Happy Columbus Day. I want to write about another Italian, Machiavelli, today, specifically about conspiracy theories regarding the stock market not just in Rome, but in New York.
Many Americans believe their brokers are cheating them, their fund managers are crooked, their investment advisors are on the take. They think the markets are rigged against them.
Of course there are bad guys out there, Enron, Madoff, Bernie Ebbers, Ponzi (the originator of the Ponzi scheme, an Italian-American from Jamaica Plain near Boston).
Other retail investors are still in shock over the 2008 crashette. They respond to conspiracy chatter (mostly in Internet solicitations) about insider trades and 144A shares retail investors can’t buy. (I explained 144A shares last week.) This stuff is marginal and even if you have a big fatcat brokerage account with Goldman Sachs, you are far from certain to make money on IPOs or with 144A trades.
This focus on what you can’t buy takes your attention away from what you can buy. It amounts to an excuse for not making the effort to invest where smaller accounts CAN make money. Give up on your Goldman Sachs account envy. It is probably irrelevent to your investment returns.
My neighbor Jane used to share Goldman research with me but now she only buys bonds so I cannot see what they are up to. But (surprise surprise) my stock market performance is as good as ever without one trace of Goldman goodies!
There are funds which lose money, but believe me, no fund sets out to lose money. Today’s Barron’s tells the sad tale of Alliance Bernstein, the great value investors, who bought USA financial stocks in
2008 because they did not understand the magnitude of the crash and then were too stubborn to admit they got it wrong and change strategy. The head of research and many of his staff were fired by the parent co., AXA of France.
Yes some wierd trading days hurt small investors (like the Flash Crash of May 6). But if you hide under the bed you will be worse off than if you get into the market. You are supposed to invest for the longer term, not for instant gratification like an ipo popping up. You probably should not set stop-losses under your holdings to prevent ever losing money, which is what hurt some small investors May 6. But fund groups also loses out in the flash crash. We do not advise stop losses. We do not pick stocks with a sell target. We do not pick stocks we think will pop in the short term and then fall back to earth.
Remember that top losses are activated no matter how low the market goes once your floor has been crashed through. It is scaredy-cat investing and bad policy.
Alliance is not the only fund group where heads rolled. Other funds investing internationally were too concentrated, or hedged currencies and lost the foreign exchange advantage. Fidelity did that with its Canada fund.
We beat the mob, not because we are smarter, but because we can turn on a dime. As a retail investor’s blog editor, with my own skin in the game, I do not have the luxury of being stubborn. I switch tactics as needed when others have to worry about their bosses or how hard it will be to buy and sell in the millions of shares.
I do not need stop losses because I watch the ticker. I can send out a trading alert if needed.
I do not slice and dice the world into ever narrower segments by industry or country or investment style the way exchange-traded and other funds do. We don’t have the resources. And we are not interested in gaining a brownie point for some mini-collection that goes up when other things go down, as the institutional investing fraternity do.
Nor do I have a 5-year strategy. I cannot predict 5 years down the road. Nor do I use leverage to triple or double shorts. Or longs.
I do not rebalance the portfolio for some macro-economic goal. I will cut back if one stock becomes too important to our performance, but usually only reluctantly. I was taught by my great-uncle Jack, my first broker, that selling half is a cop-out. “Fish or cut bait” he used to say to me in his thick German accent.
I have no idea how much the funds under management of my stock picks may be, but I know there are people richer than me following my trades. With my new Covestor tradomg frustrations I realize I am better off not worrying about market cap and liquidity, especially over pink-sheet traded stocks with a very big market somewhere overseas.
I do not have the resources to cover every stock in the world, so I only send my team out to look at the ones that seem attractive before the research is done. We are not going to change our ratings of shares from week to week to encourage trading as brokers and their analysts (now including outside analysts) are prone to. Trading is cheaper than ever but taxes are not.
We buy for the long term. I try to find well-priced stocks of companies in good industries run well by smart managers with a business growth plan and adequate capitalization. My reporters and I will not spot winners every time but we make money most of the time. That’s the target. Joining www.global-investing.com is better than staying on the sidelines because you fear losses. There will be losses. I aim to offset them with black ink gains that exceed the red ink.
Today with no real movement at the International Monetary Fund, the dollar is sinking slowly in the West. So everything we own outside the Land of the Free and the Home of the Brave is going up. When it’s this easy, the time to cull our portfolio is near. Watch this space.
To quote Adam Carr of ICAP,
Think about it. China didn’t force US consumers to gear up to their eyeballs taking out loans they couldn’t afford – maxing out their credit cards etc. Consequently, China is not responsible for either the Global Financail Crisis or the US trade deficit – for the global imbalances the US keeps going on
about. Moreover when other nations intervene in FX markets, they are responding to the depreciation of the USDollar-caused entirely the Fed’s ultra loose policy and ongoing threats to print more money. They’re not responding to any action that China has taken. The US doesn’t acknowledge any of this however.
China is baaack with lots of cash to buy assets, increasingly in the developed world. Its CNOOC made a deal with Chesapeake to buy a third of the Eagle Ford natural gas field in Texas and may get US cooperation, whereas 5 years ago US politicains blocked CNOOC’s attempt to buy oil company Unocal. And in Israel, ChemChina made a deal with the Koor holding co. to buy part of its stake and all public shares in Makhteshim Agen, giving China 70% of the crop protection co. This will be done by paying Koor $2.72 bn, a 60% premium on the MA price. For how this will impact our portfolio, paid subscribers should read on.
There is also news from Britain, Russia, South Africa, China, Australia, Thailand, and lots from Finland for Seija.
