<![CDATA[PENNYFARTHING INVESTMENT - The Derailleur]]>Mon, 08 Apr 2019 16:30:39 -0400Weebly<![CDATA[2018 Fourth Quarter Commentary]]>Wed, 27 Feb 2019 18:15:51 GMThttp://pennyfarthinginvestment.com/the-derailleur/2018-fourth-quarter-commentaryPassive funds invest broadly across the market, holding a portfolio of securities regardless of their prices — passive investing is much like going to the supermarket and buying everything in the store, as opposed to choosing your items carefully.

Active investing is a curated collection, an active choice to buy a stock, for example, and avoid another.

You do this in life all the time.  One doesn’t marry every person you meet.  While you might have a collection of partners, hopefully love also means you can be carefully prudent with whom to match and, at least at the time of the wedding, you feel you made a good choice, all things considered.

If you go to college, you don’t attend every available college.  You attend the one, two or the few you select.  You take care, perhaps do some research, and then act on your insights.

No different in investing, active investing is making positive choices to allocate wealth to a select few investments.  Via this wealth, perhaps your buying boosted the stock price or lowered an interest rate paid on debt, a company’s management puts your money to work.

It’s up to us to decide where to invest wealth —  whether or not we choose to decide, we make choices even by default.

Passive funds have been gathering an increasing share of investors yet their portfolios look so much the same.  To passive investors, value doesn’t matter, buy or sell.  They buy whatever the entire market has to offer.

We active investors make informed judgments based on value and price.  As the carpenter’s saying goes, we measure twice and cut once.
<![CDATA[2018 Second Quarter Commentary]]>Tue, 18 Sep 2018 15:51:11 GMThttp://pennyfarthinginvestment.com/the-derailleur/2018-second-quarter-commentaryTom Wolfe, the acclaimed journalist and novelist of the Wall Street tale The Bonfire of the Vanities, passed away several weeks ago.  If you’ve read Wolfe, he might prefer we use the present tense to write about his life.  He wrote in that form, as the reporter he was (is).

Modern finance works along similar lines as Wolfe’s description of modern art.  Those who advocate Modern Portfolio Theory say that the model is more important than the qualities of individual investments within a portfolio.  If a stock or group of stocks in the past has moved in price according to certain patterns of return and volatility (risk), then buy if favorable, regardless of the companies the stocks represent.  An intellectually consistent theory, I believe, just rather incomplete.

In one of Wolfe’s critical masterworks, The Painted Word, he tells how modern art begins with a Truth, a theory of the art.  Wolfe also calls it the Word — modern art avoids reproduction of real scenes.

Wolfe ridicules those who champion theory even as they minimize an artwork’s technical or realist qualities.  He writes that they believe as “like Plato’s cave dwellers watching the shadows, without knowing what had projected them.”

In modern art, Wolfe says, what the viewer sees, the reality of what is painted or sculpted, is thought unimportant.  It’s theory that tells you what you see!

Let’s not forget (as many financial advisors do) that in the real world a stock represents an ownership stake in a business.  Over the long term, the underlying prospects of the business are arguably what drives its stock price up or down.  In the historical record, we see how stocks moved as they did.

When a company’s return on investment falls below its financial costs, that’s bad.  If a company can’t pay the interest on its borrowings over an extended period, that’s even worse, i.e. Tesla automobiles.

As much as the Modern Portfolio Theory can tell you how a portfolio’s risk can be reduced through holding investments in combination, reducing the risk that any single investment would drag down the portfolio’s returns, it doesn’t tell you a whit about how to identify an undervalued investment.

So many investment managers value theory more than what you can see.  Don’t allow theory to overrule.

I believe that a composite picture of real world observations builds what we’re looking to create — a balanced portfolio where each individual investment stands on its own merits.


Tom Wolfe (1975).  The Painted Word.  New York: Farrar, Straus and Giroux.

Steven D. Bleiberg (2018 April).  “The Limits of Theory."  Epoch Investment Partners, Inc.  Retrieved http://www.eipny.com/white-papers/the-limits-of-theory/]]>
<![CDATA[2018 First Quarter Commentary]]>Mon, 11 Jun 2018 17:27:29 GMThttp://pennyfarthinginvestment.com/the-derailleur/first-quarter-2018-commentaryI attended an insurance seminar in Clearwater in February  (a great time to visit Florida, right?).

Anyway, the trip resulted in two benefits. The first, I managed to fit in a bicycle ride across Georgia, culminating in sitting on a church pew where I heard President Jimmy Carter give his Sunday lesson. He is scheduled to deliver fewer of them this year, finally cutting back at age 93. In his hometown of Plains, a few residents still had up lawn signs that read "Carter for Cancer Survivor", a kind gesture first greeting him three years earlier when he returned from the hospital.

Carter’s lesson my Sunday was unconditional love and caregiving, good one for the topic I’d like to describe for you next.

For those who are getting older (aren’t we all?), at the insurance seminar I attended, I heard from Dr. Carolyn McClanahan a former emergency room doctor who has since changed careers to become a financial planner focusing around the life stages of aging.

She created an online toolkit, Whealthcare, together with Dr. Chris Heye, and in cooperation with Dr. Anthony Weiner, Director of Outpatient Geriatric Psychiatry at Mass General Hospital.

The idea is to complete planning before the need occurs, before a life-changing medical event, particularly the onset of cognitive impairment.

Whether you can make this a part of your planning or you can recommend it to someone who could, I wanted you to know it’s available. I could also tell a personal story about how it’s helped my family.

<![CDATA[2017 Fourth Quarter commentary]]>Mon, 11 Jun 2018 17:17:25 GMThttp://pennyfarthinginvestment.com/the-derailleur/2017-fourth-quarter-commentaryWhy invest in individual stocks and bonds when most every financial adviser seems to be recommending passive mutual funds?

The other day, I bought for clients Florida municipal bonds that finance land preservation in that state, protecting the Everglades.

The bonds were odd lots (considered any amount less than $100,000). A buyer of odd lots benefits, purchasing at a sizeable discount — the dealer is motivated to move these bonds off its own balance sheet.  This isn’t a problem for us since our intention is typically to hold bonds to maturity.  By buying at lower prices, we capture a performance advantage versus the investor who invests regardless of price.

And isn’t that what investing is all about, investing to conserve what’s important while also earning a profit?

Another example, we bought stocks this past quarter that had fallen in price for no good reason.   Why?  At the end of the year, investors sell losing stocks to realize their losses. They reduce their tax bills.  This selling further depresses prices in these stocks.  By buying some of them, we begin 2018 with a head start when it comes to value — these stocks were often penalized too much in relation to their merits.

Good businesses may or may not make for good stocks.  Much depends on their purchase price.

In contrast, another rule of thumb must be mentioned.  Bad businesses make for poor investments — these we avoid.

Smart investing is about figuring out the difference, one from the other.

<![CDATA[2017 Third Quarter Commentary]]>Fri, 15 Dec 2017 16:04:45 GMThttp://pennyfarthinginvestment.com/the-derailleur/2017-third-quarter-commentaryWith solid returns, it’s been good times for those with capital to invest.

As clear today as it was then, democratic republics, like financial fortunes, are dependent upon the informed involvement of their citizens for continued good health.  In 1787, after Ben Franklin was asked following the Constitutional Convention what sort of government had been created, he replied, "A republic, if you can keep it."  And keep it, and also improve it, we must. 

Adam Smith, that founding capitalist philosopher who most notably believed business should be moral, wrote in 1759: 

“The care of …the fortune...is considered as the proper business of that virtue which is commonly called Prudence….  Security, therefore, is the first and principal object….  [Prudence] is rather cautious than enterprising.” 

As well as prudence, investors would do well to develop an awareness of the big picture, a profound introspection when goal-setting for the financial future, possessing the courage to bring goals to life.

I can’t tell you how many times over the years I’ve sat down with someone whose retirement plans are expensive dreams supported by relatively small sums of money.  The solution can be to reduce expectations and seek additional sources of income.  That certainly takes courage.

It’s no shame to take care, to preserve your fortune and be enterprising in pursuit of your goals.  Return to the wisdom of Ben Franklin.  It’s prudent to be secure in your planning.

Let wisdom, courage, skill and a steady hand strengthen you now and in the future.]]>
<![CDATA[2017 Second Quarter Commentary]]>Mon, 07 Aug 2017 20:16:53 GMThttp://pennyfarthinginvestment.com/the-derailleur/2017-second-quarter-commentaryWould you like your vote counted?  Proxy voting is the method by which we as shareholders, who cannot physically attend the corporation’s annual meeting, instruct how to vote our shares.

In addition to electing board members, recent issues on corporate proxy ballots include executive pay, corporate lobbying, human rights and climate change reporting.  The first is less of an issue for us, because I don’t invest in companies that pay their managements outrageously.

​A stunning event occurred in May for Exxon’s management.  A majority of shareholders voted for the company to report on the impact of climate change and how regulations restricting carbon emissions would affect the company’s business in the future.

Larry Fink, CEO of the world’s largest investment group BlackRock, in his annual letter this year to global CEOs wrote that managing investments according to non-financial concerns can provide “essential insights into management effectiveness and thus a company’s long-term prospects.”  BlackRock now operates an entire division aptly named Impact, joining almost $9 trillion in the U.S. managed according to at least one factor of corporate responsibility.

​The big names have moved into a field pioneered by smaller independents, yours truly included.

We all can do our part.  To improve the behavior of corporations, write your elected representatives, pen letters to the editor, respond to government’s requests for public comment, demonstrate in the public square, shop as an informed consumer and vote your values.  I’ll continue to vote those proxies.]]>
<![CDATA[2017 First Quarter Commentary]]>Thu, 01 Jun 2017 14:09:45 GMThttp://pennyfarthinginvestment.com/the-derailleur/2017-first-quarter-commentaryPresident Trump fails to grasp that governing requires more than a committed base.  The ultimatums he’s issued and controversies he’s sparked have been deeply disruptive, with so far little progress to show for it all.

Trump is an excellent winner, a poor loser.  He’s declared bankruptcy four times, admittedly not a mark of shame in our dynamic economy.  The only public company he’s led, Trump Hotels and Casino, he pillaged as chairman and CEO, receiving $44 million in salaries and bonuses, enjoying the good life on the company’s dollars, and engaging in sweetheart deals to enrich his private business empire, until finally wiping out shareholders in 2005.

Trump declared that even as chairman in this instance: “I wasn’t representing anybody but myself.”  No wonder many banks on Wall Street would no longer lend or do business with him. His business actions were inexcusable, in this sole instance in which he managed a public enterprise, before 2017.

Are you familiar with the child’s game Ker Plunk, 1967, or the somewhat similar Jenga, introduced in 1983, where pulling out the sticks and planks would eventually lead to the collapse of all the marbles?

As Wall Street likes to rhyme, the rally to the upside in the stock market since election day has become known as the Trump Bump.  US stocks gained +12% from the election to the end of winter, without really much of any decline on a single day.  It’s been all blue skies and sunny days.

Times have a way of changing.  At the risk of being a conspiracy theorist, check out Louise Mensch, especially if you’re a Twitter user.  Perhaps only weeks away from change at the top, do you think the page will turn over on this era?  Of course it will.]]>
<![CDATA[2016 Fourth Quarter Commentary]]>Fri, 31 Mar 2017 22:04:47 GMThttp://pennyfarthinginvestment.com/the-derailleur/2016-fourth-quarter-commentaryMark Baumer, 33, was a librarian, a writer, poet, a former high school baseball star, noted for his kindness.  Last October he set out on a walk across America to call attention to climate change.  He posted his video and stories on the internet.

Following the inauguration, he walked with bitterness.  He picked arguments with people he passed.  On Saturday, he was struck by a driver, who had departed her lane, entered the shoulder and that was that.  Charges are pending.  Mark's chronicles survive him and are well worth watching and reading.

I write this not to point out a senseless tragedy, or the futility that comes out of frustration.  It's more a hope that engaging in civic debate and demonstration would continue to remain within the realm of what it is to be an American.

I've voted for Democrats, some Republicans, also third party candidates.  I wrote a thesis on the racist hatreds in our history that have fueled antagonisms against immigrants, of German-Americans specifically.  As a park ranger a couple of decades ago, at Gettysburg and Philadelphia, I led tours that paid tribute to military sacrifice, the tug of war in our politics and the blessings (and the flaws) of our Constitution.

And yet, here we are again. Trump, volatile, aggressive, dividing.  He's our president. Wall Street, admittedly skewing wealthy and anti-regulation, has rallied the stock market higher and sympathizes with the new president's tax & small government initiatives, while disagreeing on trade & social policies.

The country seems to have moved into a cycle of protest and counter-protest, likely increasingly tumultuous over the months ahead. This represents only the beginning of a process singled out by Trump, in his inaugural address, of giving power "back to you, the American People."  It's supposed to renew our spirit.]]>