Monday, January 17, 2011

Smarter Than The Street

Street cred goes a long way in establishing a reputation in today's world whether you are on Main Street, Wall Street, or, in some barrio or ghetto. In investing circles, Gary Kaminsky carries a lot of weight, not only for his success as a billion dollar money manager and director at Neuberger Berman, but also because he parlayed a series of guest spots on CNBC into a co-host position on the network with their very influential "Strategy Session" show airing at noon each weekday. Recently, McGraw Hill published Gary's first book "Smarter Than The Street" which gives his take on not only how retail investors should position their portfolios and select stocks, but also some commentary on overall market direction for the next decade.

Kaminsky states right at the beginning of the book that: "One of the key assumptions of this book is that the next ten years will resemble the last ten.". He backs up his thesis with statistics from author Vitaliy Katenelson and makes a compelling argument for a range bound market where: "Stocks will go up, and stocks will go down. There will be periods of exuberance...and similarly periods in which it looks as if the world is coming to an end.". He feels that investors need to be nimble, but not overly trigger happy when it comes to buying and selling securities because he is not a trader, but an investor, and believes that you should hold stocks for a 3-5 year period. This is especially true if you are investing in companies with good organic growth, which he recommends.

In further discussing portfolio management, Kaminsky also believes that, "There is absolutely no evidence that a 'buy and hold' strategy will work in the future.". This may sound contradictory to his previous advice to keep securities for 3-5 year durations, but later in the book, he goes on to say: "The riskiest form of investing is not buying and holding - it's buying and forgetting.". What Mr. Kaminsky means by that last sentence is that as a retail investor, you need to take charge of your portfolio and do your due diligence if you wish to beat Wall Street money managers which he contends is very possible throughout his book.

According to Mr. Kaminsky, individual investors have an edge because they aren't locked in to any specific investing style the way that most mutual fund managers are, so you don't have to be just investing in large caps, or small caps or a particular theme or sector. You can also be more flexible in buying or selling a position than an institution investor because you don't have to wait for a few weeks to purchase or liquidate a large block of shares. He suggests 3-5 hours a week of doing your homework on the Internet of not only the stocks you own, but the overall condition of the economy. He also talks a lot about portfolio structure and utilizes the concentrated portfolio approach where you own no more than 20-30 securities. Anything less and you increase the risk in your holdings, anything more and you become a closet indexer which doesn't bode well for beating the market.

Throughout the process of reading "Smarter Than The Street", I was in lock step agreement with Kaminsky as each chapter unfolded. However, not all investing books are created equal, and as an experienced investor, I didn't discover anything new while reading this book. Therefore, if you are an experienced investor, I wouldn't recommend it because other authors have covered much of the same material in other investing publications. If you are a beginning investor, this would be a terrific place to start for some overall knowledge of macroeconomic conditions, the stock selection process and portfolio management.