September 22nd, 2009 — Investment Strategies
What can corporate America do with the idea of listening to the fringe? In the late 1960s and early 1970s, Ron Castel, vice president of marketing at BankOne, spoke to national assemblies of bankers, recommending they attend protests (in jeans), listen to rock musicians, and visit campuses (where they would smell an aroma different from that of conventional tobacco products). It was controversial advice for the normally white shirted, blue suited bankers. Those who did break out of their suited environments and listened to the fringe went on to invent the automatic teller machine (ATM), point of sale processing of credit cards, electronic funds transfer, and a host of other innovations in banking products that eventually penetrated the majority culture.
Passion and Energy Create Brands People Want to Adopt Jagger struts; Madonna vogues; Tyler twirls; Diamond radiates; Simmons stomps; John pounds his keys. Attend a concert by any of these superstars and you’ll surmise that the commonality uniting them is the extraordinary degree of passion and energy they project. Night after night, city after city, these professionals take the stage and take charge of the tens of thousands of fans standing before them. They win their attention with the quality of the music they play; they captivate them, however, with the energy they emote. They never stop moving while on stage, leaving fans exhausted at the end of their two to three hour concerts. Leaving the venue, you’ll undoubtedly hear people talk about how energetic they are. Fans respect sweat.
Brands project energy and passion as well-some just project more than others. Victoria’s Secret emits an intimate form of passion, while Nike projects passion for exercise and life. Starbucks CEO Howard Schultz is passionate about coffee. Wal Mart is passionate about consumers and giving them the best possible value. When cost savings are achieved in most firms, the savings often flow to the bottom line as higher profit margins. When Wal Mart works with vendors to lower their costs-something it does with a passion-or works passionately to lower its own expenses, it returns those savings to consumers in the form of lower prices. In the long run, its passion for prices results in more consumers buying more items more of the time-one reason why Wal Mart’s revenues are now over onequarter trillion dollars. Some firms rely on high margins, but market dominance is often achieved with velocity or rapid asset turnover.
September 4th, 2009 — Investment Strategies
They are cheap. One of the most common myths in the fund business is that “you get what you pay for”-that high returns are the best justification for higher fees. There are two problems with this argument. First, it isn’t true; decades of research have proven that funds with higher fees earn lower returns over time. Secondly, high returns are temporary, while high fees are nearly as permanent as granite. If you buy a fund for its hot returns, you may well end up with a handful of cold ashes-but your costs of owning the fund are almost certain not to decline when its returns do.
They dare to be different.When Peter Lynch ran Fidelity Magellan, he bought whatever seemed cheap to him-regardless of what other fund managers owned. In 1982, his biggest investment was Treasury bonds; right after that, he made Chrysler his top holding, even though most experts expected the automaker to go bankrupt; then, in 1986, Lynch put almost 20% of Fidelity Magellan in foreign stocks like Honda, Norsk Hydro, and Volvo. So, before you buy a U.S. stock fund, compare the holdings listed in its latest report against the roster of the S & P 500 index; if they look like Tweedledee and Tweedledum, shop for another fund.
September 3rd, 2009 — Investment Strategies
- Recently, finance professors Owen Lamont of the University of Chicago
and Paul Schultz of the University of Notre Dame have shown that corporations choose to offer new shares to the public when the stock market is near a peak. For technical discussion of these issues, see Lamont’s “Evaluating Value Weighting: Corporate Events and Market Timing” and Schultz’s “Pseudo Market Timing and the Long Run Performance of IPOs” at papers.ssrn.com.meet the going rate for comparable issues, and high powered salesmanship had little effect on the outcome. As interest rates fell lower and lower the buyers finally came to pay too high a price for these issues, and many of them later declined appreciably in the market. This is one aspect of the general tendency to sell new securities of all types when conditions are most favorable to the issuer; but in the case of first quality issues the ill effects to the purchaser are likely to be unpleasant rather than serious.
The situation proves somewhat different when we study the lower grade bonds and preferred stocks sold during the 1945
September 3rd, 2009 — Investment Strategies
2. No increase in the proportion of funds held in common stocks.
3. A reduction in common stock holdings where needed to bring it down to a maximum of 50 per cent of the total portfolio. The capital gains tax must be paid with as good grace as possible, and the proceeds invested in first quality bonds or held as a savings deposit.
Investors who for some time have been following a bona fide dollar cost averaging plan can in logic elect either to continue their periodic purchases unchanged or to suspend them until they feel the market level is no longer dangerous. We should advise rather strongly against the initiation of a new dollar averaging plan at the late 1964 levels, since many investors would not have the stamina to pursue such a scheme if the results soon after initiation should appear highly unfavorable.
This time we can say that our caution was vindicated. The DJIA advanced about 11% further, to 995, but then fell irregularly to a low of 632 in 1970, and finished that year at 839. The same kind of debacle took place in the price of “hot issues”-i.e., with declines running as much as 90%-as had happened in the 1961