Click on each books cover to purchase, or for more information.

 The Battle for Investment Survival by Gerald M. Loeb

In The Battle for Investment Survival, the turf is Wall Street, the goal is to preserve your capital at all costs, and to win is to "make a killing without being killed." This memorable classic, originally written in 1935, offers a fresh perspective on investing from times past. The Battle for Investment Survival treats investors to a straightforward account of how to profit-and how to avoid profit loss-in what Loeb would describe as the constant tug-of-war between rising and falling markets.

How I made $2,000,000 in the Stock Market by Nicolas Darvas

How did a world-famous dancer with no knowledge of the stock market, or of finance in general, make 2 million dollars in the stock market in 18 months starting with only $10,000? Darvas is legendary, and with good reason. Find out why.

 One Up on Wall Street by Peter Lynch

 The authors argue that average investors can beat Wall Street professionals by using the information gleaned from everyday life. "Investors will be able to put the shrewd insights presented to good use," remarked PW. 200,000 first printing. (Reed Business Information, Inc)

Reminiscences of a Stock Operator by Edwin Lefevre

Reminiscences of a Stock Operator is the thinly disguised biography of Jesse Livermore, a remarkable character who first started speculating in New England bucket shops at the turn of the century. Livermore, who was banned from these shady operations because of his winning ways, soon moved to Wall Street where he made and lost his fortune several times over. What makes this book so valuable are the observations that Lefèvre records about investing, speculating, and the nature of the market itself.

How to Make Money in Stocks by William J. O'Neil

The techniques in How to Make Money in Stocks are hardly revolutionary, but therein lies their strength, as O'Neil claims his is "a winning system in good times or bad." Investors interested in Net stocks might be disappointed--the author's first rule is that a company must show a pattern of growing profits, which disqualifies many dot coms. O'Neil's approach to stocks is, above all, rational, and he pays little heed to market hype.

 *This is a repost of the blog article originally posted in 2009

If you have any questions, please feel free to email bfanderson@bfanderson.com

 Florida's unfunded pension liability would double if the assumed investment return were lowered from 7.75% to 7% and quintuple if it were cut 5%. The fund has returned 2.6% annually over the last 10 years, 9.6% over the last 30 years. Click the graph below to view:

Source: DaveManuel.com & U.S. Census Bureau

I recently ran across this article regarding the Performance of Warren Buffett's Berkshire Hathaway Class shares and wanted to share it with you. Find the full article by clicking here.

Shares of Warren Buffett's Berkshire Hathaway (Class A) have finished the year with a gain of 21.4 percent for 2010, far outperforming the benchmark S&P's 12.8 percent gain, excluding dividends.(We're using Class A to stay consistent with past years, despite the Class B split. The B shares are up 21.9 percent this year.)

The win reverses Buffett's defeat in 2009, when the S&P's 23.5 percent advance clobbered Berkshire's 2.7 percent gain.

Berkshire has beaten the S&P in four of the past five years, and six of the past ten years.

On the Record: B.F. ‘Andy’ Anderson 

By David Jacobs
Monday, August 9, 2010

B.F. “Andy” Anderson first learned about investing during after-school sessions with his grandfather, who, after a little TV and a bourbon and 7UP, liked to peruse the Wall Street Journal stock page. Anderson’s first buy was Gulf States Utilities, which his grandfather liked because it paid a dividend. He lost every penny. Call that his first lesson: Look for growth, not dividends.
Anderson, president/senior portfolio manager of B.F. Anderson & Company, a private portfolio management company on South Acadian Thruway, has had his share of good and bad years over his stock-picking career. He bought Amazon.com as soon as it went public and rode tech stocks to huge years in the late 1990s. Conversely, he pulled out of the market completely and went to cash in 2000 and 2008. He says he was essentially flat over the past decade.

But since its inception in 1995, he reports the portfolio he manages has returned 8.44% to investors after fees. That compares to a 7.56% increase in the Dow Jones Industrial Average and a 6.21% rise in the S&P 500. Nothing to write home about, but more than enough of a profit to show he knows what he’s doing, he says. For 2009, Money Manager Review listed him 13th nationally among multi-cap growth managers.

Solid returns are nice, but what he’s really searching for is the next superstar company that could make Anderson and his clients, who invest a minimum of $500,000 each, truly wealthy. He’s hunting a “black swan,” a term popularized by writer Nassim Taleb to describe rare, hard-to-predict, world-changing events. Catching that swan takes luck, but he says one must also be ready to grab that once-in-a-lifetime opportunity when it comes along.

1. You warn against being highly diversified. Why?

We’re of the opinion that diversification is for amateurs. If you study people like Warren Buffett, you’re going to find that they made their money from concentration of their portfolios. You could have had a mutual fund that owned Walmart back in 1971, but if you didn’t have a concentrated position in it, you really didn’t make any money. You’re much better off trying to find that next Walmart or that next Coca-Cola than putting your money in 10 different mutual funds, because everything’s so damn watered down. How many investments do you need to make in order to eliminate as much risk as possible? It’s about 16.
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2. Why stocks?

Historically, stocks are where the action is. The beauty of the stock market is you’ve got liquidity. If you screw up, you can get out of that investment within 24 hours. We try not to screw up, but if we make a mistake, we’re out within 24 hours. If the [mistake is] going to hit the fan, it’s going to hit it within 24 hours.

3. When do you dump a stock?

Usually, if the earnings disappoint. We have to bite our nails every earnings season. If we’re looking at a company that’s projected to do a billion dollars in revenues, and they come in at $900 million, we’re going to dump them because something’s wrong. We can always buy it back. Let’s say we’re looking for earnings to be up 75%, and they come in at 50%. Something’s not right. We don’t want any problems. We only invest in companies with zero problems.

4. You’re not a buy-low, sell-high kind of guy.

Absolutely not. Buffett bought GEICO and Coca-Cola because the companies were making a ton of money. He didn’t buy them because their stock price was low. He bought them because they were profitable. We’re doing the same thing, looking at return on equity, quarterly earnings, sales growth, things like that. Common sense.

5. But you want companies with room to grow. Take Apple, which you’re very high on. It’s one of the most hyped companies in the world; it’s huge, more than 800 mutual funds own a piece. How do you know it still has upside?

My biggest concern about Apple is if something happens to Steve Jobs. The guy’s obviously a genius. I think 90% of the time, the answer to this problem is to identify those people, and I think the only way you can identify them is through the numbers. As long as they continue to deliver the earnings and the sales, sky’s the limit.

6. How did you hit No. 1 with Money Manager Review after 2007?

We found a company called First Solar. We bought it at $30, right after they went public, and it went to $300. We were up 68% in 2007. 2007 was our “black swan” event. Track record means absolutely nothing because it’s all history. In fact, some studies say you’re better off hiring managers that have a bad track record because it comes back around. The point of a track record is, this guy knows what he’s doing. Use it as a general guideline.

7. Why do you say we’re in the early stages of a bull market?

We’re following five indexes. The first one is the Nasdaq. We have to get at least three out of five of these above the lower moving average, and the lower moving average has to turn up. It really hasn’t turned up yet, but it’s moving sideways, and we know as long as it holds up around here [points to a chart on his iMac], it’s going to turn up. We also look at the Merrill Lynch technology stocks. Technology stocks are the key to this country. When business spending picks up, they’re buying computers. Here’s the New York composite. Here are the small-cap stocks. Here’s the S&P 500. It looks like the tides are coming in.

8. So you’re not predicting anything. You’re following the trends, and the key is to be in on a trend early, before the masses jump back in.

Absolutely.

 9. Trying to find the next Walmart is a pretty low-percentage play. An investor could do everything right and still never hit that home run.

Right. This is a battle, and it’s not about investment success. It’s about survival. You only live once. Do you want to spend your life not ever having the hope of having a black swan event? I want to at least have the possibility of it. If I put my money in mutual funds, I’m putting the white flag up. You run the risks, and you survive long enough so that when the black swan event hits, which is the bull market, you’re there. You’ve got to put yourself in the position to be lucky. I’m at the plate, and I’ve got my bat.

I ran across this article by our friends at Cabot Wealth Advisory and thought it was worth sharing. Even though it was written several years ago its points remain relevant to current market conditions. Please click (here) to read the full article.

Is the 2009 bull market over - after less than a year? Given today's severe reaction to news from across the pond, it may look that way to many investors. Investors' worries about the global economy and sovereign debt punished stocks today, causing the Dow to briefly dip below 10,000 for its worst day since last April. The Dow Average (INDU 10,002, -2.61%) ended down 268.37 points, its worst one-day point slide since April 20, 2009. While the news today deserves serious consideration, we don't believe that this is necessarily the beginning of a long term trend.

For the past couple of weeks many analysts have been saying that this bull market looks "long in the tooth" (see the Wall Street Journal's front-page Money section article on Monday: "Bull Looks Long in the Tooth: After 64% Run-up, Biggest Gains are Likely Past.").

I respectfully and cautiously disagree. It seems that many of the bearish analysts may be forgetting that this is a market of stocks - not just a stock market. The bare indexes can mask a major turning point in the rotation from "junk stocks" into higher-quality stocks.

For instance, last summer, I pointed out how AIG rose 245% in August alone, on massive volume. So did Fannie Mae (+233%) and Freddie Mac (+269%). They're still way above their 2009 lows, despite their technically bankrupt status - on federal life-support. Meanwhile, most top-quality stocks have languished. In fact, fourth-quarter earnings have largely been positive, but all the recent bad news is distracting attention from the fundamental story regarding earnings growth for most top-quality stocks.

Click on chart to expand or print

Click on chart to expand or print

A close look at the universe of stocks in the S&P 500 or Russell 2000 reveals in rather stark terms that the main source of the recent 10-month 70% rise in the major indexes has been in low-end, low-priced, low-quality "crap stocks" at the bottom of the food chain. As my staff's research shows (see attached charts), investors have poured money into these lower-priced (often single-digit) stocks, hoping for the big kill - and they did well last year - but now these inferior stocks are stagnating or falling - as they well should.

Click on chart to expand or print

Ned Davis Research shows, in the attached chart, that this kind of divergence is normal in the early stages of a bull market. Low-quality stocks "start fast but flame out." Then, higher-quality material takes off like a second-stage rocket, rising in a strong and steady arc. While many market analysts fret over the fading fortunes of yesterday's favorites, they're missing the opportunity to rotate into these high-quality stocks.

Since investors seem to be in a "show-me" state now, the attached charts would be a first step in showing them the potential growth for high-quality stocks in the second-stage of the current (quite young) bull market. For investors worried about getting into stocks "late in the bull cycle" when "all the biggest gains are behind us," perhaps these charts will help, as part of a portfolio check-up with their financial advisor.

by Michael Cintolo

The beginning of a new year is a natural time to clear your mental decks and remind yourself of the basic principles of successful investing.  Don't worry:  I'm not going to spend two pages detailing my system, which I know would cause more than a few glazed eyeballs.

When comparing some key characteristics of the Russell 1000 Growth Index against the Russell 1000 Value Index, the growth style holds many significant advantages. When comparing some key characteristics of the Russell 1000 Growth Index against the Russell 1000 Value Index, the growth style holds many significant advantages.

Please click on the image below for a full size printable pdf version of the chart.

What is your current market outlook?

My current market outlook is generally bullish, although some corrective activity (a 5% to 10%-type market decline) is always a possibility after an advance like we've enjoyed since March.  Still, I think what's more important is the bigger picture, and on that front, I am very bullish.

The reason deals with market history.  Back in March 2000, investor perception was literally as high as it's ever going to be--everyone believed the Internet was changing the world, valuations didn't matter anymore, and for 20 years, the market only suffered brief, sharp bear markets (nothing prolonged in nature).  Every investor thought 10% per year was poppycock--15% to 20% a year was doable.  And many ordinary citizens were leaving jobs to be daytraders.  Crazy!

Fast-forward to March 2009 ... exactly nine years later.  At that point, I believe we witnessed the complete flip-flop in perception.  Investors were not only worried and pessimistic, they feared for the future of our financial system; never before had the market fallen so far, so fast, and never before had so many big firms gone belly-up.  It was pure panic.

In my opinion, that March 2009 period will mark a major, major low for the market--I'm not big on predicting the future, but it wouldn't surprise me if the Dow never again fell to the mid-6,000s like it did in March.

Thus, while corrections can come and go, after more than 10 years of the market making basically no progress, I believe the worst has passed and we're in a bull market of unknown duration.

Ned Davis Research recently updated a business outlook survey of chief financial officers that was conducted by Duke University and CFO Magazine.  Interestingly, compared to last quarter, the net number of CFOs who were optimistic as to the outlook for the U.S. economy stood at 44.3%.  This is a level not seen since 2004.  In addition, nearly a third of CFOs are optimistic about the outlook for their own company compared to the prior quarter.  These may be additional signs that perhaps the worst of the downturn is behind us.

Please click on the image below for a full size printable pdf version of the chart.

by Gary Alexander of Navellier & Associates

The average investor too often gets it wrong.  You can’t blame the media, the government or Wall Street.  We have to examine our own tendency toward fear and greed.  We sell near bottoms, out of fear, and we load up on leverage near the tops, out of greed. The only way to overcome our baser emotions, I fear, is to think instead of react – to discipline our minds to take the road less traveled by most investors.

DALBAR, the Boston-based research firm, goes to a great deal of trouble to measure how we investors behave. The latest annual DALBAR study shows that – over the past 20 years, ending December 31, 2008 – the S&P 500 returned an average 8.35% per year, but the average equity fund investor netted just 1.87% a year – far less than the rate of inflation.  You can’t blame that on equity fund managers, who came close to matching the S&P 500. Sub-par performance for the average investor is mostly due to bad timing – selling near bottoms and buying near tops.  Bond investors did even worse (0.77% per year), far below the average bond yields of 1989-2008. Last year, bond fund investors incredibly lost 11.7% vs. a gain of 5.2% for the Barclays Aggregate Bond Index.  Investors under-performed the bond benchmark by a dismal 17 points.

After releasing the report, Louis B. Harvey, president of DALBAR, said that “investors generally don’t know when to sell.” DALBAR’s detailed annual survey, available on their Web site, adds: “When the going gets tough, investors panic… and withdraw their assets at the worst possible time.”

Investing Isn’t Rocket Science – It’s Harder than That

My father helped put a man on the moon 40 years ago.  He was a Boeing executive in charge of part of the team building the powerful Saturn V moon rocket in Huntsville (Alabama) and New Orleans during the mid-1960s.  When we both got interested in investing in the late 1960s, we read all we could find out about how to invest, expecting the financial world to be as predictable as the flight of the moon rocket.

In the end, I told dad, “Investing isn’t rocket science – it’s harder than that!” With a rocket, you have the impersonal laws of physics telling you exactly what will happen, without fail.  You can even build in redundant systems to solve any conceivable component failure. But with investing, you’re dealing with a mob, and the mob is nearly always wrong.  They will take you on a roller coaster ride, and it takes a very disciplined investor to stay the course and refuse to be swayed by the mob’s manic-depressive behavior.

Example: Panic Selling and Buying of Financial Stocks

The stock market is a manic crowd.  After bidding up financial stocks to unrealistic highs in 2007, the mob crucified those same stocks in 2008 and up to March’s market bottom. Then, they piled back in!

Even the better-run banks and the Financial Select SPDR (XLF) were caught up in this mad whiplash:

Obviously, good banks don’t deserve an 80% haircut (mob selling), and sick banks don’t deserve a 600% bullish panic, but this is the nature of mob behavior when it comes to a sector that runs in or out of favor.

AAII Sentiment Poll – a Contrarian Indicator

Every week, the American Association for Institutional Investors asks their members – among the most intelligent and well-informed private investors in America – to complete the following sentence: “I feel that the direction of the stock market over the next six months will be...” Bearish, Neutral or Bullish.

Over the years, AAII investors have averaged a slightly bullish bias: 39% bullish, 31% neutral and 30% bearish.  In general, the market rises over the decades, so their bullish bias is understandable. But when the tally of bulls doubles the bears, or vice versa, the market usually moves in the OPPOSITE direction.

During 2009, the bears dominated in March and July. Both months were excellent buying opportunities:

(1) In early March 2009, the AAII bearish bias reached its peak: 58% bears to 23% bulls (19% neutral). In the six months since the lows of March 6-9, the S&P 500 catapulted up over 55%.

(2) On July 9, there were 55% bears and 28% bulls (17% neutral) in the AAII poll.  Since setting its early-summer lows on July 8, the S&P 500 is up over 20% since then.

Unfortunately, this is not an isolated phenomenon.  Here are the AAII poll readings during the peak of the tech-bubble of early 2000, followed by the bottom of the market in October of 2002:

Where are we now?  For the poll taken during the week of September 2-9, the AAII membership is still net bearish: 44% bears, 37% bulls and 19% neutral.  Since their historic average is net 9% bull, this net 7% bearish stance is 16 points to the negative side of the historical average, so that’s good news for bulls.

This Week’s Poll: Let’s Beat the Odds, My Friends

In the last two weeks, we’ve polled you on the shape of the coming recovery (the “W” won), and the likelihood of a crash in September or October (most of you thought the market would be relatively flat). 

This week, let’s see if we can do better than the AAII poll.  I’ll ask their identical question and then check back with you here in six months to see who was right.  Here’s the question (it couldn’t be simpler):

Yesterday (September 1) the shoe started to fall, with the markets down sharply and not surprisingly these same stocks were leading the way down.  I personally think this is a good thing.  We do not need these stocks leading our market recovery.  Hopefully, once the rally of these low quality stocks is over we can get back to the business of real returns.  We need high quality stocks that are capable of producing long-term year over year results both fundamentally and technically.  We'll see what happens.  Perhaps this is the start of just that.

Below is an excerpt of a report from Navellier and Associates which hints on this exact point and ironically was produced one day before the market dropped sharply. 

Monday, August 31, 2009

Click each chart to open a full sized version.

In a more recent discussion Matthew and I came to the conclusion that it truly takes a leader to invest when sentiment is so pessimistic, when the stock market is a bit difficult and everyone is sitting on the sidelines.  By definition, to lead is to go at the head of or in advance of… proceed first in.

I feel that it really does take a leader to step up to the plate here.  Most people follow the herd mentality and only do things when they are apparent.  In the world of investing, if you wait until something is apparent, you are usually too late.  If you do not take risks before the market accelerates you will not make the big bucks.  Instead you will be faced with mediocre results or at worst, come in at the top only to be subjected to the downside.

In our discussion we talked about how leaders really are few and far between.   This is why we have so few new clients during market bottoms and so many new clients at market tops.  It is hard to take that leap of faith especially during difficult times but occasionally some people do step up.  Of course there are risks and nothing is guaranteed but we have noticed from experience that the people who invest during difficult times typically are the ones who seem to prosper.

Not only do I find it amazing that people are fooled by the word guaranteed, I find it extremely interesting that in light of the Madoff and Standford scandals (among many other things) people are still buying into the hype and making the same mistakes.  When will we learn our lesson?  Perhaps we never will.

I am also seeing a lot of people trying to pick one or two stocks that have been beat down to pennies.  I call this bottom fishing or “get rich quick” deals.  Where is the diversification? There is a reason these stocks have been beaten down so badly; they have fundamental problems. Wal-Mart’s stock did not increase dramatically by decreasing earnings, high debt, lower sales, etc.  I see a lot of risk on this approach and I am baffled so many people try it.

It seems to me that the majority of people are taking a “guaranteed” approach or trying to find “get rich quick” deals. The truth is, these deals aren’t guaranteed at all. Both of these scenarios are extremely risky ventures; and in my experience the only people I’ve known to “lose everything” have done so by being lured into them.

In my position, it is frustrating to watch people take the bait. I have adapted my approach to investing using personal experience, reading books from people who have actually made money in the stock market, and by following a disciplined, long-term strategy.   I have yet to find anyone who has written a book explaining how they made a bunch of money from one of these so-called “get rich quick” schemes.

Yes we are very satisfied with the performance to say the least and we feel this upward trend will continue for quite some time.  We are not going to get ahead of ourselves but we do feel the worst is over. 

Could it get any better?? We think it will and this could be just the beginning.  Time will tell.   

We are not going to be unrealistic so we are taking it day by day.  We are prepared for a pullback each and everyday and we are overly excited when the market goes up. Right now the bulls are beating the bears.  Let’s hope it stays that way for quite some time!!

Missing Milton.pdf

Jim Cramer responded in a mainstreet.com article and then appeared on The Daily Show to settle the dispute. Below is The Daily Show interview in its entirety:

One of our favorite stock traders and authors, Jesse Livermore, has two quotes that we feel are appropriate here. 

First, Livermore says, “Markets are never wrong; opinions are.”

Secondly he says, “There is nothing new in Wall Street….Whatever happens in the stock market today has happened before and will happen again.”

We do not know what is going to happen with the stock market.  Sure we have our opinions but that’s all they are.  Will it go up?  Maybe.  Will it go down?  Maybe.  We instead have chosen to listen to the market and let it tell its own story. 

We believe in identifying the trend and following it.  Right now the trend is down but that doesn’t mean it always will be.  Historically, the market has always rebounded and prospered and we choose to believe this will happen again.  With the onset of so many negative opinions we are optimistic and patient and we feel, as contrarians, things will get better. 

Keep your head up!!