Happy Friday! There are more good news articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Here are eight fascinating ones I read this week.
Centuries old, still relevant
Eddy Elfenbein finds a set of market rules from a book written by Jose de la Vega in 1688:
The first rule in speculation is: Never advise anyone to buy or sell shares. Where guessing correctly is a form of witchcraft, counsel cannot be put on airs.
The second rule: Accept both your profits and regrets. It is best to seize what comes to hand when it comes, and not expect that your good fortune and the favorable circumstances will last.
The third rule: Profit in the share market is goblin treasure: at one moment, it is carbuncles, the next it is coal; one moment diamonds, and the next pebbles. Sometimes, they are the tears that Aurora leaves on the sweet morning's grass, at other times, they are just tears.
The fourth rule: He who wishes to become rich from this game must have both money and patience.
Advice from a con man
MarketWatch has a talk with Bernie Madoff from prison:
MarketWatch: You have worked with some of the most elite financial firms on Wall Street. How has it changed since before you started the Ponzi scheme?
Bernard Madoff: The individual investor is the last person that has any information. The average investor is coming up against professional financial firms, hedge funds and the professional trader, and it's easy to be scared out of the market.
MW: You say the individual investor is facing an unfair market environment, what can be done to level the playing field?
B.M.: The SEC needs more resources to protect investors. It's grossly undercapitalized and it doesn't have money to hire the right people. Basically it's a training ground, by the time people are qualified they leave and work for private firms. They didn't catch me because the whistleblower, Harry Markopolos, was leading them down the wrong alley. He was an idiot.
The key to success
Robert Frank of CNBC discusses a survey of successful people:
Among people worth $5 million or more, more than 98 percent cited hard work as a "wealth creation factor." More than 90 percent cited education, followed by "smart investing," "frugality" and then "taking risk."Slightly more than half of those surveyed cited "being at the right place at the right time" as a factor in their success -- ranking it far below hard work and education.Among business owners, however, the number of self-described "lucky wealthy" is much higher: 79 percent of them cited "being at the right place at the right time" as a factor in their success. Fully 68 percent of business owners cited "luck" as a factor.
No matter how much we might wish they were, economists are not go-to experts who know just how the world works or how to fine tune it. They are not car mechanics. And if they act like they are car mechanics, you should instantly be suspicious. But they do have a lot of interesting things to say. They might help you clarify or reevaluate your own beliefs about how the economy functions. They can also help you spot the flaws in each other's arguments.
Since many of us use the Standard & Poor's 500-stock index as a proxy for the market, let's take a look at the period from 1950 to 2012 to see how often we're likely to feel positive, based on how often we check our investments:If you checked daily, it would be positive 52.8 percent of the time.If you checked monthly, it would be positive 63.1 percent of the time.If you checked quarterly, it would be positive 68.7 percent of the time.If you checked annually, it would be positive 77.8 percent of the time.
Right now something that is very cheap would be Apple. I always ask my students, what do you do of a company where the technology is always changing and it is not clear what the competition will look like in a few years. The answer to that would be: always skip that one and try to find out the ones that you can figure out. I don't know what is going to happen with Apple, but if I own a bucket of Apples then, on average, that is a really good bet. You are buying good businesses with a great franchise at six times cashflow, have great market share and good management, strong balance sheets and so forth. So, if I own a bucket of Apples rather than just Apple, I am pretty sure it is going to work out very well.
Indeed, the best comparison for Google seems to me not Microsoft in the 1980s but General Electric in the late 19th century -- the age of electrification. Like GE, Google is a multifaceted industrial enterprise riding a wave of technology with an uncanny ability not only to invent far-reaching products but also to produce them commercially.
When Tracy Britt arrived in Omaha, Neb., in 2009 to meet with Warren Buffett, she brought a Harvard M.B.A., a glittering resume and a boatload of ambition. But she also brought the famed investor a gift to highlight their shared Midwestern roots: a bushel of corn and a batch of tomatoes.The seed Ms. Britt planted that day yielded quick results: a job for Ms. Britt as Mr. Buffett's financial assistant at Berkshire Hathaway Inc.