Archives

The Risk In Raising Taxes On the Rich

-David discusses the folly of states like California and New York relying on the top 1% of earners for the lion’s share of their tax revenue..

Breaking States’ Dependence on the Wealthy

David discusses the folly of states like California and New York relying on the top 1% of earners for the lion’s share of their tax revenue.

Tax the Rich, Roll the Revenue Dice

David discusses regressive tax policies and the folly of relying on high earners for tax revenues

States Tax Only the Rich at Their Own Risk

David looks at California’s reliance on the top 1% of taxpayers for 45% of revenue and why it’s unsustainable.

You Can’t Always Believe What You Read, See or Hear!

By David L. Blain, CFA

For years we’ve cautioned against paying to much attention to the financial media machine, especially when it comes to buy recommendations from the pundits and talking heads that operate it. A Fortune Magazine article from August 2000 validates our admonition nicely.

In his article “10 Stocks to Last the Decade,” David Rynecki (then a senior writer at Fortune) wrote the following:  “Admit it, you still have nightmares about the ones that got away. The Microsofts, the Ciscos, the Intels. They’re the top holdings in your ultimate ‘coulda, woulda, shoulda’ portfolio. Oh, what might have been, you tell yourself, had you ignored all the naysayers back in 1990 and plopped a modest $5,000 into, say, both Dell and EMC and then closed your eyes for the next ten years. That’s $8.4 million you didn’t make.”

Later in the article, Rynecki put together a portfolio of stocks he considered the ten stocks to “last the decade,” a so-called buy and forget portfolio. The stocks were Broadcom, Enron, Genentech, Morgan Stanley, Nokia, Nortel, Oracle, Schwab, Univision and Viacom.

At that time, the average price-to-earnings ratio for the group was 347! If you had invested $100 in an equally weighted portfolio of these stocks, 10 years later you would have had $30 left. Sadly, there is no way of knowing how many readers actually purchased this basket of stocks and ended up losing their shirt.

The bottom line is, by the time you read, see or hear about a security in the financial media, it’s likely too late to make a good investment in it. Also, you can’t tell whether the commentator or author has as stake in the security or an ax to grind. So take our advice and use the financial media (on a limited basis) as entertainment or an educational tool, and not for making investment decisions.

Value, Safety and Dangerous Words

-David discusses the importance of the price/earnings ratio in evaluating equities and the effects of today’s market valuations on inflation-adjusted returns. He also reveals the four most dangerous words in investing.

See the Value, Feel the Value

David discusses the P/E ratio (and your value judgment) and its role in evaluating whether or not you should buy a stock.

Little Margin of Safety in Today’s Market

David explains why today’s market valuations leave little margin of safety when it comes to inflation-adjusted returns.

Four Most Dangerous Words in Investing

David begins a discussion on Sir John Templeton’s four most dangerous words in investing: “This time it’s different.”

Maintain a Margin of Safety in Your Investment Strategy

-David makes the case for maintaining a margin of safety (low P/E) in your investment strategy to maximize returns.

It’s Not Your Grandfather’s Investment Strategy

David updates a previous issue with Morgan Stanley and begins a discussion on new strategies for long-term investing by looking back to a Fortune Magazine article from 2000.

Fortune Article Details How to Lose Yours

David takes a look at investing principles you ignore at your own peril. He also looks at the “ones that got away” during the Tech Bubble and why you should be glad they did.

Be P/E -Wise When Investing

David explains the price to earnings ratio and how it relates to investing “with a margin of safety.” He also talks about a margin of safety in the bond market.

Portfolio Construction and the Individual Investor

David begins a discussion on portfolio construction including risk tolerance and investment goals.

Portfolio Construction: Return Requirements

David continues his look at the portfolio construction process including desired returns and needed returns.