December 27th, 2008 — money — Tags:
The fourth dimension of any stock investment involves the price-earnings ratio — that is, the current price divided by the earnings per share. In the attempt to appraise whether the price-earnings ratio is in line with a proper valuation for that specific stock, trouble begins to arise. Most investors, including many professionals, who should know better, become confused on this point because they don’t have a clear understanding of what makes the price of the particular stock go up or down by a significant amount. This misunderstanding has resulted in the loss of billions of dollars by investors who who find out later that they own stocks bought at prices that they never should have paid. Even more billions have been lost as investors have sold out, at the wrong time and for the wrong reasons, shares they had every reason to hold and which, if held, would have become extremely profitable as long-range investments. Still another result is one that, if it happens repeatedly, will seriously impair the ability of deserving corporations to obtain adequate funding, with all that this could mean in a lower standard of living for everyone: Every time individual stocks take sickening plunges, another group of badly burned investors places the blame on the system rather than on their own mistakes or those of their advisors. They conclude that common stocks of any type are not suitable for their savings.
— Philip A. Fisher, Common Stocks & Uncommon Profits (1958)
December 20th, 2008 — truth — Tags:
“Still, a man hears what he wants to hear,
And disregards the rest.”
December 17th, 2008 — money — Tags:
ME: “Is there a mandatory waiting period between selling a stock (with the sole intention of locking in the loss) and then buying it back (if it’s a stock you have long-term faith in)? Know what I mean? Is there a minimum waiting period as far as CRA is concerned?”
ACCOUNTANT: “Yes, there is a minimum waiting period. If a security is sold and then repurchased within 30 days, CRA considers any loss to be “superficial”. Superficial losses cannot be claimed and are, instead, added to the cost base of the security.
Keep in mind that losses on selling securities are, almost always, considered a capital loss. A capital loss cannot be used to offset other sources of income. It can only be used to offset other capital gains. If you have no capital gains in the year of the loss, you may carry forward the capital loss until you do. Capital losses do not expire.”
And then I started thinkin… “All good, but what if you sell and 30 days later the stock or fund is way higher? How to determine if it’s likely to do that?” Depends how much you’ve lost relative to what your tax savings are. So… Continue reading →
December 15th, 2008 — money — Tags:
DISCLAIMER: “Sowing Seeds” is a 3-part 4-part series about my uneducated approach to investing. Readers should not take any of this content as a sound recommendation. (I am not a financial professional, nor have I been trained as one.) Be a big boy or girl, and make your own decisions.
First: Part 1, Market Value is Imaginary
Then: Part 2, The Economy is Irrelevant
Finally: Part 3, The Second Best Buzz
Bonus: Part 4, Water Your Own Tree, Slowly
” Yeah, but Semple, how do you DO it? What are the specifics?”
I think investing is a lot like growing fruit trees in Israel. It takes a lot of water. And if you dump all your water on the seedlings at once, or expect to have fruitful trees in six weeks, you will fail. Often miserably.
Trickle irrigation and patience are KEY, and, if absent, I think that either enterprise should be abandoned.
I think it’s best to look at every financial enterprise as a cash flow generator for investments. Whether it’s working for someone else or running your own business, the approach should be the same: 1) maximize your income; 2) minimize your expenses; and 3) plant some trees with the difference. Once the trees are bearing enough fruit, they can become the cash flow generator for — PRIORITY #4 — your lifestyle. Continue reading →
December 8th, 2008 — money — Tags:
DISCLAIMER: “Sowing Seeds” is a 3-part 4-part series about my uneducated approach to investing. Readers should not take any of this content as a sound recommendation. (I am not a financial professional, nor have I been trained as one.) Be a big boy or girl, and make your own decisions.
First: Part 1, Market Value is Imaginary
Then: Part 2, The Economy is Irrelevant
Finally: Part 3, The Second Best Buzz
Bonus: Part 4, Water Your Own Tree, Slowly
“Be fearful when others are greedy. And greedy when others are fearful.” (Warren Buffett)
In other words, when the sky is falling… Buy clouds.
The best buzz about investing is to invest a dollar and see it turn into more. No mystery there, but that, of course, doesn’t always happen, and rarely happens quickly. Something else is almost as exciting, but no one talks about it. What could that be?
Imagine that you’ve found a few stocks that you have long-term faith in. You’ve watched them regularly, and you’ve seen the pubescent moodiness of the market affect their stock price more than their day-to-day operations have. You buy some stock.
Then you wait and watch some more. The mood swings in the market continue, the stock goes up, and then goes down, despite positive quarterly announcements. You wait for a downward mood swing in the market, and then take advantage of it. You buy some more. Continue reading →