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Joshua Morgan Brown
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For more than a decade, Joshua Brown has been managing money for high net worth clients, charitable foundations, corporations and retirement plans. Beginning his career at Lew Lieberbaum in 1997, Mr. Brown has steadily moved up the ranks in the independent brokerage world, having been named... More
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  • A Guide to Investing Like The Beatles
    The Beatles with producer George Martin

    The Beatles with producer George Martin

    The Beatles
    have just released a box set, containing each of their albums digitally remastered.  That their music stands up so magnificently some four decades later is remarkable and I believe that there are lessons in this legacy for investors that we’ll explore below.

    What made The Beatles so enduring was not just the talent of the band’s individual members, but the band members’ very individualism itself.  I feel that as market participants, we should learn from the idiosyncrasies of the Fab Four and hope that maybe, just maybe, these lessons will combine to form an investment skill set that can also stand the test of time.

    The Virtues of Paul McCartney, the Congenial Beatle

    Paul was the one you could bring home to Mom, the one with the good-natured persona on camera and off.  Being amiable is important if you expect to ever really learn anything worthwhile in the markets.  A great deal of my own trading knowledge has come from asking questions of those with more experience or expertise.

    To expect a veteran to spend time and energy working with you, you must first show the interest, jocularity and openness to signal your worthiness as a pupil.  There are no shortage of kids right out of school who wish to learn a trade on The Street, but how many of them demonstrate the prerequisite congeniality and willingness necessary to be molded into a professional?


    The Virtues of George Harrison, the Serene Beatle

    For someone whose later years were so plagued with home intruders and repeated bouts with illness, the bulk of George’s life away from the public eye was relatively calm and introverted.  His quest for a more enlightened and spiritual existence led to a deeper and more sophisticated journey for the band’s music than you would’ve imagined possible based on their earlier I Wanna Hold Your Hand repertoire.  George eschewed the spotlight, quietly searching for something more meaningful while still “playing the game” with the boys when duty called.  Investors, especially professional ones, should consider doing so as well.

    Serenity, when one is away from the trading screen, keeps the dollar amounts at stake in perspective and allows the trader time to reflect on what he could be doing differently so as to improve the results of the next session.  Stepping back, rising above the noise and innoculating one’s self from the flashing lights and streaming headlines is the key to getting the big stuff right – and to being able to “play the game” when necessary.

    George’s search for deeper meaning in life should be echoed in our daily search for deeper meaning in what the market is trying to tell us.  He wrote and sang some of the Beatles’ best songs, but spent the majority of the time content with being in the background, enabling him to follow the lead of his more high profile bandmates.  Finding truth in the markets and knowing when to follow the big talent and money are key lessons we can learn from George.

    The Virtues of John Lennon, the Revolutionary Beatle

    They say that most men of genius are also plagued with emotional instability and demons that keep them pushing the envelope well past the point where pushing would be advisable.  If this is true, then god bless whatever inner turmoil pushed John Lennon, who was considered to be the band’s driving creative force and prime agent of change.  John’s intensity and creativity could be adapted by investors in a variety of ways to give them an edge over those who stick to the market orthodoxy and at all times adhere to the playbook.

    For starters, take some of those universal truths that most market players have learned as gospel, like the relationships between interest rates, commodities, oil prices, equity performance, currencies and bond yields.  2008 took many of the widely-accepted corollaries that would normally apply to these nuts and bolts and turned them on their heads.  John’s visionary ability to incorporate diverse rhythms, sounds, styles and cadences into an aural package that made sense in spite of – or even because of- its inherent eclecticism would be an ability to covet in this particular investing climate. 

    As for the “creative destruction” currently being experienced by almost all of our bedrock industries, from advertising to banking to publishing to manufacturing, I would imagine that John would gleefully embrace that creative destruction and, more importantly, would find a way to graduate to whatever came next while having a hand in its very assembly.  Contrarian investors like Wilbur Ross have correctly done this through various cycles, culling the future of an industry like coal or steel from the ashes of that industry’s prior incarnation.

    The Virtues of Ringo Starr, the Dependable Beatle

    Ringo has spent the past few decades enduring barbs and stings (mainly in jest) for his supposed lack of brilliance when compared to his bandmates.  But what his critics are overlooking is that Ringo was the core that held the whole vortex of iconoclasm and experimentation together.  Being consistent as an investor is probably the most important takeaway I can cite here, whether that be consistency in risk management, in data analysis or in position concentration.  The top investors in history frequently mention the importance of maintaining discipline, and discipline itself comes from consistency.  Not every trade is a life-changing winner and not every song is Yesterday or Eleanor Rigby.  With discipline, many trades are just steps along the journey, the fiscal equivalent of Starr’s Octopus’s Garden.

    Say what you will about Ringo’s simplified drumming technique when compared to that of his contemporaries (Keith Moon of The Who, John Bonham of Led Zeppelin) but remember that it is Ringo who is still standing.  It should also be noted that anywhere there was supposed to be the kick of the bass drum or the snap of a snare, it was there – on every song of every album and at every live performance.  Ringo quite literally never missed a beat.  Keeping it simple allowed Ringo to maintain the tempo and to get the big picture right.  Traders who are aware of the market’s tempo and who stay constant in the midst of volatility and madness will more often than not come out ahead of their more easily rattled peers.

    The Virtues of George Martin, the Pioneering Producer

    George Martin was never officially one of the Beatles, but in some ways, he was more responsible for their careers and achievements than they were themselves.  Not only was he the producer of every single one of their albums, he actually signed the band in 1962 when no one else was interested.  This is akin on Wall Street to discovering a monumental investment opportunity that others have passed over. 

    Working closely with the boys, Martin both evolved with and embraced each wave of technological innovation, becoming the most important producer in the history of popular music.  The studio wizardry of George Martin is what kept the Beatles sounding fresh and ahead of their peers on each successive record.  Utilizing technology is yet another ability that separates great investors from the pack.  Accessing and understanding the latest analytical tools gives the modern trader a quantifiable edge when he incorporates them into a sound strategy.

    Martin employed many tricks in the studio, from the addition of synthesizers and sound effects to making one instrument sound like another, to running vocal tracks backwards.  Even with this extensive bag of tricks at his disposal, Martin’s final production always seemed to contain just enough bells and whistles, never adding more than what was necessary to paint the sonic landscape against which his band would take the foreground.  Restraint can come in handy in the markets as well.  As data comes flying at us a mile a minute now, to compete, one must know what he should be paying attention to and what information is to be dismissed from consideration.  Filtering the economic noise is every bit as important as anticipating or reacting to it.

    The sum of the Beatle’s parts were not superior to the whole, but each part was notable in what it brought to the table.  Congeniality, Soulfulness, Reliability, Creativity and Technological Skill all came together to form the greatest band in the history of Rock and Roll. If we can undertand the universal utility of these qualities and have them come together, I think we will all become better investors, getting better all the time.

    Full Disclosure: Nothing in my above commentary should be construed as an invitation to buy or sell any securities.  Please see my Terms & Conditions for a full disclaimer.

    Oct 13 9:33 PM | Link | Comment!
  • Stubborn Little Winners
    Stubborn Little Winners

    July 15, 2009 by Joshua M Brown | Edit

    Today we’re going to salute some little guys who wouldn’t give up.  Small (er) cap stocks that refused to quit and have made their true-believer shareholders money this year, in one of the worst environments imaginable.

    Data above based on July 14th 2009 Closing Prices

    What these names have in common is that they all are consumer-oriented companies, 4 of them are engaged in the entertainment business.

    These are companies that were written off as roadkill; victims of the retrenching consumer amidst the atrocious employment situation.  This logic was easily accepted as fact by the market and in most cases, the stocks were beaten down to within an inch of their lives. 

    But then something funny happened:  The companies refused to quit.  They stubbornly reported positive news when no one thought they could and their share prices went a lot higher.
    Marvel Entertainment (MVL) – Marvel is still riding the wave of success from the last Iron Man film and the expectations for it’s forthcoming sequel.  Even their films that weren’t huge hits, like the latest Hulk movie, have kicked some profits in to Marvel’s bottom line.

    IMAX (NYSE:IMAX) – The large format film and theater company is one of the most unlikely winners I can think of.  Here’s a company beset by competition, encumbered with a bizarre double CEO situation, based in Canada and laden with debt.  But boy, they sure do make a splash with every IMAX release ad the kids line up to see Batman and the Transformers on the monster screens worldwide.  IMAX was also able to place a secondary stock offering this summer, not an easy feat. 

    Tivo (NASDAQ:TIVO) – With every court decision over their DVR patent, Tivo grew stronger over the last year.  Major partnerships with cable companies to embed Tivo’s technology into their set-top boxes have been greeted with rallies for the stock as well.  Once written off as a victim of copycats, Tivo has reestablished itself as the leader in Digital Video Recording capability.

    Green Mountain Coffee (NASDAQ:GMCR) – Are we trading down from expensive (and burnt-tasting) Starbucks coffee in this, the Greatest Recession?  You bet your arse we are.  Barron’s has questioned the company’s revenue recognition policies, but GMCR’s fans have taken the stock way higher, it recently split from almost $100 a share recently.  A monster short position in the name certainly hasn’t hurt.

    Ford (NYSE:F) – This is an amazing story.  Chrysler and GM filed for bankruptcy this year, along with a ton of auto-parts suppliers and US dealerships.  So what does Ford do?  it runs from $1 to $6!  The ultimate Detroit lottery ticket managed this feat partially as a reult of CEO Alan Mullaly’s prescient move to raise money before he credit crisis, giving Ford more flexibility to weather the storm.

    Netflix (NASDAQ:NFLX) – What does one do for entertainment when the money isn’t pouring in and a vacation is out of the question?  One rents DVDs.  Netflix has destroyed Blockbuster over the years and their cheap monthly packages allow people to escape at the right price.  Recent rumors of a takeover from haven’t hurt either.

    Palm Inc. – The Little PDA Engine That Could released the Centro, a $99 smartphone as an entry level competitor to the iPhone.  They followed this up with the Palm Pre, one of the hottest tech gadgets of the year, a smartphone that has singlehandedly resurrected Palm’s brand and probably saved Sprint (it’s carrier) as well!

    Congratulations to the Stubborn Little Winners and their shareholders.

    Full Disclosure:  I currently manage accounts that are long PALM, IMAX and F.  My commentary above is not an endorsement or invitation to buy or sell any securities.  Please do not trade or invest based on anything you read here, see my Terms & Conditions page for a full disclaimer.

    Jul 15 11:32 AM | Link | Comment!
  • King Obama's Feudal Union Lords and GM

    I'm not a political blogger, but this needs to be said...

    The treatment of institutional and hedge fund bondholders in both the Chrysler and General Motors situations has one very apropos historical parallel that comes to mind, the Anglo-Norman invasion and conquest of Ireland.

    In the year 1166, a deposed Irish king, desperate for help in his efforts to reclaim his lands and position, sought the assistance of King Henry II of France and England (of the Plantagenet Dynasty).

    They don’t make ‘em smarter than King Henry…he sent Richard Le Clare along with an army of Welsh bowmen to aid the Irish king in the reclamation of these lands with an eye toward the future.

    Le Clare, who would become known as Strongbow as a result of his archers’ lethal arrow attacks, would ultimately become the ruler of a great swath of Ireland, including Dublin, which lead to a mass colonization of the Emerald Isle by the British.  Once Strongbow had sufficient control, Henry II showed up in Ireland personally, intimidating Strongbow back into submission and naming himself Lord of Ireland.

    What does this have to do with Barack Obama and the auto industry?  If you’ve managed to stay awake during my ad hoc history lesson, you will have surmised by now that I mean to compare Obama to Henry II.

    Henry, you see, owed a lot of Norman and Anglo-Saxon noblemen big time for their help and loyalty in the endless series of wars they fought for him.  Henry meant to bestow these long-overdue rewards in the form of land and titles in Ireland.

    He was somewhat judicious and respectful toward the local Irish gentry in his redistribution, but by the time his haughty son Prince John came along, lands pretty much got confiscated left and right, with absolutely no regard for the indigenous population whatsoever.

    It is in this way that I see the creditors of the auto companies being treated by the Obama administration and his henchman, Car Czar Steve Rattner (who in this analogy, would be Strongbow).  Contracts are nullified by the sheer fact that they can be, and forced offers of pennies on the dollar to classes of bondholders that would normally be at the top of the queue are the status quo in these “negotiations&am...


    Obama’s staunchest backers during his presidential campaign were the unions, the United Auto Workers being the most powerful and prominent.  They are being made whole on healthcare benefits and being awarded with the dominant equity ownership in the restructurings much the same way that the Planatgenet king awarded vast farmlands to the adventurers who helped conquer much of France, England, and Ireland.

    Ancient Irish clans like the O’Byrne’s and the O’Neill’s, some of whom could trace their ownership of these lands back to a time before the Roman Empire, were eventually cowed into tenant-at-will status, which transformed them from lords and princes to sharecroppers and peasants almost overnight.  GM and Chrysler bondholders, many of them investment firms and hedge funds, have gone from being called creditors to predators, liquidity providers to “speculators&...

    Henry II and his staunchly Roman Catholic English lords were able to pull this land grab off legitimately, by turning the Pope in Rome against the Celtic Church, and by extension, Irish rule itself.

    The Pope was informed that the Irish Church was still sanctioning un-Roman Catholic practices such as priests getting married, legal divorce and men marrying their own brothers’ widows.  When the English vowed to reform the Celtic Church, the Pope consented to the takeover.

    In my analogy, the Pope would be Oprah Winfrey, who’s support of Obama was more important to his election efforts than any other single factor.  Pope-rah Winfrey clearly approves of the making-whole of the unions and their health benefits, lack of public comment notwithstanding.

    By calling the hedge funds and other bondholders speculators, Obama’s been able to wield the new form of populism as a weapon against them, even though under the law, they should be senior to any union concerns.  This is no different than the English calling the Irish Church heretical as a precursor to the taking of Leinster and othr regions of the country.  Obama’s rewarding of his union supporters with way more than they deserve under the rule of law echoes the rewarding of English and Norman lords by Henry II with Irish lands.

    The danger for American business is clear.  My comparison has a proper cautionary coda, the ugly result of this type of make-up-the-rules environment:

    The old-line Irish clans retreated into the hills and spent the next several centuries as trouble-making outlaws; rebelling, looting and plundering whenever the urge came over them.  They generally withdrew from the English society that developed in Dublin and the surrounding area.

    In fact, Dublin and it’s suburbs became known as the “English pale” and the wild lands of the Irish outside of it were referred to as “Beyond the Pale“.  We still use this phrase today to describe areas over which we have no influence or control.

    We need to ask ourselves a very simple question:  Do we really want our liquidity providers and creditors retreating from our capital markets, no longer participating in the system and remaining beyond the pale?

    I don’t think so.

    Jun 01 10:10 PM | Link | Comment!
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