• Return on Investment

    When To Sell a Stock

    I got my MBA at Carnegie Mellon University back when it was Carnegie Institute of Technology, and the MBA was called a Master of Science in Industrial Administration. Carnegie is located in Pittsburgh Pennsylvania, where the Monongahela and Allegheny Rivers meet to former the Ohio River. In those days, one of the most beautiful sites, in my opinion, was to take the tram up Mt. Washington and look down into the city. Mt Washington is not really a mountain, it’s only a hill, but the vista was so impressive. The smokestacks of Jones and Laughlin Steel spewed tongues of dancing fire streams in hundreds, if not thousands, of colors. It…

  • Return on Investment

    Potemkin Village

    In my opinion Modern Portfolio Theory is a Potemkin Village. What does that mean? In the 1700s Catherine the Great, ruler of Russia, invited a number of foreign dignitaries to visit Russia. But in viewing the countryside she saw the villages of Russia were unimpressive to say the least. So, she commissioned Field Marshall Griorgi Potemkin to build all new villages to give the impression that the citizens of Russia lived a comparatively good life. It was completely illusionary. A “Potemkin Village” is something made to look elaborate and impressive but has no substance at all. Modern Portfolio Theory sounds like it is new and rational and “modern.” In fact the concept…

  • Return on Investment

    Let’s Play A Game

    Imagine you are invited to play a game. You are given $20,000, and can bet $1,000, you win based on the flip of a coin. Heads, you would win $1,500; tails, you lose your $1,000 bet. Imagine you agree to the game and bet $1,000. The coin comes up tails. You bet again and the coin comes up tails and you lose another $1,000. Would you continue to play? If you do and the next flip comes up tails, would you continue? You have lost three straight times. Would you stop and walk away with your $17,000? What if you tried one more time and again lost. Would you call…

  • Return on Investment

    Conferences and Comparative Money Making

    Every year, I go to several investor conferences with 2,000 to 3,000 of my closest friends. Each conference has companies who underwrite part of the cost by taking the opportunity to hawk their products at exhibitor booths. I am always attracted to the trading booths with their elaborate displays – multiple computer screens displaying the latest technical analysis of stocks and markets, the latest prices, and charts with all the most sophisticated analytical tools. There are the stochastic charts, the candlestick trend lines, the moving averages, and on and on. Surrounding the screens are the testimonials of who have made money using the tools and programs the vendors are showcasing.…

  • Return on Investment

    Robo-Advisors

    On May 1st, 1975 the government deregulated fixed commissions in the brokerage industry. At the time, I don’t believe many in the industry would have said this would make any great impact on revenues, and history shows most chose to carry on with the status quo. Few stock brokers (that was the title financial advisers used back then) felt there would be much change in their business. One man did see an opportunity, though, and moved to found a firm that charged significantly less in transaction fees. That man, of course was Charles Schwab, who would build a significant and competitive that would capture one-third of portfolios by 1999. I…

  • Mile High View,  Return on Investment

    The Myth of Excellence – Part Two

    I’ve been talking about how companies are seeing their lifespans shrinking – particularly how short the lifecycles of companies in the S&P500 have become. If you’re an investor that favors the buy-and-hold strategy, this is an intimidating prospect. The days of finding that perfect company, buying it, and tucking it away in the proverbial sock drawer are coming to an end. The average lifespan of a company in the S&P500, a study by Yale Professor Richard Foster found, was only 18 years!1 With such a daunting new world for investors to face, I’ve been studying good business practice, and found myself agreeing with some of the points made by Fred…

  • Mile High View,  Return on Investment

    The Myth of Excellence – Part One

    Buy and Hold was (and sometimes still is) a strategy to find great companies: purchase their stock and put it away to hold for decades. I still believe in buy and hold, but the timeline for the holding period has significantly shortened. I recently read a book by Fred Crawford and Ryan Mathews called The Myth of Excellence: Why Great Companies Never Try to Be the Best at Everything, and it got me thinking. In the 2010s, the lifespan of a dominating company is shrinking at a rate that CEOs find alarming. Today, the average lifespan of a company in the S&P 500 is only 18 years1. That is an…

  • 401ks,  Return on Investment

    The Value of Compounding

    One of my favorite questions is: If you had a job for 30 days and could choose to either be paid $1000 every day or a penny the first day, doubled every day after, which would you choose? Take a second. Think about it. I think this will help you make up your mind. If you calculate a penny a day doubled for 30 days it grows to over $10 million dollars. I know what I’d pick! A penny doubling every day illustrates the principal of compounding. The bigger the beginning number, and the bigger the percentage at which it is compounded, the larger the final outcome. Take for example,…

  • 401ks,  Return on Investment

    Structured Products

    We’ve talked before about chocolate covered hand grenades – the too-good-to-be-true investment. Time and again, the market has expanded rapidly as investors get caught up in opportunities based on stories and ideas rather than facts. Most of us are familiar with the explosion of Sub Prime Mortgages and how they played a major role in the Great Recession. Another seemingly tasty investment blew up as a result of the Great Recession. Structured products cost numerous investors big time. What are structured products? The term “structured product” is financial industry jargon referring to a product which allows you to participate in the stock market while guaranteeing your principal. How do they work? Originally,…