Partners Issue # 111
G K Lim
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Dedicated to the personal and professional development of PMEE’s -- professionals, managers, executives, and entrepreneurs -- everywhere.
Issue # 111
Seventh year in publication
Since July 1, 1998
Current number of subscribers: 3,201
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"IN THIS ISSUE"
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[1] Editor's Corner
[2] Personal Development Article
[3] Business Development Article
[4] Attitude Vitamins
[5] Stress Buster
[6] Feel Good Classic
[7] Chop Suey Rojak
[8] Sponsors’ Messages
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[1] "EDITOR'S CORNER"
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Hi,
It's March 2006, and we're glad to be back with issue # 111 after being absent for two months. As usual, this issue is filled with goodies for the PMEE.
During times of stress, it's a good idea to clear your mental space. Jennifer Givler shows you how in her article below.
We're placing an article on investing in the Business Development section. This is the first time we include an article on this topic. Read it and see how it can help you.
And please write to us and let us know whether you want articles on investing in future issues.
Well, enjoy issue # 111!
May you be happy, healthy and well always!
G K Lim < www.gklim.com >
Editor / Publisher
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[2] "ARTICLE -- PERSONAL DEVELOPMENT"
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Clear Your Mental Space
by Jennifer Givler
J. Givler Coaching
http://www.jgivlercoaching.com/
Copyright 2006 Jennifer Givler
Think about the last time you felt a negative emotion like stress, anger, or frustration.
What was going through your mind as you were going through that negativity? Was your mind cluttered with thoughts? Or was it paralyzed, unable to think?
The next time you find yourself in the middle of a very stressful time, or you feel angry or frustrated, stop. Yes, that’s right, stop. Whatever you're doing, stop and sit for one minute. While you're sitting there, completely immerse yourself in the negative emotion.
Allow that emotion to consume you. Allow yourself one minute to truly feel that emotion. don't cheat yourself here. Take the entire minute but only one minute to do nothing else but feel that emotion.
When the minute is over, ask yourself “am I willing to keep holding on to this negative emotion as I go through the rest of the day?”
Once you've allowed yourself to be totally immersed in the emotion and really feel it, you will be surprised to find that the emotion clears rather quickly.
If you feel you need to hold on to the emotion for a little longer, that is ok. Allow yourself another minute to feel the emotion.
When you feel you've had enough of the emotion, ask yourself if you're willing to carry that negativity with you for the rest of the day. If not, take a deep breath, as you exhale, release all that negativity with your breath.
This exercise seems simple almost too simple. But, it is very effective. By allowing that negative emotion the space to be truly felt, you are dealing with the emotion rather than stuffing it down and trying not to feel it. You are actually taking away the power of the emotion by giving it the space and attention it needs. When you immerse yourself in the emotion, and realize that it is only emotion, it loses its control. You can clear your head and proceed with your task.
Try it. Next time you're in the middle of a negative emotion, give yourself the space to feel the emotion and see what happens. Keep a piece of paper with you that says the following:
Stop Immerse for 1 Minute Do I want to keep this negativity? Breath deep, exhale, release. Move on!
This will remind you of the steps to the process. Remember, take the time you need to really immerse yourself in the emotion. Then, when you feel you've felt it enough, release it really let go of it. You will be surprised at how quickly you can move on from a negative situation and get to what you really want to do!
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Jenn Givler is an Empowerment Coach who helps women entrepreneurs and women on the verge of entrepreneurship gain clarity about their business and exceed their business goals. Get her free e-book Be Empowered! http://www.jgivlercoaching.com/newsletter.htm
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[3] "ARTICLE -- BUSINESS DEVELOPMENT"
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Is There Really A Magic Formula For Investing?
by Geoff Gannon
Gannon On Investing
http://www.gannononinvesting.com/
Copyright 2006 Geoff Gannon
One question almost every investor asks at some point is whether it is possible to achieve above market returns by selecting a diversified group of stocks according to some formula, rather than having to evaluate each stock from every angle. There are obvious advantages to such a formulaic approach. For the individual, the amount of time and effort spent caring for his investments would be reduced, leaving more time for him to spend on more enjoyable and fulfilling tasks. For the institution, large sums of money could be deployed without having to rely upon the investing acumen of a single talented stock picker. Many of the proposed systems also offer the advantage of matching the inflow of investable funds with investment opportunities. An investor who follows no formula, and evaluates each stock from every angle, may often find himself holding cash. Historically, this has been a problem for some excellent stock pickers. So, there are real advantages to favoring a formulaic approach to investing if such an approach would yield returns similar to the returns a complete stock by stock analysis would yield.
Many investment writers have proposed at least one such formulaic approach during their lifetime. The most promising formulaic approaches have been articulated by three men: Benjamin Graham, David Dreman, and Joel Greenblatt. As each of these approaches appeals to logic and common sense, they are not unique to these three men. But, these are the three names with which these approaches are usually most closely associated; so, there is little need to draw upon sources beyond theirs.
Benjamin Graham wrote three books of consequence: “Security Analysis”, “The Intelligent Investor”, and “The Interpretation of Financial Statements”. Within each book, he hints at various workable approaches both in stocks and bonds; however, he is most explicit in his best known work, “The Intelligent Investor”. There, Graham discusses the purchase of shares for less than two thirds of their net current asset value. The belief that this method would yield above market returns is supported on both empirical and logical grounds. In fact, it currently enjoys far too much support to be practicable. Public companies rarely trade below their net current asset values. This is unlikely to change in the future. Buyout firms, unconventional money managers, and vulture investors now check such excessive bouts of public pessimism by taking large or controlling stakes in troubled companies. As a result, the investing public is less likely to indulge its pessimism as feverishly as it once did; for, many cheap stocks now have the silver lining of being takeover targets. As Graham’s net current asset value method is neither workable at present, nor is likely to prove workable in the future, we must set it aside.
David Dreman is known as a contrarian investor. In his case, it is an appropriate label, because of his keen interest in behavioral finance. However, in most cases the line separating the value investor from the contrarian investor is fuzzy at best. Dreman’s contrarian investing strategies are derived from three measures: price to earnings, price to cash flow, and price to book value. Of these measures, the price to earnings ratio is by far the most conspicuous. It is quoted nearly everywhere the share price is quoted. When inverted, the price to earnings ratio becomes the earnings yield. To put this another way, a stock’s earnings yield is “e” over “p”. Dreman describes the strategy of buying stocks trading at low prices relative to their earnings as the low P/E approach; but, he could have just as easily called it the high earnings yield approach. Whatever you call it, this approach has proved effective in the past. A diversified group of low P/E stocks has usually outperformed both a diversified group of high P/E stocks and the market as a whole.
This fact suggests that investors have a very hard time quantifying the future prospects of most public companies. While they may be able to make correct qualitative comparisons between businesses, they have trouble assigning a price to these qualitative differences. This does not come as a surprise to anyone with much knowledge of human judgment (and misjudgment). I am sure there is some technical term for this deficiency, but I know it only as “checklist syndrome”. Within any mental model, one must both describe the variables and assign weights to these variables. Humans tend to have little difficulty describing the variables that is, creating the checklist. However, they rarely have any clue as to the weight that ought to be given to each variable. This is why you will sometimes hear analysts say something like: the factor that tipped the balance in favor of online sales this holiday season was high gas prices (yes, this is an actual paraphrase; but, I won't attribute it, because publicly attaching such an inane argument to anyone’s name is just cruel). It is true that avoiding paying high prices at the pump is a possible motivating factor in a shopper’s decision to make online Christmas purchases. However, it is an immaterial factor. It is a mere pebble on the scales. This is the same kind of thinking that places far too much value on a stock’s future earnings growth and far too little value on a stock’s current earnings.
The other two contrarian methods: the low price to cash flow approach and the low price to book value approach work for the same reasons. They exploit the natural human tendency to see a false equality in the factors, and to run down a checklist. For instance, a stock that has a triple digit price to cash flow ratio, but is in all other respects an extraordinary business, will be judged favorably by a checklist approach. However, if great weight is assigned to present cash flows relative to the stock price, the stock will be judged unfavorably. This also illustrates the second strength of the three contrarian methods. They heavily weight the known factors. Of course, they do not heavily weight all known factors. They only consider three easily quantifiable known factors. An excellent brand, a growing industry, a superb management team, etc. may also be known factors. However, they are not precisely quantifiable. I would argue that while these factors may not be quantifiable they are calculable; that is to say, while no exact value may be assigned to them, they are useful data that ought to be considered when evaluating an investment.
There is the possibility of a middle ground here. These three contrarian methods may be used as a screen. Then, the investor may apply his own active judgment to winnow the qualifying stocks down to a final portfolio. Personally, I do not believe this is an acceptable compromise. These three methods do not adequately model the diversity of great investments. Therefore, they must either exclude some of the best stocks or include too many of the worst stocks. It is wise to place great weight upon each of these measures; however, it is foolish disqualify any stock because of a single criterion (which is exactly what such a screen does).
Finally, there is Joel Greenblatt’s “magic formula”. This is the most interesting formulaic approach to investing, both because it does not subject stocks to any true/false tests and because it is a composite of the two most important readily quantifiable measures a stock has: earnings yield and return on capital. As you will recall, earnings yield is simply the inverse of the P/E ratio; so, a stock with a high earnings yield is simply a low P/E stock. Return on capital may be thought of as the number of pennies earned for each dollar invested in the business. The exact formula that Greenblatt uses is described in “The Little Book That Beats the Market”. However, the formula used is rather unimportant. Over large groups of stocks (which is what Greenblatt suggests the magic formula be used on) any differences between the various return on capital formulae will not have much affect on the performance of the portfolios constructed. Greenblatt claims his magic formula may be used in two different ways: as an automated portfolio generation tool or as a screen. For an investor like you (that is, one with sufficient curiosity and commitment to frequent a site such as this) the latter use is the more appropriate one. The magic formula will serve you well as a screen. I would argue, however, that you needn't limit yourself to stocks screened by the magic formula, if you have full confidence in your judgment regarding some other stock.
These four formulaic approaches (the three from Dreman and the one from Greenblatt) will likely yield returns greater than or equal to the returns you would obtain from an index fund. Therefore, you would do better to invest in your own basket of qualifying stocks than in the prefabricated market basket. If you want to be a passive investor, or believe yourself incapable of being an active investor, these formulaic approaches are your best bet. In fact, if I were approached by an institution making long term investments and using only a very small percentage of the fund for operating expenses, I would recommend an automated process derived from these four approaches. I would also recommend that 100% of the fund’s investable assets be put into equities, but that is a discussion for another day (in fact, it’s a discussion for Tuesday; my next podcast is devoted to the dangers of diversification). If, however, you believe you have what it takes to be an active investor, and that is truly what you wish to be, then, I would suggest you do not use these approaches for anything more than helping you generate some useful ideas.
If you choose this path, you need to be clear about what being an active investor entails. Read this next part very carefully (it is correct even though it may not appear to be): I have never found a screen that generates more than one buy order per hundred stocks returned. Even after I have narrowed the list of possible stocks down by a cursory review of the industry and the business itself, I have never found a method that can consistently generate more than one buy order per twenty five annual reports read. Here, I am citing my best past experiences. In my experience, most screens result in less than one buy order per three hundred stocks returned, and I usually read more like fifty to a hundred annual reports per buy order at a minimum. You may choose to invest in far more stocks than I do. Perhaps instead of limiting yourself to your five to twelve best ideas as I do, you might want to put money into your best twenty five to thirty ideas. Do the math, and you'll see that is still quite a bit of homework. That’s why remaining a passive investor is the best bet for most people. The time and effort demanded of the active investor is simply too taxing. They have more important, more enjoyable things to do. If that’s true for you, the four formulaic approaches outlined above should guide you to above market returns.
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Geoff Gannon is a full time investment writer. He writes a (print) quarterly investment newsletter and a daily value investing blog. He also produces a twice weekly (half hour) value investing podcast at http://www.gannononinvesting.com.
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[4] "ATTITUDE VITAMINS"
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The credit belongs to the man, who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs and comes short again and again, who knows the great enthusiasms, the great devotions and spends himself in a worthy cause; who at the best, knows the triumph of high achievement; and who, at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who know neither victory nor defeat. – T. Roosevelt
Give up defining yourself--to yourself or to others. You won't die. You will come to life. And don't be concerned with how others define you. When they define you, the are limiting themselves, so it's their problem. Whenever you interact with people, don't be there primarily as a function or a role, but as a field of conscious Presence. -- Eckhart Tolle
As we are liberated from our own fear, our presence automatically liberates others. Nelson Mandela
One's dignity may be assaulted, vandalized and cruelly mocked, but cannot be taken away unless it is surrendered. -- Michael J. Fox
Most misfortunes are the results of misused time. -- Napoleon Hill
The more you can dream the more you can do. -- Michael Korda
When I look into the future, it's so bright it burns my eyes. -- Oprah Winfrey
You do not merely want to be considered just the best of the best. You want to be considered the only one who does what you do.-- Jerry Garcia
To err is human; to forgive, divine.-- Alexander Pope
Forgiveness is not an emotion, it's a decision. -- Randall Worley
The weak can never forgive. Forgiveness is the attribute of the strong. -- Mahatma Gandhi
Trust is the essence of leadership. -- Colin Powell
Optimism is a force multiplier. -- Colin Powell
Take time to deliberate; but when the time for action arrives, stop thinking and go in. -- Andrew Jackson
One man with courage makes a majority. -- Andrew Jackson
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[5] "STRESS BUSTER"
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As he was drilling a batch of recruits, the sergeant saw that one of them was marching out of step. Walking up next to the man as they marched, he said sarcastically: "Do you know they are all out of step except you?"
"What?" asked the recruit innocently.
"I said -- they are all out of step except you!" thundered the sergeant.
The recruit replied, "Well, sarge, you're in charge -- you tell them!"
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Top ten ways to annoy your waiter
From the Late Show with David Letterman - Friday, January 13, 1995 with revisions made by John Insor.
10. Eight hour lunch, two dollar tip.
9. Ask, "Excuse me, are you a really bad singer, or a really bad actor?"
8. After he describes each special, you shout, "Garbage!"
7. Whenever he walks by, cough and mutter, "Minimum wage".
6. Every few seconds, yell, "More
waffles, Cuomo!"
5. Insist that before ordering, you be allowed to touch
the London broil.
4. Tie tablecloth around neck and say, "You wouldn't
charge Superman for dinner, would you?"
3. Every time you eat or drink,
cough really hard.
2. As he walks by to the kitchen, scream, "He's gonna
spit in the chowder!"
1. Three words: eat the
check.
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On a rural road a policeman pulled this farmer over and said: "Sir, do you realize your wife fell out of the car several miles back?"
To which the farmer replied: "Thank God, I thought I had gone deaf!"
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[6] "FEEL GOOD CLASSIC"
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Why Mothers Cry...
"Why are you crying?" he asked his mom.
"Because I'm a mother," she told him.
"I don't understand," he said.
His mom just hugged him and said, "You never will!"
Later the little boy asked his father why Mother seemed to cry for no reason.
"All mothers cry for no reason," was all his dad could say.
The little boy grew up and became a man, still wondering why mothers cry.
So he finally put in a call to God and when God got on the phone the man said, "God, why do mothers cry so easily."
God said, "You see son, when I made mothers they had to be special. I made their shoulders strong enough to carry the weight of the world, yet gentle enough to give comfort. I gave them an inner strength to endure childbirth and the rejection that many times come from their children. I gave them a hardiness that allows them to keep going when everyone else gives up, and to take care of their families through sickness and fatigue without complaining. I gave them the sensitivity to love their children under all circumstances, even when their child has hurt them very badly. This same sensitivity helps them to make a child's boo-boo feel better and helps them share a teenager's anxieties and fears. I gave them a tear to shed. It's theirs exclusively to use whenever it's needed. It's their only weakness. It's a tear for mankind."
Author unknown
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[7] "CHOP SUEY ROJAK"
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Note: If long URL’s break, please cut and paste.
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Change or Die
What if you were given that choice? For real. What if it weren't just the hyperbolic rhetoric that conflates corporate performance with life and death? Not the overblown exhortations of a rabid boss, or a slick motivational speaker, or a self-dramatizing CEO. We're talking actual life or death now. Your own life or death. What if a well-informed, trusted authority figure said you had to make difficult and enduring changes in the way you think and act? If you didn't, your time would end soon -- a lot sooner than it had to. Could you change when change really mattered? When it mattered most? Read more at
http://pf.fastcompany.com/magazine/94/open_change-or-die.html
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Self-Discipline May Beat Smarts as Key to Success
Zoe Bellars and Brad McGann, eighth-graders at Swanson Middle School in Arlington, do their homework faithfully and practice their musical instruments regularly. In a recent delayed gratification experiment, they declined to accept a dollar bill when told they could wait a week and get two dollars. Those traits might be expected of good students, certainly no big deal. But a study by University of Pennsylvania researchers suggests that self-discipline and self-denial could be a key to saving U.S. schools. According to a recent article by Angela L. Duckworth and Martin E.P. Seligman in the journal Psychological Science, self-discipline is a better predictor of academic success than even IQ. Read more at:
http://www.washingtonpost.com/wp-dyn/content/article/2006/01/16/AR2006011600788_pf.html
(long URL -- best cut n paste)
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In Praise of Slowness -- Finding Your Inner Tortoise in a World Addicted to Speed. Extol the Slow.
Every parent knows that children like bedtime stories read at a gentle, meandering pace. But three years ago, in reading Dr. Seuss to my son, I was too fast, too busy, too hurried to slow down. Instead, I whizzed through The Cat in the Hat, skipping a line here, a paragraph there, sometimes a whole page. Things got so rushed I even considered buying a book of one-minute bedtime stories. And that’s when the alarm bells started ringing…..
http://www.abanet.org/lpm/magazine/articles/v32is1an2.html
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Note again: If long URL’s break, please cut and paste.
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[8] "SPONSORS’ MESSAGES"
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(none, this issue)
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Privacy Policy: We do not rent or sell your email address. Period.
Compilation © Copyright 2006 G K Lim, All Rights Reserved
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