2011年6月23日 星期四

Where are the Customers' Yachts? or A Good Hard Look at Wall Street

This  book has to be the wittest book that I have ever read about the people and the institutions of the stock market.   The book is written by Fred Schwed, a former stock broker on Wall street, except in those days, brokers are called "customers' men."

Even though the book was written in the 1940s, when you read it today, it would still be very much relevent. In fact, you got this funny feeling that the more things change, the more they stay the same.
The book is written in a very witty way with a satarical and penetrating tone.  Reading this book in English, it is great joy. However, some of the most funny sentences in this book, I am not even sure can be translated. 
There are some of the wittest sentences that I have ever read about stock market.  Below are some examples:
1. About the difficulty in finding good "investment trust management" equivalent of today's money managers, "simply because there is practically no competence to be hired."
2.About the chartist, "As a science, I should say that chart reading shares a pedestal with astrology;"
3. About the lack of customers for brokers, "eventually even backgammon gets tiresome. So they begin to play the market themselves, using their own money instead of customers'. It is like a saloonkeeper taking a drink in a slack season, and the results are about the same."
4. About the passion of prediction of brokerage houses, "On the economic side there is no denying that the more financial predictions you make the more business you do and the more commissions you get."

If you are about to "start investing in the stock market" or have been in the market for a while but not able to consistently make money, or God forbid, you have been "gambling in stock market for excitement and entertainment," I suggest you to read this book.   Somehow someone should tell you the truth! 

ISBN: 0471770892 (English)
           9578457030 (Chinese Tradtional)
           9787111302452 (Chinese Simplifed) 

2011年6月17日 星期五

So the management wants to buy you out? What do you do?

Let’s say that you are a small value investor. Somehow you bought this cheap stock and hold this cheap stock.

Now one day out of blue, there is this news that the management wants to buy out the stock investors and take the company private. What do you do?

Well, this is what I will do:
1. Find out the terms of the deal. What is the management offering to take your part of company away from you? What is the market price that you can get for your share of the company today?
2. Figure out how long it typically will take for the deal to work out.
3. Assess the possibility of the deal to work out.
4. Assess the stock’s intrinsic value in connection to the market price. What do you think the stock will be worth 2 to 3 years later if the buy our deal fails?

The first 2 steps give you the gain and the annualized return assuming the deal passes. Typically the gain itself could only be a few percents. However, depending on the time it takes for the deal to work out, the annualized return can be 25%-40%. These kinds of returns are high compared to the 10% long term stock market return.

Interestingly, probably due to the small “raw” gains from this kind of situation, not that many individual investors try to look into this.  A second possible reason is that once a company is taken private, its information is no longer tracked by many financial information services. This makes studying this kind of situations hard for typical small investors to understand how this works.

Anyway, let’s say that you go through the first 2 steps and now are very excited for you may potentially gain 8% in 2 months as you realize that is a 38% annualized return.  But, wait a minute, the deal could still fall part!

That is why you need to go over the last 2 steps. If the management owns more than 50% of the stock, the deal typically will go through with or without modification in terms. Sometimes the initial offer from the management is so low that the minority shareholders go to court to sue if the local regulation allows. In these cases, typically a small increase 5-10% of buyout price will be offered by the management to appease the minority investors.

The last step is the most important one. I suppose that if you call yourself a value investor, you must have some senses about what the stock is worth, right? How is the market price following the announcement of the buyout offer compared to your estimate of the intrinsic value of the stock?

If the price already reached your estimate of intrinsic value, you may want to sell out directly. Alternatively, you may want to wait for an improvement in deal terms or gain the extra small but high annualized gain from the deal.

If the price is still much lower than your estimate of intrinsic value, you must recognize that this is a “head-I-win, tail-I-don’t-lose” situation. Time to buy big time. In other words, if the deal works, you make small gain with high annualized return in a few months.  If the deal does not work, you make 15-20% a year after 2-3 years, which is not the end of the world.

What I am offering you here is a thought process.  I hope that you find it helpful.  However, your success will depend on how well you can execute the 4 steps that I mentioned above.
Now if you want, you can do this on your own as an exercise using the case of the 國巨 management buyout!

2011年6月14日 星期二

Prof. Andrew Weiss's Investment Do and Don't

I first learned of Dr. Weiss from a guest lecture that he gave at the Business School in Columbia University.
I was deeply impressed by that speech and decided to learn more from Dr. Weiss.

It turns out that Dr. Weiss is not only an economist but also a hedge fund manager. Below are what significant people said about him.
"If I had one person to pick and one guy to put the money in, I would pick him."--Prof. Bruce Greenwald, who taught value investing at Columbia University.
"[Weiss] is a significant person among US economists. I have known him personally for 30 years and I have the highest respect for him."-- Robert Solow, Nobel Prize Laureate in Economics

Below is the note that I took from a speech delivered by Dr. Andrew Weiss at Boston University.

Don't under any circumstances:
1. Buy stocks or bonds from someone who is cold calling you. Especially if they are working for a firm that is not known to you.
2. Put your money in a discretionary account- an account in which the broker can trade without your permission
3. Buy bonds on the secondary market unless you are buying at least $50,000 worth and have gotten at least 3 quotes from different dealers
4. Buy open end mutual funds with high expense ratios. The expense ratio should be less than 0.75% per year for domestic funds and less than 1.5% for foreign funds.
5. Buy a mutual fund with a load or redemption fee.
6. Put your money in a wrap account- an account in which the broker gets a 3% annual fee for managing your money
7. Trade on the bases of past price patterns  (except for tax considerations) or on the basis of what you paid for the stock. (The people to whom you hope to sell your stock don not care what you paid for the stock and your aim is to get more for your stock than you paid for)
8. Speculate in commodities

1. Having a significant fraction of your wealth in the stock of your employer
2. Investment whose value is likely to be low when you need money. These are stocks whose values are correlated with the value of your job or home.
3. Full service stockbrokers
4. Buying mutual funds with high portfolio turnover rates
5. Story stocks- the next cure for cancer, a cure for aids, the solution to the most important problem confronting America. Even if the story is right you still have a good chance of losing a lot of money. UNIVAC (mainframe), Commodore computer (PC) and sea-land (container shipping) were all at the “cutting edge of a revolutionary technology.” They were each terrible investments

1. Diversify to protect yourself against unlikely events. Remember that unlikely is not impossible.
2. Diversify across common stock with very different characteristics. Stocks in different industries and different countries. A collection of very different risky securities can be a much safer portfolio than a portfolio of “blue chip” investments. The Pennsylvania railroad and the new York central railroad, eastern airlines, Bethlehem steel, General Motors, Poloroid, US Lead, were once blue chip investments. Diversifying across countries buying shares in Canadian and UK companies does not give adequate diversification across different countries. Invest in markets that are not highly correlated with US.
3. Sell your losers to take tax loses.
4. Buy securities that have lower prices relative to their earnings or assets.
5. Read the latest 10K and 10Q reports for securities before you buy them. If your stockbroker won’t supply those reports get a different broker or go to the library.
6. Buy US savings bonds in preference to all other fixed income domestic securities (except junk bonds which should be viewed more as stocks) Why US savings bonds? Taxes are not paid until bonds are redeemed. Interest is 85% of 5 year T-bill rate and is recomputed every 6 months for first 5 years- protection against inflation. After 5 years bonds can be redeemed at any time at no penalty-minor penalties for early redemption you get to benefit from falls in inflation without being hurt by increases in inflation.
7. Construct your own mutual fund from stocks featured in mutual choice in Barron’s the favorite stocks of a mutual fund manager is described each week.
8. Buy stocks in companies about which you have some special knowledge- especially if those are companies that will do well if your own employer does poorly.

“I early on learned that any relationship between what they (stockbrokers) said would happen (to a stock) and what did happen was purely accidental.” Donald Baxter, manager of Philadelphia Fund and former stockbroker.

The original video can be found here.---Boston University Speech

2011年6月12日 星期日

Walter Schloss: Factors needed to make money in the stock market--在股市賺錢必要的因素

Walter Schloss(right) and Son Edwin Schloss(left)
  1. 相對於某個基本價值,價格是最重要的因素。
  2. 嘗試找出一個公司的基本價值。請記住,每股股票代表一個企業的一部分,不只是一張紙。
  3. 使用賬面價值(淨值)作為出發點來確立價值的企業。要確定債務不等於 100%的股東權益。
  4. 要有耐心。股價不會立即漲上去。
  5. 不要聽小道消息而購買股票或是為了賺短線而購買股票。如果專業人士能夠這樣做,就讓他們去做吧。也不要因為一個壞消息就急急忙忙的賣股票。
  6. 不要害怕做個孤獨者,但一定要確定你的判斷是正確的。你雖不能百分之百確定,但總要盡量尋找出你的想法的弱點。買入要分批買入,賣出也就分批賣出。
  7. 一旦你已經做出了決定,就要有勇氣堅持你的信念。
  8. 有一種投資哲學並且努力遵循這個投資哲學。以上這些是我自己體驗行得通的方式。
  9. 不要在太急於出售。如果股票價格達到你認為是公平合理的價位,那麼你當然可以賣。但往往因為股票上漲了50%,大家就想也不想賣掉它,以便讓利潤落袋為安。在賣出前應當嘗試著重新評估公司的價值,看股價相對其帳面價值(淨值)是如何。也需要注意股市的高低。股市是否是低殖利率和高本益比率嗎?如果股市相對於歷史是在高水平,是否人人都非常樂觀?
  10. 當購買股票時,我發現在過去數年低點的附近買入是有幫助的。 一隻股票可能會漲到高達125塊一股,然後開始下降到60塊一股,你以為它蠻有吸引力的。但假如3年前這股票20塊就可以買到,這就表明了這一隻股票的股價還是可能有一些下跌的空間。
  11. 嘗試以折扣價來購買資產而不是購買收益。在很短的時間內,一個公司的收益可能發生顯著變化。通常資產的變動就緩慢多了。假如果一個人買的是公司的收益,這一個人就必須知道更多有關公司的事。
  12. 聽取你尊重的人的建議。這並不意味著你必須接受他們的建議。記住,這是你的錢。一般而言保守錢財是比賺取錢財更難。一旦你損失了很多錢,就很難賺回來。
  13. 盡量不要讓自己的情緒影響你的判斷。在買賣股票上,恐懼和貪婪是可能是最糟糕的情緒。
  14. 記住複利的功效。舉例而言,如果你能每年以12%再投資時,先排除繳稅,你的錢每6年將增加一倍。記住72定律。您的收益率會告訴你增加一倍的錢要多少年。
  15. 偏愛股票超過於債券。債券將限制你的收益而通貨膨脹率將降低你的購買力。
  16. 要小心財務槓桿。它可以對你大大的不利。

  1. Price is the most important factor to use in relation to value
  2. Try establish the value of the company. Remember that a share of stock represents a part of a business and is not just a piece of paper
  3. Use book value as a starting point to try and establish the value of the enterprise. Be sure that debt does not equal 100% of the equity
  4. Have patience. Stocks don’t go up immediately
  5. Don’t buy on tips or for a quick move. Let the professionals do that, if they can. Don’t sell on bad news.
  6. Don’t be afraid to be a loner but be sure that your correct in your judgment. You can’t be 100% certain but try to look for weakness in your thinking. Buy on a scale and sell on a scale up.
  7. Have the courage of your convictions once you have made a decision.
  8. Have a philosophy of investment and try to follow it. The above is a way that I have found successful.
  9. Don’t be in too much of a hurry to sell. If the stock reaches a price that you think is a fair one, then you can sell but often because a stock goes up say 50%, people say sell it and button up your profit. Beofre selling try to reevaluate the company again and see where the stock sells in relation to its book value. Be aware of the level of the stock market. Are yield low and P-E ratios high? If the stock market historically high, are people very optimistic?
  10. When buying a stock, I find it helpful to buy near the low of the past few years. A stock may go as high as 125 and then decline to 60 and you think it attractive. 3 years before the stock sold at 20, which shows that there is some vulnerability in it?
  11. Try to buy assets at a discount than to buy earnings. Earnings can change dramatically in a short time. Usually assets change slowly. One has to know much more about a company if one buys earnings.
  12. Listen to suggestions from people you respect. This doesn’t mean you have to accept them. Remember it is your money and generally it is harder to keep money than to make it. Once you lose a lot of money, it is hard to make it back.
  13. Try not to let your emotion affect your judgment. Fear and greed are probably the worst emotions to have in connection with purchase and sale of stocks.
  14. Remember the work compounding. For example, if you can make 12% a year and reinvest the money back, you will double your money in 6 ears, taxes excluded. Remember the rule of 72. Your rate of return into 72 will tell you the number of years to double your money.
  15. Prefer stocks over bonds. Bonds will limit your gains and inflation will reduce your purchasing power.
  16. Be careful of leverage. It can go against you.

2011年6月11日 星期六



譯者:李月平 曲紹宏
語言:簡體中文 ISBN:9787111306337
作者:Smith, Adam/ Bogle, John C.
出版社:John Wiley & Sons Inc
語言:英文 ISBN:0471786314


作者亞當‧史密斯(Adam Smith),是個筆名,真正的名字是George Jerome Goodman他是『投資法人』(Institutional Investor)雜誌的編輯和創辦人之一。

這書是第一個把巴菲特介紹給美國大眾的書,誰說好的經理人是無法事先知道的呢? 至於書中的沒有大學學歷卻又相當成功的基金經理人赫伯(Herbert),則是作者給有名的價值投資人Walter Schloss取的化名。


2011年5月27日 星期五

把價值投資用在職棒選秀上:Moneyball By Michael Lewis  

你可曾想過職業棒球隊的戰績和隊上球員薪水的關係? 是不是球隊老板肯花大錢請球員,就可以提高勝利的機率? 你可曾想過把價值投資用在職棒選秀上嗎?  你可知道奧克蘭體育家隊在過去幾年運用價值投資的原則,以遠少於其它球隊的薪水,卻有更好或相當的戰績?




    作者: Micahel Lewis
    出版社: Norton
    ISBN: 0-393-05765-8

---原作發表於聚財網 Aug. 2003.

2011年5月1日 星期日

The Big Short: Inside the Doomsday Machine --- By Michael Lewis

Hardcover: 266 pages
Publisher: W. W. Norton & Company (March 15, 2010)
Language: English
ISBN-10: 0393072231
ISBN-13: 978-0393072235
       Michael Lewis is one of my favorite writers. In this book, he introduces you to several people who saw that 2007-2009 financial storm coming and went short against the mortgage bonds. These people are very interesting to me somehow. In particular, this one medical doctor, Dr. Michael Burry, struck a cord with me.
      Dr. Burry is not a new name to me. The first time I heard about him was in the late 1990s. At the time, he had this "blog" about investing before the word "blog" was used.
      I was learning about investing at the time and Dr. Burry's writing and real-time stock picks on the site showed me that there is an intellectual way of thinking about investment in general and stocks in particular. I may say that I have my networth today, to some extent, due to the intellectual framework formed at the time when I was reading his website.
      For people who want to be an investment manager, I think it is important that they read about Dr. Burry's experience during the whole time he was short mortgage bonds by CDS.
      Here is his writing about CDS and how he use CDS to short the worst of mortgage bonds. Scion capital CDS primer
      Other characters in the books are also very interesting. I think many of readers on this website may identify themselves with the three guys from Cornwall Capital. These are people who have little money at the beginning but made big money (for private investors) by exploiting the inefficiency of the market.
     This has to be the best book that I read this year. Don't laugh, I am not making this up. I do read about 40-50 books a year in my spare time.
     If you don't mind reading in English, I think you would like this book.