Here are 19 of the best quotes from one of the greatest investors in history.

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The CFA institute did a wonderful job putting together this promotional video, obviously we care more about who taught him than his credentials, but I’m sure you’ll like it too.  Give it a watch:

Irving Kahn, the oldest living active investment professional

Remember the Argentinian debt default?

Do you remember the Long Term Capital fiasco?  At the time it was the world’s largest hedge fund and they had no less than 3 Noble prize winners on their staff.  And the rest of the staff was in line for their own Nobles. These were the cream of the crop and they had an uber sophisticated strategy to make money risk free.  At least their ‘models’ told them they were risk free.  Somehow they slipped a decimal point or something and the whole thing collapsed.

The problem was they dealt with all of the major banks and it was feared – and widely publicized in the media – that Long Term’s failure would result in a chain reaction that would cause devastation throughout the financial system.  Things were so grim that a bailout had to be orchestrated by the US Federal Reserve, the same organization that bailed us out in 2008/2009.

Remember that, the whole subprime thing that was going to cause us to revert to the dark ages? But the Federal Reserve rode in to the rescue and provided a fix and the doom and gloom seemed to dissipate into…….well it dissipated into the next financial horror show, the one currently playing across your TV, computer and Newspaper. Greece.

Here’s the thing, Greece is just the latest in a never ending string of bad news (noise) that plays on and on ad infinitum.  In time, and I believe it will be a short time, we will have forgotten Greece’s problems.  That’s not to suggest that the Greeks don’t have some work to do and indeed there will be strife within Greece. But its effect on our financial situation is not now, nor will it be in the future, any more significant to us than it was 5 or 10 years ago. It’s totally irrelevant.

As the media grows tired of Greece they will find a new focus. It may be Spain, Italy or Asia, a raging war or maybe some
strange disease but they will find a new story to keep you glued to whatever media source you live by and they will tell you why its such a bad time to be invested. It’s what they do and it’s not about to change.

Long Term Capital fell in 1998 and today I would guess that I would have trouble finding people who remember even who Long Term Capital was. Argentina defaulted in 2002.  It really wasn’t that long ago.  Last weekend, I did an informal survey, asking friends and family if they remembered what happened in Argentina 10 years ago.  No one had any idea.  In fact the best guess was that they won Soccer’s’ World Cup (which they didn’t). No one I asked could remember the Argentinian default.  For the record, Argentina’s economy is about 2.5 times that of Greece. The chances of you remembering today’s problems in Greece 10 years from now is about Zero.

The point is its all noise. Designed, I believe, by dark market warlords to draw your attention away from the incredible opportunity that exists in investments that have been driven down in price by people spooked by, of all things, Greek Debt. There are a few people buying those investments today that most will want to buy when the current malaise in Europe subsides.  The problem is that by then the prices will be substantially higher and they will still be members of that sect of investors who like to buy their investments at inflated prices and sell them at deflated prices. Its the sect that always wonders why their investments never do very well.

My advice, indeed my wish for you is to ignore the noise. Embrace the volatility which provides you with an opportunity to purchase your investments at a time when most investors are driving prices to low, low, attractive levels.  I’m not saying don’t watch the news, I’m just saying don’t let it guide your investment decisions.

If you look at a long term chart of a broadly based stock index, you will see that it goes up at a rate that is somewhere between 8% and 12% per year depending on the index and the time period.  But we all know that the stock market also goes down on a frequent basis.  And it’s those down periods that create the jagged look to a long term chart and that’s what these new products are trying to get rid of.

The problem is that buying an investment product is similar in many ways to buying a car.  You have your base model and then you have the extras which, of course, cost extra.  In the case of the car, you add to your purchase price and with investments you subtract from your return.  So getting rid of volatility, like adding air conditioning to your car, costs you money, or in our case lowers return.  Maybe that’s a cost you’re prepared to pay in order to make you more comfortable with your portfolio but for a true value investor, that volatility is our best friend. 

There’s nothing better for your long term returns than to be given an opportunity to buy a great business at a price that is significantly less than what the company is worth.  It’s those highly volatile times in the market, when everything seems to be going down, that the shares of great businesses are on sale.

Problems in Greece don’t affect every business around the world but when the possibility of a Greek collapse loomed, there were few, if any, stocks that didn’t suffer some drop in price.  And for a good portfolio manager, one who has done the in depth research to fully understand the companies worth, those price drops, or that volatility if you will, creates wonderful buying opportunities. The problem is having the confidence in your portfolio so that  you can comfortably ride out the stormy markets.  Personally, my comfort comes from knowing my money managers and the level of research that goes into each and every company they invest in.  You can do it yourself but it takes a lot of time and expertise….commodities that few retail investors possess.

In this episode we talk about the discrepancy between the average market return compared to the average investors return (Hint: It’s quite large).

Running Time: 13:05

In this episode:

• We know we should be buying low and selling high but we don’t.
• On average we’re not smart investors.
• We’re hard-wired to be irrational investors
• “The flat earth society still exists” – speaking of Warren Buffett’s comments on teaching people value investing.  Some people will never get it.
• Dalbar Inc. is the company that many investors cite as a resource for more than thorough analysis of companies
• Investors usually try to look for a pattern in the market, then invest, when they should have invested before they waited to see the pattern.
• A story about one of our favorite money managers, Jeff MacDonald and what he was worried about in the 90’s when everyone was buying up all the technology stocks.
• It’s sometimes always smart to look at industries with a logical mindset. (When Oil was at $10 a barrel, it HAD to go up, the demand couldn’t possibly go down)
• When you fail as an investor, it’s difficult not to remember where you think went wrong.
• What significance do the “star ratings” on stocks have?
• The star rating system will lead you to expensive companies.  If you’re picking the five star stocks, you’re almost certainly over paying.
• It’s a lot safer to fail conventionally than to succeed unconventionally. It’s easy to listen to the analyst and invest in what everyone else is putting their money in to.  It’s much more difficult to find the one to two star stocks and rationally invest, knowing full well that the company is undervalued and has no where to go but up.

Chart Source: Dalbar Inc.

Walter passed away this past February (Bloomberg Article), leaving behind the legacy of a true contrarian investor.  From the Economist Arcticle, Death of a Non-salesmen: Being a true contrarian required just one rule, he said: “Never tell a client what they own.”  He wasn’t bent on acquiring more and more clients either, throughout Schloss’ close to 50 year career he only had 92 clients in total.

Walter Schloss: At the Master’s Table

In his mid- 90s, veteran value investor Walter Schloss is alive with memories of his career working at Benjamin Graham ’ s firm, alongside a young up – and – comer named Warren Buffett. Schloss, who now lives in a swanky Park Avenue apartment with a lofty view of Manhattan, managed money for private clients until the early 2000s. In 2001, a rotten year in the market, he says his accounts were up 12 percent.

“You may lose at times, like in 2008,”  he says with a toothy grin.  “ But it pays to be an optimist. My father died at 103. I want to beat him.”

By Schloss’ s reckoning, in the five decades as a solo investment manager after leaving Graham, he averaged 16 percent yearly, versus 10 percent for the S & P 500. After dissolving the firm he ran with his son in 2003, he continued to invest his own multimillion – dollar portfolio, using Graham principles. In a famous speech at Columbia in 1984, entitled  “The Superinvestors of Graham – and – Doddsville,”  Buffett cited Schloss, along with legends like William Ruane of the Sequoia fund, as exemplars of value that good investors should emulate.

“Ben Graham changed my life,”  Schloss says, recalling how he came across Security Analysis  as a young man in the 1930s.  Schloss, living in near-poverty in Depression-stricken Brooklyn, was an ill-paid runner at a Wall Street fi rm, meaning he was the gofer who carried stock orders and documents around the office. He took a class that Graham ran at the New York Stock Exchange, a version of his celebrated Columbia sessions, and impressed the great man. After World War II service as a code cracker, Schloss landed a job at Graham – Newman.

Schloss owns no computer and follows the market with the help of the daily newspaper and Value Line investment reports.  He also makes sure to stick to the Graham verities. He wants stocks with low price – to – book and very little debt. Plus, he knows that disappointments litter a value investor ’ s path. One of his stocks, a compressor maker called Tecumseh Products, had fallen from $35 in 2008 to $8. Schloss can rattle off all  manner of stats about the company. And as he rolls through the bad ones about Tecumseh, he grimaces. By late 2010, it had only recovered to $12.  “That one is a shame,”  he says.  The real test for a value investor: “A stock has lost half, and you go in and buy more. That is not easy. People will think you are crazy.”

From: (media.johnwiley.com.au/product_data/excerpt/55/04706021/0470602155-34.pdf)

Remember when Apple was just a toy.   Actually it wasn’t that long ago,  but there was a time when the world didn’t give Apple the respect it deserved –  or at least the business world didn’t.  The world was completely dominated by PC’s and Apple was just an afterthought.  Sure it’s natural market was the geek/nerd (remember when that was an insult) who knew what they were doing with a computer but the big boys of business (who didn’t know what they were doing with a computer) stuck to the tried and true PC.

Now, we hear of Apple viruses and as the attached chart shows, Lawsuits.  Yes , Apple is now the big kid on the block and so let the litigation begin.  Not, you understand, because it’s warranted, but because the Big A now has the loot.

Picture Source: Smartphone Competitor Patent Suits

2.  The Apple Conundrum

If you’ve been following the Round-Up for the past while you’ll know that I don’t recommend individual stocks for retail clients (folks like you and me).  I believe firmly in the value of professional money management.  So posting this article, which is a research report on Apple, should not be taken in any way, shape, or form as a recommendation to either buy or sell Apple shares.  What I found interesting about this article is how it points out some financial facts about the company that highlight the headwinds investors face going forward.  I believe, after my many years in this industry, that investors don’t always make rational choices.  They want to invest in a company like Apple because of it’s sex appeal.  Granted it does have amazing products and we use them in our home almost exclusively.  And who doesn’t want to draw comparisons between Blackberry and Apple.  From a product standpoint it’s no contest…an Apple TKO in the first round.  But from the investment standpoint you need to look at things differently.  Financially. And the two don’t always agree with each other.  So when investing, always look at both sides of the coin and more often than not, you’ll find the best opportunities where there is less, not more, company.

3.  Warren Buffett’s 50 Billion Dollar Decision

Sometimes I feel like one of those radio stations that only play one artist, “All Beatles, All the Time”  but in my case its “All Buffett, All the Time”.  Legendary investor Sir John Templeton once said, “Investors should study success” and who would qualify more in the investment world than Buffett.  Anyway , here’s a piece he did for Forbes magazine about his early life.  The partnership he talks about is not Berkshire Hathaway but his first partnership which he shut down in 1969 because stock prices were so high at the time that he couldn’t find any suitable investments to put into the fund.  If you look back at the track record of this original fund, it may have had a better record than his more famous fund Berkshire Hathaway.

The other day someone was bragging about the dividend payment they received for one of their investments.  They had no idea that the company was actually making less profit than they were paying out in a dividend annually.  This got me thinking, what does a dividend actually tell you about an investment?  Better yet, what does a company want you to think about them when they decide to offer a dividend? 

Running time: 6:28

In this episode:

• Why would someone look for an investment that offers a dividend?
• Why would a company pay a higher dividend than what they’re making in profit?
• Warren Buffett doesn’t pay a dividend
• When do companies usually offer a dividend?

What does the price of a stock actually tell you?

Running time: 8:53

In this episode:

• A story about the price of a stock
• What does the stock price tell you?
• If you don’t know about every intricate detail of the company you’re investing in, you’re speculating, not investing.
• How do real investors look at a stock’s price?
• What companies traditionally would be a better buy.
• How Warren Buffet looks at a stock, and why he just purchase stock in IBM.

Warren Buffett talks to Becky Quick from CNBC…always interesting.  But two things strike me about this conversation.  Buffett’s outlook on investments and Quick’s reaction.  Buffett, true to form, is always talking about the long term.  His entry points on most of his investments occur when nobody agrees with his actions.  Back in 2008 when he told investors to “Buy American stocks, I am”, he was clearly swimming against the grain.  In fact I remember him being interviewed on CNBC at the time and the interviewer wondered if in fact that was a good time to be investing with all of the financial troubles at that time.  His answer then was, “I don’t know where prices will be in the next weeks or months or even next year but 5 or 10- years from now these companies will be worth considerably more than they are now”.  And a few months down the road, in early 2009, he was being vilified for buying in Sept/Oct of 2008 and prices had fallen from that point.  What CNBC fails to understand, or does an incredibly bad job of portraying, is that Buffett doesn’t care that the prices of his shares went down in the following months.  What he cares about is that they go up in the long term.  As a business news show, CNBC doesn’t care about the long term, in fact they can’t care about the long term.  They need you to tune in day to day and because of that, they talk about things in very short time frames.  While CNBC loves to have Buffett on, their investment philosophy couldn’t be more opposite.  As you watch this interview, notice Quick’s reaction to Buffett investing in European companies at the end of last year.

2.   New Debt Plan for Greece but Same Old High Yields

Greece’s debt (death) Spiral  – The new debt restructuring plan for Greece aims to bring their debt to GDP level from 160% down to 120% by 2020.  So in eight years they hope to bring their debt down to a still exorbitant level.  The bond market is currently betting against it.  The cure is a revamped economy but with the new plan, higher taxes are a major source of the cure and higher taxes seldom leads to economic growth.  While national pride and obligation will prevent some from leaving, the prospect of 10+ years of stagnant growth and high taxes will undoubtedly cause some businesses and people of means to look offshore.  Maybe the biggest challenge is to convince the general population that they are not only a major source of the problem but also a major part of the solution.  I.E. they need to accept lower living standards.   I wish them well in their recovery and I wish us the wisdom to learn from their situation.

3.  Hubble, Bubble, Index Trouble

Hubble Bubble Index Trouble  – the crowd has spoken and passive investing is their choice.  Passive investing, or indexing, is the investment approach that says you can’t beat the market so just buy the market or all of the stocks in a particular index.  There’s over $1 Trillion dollars in these types of funds.  According to this article, it has caused the value of the stocks in indexes (here they are talking mostly about the S&P 500), to be valued by as much as 40% more than stocks not within the index.  So the investors who chose to index to avoid the next bubble have themselves created it. You might want to look at your portfolio, or the funds in your portfolio, to see how closely it resembles one of these overvalued indexes.

4.  Meredith Whitney was right

OK so Greece’s situation is bad and about two minutes ago I thought we could learn something from their situation.  According to Meridith Whitney, it may be too late.  Many municipalities in the US are in dire situations and it could be awhile before they cure their ills.  This link is to a fortune article but if you don’t have time to read the whole thing, skip to the video at the bottom…..very interesting!

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