At camp, the counselors empty half
each kid's toothpaste into the garbage and rub their toothbrushes
in the dirt. It's so that it appears they've brushed their
trust. So it is
with bank financial statements and other things.
Esse quam videre.
A few finance lessons from Columbia professor Louis
Wall Street gets paid for persuading people to change their
minds. There are
only a certain number of shares of GM and Wall Street
gets paid for persuading some people to buy and other
people to sell -- to play a game of musical chairs. It's like asking the croupier whether you ought
to go to the roulette table.
A junk bond is a common stock dressed up to look like a
nothing underneath it.
It doesn't have the security of a bond, and it
doesn't offer the rewards of a stock. A lot of people argue that junk bonds are doing fine. My answer is brief: If you ask a drunk a 11:30
at night how he feels, he'll tell you he feels fine. The question is, how will he feel at 6 in the
Options and futures are a parasite on the markets. Stock index futures are like trying to guess
which way the bird will fly when it leaves the tree. It's a zero-sum game.
A share of stock...is a part-interest in a business. And if you understand that, you;ll not only
invest intellignetly and vote intelligently, you;ll act
like an owner and youlll enable the market to function
and the company to behave more efficiently.
But if you lose sight of that -- and think of stocks
as a speculative medium, with the emphasis on stockmarket
values rather than business values -- then you have no
landmarks, no signposts to help you in your investment
you'll have left is the stock market...and then you're
subject to all the whims and changes of fancy of the stock
market. As a result, you'll find yourself both puzzled
and, most often, poorer.
Tight money, indicated by high interest rates, cause
downturns in the market and depressions, while cheap money
J.P. Morgan, testifying before Congress in 1912, was
asked on what basis he loaned money.
"The first thing is character." "Before money or property?" "Before money or anything else. Money cannot buy it."
"But where are the customers' yachts?"
Best investment books (says Forbes): The Money Masters by John Train (verrry entertaining,
too); the Intelligent Investor by Benjamin Graham (bible
of value investing); The New Contrarian Investment Strategy
by David Dreman (low P/E stocks, etc); Classics, An Investor's
Anthology by Charles D. Ellis (excerpts from the masters).
half the initial public offerings since the beginning
of 1979 now (6/89) sell for more than their offer price.
Only a third beat the S&P 500.
the thin file strategy "When the file
gets fat with brokerage firm reports and clippings--when
the company has been discovered and turns up on the cover
of a business magazine--then you know it's time to sell."
Peter Cannell (If a company gets mentioned frequently,
chances are the world has fully, or more than fully, incorporated
its future into today's stock price.)
Rosenberg: investor must chose between eating well and
John Train (in Harvard)... "Quite often great investors develop entirely
new techniques for discovering value and so have easy
pickings until others catch on.
Spotting countries just as their markets become
suitable for investment is an interesting example."
"A bank is a place where they lend you an umbrella
in fair weather and ask for it back again when it begins
to rain." --
"Buy low, sell high and charge a fee."
"You can't go broke taking a profit."
"What everybody knows isn't worth knowing."
"When they raid the house, they take all the girls."
(vs. "It's a market of stocks, not a stock market.")
"The trend is your friend."
"Buy on the rumors and sell on the news."
Liar's Poker, an irreverent history of Salomon
To succeed on the Salomon Brothers trading floor, a person
had to wake up each morning "ready to bite the ass
off a bear."
On October 6, 1979, Volcker announced that the money supply
would cease to fluctuate with the business cycle; money
supply would be fixed, and interest rates would float.
Government, consumer and corporate indebtness grew from
$323 billion in 1977 to $7 trillion in 1985.
Who needed the fucking customers anyway?
If somebody quit on the trading floor, they'd look at the
nearest body and say, "Do the job.
Hey, kid, you're a smart kid, sit here."
"I'm sorry, we're in the middle of a feeding frenzy,
I'll have to call you back"
"God gave you eyes.
Milken noticed that investors were constrained by appearances
and, as a result, had left a window of opportunity for
a trader who was not.
(Opportunity for socially reprehensible investing?)
Milken was saying that the entire American credit-rating
system was flawed. It focused on the past when it should have
focused on the future, and it was burdened by a phony
sense of prudence.
Putting money into stocks is far
more profitable than putting it into bonds, certificates
of deposit, or money-market accounts.
Never invest in any idea you can't
illustrate with a crayon.
Hold no more stocks than you can
remain informed on. Invest regularly.
The key to making money in stocks
is not to get scared out of them.
Today approximately 75% of all mutual
fund dollars is parked in bond and money market funds.
People who can't tolerate seeing
their stocks lose 50% of their value shouldn't own stocks
also applies to stock funds.
If you are an average investor, you
can duplicate this strategy in a simpler way by dividing
your portfolio into, say, six parts and investing in one
fund from each of the five fund types mentioned above,
plus a utility fund or an equity and income fund for ballast
ina stormy market. (Above are value, quality gowth, capital
appreciation, emerging growth, dividend raisers fund,
and convertible securities fund.)
When you add money to your portfolio,
put it into the fund that's invested in the sector that
has lagged the market for several years.
The Rule of 72 is useful in determining
how fast money will grow. Take the annual return from
any investment, expressed as a percentage, and divide
it into 72. The result is the number of years it will
take to double your money.
If you like the store, chances are
you'll love the stock.
A stock should see at or below its
growth rate. (Its p/e should be below the % increase in
"It's so popular, nobody goes
there anymore." When an industry gets to popular,
nobody makes money there anymore.
You can beat the market by ignoring
In the long term, there is a 100
percent correlation between the success of the company
and the success of its stock.
Sell a stock because the company's
fundamentals deteriorate, not because the sky is falling.
If you don't study any companies,
you have the same chance of success buying stocks as you
do in a poker game if you bet without looking at your
from The Wall
Street Journal, May 20, 1994, On mutual funds...
You're probably better off in an index fund. Diversified
stock funds returned 12.8% in last 10 years, compared
with 14.9% for the S&P. Large fund complexes generate
more consistent results because there has to be a certain
level of competence to hold a job there. You're better
off with a no-load fund (12.8% vs. 12.7% before the load).
Go for growth-oriented stock funds if you're worried about
taxes. (THeir dividends are more stable than fluctuating
capital gains payouts.) Favor low-cost funds (their returns
are 13.4% vs. 11.5%).
alan webber: the new economy is first
and foremost a celebration of individualism and enterprise.
More than simply overturning the old notion of accounting,
it overturns the old notion of corporatism: the correct
unit of measurement today is "the unit of one"-one
person with a powerful idea, enough technology to support
the idea, enough money to grow the idea, and enough of
a network of allies to proliferate the idea. It is an
economy of "free agents" in the best sense,
an economy that liberates individuals to do their best
work, develop their best abilities, generate their best
opportunities-and then hold themselves accountable for
Notes from Robert Reich's The Work of Nations
The American economy of the 1950s was the engineer of mass
production. Its defining characteristics are still solidly
fixed in America's collective memory, and although the
image bears almost no relation to how the economy is organized
today, it continues to condition the thinking of many
Americans at century's end.
At its core stood about five hundred major corporations which,
by midcentruy, produced about half of the nation's industrial
output (about a quarter of the output of the free world),
accounted for about 40 percent of the nation's corporate
profits, and employed more than one out of eight of the
nation's nonfarm workers.
Today the core corporation is, increasingly, a facade, behind
which teems an array of decentralized groups and subgroups
continuously contracting with similarly diffuse working
units all over the world.
High volume--->high value
Core pyramids-->global webs
"American" corporations and "American"
industries are ceasing to exist in any form that cna meaningfully
be distinguished from the rest of the global economy.
Nor, for that matter, is the American economy as a whole
retaining a distinct identity, within which Americans
succeed or fail together. Thus, to assume that revitalization
of these abstract entities will help Americans is to engage
in a form of vestigial thought. The standard of living
of Americans, as well as of the citizens of other nations,
is coming to depend less on the success of the nation's
core corporations and industries, or even on something
called the "national economy," than it is on
the worldwide demand for their skills and insights.
In the high-value enterprise, only one asseeet grows more valuable
as it is uded: the problem-solving, -identifying, and
brokering skills of key people.
production jobs • in-person
service jobs • symbolic
jobs of symbolic analysts:
Americans love to get worked up over American education. Everyone
has views of education because it is one of the few fields
in which everyone can claim to have had some direct experience.
Those with the strongest views tend to be thoses on whom
the experience has had the least lasting effect. The truly
educated person understands how multifaceted are the goals
of education in a free society, and how complex are the
Remarkably often in American life, when the need for change
is more urgent, the demands grow most insistent that we
go "back to basics."
The formal education of an incipient symbolic analyst entails
refining four basic skills: abstraction,
system thinking, experimentation, and
The secession of symbolic analysts form the rest of America
has proceeded calmly and quietly. ...widening divergence
in incomes, growing difference in working conditions,
regressive shift in tax burden, difference in quality
of education available to their children, increasing difference
in recreational facilities, roads, security, and other
local amenities available to them....
Rather than increase the profitability of corporations flying
its flag, or enlarge the worldwide holdings of its citizens,
a nation's economic role is to improve its citizen's standard
of living by enhacing the value of what they contribute
to the world economy. It is not what we own that counts;
it is what we do.
"The predictable future of all prediction notwithstanding...."
From the WELL:
Factors outlined by Reich or the MIT Task Force on U.S. Competitiveness
surely hit the bulls-eye (lagging investment, inadequate worker
skills and education, declining R&D expenditures, absence of long
range planning, paper entrepreneurialism,
etc.) But to acknowledge
that does not mean
Japanese economic behavior is not a variable of considerable importance,
especially where strategic, new technologies are involved.