Novel Investor

Journaling your investments is a tip that pops up a lot because it’s common sense. Aside from being cathartic, writing gives you an idea of how well you understand an investment.

And once written, you have a handy reference — a reminder of why you’re doing what you’re doing — for whenever an investment deviates from your expectations. It becomes a short term aid to help avoid typical emotional mistakes.

Writing it down also works in tracking your emotions. How did you feel about the market correction or spike in volatility or other latest market event? What action did you want to take? Did you follow through? Why or why not?

Because large gaps can happen between these events, and investors tend to forget, you now have a reminder of how you felt the last time it happened. You might even notice patterns of stupidity (or brilliance?) — your unique cycle of emotions — to help stop any repeated mistakes.

Gerald Loeb covers writing about investment in his book The Battle for Investment Survival. He refers to stocks but it works for any investments, asset allocations, or strategies too. Here’s what he had to say: Continue Reading…

Carol Loomis wrote about the benefit of buybacks in 1985:

Working with the 1,660 stocks covered by the Value Line Investment Survey, we identified companies that bought significant amounts of their own common stock in the ten years from 1974 through 1983. Next we reduced this list to voluntary repurchasers — cutting out, for example, companies that had bought the shares by paying “greenmail” to get rid of a threatening shareholder. Then we measured the total returns (stock appreciation plus dividends) earned by shareholders from the approximate dates of each repurchase “episode” to the end of 1984…

The outcome is spectacularly decisive. The shareholders in the buyback companies earned superb returns, far exceeding those accruing to investors as a whole. For all episodes measured, the buyback companies showed a median total return, expressed as an annual average, compounded, of 22.6%. The equivalent return for the S&P 500 was only 14.1%. That difference of 8.5 percentage points is enormously significant to an investor.

This information has been floating around ever since and the research shows the strategy still works.

The reason comes down to basic math. Buffett calls it smart allocation: Continue Reading…

Finance has a language all its own, with unique phrases that go back a few centuries. A few good examples can be found in an 1875 sales pamphlet book from John Hickling & Co.

Readers got the total Wall Street experience — they snuck in a weekly newsletter and “improved” trading system sales pitch — while learning about the Men and Idioms of Wall Street (not much has changed).

Promotions aside, the idioms are spot on and still offer a few lessons. So I thought I’d share a few that stood out: Continue Reading…