People love a good story and the market is an endless supply of tragedy and possibilities. You just have to pick the right script.

Tales get told every day about why the market did what it did, why a stock went up or down, or how some bit of news affects markets going forward.

It’s just stories…tall tales…fairy tales…sometimes…that can help make sense of the information because a narrative is easier to digest than all the data. This works out well if the stories take an objective view, but that’s not always the case.

Instead, we often get cherry-picked data to create a good story or fit some preconceived conclusion. Or we string together a series of data to explain how and why something happened and how it impacts the future when really it was a series of random events (since random, luck, and chance don’t add a sense of certainty, we create a story instead).

Story stocks thrive on this: Continue Reading…

Only owning 30 stocks, in a world awash in index funds, probably sounds inadequate.

It’s not.

Ben Graham made the argument for owning 30 stocks in the last post. He also argued for owning an index. I say both are acceptable.

I could argue that 30 stocks are five or ten more than necessary. I once only owned five stocks, which was probably too few. Though, Charlie Munger seems to think five is adequate for him.

The point is that 30 isn’t an outrageously inadequate number. Also, what might be right for Charlie, may not be right for you or me. So don’t invest like him, if that’s the case.

But owning 30 stocks is enough because the math says so. Joel Greenblatt did the work for us in You Can Be A Stock Market Genius: Continue Reading…

This week marked the 30th anniversary of Black Monday. There are a lot of lessons to take away from that day and the events that lead up to it (the elusive lesson for many of us is how we’d react in that instance).

For instance, Robert Shiller made an important point about the impact of putting so much focus on what everyone else is doing (emphasis mine):

The declines that had already occurred in October 1987 looked a lot like those that had occurred just before the October 1929 stock market crash. That graphic in the leading financial paper, along with an article that accompanied it, raised the thought that today, yes, this very day could be the beginning of the end for the stock market. It was one factor that contributed to a shift in mass psychology. As I’ve said in a previous column, markets move when other investors believe they know what other investors are thinking.

Warren Buffett said the same thing in his ’87 letter (again, emphasis mine): Continue Reading…

I wrote about the reach for yield a few weeks ago. Here’s the dividend stock edition for yield chasing.

Alliance Bernstein has a graph showing what investors are getting from dividend ETFs versus a growth stock counterparts.

Today, investors are currently paying growth stock prices for dividend stocks. That might be okay if dividend stocks got growth-stock-like earnings growth. But that’s rarely the case.

The reason most dividend stocks pay a dividend is that their earnings growth is limited. If they could reinvest more earnings to grow at a higher rate, they would. But they can’t. So they don’t. So they choose to pass a portion of earnings on to shareholders. Continue Reading…