In Annie Hall, Woody Allen compared relationships to sharks, noting that they both had to move forward or die. It's similar with us and our investing. If we want to get better (and thus make more money), we need to keep learning. And one of life's great teachers is Ben Franklin, who has had a major influence on Charlie Munger, who in turn has taught none other than Warren Buffett a thing or two about investing.
Franklin formulated a set of 13 virtues to live by, and they still make a lot of sense today, almost 300 years later. They can make us better investors -- and better people. I wrote about three of the virtues a while ago, so let's tackle three more now.
Stretch those dollars
Frugality is one of Franklin's virtues, and beyond your personal budgeting, you can also apply this one to your investing. You can be frugal by investing in companies that appear to be very undervalued, ones with considerable margins of safety. Consider Wal-Mart
You can also seek out companies that wring the most value out of the money they take in, by seeking those with, say, fat profit margins and hefty returns on equity. Here are a few examples.
|
Company |
Net Profit Margin |
Return on Equity |
|---|---|---|
|
Corning |
49.8% | 19.0% |
|
Thompson Creek Metals |
35.8% | 18.6% |
|
Seadrill |
27.8% | 21.8% |
|
Power-One |
15.3% | 71.2% |
|
Cisco Systems |
16.8% | 15.8% |
Data: Capital IQ, a division of Standard & Poor's.
Fat profit margins suggest that a company has pricing power, while a solid return on equity suggests that it is getting a lot of bang for its bucks. Corning's fans like its fiber-optics business, as well as the glass screens it makes for laptops, smartphones, and more. Its scratch-resistant Gorilla Glass is especially promising. Thompson Creek mines molybdenum, which can make steel stronger and thus is likely to experience growing demand as the global economy heats up. Seadrill, offering a hefty dividend, will profit from our reluctance to stop deep-sea drilling for oil. It recently received a $100 million contract. Power-One, specializing in power-conversion and power-management offerings, impresses its many bulls with strong cash flow. So does Cisco Systems, familiar to most of us, and it's also well positioned to become a dividend star.
And this for all …
Next up from the 13 virtues is justice. As Franklin explained, "Wrong none by doing injuries, or omitting the benefits that are your duty." In the investment world, the concept of justice appears when we consider socially responsible investing.
Right now, for example, many shareholders are pressuring certain companies to stop doing business with PetroChina, an oil company seen as being tied to genocide in Darfur because of payments to the government of Sudan. Pressure is mounting at JPMorgan Chase to adopt anti-genocide investing guidelines, and Warren Buffett's own Berkshire Hathaway
Meanwhile, Google is embroiled in a little controversy over a TV commercial it's been running tied to the "It Gets Better" campaign. The campaign is meant to give hope to LGBT youth and others who are bullied or otherwise despairing. It's a brave move for Google (whose motto is "Don't be evil"), because while it earns the company major points from many people, it also turns some people off, including some who see the company trying to profit from a serious social issue.
Peace
Finally, we come to tranquility: "Be not disturbed at trifles, or at accidents common or unavoidable." This point is more important than it seems, because when we're not calm and rational in our investing, all our attention to good values and smart choices can go out the window.
Investing in stocks means that occasionally, the market will take a tumble and some or many of your holdings will shrink in value. That's when a tranquil investor, one with conviction in his or her principles, will just hold steady or perhaps buy more shares. And it's also when not-so-tranquil investors will panic and sell, thereby losing the chance to profit from rebounding prices.
Some lessons just don't get old. Ben Franklin has a lot to offer us today, as do Charlie Munger and Warren Buffett. We'd do well to learn from such luminaries.
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