Monday, June 09, 2008
Tuesday, March 13, 2007
Don't Trust Nobody
Harry Browne, in his book Fail Safe Investing, advises us as follows:
"We live in an uncertain world. Whenever you make a decision... You may make the best choice you can, but you know you can't control the actions of other people"
In this investment book, Browne lays out good arguments for his (25/25/25/25) plan of investing (see previous posts). Browne was an advisor to the Permanent Portfolio, a mutual fund that was established to further the (25/25/25/25) investment plan. Although Browne in one instance recommends that we trust no one, he then also advises us that his Permanent Portfolio would be a good investment option.
How ironic then that the Permanent Portfolio has been besieged by lawsuits and fraud allegations. The SEC investigated Terry Coxon, the former general partner of the Permanent Portfolio. Coxon absconded with between 1M and 3M of the fund's money. The litigation continued for many years, finally reaching an end in Coxon v. SEC, 137 Fed.Appx 975 (9th Cir 6/29/2005), when Coxon was finally ordered to repay $850,000.00 back to the Permanent Portfolio.
In other litigation filed in King County Superior Court (Layman v. The Permanent Portfolio Family of Funds, Inc.), the fund was accused of reneging on Warrants preferentially given to an insider. The fund settled this dispute and: "As a result of the Settlement, total net assets of the Fund's Permanent Portfolio were reduced by approximately $505,000.00" See Note 8 to Financial Statements 7/31/2006.
The lesson: as Browne originally said, don't trust anyone. Once you give you money to a fund manager, much is out of your control. How do you know there isn't fraud or mishandling of your funds? If you don't sit on your investment you need to rely on other humans who may be beset with that very dangerous of human emotions: Greed.
For those of us who have a hard time giving up control, there aren't many investment options left:
"We live in an uncertain world. Whenever you make a decision... You may make the best choice you can, but you know you can't control the actions of other people"
In this investment book, Browne lays out good arguments for his (25/25/25/25) plan of investing (see previous posts). Browne was an advisor to the Permanent Portfolio, a mutual fund that was established to further the (25/25/25/25) investment plan. Although Browne in one instance recommends that we trust no one, he then also advises us that his Permanent Portfolio would be a good investment option.
How ironic then that the Permanent Portfolio has been besieged by lawsuits and fraud allegations. The SEC investigated Terry Coxon, the former general partner of the Permanent Portfolio. Coxon absconded with between 1M and 3M of the fund's money. The litigation continued for many years, finally reaching an end in Coxon v. SEC, 137 Fed.Appx 975 (9th Cir 6/29/2005), when Coxon was finally ordered to repay $850,000.00 back to the Permanent Portfolio.
In other litigation filed in King County Superior Court (Layman v. The Permanent Portfolio Family of Funds, Inc.), the fund was accused of reneging on Warrants preferentially given to an insider. The fund settled this dispute and: "As a result of the Settlement, total net assets of the Fund's Permanent Portfolio were reduced by approximately $505,000.00" See Note 8 to Financial Statements 7/31/2006.
The lesson: as Browne originally said, don't trust anyone. Once you give you money to a fund manager, much is out of your control. How do you know there isn't fraud or mishandling of your funds? If you don't sit on your investment you need to rely on other humans who may be beset with that very dangerous of human emotions: Greed.
For those of us who have a hard time giving up control, there aren't many investment options left:
- Real Estate (with minimal or no debt) - either in the U.S. or outside thereof for diversification purposes,
- Precious Metals (under your own possession or control),
- Treasury Notes and Bonds purchased directly from the Federal Government without a middleman (treasurydirect.gov),
- Direct ownership of foreign currencies or ownership of foreign government debt obligations,
- Promissory Notes and Mortgages (with the investor as the lender).
- CD's that are FDIC insured, and
- Index Mutual Funds which will only track the general market and charge a minimal advisor fee of less than .2%.
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Wednesday, February 28, 2007
The Intelligent Investor
I don't believe anyone can dispute that Benjamin Graham was one of the most successful and knowledgeable investors of his time. Although Graham died in 1976, many, if not all, of his books are still in publication. His book, "The Intelligent Investor" was recently revised and re-issued in 2006. This edition includes the original text as written by Graham, and then each chapter includes a "comments" section to attempt and compare the original text to the current investment world.
Warren Buffet endorses this books as: "By far the best book on investing ever written". Rolandovich seconds that endorsement.
Of particular interest is Graham's philosophy that most investors should split their portfolios 50-50 between stocks and bonds.
"We are thus led to put forward for most of our readers what may appear to be an oversimplified 50-50 formula. Under this plan the guiding rule is to maintain as nearly as practicable an equal division between bond and stock holdings." (pg. 90).
In today's investment climate and constant marketing to investors by the brokerage houses, Graham's approach may appear overly conservative. But is it? Perhaps Graham's philosophy is worth heading.
Graham makes the ever important distinction between "investing" and "speculating".
He defines investing as:
"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return." (pg. 35).
This sentence is further broken down as follows:
"thorough analysis" means "the study of the facts in the light of established standards of safety and value".
"safety of principal" signifies "protection against loss under all normal or reasonably likely conditions or variations"
and "adequate" return refers to "any rate or amount of return, however low, which the investor is willing to accept, provided he acts with reasonable intelligence."
Let us all strive to become investors and not gamblers or speculators with our money.
Warren Buffet endorses this books as: "By far the best book on investing ever written". Rolandovich seconds that endorsement.
Of particular interest is Graham's philosophy that most investors should split their portfolios 50-50 between stocks and bonds.
"We are thus led to put forward for most of our readers what may appear to be an oversimplified 50-50 formula. Under this plan the guiding rule is to maintain as nearly as practicable an equal division between bond and stock holdings." (pg. 90).
In today's investment climate and constant marketing to investors by the brokerage houses, Graham's approach may appear overly conservative. But is it? Perhaps Graham's philosophy is worth heading.
Graham makes the ever important distinction between "investing" and "speculating".
He defines investing as:
"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return." (pg. 35).
This sentence is further broken down as follows:
"thorough analysis" means "the study of the facts in the light of established standards of safety and value".
"safety of principal" signifies "protection against loss under all normal or reasonably likely conditions or variations"
and "adequate" return refers to "any rate or amount of return, however low, which the investor is willing to accept, provided he acts with reasonable intelligence."
Let us all strive to become investors and not gamblers or speculators with our money.
ThriftBooks
Investment theories come and go. It's amazing how many books have been written on investments that are now discarded. Further, it's fascinating to see what current "hot" authors in the investment field wrote about ten or twenty years ago.
A great resource of cheap books that no-one wants any more is ThriftBooks.
We recently purchased numerous books by Harry Browne and Doug Casey. Each book was only 1 cent with $2.49 shipping and handling. We received such quality publications as "The Economic Time Bomb: How You can Profit from the Emerging Crisis" written in the early 1980's by Harry Browne.
We have all lived through cycles of bubbles and mass investment hysteria. During each period there are bestseller books glorifying the current investment trend. For example, do you remember the book Dow 36000?
After the relevant bubble or crisis passes, these books eventually end up at ThriftBooks where you can pick them up for a song. The purpose of purchasing such books, of course, is to study what the popular media during a given time-period predicts as the "next hot thing", and then to compare their predictions with reality.
As you may imagine, the "experts" generally had no idea what they were talking about.
A great resource of cheap books that no-one wants any more is ThriftBooks.
We recently purchased numerous books by Harry Browne and Doug Casey. Each book was only 1 cent with $2.49 shipping and handling. We received such quality publications as "The Economic Time Bomb: How You can Profit from the Emerging Crisis" written in the early 1980's by Harry Browne.
We have all lived through cycles of bubbles and mass investment hysteria. During each period there are bestseller books glorifying the current investment trend. For example, do you remember the book Dow 36000?
After the relevant bubble or crisis passes, these books eventually end up at ThriftBooks where you can pick them up for a song. The purpose of purchasing such books, of course, is to study what the popular media during a given time-period predicts as the "next hot thing", and then to compare their predictions with reality.
As you may imagine, the "experts" generally had no idea what they were talking about.
Sunday, February 25, 2007
What If?
At the risk of contradicting my previous statement about the value of articles about the Civil War, I read this fascinating piece on General George Henry Thomas this morning.
I suppose a simplistic summary of this article lies in General Thomas's unfair characterization only as the Rock of Chickamauga even though he was actually a much more important figure. Perhaps he was distrusted due to his Southern origins, or as the author opines, he lacked only a Congressional sponsor like Sherman and Grant had.
Thomas, as a young man, taught his slaves to read, his HQ in the war was the picture of effeciency and discipline. He bested Stonewall Jackson in an early skirmish, and of course, saved the Union army from disaster at Chattanooga. The author points out:
Thomas "comes down in history...as the great defensive fighter, the man who could never be driven away but who was not much on the offensive. That may be a correct appraisal," wrote Catton, an admirer and biographer of Grant. "Yet it may also be worth making note that just twice in all the war was a major Confederate army driven away from a prepared position in complete rout—at Chattanooga and at Nashville. Each time the blow that finally routed it was launched by Thomas."
As I finished the rather depressing demise of General Thomas, the inevitable question arose: what if Thomas had his sponsor and even earlier assumed the rank Grant eventually took. Would the disaster at Cold Harbor occured? Is it possible that 100,000 lives would have been saved? What if Thomas would have been elected president instead of Grant, bringing his organizations abilities, and sympathies for all southerners, (after all, he was one) not just those who were white. Reconstruction might have succedded, the civil rights movement might have occured 100 years earlier. What if Thomas had joined Robert E. Lee? Would we ever remember James Longstreet? Would this country be called the CFA now? The possibilities are fascinating and tragic to consider, but ultimately, it is a futile exercise.
I suppose it comes down to the fact that the best people do not always win. The same can be said for the best ideas. Every day the most effecient systems, the best products, the most profitable ideas are cast aside, down into the dustbin of history. Those that prevail often have little to do with merit. It seems like these days, most of them have must more to do with proximatey to power. This author might agree with that assertion, at least for generals in the Civil War. I don't think anyone who ever worked for a boss who always followed his favorite employee's advice would disagree either.
I suppose a simplistic summary of this article lies in General Thomas's unfair characterization only as the Rock of Chickamauga even though he was actually a much more important figure. Perhaps he was distrusted due to his Southern origins, or as the author opines, he lacked only a Congressional sponsor like Sherman and Grant had.
Thomas, as a young man, taught his slaves to read, his HQ in the war was the picture of effeciency and discipline. He bested Stonewall Jackson in an early skirmish, and of course, saved the Union army from disaster at Chattanooga. The author points out:
Thomas "comes down in history...as the great defensive fighter, the man who could never be driven away but who was not much on the offensive. That may be a correct appraisal," wrote Catton, an admirer and biographer of Grant. "Yet it may also be worth making note that just twice in all the war was a major Confederate army driven away from a prepared position in complete rout—at Chattanooga and at Nashville. Each time the blow that finally routed it was launched by Thomas."
As I finished the rather depressing demise of General Thomas, the inevitable question arose: what if Thomas had his sponsor and even earlier assumed the rank Grant eventually took. Would the disaster at Cold Harbor occured? Is it possible that 100,000 lives would have been saved? What if Thomas would have been elected president instead of Grant, bringing his organizations abilities, and sympathies for all southerners, (after all, he was one) not just those who were white. Reconstruction might have succedded, the civil rights movement might have occured 100 years earlier. What if Thomas had joined Robert E. Lee? Would we ever remember James Longstreet? Would this country be called the CFA now? The possibilities are fascinating and tragic to consider, but ultimately, it is a futile exercise.
I suppose it comes down to the fact that the best people do not always win. The same can be said for the best ideas. Every day the most effecient systems, the best products, the most profitable ideas are cast aside, down into the dustbin of history. Those that prevail often have little to do with merit. It seems like these days, most of them have must more to do with proximatey to power. This author might agree with that assertion, at least for generals in the Civil War. I don't think anyone who ever worked for a boss who always followed his favorite employee's advice would disagree either.
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Interesting thoughts on the world
It never ceases to amaze me that thoughtful analysis is not found in the places where conventional wisdom would dictate.
It goes back to the adage that in today's print media, we are the product and the organizations that advertise therein are the customers. You can still compartmentalize things to find good reading (aside from the instances where it does not matter much like articles about the Civil War, which are often nonetheless very interesting).
The blogosphere (as much as I dislike its mostly derisive connotation) is the great exception and still in its infancy. You can probably find out more about the state of the economy by talking to a someone on the street than by reading an article about it in Business Week. However, it is important to understand what you are supposed to believe. It is much easier to learn the truth that way.
It goes back to the adage that in today's print media, we are the product and the organizations that advertise therein are the customers. You can still compartmentalize things to find good reading (aside from the instances where it does not matter much like articles about the Civil War, which are often nonetheless very interesting).
The blogosphere (as much as I dislike its mostly derisive connotation) is the great exception and still in its infancy. You can probably find out more about the state of the economy by talking to a someone on the street than by reading an article about it in Business Week. However, it is important to understand what you are supposed to believe. It is much easier to learn the truth that way.
Saturday, February 24, 2007
Wade B. Cook - cooking the books cooked his goose
Real Estate Investment Guru Wade Cook was recently found guilty by jury trial in the Federal Court for the Western District of Washington. Look's like Cook's cooking of the books got him thrown in the slammer. Check out this great bookcover from one of Cook's books from the 1980's. Rolandovich found it in a used book store, and just couldn't help buying it:
John T. Reed - a different sort of Real Estate guru
For the last 2 years I have been an avid reader of John T. Reed's investment newsletter. Reed produces a wonderfully insightful real estate newsletter that provides some great tips on how to avoid being an "appreciation-lord" and instead investing in real estate for double-digit cap rates or using one's expertise to increase the value of real estate by 20%.
Reed is well known for his vehement attacks on "Real Estate Gurus". All those 0-Down people and the like. Check out his "review" of Real Estate Gurus here:
http://www.johntreed.com/Reedgururating.html
To get more of a flavor of Reed's adivce, check out some of his free articles on subjects such as "lease-options" and the truste of "due-on-sale clauses":
http://www.johntreed.com/rateseminars.html
If anyone wants a sample issue of Reed's newsletter, feel free to email Rolandovich.
Reed is well known for his vehement attacks on "Real Estate Gurus". All those 0-Down people and the like. Check out his "review" of Real Estate Gurus here:
http://www.johntreed.com/Reedgururating.html
To get more of a flavor of Reed's adivce, check out some of his free articles on subjects such as "lease-options" and the truste of "due-on-sale clauses":
http://www.johntreed.com/rateseminars.html
If anyone wants a sample issue of Reed's newsletter, feel free to email Rolandovich.
Friday, February 23, 2007
The Permanent Portfolio
Harry Browne, the former Libertarian candidate for President and Investment Advisor is well known for his "Permanent Portfolio" theory.
According to Browne, one's assets should be invested:
25% in long term Treasury Bonds;
25% in short term Treasury Notes or Money Market accounts;
25% in a stock market Index Fund, such as the Vanguard S&P500 Fund. Said index fund should have the lowest possible cost to the investor;
25% in physical Gold - preferrably under your control and/or partially located in the safety deposit box of a foreign country.
In the 1970's Browne predicted the end of the U.S. Dollar and the rise of gold. Although he was partially correct in his prediction, he changed his investment philosophy in later years. Browne became convinced that it was impossible for anyone to predict the market or future events. As such, the Permanent Portfolio was designed to be simple and accomodate almost any possible future economy.
The returns over the years have been quite good: Perm Portfolio Returns
According to Browne, one's assets should be invested:
25% in long term Treasury Bonds;
25% in short term Treasury Notes or Money Market accounts;
25% in a stock market Index Fund, such as the Vanguard S&P500 Fund. Said index fund should have the lowest possible cost to the investor;
25% in physical Gold - preferrably under your control and/or partially located in the safety deposit box of a foreign country.
In the 1970's Browne predicted the end of the U.S. Dollar and the rise of gold. Although he was partially correct in his prediction, he changed his investment philosophy in later years. Browne became convinced that it was impossible for anyone to predict the market or future events. As such, the Permanent Portfolio was designed to be simple and accomodate almost any possible future economy.
The returns over the years have been quite good: Perm Portfolio Returns
Thursday, February 22, 2007
Seattle Viaduct
Lawgavulon is a small office consisting of a Rabid Liberal, a Rabid Republican and a wishy-washy Libertarian. Surprises never cease as we all agree that the Seattle Viaduct should be torn down and not replaced with anything other than a surface boulevard.
The question of whether the Seattle Viaduct will be replaced or built as a tunnel is heading to the Seattle voters in March 07.
Rolandovich urges you to vote NO in the upcoming Viaduct special election.
As loosely quoted from Suburban Nation (by: Duany, Plater-Zyberk & Speck): "You don't solve transportation problems by building roads any more than you lose weight by loosening your belt."
The question of whether the Seattle Viaduct will be replaced or built as a tunnel is heading to the Seattle voters in March 07.
Rolandovich urges you to vote NO in the upcoming Viaduct special election.
As loosely quoted from Suburban Nation (by: Duany, Plater-Zyberk & Speck): "You don't solve transportation problems by building roads any more than you lose weight by loosening your belt."
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