According to a poll encompassing 11,000 business leaders in 131 countries, the United States tops the latest World Economic Forum Global Competitiveness Survey. The top ten consists of:
US
Switzerland
Denmark
Sweden
Germany
Finland
Singapore
Japan
UK
Netherlands
The bottom ten consists of the following countries:
Zambia
Ethiopia
Lesotho
Mauritania
Guyana
Timore-Leste
Mozambique
Zimbabwe
Burundi
Chad
Wednesday, October 31, 2007
Monday, October 29, 2007
Buffett keen on South Korean market
Warren Buffet thinks that the Korean stock market is still undervalued. Should you take a look at EWY? Just a cursory look at the ETF shows that it's selling at about 13x earnings, 1.7x book, and 0.8x sales. and 6x cash flow. The won has appreciated significantly against the dollar. There might be a case here, but I must admit that I don't know enough about the Korean market to give the proper context to these numbers.
Friday, October 26, 2007
Chipotle Mexican Grille(CMG)
I just read this blog entry from Robert Walberg about Chipotle Mexican Grille. It really ignited a firestorm of responses. All Walberg said was that he doesn't understand the hullabaloo about Chipotle and that the stock was very expensive, especially compared to its peers. Now, in the interest of full disclosure, I must admit that I ate one their delicious carnitas burritos for dinner last night. Read the comments that readers wrote. They can't for the life of them understand how he could denigrate the quality of a Chipotle burrito. It's as if you called their child stupid. While I am primarily a value investor, there is a bit of Lynchian populist in me. This sounds like a classic Lynch buy what you know stock, not unlike his calls on Dunkin Donuts and KFC back in the 80s.
I would agree with the readers who said that Walberg hadn't done his research. If he had, he would've found that not only is the food delicious and the service quick, but he would've noticed the hordes of people(lines out the door often) at lunch and dinner time. Also, as several readers pointed out, many of them are teens, who have tons of disposable income to blow on fast food.
I haven't eaten at Moe's, but I've had Qdoba and it's clearly an inferior, Chipotle knockoff.
Right now, Chipotle is one of those rare growth stocks that is worth the price of admission.
I would agree with the readers who said that Walberg hadn't done his research. If he had, he would've found that not only is the food delicious and the service quick, but he would've noticed the hordes of people(lines out the door often) at lunch and dinner time. Also, as several readers pointed out, many of them are teens, who have tons of disposable income to blow on fast food.
I haven't eaten at Moe's, but I've had Qdoba and it's clearly an inferior, Chipotle knockoff.
Right now, Chipotle is one of those rare growth stocks that is worth the price of admission.
Thursday, October 25, 2007
How do you sit and do nothing?
One of the keys to making money as a value investor is to not be afraid to just sit and do nothing. It's boring. It's hard. It's not remotely sexy. Especially in our age of online trading, it's so easy to update your positions or net worth every minute. It's incredibly easy to hear some bad news on Bloomberg TV, CNBC, or Fox Business News, get frustrated and make a dumb move. So how do you avoid this? Turn off the TV. Don't read message boards. Restrict the amount of sources that you read. Avoid information overload. Don't check your stocks every day. Take the broker off speed-dial. Get away from the market regularly and get some perspective.
Wednesday, October 24, 2007
Is it time buy the homebuilders?
Steve Sjuggerud is one of many contrarians floating this idea. In fact, he sees 500% gains in the sector over the next four years. He points out that after new home prices fell between 1979-82 and 1989-92, the shares of homebuilders soared. This is true, but this was also during a great bull market in general. I would love to know how an index of homebuilders did against the market during this same time period.
Monday, October 22, 2007
The Asch Conformity Experiment, the Milgram Obedience Studies and value investing
Have you heard of this world famous experiments? They're featured in every Sociology 101 textbook. The first experiment deals with the powerful influence of group pressure. Solomon Asch presented showed a group of five students the following figures. Next, he asked a simple question. Which line(A,B,or C) on the right is equal to line S on the left? How could anyone fail this test? After all, the line lengths are clear and unambiguous.
Unknown to the fifth student, the first four students were in league with the Asch. They purposely gave wrong answers. Asch wanted to see, if their wrong answers would influence the fifth student. Well, it did. In 33% of the cases, the fifth student gave the wrong answer at least half of the time. 40% gave "some" wrong answers. Only 25% of the students consistently gave the correct answer.
The Milgram Obedience Studies deal with the tension between authority and conscience. In this series of experiments, test subjects were told that they would act as a teacher and present test questions to another person who was a student. Whenever the person, gave a wrong answer they were to administer an electric shock, one that would increase by 15 volts with each successive wrong answer. As was the case in the Asch Conformity Experiment, the test was simple.
The shock machine bore clearly visible labels that said Slight Shock, Moderate Shock, Strong Shock, Very Strong Shock, Intense Shock, Extreme Intensity Shock, Danger: Severe Shock, and finally, XXX at 450 volts. As the voltage rose, the "student" responded with squirming, groans, and then screams. If the subject wanted to quit, he would be told to continue with the experiment. As was the case with the Asch Conformity Experiment, the test was rigged; the "student" was working with Dr. Milgram.
Before conducting the experiment, Milgram asked psychiatrists, psychologist, philosophers, and sociologists how many subjects they thought would go to 450 bolts. The experts said about one in a thousand. What did Milgram find? He found that 65% of subjects were willing to administer a lethal shock. He later repeated this experiment several times, changing the venue from a science lab to a dingy basement so as to counteract the tendency of some people to defer to a scientist conducting a scientific study. Still, about one half of the subjects were willing to administer a lethal shock. He tried the experiment with women as the teachers. In subsequent experiments, he found that class, race, and ethnicity made no difference.
So how does this relate to value investing? One should be leery of following the herd. How many times have you bought a stock because of a tip, or an article in Forbes, or because some "guru" likes it. There's nothing wrong with taking advice from sources that you respect and trust. You just have to make sure that you're making the decision based on your situation, your financial goals, your risk tolerance, the investment approach that works best for you. The financial press(I am guilty of this as well) is very fond of setting up someone as an unimpeachable authority and then claiming their endorsement. Please remember to do your own due diligence, no matter how trusted the source is. If you lose money, and you will if you invest long enough, let it be by your own actions at least.
Unknown to the fifth student, the first four students were in league with the Asch. They purposely gave wrong answers. Asch wanted to see, if their wrong answers would influence the fifth student. Well, it did. In 33% of the cases, the fifth student gave the wrong answer at least half of the time. 40% gave "some" wrong answers. Only 25% of the students consistently gave the correct answer.
The Milgram Obedience Studies deal with the tension between authority and conscience. In this series of experiments, test subjects were told that they would act as a teacher and present test questions to another person who was a student. Whenever the person, gave a wrong answer they were to administer an electric shock, one that would increase by 15 volts with each successive wrong answer. As was the case in the Asch Conformity Experiment, the test was simple.
The shock machine bore clearly visible labels that said Slight Shock, Moderate Shock, Strong Shock, Very Strong Shock, Intense Shock, Extreme Intensity Shock, Danger: Severe Shock, and finally, XXX at 450 volts. As the voltage rose, the "student" responded with squirming, groans, and then screams. If the subject wanted to quit, he would be told to continue with the experiment. As was the case with the Asch Conformity Experiment, the test was rigged; the "student" was working with Dr. Milgram.
Before conducting the experiment, Milgram asked psychiatrists, psychologist, philosophers, and sociologists how many subjects they thought would go to 450 bolts. The experts said about one in a thousand. What did Milgram find? He found that 65% of subjects were willing to administer a lethal shock. He later repeated this experiment several times, changing the venue from a science lab to a dingy basement so as to counteract the tendency of some people to defer to a scientist conducting a scientific study. Still, about one half of the subjects were willing to administer a lethal shock. He tried the experiment with women as the teachers. In subsequent experiments, he found that class, race, and ethnicity made no difference.
So how does this relate to value investing? One should be leery of following the herd. How many times have you bought a stock because of a tip, or an article in Forbes, or because some "guru" likes it. There's nothing wrong with taking advice from sources that you respect and trust. You just have to make sure that you're making the decision based on your situation, your financial goals, your risk tolerance, the investment approach that works best for you. The financial press(I am guilty of this as well) is very fond of setting up someone as an unimpeachable authority and then claiming their endorsement. Please remember to do your own due diligence, no matter how trusted the source is. If you lose money, and you will if you invest long enough, let it be by your own actions at least.
Friday, October 19, 2007
A lesson from the crash of 1987?
On October 19th, 1987 the Dow Jones Industrial Average endured the single greatest one day drop in its history: a staggering 22.6%. This day would be christened Black Monday. Some say the precipitous fall was caused by a market that had simple gone too far too fast, others blame portfolio insurance. Regardless, the market rebounded and actually finished up for the year. What lessons can you take away from such an event? Today in The Wall Street Journal, Justin Lahart examines the age-old creed to "buy on the dips." How much sense does that make? True, it worked in 1987, but I what could one have seen back then that would've told you that the country wasn't going into a recession? What signs were there that the bull market would last another twelve years? None. buying the dips would've been an act of more reminiscent of blind faith than calculated analysis. Buying dips works in a bull market, but becomes desperate averaging down in a bear market. That is not to say this tactic can't be judiciously applied. If you are a long-term value investor, you want to buy companies as cheaply as possible. Buying the dips helps you accomplish this.
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