All Forum Posts by: Vikram C.

Tim, I think you are supporting my point. If a person is principled, consistent and fair, they are going to have credibility and not get personally attacked when making an otherwise reasonable claim. Those who are simply being partisan are going to get challenged based on their personal lack of credibility. I think that's what we saw earlier in this thread.

Rich, I think the problem could be one of credibility. Those of us who believe in small and limited government should be consistent in the vehemence of our criticism regardless of which administration/party is responsible. If we were to do that, we would probably not get challenged so much and the discussion could stick to the subject of the argument instead of the people making the arguments.

In forums, as in our personal and business lives, being principled and consistent and being seen to be fair makes a big difference.

Rich23s, I think it is entirely appropriate to assign blame for problems on the person who caused it when the discussion pertains to the problem. The TSA problem is specifically a Bush creation and it is appropriate to refer to him as the founding father of that problem.

The fundamental problem we have is that government seems to be growing inexorably regardless of which party is in power. I really hope the Tea Party fellows can reverse the trend. Their fundamental philosophy seems very good and they just need to avoid hubris or nut-jobs take their focus away from the main thing - substantially reducing the size and role of government.

On a previous point in this thread, I think it is stupid to say that one should not blame a president for the consequences of his actions simply because he is no longer in office. Bush Jr was responsible for nationalizing airport security and, as we all know, government employees generally have attitude problems, so it makes little sense to suggest that one should not attribute the blame to him. It's time to privatize the TSA again. (Of course, the current administration is not going to do that.)

J Scott's reply is spot-on. I used to work in the insurance industry and have done more analyses of this than I care to remember. Whole life provides a poor ROI compared to buying a term policy and investing the difference. (Unless you are a lousy investor.) This is even after considering the tax benefits.

It is important to remember that insurance is there for the specific purpose of offsetting risk. It works wonderfully for that purpose but not as a vehicle for savings. (Unless, of course, you die soon after buying life insurance, in which case the ROI can be quite attractive.)

Life insurance has a lot of different uses, some obvious and some not so obvious. A couple of things for us business owners to consider are estate taxes and the death of a key employee: If you have a business that is hard to sell, then it may make sense to buy life insurance to pay the estate taxes instead of forcing the estate to make a sale at a poor valuation. Key man insurance can also be very useful if your business has a key employee whose death would cause an unbearable loss to the business or its investors. I do not recall the tax rules, but I believe there are some cool tax deductions for key man insurance. You can even buy a whole life or universal life policy paid for by the business and deduct a portion of it as a death premium and assign the cash value to the business owner.

In some areas, Zillow has the unsubdivided land size instead of the subdivided lot size.

Before 9/11, airport security was largely handled by private contractors. They were somewhat incompetent, as one can expect from employees getting paid low wages. Bush Jr, who has never had a clue about free markets, decided to nationalize the whole thing and give these people higher government salaries. The result is what one would expect - continuing incompetence but now mixed with the arrogance that comes from a legal monopoly on violence.

Frankly, the only countries where the security people (TSA, cops, etc.) have as poor an attitude as in the U.S. are tinpot dictatorships. It is really quite surprising that we have security staff in such an established and developed democracy with such a poor attitude towards its citizens.

I agree that index investing is the way to go for most investors. But for those who have the inclination for it, stock picking is really a lot of fun. Picking a stock actually requires you to analyze an enormous amount of data and vastly increases your knowledge of the global economy.

Let me give you an example of how it can work. A few years back, I had to analyze some oil stock. (Don't remember which one, but my curiosity was triggered by Buffett's investment in ConocoPhillips.) As part of my research, I evaluated several things, including:

a. The so-called peak oil theory,
b. Oil extraction costs in different places, including new sources of oil such as tar sands, oil shale, deep sea oil drilling, etc.
c. Global oil consumtion trends, including the rapid increase in emerging economy consumtion and also the increasing energy efficiency per unit of GDP in many economies,
d. Alternative energy sources, including conventional alternatives to oil (coal, gas) and the various alternative energy sources that depend on government subsidies (wind, solar, etc.) Some of these have had rapidly declining cost per kWh and one has to consider that when evaluating oil stocks because stock prices largely reflect future expecations and not past results.
e. Changes in the technology used for transporting some alternatives. For example, there has been a rapidd build-up in gas liquifaction capacity - gas has traditionally been a local (within one continent) market rather than a global market due to the cost of transporting it. But with liquifaction, it becomes a global commodity like any other.
f. A little bit of geopolitics, although this is somewhat overrated.
g. A whole bunch of other stuff as well. Too many to list them all here.

As you can see, this is the type of research needed to evaluate just one stock. Now imagine you play in half a dozen industries. You get the opportunity to research so many things that, over time, you become more proficient at evaluating all industries because the economy is really quite interrelated. And the analytical approach is also somewhat similar across industries.

I really enjoy the learning that comes with this type of research. If you are also into that kind of stuff, you will find that you can make much higher returns than index investing while also having a very enjoyable career.

Coming back to the topic of the thread, I agree with Tom that you should buy when everyone thinks stocks are a lousy investment and sell when everyone thinks they are a sure thing. In addition, of course, you should put some effort into figuring out whether the particular stocks that you are buying are undervalued or overvalued. I think there are a couple of options available to investors:

A. The Easy Option. Keep your money in cash except when the market suffers a severe shock, and then buy the index at a very low value. It takes guts to do this, but not brains. (Wall Street "experts" have plenty of brains but very little courage or common sense, so you should be able to find several such opportunities during your lifetime.)

B. The Fun Option. This is what I like and it should yield you in excess of 50% annualized over time for up to a few million dollars in capital. As your capital increases, your ROI will decrease. :( This option involves picking individual stocks to create a portfolio that will typicall be comprised of a very small number of stocks - 6 to 10 stocks, typically. Stock picking is conceptually quite easy but hard with the execution. (Like RE.) Here's what you need to do:
- Find well-run companies,
- Evaluate their industries to see if the industry has good long term prospects,
- Evaluate management to see if it has a shareholder-friendly culture,
- Evaluate the competition and easy of entry,
- Monitor the company's progress regularly,
- Do a simple company valuation every year so that you always know how much the stock is worth,
- Make a list of all such companies that you like and their current worth per share,
- Then wait. This is the hardest part but also the most important one. You should just sit tight and do nothing other than watch the stock price, which you can automate either through an employee or, if you are technically proficient, by having alerts sent to you. What you are waiting for is a collapse in the stock price of this company due to some short-term event or some macro event that should not affect the company. And when that happens, you just buy as much of the specific stock as you can. Having a good list of 20 to 30 companies that you regularly follow and know the intrinsic value for should enable you, over time, to create a nice little portfolio of stocks which you would have bought for maybe 50 cents on the dollar. (Even less if you play in Asia - investors are crazy there.)
- The next step it so sell the stock. This again requires you to have some idea about its intrinsic value. You should start selling the stock as it gets close to intrinsic value. Do not hold out for it to become overpriced. In this way, it is similar to flipping homes. Buy at less than ARV and sell at ARV - don't wait for the next bubble.

Tom, over the long run, market value increases because the intrinsic value of the share goes up, not because new money enters the market. In the short run, of course, your normal demand and supply forces determine price, but not over an extended period of time. And, whether over the short run or the long run, new money cannot enter the secondary market.

Think of it this way. Let us say you have a business that is doing well. It is privately held and you own 100% of the shares in the business. Over time, the value of your shares will go up even if you do not sell a single share to anyone. It is this same phenomenon that happens with the value of shares on the stock market, except that it fluctuates in price quite a bit based on market sentiment but, over time, does track the intrinsic value. (Intrinsic value = PV of future dividends.)

New money does enter the market when a public offering is made, and leaves the market when companies do share-buybacks and extinguish the stock.