29 Sept 2010 Tools of The Trade
In the past a few days people have asked where do I get all of the information for the homework and the blog. Easy I steal it! That is why I say “we” in the blog it is my way of saying thanks to the hundreds of sources from which I steal. On a serious note, in the on line community at Motley Fool, you will see an occasional post about where to get good information to invest upon. Now I find that a little amusing as there are in the on line community on Motley Fool and they are asking where to find a good source of info.
Anyhow I thought it might be helpful to share the source list of reference material I use to do my homework. First, as a result of my real job, I have had to refresh my basic accounting skills over the last five years. Some of you know I started out in accounting and decided I would rather have a career of rubbing glass in my eyes the rest of my life than do the detail work of an accountant. God love you accounts out there as I know the reason why our company is so successful is because we have a great finance guy. (He is so smart he does not read my blog!) But I digress. I have had to brush off some old accounting books and I use them with regularity in determining values and ratios of companies. Some of my favorite are:
Statistics: An Intuitive Approach by Lincoln Lien Chao
This is helpful in understanding the methodology of how some the ratios are actually determined. If you get into charting and understanding Bollinger Bands, you will quickly recognize them (BBs) as upper and lower control limits as determined by the standard deviation of any moving average (ie 200 day or 50 day). The book also helps you see the nuts and bolts of the RSI, (relative strength calculation). Most of these concepts are available on line, but I still enjoy pretending I know what Chao is talking about.
Trading in the Global Currency Markets, 3rd Edition (I have the 2nd edition)Cornelius Luca
I do not trade currencies. I have tried it three times and always got my ass handed to me, so I leave that to people much smarter than I. The chapter on the historical back round of currencies is really informative, but my favorites are currency characteristics country by country and the chapter on economic fundamentals. Getting a better understanding on currency flows and values will make you a better trader. (Today is great example as Gold has breached the $1,300 barrier. Know how much upward pressure is due to international currency exchange versus true demand for the commodity helps you determine where the next resistance barriers is.) And the chapter on technical analysis is very helpful.
Financial Accounting Concepts James H. Rossell , William W. Frasure
Long out of print, this 1967 classic (he said in jest) helps with the basic understanding of financial statement and how to decipher some of the foot notes in those crazy SEC filing.
Barron's Finance and Investment Handbook by John Downes and Jordan Goodman
This 973 page beast (Now 1200+ pages in the latest edition) used to be my go to book. It had everything you need for thorough understanding of terms and markets and financials. Now I get most of this content on line. (I’ll give you on line content in a moment.)
The meaningful interpretation of financial statements; The cause-and-effect ratio approach by Donald E. Miller
This by far is my most referenced book. It has helped me decipher gobs (technical financial term for lots) of confusing annual reports. I also use it to maneuver my way through my own company’s quarterly financials. Again, this content is very available on line, but Miller takes the concepts and ratio explanations down to such a level to say something as simple as if this ratio is high it is a good thing. He also used relevant examples and explains how changes in the data points have what effect of the ratios. If you are an investor or an exec who has to wade through financials, I can not recommend this book enough.
Options as a Strategic Investment by Lawrence G. McMillan
This is the Bible, Qur’an, Rosetta Stone and the Dead Sea Scrolls of options, options strategies, and all the option lingo. This book cost me about $30.00 in 2005. Then there was about a $15,000 learning curve when I started to experiment with puts and calls. Without the book, it would have been much much more.
Financial Fine Print: Uncovering a Company's True Value by Michelle Leder
Written in 2003, Leder takes on the tough job of trying to explain financial footnoting and what they can truly mean. It is a tough read and probably better used as a reference book that a tutorial. It does a great job of explaining what to look for with executive compensation issues, compensation deferrals, option compensation issues and how they impact shareholder’s equity.
The Trader's Guide to Key Economic Indicators (Bloomberg Financial) by Richard Yamarone
Every investor trader should have a copy of this book. You know every Sunday night when we try and guess at the week ahead in economic reports, we are using this book or the knowledge derived from it. A must have if you have even the smallest of portfolios.
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) Benjamin Graham (Author), Jason Zweig (Author), Warren E. Buffett (Collaborator)
You’ll note that Warren Buffet is a collaborator on this edition. He actually wrote the foreword. The reason why is that Benjamin Graham and David Dodd co wrote the basis of this book when they penned Security Analysis in 1934. Intelligent Investor takes the painful but important content from Security Analysis and shows how to develop the basic understanding of Value Investing. We preach a lot about value and growth in the blog and this book along with SA (next) helps get the best understanding of the fundamental analysis, descriptive analysis, and technical analysis.
Security Analysis: Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions) Benjamin Graham and David Dodd
Just having this on the book shelf makes one feel wiser about the market. After learning the Graham and Dodd taught at Columbia in 1950, Buffet set his sight in going to school with his mentors. And, as they say, the rest was history. This is a very dry nuts and bolts forensic study on value investing. Not for the weak of heart. Buffet actually prefers the Intelligent Investor over this book, but one of his prized possessions (He has been offered several million for the signed copy) is his first edition gifted to him by Dodd I believe.
That is not all the books I have but those are my frequent reads. Of course you know I have Jim Cramer's Getting Back to Even and Jim Cramer's Real Money: Sane Investing in an Insane World.
As far as periodicals there are quite a few and several I receive in multi media (kindle versions, on line, zinio, ipad).
You all know my endearment with Barron’s. Beyond a doubt the best financial investment publication in the world. The paper and kindle edition come out once a week. The online content is updated through out the day. While I read it cover to cover over the weekend, I continuously check in on the economic calendar, earnings reports, and Stocks to Watch. Barron’s is part of the Dow Jones family of publications including The Wall Street Journal and Smart Money.
The Wall Street Journal
This is my daily bread. My method of attack depending upon the time I have is to glance at the What’s News Column first. It gives me all the pertinent news I need. If there is a interest rate change by the Bank of England, it will be in there before I have a chance to talk to our office in Bristol. Then below the What’s News is Vital Signs, usually a clever chart of some relevance. Today it was the S & P Case Shiller Home Price Index chart for the last 9 years.
When I was in marketing, I would go right to the Marketplace section and there was hardly a day that went by when I did not glean an idea or a concept to float amongst my team. It did drive them crazy and they did try and burn my WSJ, but it was a good read. Now I read that section last mostly for fun and an occasion investment idea.
Currently I spend most of my time in the Money & Investing Section. I start at the back page with Heard on The Street and Overheard. Always good stuff there. For example there was a small article about a Japanese Bank called Takefuji which just filed for bankruptcy. I found it relevant because yesterday I read Credit Saison’s (A large bank credit card company that holds the license to our office in Tokyo) annual report and the article helped me understand why the performance of their credit card business is in such angst. The Ahead of The Tape part of M & I usually has some relevant info. Today it talked about retail sales especially by discount stores.
Then I go to the front page section which is usually just a good general knowledge read and it helps provide and international views.
Lastly if time allows I go the personal journal section and read about new books coming out, sports news, and wine reviews when they have them.
This is a publication by The American Association of Individual Investors. I use both the website and this monthly magazine. It is subscription based an I have the enhanced membership package at 49 dollars a year which gets me the magazine, their model stock portfolio, access to the AAII.com website, mutual fund guides, tax planning guides, local chapter access for real face to face meetings, a publication called computerized investing, stack screen (good ones at that) stack evaluation services and gobs of how to articles.
This is published by MIT and has the latest and the greatest from the work of technology in many fields. It is supported by a great website and many blogs. Here are a few titles so you can get a feel for content. The Big Losers in Energy, How to Build a Warp Drive Using Metamaterials, How Flexible Solar Panels Could Make Solar Power Competitive, The Browser Gets Fragmented and Time Likely To End Within Earth's Lifespan, Say Physicists .
I read this publication so I can stay on top of technology trends personally and in our business. I also glean issues for the next Exxon, Microsoft, or Facebook.
Equally as interesting as MIT’s publication but a little broader array of topics. Again this is read to stay on top of things and look for the new next big thing and changes to the recent status quo. Here are some sample titles. Get on the Optical Bus (an article about IBM and bandwidth), The Fastest Helicopter On Earth, and Cyber Armageddon.
Same as the previous two but dummied down so you can buy it off the shelf at a book store near you before they go bankrupt. Here are some recent titles. Frugal Innovation: Will Low-Cost Computers for the Developing World Succeed This Time? , Crude Alternatives: Energy Industry Heavyweights Debate Fuels of the Future , and Can America Lead the Global Electric Car Industry?
The Financial Times
The UKs equivalent to the WSJ. I receive this via the kindle, but it is the US edition. I also have the online subscription to FT.com. A very good publication especially if you do business overseas. I also help manage a portfolio traded on the LSE so it is crucial I have access to this information.
This is a very expensive weekly magazine published by the FT folks. It is good but I cannot justify the expense for one portfolio so the person who has the portfolio picks me up a copy now and again and send it over to me. (BTW its time for another one my friend)
On Line Services
Morningstar.com, WSJ.com, The Street.com silver membership, VectorVest, charlesschwab.com, yahoofinance.com (mostly for earnings releases and estimates and earnings conference calls, finviz.com, Bloomberg.com (worth noting Bloomberg is on in my office all day), emergingstockreport.com, reuters.com, IBD.com (the online edition of Investors Business Daily-great website great publication-their stock check up almost always identifies sound value equities.), Ycharts.com, motelyfool.com (I enjoy hanging out there on line because the articles are great the chat board gives me ideas and I enjoy answering the questions there when folk need help), and of course SECedgar.com.
Tonight I will leave you with a great story.
Donald Trump walks into a bank in New York City one day and asked for the loan officer.
He told the loan officer that he was going to Philippines on business for two weeks and needed to borrow $1,000. The bank officer said “Mr. Trump you really need 1,000 bucks?” Trump answered to the affirmative. The loan office spoke with the bank manger and the bank manager came over and handed Mr. Trump 1,000 dollars. Trump said, “That is no way to run a bank. No loan papers, no collateral?” To which the manager said it would be their honor to take his word for the return of the $1,000. Trump insisted he be treated like anyone else and a simple note was executed. The manager then went to hand Trump the money and Trump said, “Again you ask for no collateral. What if my plane were to crash or I got kidnapped? You really should take some collateral for the note.” At which point trump suggested leaving his Rolls Royce with the manager until his return.
Two weeks later Mr. Trump returns to the bank to settle his loan. He pays the confused Manager $1,004.12 and takes his keys. At which point the manager says, “Mr. Trump. I do not understand. You are one of the wealthiest men in the world yet you come to my bank, borrow $1,000, hand me the keys to your $120,000 automobile. Then you return pay off the loan and walk away.”
Trump smiles as only Donald can and says, “How else could I park that beast anywhere in New York for $4.12 and expect to ever see it again.” And walked away.