Peter Baum: ‘While I very much like the fortune you got – ‘Happiness isn’t in having what you want but rather in wanting what you have.’ – it in fact comes directly from a Sheryl Crow song (Soak Up the Sun) – good song if you like a splash of mindless pop.’
☞ There is an intellectual property / copyright infringement joke in here somewhere, but I don’t want to set off an international incident.
Andrew Krauss: ‘You could save the electricity cost of microwaving the jar of crystallized honey AND save the cost of a new jar of honey with this simple, guy-like technique: Go to sink, find clean-looking spoon, plunge spoon into jar of crystallized honey, eat! My mother used to call it sugar honey, and it’s a much better treat than the flowing kind. Try this as well: Spread sugar honey on one slice of bread and peanut butter on another slice. Press the two slices together, devour, try to keep eyes from rolling with pleasure.’
BEATING THE MARKET *AND* SHATTERING YOUR HAND
Josh: ‘For a variety of reasons (the efficient market hypothesis, transaction costs, etc.), self-directed investors following Greenblatt are highly unlikely to consistently meet or beat the returns of a low cost index fund. The retired investment banking shill Henry Blodgett makes the case here. I would have bought his personal finance book but I already have yours and, therefore, will never need another!’
Don Szostak: ‘I’d like to comment on a couple of the comments you received regarding annual performance using Greenblatt’s ‘system.’ I started with an IRA valued at approximately $49,000 on January 1, 2006. It contained a variety of stocks, including ExxonMobil. I cashed out of the various stocks as I needed money to invest in the formula. I chose 2 stocks a month and invested approximately $2000 per stock. At the end of the year I have approximately $68,000 worth of Magic Formula stocks. Most went up but some went down since I purchased them. As to why there might a variation in performance, it is not surprising to me since there is such a wide variety of stocks to choose from, both large and small cap. The hundreds of issues which are on the list do not move in lock step. Indeed, my best performer has been Pinnacle Air (PNVL) which is up 147% since I bought it on 3/7/06. The worst performer has been Aduddell (ADDL) which is down 61% since my 6/5/06 purchase. As the author said, the risks are still there, but the fundamentals upon which the list is developed help reduce those risks.’
☞ Well, to go from $49,000 to $68,000 in a year is to gain 38.7%. Sounds as though the non-Greenblatt stocks you had in the IRA did well, too, before you replaced them, little by little, each month. But 38.7% sounds good to me.
Mark Lefler: ‘Well, for the last year I have been using the Greenblatt strategy from the ‘Little Book‘ which you suggested. My returns (and this with being a chicken and selling some losing stocks too early): 18.82%, projected out to a full year since the buys were spread out: 29.52%. S&P Did 15.79% over the last 12 months, so I am beating the market. If this continues for the next 6 months, I will make a nice donation to the Democratic party. Of course BOREF has not paid off yet [AND MAY NEVER! – A.T.], but I am patient. Oh, here is an idea you can use to scare Charles or friends. When you are at a party or some place with those plastic breakable cups, secretly slip one into your inside breast jacket pocket. Tell your friends your hand hurts, and bend your arm so the wrist is pressing against the cup. As you bend back your fingers, press against the cup. The sound of the shattering plastic cup sounds like you broke every bone in your body!’
☞ Yes. Seems a bit dodgy to me. Maybe Mr. Blodgett, or his publisher, wrote that fortune cookie fortune.
In any event, it’s too bad people didn’t read his book (not yet published) or mine (in print since 1978) before they followed his dot-com advice. (As you’ll recall, Mr. Blodgett went to work for Merrill Lynch promoting stocks he thought were crap and was subsequently banned from the securities industry for life.) Now, in his 40th year, he has begun advising investment in low-cost index funds. Better late than never, of course. (And he is a good writer.) But, as I’ve argued – and as some of you have, at least anecdotally, now demonstrated – the Greenblatt strategy may be an even better bet. (Note: If some of you have had bad results with this strategy, don’t be shy about letting me know. So far, I’ve seen only positive emails on this.)
I have never been much for jewelry. You take the trinkets; I’ll take Manhattan.
Diamonds may be beautiful, but diamonds are also a lot more expensive than they would be if DeBeers hadn’t organized the world diamond cartel so efficiently, and hadn’t persuaded starry-eyed young men that, to be men, they had to devote two months’ pre-tax pay to the purchase of an engagement ring.
I say: click here for the engagement ring and be dazzled by the possibilities.
Not that I have ever dealt with these people myself. But their full-page ad in the New York Times and their web site lead me to believe you could do worse than to risk your $119 on a two-karat diamond engagement ring that (the ad says) would otherwise cost $22,000.
I never thought I would actually write the words ‘cubic zirconia,’ and have deleted both QVC and the Home Shopping Network from my cable line-up. And, okay, yes, these are fake diamonds. But about the only way for a layman to tell they are fake is to scratch them with real diamonds. And what kind of people go around at parties doing that? Especially since their real diamonds are locked away in a safe deposit box, and they are wearing fake ones, too.
Do you remember Moh’s Hardness Scale? I do! I do! It runs from 1 to 10, with TALC being softest, at 1, then GYPSUM, CALCITE, FLUORITE, SOMETHING, FELDSPAR, QUARTZ, BERYL, RUBY, DIAMOND. Ta-da! (Ah, those endless, lonely childhood hours.) Diamond is 10. But quartz, at 7, is pretty darn hard, as you surely know, so if these $119 suckers are 9, and can scratch quartz, for crying out loud . . . can scratch beryl . . . can hold their own against rubies!!! – well, surely such a ring, along with $3,000 matching his-and-her Roth IRAs, is the wiser way to demonstrate your love and commitment.
On your fiftieth anniversary, she’ll still have the dazzling ring. But you’ll also have – just by accepting a 9-hardness stone instead of a 10 – an extra $110,000, after-tax, in today’s buying power to help make your golden years joyous. (This assumes a return 6% above inflation, and from just one investment of $3,000 apiece in the matching his-and-her Roth IRAs. Manage to contribute $3,000 apiece every year at that rate, and on your fiftieth anniversary you will have, between the two of you, better than $1.8 million. If one or both of you don’t qualify to contribute to a Roth IRA, you could still do well with an index fund.)
Just the $119 ring – let alone trying to pass it off as a real diamond – won’t cut it, obviously. You’ve got to come up with the ring and the $3,000 Roth IRAs – and maybe a necklace and a joint mutual fund account – to show that you really are crazy in love. Just not crazy in love with DeBeers.
Have a great weekend.
Quote of the Day
As they say in poker, 'If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy.'~Warren Buffett
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