BEST INVESTMENT IDEA FOR 2011
After presenting the 2010 Best Idea Winner Awards
and collecting a crop of clever 2011 picks, the attendees bid long-time moderator Alan
Liebman fare-well with kind words and good wishes. The group also laid out a
calendar for the coming year and set member assignments for member
communications, webpage creation, group portfolio monitoring and speaking
DUCK SESSION - 20 YEARS IS ENOUGH
Outgoing (in more ways than
one) moderator Alan Liebman (What Me Worry about the real estate market?)
selected some of his favorite investment ideas from the 220
meetings he has chaired to share with this month's NorthShore-AAII attendees. Contributions came from
the work of John Train, Richard Geist, Belsky and Gilovich, Louis Rukeyser,
Werner DeBondt, Harold Evensky, Charles Ellis and many others.
AN INTRODUCTION TO STOCK OPTIONS
Member Vic Grossi
interactive, online overview of stock options. He
reviewed the history of options and describe their main uses... which range from
conservative income generation to speculative capital gain strategies. Vic
provided many examples of options trades. It was valuable for everyone to
learn how options function even if they don't use them directly...
the fund managers and advisors who serve us are very likely using options on our behalf.
TIME IS DIFFERENT: EIGHT CENTURIES OF FINANCIAL FOLLY"
Liebman reviewed the 2009 book "This Time Is Different" by
Professors Carmen Reinhart and Kenneth Rogoff. This detailed collection of
information about government and private financial catastrophes since 1200 A.D.
has led the authors to conclude there are clear patterns in
economic failure ... they think the patterns are so strong that "economic
disaster is the same this time, every time!"
The authors shows that every emerging
country has gone through a period of serial bond default, with some
supposedly developed countries like Greece continuing to do this even
today. Also no country in history has figured out a way to avoid
banking system failures! ... as we re-learned in 2008.
ROTATION -- LET THE ECONOMIC CYCLE HELP YOU PICK STOCKS!
Guest Host and NorthShore subgroup member Bob
Phillips combined two interesting subjects... the economic cycle [which
seems to be stuck at "recovery" these days] and Stock Sector
investing. Bob talked us through the stages of the classic "boom &
bust" cycle, telling us that Industrials, Basic Materials and Energy
sectors are advantageous in the "Early Recovery" stage, then
Consumer Staples and Services are favored in the "Late
Recovery". Using "Spyder" sector ETF's as his example,
Bob's presentation would have us favor funds [with ticker symbols] XLE,
XLB and XLI in Early Recovery and add XLP and XLY in Late Recovery.
USE STOCK INVESTOR PRO TO FIND SUPERIOR STOCKS!
Marshall Ball walked the group through his selecting process that seeks
above-average securities. He uses the AAII Stock Investor Pro database as
well as AAII's Shadow stock rules for initial screening.
To illustrate his methods, Marshall studied
Flexsteel [ ticker: FLXS ] and International Shipholding [ ISH ]. He discussed the data parameters he
gives the most weight and how he adds technical indicators to the screening
process. Ball also identified websites he finds helpful when making buy
and sell decisions.
DID "FATHER OF STOCK INVESTING" BENJAMIN GRAHAM REALLY TELL YOU
Professor Benjamin Graham (1894 -
1976) published "Security Analysis: Principles and Technique" with
David Dodd in 1934, the first textbook for students of the stock market. In 1949, Graham published a popularized
version of his ideas for laymen under the title "The Intelligent
Investor." Graham's best known disciple is Warren
Buffett who called Graham "the second most influential person in
my life after my father".
At this meeting, group leader Alan Liebman reviewed the tenets of Graham's stock analysis
methods. Contrary to today's day-trading mentality, Graham wanted
investors to think like an owner of the business. They should be concerned
with accounting ratios; debt levels; and a history of rising profits and
dividends. Liebman applied nine Graham criteria to four companies: Apple
Computer [ AAPL ] ; Pfizer [ PFE ]; General Dynamics [ GD ]; and Cash
America [ CSH ]. The methodology favored Pfizer and Cash America because
their prices represented a greater "margin of safety" against
losses than the others.
INTERNET TOOLS FOR STOCK SELECTION
Group member Howard Solomon presented a
comprehensive view of the basics of stock selection, with a special focus on
Internet information sources. Howard discussed what drives stock prices...
illustrating "fundamental" factors such as earnings, "macro"
factors such as the world economy, and "technical" factors such as
He used real-time viewing of Internet stock data websites
and explained what "homework" investors should do before
they press the "Buy" or "Sell" button on their broker's
It's tough making money in stock markets. Not
only can't investors pick stock market winners reliably... they can't even pick
losers! It's well known that many a downtrodden, troubled or neglected company
turns around and becomes a winner (just after you've sold the stock, usually).
There are even monikers for people who seek loser companies... "contrarian
investors", "vulture investors."
To test this viewpoint,
attendees were asked to choose a "dog" stock or mutual fund,
a security they think will
strongly underperform the market. The picks, to be tracked during the
coming year, included... Monsanto [Ticker:
MON ]; Intuitive Surgical
[ ISRG ]; Apple Computer
[ AAPL ] and Enernoc
[ ENOC ].
IN WORLD SHIPPING
North Shore subgroup member Demetri Criezis is an accomplished sailor
and a long-time student of the world
shipping industry. He
reviewed the industry, with special attention to Greek contributions and such
topics as major ship types, effects of
regulation, major costs and revenue sources. Demetri also reviewed about 25
shipping companies and give us his expectations for those firms. His
current favorites included Aegean Marine Petroleum Network [Ticker: ANW ]
and Teekay [ TK ] in the tanker business; and Eagle Bulk Shipping [ EGLE ]
and Safe Bulkers [ SB ] in bulk dry shipping segment.
Group leader Liebman discussed a mix of
subjects of general interest from the past half-year's financial
(1) Why the SEC has barred the publisher of
Value Line from running her own company for life! (2) New kinds of municipal bonds you can put in
your tax-deferred retirement account... but should you? (3) If you buy and sell passive (i.e.,
"index") funds, does that make you an active passive investor? Is this
a good thing to be?
(4) Do investment fund managers "eat their
own cooking"? (5) Newer fangled Exchange-Traded Funds ... are
investors dizzy yet?
(6) Should you convert your Traditional IRA to
a Roth IRA now that anyone is allowed to?
BEST INVESTMENT IDEA FOR 2010
The winners of this year's
contest had the tailwind of a +26% rise in the S&P 500 Index and a
sharp market turnaround for help. It won't be surprising then that winners
scored outsized gains: top honors went to coal supplier Alpha
Natural Resources' [ Ticker: ANR ] for a +152% jump; to American
Eagle Outfitters' [ AEO ] 72% romp; iShares
FTSE Xinhua China 25 Index Fund's [ FXI ] +56% advance; farm
machinery maker Deere's [ DE ] +48%; and Fairholm
Fund's [ FAIRX ] +46% win.
For the coming year,
attendees picked more venturesome securities than a year before... as
often has happened after a bull market run. Six stocks selling for less
than $10 were suggested including Blockbuster [ BBI
], Citigroup [ C ] and restaurant
operator Ruth Hospitality [ RUTH ].
Developing country passive fund iShares BRIC Index [
BKF ] was put forward to try and repeat its stellar 2009 run-up; while two
people thought pawn shop operator EZCorps [ EZPW ] would
get advantage from high unemployment.
ROAD TO RECOVERY
John Glasgow, a financial planner and
Merrill Lynch Vice President, discussed the state of the
economic recovery and identified where to find investment opportunities now. He answered
attendee questions on a wide
range of financial planning topics.
& YOUR BRAIN
Newspaperman and financial
columnist Jason Zweig's book Your Money & Your Brain weaves the disciplines of neurobiology, economic psychology and investing into
an intriguing cloth. Group leader
Liebman reviewed a few of Zweig's interesting findings, such as: 1) the "mere
exposure effect"; 2) the "three's company" effect; and 3)
Murphy's Law of investing. Participants learned that if they don't take account
of genetic and behavioral imperatives buried in their "human
nature", they can sabotage their own financial security plans.
INVESTMENT PRINCIPLES DO YOU STILL BELIEVE?
The "Great Recession" of 2008 cut
average portfolio returns to nil or negative numbers which altered public
confidence in investing, and may have changed it's view of how to invest. It was
noted that the public has unknowingly or intentionally been acquiring
riskier and more speculative securities. E.g., buying small cap stocks,
second world securities and long term, low rated bonds. The group
discussed the worthiness of such investing chestnuts as "buy and
hold", diversification, guru emulating, and day trading.
Early this year, the Federal government decided to push
about $1 trillion
into the economy to stimulate commerce and infrastructure activity. It is
reported that only
10% of that cash has been disbursed so far and most of it won't move until 2010
or 2011. So, in this session, attendees suggested companies or industries
that stand to benefit from this largesse. Among the ideas were retail
companies [examples: Home Depot -HD,
Kirkland's -KIRK]; industrial and commercial
equipment companies [Catepillar -CAT,
Illinois Tool Works -ITW]; and financial /
real estate entities [Hartford Financial Services -HIG,
Many people have been trying to get their
minds around the world market collapse of 2008. This month, North Shore group member Gil
Adams, gave us answers provided by John Talbott, a one-time
investment banker and sometime scholar in his book Contagion.
Personal politics filter Talbott's conclusions. Though he cites reckless
borrowing and lending as a root cause of market disintegration, he blames
everyone but no-money-down home buyers and big government bureaucrats.
Talbott's crystal ball foretells decade-long US stock market stagnation
and a long, deep recession. Therefore, he says, keep your money in cash,
TIPS, gold, and the China stock market.
LEGACY OF PETER L. BERNSTEIN
Peter Bernstein had a privileged birth to
parents. His upbringing and education gave him entrée to Harvard and the
Federal Reserve. He used these gifts wisely and became a noted
economics professor, the author of classic books in finance and investing
[e.g., Capital Ideas, Against the Gods],
and the founder of an eponymous
investment advisory firm. Bernstein died at age 90 earlier this month and
was lauded for his clear-headed view of investing, his understanding of
risk, and his insights into human nature. Two years ago, Bernstein wrote: “For most of
human history, in fact, the main source of economic risk was the weather.
…Today, risk has shifted from a bet on what nature will provide to an
intricate series of bets on what other players in the economy will
decide.” What a straight-forward description of the origin of 2008's
REAL ESTATE IN YOUR PORTFOLIO
manager David Swensen's idea that investors should strive for greater
diversification, we asked how a real estate commitment for individual
investors can be built. Non-professionals usually
add real estate holdings through ownership of publicly-traded REITs ["real
estate investment trusts"] or by buying real estate mutual funds or real
estate exchange-traded index funds. With these intermediaries, individuals can own
an interest in shopping
malls, apartment buildings, warehouses, self-store farms, and/or office
buildings. After a general review of these products, some specific products
recommended by one individual member were: Inland
Real Estate Corp (office buildings) [Ticker: IRC];
Host Hotels & Resorts [HST];
and Public Storage [PSA].
10th YEAR of
In the ten-year period through mid-2007, David
Swensen, the manager of the Yale University endowment portfolio, produced a
compound annual return of 17.8% versus the 5% annual return of the S&P
500 Index in the same period. This was the best record of any university,
foundation or pension fund manager.
To promulgate his methods, Swensen has written
two books in recent years, one for professionals and a second, Unconventional
Success, to help laymen find better investment pathways.
Attendees learned that Swensen favors
"diversification and equity orientation". Allocation, he says,
is more important than security selection. Rebalancing to your target
allocations is crucial; failure to do that is a "passive form of
market timing." Amateurs should avoid complex products like hedge
funds, and also avoid bonds, other than Treasuries, because their features
limit total return. Swensen concludes his book with a broad condemnation
of mutual fund industry practices. Funds charge unconscionable disclosed
and hidden fees, he argues, and often deliver weaker performance than
comparable index-tracking products.
The average stock in major domestic and
international indexes has had its price cut in half since the Fall of 2007 with
some commercial titans experiencing a 60% to 90% price slash. While some
of these "cheap" companies are sliding
toward bankruptcy, others will be bought by stronger competitors or private
equity firms, and some will re-emerge with vigor once the economy is reset to
At the time of this meeting, 5 of 30 Dow Jones Industrial Average stocks
were selling for less than $10 per share as were 95 components of the S&P 500 Index.
Group members were asked to recommend a "dollar stock" they
believe to be a buying opportunity now. Some
of the companies cited by individual attendees were: Lululemon
Athletica [Ticker: LULU]; Emergent Group
[LZR]; General Electric [GE]; PennWest
Energy Royalty Trust [PWE]; and Dow Chemical
CAN STOCK-AVERSE INVESTORS BUY?
The group considered income
securities, first by reviewed the prevailing yields on money funds, CDs,
Treasuries, municipal bonds and corporate bonds. All these yields were
near or at historical lows. The most compelling products were tax-exempt municipal
bonds which recently paid higher yields than Treasuries, a
reversal of the norm. [See Muni
Bond Article]. The Altman Z-Score was explained and considered as a measure of
corporate solvency. Finally we reviewed the ways that investors can
participate in gold markets, which had a positive return during 2008.
One efficient ownership form (if at-will access to gold metal is not
required) is to buy shares of exchange-traded fund SPDR
Gold [ GLD ]. GLD's share price hugs the value of 1/10th
ounce of a store of gold metal the fund retains in secure
depositories around the world.
BEST INVESTMENT IDEA FOR 2009
The Winners of the 2008
Contest were easy to spot... they were the only four stocks that did NOT
drop -16% to -98% in this remarkable, bad year! First place for 2008 was
the 45% gain for Budweiser, thanks to a good
acquisition call. Second place went to Darden
Restaurants [DRI] with a 16% win;
Third place to commercial bakery Flowers Foods [FLO]
on a +5% rise; and finally Fourth place to homebuilder Toll
Brothers [TOL] for its -1% delivery.
Best Ideas for 2009 fell into
three categories: (a) large "defensive" companies such
as Philip Morris [ MO ], Exxon Mobil [ XOM], Johnson
& Johnson [ JNJ ] and IBM Corporation [
IBM ]; (b) turnaround plays such as American
Eagle Outfitters [ AEO ], Deere [ DE], and
iShares China Index Fund [ FXI ]; and (c) lesser known companies
that might break into the limelight such as Isis
Pharmaceuticals [ ISIS ], Hudson City Bank [ HCBK ]
and coal miner Alpha Natural Resources [ ANR ].
TOPS AND BOTTOMS: MARKETS IN EUPHORIA
North Shore group member Sandy Harlow led our final discussion for
the challenging year 2008 with his examination of
investor sentiment at major market tops and bottoms. He compiled a list of 13
stock market turning points since 1929, with salient contemporaneous
commentaries for each one.
One interesting characteristic this list
showed is that most severe plunges bottomed out at approximately a 50% drop
from the previous market top. The significant exception was the 1929-to-1932
crash which had a -48% first phase "bottom", followed by a second
leg down which produced a composite decline of -89% from the September 1929
Sandy showed that at most turning points,
many supposedly knowledgeable people had mistaken expectations. Investors
often project today's trend into tomorrow; this may work on the average day
but cannot protect us from pivotal sentiment turns up or down.
STOCKS, RED STOCKS
In recognition of the
upcoming climax of the Presidential electioneering process, NorthShore
Subgroup members sought to identify stocks that would rise if Democrat
Obama won the Presidency and those that would be favored if Republican
McCain won. A number of people identified traditional energy and defense
stocks as winners if Republicans succeeded. Some stocks identified were Kinder-Morgan
Partners [ Ticker: KMP ], Honeywell [ HON ]; L3 Communications [ LLL ] and
General Dynamics [ GD ]. A Democratic victory was expected to help
alternative energy and developmental pharmaceutical sectors. Specific
winners suggested were Questcor Pharmaceuticals [
QCOR ]; Aero-Vironment [ AVAV ]; and First
Solar [ FSLR ].
Analyzing Stock Data Sheets (with Jim Kahan's help)
At the September meeting,
the NorthShore Subgroup reviewed
the well known Standard & Poor's and Value Line data sheets
for one typical manufacturing corporation [Abbott Labs
(Ticker: ABT) ] to improve our understanding of the information they
contain. Commentary and interpretation were provided by Jim Kahan, a former CPA and
today a twenty-year account
executive veteran with SmithBarney in Northbrook. Jim answered questions about:
the different forms of corporate earnings and of price/earnings ratios;
stock "beta" divergences between data tabulators; and his three
most important analysis factors ["trend identification, cash flow and
return on shareholder equity"].
DISTRIBUTIONS DURING YOUR RETIREMENT YEARS
How should you pay yourself in retirement?
What amounts can you withdraw without worry that you'll run out of assets while
your heart's still twitching? Should you take distributions from personal or
tax-deferred accounts when you have the choice? What portfolio allocation should
you maintain during the withdrawal years? When is a "conservative"
retirement allocation actually riskier than a "risky" allocation? To begin answering these questions,
the group read: Will
Your Savings Last? What the Withdrawal Rate Studies Show" by William
Reichenstein [AAII Journal, July 2008].
Two other articles from the AAII Journal are
also worth your attention: Withdrawal Strategies to
Make Your Nest Egg Last Longer
- William Reichenstein AAII Journal, November 2006] and
Your Retirement Income: What Works Best and Why -
Christine Fahlund [AAII
Journal, August 2008].
Header: (1) "Open Mike"
(2) Natural Gas Companies
NorthShore subgroup studied five Natural Gas companies...
after an introduction to the gas industry, the energy sector, as well as
pricing and production trends. Within the gas industry, there are players
doing exploration, others operating producing wells, some performing
contract well drilling and maintenance, and also pipeline and liquefied
gas transporters. The specific corporations discussed were: El Paso Corporation [Ticker:
EP]; Energen [EGN]; Enterprise
Products [EPD]; Questar
[STR]; and XTO Energy [XTO].
HEADER: "OPEN MIKE" AND "HOW RANDOMNESS RULES OUR
The group successfully tried
"open mike" discussions to answer attendee questions. Among the
topics discussed were: (1) the effect of commodity speculators on energy
prices; (2) are there trading differences that change with the time of
day?; (3) when to sell stocks?; (4) corporate governance update; (5) baby
boomer effects on stock markets.
Afterwards chairperson Liebman
discussed investing-related excerpts from professor Leonard Mlodinow
book The Drunkard's Walk [Pantheon Books,
2008] which argues that many life events are consistent with random causes. We explored
whether "star" mutual fund managers like Bill Miller deserve our
allegiance? Whether experts really pick winning stocks? Whether new management can
jumpstart a company?
Stocks To Win You Gold... picks for the recovery ahead
It's possible the worst of the current housing
/ credit bear market is over! Since we know stock market participants always
try to anticipate the future, this is a time for NorthShore Subgroup members to identify turnaround stocks that
bring cheer to 2008 portfolios. The following opportunities were identified by
individual attendees: mortgage originator
[Ticker: IMB ]; diversified floor covering manufacturer
Mohawk [ MHK ]; brokerage
Stanley [ MS ]; international
engineering & construction firm
Fluor [ FLR ]; solar power wafer
Renesola [ SOL ]; rock crusher
Materials [ VMC ]; and fluid
control equipment maker
Teleflex [ TFX ].
I PICK STOCKS" --ELLIOT YOUNG [2007 NorthShore-AAII "Best Ideas"
Elliot Young is a long-time attendee of the
NorthShore group meetings who has identified winning stocks several times over.
His recommendation of Rio Vista Energy Partners [Ticker: RVEP] rose 123% over
twelve months to win the 2007 "Best Ideas" contest.
Elliot described his quantitative approach
for finding under-valued stocks using the AAII "Stock Investor Pro"
database. The heart of his screening uses some of Benjamin Graham's criteria. Another important element, Elliot says, is to
weed out cheap companies that could become worthless. He will discuss criteria
that accomplish this. When he isn't at NorthShore meetings, Elliot crunches
numbers for Commonwealth Edison.
World According to Diane Swonk and Tom's Tactic for ETF Selection
Group member Tom Hunter presented the views of economist and Evanston
resident Diane Swonk who writes a monthly newsletter for
Mesirow Financial. Swonk was previously Chief Economist at
Bank One before its acquisition by Morgan Chase.
She is the author of the book "Passionate Economist". An archive
of Swonk's monthly observations and prognostications can be found by clicking Swonk
After discussing that "big picture", Tom
described his screening method for finding specific high-performing exchange traded index
funds ["ETF"s]. Some of the screen's current top ETF choices were: a
Brazil index fund [Ticker: EWZ]; a steel sector fund [SLX]; an emerging market smorgasbord
[EEB], and an agricultural commodity fund [DBA].
More Fooling Around -- The NorthShore Subgroup is Going to Solve the World's
Using the "wise
crowds" methodology presented in James Surowiecki's recent book The
Wisdom of Crowds, the
Northshore SubGroup resolved all the world's problems. We got to the
bottom line using the power of our collective intellect... the average
conclusions of people exercising their private counsel, acting
independently and coming from a diversified pool of backgrounds has proved
to be very powerful. Surowiecki explains this method supports Google's
webpage search ranking system; supports the Iowa Electronic Market election predications;
and is the basis for arcane problem solving by scientific sleuths.
As a prelude to this
discussion, the attending [albeit small crowd!] came to the
following "wise crowd" conclusions: (1) Home sales won't rebound
for 16 months [June 2009]; (2) There's a 28% chance that a major US money
center bank will go bankrupt or require a bailout in the coming year; (3)
The DJIA will end 2008 at 14,100 [about an 8% gain from its value on this meeting date and a 6% gain from its 2008 beginning value]; (4) At least 75% of US
troops will be withdrawn from Iraq no sooner than 2011; (5) A Palestinian
state won't be recognized by the UN until 2015; (6) Oil will no longer be
significantly used as a fuel no sooner than 2035. (7) The first complete
pharmaceutical or "painless procedure" cure for some common type
of cancer will be available in 2016.
BEST INVESTMENT IDEA FOR 2008
Against the -7% drop by the
S&P 500 during the 2007 term of our contest, our Best Ideas winners
gave superb recommedations. First place was taken by Rio
Vista Energy Partners [Ticker: RVEP ] which gained 123%; a second-place showing (selected by two members)
by index fund iShares
FTSE/Xinhua 25 Index [ FXI ] which rose 44%; South Africa-based
energy conglomerate Sasol Limited ADR
[ SSL ] with a 34% gain in third place; and lighting fixture
maker Genlyte Group [ GLYT ]
capturing fourth place with a 26% gain on a late-in-the-year takeover
the coming year, people chose some downtrodden financial stocks. Others
looked to defensive drug, food and beverage entities. A third group just went with their best analytics choice.
The potential for attracting one-point-three billion Chinese customers and one billion
Indians; for choosing among tens
of millions of educated employees; or for having a state near-monopoly can make a
routine business plan into a money fountain in these emerging economies.
But caution is advisable. The Chinese market is tightly controlled by the government; financial reporting
and business law may be suspect;
defective products or workplace hazards are rampant; and chimerical political
intrigue can change a company's prospects quickly. India presents a more developed
financial infrastructure in a democratic body politic but public support for
capitalism is often wanting and bureaucratic delay is notorious.
Potentially valuable Asian Stocks identified
by an attendee included:
Focus Media Holding
[Ticker: FMCN]; Beijing
China Mobile ADR
[CHL]; HDFC Bank
[ HDB]; InfoSys Technologies
[INFY]; Taiwan Semiconductor
[TSM]; and iPath Exchange Traded Note Linked to
the MSCI India Total Return Index
LESSER KNOWN PHARMACEUTICAL STOCKS
Many "second tier"
pharmaceutical companies carry the ball today in drug research, often under
contract with major firms who act as venture capitalists and marketers. Other second tier companies stake out a niche
market that's too small for the major firms to enter.
The NorthShore group studied four "second tier" companies plus one major firm that are all
judged by Value Line analysts to have more than average price gain potential in
this industry... Gilead
Sciences [GILD]; Lilly
& Company [LLY]; OSI
Pharmaceutical [OSIP]; Parexel
International [PRXL]; Watson
Pharmaceutical [WPI]. A majority of attendees favored Gilead and Parexel
won support from one-third of the members.
BUT TRUE- THE ECONOMICS OF STEVEN LANDSBURG
Professor Steven Landsburg says seat
belts kill people. He also explains why rock concert promoters don't raise
ticket prices even though performances will be sold out...; why unemployment is
a good thing...; and the wonderful "indifference principal"
that says, to pick one example, there's no place more preferable to live than
any other! Landsburg squeezes many thoughtful conclusions
from basic economic concepts. Want to know why popcorn costs more at the
movies?...then pick up one of his three books...The Armchair Economist;
Fair Play; or his recent tome More Sex is Safer Sex.
INCOME - NEW PLAN, NEW PRODUCTS
investing has become the common retirement plan for America's workers as
"defined benefit" programs have been replaced by "defined
contribution" regimes. This "Little Red Hen" concept had many
people making serious mistakes in managing retirement investments. We reviewed changes
to this situation brought about by the 2006 Retirement Pension
Protection Act which mandated automatic enrollment and a diversified
default investment for people who don't make an initial product selection. Two
new product genres for creating a stream of income payments during
retirement were described:
Immediate annuities with guaranteed minimum withdrawal benefits, and target
payment mutual funds [coming to market in late 2007].
July 24, 2007
Wrong with These Companies?
We selected ten companies
that were poorly rated by an analytical service and tried to figure out
what's wrong with them and whether they might have "contrarian"
The ten candidates were
Fonar Corp. [FONR]; Orleans Homebuilders [OHB]; Appliance Recycling
Centers of America [ARCI]; Ascent Solar Technology [ASTI]; Home Inns ADR [HMIN]; Shiloh Industries
[SHLO]; Acadia Pharmaceuticals [ACAD]; International Assets Holdings [IAAC]; Trump Entertainment
[TRMP]; and Q. E. P. Company [QEPC].
Among the problems the group
found with each particular company were : very high price-to-earnings
ratio; recent large price run-up or large price collapse; multi-year
history of weak performance & lost opportunity; "glitzy"
part of the business is very small; very low margin or no profits at
Annual Meeting: A First Hand Report on Modern Corporate Governance
NorthShore group member Bill Martello attended
the Wal*Mart shareholder's meeting in Bentonville Arkansas last month. He told
it was part rock concert, part religious revival, and part political
convention. Bill explained how a Wal*Mart motto... "Ordinary people
doing extraordinary things"... was translated into action. He also pointed
out the corporation has embraced environmental "sustainability" as a
major goal... setting energy reduction targets based on innovative building
design and functionality.
To get a sense
of the extravaganza that is a modern Annual
this link and watch a streaming video of the complete Wal*Mart Annual
Meeting. You can also
Relations to find Wal*Mart's SEC filings.
May 22, 2007
Stocks -- Contrarian Value Search
In 1990, the Japanese Nikkei 225
Index hit an all-time peak near 39,000, plunged to 20,000 one year later,
drifted toward 9,000 over the next twelve years, and started a rally in
2003. From Japan's stratospheric
economic growth rate of 10% in the 1960s, its economy slowed to 4% in the
1980s, and then to an anemic 1.5% in the 1990s. Now some observers think
Japanese stocks are undervalued, especially the less well-known companies.
Individual North Shore group members identified the following Japan
purchase candidates: Fuji Film [Ticker: FUJI], Mistui [MITSY], Mitsubishi
Heavy Industries [MHVYF], Millea Holdings [MLEA], Kyocera [KYO], and two
exchange-traded iShares Japan index funds [EWJ and ITF].
April 24, 2007
Craft of Investing
John Train was born into a wealthy
and well-connected family. After attending Harvard and working on a Paris
literary magazine, he settled
into an investment advisory career in New York, founding Train-Babcock Advisors
in 1959. That firm supervises assets of $600 million today.
We studied Train's book The
Craft of Investing which
philosophy; explains his
investment methodologies; tells his view of market behavior; and gives advice on
such diverse issues as safe-deposit boxes, revocable trusts, insurance and
retirement money handling.
In general we learned that Train is a collector of growing company stocks,
but he wants to buy them "on the cheap". He can do this by being
contrarian and buying companies during bear markets when they're undervalued,
then holding them until they're fully or over-valued in the next bull market.
This is plausible but very difficult for most people.
Train warns investors to be wary of "technical" analysis and other
schemes that game the market. He also wants amateurs to stay away from derivatives,
commodity trading, options and margin transactions.
Best Performing Stock in 2007
have stepped out of the crowd [risen more than indexes] early this year and
distinguished themselves by virtue of
Other success stories have come from an a new product launch by an individual company or
Among the 2007 early winners
identified by individual group members were: oil exploration and
transporter Questar Corp. [Ticker: STR,
up 14%]; back-office outsourcer Affiliated Computer
up 20%]; silicon wafer maker MEMC Electronic
up 51%]; Apple Computer [AAPL,
up 11%]; Google [GOOG,
down -1% but gains made selling put options]; New England refined oil
products seller Global Partners LP [GLP,
up 42%]; emergency vehicle and custom truck chassis manufacturer Spartan
up 52%]; utility conglomerate Florida Power &
up 11%]; computer info protector VASCO Data Security
up 53%]; and close-out mass merchandise retailer BigLots
[BIG, up 39%].
February 27, 2007
Friedman -- Retrospective and Appreciation
The North Shore group listened to and discussed a recorded
lecture by Professor Timothy Taylor [from Legacies of Great Economists, The
Teaching Company, 1998] on the work of influential economist Milton Friedman who
died last year after a life filled with honors and respect.
From humble immigrant parents, Friedman's clear thinking and
tenacious commitment to principle took him to the top of his profession and gave
him the power to make lasting changes to the study of Economics, to U.S. government policy,
and to international governance. We learned that Friedman was a world-class
statistician whose introduction of advanced math methodologies forever changed
Friedman showed that Keynesian economic models were wrong
in many instances and his exhaustive research on "money" gave control
of the money supply a pivotal role in avoiding recessions. In general he favored
education vouchers, a very simple tax code and, wherever possible, giving
citizens the "Freedom to Choose" [one of his book titles!] their own
|YOUR BEST INVESTMENT IDEA
"best ideas" award winners were... fertilizer manufacturer
[Ticker: AGU, jumping 50%]; Japanese auto maker Honda
[HMC, advancing 43%]; and a near-tie for 3rd
and 4th place between lighting fixture producer Genlyte [GLYT] and
pharmaceutical purveyor Abbott
Labs [ABT] --
both gaining 24%.
the coming year, group members picked some perennials like Cisco and GE;
added a few "growth" medical and biotechnology situations such
as Biopharma and MonoGen; and worked plays on the hot 2006 energy and
China market sectors.
I recently cleaned one of my "hall closets" --
drawers full of investment articles from magazines and newspapers dating from
the '80s and '90s with a few '70s vintage pieces! Some of that information seemed as fresh as today's front
page. Other items were so dated, they were funny. There were dire warnings,
historical oddities, and some instruction good for all eternity. Among the items
shared were: a 1982 Scientific American article by economists Kahneman and
Tversky on "Psychology of Prefences" [work that won Kahneman a Nobel
Prize]; a 1981 Forbes article on Adam Smith by John Galbraith; a prescient 1993
Money Magazine article titled "How Fund Directors are Letting You
Down"; a 1989 WSJ article pointing out that more workers are becoming their
own pension managers through 401K Plans... and investing too much in debt
securities and company stock [the Enron people apparently didn't read this!];
and a biography of William Fouse, a Mellon Bank renegade who dreamt up the first
stock index fund in 1969.
|STOCK FAVORITES OF
TOP MUTUAL FUND MANAGERS
The Group examined the two largest commitments of six
mutual fund managers who have above-average, long-term total-return records. The
star managers included Bill Miller of the Legg Mason organization; Chris
Davis of Davis New York; and Dick Weiss of Wells Fargo. The twelve stocks
identified by these managers will be tracked for the next eighteen months.
RESOURCES FOR INVESTORS
North Shore-AAII Member Sandy
opened this review by sharing some of his website favorites: www.SmartMoney.com
and its "Map of the Market" dynamic graphic depiction of sector and
company performance [free]; www.theStreet.com
for its many market commentators [feee]; www.DayTraders.Org
a traders' opinion site [free- registration required]; and www.TradeStation.com
for quotes, market data, and brokerage services [$$ subscription
Other group members suggested
the following sites: www.StockCharts.com
for "candlestick" charts [free]; www.QuantumOnline.com
for preferred stocks and ETF information [free- registration required]; www.StockDiagnostics.com
for cash flow computations [$$ subscription required]; www.ValuEngine.com
for stock selection/evaluation [$$ subscription required]; and www.InvestingInBonds.com
which has near-real-time trading histories for specific bonds and yield
tables for the municipal, corporate and government bond markets.
MAKE SENSE OF CORPORATE ANNUAL REPORTS
The Balance Sheet and Income Statement in an
Annual Report hold the bedrock information for measuring a financial
enterprise. With this data we can evaluate the health and prospects of a
company and, using multi-period comparisons, project trends toward
greater or lesser success.
North Shore-AAII Member John Kaminsky
refreshed our knowledge of accounting basics by discussing How to Read Annual Reports. John highlighted six
numbers we should glean from any Annual Report we
study: (1) Net Working Capital, (2)
Stockholder Equity, (3) Net Earnings, (4) Debt-to-Equity Ratio, (5) Cash Flow,
and (6) Footnotes [special charges, extraordinary methods, "off balance
July 25, 2006
NEXT GREAT THING!
Individual members discovered and
discussed companies that have a great new product possibility...
most of the choices were in the energy and networking sectors. The
nominees included: automobile efficiency hydrogen booster Hy-Drive
[ HGS]; "Biofuels" transforming agricultural byproducts
into energy... Archer Daniels Midland [ADM]
is doing this with corn; novel network computing allowing "WiMax"
whole-city wireless from Cisco Systems [CSCO]; embedded
GPS navigation systems from Garmin [GRMN]. In
the retail sector, UnderArmor [UARM] has
unique performance athletic clothing products. Finally,
RC2 [RCRC] is a diversified toy maker whose new "Fear
Factor Game" defies players to eat eyeballs, rats, worms and bugs
[made of candy].
June 27, 2006
We reviewed three articles
from recent issues of AAII Journal and Computized Investing:
Sites for Exchange-Traded Funds [Computerized Investing, May/June
2006] which identified seven online sources of information about ETFs.
Brokerage Account: Protection Beyond SIPC by John E. Deysher [AAII
Journal, April 2006] discussed asset safety if your
broker/dealer goes bust. One new wrinkle is that major broker firms now have
only two sources for super-SIPC coverage: a captive insurer formed by a
group of brokerages, and a more limited coverage through Lloyds of London.
Rules: Squeezing More From Your Retirement Portfolio by Jonathan Guyton [AAII
Journal, August 2005] reviewed the common question... "How much
do I take from my nest egg so I live large in retirement but never run out of
money?" The author claimed that if investors freeze their withdrawal amount
after years in which portfolio value falls, they can withdraw a higher
average percentage rate over their total retirement period.
May 23, 2006
We've seen the power of overseas markets, from Europe to
Latin America to the Pacific Ring, the past several years. Growth rates of
foreign economies have often been great, not the least because the commodity
products that some of these countries sell are in heavy demand. NorthShore group
members sifted through the S&P
700 Foreign Stocks and picked the following companies they felt had
strong prospects: Thyssen-Krupp [Ticker: TYEKF], American
Movil [AMX], Toyota
[TM], StatOil [STO], Mittel
Steel [MT], BASF
[BF], Honda Motors [HMC], Canadian
National Railway [CNI] and Tenaris SA [TS].
April 25, 2006
|A FEW OF MY
John Martin discussed four of
his favorite investment newsletters, giving the NorthShore group insights
about what made each of them valuable to his investment approach and how
they complimented one another. His choices included John
Dessauer's Investors World [Long term value emphasis]; Investech
Research [Useful for citing moves of the entire market]; Wall
Street Digest [More Aggressive portfolio]; and Richard
Band's Profitable Investing [More conservative, looks for high
March 28, 2006
|WHO'S ON FIRST?
NorthShore subgroup members
recommended securities that could claim to be "first" in some
relevant business or investing parameter. We heard about: International
Paper [Ticker: IP] that's first in paper products; Johnson
& Johnson [JNJ] first to bring sterile packaged bandages to
market; Zimmer Holdings [ZMH] first to sell
one million artificial joints; Select Comfort [SCSS]
that innovated the "sleep number bed"; Stryker
[SYK] that's the world leader in the orthopedic replacement market
and operating room equipment; Boeing [BA] the
first company with a successful jetliner; PetMed
Express [PETS] providing drugs for dogs [and cats etc]; Motorola
[MOT] the #1 phone maker in the world (again); Empire
Resources [ERS] a reseller of aluminum components; and Wrigley
[WWY] the chewing gum king.
February 28, 2006
WHAT'S WRONG WITH AMERICA'S MARKETPLACE?
[Founder, Vanguard Group] helped millions of people invest
more sensibly, consistently spoke out for the little gal against
the moneyed interests, and shed much light on financial insider tricks and
In his new book,
Battle for the Soul of Capitalism [Yale University Press, 2005],
Bogle looks for the root causes of the 2000 stock market
meltdown ... he finds problems with selfish people running corporations;
problems with short-sighted investors; and problems with
the behavior of fiduciaries running mutual funds and supervising pension
|YOUR BEST INVESTMENT IDEA
"best ideas" award winners were... fuel cell and turbine company
Distributed Energy Systems
[Ticker: DESC, leaping 230%]; computer and iPod maker Apple
Computer [AAPL, jumping 111%]; Canadian
uranium miner Cameco [CCJ,
ahead 97%]; and mental health provider Psychiatric
Solutions [PSYS, gaining 86%]. Investors who
didn't buy the first three should definitely consult the fourth.
the coming year, group members picked an unusually eclectic stock mix...
Momentum players picked last year's winners; but Contrarians touted last
year's losers! Speculators found obscure small companies trading OTC;
while Investors bet on the bluest chips from the NYSE.
CAN YOU HELP US GET IT "RETAIL"?
Going into the big holiday shopping season, the
voices of retailing doom were being heard again. "High gasoline and food costs will crowd out
Christmas", some said. "Bad weather will close malls." Or
"there'll be a shortage of flat-screen TVs and game-boxes". Modern Cassandras [she warned the Trojans to leave
that cutesy Wooden Horse outside the city walls] are heard every December.
At the November meeting members suggested promising retailer
stocks. Many recommended clothing businesses, including Chico's
[Ticker: CHS]; Too, Inc. [TOO]; Coach [COH]; Guess [GES]; Charming Shoppes [CHRS];
Claire Stores [CLE]; Urban Outfitters [URBN]; Coldwater Creek [CWTR] and
Gap [GPS]. Unconventional thinkers came up with: educational toy and game
maker Leapfrog [LF]; Apple Computer [AAPL]; and
drugstore chain CVS [CVS].
October 25, 2005
WILL LARGE CAP STOCKS LIVE LARGE AGAIN?
In the fairy tale market of the 1990s, it was large
capitalization stocks that sent investors' pulses racing, but since 2000 the
shares of behemoth companies have languished. Lilliputian stocks have posted big gains recently.
The annualized 5-year return through September 2005 on the
S&P 500 Index is -1.6% but the S&P SmallCap 600 Index annual return has
been +10.8% in that period. History shows the rewards from large and small
cap companies alternate every few years... we examined this effect by looking at
cumulative and 12-month moving average charts. Then we looked at the S&P
500's three dominant sectors -- financials, information technology, and
healthcare. Monitoring the prospects for these sectors might give early warning
of a large cap turn-around. For
background, investors can read a related July 2005 AAII
JOURNAL article by Steve Norwitz titled "Large Cap Growth: Can It Regain
the Market Leadership?"
We used the Chicago Tribune's
weekly table "How
the Regions Top 50 Companies Fared" to identify smaller
companies [less than $10 billion market cap] in our Chicago region that
might have good investment potential. Individual members of the group
presented these buy candidates: Dade Behring [
ticker DADE], a maker of medical diagnostic products; Nuveen
Investments [JNC], municipal bond fund seller now branching to
equities; USG Corporation [USG], maker of
gypsum wallboard with innovative properties; Allscripts
Healthcare Solutions [MDRX], medical software and information
control services; Stericycle [SRCL], medical
waste collector, disposer and recycler; and Zebra
Technology [ZBRA], distributor of bar code and radio ID tag
printers, plus tagging supplies for controlling inventory, theft and
|WHAT WALL STREET
DOESN'T WANT YOU TO KNOW
We reviewed the book What Wall
Street Doesn't Want You to Know by Larry Swedroe. The author says Wall Street
touts investment gurus and selection systems that supposedly deliver
profits but when he examines the real world records of Value Line, Warren
Buffett, hedge fund managers, value
managers, market timers, bond fund managers, and newsletter
writers, he finds nothing exceptional. The gurus don't give exceptional results going
forward; and you can't tell beforehand which one is tomorrow's
guru! Swedroe's general conclusion is you should invest in a mix of
Other parts of his book tackle such questions as... How should a lump sum be invested? When should you
re-balance your allocation? What should you do with a concentrated stock
position? When should you sell shares that have a very
low cost basis? and What role should international assets have in your portfolio? Swedroe's credentials
include an MBA from New York University, executive jobs at Citicorp and
Prudential and, since 1996, partnership in an asset management firm in St.
July 26, 2005
|BRAG OR FLAG DAY
Everyone had the opportunity
at this meeting to brag about a security they owned that was doing
well in 2005, or flag a security as a loser that the rest
of us should avoid. In the first seven months
of 2005, when the S&P
500 Index was ahead just 2%... some brags were:
[Ticker: AMGN] up 35%; gas distributor El
Paso [EP] up 50%; mortgage lender IndyMac
[NDE] ahead 40%; Walgreens [WAG] ahead 16%; drug developer Cubist Pharmaceutical [CBST]
ahead 33%; Sunrise Senior Living [SRZ] up
15%; Distributed Energy Systems [DESC] up
175%; Building Materials Holding [BMHC] ahead
120%; ginseng beverage maker Hansen [HANS] up
150%; clothier BeBe Stores [BEBE] ahead 60%;
credit bureau Equifax up 28%; Chicago
Mercantile Exchange [CME] ahead 40%; Marathon
Oil [MRO] up 50%; and MB Financial [MBFI] flat this year but up strongly
past three years.
June 28, 2005
The "stock analyst"
members of the NorthShore Subgroup examined twelve companies involved in
producing and/or selling four commodities ["indistinguishable
products of trade"], namely, Aggregates, Basic Chemicals, Metals
(non-ferrous) & Mining, and Steel.
Aggregates vendors Florida
Rock [Ticker: FRK], Martin Marietta Materials [MLM] and
Vulcan Materials [VMC]
were all judged to be "holds". Basic Chemical companies FMC Corp
[FMC], DuPont [DD] and Potash [POT] were also all rated "holds",
with POT thought to be an excellent company whose shares were "too
expensive." Metals & Mining shares Inco [N],
Noranda [NRD] and
Freeport-McMoRan [FCX] were rated "sells" variously because of
debt load or limited appreciation potential. Finally Steel companies
Cleveland-Cliffs [CLF] and Quanex [NX] were rated "holds", but
Commercial Metals [CMC] got a coveted "buy" rating.
As with all investing advice,
accept these Subgroup recommendations at your own risk.
|ISRAELI COMPANIES, MARKETS AND ECONOMY -- SOCIALISM
CRAWLS TO A CAPITALIST FUTURE
The roots of Israel's
founding in socialist ideals were examined, leading to the 1983 economic
implosion. After that year, Israel opened its economy to foreign capital
flows; relinquished many government controls on capital formation; created
a central bank; eliminated "high employment" programs; and
negotiated free trade pacts with much of Europe, Asia, and the Americas.
These actions allowed inflation to be dramatically reduced and unleashed
the Israeli economy to grow. The Israeli stock market is
characterized by two segments: (1) large companies [often former
government monopolies] like the airline El Al, Bank Hapoalim, Koor
Industries, and the communications giant Bezeq; and (2) hundreds of small
technology companies. A few of the latter have flourished such as Check
Point Software. Teva Pharmaceutical in particular has made a name for itself.
Three U.S.-based funds invest only in Israeli stocks [Tickers: ISL,
AMDEX, BWFAX]... they
have very small asset bases, high expense ratios, and concentrated portfolios.
were told by our members about their first forays into the investing
world. Some people hit a home run on that first pitch... buying Pepsico or
Microsoft. Others learned early how a "can't miss" stock... can
miss. There were tales of safe bond purchases and risks taken in companies
creating totally new products. When all the telling was done and the
dead-end ideas tucked away, we could add thirteen "first
investment" names to our NorthShore Watchlist.
TEN LISTS - THE "LETTERMAN PORTFOLIO STRATEGY"
in "recommended stock lists" from newsletters, brokerage houses,
newspapers and magazines. The group heard the origin and content of each
"Top Ten" list and scored the repeat candidates to create the
First "NorthShore SubGroup Top Ten Composite"... which included,
by frequency of occurrence: Citicorp [Ticker: C], Johnson & Johnson [JNJ],
ConocoPhillips [COP], Exxon Mobil [XOM], Pfizer [PFE], General Electric
[GE], Home Depot [HD], Occidental Petroleum [OXY], Intel [INTC] and Wells
Fargo [WFC]. These are all huge companies... seven of them are in the DJ
Industrial Average, and five are among the ten largest holdings in the
capitalization-weighted S&P 500 Index.
February 22, 2005
IDEAS IN ETFs and MUTUAL FUNDS
We reviewed the
regulatory changes promulgated by the Securities & Exchange Commission
for all mutual funds after the discovery of market-timing and after-hours
trading abuses. In addition to excerpts from SEC director speeches, we
also considered a fund industry survey [the public is not fazed by the
scandals!] and an assessment by industry watchdog Dalbar [$2 of new
regulation cost have been mandated to save shareholders from 25-cent
proliferation of Exchange-Traded Funds ["ETFs"] was described
with an article by Chicago Tribune columnist Bill Barnhart, and with
Barclay information on their "iShares" ETF product line [$55
Billion new money in 2004]. We also noted upcoming changes in the
"weighting" computation of the S&P 500 Index and heard a
presentation of "Alan's Little Fund Reform List" ... what's
needed for real industry housecleaning.
|YOUR BEST INVESTMENT IDEA
"best ideas" list tended to split into "big winners"
and "big losers"... with investors who thought the technology
rally would continue generally losing. Winners were an eclectic group and
the full list lagged the S&P 500 Index for twelve months. "Best
Stockpicker Awards for 2004" were given to members who recommended:
commodity food trader/grower Bunge
Limited [up 60%];
upscale coffee retailer Starbucks
[up 56%]; and
stun-gun maker Taser
[55% ahead]. Three "Honorable Mentions" went to runners-up...
wine and beer importer/ bottler Constellation
Brands [better by
48%]; mail-order drug distributor Caremark
[up 45%]; and im/ex-port facilitator Expediters
the year ahead, group members were partial to foreign stocks from Europe
and South America, turnaround companies, players associated with the
homebuilding boom, as well as some defense and energy stocks.
November 23, 2004
attention to five lesser-known software companies:
Henry & Associates [ Ticker: JKHY ]
[ FISV ] both doing banking and transaction processing software; Affiliated
Computer Services [ACS ] outsourcing
government information systems; Macromedia
[ MACR ] providing multimedia presentation tools for the Internet; and one "young adult"
company, Computer Sciences
Corporation [ CSC ]. The resident "analysts" at the meeting gave
their highest ranking to ACS and CSC in a tie; JKHY was seen as least
likely to succeed.
October 26, 2004
WISDOM IN THE INVESTMENT PROCESS
investment guru Richard Driehaus published a white paper under the title
used for this meeting. Co-leader Herb Paske reviewed that paper as well as
the biography and philosophy of this homegrown broker, investment manager,
and philanthropist. In general, Driehaus advises investors to allocate
some of their assets to "aggressive" sectors like small company
stocks. He also provides general criteria for stock selection and rules
for working in markets. The six-page Driehaus paper in Adobe PDF format
can be read by clicking: Unconventional
firm offers two mutual funds employing his methods: Driehaus International
Discovery Fund [Ticker: DRIDX] and Driehaus Emerging Markets Growth Fund [DREGX].
|ASSET ALLOCATION - What, How
The group examined the many ways that separate
classes of investment assets can be defined. We reviewed the historical
average returns, volatility, and cross-correlations of asset classes and
discussed how these factors help investors properly diversify. Data tables published last year in the book "Art of Asset
Allocation" by Morgan Stanley's
Chief Investment Officer David Darst were good source materials.
August 24, 2004
The group looked at overseas
(1) Recovery in the technology sector has a big
impact on the electronics manufacturing in the Far East. (2) Latin America
countries have become important
agricultural exporters under NAFTA. (3)
Millions more families are climbing over the poverty line in "third world" countries like India, Brazil,
China and Malaysia. (4) Foreign markets were more depressed than ours during the
recent bear market. And (5) the European Union is working opening trade
within an ever-larger geographical and political space.
products available as ADRs or funds recommended by individual group
members were: Canon [Ticker: CAJ], Willis Holdings [WSH], Matthews Asian
Growth & Income Fund [MACSX], Teva Pharmaceuticals [TEVA], iShares
South Africa [EZA], Telefonica SA [TEF], Nokia [NOK], Shire
Pharmaceuticals [SHPGY], Swiss Helvetica Fund [SWZ], Toyota [TM], British
Petroleum [BP], Southern Peru Copper [PCU], E.ON [AG], and Synthes Stratec
July 27, 2004
FOUR PILLARS OF INVESTING (Lessons for Building A Winning Portfolio)
Dr. Dr. William Bernstein's book
Four Pillars of
[McGraw Hill, 2002, hardcover, $28 list, $19 online] covers... (1) Theory of
Investing [the relationship between risk and return]; (2) History of Investing
[great bull moves and panics]; (3) Psychology of Investing [we'll skip this
segment since our subgroup has already done some in-depth discussion of this
topic]; and (4) Business of Investing [who can you trust?
...why brokers and mutual funds aren't your buddies].
The NorthShore group read excerpts from Bernstein's book and
noted some strengths and weaknesses of his preferred strategy of buying only
index funds. The author was diffuse in showing how a particular reader should
select his fund portfolio... not helping the reader to a particular number,
type, or diversity of index fund products to be used. Nonetheless, Bernstein
provides a no-nonsense grounding in stock market facts for beginning investors
and interesting historical perspectives that experienced investors may not have
For the flavor of
Bernstein's thinking and writing style, check www.EfficientFrontier.com. On
the home page, check out the "Efficient
Frontier" Journal Archive [6th major link down]; the "Online Asset Allocator" [7th link down]; and the Reading List [8th
June 22, 2004
TOILETRY AND COSMETICS COMPANIES... WILL THEIR
PROFITS SMELL AS SWEET AS COLOGNE OR COULD THEY BE HEADED FOR TOILET WATER?
This month the
North Shore Sub-group reviewed five companies that have a strong presence in
the beauty industry to see if their prospects were more than skin
deep. Our players were: Alberto
Culver [Ticker: ACV]; Avon
Products [AVP], Estee
Lauder [EL]; Gillette
[G]; and Helen of Troy [HELE]. We also tested a new format for the roundtable
discussion... basing our discussion on attendee answers to a 10-question
screen. The new format took more time than usual to work through so only
three companies were discussed and rated. Alberto-Culver was highest rated
[1.8 rating on a 1-to-3 scale (1 = Best)] because people liked the
consistent growth in its financials. Avon Products got a middling 2.0
rating since it too has been steady on its feet. A higher P/E ratio and
perceived "high" stock price were negatives. Finally, Helen of
Troy was rated a weaker 2.5, mainly because its beauty apparatus and
appliances business was more mundane and profit margins were flat.
May 25, 2004
SHOULD WE GET OVER BLODGET IN WONDERLAND?
The group reviewed several
articles discussing how stock analysts do their job; how they earn their
keep; conflicts of interest between analyst remuneration and impartiality;
and the value of analyst conclusions. [Click
here for the key article by asset manager Brian Bruce in The
Journal of Psychology and Financial Markets.] We also reviewed notes
of the AAII-Chicago lectures of Mitch Zacks [May 2004] and Professor
Werner DeBondt [February 2004] that show the very limited utility of analyst
stock price predictions and a close agreement between the statistics of
correct analyst predictions of long term growth and those predicted by
pure luck. A variety of analyst predictions for Intel Corporation [Ticker:
INTC ] to focus our attention on the range of analyst predictions at any
to Commodities Markets -- All the Corn Fit to
NorthShore group member Jim Mayer shared
his considerable experience with grain commodities trading ... including
knowledge of the "futures" and options markets... and with corporations involved in the grain
trade to give the North Shore group valuable
Jim explained how commodity markets bring
speculators together with hedgers. He defined some of the jargon, reviewed
trading strategies. and gave an overview of world grain trade. Jim also
commented on public companies with important roles in grain
trading: [Bunge Limited
(BG); Archer Daniels Midland (ADM); ConAgra (CAG);
Smithfield Foods (SFD); and Tyson International
readings on commodity trading basics are available at the website of the
Commodity Futures Trading Commission [www.cftc.gov],
the responsible regulatory body. This site offers a free brochure What
You Should Know Before You Trade with basic
definitions and a discussion of risk/reward potential. An investor-friendly, introductory discussion of futures
trading can be found in the on-line booklet Security
Futures published by the National Futures Association.
March 23, 2004
focused its attention on public companies that have survived at least 20
years and that remain interesting purchase candidates today. We learned
that companies go through complex transitions of growth, decline,
acquisition, and divestiture to survive. The "older and still
wise" organizations cited by individual group members included: financial
therapeutic argonauts Amgen
Johnson [JNJ] which
began with a sterile surgical plaster product in 1890; Medtronic
palliatives for chronic illness during fifty years; Nucor
manufactured cars and trucks at the dawn of the 20th century but operated
steel mini-mills at century's close; banker Wells
hardware and homeware store operator Lowe's
[LOW]; and the
universal consumer marketer, Wal-Mart
February 24, 2004
101: "LIFE LESSONS" THAT MADE YOU THE GREAT INVESTOR YOU ARE
The School of
Hard Knocks was in reunion at our February meeting. We heard great lessons
from many individual members who learned such virtues as... regular
saving; fact checking; patience; contrarian action; avoiding big
disasters; reinvesting dividends; relying on one's own judgment; long-term
holding; and never neglecting the portfolio that feeds you.
January 27, 2004
YOUR BEST INVESTMENT IDEA
It wasn't hard making money
in 2003 ...a blind
monkey throwing darts could do it. Still, the North Shore Subgroup's "Best
Ideas List for 2003" posted a superior average price increase of
53%... that compared to a S&P 500 price advance of 30% and an OTC
Composite Index run-up of 59% in the same time period! "Best
Stockpicker Awards for 2003" were issued to members who recommended: management
222%]; circuit card maker Flextronics
[up 109%]; drugstore operator Rite-Aid
[100% ahead]; and slot machine maker International
Game Technology [up
the year ahead, group members picked many adventurous, smaller, technology
companies... expecting the euphoria of 2003 to continue. Banks and social
trend companies [health foods, e.g.] were also popular.
November 25, 2003
CAN YOU PROFIT FROM VALUE LINE'S "SAFE DOGS"?
Our group studied five stocks with Value Line's worst
"timeliness" rank but its highest "safety rating". Could
these financially conservative companies with weak one-year outlooks be diamonds
in the rough... or are they surely year-ahead laggards? The "safe dog" stocks
were: Bemis Corporation [Ticker:
BMS] in the packaging business; Consolidated
Edison [ED] the New York
electric utility; duPont [DD] maker of chemicals,
agriculturals and fibers; Genuine Parts [GPC] an
auto replacement parts distributor; and hometown dog Sara
Lee [SLE] manufacturer and distributor of food, apparel and other
Five panels of North Shore gurus came to
these conclusions: Bemis
- "Very Weak Buy" rating on a "safe" company. Con
Ed - Don't Buy, overvalued. DuPont
- Don't Buy, company has lost its focus, may have pension liability. Genuine
Parts - Don't Buy, although good balance sheet and increased
dividends for 40 years. Sara Lee
- Don't Buy. Dull prospects despite high dividend. So, Value Line's
pessimism was seconded by North Shore gurus for these stocks. Time will
October 28, 2003
|A MATHEMATICIAN PLAYS THE
developed a great interest in investing and began
making a series of transactions in WorldCom stock and options. After losing
his proverbial shirt and his real money, Paulos collected the expensive lessons he'd learned from
this humiliation, combined them with a potpourri of mathematics lore, and wrote A
Mathematician Plays The Stock Market [Basic Books, 2003].
reviewed this book including these ideas: how statistics ignorance
bedevils investors; the important role of compound interest and its
relation to "fundamental analysis"; how to spot accounting fraud
using Bernard's Law of small numbers; decision-making paradoxes that lead
to herd behavior; the possible relationship of market price behavior with
"chaos" theory, unstable non-linear system response, and
|GURUS ON PARADE -
This August, group moderator Alan Liebman and
founder Herb Paske attended the Financial Advisor Symposium in Chicago. Alan
summarized and reported the industry news for attendees. The Symposium headlined
Louis Rukeyser ("You have to cut the taxes of the people who pay the
taxes."); Moningstar's chief Don Phillips; fund managers Ron Baron
("we are investing in a business") and Chris Davis ("The whole [investment]
system reeks of this short-term holding problem"); financial planning leader Harold Evensky;
and many more.
Some major trends described... (1) Leading financial planning firms are
moving more client money into index funds... some indexing as much as 50% of
assets; (2) Exchange-traded funds are receiving considerable interest for their
timing versatility, sector / segment breadth, low expense, tax efficiency; (3)
Demographic trends make retirement income and estate planning the most sought
services; (4) "Low stock market growth" predictions for this decade
(by W. Buffett and others) were discounted because of the historical response
after past bear market slumps; boomer demographics; and the vitality / ingenuity
of American business.
August 26, 2003
|GAMING AND GAME
This has been a boom time for
slot machine makers International Game Technology
[IGT] and WMS Industries [WMS]; and for
betting system / lotto terminal seller GTECH
Holdings [GTK]. But some of their customers, such as Las Vegas
destination hotel groups MGM Mirage [MGG] and
Mandalay Resort Group [MBG], have been
challenged by the effects of terrorism on the travel industry. The keen
analysts of the North Shore, working in study groups, reviewed these five
companies... they liked what GTECH Holdings and International Game Tech
were doing, but voted them "not buys" because of the large price
gains they've experienced. MGM Mirage and WMS Industries were judged
"not buys" because of weak earnings experiences and prospects.
Mandalay Resort was seen as having better operations but a high price, so
it also did not rise above a "not buy" diagnosis. A few
individual attendees expressed the contrarian view that the North Shore
participants were being too narrow-minded about the profit potential of
these companies and too pessimistic about the future in general.
July 22, 2003
STOCK PICKING SYSTEMS: HOW CAN THEY CLAIM TO PICK WINNERS WHEN SO MANY OF THEIR
USERS ARE LOSERS?
Many investment industry
brokers, magazines, newsletters and advisors tout some "system"
for picking winning stocks or equity funds. But market research shows most
investors never see the claimed rewards. We examined this disconnect
between hype and reality by looking at a large number of examples.
Sometimes the problem is contrived advertising... including number or
chart manipulation; selective memory; apples-to-kumquats comparisons;
partial disclosure; or special date selection. Another major factor in
stock picking failure is the large number of psychological tricks
investors play on themselves! [Re-read the excellent book Why
Smart People Make Big Money Mistakes that we presciently studied
at the stock market peak in February 2000
(click date to read that meeting's summary)].
June 24, 2003
BOLD NEW WORLD: HOW CAN YOU PROFIT FROM IT?
Against the background of: (1)
regime change in Afghanistan and Iraq; (2) a reshaping Middle East; (3)
the "cheap" Dollar; and (4) US Tax reductions... the group
pondered what securities investors should Buy and should Sell.
individual members on "Buys" included... (1) ProFunds
UltraShort OTC Fund [Ticker:
USPIX] which will rise if the Nasdaq 100 plummets; Hewitt
Associates [HEW] which may benefit from global consulting; Anheuser-Busch
[BUD] because we'll all want to mellow out; Colgate-Palmolive
[CL] because of an expanding world consumer base with more
disposable income; Rite-Aid [RAD] for its
rebirth during a rebounding US economy; Pfizer
[PFE] to take advantage of rising availability of pharmaceutical disease
relief; Wal-Mart [WMT] on the economic
rebound again; Advance PCS [ADVP] to benefit
from new Medicare plans; Cendant [CD] for its
realtor, mortgage, and travel franchises; Expeditors
International of Washington [EXPD] because of increased overseas
shipping needs; Huaneng Power International ADR
[HNP] as a power utility in China; InterActive Corp
[IACI] for its media services including Expedia travel, Home Shopping
Network, and TicketMaster; and Applied Materials
[AMAT] to take account of equipment for a resurgent silicon chip
"Sell" ideas were in
shorter supply [Where have all those pessimists gone?] but included... Seitel
[SEIE] not doing well in its energy-related businesses; AT&T
[T] struggling to find its core as it sheds businesses it grew or
May 27, 2003
|THE BEST INVESTMENT
Individual members of our group
recommended the following websites [click on the site name to open the
home page of the site in a new window]:
MoneyCentral and Quicken
as free, general purpose investment information sites;
Stock Rating System [Schwab customers only] as a stock screener;
Dessauer's Investor's World [Cost = $149/Yr] as a newsletter providing
clear and specific stock portfolio and market guidance;
[Cost >=$99/month] to get rapid and extensive technical and market
Business Daily [Cost= $300/Yr.; Free 2-week Trial on-line] for
screening tools based on the paper's proprietary stock rating systems;
[Cost= $600/ Yr; $10 for a 5-week Trial]; and
for its StockInvestor software, "investor celebrity" stock
screening criteria palettes, and general investment advice.
April 22, 2003
Speakers Jeff Joseph and Kristin
Fox from www.Hedgeworld.Com and Gary Stephans and Amanda Cain of
SalomonSmithBarney gave us an introduction to the modern panorama of hedge
funds, and an update on the latest trends toward "multi-fund"
products and low-initial-investment [$50,000] offerings. They said some
hedge funds intend to be dependable total return vehicles [e.g., using
arbitrage strategies]; while others are "home run" seekers
[e.g., currency speculators]. The speakers stressed it was very important
to study the reputations and histories of hedge fund managers. Hedge funds
often have no third-party custodians; no outside auditors or Directors;
minimal required disclosures of return or portfolio content; and
restricted withdrawal rights.
March 25, 2003
|BIG DIVIDEND INCOME
The group examined two classes of high
dividend yield securities... utility operating companies and royalty trusts. In
specific, we reviewed Exelon Corp [Ticker:
EXC], Great Plains Energy
[GXP], TECO Energy [TE], Great Northern Iron [GNI], and Hugoton Royalty Trust
[HGT]. The annual dividend yields in this group ranged from 4% to 13%. Our
North Shore "analysts" were nervous about TECO, bored with
Exelon, and lacked evidence on Great Northern Iron. Great Plains won an unenthusiastic
"OK" while Hugoton Royalty [with $80 million in revenues and
just one employee!] piqued the most curiosity.
February 25, 2003
|"WINNING THE LOSER'S
Charles D. Ellis -- a
long-experienced portfolio manager and consultant -- tries to explain in
this book [title in header above] why amateur investors have little
hope of beating the pro's. Indeed, he says, virtually none of the pro's
can beat each other! For individual investors, he argues, the best way
forward from this stand-off is to give up the idea of "beating the
market" in favor of "matching the market" with index fund
usage. Rather than pick stocks, Ellis argues, better spend your time
developing your portfolio operating policy, steeling yourself for
long-term commitment through market gyrations, and making sure you've got
adequate defense against inflation.
January 28, 2003
|YOUR BEST INVESTMENT IDEA
2003 is a tough year to be a seer!
There are no obviously favored sectors like investors had in the glory
days of '99. Stock picks by individual members covered the
market's full breadth and derived from many different theories of how
future gains will develop. Some people advocated "value stocks";
some took a flyer on a small company with a new idea; and a few based
their hopes for a winner on longer-term trends such as "lifetime education"
and "pervasive gambling."
The awards for "Best Pick of 2002" went to the
people recommending: education company Apollo Group [up 44%];
clothier Chico's FAS [up 38%]; and pharmacy
retailer Rite-Aid [up 34%]. The entire 2002 North Shore "Best Ideas" portfolio
list had a -15% loss, which was much better than the -24% drop in the S&P 500 Index
during the same time period as our contest.
|CONSERVATIVE USES OF
Group member Sheldon
Pollack discussed the reasons and techniques for systematically
buying or selling "put options". For example, investors can buy
a put option as insurance against a market decline. They can sell a put
option to earn premium income or buy a stock at a price below current
To get a grounding in stock
option terminology and concepts, visit the free Chicago
Board Options Exchange's site Online
"SAFEST WINNING IDEAS"
The North Shore group analyzed stocks that received Value Line's Top 100 "Most Timely" rating
and had an above-average Value Line Safety Rating. This group
Fortune Brands [Ticker: FO],
ITT Industries [ITT], North Fork Bancorp [NFB], Patterson Dental [ PDCO],
Weis Markets [WMK], H & R Block [HRB], Dentsply International [XRAY],
Anheuser-Busch [BUD], Procter & Gamble [PG], and Sysco [SYY].
North Shore member study groups
reviewed the data on each of these stocks and concluded that FO, WMK, HRB,
XRAY, BUD and PG were "buys" while ITT, NFB, PDCO and SYY were
"holds." There was difficulty determining the "fair
price" [what an informed, experienced investor should be willing to
pay now] of the stocks with the data available.
Group members gave summaries
of their personal investment "game plan". Quite a few variations
to traditional "buy and hold" or "trading" techniques
were described. Some interesting tools used by one or more group members:
selling put options; using high debt allocation; selling covered call
options, "up months only" (Nov to Apr) equity investing;
options-dictated equity trading; using "short-selling" and
leveraged index funds; IBD's 8% stock selling rule applied to
"cost" or "current price"; contrarian equity stance
(buy what's being sold, sell what's being bought); day trading with
"limit order straddles".
|PITFALLS AND BEST
PRACTICES IN RETIREMENT FINANCIAL PLANNING
North Shore sub-group founder
and co-leader Herb Paske enlivened this discussion with several
questionnaires he uses with his clients to assess their risk tolerance and
investment knowledge. Some key points Herb made: Social Security typically
covers only 20% of retirement expenses; today's retiree typically has a
30-year life expectancy so inflation risk must be countered; a 3% maximum
annual draw from retirement assets will generally ensure a retiree doesn't
outlive his/her assets; the recommended order of withdrawal for most
people is to use personal money first, then retirement account money.
COMPANIES FIND THE Rx FOR PROFITS?
We divided ourselves into
small "study groups", each of which looked at one of the the
large pharmaceutical companies: Merck
[MRK], Pfizer [PFE],
Wyeth [WYE] [the former American Home Products], Lilly
[LLY], Glaxo SmithKline [GSK], Johson & Johnson [JNJ], Abbott Labs [ABT], Bristol-Meyers Squibb
[BMY], Novartis [NVS] and Pharmacia [PHA]. These stocks were recently
selling at 10% to 50% of their 52-week high prices. Among the industry
challenges mentioned were patent expirations, competitor and consumer
lawsuits, generic competition, low earnings, slow FDA new drug approvals,
and potential government involvement in drug distribution [Medicare
drug benefits?]. The study groups
thought Johnson & Johnson, Pfizer, and Pharmacia could be bought now;
other companies weren't attractive at current conditions.
FOR YOUR PORTFOLIO
contractors, General Dynamics [GD], Lockheed-Martin [LMT], Northrop
Grumman [NOC], and United Technologies [UTX] were reviewed for investment
merit. People liked the financial strength of General Dynamics but
wondered if submarine orders were stymied. Lockheed, it was feared by
some, had already "made its move". Northrop Grumman was faulted
for erratic earnings, as well as low earnings levels and profit growth.
United Technologies was the diversified business and had a relatively low
price/earnings ratio. In a straw poll at the end of our discussion, about
one-third of attendees were "willing to buy" General Dynamics
and United Technologies "the next morning"; almost no one had
buying interest in Northrop or Lockheed.
April 23, 2002
The housing industry
has been a mainstay during the 2000-01 Bear market. Companies providing
raw materials for housing, construction, and home improvement have
benefited from this trend. The group looked at four examples that were
favorably ranked by Value Line... Home Depot [Ticker: HD]; Lowe's [LOW];
Hughes Supply [HUG]; and Building Materials Holding Corp [BMHC]. Lowe's
and Home Depot are the most closely matched... some attendees thought LOW
was attractive as a smaller, nimble, cheaper version of HD. Others said
Home Depot's experimentation with stores selling luxury products
["Expo"], automobile sales, and "mini-stores" for city
locations was in its favor. It was noted that Hughes had the most price
March 26, 2002
AND "PREFERRED" SECURITIES-- THEY CAN MAKE YOUR PORTFOLIO GROW
OR INCOME FLOW
The group reviewed the definitions of "convertible" and
"preferred" securities, showing how an investor can achieve equity-like capital gains
under some circumstances and bond-like steady yields otherwise. For
concreteness, we studied the more liquid breed of LYONS [Omnicom 0%
Convertible LYON due 2/7/2031] and PEPS [Electronic Data Systems $3.81
PEPS Convertible due 8/17/2004] securities, as well as a Preferred Stock
[Public Storage Inc. 7.875% Cumulative Preferred Depository Shares, Series
S]. Some prominent convertible security mutual funds were also reviewed.
The difficulty of getting information about convertible securities was
noted; serious investors were directed to www.convertbond.com
[annual fee site with free 14-day trial] and to the paperbound "Mergent
Bond Record" [formerly, Moody's Bond Record] available at some
WRONG WITH CORPORATE FINANCIAL REPORTING & GOVERNANCE?
This discussion was enlightened by Jim
Kahan [ex-CPA and -auditor; presently Vice President-Investments,
Smith Barney (Northbrook)] who reminded us that good auditing focuses on
the "exceptional" or "critical" points of a company's
accounting records. Auditors are charged with deciding the "best
presentation" when competing accounting methods can be used. For
large corporations, key audit team members should be rotated out
regularly. In Enron's case, possible auditing errors included the lack of
"arms length" partnership relations, and oversight of critical
functions by Enron staff who formerly worked for auditor Anderson. Members
noted that to minimize the chances of being "Enronized" in the
future, investors should: (1) diversify! diversify!; (2) retain a healthy
skepticism about all corporate information; and (3) recognize there's more
to a "good stock" than a currently-rising share price.
January 22, 2002
|YOUR BEST INVESTMENT IDEA
Twenty-six Best Ideas were suggested
for the coming year including recovery candidates [e.g., Lucent,
Rite-Aid], out-of-favor energy stocks [Valero Oil and Frontier Oil]; core
holdings [GE, Pepsico]; and just a few speculations [IDEC Pharmaceuticals,
Given Imaging] relative to previous years.
Ouch! The average "Best
Idea" recommendation lost 29% last year! But there were four
gainers meriting 2001 Achievement Awards... trendy clothier Urban
Outfitters [up 175%]; tech merchant Computer
Discount Warehouse [ahead 78%]; Cohu
rising 2% [makes silicon chip testing equipment and is not a type of
salmon]; and midrange department store Kohl's
[positive by 0.1%].
November 27, 2001
|INVESTING IN THE PRESENCE
After the September attacks,
President Bush said the fight against terrorism could take years.
Investors have to consider that, so we looked for stocks likely to be
boosted or hindered by a time of terrorism. Getting kudos were
"stay-at-home entertainment" companies like Singing Machine [SMD];
device security makers such as Visionics [VSNX]; and traditional military
hardware purveyors Lockheed-Martin [LMT] and General Dynamics [GD]. Likely
to suffer from the new climate, at least one attendee thought, were theme
park hosts like Disney [DIS], oil producers such as BP [BP], and electric
utility companies .
October 23, 2001
The operations, history and
investment performance of four companies in the education business were
discussed. Members were most impressed with Career Education [CECO] and
DeVry [DV] for their post-secondary, skills-oriented degree programs in
technology, business administration, and culinary arts. There was less
enthusiasm for Apollo Group [APOL] which operates a broad program under
the 'University of Phoenix' name, and for Sylvan Learning [SLVN] which has
a strong interest in overseas teaching, particular of English as a second
language. Some AAII observers were put off by the high P/E ratios of this
group at this market juncture.
September 25, 2001
|HOW TERRORISM CHANGES THE
FUTURE FOR INVESTORS
A group discussion of investor and
market responses to the terrorist attacks on the United States on
September 11, 2001.
August 28, 2001
OPPORTUNITIES and CREATING RETIREMENT INCOME
Jay Lazar and Mark Wiemeler of American
Express Financial Advisors presented a review of the two topics above.
This included calculating "net worth", social security payments
and their taxability, uses of Roth IRAs, the role of trusts, 529 college
saving plans, and charitable giving.
July 24, 2001
|AAII NATIONAL MEETING
Attendees of the 22nd Annual AAII Investor Conference
this June in Chicago reviewed some major topics covered by speakers:
exchange-traded funds; the semiconductor industry; investment philosophy
of Don Phillips (Morningstar), Ed Finn (Barron's), and Stephen Leeb
(Personal Fianance); AAII.com website resources; lessons of
best-performing newsletters; and the new IRA regulations.
June 26, 2001
|WHEN TO SELL?
This discussion was anchored by
Donald Cassidy's AAII Journal article titled "When to Sell a
Stock" of May 2001. Cassidy's 24 selling rules were segregated into
action headings, including: (a) Making selling a deliberate decision; (b)
Setting sell price targets; and (c) Factors to ignore when selling. Though
Cassidy's "rules" were provocative and many embodied good sense,
he gave no evidence to support their effectiveness as long-term
strategies. Several Cassidy omissions cited by audience members: (a) No
discussion of partial position sales; (b) No use of technical analysis
such as moving average rules; and (c) No interest in relating a sale price
May 22, 2001
Excellent data arrays and analyses
were presented by group members on the leading mega-pharmacists: Walgreen's [Ticker: WAG], Long's
Drug [LNG], CVS Corporation [CVS]; and Rite Aid [RAD]. The general conclusion
was that Walgreen's was the profits and consistency "cadillac"
but was currently well priced. Long's was attractive on its raw numbers
but not a compelling story. Rite Aid had considerable potential as a
turnaround but still faced heavy investor doubts and debts. CVS is close
to Walgreen's in revenues, profit margins and growth plans; the stock
trades at a lower valuation because of its shorter operating history.
April 24, 2001
|ESTATE TAXES: History and
See the hand-out
sheet from this meeting now available on
our Downloads page. Although there was
considerable support in the group for estate tax reduction for
"mini-millionaires", a number of members wondered if charitable
deductions would be dramatically cut by such a change. They wanted some
incentives to encourage more donations.
March 27, 2001
|THE INTERNET BUBBLE OF
Many a Cassandra forecast the end
of the bull market after the 37% market gain in 1995 but the persistent advance
made them all look foolish. By the close of 1999, the S&P 500 Index had
generated an average annual return of 29% for five consecutive years... the extraordinary was accepted as normal. As 2000
began there weren't any voices saying "The End is Near" ...but it was.
We've read about "market
bubbles", now this generation produced a delusion of its own. Members
discussed investor behavior and their own actions during the bubble. Some
of the culprits named: stock market hype on TV and Internet; distortion of
investment values; "buy on dip" philosophy and lack of
"when to sell" understanding; faulty Federal Reserve policies.
Some thought the Bubble
was burst by higher oil pricing and the contested 2000 Presidential
February 27, 2001
Valentine's month special topic...
everyone's got an unrequited investment
love... a security they've always adored but never bought. Walgreens [Ticker:
WAG] was the unsatisfied infatuation most often cited by North Shore group
members. Other unrequited investment infatuations included: Krispy Kreme
Doughnuts [KREM]; Harley Davidson [HDI]; Sun Microsystems [SUNW];
Medimmune [MEDI]; Newport Corp [NEWP]; McDonalds [MCD]; Johnson &
Johnson [JNJ]; and Berkshire-Hathaway [BRKA]
January 23, 2001
|YOUR BEST INVESTMENT IDEA
There were 30 entries to the new
year's Best Idea competition... most participants chose technology
companies they expected to stage a comeback from last year's
woes. This list should be
available next month on our Download
page as part of the Monthly Stock Watch List. The award certificates for Best
Ideas of 2000 were granted to the members who recommended: Forest
Labs [ahead 77%], Charter One Financial
[gaining 44%], Armor Holdings [up 42%], Equity
Office Properties REIT [rising 19%],
and Atmel [gaining
November 28, 2000
|BLUE CHIP BANKING STOCKS
The traditional banking industry has
broadened to include financial services companies such as mortgage
originators, stockbrokerages, and credit card issuers. We reviewed five
"banking" firms that have long histories of good
profitability and high market returns... and that are taking divergent paths
into the future (click on links for more info): Fifth
Third Bancorp [Ticker: FITB], Firstar
[FSR], Mellon Financial [MEL],
Financial Services Group [PNC], and Wells
|ENERGY INDUSTRY TRENDS
& INVESTMENT STRATEGIES
Lawrence Buettner, President of The Energy Group [East Dundee, Illinois] discussed current world and U.S. fossil fuel markets.
He thought $50 per barrel crude oil (and $2+ per gallon gasoline) was
inevitable in the future. Natural gas was recently at a $5.50 per thousand
cubic feet all-time peak too. Buying gas well partnership shares (like the
ones Energy Group sells) can give tax breaks that reduce initial
investment; and, if gas prices remain high and wells don't run dry,
attractive long-term income.
September 26, 2000
|THE MILLIONAIRE MIND
The new book The Millionaire Mind [Andrews
and McMeel] by Dr. Thomas Stanley presents
a survey of the psyche
of high-net-worth families. Stanley's subjects conclude it takes more
of honesty, discipline, congeniality, risk control, and enthusiasm than
brains, mentoring, luck, or investing skill to amass million dollar
It is also critical to choose a vocation you love... most self-made
millionaires are small business owners, doctors & lawyers, or senior
corporate executives. High net worth families tend to be tradition-bound:
they have stable marriages, buy existing houses in established
neighborhoods, use antique furniture that can be refinished, and
organize their households for productivity.
August 22, 2000
|MY FAVORITE GURU
Individual group members described
the one source that they rely on the most for investment ideas and advice.
Among those mentioned were: radio talk host Bob
Brinker; money manager Mario Gabelli;
Investor's World and Dow Theory
Forecasts; newspaper Investors Business Daily; columnist Humberto
Cruz; and the Value Line Investment
July 25, 2000
|VALUE STOCKS TODAY
The concept of "value"
investing was discussed using a presentation given at the T.
Rowe Price website. Individual group members then presented their best
value investment idea. Some of the stocks put forward were: Associates
First Capital [Ticker: AFS]; Staples [SPLS]; Winnebago Industries [WGO];
and Philip Morris [MO]. [To see the full "value stock" list,
DOWNLOAD the July 2000 Monthly Stock Watch List which will be posted on
our Downloads page at the end of August.]
June 27, 2000
|CORPORATE ANNUAL MEETINGS
& PROXY BALLOT TRENDS
Several members said that the Annual
Meetings they attended were more promotional than informative. We reviewed
a typical Annual Meeting Proxy Statement and showed how to glean both
direct and indirect information from it. Examples of this year's Director-
and Shareholder- sponsored Ballot Proposals were discussed. [A hand-out
sheet from this meeting is available on
our Downloads page.]
May 23, 2000
|UPGRADING YOUR PORTFOLIO
Individual group members suggested
replacement stocks for "dead wood" now in their portfolios. The
favored new stocks included Seibel Systems [Ticker: SEBL], Elon [ELON],
Barnes & Noble [BKS], Archer- Daniels-Midland [ADM], Dycom [DY], Quest
Diagnostics [DGX], and Enron [ENE].
April 25, 2000
|WORLD'S THREE BIGGEST
We discussed several ways that
"biggest" companies could be defined and reviewed industry
trends that unite three behemoths: General
Electric, Microsoft, and
Systems. The careers and philosophies of the CEO's who guide this triumvirate
-- Jack Welch, Bill Gates, and John Chambers -- were reviewed. Financial
data and graphs were distributed. For free downloads of Federal filings by
these and all public companies, go to the FreeEDGAR
site. [Copies of hand-out materials from this meeting are available on
our Downloads page.]
March 28, 2000
biotech company analysis method of Michael Murphy [Every Investor's
Guide to High-Tech Stocks & Mutual Funds (Random House, 1999)] was
discussed, particularly his "M Score" figure of merit equal to
the ratio of a company market capitalization to its cumulative 5-year
R&D expense. Murphy believes this is a way to screen companies with no
profits, low revenues, and little operating history-- typical of many
Individual members of the North Shore subgroup presented their research
on leading biotech stocks... Amgen [Ticker: AMGN], Chiron [CHIR], Dura
Pharmaceuticals [DURA], Elan [ELN], Genzyme [GENZ], IDEC Pharmaceuticals [IDPH], Immunex
[IMNX], Medimmune [MEDI], and Jones Pharmacuetical [JMED]. We also
examined the exchange-traded Biotech HOLDRs [BBH], and mutual funds
Fidelity Select Biotechnology [FBIOX], Rydex Biotechnology [RYOIX], Janus
Global Life Sciences [JAGLX], and Franklin Biotechnology Discovery Fund,
Class A [FBDIX].
|WHY SMART PEOPLE MAKE BIG
Our meeting subject was the title of a
new book by psychologist Thomas Gilovich and financial writer Gary
Belsky who provide a lively overview of research on investor behavior. We
examined money "compartments", loss aversion, decision
paralysis, anchoring, and other dysfunctional behavior. Attendees took a
psychology quiz before the discussion to help them understand their own
money and investing attitudes.
January 25, 2000
|YOUR BEST INVESTMENT
IDEA FOR 2000
We had the usual enthusiastic response to
our "best ideas" contest, with 30 high quality entries provided.
Awards for the highest price appreciation in a stock suggested at our
January 1999 meeting went to group members who picked: Affymetrix
[Ticker: AFFX] up 530%; Checkpoint Software [CHKP] up 425%; Nokia [NOK]
up 155%; Emcore [EMKR] up 151%; Rydex OTC Fund [RYOCX] up 101%; and Janus
Olympus Fund [JAOLX] up 100%. [Note: You will be able to view the
entire list of Year 2000 "best ideas" after March 1st on the
AAII-North Shore Document Download Page.]
|THE DOW JONES INDUSTRIAL AVERAGE-
We reviewed the
100-year history of the Dow-Jones Industrial Average ["DJIA"] and its recent
"upgrade" for Year 2000. A table showing all changes to the Average since its
1928 expansion to 30 stocks was distributed. We reviewed how the DJIA is calculated; why
it "works" as a market barometer; and how it differs from other market
yardsticks. The Dow components EK, GM, MMM, IBM and DIS were discussed by attendees. For
full information about the DJIA and other Dow Jones domestic and international market
indexes, go to the site: Dow Jones Averages.
|INVESTMENTS FOR A 30-YEAR-OLD'S PORTFOLIO
AND FOR A 60-YEAR-OLD'S PORTFOLIO
traditional idea of taking more risk in youth and less risk in seniority was discussed. It
was noted that increased longevity, alternative lifestyles, two-income families, and an
era of high portfolio returns challenge the traditional view. The 30-year-old needs to put
the benefit of compounding returns to work as soon as possible. A 60-year-old has to
consider at least a thirty year retirement span and calculate an income plan using a
conservative pay-out policy. Equities recommended by attendees for a young adult's
portfolio included Microsoft [Ticker: MSFT], Fidelity Select Electronics Fund [FSELX],
NASDAQ-100 Trust [QQQ], and Bally Total Fitness [BFT]. For the senior's portfolio,
Automatic Data Processing [AUD], Cedar Fair [FUN], Vanguard Growth Index Fund [VIGRX], and
Fidelity Fund [FFIDX] were suggested.
The shares of four major Internet players: America OnLine
[Ticker: AOL], Yahoo
[EBAY], and Amazon.com [AMZN]
were discussed. Traditional "fundamental" stock analysis suggests all these
companies are significantly overpriced. However, use of a venture capital analysis --
which relies on defining a firm's business model and evaluating the execution of that
model -- can provide a more positive argument for investing in companies like these.
|GURUS ON PARADE
Two summer conferences brought a planeload of gurus to Chicago. From
July's 20th AAII National Meeting, we reviewed the thoughts
of David Dreman ["Contrarian Investor"], Michael Murphy [Technology Investing]; Al
Frank ["Prudent Speculator"], and Delos Smith
[The Conference Board]. From August's Dow Jones Portfolio Management Symposium,
the comments of Louis Rukeyser ["Wall St. Week"], John Reckenthaler [Morningstar], Charles
Clough [Merrill Lynch], Joseph Battipaglia [Gruntal
& Co.], and Kenneth Fisher [FORBES columnist] were
July 27, 1999
The group examined how individuals can keep their investment nest-eggs
from being decimated by taxes, medical costs, death, divorce, and/or legal liability. The
framework for this discussion was the recent book... Staying Wealthy by Brian H.
Breuel [Bloomberg Press, 1998]. Experienced estate planning attorney Ben Roth --
of the Lincolnwood, Illinois firm of Kamensky & Rubinstein -- gave a summary
of estate tax rules and the role Trusts can play to minimize estate tax.
June 22, 1999
|INTEGRATED OIL COMPANIES
Mergers are changing the world roster of integrated oil companies. The
attendees reviewed Exxon [Ticker: XON] which proposes
to merge with Mobil [MOB], BP Amoco
[BPA] with its
proposed merger with Atlantic Richfield [ARC], and the long-time combination of Royal
Dutch [RD] / Shell Transport [SC]. Other oil companies
cited by individual attendees for growth potential included Phillips Petroleum [P],
Kerr-McGee [KMG], Fletcher Challenge Energy [FEG] in New Zealand, Amerada Hess [AHC], and
May 25, 1999
|ON-LINE TRADING AND INVESTOR WEBSITES
On-Line Brokerage ratings are given at websites
Smart Money, Gomez,
and for traders, at Sonic. Investor websites presented
by Jan Parr, editor of OnLine Investor magazine [defunct-2003] at the AAII-Chicago May 1999 meeting were cited. Warnings about on-line trading
abuses by SEC Chairman Levitt and by the NASD were
discussed. Member experiences with several large on-line broker firms were positive. The
group reviewed the characteristics of market, limit and stop orders and their pertinence
to on-line trades.
Note: American Superior Company
has no affiliation with AAII and does not endorse or recommend that organization's
publications, statements, or products.
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