common stock in the ten years from 1974 through 1983. Next we reduced this list to voluntary repurchasers — cutting out, for example, companies that had bought the shares by paying “greenmail” to get rid of a threatening shareholder. Then we measured the total returns (stock appreciation plus dividends) earned by shareholders from the approximate dates of each repurchase “episode” to the end of 1984…
The outcome is spectacularly decisive. The shareholders in the buyback companies earned superb returns, far exceeding those accruing to investors as a whole. For all episodes measured, the buyback companies showed a median total return, expressed as an annual average, compounded, of 22.6%. The equivalent return for the S&P 500 was only 14.1%. That difference of 8.5 percentage points is enormously significant to an investor.
This information has been floating around ever since and the research shows the strategy still works.
The reason comes down to basic math. Buffett calls it smart allocation: Continue Reading…
by Jon
Henry Singleton was one of the best capital allocators and Teledyne was his masterpiece. Stock buybacks were a big part of its success.
Singleton started Teledyne in 1960 but it wasn’t until 1966 when the story really begins. The year prior, it’s stock jumped from $15 to $65.
Singleton took advantage of an enthusiastic market and went on a shopping spree. By 1970, he had acquired 130 companies using Teledyne stock trading between 40x to 70x earnings. The shares outstanding quadrupled from 1965 to 1970 (mostly through acquisitions via stock, but also a 3% stock dividend — a dividend paid in shares rather than cash — paid on four of those years).
Then ’70s bear market hit. Teledyne stock tanked. It’s P/E dropped below 10.
An outsider only looking at the stock price would see a horrendous picture. An investment in Teledyne in 1966 would rise 235% by 1968, then tumble to a 40% net loss by 1974. It was a devastating round trip for anyone who hung on. Continue Reading…
by Jon
Market volatility always picks up a couple of times every year and somehow investors seem surprised about it. That can lead to mistakes that feel right at the time.
And the mistakes are numerous and inevitable. Behavior is at the root of it.
It’s only natural to get caught up in the gyrations of the market. Why is it happening? What’s gonna happen next? What should I do about it? The poor “advice” for those questions, and more, are endless. It’s important to remember that things rarely are as bad or as good as they seem.
The real solutions, however, tend to be few. For most people doing nothing is the best response in the long run, despite it feeling wrong sometimes.
The other is to remember that stocks represent businesses that can become mispriced at times. The only way to seize those opportunities is to be prepared in advance.
But don’t take my word for it. Here are some wise words on market volatility — the mistakes, misbehavior, and opportunities — from brighter minds than me: Continue Reading…
by Jon
Finance has a language all its own, with unique phrases that go back a few centuries. A few good examples can be found in an 1875 sales pamphlet book from John Hickling & Co.
Readers got the total Wall Street experience — they snuck in a weekly newsletter and “improved” trading system sales pitch — while learning about the Men and Idioms of Wall Street (not much has changed).
Promotions aside, the idioms are spot on and still offer a few lessons. So I thought I’d share a few that stood out: Continue Reading…