Tuesday, November 25, 2008

Investment Dont's

I was flipping through the pages of a book "The Money Masters" I have in my personnel library(books piled in a brown  box, lol). The book was published in 1980 and was written by John Train.
It covers the strategies of 9 great investors Warren Buffett,Paul Cabot, Phil Fisher,Ben Graham,Stanley Kroll,T.Rowe Price,John Templeton,Larry Tisch and Robert Wilson. Perhaps some of you have already read it, if not Amazon(AMZN) sells the second addition printed in 1994. While each chapter is focused on one of these individuals and their investment strategies, I found Chapter 11 unique. This chapter contains techniques that The Money Masters agree don't work.  *Here is a brief passage from the book.

Investment Dont's

1. Avoid Popular Stocks or Glamour Stocks- a glamour stock is a good company overpriced because it's everybody's darling at the time. 

2. Avoid Fad Industries- Fads and Brokers ' stories are variations on popular stocks. The ones you can remember are limited only by how old you are: computer stocks of the 60's, bio tech  of the early 90's , Internet stocks of the late 90's and most recently energy companies.

3. Avoid New Ventures- Venture capital is for the pro's, not passive portfolio investors.  Out of the Microsoft's(MSFT), Dell(DELL), Cisco's(CSCO) and WalMart's(WMT) many of thousands go bust. The ones that make money here are the promoters and upper management.

4. Avoid "Official" Growth Stocks- Stocks that have the growth label on their back and the price tag to go along with it.  For example these stocks might have been the big gainers in the last cycle, but going forward they cannot sustain their growth.

5. Avoid Heavy Bluechips- While we here the term Bluechips alot this is usually a name for a dividend paying company that was once good . Many are in cyclical industries and have eratic earnings. 

6. Avoid Gimmicks- Gimmicky investment "products" with high transaction costs and no intrinsic growth of value, such as derivatives, this is plain a*s gambling. Take my advice go to vegas if you want to gamble, lots of glitz and they give you free drinks.

7. Bonds Don't Preserve Capital- A final bad deal for the investor, usually is bonds, unless they reinvest all the income. Many think that bonds are "conservative" this is highly exaggerated. After tax, bonds generally yield less than inflation. If you use the interest you will probably run through your capital base in 20 years.

8. Forget About Technical Analysis- These are companies or individuals that try to predict which way the stock is heading and when it will get their. Hey they might tell you where the stocks been but they can't tell you where it will be in one week or one year.

I thought this was unique because mostly what we read or here is "this is what you should do" or "this is the way I did it".

1 comment:

  1. hmm I recall reading the same thing somewhere but cant remember. A good reminider none the less.