What it Means to Own Stocks? +Sunday Culture

I´ll keep the message of this blog in the basics. Not that YOU necessarily need it but there is always someone who needs to remind herself of the basics. Many of us just trade stocks and try to gain money by taking advantage of the price movement. Stocks have a bigger meaning for many others and to those companies issuing them. Khan Academy's video is a great tool for reminding us of that. Never forget the basics!

What it means to buy a company's stock

As a Sunday Culture bonus piece:
E.S. Posthumus is not your average musical artist.

E.S. Posthumus is an independent music group that produces cinematic style music. It is a form of epic classical that fuses intertwined drum beats with orchestral and electronic sounds. Their music is inspired by the Pythagorean Philosophy which states that "music is the harmonization of opposites; the conciliation of warring elements". The E.S. is an acronym for "Experimental Sounds" while Posthumus is a word that represents "all things past".

What is Value investing?

This is a text by Tim du Toit. I advice you to read it and more from him at http://www.eurosharelab.com/ 

Many people throw around the term value investing without an exact definition of what really it means.

Since value investing has become so popular some funds will now call themselves value funds and be nothing of the sort. Some "value" funds own high p/e technology stocks that Benjamin Graham would have never considered anything remotely close to value stocks.

Of course the fund manager will say even at a 50 p/e the stock is still "undervalued", this argument can be used to say any stock in the world is a value stock. So the question is what really is value investing

The first school of thought in value investing believes that there is no simple formula to investing.

With thousands of analyst covering the big cap stocks like MRK (Merck) and KO (Coke), you would not be getting more value by buying Merck at a P/E of 8 vs Coke at a 20 P/E.

This theory largely agrees to the Efficient Market theory, which states that the market incorporates all data immediately, and therefore you cannot beat the market. Many value experts including Bruce Greenwald, Seth Klarman among many others subscribe to this notion.

Seth Klarman in his book Margin of Safety states

"The financial markets are far too complex to be incorporated into a formula. Moreover, if any successful investment formula be devised, it would be exploited by those who possessed it until competition eliminated the excess profits. The quest fora formula that worked would then begin anew. Investors would be much better off to redirect the time and effort committed to devising formulas into fundamental analysis of specific investment opportunities."

This value approach does not employ the classic low P/E, P/B, P/CF, high dividend yield etc. for security analysis.

But wait does that mean these investors believe in the efficient market theory, isn't value investing a contradiction to the theory?

Of course they don't agree completely with it, but they agree partially.

These value investors believe that you cannot gain an advantage by looking at big cap stocks followed by thousands of analysts. These investors believe the best way is to not fight the crowd but to look for value situations with high margins of safety in obscure places.

These include spin-off's, bankruptcies, risk arbitrage and small cap stocks in general. These are situations where analysts are not covering and many institutional investors are not interested in and sometimes legally obligated to sell (e.g. some funds are obligated to sell any stock that goes under $5).

The theory sounds good but does it work?

The answer is a resounding yes.

Many of the most outstanding investors have handily beat the market for many decades using this approach including Seth Klarman and Joel Greenblatt.

Greenblatt states that spin-off's on average have beating the market by a 2-1 margin.

Furthermore, he states that if you look for special value situations which occur in many spin-off's you can earn much higher rate of return. Greenblatt employed some of these methods returning spectacular 50% annualized returns for over 10 years.

What is the the other school of value investing? I would call this the contrarian investing approach made most famous by David Dreman.

This approach believes that the stock market (especially in the short term) is driven by psychology.

The best value is in stocks with low P/E, P/B among many other methods to investigate whether a stock is over or undervalued. All this information is publicly available and is true for both small cap and large cap stocks.

So why doesn't everyone just look for stocks with low P/Es and high dividend yields which can easily be found on a stock screener?

The reason is investors overreact and place too high a P/E on stocks that have experienced recent earnings growth in recent years.

High P/Es are also placed on certain sectors that are expected to do well over the coming years such as technology. When these stocks don't match the earning estimates (or even if they match the estimates but investors are no longer willing to pay such a high premium for them since they fall out of favour), they can decline heavily in value.

Does this method also work?

The answer is yes, Jason Zweig in his commentary on the Intelligent Investor by Benjamin Graham states that over the 30 year period ending in 2002 utilities outperformed technology stocks.

Stocks with low P/E and P/B ratios have outperformed higher P/E and P/B stocks over long periods of time not only in America but in virtually every stock market in the world. The reason is that people think alike across the world. Amazon is a lot sexier than Altria, which is constantly stigmatized by lawsuits and laws restricting tobacco use, yet Altria has far outperformed Amazon over the past ten years.

Both value investing approaches are legitimate and provide an investor the chance to outperform the market.

Although by using the contrarian approach it is easier to find stocks that are potential investments, both require full analysis of financial statements.

The first approach is harder but most times the returns are much higher.

The most important thing to keep in mind about value investing is to always be disciplined and not driven by emotion, devote time to analysis before investing and to invest in undervalued securities with high margins of safety.

Small Victories – How to Go From Success to Success (And Keep Going)

I have discovered which is my North, and lined up plenty of small (and sometimes bigger!), short and medium-term goals that will keep me going in that direction.

With success (and sometimes without), I’ve been fighting for these small victories and giving it all on the way. The results are pretty clear – life has never been better, and things will only go forward.

Here I want to give you a hand – and help you prepare and start lining up your own small victories. These are the three keys I found out:

1- Have Very Clear Goals (And Dream High)

There are no limits to what you want to do in life. Have that very clear.

I may still be this young, idealistic dreamer. But hey – I live the dream. I love to prove ‘nay-sayers’ wrong, to keep showing (and inspiring) everyone on the way, and to keep achieving the goals other think are ‘undoable’.

And it’s not that I’m smarter, more attractive, more charismatic or more anything than the rest. No – I’m just like you could be. All I have is absolute confidence in myself and what I can do, a clear list of goals, and all the energy to make them real.

That’s it – no surprises. And to make things happen, the recipe is no other than to WORK – and to work really hard. If you want to emulate the most successful people, the number one quality they all share is that they work all the time, anywhere they are.

It sounds stressful (and it can be, sometimes), but as long as you really love what you do, as long as you are thrilled and excited by your goals, you’ll have the energy and passion to keep going.

All this ‘love what you do’ talk can’t be more right – just go and FIND OUT SOMETHING WORTH FIGHTING FOR.  Find a big, kick ass goal that you want to make real – and then go for it.

Work your ass to get it right, to push it forward. If you don’t want to put your life for it, then you are not so much in love with it. And if that’s the case, turn the page and look for something else. Look for something outstanding, something worth fighting for, and something that will give you an absolute sense of a mission.

Then break this mission all down – cut it down into smaller, short-term and achievable goals and work to make all of these real. Those will be your small victories.

2- Prepare, Practice, and Prepare More

Wise men say success comes when opportunity meets preparation. My past few victories have been all about preparation – and I’ll give you a concrete example by a friend:

A couple of months ago, I got a great job at the biggest and most important company in Denmark. The job itself inspired me – helping the world, making a difference in the lives of millions by using all of the company’s capabilities, assets and personnel to help in large-scale disaster response. Cool thing, and the type of project I like to work with.

But so might have thought the other hundreds of people who applied. I was up against an army of very, very skilled professionals – with more experience than I have, with better grades than I have, with more languages and hey, of course, an army of DANES. I’m from ARGENTINA.

But I! got the job. How? Well, I got a bit crazy about it – I had a matching profile, but then, knowing it was not enough, I took decided action.

After being called for an interview, I went quite berserk, and asked myself: what do I need to do – how I make sure that I do all what’s humanly possible to ace this interview?

Well, in the end, a job interview is quite straightforward – you know what you’ll be asked. They always ask the same – or at least 80% of the questions are always the same.

So well – I prepared seventy (70!) pages of notes, and a pin-pointed, precise and perfectly carved answer for the ~100 or so most likely questions.

When the time I came, I had researched, prepared and practiced the great majority of the questions I was asked. It felt like going to an exam, but knowing all the answers from the start – magic.

And I succeeded. A week or so after, I did exactly the same as I applied for the university’s start-up incubator. Same result – after twenty minutes, I was in.

People may call me crazy – I may take it a bit too far. But I won – and the others were left out of the race. There’s this quote, that says: “somewhere in the world someone is training when you are not. When you race him, he will win.”

I am that someone, and you won’t win against me unless you are as crazy as I am. Hard life – but that’s how you need to play when you are aiming high. That’s how you pile up victory after victory.

For your own mind’s sake, just make sure only go all in in the things that really matter.

3- Have Great People Next to You

I’m very sure of that – the road to success, glory and dreams is beautiful, but it’s also long and hard. Having someone (a great someone) with you makes the ride easier and much more pleasant.

That’s what I look for in a woman now – to feel inspired, supported, and, of course, loved. I like and enjoy saying: ‘If I’m here, it’s because of you – it’s because YOU helped and inspired me to come all the way’.

And while this is best and most clear in a romantic relationship, it still goes beyond – all men and women, anyone of your friends can be one of these great people.

Everyone, in his or her own unique way, is special and worth meeting and hearing. You just need to figure out who, at THIS specific time in your life, you should speak to and hear from most.

I know, and I’m very sure, that as long as I spend my time around great and inspiring people I’ll be close to new small victories. I’ll spend time with people who are pursuing their own success – and I’ll help them, support them, and learn from their victories and mistakes along the way.

You should do too – it will help you immensely.

And You’ll Fail – But You Must Keep Going!

It looks that 2012 can’t get better – it’s just too good! But it will, as I’ll keep pushing myself for exciting, heart-pounding and special challenges.

I’ll fail, of course – as any other person striving for great. I failed and will fail a LOT. It will suck – but I’ll keep going. It won’t stop me.

If a road closes, I’ll go and look for another road. And if that one also gets closed, I’ll look for a third road. And I’ll look for 200 roads if I need to – I’ll just never give you.

Neither should you. It’s your life, it’s your dreams and it’s your own goals on the line. Take them seriously.

Graduated And Without Job? Here’s What You Must Do

It may well happen that you are just graduated and, after months, still looking for a proper job. It's not all your fault. As a consequence of current economic climate new positions might be scarce and it's still really hard to find one.

What to do then? First, don’t be desperate. If you can’t find a job just remember that most graduates are in the same situation. It’s as sad as that. But don’t let that take you down, use this opportunity to work on your personal development and building up for better job prospects in the future.

Below you can and I really encourage you to read Seth Godin’s short and thought-provoking post on what he calls the “Graduate School for Unemployed College Students.” Seth gives you a very demanding list of things you could and should do while you are still looking for a job. Taking a year off your plans to do what Seth says is, if you have the possibility, a great idea. Read the post to see what I’m talking about!

Seth tells you to do everything on the list, something that, though possible, is still really hard and demanding to achieve. But, in the end, if you want to be really successful in life and excel over everyone else (and, thus, also have better job opportunities in the future) you should do most of what Seth says.

"Graduate school for unemployed college students

Fewer college grads have jobs than at any other time in recent memory—a report by the National Association of Colleges and Employers annual student survey said that 20 percent of 2009 college graduates who applied for a job actually have one.  So, what should the unfortunate 80% do?

How about a post-graduate year doing some combination of the following (not just one, how about all):

• Spend twenty hours a week running a project for a non-profit.
• Teach yourself Java, HTML, Flash, PHP and SQL. Not a little, but mastery. [Clarification: I know you can't become a master programmer of all these in a year. I used the word mastery to distinguish it from 'familiarity' which is what you get from one of those Dummies type books. I would hope you could write code that solves problems, works and is reasonably clear, not that you can program well enough to work for Joel Spolsky. Sorry if I ruffled feathers.]
• Volunteer to coach or assistant coach a kids sports team.
• Start, run and grow an online community.
• Give a speech a week to local organizations.
• Write a regular newsletter or blog about an industry you care about.
• Learn a foreign language fluently.
• Write three detailed business plans for projects in the industry you care about.
• Self-publish a book.
• Run a marathon.

Beats law school.

If you wake up every morning at 6, give up TV and treat this list like a job, you'll have no trouble accomplishing everything on it. Everything! When you do, what happens to your job prospects?"

It may seem that it is a lot of things to do, but just as Seth says, if you wake up early, give up TV and pointless Internet surfing, you can make it. You have to take it as a real job because that is what it is. After a few months of doing this seriously it may sound even stupid to you to spend eight hours in an office doing something you don’t want and spending most of the day making money for someone else.

I didn’t take this so seriously from the very beginning, but the more I’m immersed into it, the more responsible I’m becoming. Give it a try! I hope it serves as as inspiration and, if you are just graduated, don’t worry! Until you find the job you want, better work on doing this! Seth’s list is very clear but you can tweak it a bit and work on what you feel is going to be the best for you. 

Sunday Culture

This Sunday I´ll share you something from Africa :) Music and dancing that you probably have never seen before. It looks a bit freaky for me as well since I have never listened to or watched much of this kinda performance. Enjoy!

Nii Tettey Tetteh and the performs traditional pieces from Tanzania, Kenya and their home country of Ghana. The frigid, winter weather will seem far away as the barefoot dancers will somersault across the stage, midriffs bare, wearing grass skirts and brightly colored jewelry. The group uses wooden flutes, four different types of drums and a traditional percussion instrument consisting of two balls of wood connected by a string.

THE is an extraordinary group of musicians and dancers based in Ghana, West Africa. Founded by Nii Tettey Tetteh, the group includes past members of The National Ballet and The Pan African Orchestra. Although rooted in traditional music, the ensemble has developed a new brand of music and dance they have dubbed "Nokoko." They have created innovative rhythms and dances by fusing bass and lead guitar, electrifying jazz and African rhythms, and traditional Ghanaian instruments. In their quest to develop a new style of Ghanaian music, they have been dazzling audiences in Ghana and around the world.

Investing in Africa

Euvin Naidoo on investing in Africa

http://www.ted.com/talks/euvin_naidoo_on_investing_in_africa.html

Euvin Naidoo wants to change your mind about Africa. Armed with facts, figures and a forward-looking outlook, he conveys a nuanced picture of a continent that's large, diverse and full of potential, with stabilizing economies and business growth. Speaking at TED in a personal capacity, he offers persuasive reasons why the continent's challenges should be reframed as opportunities, and why investing in Africa can make great business sense.

A third-generation South African, Naidoo spent four years as a consultant with McKinsey & Co., and holds an MBA from Harvard, where he currently sits on the Board of Admissions. As a banker and venture capitalist, he focuses on acquisition finance and private-equity transactions for emerging markets in Latin America and Africa. He now is President and CEO of the South African Chamber of Commerce in America (SACCA), a position which allows him to promote entrepreneurship and business investment throughout Africa.

How to Be Successful: 2 Actions That Produce Massive Results

Many of us have dreams which we are trying to achieve or have given up with. I am not saying that achieving your dreams is easy but they are your dreams because they will make your life feel much better when you finally conquer them. You should never give up with something you love so much and here is something to guide you:

There are many things that make up success – hundreds, perhaps. But there are two, I believe, that stand out:

1- Building a Success System.

2- Speed of Implementation.

Taking risks, luck, a right team, etc are all very important. However, a success system and speed of implementation go a step beyond. They are the two fundamental pillars to achieve almost anything you want.

Building a success system may first look as the tough part, but it’s actually the other way around. Building the system is the easy part – putting it into action (implementing) the system is where most people fail. After all, we all know the steps to success for most projects, right?

If you want, as I do, to become a successful investor, the path is clear. Many did it before - and they have documented and taught us the way to do it. It’s tougher than you might imagine, but it’s possible as long as you keep going.

The same applies to almost any other thing in life – there’s a proven way to find a perfect match, to rock any exam and so on. There are few impossibles if you know the path and are willing to give everything to get to the end.

The Speed of Implementation is the other side of the deal. Specifically, it means the distance between the time you learn something and the time you put that into action. Like most things, it’s a skill. You’ll need train and practice your speed hard.

You can have the best skills and tools in the world, but you need to put them into action. Only with action you’ll succeed – and the biggest success comes from fast action.

Be fast implementing ideas, concepts and things you learn. It will help you personally and it will help your business. When I learned about the benefits of eating every two hours, I gave it a try the next day (not the next week!). It was the same when I first read about health effects of daily aerobic exercising – I went and did it the same day!

When the idea or method is of high value, strive to put it into action as soon as you can. Finish off with what you had to do and then work on it.

2012 Expectations

The EU circus

I expect that Europe finds a stable solution and this crises ends or at least we can see that changes are truly happening and confidence starts to rise in the markets. Politicians have the means to solve this situation if they just find the backbone to truly do what is needed. Nobody is going to be kicked out of EU, leaving voluntarily would also be very unexpected. Although some countries would be stronger by creating so called Nordic Union, leaving these southern spenders out, our politicians prefer holding on to our current system and try to avoid embarrassment of admitting their failed euro adventure.

Here's a question: have you ever heard of not putting all of your eggs in one basket?!  Diversify!!
With proper diversification not a single bank or nation had reason to worry about themselves. Greedy  f*cks.

USA

Well this is the big question. Electing a new president is scary. Will we see a new monkey president (I mean Bush kinda useless idiots) or someone with some true guts and will to go after changes. Obama has seem to be a good leader but he has been forced to use his energy to battle his own people. Even if the president is a good character there is still the huge risk of idiotic rivaling political parties who do what ever they can to stop the other from making any true and meaningful changes. 

World economy

Blurp* Sorry, feels like I tried to swallow a mountain. At worst the EU nations will experience a time of quietness when trust to financial stability of all nations and their banks and businesses is build back up. The USA could have a much bigger impact on the whole world if they are unsuccessful at making real changes this year. Asia keeps growing and evolving at some rate no matter what we westerners do here. Also Africa is more likely to experience some sort of growth no matter what. South-America is the one I´m having hard to understand at the moment. I seriously must learn to speak Spanish and start to follow that area more closely because local media is giving us shit.

Where to invest?
 If times get more dangerous instead of peaceful do not hesitate with your investing. Do your research to find those quality companies that are strong and profitable. Right now Europe is filled with companies that will give you good returns just because their stock has been hit so low. With proper research you can find the really good ones and sleep your nights with a smile. It doesn't matter where you invest, always do your best to decide whether or not it is a stock worth buying.

Price of gold

If we see that this period of uncertainty is behind us then these small investors that bought gold in fear or because of speculation will sell. Price will take a noticeable dip but if big holders do no start to sell then decline of prices will stop before $1350. So if the price stabilizes to still a high level, by time it will continue to rise as investors will continue to believe in gold as an investment and major investors are still holding their own. We will continue to see steady growth in the price of gold as we have seen for the past years till June 2011. Gold bubble will burst some day but I think it wont be during 2012.

                                                  Finland

I live here so I should say something about it. This Euro circus makes things on the ground level to feel quite unsure at the moment. Finnish government is raising taxes and cutting funding so small communities are having a much more problematic futures if  they aren't able to survive on their own. Finding new start-up companies will be at least a bit harder and it is already way too hard and in need of political will to support our start-ups more. Finland largely depends of exporting goods, so especially how the EU changes in the future will strongly affect how our government feels financially. No matter what happens in the financial world Finland can survive it and wait for stronger times to come.

Lastly

End of Days!!

It will be hilarious to follow how everybody will react to the prediction that the world will end during 2012. Enjoy! ;)