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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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  • A Modest Proposal to Limit Divorces
    Is anyone concerned about the high rate of divorce in this country? In another post, I discussed the effects of having an "allowance" for stock purchases. Maybe we could dampen the rate of divorce by effectively limiting the number to two per lifetime. This would make some allowance for normal human imperfection, while curbing serial divorces.

    The rule would be fairly simple: Each person would be given an "allowance" of two divorces in a lifetime. After "two strikes," no further remarriage would be allowed, with one set of exceptions noted below. Widow(er)hood doesn't count in this calculation, a person may remarry an unlimited number of times if it is as a result of being widowed, which is to say as a result of force majeure, or an act of God.

    The one exception would be that a TWICE-divorced person would be allowed to remarry a NEVER divorced person who was willing to use BOTH "strikes" to effect the marriage. In the event of a divorce, the "never" divorced person would become a "twice" divorced person, with similarly limited possibilities of remarriage. That, of course puts the onus on the never divorced person to make sure that this is what s/he wants. Because this person doesn't have the safety of one divorce and remarriage if the first marriage doesn't work out.

    A word of disclosure: Ben Graham was divorced three times in his life. Yours truly, zero (so far).
    Dec 15 10:06 AM | Link | Comment!
  • On Warren Buffett's Stock "Allowance"
    Warren Buffett once proposed that new investors, graduating from business school, should have a limit, or what I call an "allowance," of the number of stocks they are allowed to invest in. This limit could be raised every few years. If a company was taken over or went bankrupt, the student could replace that stock with another. But the whole purpose was to force the student to focus the mind on a handful of stocks, thereby avoiding the bankruptcy candidates (and hopefully finding the takeover candidates).

    My version of this allowance system would be very simple: one allowed stock for each year of a person's age. An "allowance" of twenty-five stocks for a 25 year old MBA graduate, and one additional one for each passing year.

    Mr. Buffett pretty much practices this in his company's stock portfolio; no more than 20 or so main positions (those selected by himself), plus some arbitrage positions (not counted). In any event, at age 80, he would have an "allowance" of 80 stocks, reflecting his mature years.

    Yours truly, who usually follows a Graham style of wide diversification, does't do this either as a stock picker. But he has been known to follow a similar system in certain other areas of life. When one is conscious of the fact that the next installment of the "allowance" is years away, it really focuses the mind on what you are doing.

    Dec 15 9:53 AM | Link | Comment!
  • The Turbo-Charged Lives of Young Millennials
    A young celebrity, who's barely out of her teens, has a very busy and active social life, including a series of whirlwind romances (that have sometimes left her hurt and confused). One might say, that's the life of a celebrity, and in a different (older) generation, that might have been the case. But based on my acquaintance with one of her parents, these are not shallow crushes but rather genuine, if (so far) unsuccessful attempts to find love. And, indeed, something else may be at work with today's young people.

    They have grown up with iPods and "instant messaging" and "texting" (including "sexting," which is to say that a major portion of their lives have happened at warp speed. The problem is, these are constructs based on the latest technology. That's fine as long as we are talking about purely mechanical processes. The problem is that many aspects of human affairs, including relationships, operate on slower, biological processes. These are things that can't be rushed because they proceed at their own timetable. (As Warren Buffett pointed out, it takes nine months to make a human baby; one can't do so by making nine women pregnant for a month each.)
    Today's teenagers live in an edgy world. Besides the usual issues of hormones and emotions, that have plagued teens from time immemorial, they have to deal with life (and world) issues "instantly" through handheld devices and social media, rather than at the slower pace afforded by "snail mail," (and more recently, the landline telephone). All this makes it easier to get confused, and to make the wrong choices. Navigating through the array of possibilities now offered at a rapid fire pace by society would be daunting for most adults; how much more so, for young people.
    Dec 13 12:25 PM | Link | Comment!
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