Category Archive 'Value investing'

Fear the Experts

Personal finance, Value investing

In the 1980’s, a prominent U.S. magazine predicted the “Death of the Stock Market.”  It was written during a major downturn in the U.S. and global economies.  It was also written right before a major economic recovery that would last for years.  If you had heeded the warning of the “experts” and sold at that low point, you would have likely lost most of your investment, rather than doubling or tripling your investments over the next few years.

Another example of media (expert) bearishness is evident in this profile of thirty years of Time Magazine covers.   Almost every year for the past thirty years Time Magazine has featured a cover demonstrating how bad the present state of the economy is.  If it’s not a recession then it’s worries about inflation, or concerns about trade deficits, and on and on.  Are these accurate reflections of the economy, or are they what help to sell more issues of a magazine?

Finally, who doesn’t recall the time “monkeys throwing darts” outguessed the Wall Street Journal investing experts?

The point: the economy is too complex for any of us to fully understand.  The only thing that has been consistently true is that we can never fully anticipate the future.  Unexpected things are always occurring, and when they do, they often change everything.

When I used to read more magazines and check on my stocks every day, my risk tolerance would decrease exponentially.  Of course, being informed is important.   But at the same time, some perspective is needed.   Particularly in these modern times, where the media is known to sound the alarms a little too often.

The same thing is true for picking careers.  By the time you complete your education in the “hot” field it may be cold.  That’s why I believe there is no better compass than the one inside each of us.  Certain rules, principles and philosophies are timeless, but there are so many inputs that we still need to view everything through our own judgment—our own inner compass.

Moreover, our personal goals are often quite personal.

For instance, when my Wife and I bought our house six months ago, I figured interest rates would keep going down.  I also figured the value of the house might not have hit its bottom.  Time has proven I was correct in both these assumptions–at least where we live.   But we were tired of renting, planned on sticking in our house for the long-term, and frankly ignored the “experts.”  It may not have made good financial business sense, but we did it anyway, because that’s what we thought right under our own particular circumstances.  The thought of staying in an apartment we hated for another 2-3 years wasn’t worth the benefit of gaining more time to eye the housing market.

Likewise, when I left my job during one of the worst Recessions in U.S., history to start my own office, the empirical data suggested likely failure.  While only time will tell the ultimate outcome, so far, I’ve been happier than ever before in my chosen profession.


It’s nice to be well-informed, but ultimately it’s up to us to know what’s in our own best interests.  When you go about being well-informed, it might not hurt to remember that the media can often cry wolf.  In other words, sometimes what you should fear the most: is the so called experts themselves.

A must-read: Bloomberg’s pitfalls and perils of investing in commodity ETFs

ETFs, Value investing

While sitting in a doctor’s office the other day, I happened across an article in Bloomberg magazine entitled “America’s Worst Investment” (magazine cover shown here) that explained why . Since Bloomberg is pretty reputable, and since I had previously invested (and lost money) in , a commodity ETN (exchange-traded note) that tracks the Rogers International Commodity Index, of fame, I was really interested in what the article had to say.

As I’ve posted here before, I’ve quite a bit in the past to do the bulk of my passive, buy-and-hold investing. They’re an easy way to diversify and since most of them track indices, there’s not much to think about compared to the difficulties of evaluating an individual stock. After reading Jim Rogers’ books, I was interested in diversifying into commodities, and when someone finally came out with an ETN that reflected his index a couple of years ago, I bought in.

The Bloomberg article is quite eye-opening and explains why commodities ETFs that are based in futures can be a no-win situation for individual investors. You’ll have to read the article to fully grasp the pitfalls of these vehicles, but one vocabulary word I learned was ““, something I had never heard of. It boils down in essence to the nature of a futures contract. Unlike an , where you have the right but not the obligation to buy or sell an underlying security, in futures contracts, you have the obligation to take delivery of the underlying security or good unless you rid yourself of that contract in some way.

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My second try at odd-lot tender offers: WebMD Health (WBMD)

Value investing

Following up on my previous post, I decided to give odd-lot tenders another try and bought 99 shares of WBMD at $50.70 last Thursday. currently has an odd-lot tender offer expiring September 8 to purchase properly tendered shares at $52. The company had previously made 3 other tender offers at $45.80, $46.80, and $50 since April of this year.

Unlike the , WebMD’s price is already set and will not go through a Dutch auction process. However, there is also additional risk involved as a clause included in the specified that the tender offer may be amended, postponed or cancelled if “a decrease of more than 10% in the market price for the shares, the Dow Jones Industrial Average, the NASDAQ Composite Index or the S&P 500 Composite Index since the date of the Offer” occurs. This appears to be pretty standard verbiage in tender offers; however, since the tender offer was announced on August 10th, these indices have decreased 6-8% so far:

With September 8th being just around the corner, I’ll watch the stock closely and likely submit my decision to tender closer to the expiration date than I did for FIS. It will be interesting to see how this one turns out.

Update: yesterday (August 30) referenced above in their latest update to their tender offer statement. Looks good so far!

Update 9/15/10: Received cash for this transaction, 99 shares @ $52 today. All’s well!

My first try at odd-lot tender offers – Fidelity National Services (FIS)

Value investing

Although I’ve previously written various examples of , one type of that I had not tried until recently was .

In a tender offer, a company usually offers to purchase all or a portion of its outstanding shares at a specified price and time. Sometimes these offers come with an odd-lot preference, which means that shareholders with less than 100 shares will receive preferential treatment and their shares will be purchased first assuming other conditions (such as tender price and submission dates) are met. This allows the company to reduce its overhead and administrative costs for small shareholders.

had announced back in May that their board had authorized a $2.5B share repurchase plan via a dutch auction, with tender prices expected to range from $29 to $31. In a subsequent amendment a month or so later, preference for odd-lots was announced and the expiration date of the offer was set to expire on Tuesday, August 3rd.

I decided to give this opportunity a try by using my son’s account (a small account with preferential tax treatment) to purchase 99 shares at $27.75 on July 15th. At this price, I believed that if anything were to happen and the tender offer fell through, this would still give me sufficient safety to sell the stock with limited losses. It also allowed me to go through the actual motions to figure out how to submit my shares for tender, at what price, with my brokerage firm at Schwab. In this case, it turned out that I needed to phone a representative to handle my request to tender shares (I opted to tender at whatever amount resulted from the dutch auction, but I could have submitted any figure from $29 to $31).

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Investing strategy over the next year: BRICs and China (VWO, GXC, HAO, EPI)

Personal finance, Value investing

A few weeks ago, I was fortunate enough to watch a video talk by Burton Malkiel, author of A Random Walk Down Wall Street and more recently, The Elements of Investing. In the talk, he reviewed his six fundamental strategies for successful investing and the data that supported these tenets:

  1. Do not try to time the market
  2. Use
  3. Rebalance yearly
  4. Diversify, diversify, diversify
  5. Costs matter, and
  6. Use index funds

I admit that although I’ve tried to follow all of the items above to some extent or another except for “rebalance yearly” but haven’t been good at consistently doing most of these over time. For example, most recently, I gave into fear and sold half my holdings at the wrong time, right in March 2009. That experience along with the wisdom of someone like Mr. Malkiel convinced me that I needed to adopt a long-term strategy that would alleviate emotions from getting into my investment decisions for at least the next year.
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