Value Line

I have been reading Value Line for twenty years now and have been a subscriber of their service for the past decade. From the late 1980's to late 1990's, I didn't have enough money for the subscription and would go to the public library to read their reports and because most libraries carry Value Line, that option is still there for you, too. If you are not familiar with Value Line, it is a collection of research reports on 1,700 companies that are updated on a quarterly basis. Peter Lynch calls it "the next best thing to having your own private security analyst.". Warren Buffett says of Value Line: "I don't know any other system that's as good.". In his book One Up on Wall Street, Peter Lynch gives a pretty good description of what Value Line can do for you: "Value Line is easier to read than a balance sheet...It tells you about cash and debt, summarizes the long-term record so you can see what happened during the last recession, whether earnings are on the upswing, whether dividends have always been paid, etc. Finally, it rates companies on a simple scale of 1 to 5, giving you a rough idea of a company's ability to withstand adversity.".

Since the early 1930's Value Line has been publishing their research reports and they read like Cliff Notes combining the company's 10-K , 10-Qs and sell side analyst reports all bundled up in one nice package. Companies are broken up into industry segments like pharmaceuticals, biotechnology and medical devices and industry reports are updated quarterly along with the individual security summaries. Although I am currently investing in ETFs, I read the reports religiously to keep my watch lists updated in anticipation of getting back into the market at some juncture in the future.

Value Line enabled me to make a considerable amount of money before and after the dot com bust of the late 1990's and if you are interested in sampling some of their products, just go to their Web site and you will be able to download free Value Line reports of all 30 stocks in the Dow Jones Industrial Average. However, I want to state explicitly that although I made some serious coin with them, I also lost a considerable amount in the short run, too, because they didn't predict the dot com bust or the current real estate fiasco. Value Line is very good at giving approximate price appreciations for five year stretches, but they are not good market timers. As a long-term investor I have stuck with them because you can't fly on one wing. I need somebody to shine a light for me.

Sometimes Value Line gets a knock that they concentrate too much on the larger cap Blue Chip stocks, but that's a fallacy. Yes, they do review a large selection of Blue Chips, but they also have a sizable offering of mid cap and small cap stocks in their main investment survey. If you are interested in mid and small cap stocks, Value Line also has a service called The Value Line Small and Mid Cap Edition, but I don't recommend buying this because they don't provide enough research in these reports. What The Value Line Small and Mid Cap Edition gives you for a considerable sum, you can obtain on Yahoo Finance for free. If you are a short-term trader and are interested in the smaller high fliers, Value Line may not be your best bet, but Investor's Business Daily will do the trick.

Storming the Gate

CNBC's Matt Nesto recently reported the latest acronym to hit Wall Street is DOG: dollar, oil, gold - these are the main subjects in Charles Goyette's new book The Dollar Meltdown along with his strong stance on the end of the American Empire. Like Robert Prechter who I wrote about a few weeks ago, Goyette is a disciple of Ludwig von Mises and the Austrian School of economics, but with a gaping philosophical difference. Prechter believes we are headed for a depression and will be in a deflationary period while Goyette presumes we are heading for hyperinflation and the end of the world as we know it with the collapse of the worldwide system of fiat currency. Not only does Goyette assume a return to the gold standard once the current financial system implodes, but also seeks to abolish the Federal Reserve and world's Central Banks.

This annihilation of the World Order is coming sooner than later according to Goyette and he strongly encourages investors to liquidate their holdings in dollars and stocks and bonds and invest in gold bullion, silver coins, oil ETFs and commodity ETFs. He talks specifically about Ludwig von Mises' dictum of "the crack-up boom" when people realize their paper money isn't worth anything and the price of gold can triple or quadruple within days or weeks. Even at today's spot price of gold at roughly $1,200 an ounce, Goyette believes it is still undervalued when you take history into consideration and it would have to climb to $2,500 an ounce in inflation adjusted terms to reach the price it obtained a generation ago. His solution is to purchase a core position in physical gold bullion coins, preferably the U.S. Gold Eagle, the Canadian Maple Leaf or South African Krugerrand.

I agree with Goyette that as Americans, we have accumulated too much debt on both personal and governmental levels and maybe you should keep some gold coins in your safe to bribe the guards at the border, but that's about as far as it goes. Most of the ideas in the book could have been written by the Al-Qaeada public relations department because quite frankly, he doesn't discuss the societal ramifications of what would happen if indeed we went into hyperinflation and the world economy collapsed. If what Goyette says is true and does pan out, there will be no winners and believe me, you won't be able to keep your gold. There will be martial law and if the government doesn't confiscate your bullion, then some band of marauders will take it from you by force.

Besides the accumulation of gold (silver coins, too), The Dollar Meltdown suggests appropriating a large portion of you finances in commodity ETFs, specifically oil and agriculture. The problem with this thesis is that if there is a collapse of the financial system, most brokerage houses and banks will probably go bust too, making your investments worthless. If you believe in the apocalyptic future, it's better to stock up with gold bullion and a cache of arms. We live in the era of the Jetsons, not the Flintstones, and to suggest going back to a finacial system that was utilized over one hundred years ago is not the answer to our problems.

Out of the Past

Back in the late 1920's Fred Schwed was a Wall Street stock broker and left the business after the crash in 1929. In 1940, ten years after his exodus, he wrote Where Are the Customers' Yachts? about his experiences in the market. The book has gone through numerous reprints and editions and is endorsed by the likes of Michael Bloomberg, Jason Zweig, Michael Lewis and Jane Bryant Quinn, all glowing about Schwed's keen market insight and humorous prose. After 70 years, it's tough for an investing book to hold up, but this one seems to pass the test of time by not only being funny, but by talking about the specifics of the market in more of a general overview.

Where Are the Customers' Yachts? touches upon some of the age old investment topics such as options, short selling, technical analysis and investment trusts (mutual funds). It is ironic that the same problems that haunt the market today were prevalent generations ago. According to Schwed, options are confusing and unprofitable, mutual funds don't make money the majority of the time, technical analysis is unreliable and short sellers are to blame for everything wrong in the market, or at least that is the public sentiment. Sound familiar?

This past weekend in Investor's Business Daily there was an article about the evolution of financial applications available for the iPhone and Blackberry offered by some of the discount brokers. Now you can trade stocks, get price alerts and receive up to the minute articles and press releases on your favorite securities while on the go. In Fred Schwed's day traders stared at the trans-lux during trading hours for price movements and volume spikes, usually on the floor of the exchange or in a broker's office. You can be anywhere and be a trader now.

I'm no Luddite and a big fan of smartphones, but the portfolio churn you'll experience by paying too much attention to the day to day market fluctuations can't be good for your profits. Even Fred Schwed made comments on the perils of trading too much in Where Are the Customers' Yachts? and cautioned that the only parties that consistently make money in the market are the brokers with their commissions. Schwed also warned about bear raiders with their pump and dump schemes, statisticians with their misleading charts and graphs and economists who speak a lot and say absolutely nothing. Except for the computers and smartphones, it sounds like we are back in the 1930's again, doesn't it?

I've written ad nauseam about the poor performance of The Ithaca Experiment portfolio the past two months and will continue to do so for the foreseeable future. In actuality, the past two months my profits and losses have been in a stalemate, it's the two months before I began writing that took the largest losses. The reason that I include these losses in the blog is that it's where I started tracking the investments and I want to keep these posts honest and transparent. It would not be fair to me or you readers if I fudged the books. A geo-political event or a long overdue correction and I'm back in the ballgame. I may be in a standing eight count, but I'm not ready to throw in the towel yet.