Where Should I Put My Money These Days?

By Joe Ponzio on November 27, 2008  |  21 comments

Second only to Do you think we've hit a bottom?, the most common question I hear from folks is: Where should I be (or are you) putting money these days? It is usually followed up with some statement about how terrible the stock market is and/or how impossible real estate is right now.

Then, I get hit with the request for affirmation—the old, XYZ company is pretty beat up. What do you think? Most recently, the request has been about General Motors and Ford. Before that, Bank of America, AIG, and Fannie/Freddie.

Why do I call this a "request for affirmation"? Most of the time, the people asking have been decimated in the markets and are feeling the need or desire to make it back quick. They want to take a gamble on a beat down company, not because the business is sound, but because what was a $20 or $50 or $80 stock is now a $2 or $3 stock.

So...coming back from a long (and long overdue) break, let's get back to the basics. And to do that, we'll pick on General Motors again.

Where Are We With AEO?

By Joe Ponzio on August 21, 2008  |  29 comments

We've been having a little discussion over on this post about the original purchase, current state, and future prospects of American Eagle Outfitters. The stock is down roughly 50% from our original purchase which begs the true value investing question: Is it down...or is it cheap?

Patience and Performance

By Joe Ponzio on June 4, 2008  |  5 comments

When you buy stock in a company, how long do you plan on holding it? Forever. Ideally, yes. But we live in the real world — a world of wildly fluctuating stock prices that often turns otherwise sane investors into panicky, self-doubting lemmings. As stock prices drop...lower...lower...people tend to second-guess their decisions and sell precisely when they should be buying.

[W]hile I realized thoroughly that if I were to make the kinds of profits that are made possible by the process that I have described as zigging when the rest zags, it was vital that I have some sort of quantitative check to be sure that I was right in zigging. With this in mind, I established what I called my three-year rule. — Philip Fisher, Common Stocks and Uncommon Profits

There Is No Tomorrow.

By Joe Ponzio on May 27, 2008  |  5 comments

Building on a theme started back in March (How Bad Will This Get), I think it is safe to say that the US economy is weakening. We can choose to ignore the fact that millions of homeowners have zero equity and super-high mortgage payments they can't afford; we can pretend that $4.20 per gallon gas prices have little effect on people, other than "mild" discomfort and anger.

When it comes to business and investing, it doesn't pay to be an optimist or a pessimist; the big money is made by realists. If you can take all of the emotion — yours and that of others — out of your investing, you can begin to more clearly predict the future with a degree of confidence and competence. Forget tomorrow. There is no tomorrow.

Here's your crystal ball question.

Use Price As A Tool, Not A Guide

By Joe Ponzio on February 6, 2008  |  15 comments

In Workouts Work Out In Down Markets — Part 3, I discussed another workout opportunity in the acquisition of Radiation Therapy Services (RTSX) by Vestar Capital Partners in a going-private transaction. The deal was pending shareholder approval and customary closing conditions. Since that post on January 21, 2008, the price fluctuated quite considerably and shook the nerves of a lot of holders.

This is a prime example of why you should use price as a tool, not a guide.

The Markets, The Book and Comments

By Joe Ponzio on January 23, 2008  |  15 comments

I'll have to finish Workouts Work Out on Friday. Let me get some housekeeping done regarding the book and the markets. I'm not going to give you the standard "stay the course" or "now is the time to buy" garbage — there are plenty of other places to go for noise. Let's, instead, look at the news of what's happening.

Focusing On The Calendar Year and Markets

By Joe Ponzio on January 7, 2008  |  6 comments

Welcome to 2008 all. I am going to spend the next day responding to all of the comments from the past two weeks. Let's get to the heart of the matter: What is going to happen in 2008? It is a question I have been hearing for the past three weeks, and is worth answering.

The Business vs. The Stock

By Joe Ponzio on December 17, 2007  |  7 comments

The markets have done some crazy things the past few days weeks months years. In fact, it is enough to make one's stomach turn. That is, of course, until you remember the key to owning stocks: There is a business under there — and that is what drives the long term price.

As Buffett said:

You go to bed feeling very comfortable just thinking about two and a half billion males with hair growing while you sleep. No one at Gillette has trouble sleeping.

A Glance At Sharper Image

By Joe Ponzio on October 25, 2007  |  20 comments

In the earlier years of his investing career, Buffett is said to have had more ideas than cash—a situation that has reversed itself as Berkshire's asset base has swelled. In 1999, Buffett reportedly claimed he could earn 50% a year in the stock market if he had just $1,000,000 to invest.

Where would he look to do that? Pabrai claims that early, or low-asset, Buffett would look to buy $0.50 dollars and sell them when they reached 90% to 100% of their true value. He wouldn't be a buy-and-hold investor; rather, he'd look to buy quick-hit (read: 1-3 year) investments.

And with that, let's take an early Buffett look at Sharper Image (SHRP).

Market Multiples: Looking At Beta

By Joe Ponzio on October 9, 2007  |  7 comments

If you aren't familiar with beta, it is the measure of a stock's volatility in relation to the rest of the market. If a stock has a beta of 1, it tends to move up and down at the same pace as the markets. Stocks with a beta greater than 1 move more quickly (up and down) than the markets as a whole.

Though conventional wisdom and Wall Street say high beta means high risk, well, "F" that. High beta is your friend. Let me explain.

I Say: Let Them Crash

By Joe Ponzio on August 20, 2007  |  4 comments

Worried about the markets? Are things a little too crazy or volatile right now? Guess what: You probably hold too many investments or you hold investments for the wrong reasons. If you can't get excited when the markets drop suddenly, you should check your portfolio and strategy to find (and fix) the holes.

Lament The Short Term

By Joe Ponzio on August 8, 2007  |  2 comments

Berkshire Hathaway bought another 1.62 million shares of Burlington Northern Santa Fe (BNI) in the past few days, according to a recent filing with the Securities and Exchange Commission. If you recall, Buffett's company disclosed in April that it had bought 39.03 million shares of BNI, sending the stock some 10% higher.

Months later, BNI regressed back to its low-80s price, right around where Buffett was buying. As you can imagine, he bought more.

Watching The Stock Market

By Joe Ponzio on July 25, 2007  |  6 comments

Buy stocks as if you were buying the entire business. That has been a cornerstone of Warren Buffett's investment philosophy for more than fifty years. Sure, he's traded stocks and engaged in arbitrage. Still, his largest long-term gains have come from owning wonderful businesses, regardless of whether or not the stock market told him so.

Coca-Cola, Ten Years and Still No Growth

By Joe Ponzio on July 10, 2007  |  11 comments

If you bought Coca-Cola (ticker: KO) on January 2, 1996 and held it through December 29, 2006, you would have had a 10% gain, or about 0.92% average annual return for ten years (when factoring in dividends). Sure, you would have had some big ups and downs, but stock prices generally follow value in the long run. Knowing that, investors could have avoided a lackluster return with just a few minutes of work.

The Importance Of Valuing A Stock

By Joe Ponzio on June 26, 2007  |  8 comments

Arguably the world's greatest investor, Warren Buffett says that you should value a stock as you would value a private business. In the private sector, P/E means nothing. In fact, earnings mean nothing. The only thing that matters in buying a private business is the amount of cash that it can generate—its free cash flow.