The Intelligent Investor_ The Definitive Book on Value Investing - Benjamin Graham [284]
3 News release, The Spectrem Group, “Plan Sponsors Are Losing the Battle to Prevent Declining Participation and Deferrals into Defined Contribution Plans,” October 25, 2002.
4 A few months later, on March 10, 2000—the very day that NASDAQ hit its all-time high—online trading pundit James J. Cramer wrote that he had “repeatedly” been tempted in recent days to sell Berkshire Hathaway short, a bet that Buffett’s stock had farther to fall. With a vulgar thrust of his rhetorical pelvis, Cramer even declared that Berkshire’s shares were “ripe for the banging.” That same day, market strategist Ralph Acampora of Prudential Securities asked, “Norfolk Southern or Cisco Systems: Where do you want to be in the future?” Cisco, a key to tomorrow’s Internet superhighway, seemed to have it all over Norfolk Southern, part of yesterday’s railroad system. (Over the next year, Norfolk Southern gained 35%, while Cisco lost 70%.)
5 When asked what keeps most individual investors from succeeding, Graham had a concise answer: “The primary cause of failure is that they pay too much attention to what the stock market is doing currently.” See “Benjamin Graham: Thoughts on Security Analysis” [transcript of lecture at Northeast Missouri State University Business School, March, 1972], Financial History magazine, no. 42, March, 1991, p. 8.
6 Never mind what these terms mean, or are supposed to mean. While in public these classifications are treated with the utmost respect, in private most people in the investment business regard them with the contempt normally reserved for jokes that aren’t funny.
7 See the brilliant column by Walter Updegrave, “Keep It Real,” Money, February, 2002, pp. 53–56.
8 See Jason Zweig, “Did You Beat the Market?” Money, January, 2000, pp. 55–58.
9 The neuroscience of investing is explored in Jason Zweig, “Are You Wired for Wealth?” Money, October, 2002, pp. 74–83, also available at http:// money.cnn.com/2002/09/25/pf/investing/agenda_brain _short/index.htm. See also Jason Zweig, “The Trouble with Humans,” Money, November, 2000, pp. 67–70.
10 It’s also worth asking whether you could enjoy living in your house if its market price was reported to the last penny every day in the newspapers and on TV.
11 In a series of remarkable experiments in the late 1980s, a psychologist at Columbia and Harvard, Paul Andreassen, showed that investors who received frequent news updates on their stocks earned half the returns of investors who got no news at all. See Jason Zweig, “Here’s How to Use the News and Tune Out the Noise,” Money, July, 1998, pp. 63–64.
12 Federal tax law is subject to constant change. The example of Coca-Cola stock given here is valid under the provisions of the U.S. tax code as it stood in early 2003.
13 This example assumes that the investor had no realized capital gains in 2002 and did not reinvest any Coke dividends. Tax swaps are not to be undertaken lightly, since they can be mishandled easily. Before doing a tax swap, read IRS Publication 550 (www.irs.gov/pub/irspdf/p550.pdf). A good guide to managing your investment taxes is Robert N. Gordon with Jan M. Rosen, Wall Street Secrets for Tax-Efficient Investing (Bloomberg Press, Princeton, New Jersey, 2001). Finally, before you pull the trigger, consult a professional tax adviser.
* It is a violation of Federal law for an open-end mutual fund, a closed-end fund, or an exchange-traded fund to sell shares to the public unless it has “registered” (or made mandatory financial filings) with the SEC.
† The fund industry has gone from “very large” to immense. At year-end 2002, there were 8,279 mutual funds holding $6.56 trillion; 514 closed-end funds with $149.6 billion in assets; and 116 exchange-trade funds or ETFs with $109.7 billion. These figures exclude such fund-like investments as variable annuities and unit investment trusts.
* Lists of the major types of mutual funds can be found at www.ici.org/ pdf/g2understanding.pdf and http://news.morningstar.com/fundReturns/ CategoryReturns.html. Letter-stock funds no longer exist, while hedge