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Tom Au, CFA
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In the early 1990s, during the middle of a secular bull market, I began work on "A Modern Approach To Graham and Dodd Investing," that was not particularly suited for the decade of the 1990s, but was ideally suited for the following "Lost Decade" of the 2000s.
My book:
A Modern Approach to Graham and Dodd Investing
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  • Santa Claus and Second Thoughts
    "How did you make that mistake?" I once asked a friend after a particularly bad decision.

    "I never gave it a second thought," was the answer.

    Now I've made many mistakes in the past. But almost never without a second (or third) thought.

    Ironically, one "person" in our "Santa Claus" society, who does give things a second thought is Santa himself. As the popular Christmas carol goes

    "He's making a list, and checking it TWICE.
    Gotta find out who's naughty and nice."

    Now "Santa," in most people's lives, is an older person; probably parents, maybe an older sibling, possibly even that "rich, right-wing uncle," that youngsters fear, and later fear becoming. But someone who will give a thought to what a "kid" deserves. And even if Santa were that old man on the North Pole who spends the year making toys, he'd give a LOT of thought to which kids were deserving, and which weren't.

    And here may be the moral. The GIVER of gifts is likely to think twice about things (like yours truly). The problem is that RECEIVERS (or purported receivers), often do not.

    Dec 30 11:00 AM | Link | 1 Comment
  • Another American Ailment
    Another source of America's problems is a phenomenon that I call "Strangers in the Night" (or the belief therein).

    The relevant part of the Frank Sinatra song ends:

    "Love was just a glance away
    A warm embracing dance away

    And ever since that night, we've been together,
    Lovers at first sight, in love forever.
    It worked out so right, for strangers in the night."

    This belief seems to be widely held in dating situations (largely accounting for the American divorce rate), although it seems to manifest itself in other kinds of situations as well.

    One (hiring) executive described his initial meeting with an interview candidate as "Love at first sight," only to find many things wrong with the so-called "paragon" later. Is there any wonder that the company in question almost went under a few years later?
    Or take the "hedge fund" scams that seem to crop up from time to time. I'm not talking about the funds that "legitimately" lose money, but rather the Bernie Madoffs of the world.

    In a few cases, people lost money to people that they reasonably trusted, a child, a sibling, a childhood friend or school chum, even a religious leader in a place of worship.

    But maybe nine out of ten scam victims gave their money to people that they had barely met, and didn't know very well. In a word, "strangers in the night." The kind of people you should EXPECT to lose money with.

    Mother taught us (or at least me) "don't talk to strangers," at least those who hadn't been "cleared" through the proper channels. Such an attitude would prevent many people from losing their money to people they don't really know, and have no way of knowing.
    Dec 27 2:35 PM | Link | Comment!
  • (America's) Beggars CAN Be Choosers.
    Grim as things have sometimes been in the United States, it doesn't seem like we've hit rock bottom. The indicator that I am using is decidedly low-end, the beggars that occupy the streets of New York City (and many other towns).

    On Christmas Day, I encountered one of these mendicants holding up a sign: "Need 25 cents for food." Now 25-cent pieces don't buy a lot of food, unless you have a lot of them.

    Being out of change, I went to a nearby store and bought a banana for 50 cents, receiving 50 cents in change for a dollar. Then I decided to run an experiment by holding the banana in one hand and a quarter in the other, and offering the beggar a choice:  "You can have this banana, or you can have 25 cents in change." To my surprise, he opted for the quarter rather than the banana (which cost two of them).

    If he were truly hungry, the beggar would have taken the banana; immediate food, costing more than 25 cents. Apparently he wasn't, and would rather have the "choice" that the money could buy. This goes against the ancient dictum "beggars can't be choosers." In America, apparently they can, and are. (On the other hand, I was glad I got to keep the banana, being hungier than I thought.)

    A Financial Times reporter ran this experiment in 1990 (so the monetary amounts are different from today). He tried begging in both London and New York City. In London, his "home" ground, it took him ten hours to garner the equivalent of six dollars, and everyone gave him "dirty looks." In New York City, he gave up the experiment after six hours and twenty-three dollars, with no particular unpleasantness.

    The reporter's conclusion: No one would beg in London except as a last resort. On the other hand, begging could be an attractive alternative in New York City, compared to working at McDonald's for minimum wage (then $4 an hour).
    Dec 27 2:16 PM | Link | 1 Comment
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