On investing...
Tuesday, November 27, 2007
My first foray into investing started shortly after I started my first full time job after college. A co-worker who was further along in life with a wife and kids pointed me towards the motley fool. After reading their first book, I ended up doing what many novice investors do; I invested in Vanguard's S&P 500 Index fund. Through it all, this investment didn't do as well as I had hoped ( more on this later ).
A few years later after I was married, my wife and I read David Bach's Smart Couples Finish Rich. It was a very good book and gives some very good advice. My only gripe is that he strongly urges you to work with a financial advisor to diversify your portfolio instead of going at it on your own ( more on this later too! ).
A few months back, my wife and I were relaxing after we had put the kids to bed and started watching a program on CNBC called the Millionaire Inside . On this program, we saw a host of self made millionaires. One of them was David Bach and another, very interesting guy was Phil Town. He started us on path to investment freedom. We bought his book, read it from cover to cover in a few days after we put the kids down for bed and started our investing future. Phil discusses indexing and financial advisors quite a bit in his book in a manner that is very easy to understand even for investing novices. However, after putting the book to practice, his slogan of 15 minutes or less a week ended up being quite a bit more. I think that once you have an established watch list, you can spend 15 minutes or less a week but building that watch list may take many hours.
After reading this book, I wanted to read more on the subject of investing and really dig into the roots. Much in a way a novice blues musician would listen to Muddy Waters after becoming a fan of Eric Clapton. I found a copy of Seth Klarman's Margin of Safety at a local library as it is a very expensive book. It gave me some invaluable insights into investing. I highly recommend tracking down a copy. The most notable insight was not in his words but in Warren Buffett's. They were "Wait for the pitch". Basically have infinite patience when waiting for your business to hit it's margin of safety price. When you do, your reward will be plentiful.
I also saw a program on CNBC where they interviewed and discussed Warren Buffet. Warren Buffet is really the master of investing. He's a brilliant man that I cannot say enough about. I would definitely recommend getting a copy of Cunningham's compilation of Buffett essays. These are written with such clarity that you will want to read the book all night long.
Last but not least, when I get the time, I will read the book by the man who started it all. Benjamin Graham , author of the "Intelligent Investor", was Warren Buffet's mentor along with being the father of value investing. Without his brilliance we would not have any of the texts that I speak of in this post.
After having these books in my arsenal, I devised some spreadsheets to help me with the job of placing valuations on companies using Phil Town and Benjamin Graham's techniques.
To use these spreadsheets, you will need a free account with Morningstar . After you have your account, you'll need to look at the balance sheet of any company. I haven't found a way around this yet.
There is a growth rate override cell called my rate in which you can specify a growth rate. The manual sheet clears this rate on every update where the automatic sheet does not.
You can either use the spreadsheet with automatic web query updates or use a manual macro to update the values in the sheets. These are free to use. However, please use at your own discretion as there may be errors in the sheet. They are only meant as a guide and not a replacement for good judgement and adequate research.
Here they are:
Auto Valuation Sheet
Manual Valuation Sheet
If you have questions please feel free to post comments as I will be more than happy to assist you.
Thanks and remember that I'm looking out for you, the little guy!
Posted byLookingOutForTheLittleGuy at 7:52 AM
Labels: investing