In Search of the Perfect Investment

For those who asked — thank you — I’m fine.

I have been confused and fascinated by Trump. His “stroke of the pen” policies — immigration bans, illegal roundups, transgender bathrooms — are not economics or business.  They’re awful, but they don’t affect business profits.

The business part — tax reform, NAFTA renegotiations, health care reform, infrastructure building, Mexican wall building — are way out there. Vague and airy. Impossible to figure business-wise. Yet the market rises. It’s rises on pure hope, not reality (since there is no real reality.)

I’m not complaining. I’m up a couple of hundred thousand dollars. Thank you, Mr. Trump.

My hot stocks remain SQ, BRKA, AMZN, NFLX, CENT, FLEX, HON, DIS, HD. The usual suspects. I’m not on a hunt for new suspects (though you may eye AMD). I am eyeing some real estate syndications — especially in student housing, which I like, since mommie and daddy guarantee the rent, and they’re different to what I have lots of.

Perhaps the stockmarket is rising because earnings are? From Investopedia:

According to FactSet, 66% of S&P 500 companies have beat mean earnings per share estimates during the fourth quarter of 2016 with a blended 4.6% growth rate. These gains may have justified some of the stock market’s meteoric rise, but a forward price-earnings multiple of 17.6x is the highest level seen in more than a decade. This has led some traders to question whether the market has moved `too far too quickly.’

The brightest light on the investment firmament remains Warren Buffett. He just released his 2016 letter to shareholders. It oozes his usual optimism and his stunning results. Here’s the summary, which I clipped from his letter. (You’ll need to click on both images if your screen is not wide enough.)

His performance makes you wonder why we have ever bothered searching for the perfect investment.

Here it is in plain sight — Berkshire Hathaway stock. A 20.8% compounded annual gain over 51 years!

Here are my two favorite parts of his letter. This is Buffett at his best.

Our efforts to materially increase the normalized earnings of Berkshire will be aided – as they have been throughout our managerial tenure – by America’s economic dynamism. One word sums up our country’s achievements: miraculous. From a standing start 240 years ago – a span of time less than triple my days on earth – Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers.

You need not be an economist to understand how well our system has worked. Just look around you. See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive factories, the great medical centers, the talent-filled universities, you name it – they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion.

Here’s a little more:

America’s economic achievements have led to staggering profits for stockholders. During the 20 th century the Dow-Jones Industrials advanced from 66 to 11,497, a 17,320% capital gain that was materially boosted by steadily increasing dividends. The trend continues: By yearend 2016, the index had advanced a further 72%, to 19,763.

American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.

Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of market dynamism. Moreover, the years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media. Meg McConnell of the New York Fed aptly described the reality of panics: “We spend a lot of time looking for systemic risk; in truth, however, it tends to find us.”

During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.

As for Berkshire, our size precludes a brilliant result: Prospective returns fall as assets increase. Nonetheless, Berkshire’s collection of good businesses, along with the company’s impregnable financial strength and owner-oriented culture, should deliver decent results. We won’t be satisfied with less.

To read his entire magnificent letter, click here.

Learned this past week:

+ More reasons to spurn startups:

— You get the ones no one else wants — like the Silicon Valley VCs, the New York investment bankers or the “friends and family.” You get the drek no one else wants. Why would they approach you? you’re a pain to deal with. You don’t have much money. And you complain.

— Startups that you get to invest in have awful management — often passionate about their product and their business — but not passionate about getting you, the investor, a return on your money.

— Startups are under no legal obligation to tell you what’s happening — like quarterly or (God Forbid) annual reports. You can go for years hearing nothing — until one day you hear from the Lost and Found Department at some share transfer service. (I don’t make this stuff up.)

— Startups will tell you they want you because they want your advice. But when they get your money, they won’t ask you anything. Worse, if you tell them something, they won’t listen. This is more than frustrating. Especially if they’re about to pour good money after bad. And it’s bleeding obvious to you, but not to them.

— The last reason is the worst. You’ll have shares you can’t sell and hence will hang around your office like a agonizing putrid smell. Publicly traded companies have one virtue — you can dump them. Take your lumps and forget them. Moving on is good.

+ International air fares are a mess. I found one trip — New York to Nairobi, Kenya — where a one-way was more than four times the price of a round-trip. I found another where it was twice. Go figure. If you have a group traveling, better negotiate  — on the phone yourself or through a travel agent — directly with the airline.

+ Don’t leave your car registration in your glovebox. It’s too easy to find your address and then go rob your house.

+ Don’t use a cleaning service. One day they’ll send someone who’s more interested in checking your house out for jewelry than in cleaning it.

+ I’m a Quora addict. Subscribers ask questions and readers answer them. Often their readers are experts and the answers fascinating. Sample recent questions:

+ How big of a storm could an A380 passenger jet endure/take in mid-flight?

+ I live in Saudi Arabia and I want to escape from here, what should I do?

+ Does NATO stand a chance in a war against Russia?

+ Why wouldn’t Trump take the White House salary?

+ What is the most surprising secret someone has revealed to you?

+ What if Trump really brings the end of the world?

+ Watch out for “deals” on higher Internet speeds.  Sometimes you sign up. They add $10 or $20 a month to your monthly bill. But they forget to lift your speed. Time Warner is the absolute worst.

I’ve read too much — far too much — on Donald Trump in recent weeks. But this is the most fascinating piece:

To read the full piece, click Trump Family History

Fun images

The Pickle Factory

Joe worked in a pickle factory.

For many years he had a powerful desire to put his penis in the pickle slicer.

Unable to stand it any longer, he sought professional help from the factory psychologist. After six months, the therapist gave up.

He advised Joe to go ahead and do it or he would probably never have any peace of mind.

The next day he came home from work very early.

His wife became alarmed and wanted to know what had happened.

Joe tearfully confessed his tormenting desire to put his penis in the pickle slicer. He went on to explain that today he finally went ahead and did it. He was immediately fired.

His wife gasped. She quickly yanked down his pants only to find a completely intact penis.

She looked up and said, “I don’t understand. What about the pickle slicer?

Yossel replied, “I think she got fired, too.”

Harry Newton, who has spent an inordinate amount of time playing tennis and getting  obsessively (and excessively) healthy. I even bought a new racket with a catchy name — the Wilson Pro Staff RF97.

I bought it for $219 (full price) from the local pro shop, who let me demo it. But I bought second, spare one on eBay for $169. I have no idea how any retailer competes with online. Roger Federer plays with this racquet (or racket), allegedly. For $30 more, I could have bought the identical racquet with his autograph. I figured with that and $2.75 I could get a ride on the New York City Subway.

Life is wonderful. Unless you do stupid and fall on the last step, going down. Please hold the railing. And go slowly.