Our nation's birthday.

On this anniversary of the birth of our republic, it’s only fitting that we reflect a little on what we won in the Revolutionary War. Just what did we get in return for the sacrifices made in that conflict? Did we really get a republic? Or has it turned into something else?

Populism is a political model that would have the government champion the “common man” and satisfy his needs and wants. Many definitions of this term refer to the struggle of the lower class against the elite. Prime examples of this are Bolivia or Venezuela, where Evo Morales and Hugo Chavez, respectively, have been elected by the people to act in their best interests. And, in those nations, it is a neglected, indigenous population or an underprivileged underclass that has placed their trust in these demigods—someone whom they believe is “one of them” but who, they think, has the ability to act as capable steward of their nation. Read more…

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This old bull stood on the hill and watched the herd mindlessly careen first in one direction and than another—spooked once again by some irrational fear. It was a sight to behold! And the dust they raised will probably take a good while to settle.

As things were going, it was beginning to take a little effort for intelligent investors to find worthy buying opportunities, what with the herd commencing to trust the recovery (without a clue why) and beginning to again overvalue some of the good companies.

But, thanks to their skittishness (and cluelessness), we’ve got another fire sale going on and part-ownership of those good companies is once again affordable for the educated, business owner-aspirant.

For rational investors, whether Greece hits the skids or the Dow tanks, the value of your portfolio is what it is—which is no different from what it was. And it is still not as valuable as it will likely be in the future, assuming you used the appropriate care in picking the companies to own whose operations generate solid earnings growth for their owners. What counts is not the herd’s perception of its value; it’s your recognition of its real value: its rational value.

If you use Investor’s Toolkit 6, the Rational Value can be found on each portfolio’s “Overview” page. If you don’t have the software, you can easily calculate it. For each company, simply multiply the trailing 12 months’ earnings per share by the company’s “signature PE” and that result by the number of shares. The sum of each holding’s rational value is the value of your portfolio, based on what investors will pay when they’ve come to their senses.

You’ll never lose any money—ever—if you can hold onto your shares until the market comes back to its senses, which it always will. Even if you can’t for some reason, if you take out only the minimum you must, it’s likely that the limited loss on those withdrawals will be more than compensated for by the return on what remains.

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Here’s just a quick note to let you know that the political campaign I’ve entered is going surprisingly well, considering I’m not much of a politician.

I’m running against corruption and cronyism in my town and county. Someone “up there” must be watching because my opponent and his supporters just made an incredibly imprudent blunder and left themselves wide open. The newspapers are full of it; and, even though I started with no name recognition (and a refusal to clutter up the landscape with signs), we’re starting to make some headway.

The campaign is short—election’s on March 9th—and then, if all goes well, the fun really begins.

Thanks to so many of you for sending your good wishes. I’m looking forward to getting back into harness after that, with this blog and the radio shows, and trying to make a difference here again.

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Occasionally I run into some comment that makes too much sense to keep to myself. Such a comment is this one I read on WorldNetDaily.com.

I don’t mean to be any more of an alarmist than necessary; but it’s getting pretty dicey; and, the huge gulps of money we’re needing to borrow in the short term, just to pay the expense of running the government look to be the last gasps of healthy capitalism in this country.

I know I said  I was going to take a break…and I am. But you need to read this and find a way to run our politicians out of Washington and back to fiscal kindergarten!

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I just wanted to take quick note of a comment that I heard on a talk show as I was surfing the stations while driving. Unfortunately I don’t even remember the fellow’s name or the position he held—not even the station I was listening to.

The purpose of my doing so is not to suggest that this is the position of our government. It’s only to take issue with the remark and suggest that anyone who thinks this way is wrong-headed.

In any case, the offending phrase was that the financial industry is the backbone of our economy!

There are far too many people who don’t really understand what the “backbone of our economy” really is. This parallels the notion that investing in diamonds, bonds, art, etc. is productive when it’s not. The “backbone of our economy” is truly anything that adds value or creates something of value out of something that had less value before. Read more…

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Did you ever watch a school of dolphin or porpoise as they follow closely beside a boat? Of course, no single one can stay two feet in the air all the time; but, each rises from the water, arches gracefully above it for as far as he can propel himself, and then knifes back into the sea. Shortly after the first emerges, another does the same, and then another. And so on. The effect is that, at any one moment, a number of the graceful animals are above the surface, glistening in the sun, and there is a constant presence there.

We buy shares of quality companies to hold until we want or need the money. The “rule of five” tells us that, of every five companies we select, we can expect four to do as well or better than expected, but one is likely to disappoint us. And, occasionally, the herd will bid up the price of one or another of our companies to a point where we can no longer expect as healthy a return going forward as we did because we have already enjoyed much of the appreciation. In any of those cases, we will need to replace our companies with others that will better meet our requirements.

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A couple of posts back, I made some comments that ignited a challenge to me to come up with some kind of measurable evidence that our system really works.

The beauty of this investment methodology is that it’s not one that’s so doctrinaire that, given the same set of circumstances, everyone could be relied upon to do exactly the same thing. The variables are simply too many and too subjective. Therefore, you can’t put together a control group whose performance you can empirically measure against a benchmark.

Believe me, if I could make my point without seeming to brag, I would. What I buy, when, and for how much, and how my portfolio performs is my own business. So, I’ve tried to avoid talking about my own case and relied on the logic and common sense of this approach to impress people with its validity.

Read more…

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Whether you celebrate Christmas, Hanakkuh, Kwanzaa, or whatever, there’s an almost universal commonality among faiths—and non-faiths—that this is the season to give.

In that spirit, I’ve spent some time putting together as concise a summary of our investment approach as I could. And, because it’s so simple, I’ve been able to cram everything I think anyone needs to know about investing into my thirty-minute broadcast on Take Stock with Ellis Traub this evening at 7:30PM Eastern (6:30PM Central).

As you know, my intent is to separate as many folks from “the herd” as I can; and I’m hopeful that this offering might help them to understand why our way works and the herd’s doesn’t. Read more…

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Has the market yet fully recovered from the beating it took? Everyone who cares, raise your hand!

Now look around. Everyone whose hand is up is a member of the herd!

“Well, I care if the stocks I own haven’t yet recovered,” you might say. But why should that even make a difference? Unless you have a need to sell them right now for some personal reason, you need only to wait a little longer—provided those underlying companies meet the standards for high quality we’ve talked about. And, if they do, you might even consider buying some more!

We’ve just been experiencing a “market correction”; and, as with any “correction,” something that was wrong is made right. Generally, as is the case today, the “wrong” is that stock has been in the hands of those who don’t have a clue as to its real value, expecting someone else to pay more for it than they did.

What’s “right” is that the shares of the well-managed companies are now being gathered up by those who know their real value. And the prices of shares in those companies are rising nicely to regain their true, rational value.

Because there are relatively few companies that meet our high standards, the market average continues to languish. And, as happens in most down markets, it will continue to do so for some time while the quality companies recover smartly.

Are we there yet? Heck, “we” business owners ain’t never left!

But it might be a while yet before “they” come back.

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I’d like to thank those of you who took the time to answer my question.

The results are in and were helpful. I think we can do a better job going forward.

Here’s a graph showing how much interest you have, collectively, in each of the categories I mentioned.

And here’s a graph showing what percentage of you were interested in each of those categories.

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