I was kicking back late one Sunday afternoon in a cemetery on the outskirts of San Francisco. Woodlawn Masonic Cemetery to be specific. You might find this strange, but a cemetery is quite a tranquil place. In fact, you'd better get used them, because you are bound to spend a considerable amount of time there. Cemeteries are well-kept, quiet places and frequently have the most amazing views. One of my favourites is Hampstead Cemetery, just off Hampstead Heath in North London. Anyway, on my way out I noticed a red marble tombstone with the following inscription:

Norton the 1st, Emperor of the United States of America and Protector of Mexico - Joshua A Norton 1819 to 1880

With a little bit of research I came across the following information.

Joshua was one year old when he arrived in Cape Town harbour, South Africa, part of the group of immigrants that came to be known as the 1820 Settlers. After working for his father in his grocery store in Grahamstown, he started his own business in Port Elizabeth at the age of 22. It took him only two years to go insolvent. This seemed to be a family affair because his father narrowly escaped bankruptcy himself, only because he passed away in 1844. So what can a bankrupt young man do, other than join the 1949 California Gold Rush? So, off he went.

Over the next 10 years he fluctuated between being very rich and being very poor and subsequently became disillusioned enough to proclaim himself Emperor of the United States of America. However, due to some strange occurrence of events, in which he won the public's backing, the title became official on 12 September 1859 when he published his first Imperial Edict in the San Francisco Bulletin. He had an Imperial Palace, wore Imperial Purple and issued Bonds of the Empire with a face value of 50 cents and 5% interest. He ruled wisely for over 20 years. A San Franciscan paper explained that 'Since he has worn the Imperial Purple he has shed no blood, robbed nobody, and disposed the Country of no one'. His wisdom was not limited to the United States, as even Queen Victoria, Leon Gambetta, Abraham Lincoln, Jefferson Davis, the Emperor of China, Queen Isabella of Spain, Benjamin Disraeli and the Czar of Russia wrote to him for advice.

This might be a colourful way for me to make my point but there is a very important investment lesson to be learnt here. You might be thinking that this is the biggest load of rubbish you have ever heard in your life. This guy is nuts! However, I am right because the facts make me right. Go check your facts before you venture an opinion, and start with the red marble tombstone in the Woodlawn Masonic Cemetery. Neither my nor your opinion counts for anything. Only the facts will determine the outcome.

The same goes for investment. Unfortunately, too many people tie their

financial future to the opinions of unscrupulous promoters of useless investments. In the financial world, most advisers' opinions and advice are driven by the effect it will have on their own pockets rather than yours. One only has to look as far as the ongoing SEC probe into the quality of advice given by leading investment banks during the Internet boom for proof of the above. Even though it is hard to believe, certain banks/analysts recommended stocks as a "buy" despite knowing that they were poor investments. Still not convinced? How many times have you seen an analyst put out a "sell" recommendation, especially on a company that provides his or her bank with lucrative fee income?

The value of an opinion is determined ONLY by how ACCURATELY it reflects the underlying facts and by how REALISTICALLY those facts are interpreted. If you use an advisor or manager, like Warren Buffett for instance, you'd better ensure that they are incentivised to base their opinions on fact and not on what they need to say to get you to invest. Those advisors/managers are few and far between. If 81% of 'professional' fund managers in America (and very likely the world) could not beat the market average (S&P500) over the last 25 years, then what regard do you think they have for the facts? Either they are unable to interpret the facts correctly or they are simply ignoring them. Personally, I believe it is the latter. As far as stocks are concerned, it is not the prevailing majority opinion (the market) that will determine the likely outcome. You will are most likely to make money in the stock market by investing in stories that everybody else finds unbelievable at the time. However, you cannot invest by simply going against the prevailing thought. You have to be backed up by the facts.

The bottom line is that you have to become a master of the facts. You cannot know it all, so know more about less. As per Andrew Carnegie's maxim: 'Put all your eggs in one basket and watch the basket'.

From the Investment Bible (Security Analysis, Benjamin Graham):

'The first rule of the intelligent action by the enterprising investor must be that he will NEVER embark upon a security operation which he does not fully comprehend and which he cannot justify by reference to the results of his own study and experience. The endeavour to make money in securities is a business undertaking, and it must be in accordance with business principles.'

Personally, I always feel that I have to establish the facts for myself

because nobody's opinion is worth more than my own. So where do I go to

establish the facts? Graham says, 'For many analytical purposes it is sufficient to take the material at second hand, from the various manuals, supplements, or the current information service of Moody's and Standard & Poor's. But for a full-scale analysis the practitioners will generally find it advisable to consult the original sources to make sure that nothing of importance is overlooked.'

I like to think of the original sources as unpolluted sources. Unpolluted by other's opinions - as pristine as you can get.

I know I am hammering on about this in this series of Investment Basics, but it is crucial. Investment success (currently, investment survival) are determined by the following:

1) ESTABLISH INVESTMENT GUIDELINES

2) GET THOSE GUIDELINES FROM THE FOLKS THAT PRODUCED THE REQUIRED RESULTS IN THE PAST.

3) ESTABLISH THE FACTS.

4) BECOME DISCIPLINED IN APPLYING YOUR GUIDELINES TO THE FACTS.

I was asked the following a week or so ago on a website where this series gets published:

What's your track record?

Please tell!

If you're going to gather a full posse - you need to convince at least a few grouchy old cynics who wouldn't know salvation if it came up and hit them on the nose!

The writer got it exactly right. Show me the money and only then will I

listen to you. If everybody had that attitude half of the fund managers in the world would be out of a job! Maybe it is time to send them packing.

Whatever you are up to, I hope it is profitable and ethical!

Mr. B

mail_mrb@yahoo.com

Posted: 2002/10/07 08:35 View Archive