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After what has been a fairly successful start on blogger we are moving to a new hosting service at www.buyingvalue.com I hope you will all follow us there and enjoy the new services and features available!

A Better Canadian Stock Screener

As readers of my blog know I have been looking for some time for a good Canadian screener, specifically a screener that allows for Graham style analysis. After finding one earlier this year that ran as an application I set my sights on trying to find one that runs as a web application. Well little did I realize but there was one right under my nose.

Zacks has been around for a while and has recently released a new beta of there free stock screener.
I am pleased to report that Zacks has the ability to create screeners that you can point at TSX.

For info on the graham criteria have a look at my earlier post.
The screener can be found here, enjoy: Zacks Screener


The author of this article did not receive any payment for this recommendation.

Everything is amazing, nobody is happy

Every once in a while it is good to put things in perspective. Here is a bit of a laugh but there is a good point in there too.



http://www.youtube.com/watch?v=jETv3NURwLc

The Truth about stock market returns

If you had $100 to invest in the DOW in 1928 you would have $3128.52 today- what a deal right? Wrong, let me tell you why.


I've been to several financial offices where they proudly display the graph of the DOW since 1928. The desired effect being that we are to think that the market always goes up, you just have to be patient. I, like many people, didn't appreciate just how patient one has to be though until I examined the returns in more detail.

Lets work through the numbers. If I had invested $100 in an DOW index fund in 1928 as the market was starting to fall apart (yes I know they didn't exist but it serves our purpose well and I think you understand the intent) and left it there I would have had $3128.52 Feb 2, 2009. But who can wait 80 years for a return- not me, that is more than a lifetime.

The mind naturally assumes though that if I waited half of that time I should have approximately (give or take 10%) half of that return so somewhere around $1562.76- that is a pretty good return for 40 years. So does that hold up?

Sadly no, you would have a paltry $339.26 40 years after the initial investment, nowhere near our goal. But, you might say, 300% return in 40 years is still a pretty good return, not as good as what we see at 80 but I still like it. In the big picture though a 300% return over 40 years is really not that great- that is a long time to wait for 300%. So we hack it down again, could I get 150% in 20 years, I am patient enough to wait 20 years for 150% so how about $300 in 1948? Well how would you feel about $69.31 instead?

The reality of it is compound interest can help you or really hurt you. 10% return one year and a 5% loss the next year is not the same as two 5% gains.

Investment	Y1 ROR	Y1 Net	Y2 ROR	Y2 Net(Compound)
$10	10%	$11.00	-5%	$10.45
$10	5%	$10.50	5%	$11.03

Interestingly enough if instead of investing our money in the market in 1928 we had found a stable bank that could return us a paltry .31% on our investment compounded monthly, or 3.72% per year we would have a higher return on our investment from the bank account than the DOW almost every month until February 1987, some 59 years after the initial investment.

The point I am trying to make is simply this, the bad months can do incredible damage to your portfolio in the long run. Be wary of investment systems that advertise an average made up of huge gains, and substantial losses. Those losses may hurt you more than you might first think. Stability and consistency of returns wins the race in the long run.

Buffett's Biggest Mistake

This article originally appeared on The Div-Net Feb8 2009
Much has been written about the success of Warren Buffett, but little on his failures. I think a great deal can be learned by analyzing the failures of successful people. By studying these failures hopefully we can avoid them ourselves.

The Deal

Buffett purchased preferred shares in US Airways in the early 1990's, and later remarked that this was one of his biggest mistakes. Now before getting to far into this it is worthwhile to comment that Buffett did in fact end up making a profit on his holdings of US Airways but Buffett certainly cannot claim credit for this. In his own words:

“Two changes at the company coincided with its remarkable rebound: 1) Charlie and I left the board of directors and 2) Stephen Wolf became CEO. Fortunately for our egos, the second event was the key...” Warren Buffett, Bershire Hathaway Letter 1997.

A few years after purchasing Buffett had pretty much written off the investment and had tried to sell out of the stock numerous times at a substantial discount. The investment had essentially become out of control and Buffett wanted out. Luckily he wasn't able to sell until sometime later when the company had started to rise again.

What Went Wrong?

So what did Buffett do so wrong? Lets look at the principals that Buffett uses for analyzing an investment:

“Charlie and I look for companies that have a) a business we understand; b)favorable long term economics c)able and trust worthy management d) a sensible price tag.” Berkshire Letter to Shareholders 2007

Understandable Business

Looking from the outside the airline business is fairly easy to understand. Money is made by moving customers and packages from one location to another. But behind the scenes the airline business is a huge gamble with 183 airlines having gone bankrupt since 1978. So much of the business is frozen in the assets in the business that any turn in the economy can destroy it over night.

Sustainable Competitive Advantage

Part of the reason that so many airlines have gone out of business is that consumer's are essentially unable to determine the difference between one airline and another. The planes are all the same make and model, you leave from the same airports, the pilots are all trained by the same schools and military, the food is very similar and they show the same movies. For the consumer in most cases it comes down to a question of price- who can get me there cheaper. Did US Airways have a way to keep their costs under any better control than their competition? No, unfortunately they shared several of the same unions as other airlines and were being charged the same airport fees as others also. It is difficult then to see the sustainable competitive advantage that US Airways had.

Able & Trustworthy Managers

Within a year of purchasing the preferred shares in United Airways the CEO Ed Colodny had been replaced and the stock price had gone into a deep dive. While Buffett still remarks that he has the utmost respect for Colodny he obviously could not get the job done and was on his way out as Buffett was coming in. In terms of Able then US Airways appears to fail this criteria.

Bargain Price

A bargain is only a bargain if you get something of value. While the preferred divided Buffett was to receive was an appealing 9.25% he was unable to collect that for 2 years. Several other ratios were also appealing; if the market teaches value investors anything its that sometimes things appear cheap because they, in fact, garbage.

Analysis Conclusion

Buffett failed to enforce his own rules of selection and got wrapped up in a bad decision. As he put it:

“I liked and admired Ed Colodny, the company's then-CEO, and I still do. But my analysis of USAir's business was both superficial and wrong. I was so beguiled by the company's long history of profitable operations, and by the protection that ownership of a senior security seemingly offered me, that I overlooked the crucial point: USAir's revenues would increasingly feel the effects of an unregulated, fiercely-competitive market whereas its cost structure was a holdover from the days when regulation protected profits. These costs, if left unchecked, portended disaster, however reassuring the airline's past record might be.” 1996 Letter to Shareholders, Warren Buffett

What Can We All Learn From This?

Buffett has a good system, when he settles on an investment choice he writes down the reasons that he feels it is a good investment. If he can't persuade himself to buy based entirely on what he writes down on the paper then he walks. This would have been one of those times he should have looked more carefully at the paper.

We can all learn from this mistake; do your homework and, most importantly, stick to your principals. If you have rules for investments make sure you are sticking to them. What went wrong here then is that Buffett stopped using his rules and veered off the track- don't make the same mistake in your investing.