Guy Spier published a book, The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment. It is not a traditional investing book. In fact, I’ll say that differently: This is the most untraditional book on investing you’re likely to encounter.
The article is very long. It is long for two reasons: first, it is was originally a two-part article that I folded into one; and second, I am dealing with the very complex topic of investing in today’s global economy. I wrote this article a year ago, and some themes like “be careful of MLPs” are not as relevant anymore, but overall it is still a very useful article for the world we face today.
The rise of the consulting industry, armed with cheap computing power and an abundance of stock-specific data, has harmed the industry, because according to them, a “value” investor is one who holds statistically cheap stocks and a “growth” investor is one who holds statistically expensive stocks. The truth is somewhere … well, actually it’s a lot more complex, and the consulting industry’s crude segmentations don’t capture it.
The article I will share with you today was in the works for over a year. I sat down to write it several times, and every time, until the last time, I walked away with just an incomplete paragraph or two. Just like any article about today’s global economy, it is an open-ended article. When I shared a draft with my father, his response was, “So What?” I answered … see the answer in the P.S. section.
Here is how Dale Carnegie puts it: “When dealing with people, let us remember we are not dealing with creatures of logic. We are dealing with creatures of emotion, creatures bristling with prejudices and motivated by pride and vanity.”
“I don’t know.” These three words don’t inspire a lot of confidence and will not get me invited onto CNBC, but that is exactly what I think about the topic I am about to discuss.
If you own stocks solely for their dividends, you are ignoring the other parts of the stock market equation that, though they are less shiny (and less tangible) than dividends, are just as important to your future returns.
I use Coke to demonstrate the importance of differentiating between a good company (which Coke is) and a good stock (which it is not), and the danger of having an exclusive focus on a shiny object – dividends – when you are analyzing stocks.
The election is over. I am left with two very contradictory feelings.
Negative and near-zero interest rates show central banks’ desperation to avoid deflation. More important, they highlight the bleak state of the global economy.