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“Media makes things difficult.” With Jason Hartman & Joel Litman

What makes it difficult is the media. They are paid to draw viewers. They are paid to sensationalize stories. The more people pay attention, the more commercials they see. The more advertisers pay media channels. As a part of my series about “Investing During The Pandemic”, I had the pleasure of interviewing Joel Litman. Professor […]

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What makes it difficult is the media. They are paid to draw viewers. They are paid to sensationalize stories. The more people pay attention, the more commercials they see. The more advertisers pay media channels.


As a part of my series about “Investing During The Pandemic”, I had the pleasure of interviewing Joel Litman.

Professor Joel Litman is President and CEO of Valens Research, a boutique data and research firm serving Institutional Investors. He is the Founder and Chief Investment Strategist of Altimetry Research for individual and family investors.

Litman has published and appeared in Harvard Business Review, Barron’s, CNBC, Forbes, Institutional Investor, and many other venues.

He has taught or guest-lectured at Harvard Business School, University of Chicago Booth, Wharton, LBS, and top universities and CFA associations around the world.


Thank you for doing this with us! Before we dig in, our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?

During college, I wasn’t sure what degree to get, though I was attracted to the business. For various reasons, my mom, who is a CPA, suggested that I start with accounting, even if I didn’t become a public accountant, per se.

Specifically, she said, “Accounting is the language of business. If you learn the numbers, then no one can ever pull the wool over your eyes.” That weighed in, along with the assurance of jobs, even in bad economies, versus marketing or other business industries. So I went with accounting, which led to consulting and eventually banking and investing.

Accounting has been a great base for investment research. There are surprisingly very few hard-core accountants working in the investment industry. The CFA exam, for the Chartered Financial Analyst designation, has so much to cover that it only scratches the surface of really concerning financial statement issues.

My mom knew that accounting and financial analysis would be a good base. At the time, I thought of it as more of a stepping stone. Instead, it has become core to my career, 30 years later.

I never thought it would lead me to be at the tip of the spear of overhauling and reforming financial statement analysis for investors, executives and whomever else needs to understand a company’s activities.

Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away you took out of that story?

Just one?

I suppose some of the most ridiculous things I’ve seen have been on Wall Street. It’s unbelievable how little has changed in equity and credit research over the decades.

I was working at CSFB, one of the bulge bracket banks, and the #1 tech industry banker, by far. My job was to review analyst research and assist where I could with heavier, deeper financial analysis. Basically, I was assisting with Uniform Accounting analysis of the firm’s covered companies, ideally to improve the quality of equity research.

I remember speaking with a top-ranked sell-side analyst, one of the top research analysts in the world, covering Sprint. For the record, the company wasn’t actually Sprint… I just don’t want to give away the guy’s name.

I remember reading his research report that had a STRONG BUY rating on a stock trading at $51 per share. Meanwhile, his 12-month target price was only $53 per share.

So, I went up to him with his report in hand. I asked if there may have been an error in the valuation model or target price calculation.

I said specifically, “this only has a 4% increase in target price over a full year… won’t inflation alone get us 4%? Why would only $2 of upside get a ‘strong buy’ on a $51 stock?”

He paused. He looked at me in disbelief of my naivete. He replied, “Joel, Sprint is one of the single biggest banking clients of the firm.” Then, he just smiled semi-politely, and walked away.

That was 15 years ago… and look, that analyst is actually a decent guy. He wasn’t the only one with those issues. The whole industry is like that… it’s Wall Street’s terribly slanted bias.

At the time of that discussion, Wall Street research analysts in the USA gave a “long” recommendation, on average, for a whopping 97% of all firms covered. 97%!

Do you want to take a wild guess as to what the average Wall Street stock recommendation was just a few months ago? I mean, there have been significant regulations and changes and penalties and fines. So, it ought to be different, right?

I presented the data at the annual national CFA equity research conference this past Fall 2019.

The answer? 96%.

96% of all analyst recommendations on Wall Street average out to recommending a long position on the stocks being covered. It’s ridiculous.

Once you look at the data, you see why the great investment minds of the last 100 years have been so negative about the value of Wall Street recommendations.

I can begin with the great Ben Graham, who said more than 60 years ago, “Wall Street people learn nothing and forget everything.”

Seth Klarman, whose performance in investing at Baupost has been nothing but amazing, is a follower of Graham’s along with Warren Buffett, Charlie Munger, Mitch Julis, and so many other great investors.

In Klarman’s own words, “A great many of those who work on Wall Street view the goodwill financial success of clients as a secondary consideration; short-term maximization of their own income is the primary goal.”

The comments of those great investors really come alive when you see first-hand how things are really done in Wall Street research. It’s laughable.

Are you working on any exciting new projects now? How do you think that will help people?

The big project that is consistent across almost everything I do is Uniform Accounting. The fact is, FASB and the IASB have done such a horrible job of providing rules for executives for keeping account of company activities.

Not long ago, a group of professors surveyed around 170 CFOs of mostly publicly-listed companies on the subject of as-reported financial statements.

The overwhelming response from them was that as-reported financial statements, under the standards set for companies called “GAAP”, or Generally Accepted Accounting Principles, were not at all in line with the economic reality of their business activities.

Meanwhile, the greatest investors in the world have railed on how misleading as-reported financial statements are. Meaning, the numbers reported such as net income, assets, and debts, are simply not reflective of reality.

Buffett called out the horrible state of financial statements and the lack of reliability of as-reported net income in the first five minutes of his and Charlie Munger’s Berkshire Hathaway discussions in Omaha both of the last two years.

Marty Whitman, author of “Modern Security Analysis” which follows in the footsteps of Graham and Dodd’s book, “Security Analysis,” said, “GAAP is neither truth or reality.”

We can go all the way back to Shelby Cullom Davis who called out the terrible state of as-reported financial numbers and stated how invaluable a better system would be to investors and other users of financials.

I know overhauling accounting standards doesn’t sound exciting. However, the goal is something of real value… a global, consistently-applied method for measuring corporate earning power and valuations.

That has the potential to massively enhance how executives benchmark and analyze their corporate performance and improve their strategic decisions. It also carries the opportunity to completely upend how the investing public views earnings and valuations and save a ton of wasted effort and bad investing.

The term, Uniform Accounting, was first coined specifically for its investing possibilities by Shelby Davis, just as he started out on the road to turning $50 thousand into about $850 million.

At Valens Research, our various research projects and publications serve more than 200 of the world’s largest institutional investment firms. At Altimetry, we provide thousands of individual and family investors with earnings and valuation analysis that would be impossible to do individually.

We’ve recently begun providing a service direct to CEOs, CFOs and Board members. As much as anyone, they’ve found the financial statements to be a bear to understand, even at high levels. How can they possibly review management decisions if they have no way of reliably evaluating their results?

That’s been an exciting ride as well. Across all these initiatives, Uniform Accounting is at the heart of it. That’s what makes everything tick.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?

How do I pick just one? It’s impossible.

Let me think about who your audience might find interesting.

Staying close to the subject matter, I’d have to mention a great mentor, Bart Madden. He is the author of the books, “Value Creation Thinking,” “Value Creation Principles,” and “Wealth Creation.”

In the later 1990s, he really opened my eyes to just how flawed traditional valuation models had been, and still are, for that matter.

His research and personal teachings caused me to question everything about finance and financial statement analysis as I had been taught. His work highlighted incredible flaws in as-reported cash flows and the ridiculousness of most popular calculations of the discount rate of a firm. It’s laughable to think the CAPM model is still taught today for pricing a company’s cost of capital. Both research and practical applications have shown it to be unreliable.

I still attribute to Bart how I came to realize, beyond all doubt or argument, that the as-reported Statement of Cash Flows reflects not the operating, investing, nor financing cash flows of a firm.

It was only after Bart brought that to my attention that I realized just how many of the top minds in investing and finance see the financial statements as problematic.

It’s not just in stock analysis. Years ago, Mitch Julis of Canyon Capital, another of the world’s great value investors, asked me to speak at a conference in Vegas on high-yield debt.

To say the least, at the time I had little to no understanding of junk debt. Mitch just wanted me to speak about how the financials needed to be adjusted to get to the real numbers. And that exercise, he said, was as necessary for conducting corporate credit analysis as it was stock valuation.

Mitch has been a bit of a mentor of mine as well. More than anyone, he pushed me to focus on credit analysis as part of equities research and investing. You can’t be a great equity investor if you’re not a solid credit analyst.

However, I never would have met Mitch in the first place, had I not been immersed in Bart Madden’s work.

Bart wrote a book in the late 1990s called “CFROI Valuation” about the usage of cash flow return on investment. Before he published it, he handed out draft manuscripts and held a contest to see who could find the most errors in the book.

As a junior analyst, I wanted to make a name for myself and get some face time with Bart to really pick his brain. So, I poured over that draft copy and dug out every possible error or mistake of any kind I could find. That forced me to learn about his research line-by-line.

I won the contest; a free dinner with him. Bart has been a mentor and a great friend ever since.

Let’s shift a bit to what is happening today in the broader world. Many people have become anxious from the dramatic jolts of the news cycle. The fears related to the coronavirus pandemic have understandably heightened a sense of uncertainty and loneliness. From your experience, what are a few ideas that we can use to effectively offer support to our families and loved ones who are feeling anxious? Can you explain?

Our boutique research firm has over a hundred personnel now, with people in time zones literally on opposite sides of the planet. We have a weekly all-hands call to bring everyone together virtually.

During my “coaching comment” section of the all-hands, I brought up an old Ralph Waldo Emerson passage, “Health is the first wealth.” While social distancing and mask-wearing orders have swept the world, the strongest keys to being and staying healthy haven’t changed.

Dr. Param Dedhia is a great friend. He’s one of the world-renowned experts in sleep and a great advocate for being healthy. We’ve had some great conversations about health, and he summarizes it brilliantly in one’s “Personal B.E.S.T.”, which stands for breathing, eating, sleeping, and training.

I’ve found that focusing on those four aspects of good, general health is invaluable. So, whether we’re stuck in an apartment for longer than we ever imagined, or faced with any massive change in routine, the focus on one’s B.E.S.T. ought not change.

Despite COVID-19’s shutdown of gyms, we still need to find ways to train and exercise, at home, even without equipment. That training is necessary for good breathing. Have you tried doing burpees (where you essentially just drop to the floor and then push yourself to quickly stand up again)? Do that for 8 sets of 15–20 repetitions within a 15 minute window. After that, you’ll realize a gym is totally unnecessary to get an amazing workout.

As far as diet, we still really are the outcome of whatever we eat. Hopefully, staying at home means less fast food and less deep fried foods.

And, of course, we need good sleep. Even when we’re at home all day long, our bodies and minds benefit from a steady regimen and schedule of sleep.

That’s why I love Dr. Param’s acronym for Personal B.E.S.T. After all, healthy body, healthy mind.

Ok. Thanks for all that. Let’s now jump to the main core of our interview. As you know the stock market and the economy in general have become extremely volatile and uncertain. Many people “dollar cost average” and put aside a monthly sum into a long term savings plan for retirement, college, or a home purchase. If a loved one or a client came to you and said, “I have been saving and investing $500 every month in an S&P 500 index fund. Over the next few months until the dust settles, should I be doing something else with my money?”, what would you say to them?

I’m wearing cufflinks right now that I purposely wear to remind myself of a plain old core fundamentals of investing. Here’s what’s inscribed on them:

The right side says, “Buy Low.” The left side says, “Sell High.”

I find myself repeating those simple statements at webinars and in discussions with investors of every size. The fact is, the markets are down. This is when you buy. If the markets fall more, buy more. It’s not that difficult a concept.

What makes it difficult is the media. They are paid to draw viewers. They are paid to sensationalize stories. The more people pay attention, the more commercials they see. The more advertisers pay media channels.

The fact is, who’s going to turn on the TV to listen to someone say, “The markets are doing whatever they’re doing. Don’t forget to invest your $500 dollars this month.”

Instead, when the market is up, the media pumps up headlines mentioning that the stock market has “yet again reached an all-time high.”

The stock market is always going to reach all-time highs. It represents the largest companies that serve a growing population in an ever-growing economy. Maybe the economy isn’t growing every single year, but the periods of non-growth are thankfully quite short. It’s been that way for the past 200 years of recent recorded financial history, and undoubtedly, for thousands of years of civilization before.

Can you imagine how silly it would sound if everyday news channels counted the population of the country and said, “Breaking News! There are more people today than yesterday. The population has reached an all-time high.”

…and then proceeded to say that every time we had another 100 births.

The stock market doesn’t go up in a straight line forever. So, at times, it falls and “corrects.” That can last for sustained periods at times, reflecting what happens in a recession with an actual shrinking economy.

When that happens, the media can’t wait to pounce on just how bad things are getting. They report record lows, record drops, and record blips of some nonsense data points that are all but useless for a long-term investor.

Let’s face it, the investor who drops $500 in their 401k or IRA retirement account is absolutely a long-term investor. The definition of long-term is easy. It’s ten years. If you won’t need the money for ten years, you are a long-term investor.

That long-term orientation makes your choice for investment very simple. All equities. Why?

Because over the last 100+ years, equities beat every other major class of asset by such a wide margin that is comical to even consider the other vehicles. As long as you look at a period of ten years or more, any time in the last 100+ years or more, stocks beat bonds, massively. Stocks beat gold massively. Stocks beat US treasuries massively. Stocks beat real estate markets, too.

That makes it simple. Now, and over the next several months, we have an incredible buying opportunity. That opportunity might even get better, meaning the stock market might stay low or go lower. For 10+ year money, equities are the perfect place.

And the easiest, most economical way to buy equities, is to just buy an S&P 500 index, every month, through thick and thin, without thinking much about it until retirement is on the nearer term horizon.

Eventually the economy will recover and rebound. Certain sectors, like travel and hospitality might be hurting for a while. But other sectors, like technology and healthcare, might do very well. If someone wanted to prepare today to take advantage of the future recovery, what would you suggest they do?

Over a ten-year period, the S&P 500 is still a great overall investment. It may include industries that will continue to suffer, however it will also include big winners that often surprise people.

The companies that make it into the top 500 list are, by and large, the 500 biggest and most profitable companies… or they wouldn’t have made it onto the list in the first place.

A colleague who runs a long-only fund of more than $5 billion in AUM was asked how he hedged his bets in 2008. His answer? Simply, “my hedge was 2009.” The best years for the stock market have often been the 1–2 years immediately after a big drop.

COVID-19 isn’t going to change the overall statement that equities outperform everything given enough time. The S&P 500 remains a great default place for rank-and-file investors with a long-term perspective. Buying into the S&P 500 over the next six months has the opportunity to pay off greatly over the next year or more.

However, within that, there will still be some big winners and losers, and for a more active investor, we’d point them to two areas.

The sector winners of the next market upside, in the mid-term, can come from the at-home trend. There is an at-home revolution that has been brewing for some time. While governments have forced people to stay home, there has also been an underlying demographic shift towards staying home at play.

When the COVID-19 lockdown is over, people will not look forward to the horrible traffic issues that have plagued metropolitan areas increasingly every year. Companies have been looking for ways to reduce costs, and telecommuting has proven to increase productivity and reduce overhead in a myriad of job roles.

There is a major trend toward people working at home, playing at home, protecting their home, and supplying their homes for all of the aforementioned. Active investors will do well to look at companies that are positioned to benefit from that. While the Zoom app has received a ton of attention, its fundamental numbers just don’t bode well for the future of that stock.

However, there are lots of other companies that are positioned well, including Amazon and Netflix, of course. Friends in the consumer tech space have said they’re seeing the best sales in years in home A/V equipment. Clearly board games and gaming consoles are flying off the virtual shelves.

Your home is your castle. A lot more will be spent on that castle in the coming years. COVID-19 is just an accelerator of that trend.

On the other hand, there will be some potential losers in the next recovery. One must be wary over the next couple of years of companies with significant debt levels. We may see a big rebound when the COVID-19 crisis is over; however, from 2021 to 2022 there is a massive, increasing corporate debt headwall. Lots and lots of companies successfully refinanced out of their troubles this year. Companies pushed the due dates of that debt heavily into the year 2022.

So, for many firms, a year or more recovery may be in the works, only to potentially come tumbling down again when their debt comes due. They’ve only kicked the can down the road.

Are there sectors that provide exciting and lucrative investment opportunities today, specifically because of the volatility and uncertainty?

As I discussed before, potential sector winners in the next market upside, at least in the mid term, are those benefiting from at-home trends. Companies that help people work from home, play at home, protect their home, or supply their home, such as Amazon, Netflix, and others in the consumer technology space, can be attractive investment opportunities for more active investors.

Are there alternative investments that you think more people should look more deeply at?

There is nothing like owning a share of the profits of a company with a long-term, sustainable business.

Who makes more money… the real estate developer, or the person buying the condo? Obviously, the developer.

Which company has more sustainable earning power over the long-term… the gold miner, or the mining supply firm?

On that note, can you easily name one gold mining company from the gold rush of the 1800s? On the other hand, who doesn’t know the brand, Levi’s, which just went public this past year?

So, for “ten-year money” as well call it, money for the long-term, the right parking spot is the S&P 500. Then, as unique equity opportunities arise, generally less liquid and potentially more volatile, take a small percentage of that S&P 500 position and move it into alternative equity positions.

Private equity has historically been a great place to earn outsized returns. In the early days, combining private equity with a ton of leverage — aka the leveraged buyout — was a path for turning out quite a few new billionaires.

One of those billionaires from the earliest days of the private equity boom is a great personal friend of mine. Today, his investments are heavily into venture capital.

I asked him, “If you made your riches heavily through LBOs, why does it appear more of your investments have switched to venture capital today?”

His answer was enlightening. He said, “Back then, buying out a turnaround business with a ton of debt was called ‘bootstrapping.’ They didn’t even call it private equity or LBOs. Today, there is an LBO/PE firm on every corner. The space is so crowded. The low-hanging fruit of finding a hidden business that you could turnaround with high confidence — it doesn’t exist anymore.”

So, for his own investments, he turned toward venture capital. While VC can also be quite crowded, it might be easier for an investor to find that one right entrepreneur with that one incredible idea and still make 100X on their money. As part of a well-balanced equity portfolio, that might be a great opportunity, assuming the investor has the time.

Over the long-term, equity ownership beats all other major classes of investment. Do we need to provide more evidence than the billions Buffett, Munger, Klarman, Schloss, Davis, and the rest of the Graham-Dodd crowd have made already provide? Owning great companies over long periods of time pays off incredibly well. The S&P 500 gives you that with no work.

If a person in their thirties and forties came to you today and said that they have $10,000 that they want to put away today for a long term investment what would you advise them to do with it?

An investor’s age is not the right driver of how to invest. In fact, it’s irrelevant if you ask the right questions. These questions are quite simple, yet there is a ton of evidence behind why these questions work so well.

The first question is, will the investor spend the money in ten years or more from now? If the answer is yes, then that money should be in equities, period.

It doesn’t matter if the investor is 20 years old or 70 years old. If the money won’t be spent for ten years or more, investing in equities is the overwhelming, best place to invest, by far.

If the investor will spend the money in less than two years, then that money CANNOT be in equities. There is simply too much potential loss over two years that doesn’t exist over ten year periods.

Again, the investor’s age is irrelevant. If the 20 year old needs the money for a tuition payment in 18 months, that money cannot be in the stock market. It just isn’t prudent.

If your question asking “long-term” was ten years or more, then that $10,000 ought to be in equities.

Of course, this discussion begs the question, “what if the money will be needed in more than two years and less than ten?”

There is a timetable that helps one to determine asset allocation very powerfully, and yet very simply.

For money that will likely be spent in the next zero to two years, it ought to be invested in money markets or CDs or other capital preservation funds. Even bonds can have years where the value of the bond falls more than 10%. Bonds are not suitable for those who have near-term spending needs of their savings.

For money that will likely be spent in two to five years, bonds provide a bit more return, and the extra time gives bonds the ability to recover when they have had bad return years.

Unfortunately, neither bonds nor capital preservation funds provide rates of interest that are much more than inflation, if even above inflation at all. These are simply the right parking spaces for funds that need to be spent soon.

For money that will likely be spent in five to ten years, such as for the savings for a twelve year old who will need money for tuition in 8 years, a 50/50 bond and equity split is prudent. It provides the upside of equities balanced with a less volatile portfolio of interest-paying bonds.

The above timetable defines how “Timetable Investors” balance their portfolio with the types of assets that fit their personal spending needs.

Age should never define investment allocations. Spending needs should.

There are certainly nuances to that Timetable Investing methodology. How to move assets from one class to another is important. The need for a safety net may be more pronounced for people in jobs with higher potential of being laid off in recessions or other market downturns.

However, the philosophy of time defining one’s investment allocation, and not so much timing, is what matters.

Ok, thank you! Here is a more general finance question. You are a “finance insider”. If you had to advise your adult child about 5 non intuitive essentials for smart investing what would you say? Can you please give a story or an example for each?

That’s a great question. I’ve been attempting to teach my 12-year old some of the foundational concepts of investing that I wish someone had taught me when I was able to grasp it. Here are a few of those.

The “500X to 1000X” Rule.

My son has heard this 500X to 1000X rule so often, he repeats it to others with the confidence of a seasoned 30 year financial advisor.

Whatever you can afford to put away monthly into an S&P 500 index fund, will turn into approximately 500X to 100X in 20 years. If you can put away $1000 a month into VOO for instance, the Vanguard 500 ETF, that ETF will be worth $500,000 to $1,000,000 to you in 20 years.

Those are gigantic sums of money to think about, with not a lot of money upfront monthly.

Two years ago, my son made a very good case to convince me to give him $500 per month for doing all his chores and getting good grades. If so, he realized he can turn that into as much as a half million dollars by the time he hits 32 years old.

In other words, one doesn’t need to start rich to get rich when equities are invested in wisely and steadily over long periods of time. $500 is not a lot of money. 500 times $500 is life-changing.

“Gold is nothing more than a metal rock.”

Don’t get me wrong, there are periods of times where Gold has been a fantastic store of value. There have been times of high inflation periods where gold has been a great protector of value. However, gold has never been a creator of value. Because it doesn’t actually create any value.

My son and I googled to find an image of one of the biggest gold nuggets ever found in the States. The Highland Centennial Nugget found in Montana in the 1980s is an amazing 27,000 plus troy ounces.

We then looked at images of the history of the Pepsi company, which at one time, was a company that just sold Pepsi-Cola. One company, one brand. We then looked at the images of all the billion dollar brands that have spawned from the Pepsi company over a 30-year period.

It’s a fun walk through history. It’s incredible how Pepsi dominates the snack markets with Frito-Lay and how Pepsi needed new distribution channels to compete with Coca-Cola, spawning Taco Bell, Pizza Hut, and the great, global KFC. Simply amazing.

All in all, we saw images of more than 20 “billion-dollar brands” that belong to or have spun out from Pepsi. That’s billions of dollars of revenue, or employee payroll, of vendor payments, and increases in valuation.

What does the Highland Centennial rock look like today? The same, identical shiny metal rock. In that framework, it’s almost laughable to think that a metal rock could possibly grow in value more than a living, breathing, growing company of innovators and producers over time.

And what is the S&P 500 but the 500 best-run future and past “Pepsi’s” out of the millions of businesses in the United States. Many of the S&P 500 have been even more innovative than Pepsi in many ways. So, what would you rather own, those 500 companies, or a bucket of 500 shiny rocks.

Statistically, you can find periods of time, of course, where gold outperforms equities. That outperformance never lasts long. And when stocks take off, they increase in value at levels that far surpass the very best years of gold.

Over 20 years or more, over 50 years, over a hundred years, equities outperform gold by such a wide margin it’s not even fair to put them in the same discussion of good, long-term investments.

“You Can’t Be a Great Equity Investor Without Being a Solid Credit Analyst”

I mentioned earlier how amazing the advice of Mitch Julis was. That was 1999. I follow Mitch’s advice, and his advice stems from the great value investing forefather, Ben Graham.

If you ask the greatest stock market investors, the great value investors, for the best book on investing, you invariably hear about two books: “Security Analysis” and “The Intelligent Investor.”

Both written by Ben Graham, one with the help of David Dodd.

The students of these great books include Walter Schloss, who beat the market by something like 600% over 40 years. It includes the famous Bill Ruane of Sequoia Funds.

One of the top investors in foreign stocks, Jean-Marie Eveillard of First Eagle, said he read the books, and “was truly illuminated.”

So, here we have all these great stock market investors, who all refer to the same two books when discussing great stock investing.

Here’s a question. How often do the terms, “debt” and “credit” show up in the two books?

The answer… over 400 times.

Clearly, the guides to great equity investing — whether those guides are books or billionaires — demand an understanding of credit.

In our firm’s research, we can’t even mention the phases of the stock market, from value to growth stages to bear markets, without first understanding and communicating the state of the credit markets.

“Don’t Trust Wall Street Research…Ever.”

I mentioned this before, however let me explain another way Wall Street rears its ugly head. It’s how Wall Street analysts get listened to… when they purposefully “change” their stock recommendations. It’s not just the recommendation itself.

So much of what gets reported on TV and on the Internet are these upgrades and downgrades.

“Goldman Sachs research just upgraded this from hold to buy”

“Bank of America research just downgraded that from buy to hold.”

“JP Morgan reiterated their hold on such and such.”

Does anyone realize that the overwhelming majority of those upgrades and downgrades are between buy and hold recommendations? In other words, they are always still “long.”

Think about it. Telling someone to “hold” a stock is economically identical to telling them to “buy” the stock. Or, do I interpret this quizzical recommendation to mean that if I already own the stock I sell it because they didn’t say “buy”?

Or if they said “hold” and I don’t own it, should I buy the stock so that I can then hold it? In which case, why not tell me to buy? Has anyone ever paid attention to think that when Wall Street research changes its recommendation, 99% of the time, it isn’t changing anything?

What a farce. When you stop for a second and realize how silly upgrades and downgrades are, it leaves you feeling disgusted that you ever paid attention in the first place.

When working with our clients or institutional investors, a stock is either a long or a short or neither.

I’m just imagining if one day I decided to adhere to Wall Street research’s thinking and went to one of our clients, who do include some amazing investors, and said, “I don’t recommend you buy it, but I would recommend you hold it.” I think they would look at me cross-eyed. I doubt I’d ever be invited back.

Yet, the public still watches these headlines as they scroll across the media. It’s not useful. It’s nonsense.

“For That Matter, Ignore most of Financial Media As Well.”

I don’t think I’m going out on a limb to say the media likes to sensationalize events as much as possible. We’ve seen many examples of this during the COVID-19 crisis.

The fact is, there is total misalignment between how news gets reported and how news outlets get paid. The more views, the more they get paid. The quality or the veracity or the usefulness of the news… is not the driving factors in how media outlets make money.

The same is true for the financial media. The best advice doesn’t get reported, because people wouldn’t pay attention daily. That’s because the best investing for most individuals, families, and institutions is slow and steady and does not require daily attention.

How boring would it be if a news outlet said daily, “The stock market went up and down in immaterial levels. So there’s no need to do anything other than keep buying your S&P 500 index every month.”

For the long-term investor, the daily ups and downs of the stock market are ALWAYS immaterial levels. Meaning, the daily fluctuations should have no impact on your investing strategy.

Seth Klarman said, ““The daily blips of the market are, in fact, noise — noise that is very difficult for most investors to tune out.”

For the great majority of investors, 99.99% of them, the financial media does nothing to help in planning one’s investment strategy, and does nothing to help in executing on that strategy.

So why all the attention to the financial headlines? It’s not much more than gossip.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

Dr. David R. Hawkins wrote, “Be kind to everything and everyone, including oneself, all the time, with no exception.”

That quote is not just a platitude, it’s a challenge. It means acting always for the benefit of all concerned.

I’m a student of philosophy, or can I say spirituality? In my humble opinion, this Hawkins quote distills the highest concepts of the Buddha and Krishna and Christ and many great spiritual teachings into one sentence.

The quote comes from a book I love called. “Transcending the Levels of Human Consciousness.” If I had only one book to read the rest of my life, if I were trapped on a desert island, that would probably be it.

The “be kind to everyone…” quote would be my epitaph. Hopefully, I won’t need that epitaph anytime soon.

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂

It’s difficult to think of what problems exist in society that can’t be made better through practical education.

One way to combat poverty is vocational education, with truly practical work skills.

One way to combat racism and prejudiced behavior is education about other people’s lives and cultures particularly with immersion.

One way to combat child abuse and neglect is an education in understanding and recognizing what abuse is, and what to do about it.

At some level, so many of society’s ills are founded in a lack of this kind of education.

Our firm’s efforts in Corporate Social Responsibility revolve around educational initiatives in one way or another. Our scholarship and loan programs include on-the-job training.

Over the years, we’ve sponsored hundreds of children in developing countries like the Philippines through Save the Children, Children International, and other charities. Fighting truancy is one of the most important aspects of those programs. We have financially supported many of these kids through college.

The programs allow us to write inspirational letters to the children every month. We send them quotes every month like Buffett’s, “ultimately, there’s one investment that supersedes all others: Invest in yourself.”

A team of our people visit the charities every one to two years to make sure our donations — let’s call them investments — are being spent smartly and honestly. We get to visit the kid’s neighborhoods and even homes at times.

Several years ago, I went with the team to see Children International’s operations in the field. It was heart-warming to see the work they were doing. In one of the children’s homes, no more than a ten foot by ten foot shanty, the children had literally wallpapered their home with years of our letters of inspiration that we had sent.

In that particular household, we eventually sent the eldest child to college. She is now gainfully employed and making enough to pay for her siblings to go attend college too. She also could afford to move her entire family out of the shanty into a new home and a wonderful neighborhood.

Supporting education pays amazing dividends.

Thank you for the interview. We wish you only continued success!

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