najdorf

Time Not for a Bailout, But for Nationalization

Two questions for know-nothing troll:

How do you know how much skin the author has in free market enterprises?

What ideas in this post are more theoretical or less practical than the Paulson plan or the House Republican plan?

The post provides concrete recommendations and you flip out because there are books behind the author in his picture. It's ok - avoid all educational institutions and keep voting for politicians who are as dumb as you are. Count yourself lucky that W. appointed people with records of success in business and academic endeavours (Paulson and Bernanke) to bludgeon the politicians into fixing the problem. At least he's smart enough to know that Treasury and the Fed are more significant to his way of life than FEMA and the Department of Education.

Phil Fisher on Profit Margins, Part II

Very, very good analysis - much better than anything I've read on this site is a long time. Fisher's book is one of the best, and you expand on and apply its ideas very rationally.

I would add only that the logical alternative for a company like SBUX that saturated its growth opportunities (at least in the US, and international retail expansion is complex enough that I think it should be taken slowly) would have been to start paying a dividend. Too many companies insist that investors can get a better return on capital within the company than they can get by reinvesting their dividends elsewhere. Unless the manager is Warren Buffett, shareholders deserve the choice. Another example: although I love the progress in ORCL's share price over the last few years and the margins remain strong, I wish a company this big would pay at least a small dividend rather than continuing to acquire everything in sight. I would be an ORCL shareholder for life if it yielded even 1%, but with no dividend I'm always looking for a good point to take some capital gains and look for some smaller companies with better long-term growth prospects and some better dividend-payers. Similarly, if SBUX showed any interest in paying a dividend when they finish restructuring I would be all over the company at its current price; as they stand I'm worried that future U.S. earnings will be poured into building rows of Starbucks in Europe and China (which might not produce the same returns that good American stores have produced) and shareholders will never recieve the full earnings that they're entitled to.

Was That a Bottom? Should We Even Care?

inthemoney: I don't think you understand the argument for indexing. You seem to think that an efficient market means you should trade and somehow leave the boring old index fund behind. Now, how agile and efficient are you? What percentage of the companies in America do you have in-depth knowledge about? How quickly do you assimilate relevant new information? How easy is it for you to change positions, and what does it cost you in expenses?

In all of these areas, you are behind a professional trader - and even the professional mutual fund guys don't beat the market after expenses! What edge do you have that will allow you to use trading to beat the index? Remember, the more efficient the market becomes, the harder your job gets.

You also don't know what average means. Average means that sometimes you do better and sometimes you do worse. The years from 1982-2000 have to be balanced by some bad years at some point. You can whine about how you missed the good times or you can look for the next opportunity, but let's not pretend that the stock market wasn't a good enough investment between 1982 and 2000 to make up for some medium-term suffering that we're in the midst of now. The 7%+ returns are in our parents' and grandparents' accounts. We may have to wait a long time to make the same sort of returns.

The index fund looks terrible in the last 10 years because stocks were vastly overvalued in 1998 and the economy has been pretty lousy in many of the years since. Active stock trading strategies look equally bad and in many cases even worse (tech funds, individual investors who bought on 90s tips, LMVTX, etc.). If you want to give up on stocks, I'd be happy to take yours off your hands at a low low price. But you should probably read a history book about the 40s or the 70s before you decide that U.S. stocks are in permanent decline.

High Likelihood of a Market Crash

It's shocking that there are still people who think of the DJIA as "the market". Are you living in 1910? Gee, what's more relevant, a list of 30 stocks or a list of the same 30 stocks plus another 470 of the largest companies in the US? Furthermore, given globalization and the diversification of most smart investors beyond their national borders, shouldn't we be looking even beyond the S&P to an international index?

Furthermore, a lot of people seem to think of "the market" as a thing that exists independently from personal buy and sell decisions. The market is the sum of all buy and sell decisions. If you're patting yourself on the back for taking money out of stocks as if you're some sort of unique genius, you don't get it. Billions of dollars are flowing out of stocks; these outflows are the cause of market declines, not a symptom. Anyone can see that this is a less auspicious time to be in stocks for the short term than, say, 1996. However, the problem is that in the long term, no one is any good at timing reentry to the market. Anyone who pulled out entirely last year missed the March-May rally, and will most likely miss the eventual recovery and only reenter stocks when a new bubble is in the process of formation. You might be the type of investor who sells in 1990 and buys in 1999. More probably, you're the type of investor who buys/sells/buys/sells/... based on amateur macroeconomic forecasts, generating transaction fees, short-term capital gains, and market-trailing returns. There's a reason that the so-called experts are wrong about half the time, and it's not that you're an untutored genius who can do better. This stuff isn't predictable. If you're tempted to sell it all, ask yourself "When would Warren Buffett go 100% cash/metals?"