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Stock Market Prognosticator
Under the Buttonwood Tree
White Mountains Insurance (WTM)
June 17, 2007
White Mountains Insurance has grown its tangible book value at a rate of 17% since its IPO in 1985. I listened to its recent analyst day which was held June 8th in New York City. I have posted my notes since the stock is not covered on Wall Street despite the quality of the company.
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Stock of the Month: Bexil Corporation (BXL)
May 5, 2007
Bexil trades at 76% of its Net Current Asset Value, with all of its assets in safe U.S. Treasury Notes. Can you really buy a dollar for 76 cents?
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Stock of the Month: Central Securities Corporation (CET)
April 9 , 2007
A stock that trades at a 12% discount to net asset value and that has outperformed the S & P 500 for the last twenty years??
Could it be so?
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The Perils of the Price to Earnings Ratio
March 23, 2007
The price to earnings ratio is one of the most common methods used to value common stocks or the market, not only by professional investors but individuals as well. An investor will look at a graphical depiction of a time series of the price to earnings ratio of either the market or an individual stock and then decide whether the company or market being analyzed is “cheap” or “expensive” relative to its history. However, this method can give a false signal when used to analyze stocks that are in industries where earnings have a pronounced cyclicality. That is to say that with “deep cyclicals” when a stock has a high price to earnings ratio it is actually cheap, and when it has a low price to earnings ratio, it is actually expensive. This is because the denominator of the ratio (the earnings) is extremely volatile and can become quite small relative to the price of the company’s stock when earnings are troughing. How does this work exactly?
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Stock of the Month: Pittsburgh and Western Railroad (PW)
March 20, 2007
Every now and then when doing research you come across an unusual stock that is completely unknown. The stock that fits the bill today is called Pittsburgh & West Virginia Railroad. Pittsburgh & West Virginia Railroad is a $ 14 million market cap company that trades on the curb under the symbol PW. Now before I tell you about it, just because I mention a stock as Stock of the Month does not mean I am recommending that it be bought. It is more something that caught my eye, a relief from the mediocrity of relative performance induced boredom where everyone owns and buys and talks about the same stocks.
PW is essentially a captive company associated with Norfolk Southern Corporation (NSC).
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Behavioral Investing
March 17, 2007
The field of behavioral economics is a fascinating foray into the human mind. It refers to how human and social cognitive biases impact the investing strategies of investors. These biases can be exploited by other investors to make better decisions in the stock market. These anomalies, as they are known, are many. The one that I am writing about today is called groupthink.
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Social Proof (The Herd)
March 3, 2007
The classic cliché regarding individual investors, but also a part of the institutional investment scene to a greater extent than they would like to admit. Relative performance can make “smart people look stupid” as they feel compelled to own a stock because it is a large component of their benchmark, or stated another way – because it is owned by their peers. It has always been easier to do stupid things while part of a crowd rather than doing it alone. The scientific name for this principle is “social proof’ and is best expressed by Dr. Robert B. Cialdini, Professor of Psychology at Arizona State University, who has studied this concept as it applies to cult recruitment and conversion.
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