Finding great stocks can be a daunting task. While many investors are happy letting a financial adviser select their stocks, others rely on tips they read in magazines or on the Internet. Given the amount of market volatility day to day, picking promising stocks seems more like a matter of luck than the result of any real due diligence. But this doesn’t have to be hard. In fact, finding stocks that will outperform the market is much easier if you keep three principles in mind… Good Companies Earn Money Reliably At the end of the day, successful companies earn… Read More

Finding great stocks can be a daunting task. While many investors are happy letting a financial adviser select their stocks, others rely on tips they read in magazines or on the Internet. Given the amount of market volatility day to day, picking promising stocks seems more like a matter of luck than the result of any real due diligence. But this doesn’t have to be hard. In fact, finding stocks that will outperform the market is much easier if you keep three principles in mind… Good Companies Earn Money Reliably At the end of the day, successful companies earn money year after year. Now, one of my favorite metrics I use to find stocks is a high return on invested capital (ROIC). ROIC is calculated by subtracting taxes from operating profits and dividing the result by invested capital. #-ad_banner-#ROIC makes a superior metric because it is a more consistent measure of profits than net income. Additionally, ROIC excludes non-GAAP tricks like using one-time charges and write-offs that muddy the accounting waters. So what’s a good ROIC reading? Well, good companies generate a ROIC greater than 10% annually. But really good companies have an ROIC of 20% or more over… Read More

Coal has been an important fuel source since the dawn of history. Scientists have found evidence that Neanderthals used coal as a fuel in Les Canalettes, France as far back as 73,500 years ago. Today, coal counts as the largest source of electric energy worldwide. #-ad_banner-#Of course, there’s one major… Read More

“Where are the customers’ yachts?” It was a question the tour guide didn’t expect. He was taking a group of tourists through the financial district in lower Manhattan from the area now known as Battery Park. #-ad_banner-#Eventually docks appeared around the park. And because of its proximity to Wall Street, it became a favored location for Wall Street bankers and brokers to dock their very expensive yachts. So it was on this day that the tour guide was extolling the virtues of Wall Street moneymen. He told his audience that the yachts were the rewards for creating enormous wealth for… Read More

“Where are the customers’ yachts?” It was a question the tour guide didn’t expect. He was taking a group of tourists through the financial district in lower Manhattan from the area now known as Battery Park. #-ad_banner-#Eventually docks appeared around the park. And because of its proximity to Wall Street, it became a favored location for Wall Street bankers and brokers to dock their very expensive yachts. So it was on this day that the tour guide was extolling the virtues of Wall Street moneymen. He told his audience that the yachts were the rewards for creating enormous wealth for their customers. To which one lone voice asked, “Where are the customers’ yachts?” Selling Is More Lucrative Than Buying Now, I don’t know if this story is true. It was described in a book about Wall Street written in 1940 by Fred Schwed. The name of the book is “Where Are the Customers’ Yachts?” It’s a lighthearted look about a serious subject that every investor should read. But despite its humorous undertone, the message is dead on. There is far more money in providing financial advice to investors than there is in receiving financial advice from Wall Street experts. Read More

If you Google the phrase, “is the stock market overpriced,” you’ll get more than 600,000 hits on how the market is ready to fall off a cliff. That search will find you article after article comparing today’s market to 1999 and even 1929. #-ad_banner-#Several articles try convincing their readers that the market is as much as 80% overvalued — as if that statement has any real meaning. Others say prudent investors should stay away from the stock market after it hits a new high. They reason that the market must revert to some mean level before it can sustain a… Read More

If you Google the phrase, “is the stock market overpriced,” you’ll get more than 600,000 hits on how the market is ready to fall off a cliff. That search will find you article after article comparing today’s market to 1999 and even 1929. #-ad_banner-#Several articles try convincing their readers that the market is as much as 80% overvalued — as if that statement has any real meaning. Others say prudent investors should stay away from the stock market after it hits a new high. They reason that the market must revert to some mean level before it can sustain a move higher. On that, I call BS. Here’s why… It turns out that, historically, the best time to buy stocks is after a new 12-month high as opposed to a new 12-month low. Now this may seem illogical or counterintuitive. After all, you’d think the market would have more upside potential after hitting a new low than a new high. But I have 90-years of data to prove that hypothesis incorrect. You see, the historical record going back to 1928 shows that stocks perform 160% better after hitting an all-time new high. Take a look at the chart below. The… Read More

The student threw his hands up in frustration. “Professor,” he said, “I just don’t get it.” He slumped in his chair totally defeated. #-ad_banner-#I understood the feeling. I had spent more than two hours explaining basic financial ideas to a college freshman. But try as I might, I couldn’t get… Read More

One of the hallmarks of America is the near-universal belief that our nation is the land of opportunity. Despite the many problems in our country, we’ve always believed that our children would be better off than we were. #-ad_banner-#And for the better part of two centuries, that was true. But in the minds of many Americans today, that belief is dying… You see, more than 56% of Americans believe their children will be worse off financially than they are. Now, that’s an improvement from a similar survey in 2014, which found that 76% of parents feared for their children’s futures. Read More

One of the hallmarks of America is the near-universal belief that our nation is the land of opportunity. Despite the many problems in our country, we’ve always believed that our children would be better off than we were. #-ad_banner-#And for the better part of two centuries, that was true. But in the minds of many Americans today, that belief is dying… You see, more than 56% of Americans believe their children will be worse off financially than they are. Now, that’s an improvement from a similar survey in 2014, which found that 76% of parents feared for their children’s futures. But that still means that almost 60% of parents don’t think their children will achieve any lasting financial success. And that number is sure to grow as the United States edges ever closer to a financial abyss. This begs the question: Are these parents being overly pessimistic, or do their concerns have merit? Like many such questions, the truth lies somewhere in the middle. But being proactive against the threats to our kid’s futures is a sure-fire way to secure their financial well-being. Take Social Security for instance. Social Security was instituted by Franklin Roosevelt in 1935 as a tool… Read More

While looking for a place to sit near the Great Wall of China, my Chinese interpreter snatched a plate of food from my hands. She immediately tossed it into the trash. Stunned that the only food available in the last 14 hours was now sitting in a trashcan, I was… Read More

Benjamin Graham, the father of value investing, is quoted as saying, “in the short term, the market is a voting machine, but in the long term, it is a weighing machine.” Now, the quote doesn’t appear in Graham’s famous book, The Intelligent Investor. But according to Graham’s star pupil, Warren Buffet, Graham taught the concept to students at Columbia University. And given Buffet’s unimpeachable character, the statement stands on its own. But even if the quote isn’t exact, the principle is… #-ad_banner-#You see, the voting machine is a popularity contest based on beliefs that may or may not be true. Read More

Benjamin Graham, the father of value investing, is quoted as saying, “in the short term, the market is a voting machine, but in the long term, it is a weighing machine.” Now, the quote doesn’t appear in Graham’s famous book, The Intelligent Investor. But according to Graham’s star pupil, Warren Buffet, Graham taught the concept to students at Columbia University. And given Buffet’s unimpeachable character, the statement stands on its own. But even if the quote isn’t exact, the principle is… #-ad_banner-#You see, the voting machine is a popularity contest based on beliefs that may or may not be true. Our recent presidential election is a great example of how other people’s perceptions influence our decisions. But at the end of the day, they’re mostly a set of opinions and expectations. This makes them untrustworthy. In contrast, Graham’s weighing machine implies that investment decisions are objective decisions — based solely on data gleaned from company reports and financials. This leads investors to use things like earnings reports to make decisions. And earnings are the single best predictor of stock performance. Today, we’re going to heed Graham’s advice and go against the perceptions of the crowd with generic drugmaker TEVA Pharmaceuticals… Read More

Everyone grew up hearing the story of the shepherd boy who frequently lied to the local townspeople about the threat of wolves on his flock. Time after time, the people rushed to his aid after hearing shouts that wolves were threatening his sheep. However, each time, the townspeople found the shepherd had lied about the presence of wolves. #-ad_banner-#Eventually, the townspeople become immune to the boy’s calls. When real wolves appeared and the boy cried for help, the people of the town assumed the cries were another hoax and ignored him. Later the townspeople realized the cries were real, but… Read More

Everyone grew up hearing the story of the shepherd boy who frequently lied to the local townspeople about the threat of wolves on his flock. Time after time, the people rushed to his aid after hearing shouts that wolves were threatening his sheep. However, each time, the townspeople found the shepherd had lied about the presence of wolves. #-ad_banner-#Eventually, the townspeople become immune to the boy’s calls. When real wolves appeared and the boy cried for help, the people of the town assumed the cries were another hoax and ignored him. Later the townspeople realized the cries were real, but it was too late. The wolves killed the sheep, and in one version of the story, the shepherd, too. Centuries later, we have a similar refrain… Aesop’s story of “The Boy Who Cried Wolf” reminds me of Michael Hartnett’s message from five years ago. Mr. Hartnett is the chief investment strategist for Bank of America Merrill Lynch who famously coined the term the “great rotation.” If you’re not familiar with the term, Mr. Hartnett believed that a great rotation out of bonds and into stocks was just beginning in 2011. He sounded the alarm. But it wasn’t true. Since then,… Read More

During the time of the Pharaohs, Egypt possessed an advanced understanding of medicine. The Greek historian Herodotus described the Egyptians as “the healthiest of all men, next to the Libyans.” This wasn’t an accident.  #-ad_banner-#In his history, The Persian Wars, Herodotus wrote, “the practice of medicine is so specialized among them that each physician is a healer of one disease and no more. All the country is full of physicians, some of the eye, some of the teeth, some of what pertains to the belly, and some of the hidden diseases.” It was a hidden disease that troubled Egyptian doctors… Read More

During the time of the Pharaohs, Egypt possessed an advanced understanding of medicine. The Greek historian Herodotus described the Egyptians as “the healthiest of all men, next to the Libyans.” This wasn’t an accident.  #-ad_banner-#In his history, The Persian Wars, Herodotus wrote, “the practice of medicine is so specialized among them that each physician is a healer of one disease and no more. All the country is full of physicians, some of the eye, some of the teeth, some of what pertains to the belly, and some of the hidden diseases.” It was a hidden disease that troubled Egyptian doctors the most. An Egyptian manuscript dated to 1500 B.C. described a condition as “too great emptying of the urine.” This puzzled doctors. About this same time, doctors in India were confronted with a similar condition they called madhumeha, or “honey urine.” They called it honey urine because some people’s urine attracted ants. Fast forward 3,500 years and the existence of diabetes mellitus is still with us.  Only now, it’s much worse… That’s because diabetes afflicts more than 430 million people worldwide. That’s a 300% increase from 1980 levels. And that number is expected to grow to 645 million by 2040. Read More