Jim's Investing Continuum

Let’s Be Honest: Are You an Investor or a Speculator?

Excerpt:

With the stock market seemingly setting all-time highs every day even as bond prices crumple, this is a crucial time to clarify the difference between investing and speculating.

Unfortunately, that distinction — often credited to the great investment analyst Benjamin Graham — has never been entirely clear.

Every asset is an investment in some people’s hands and a speculation in others’. So it isn’t what you buy, but rather why you buy, that determines whether you are investing or speculating. In his classic 1934 book “Security Analysis” and again in “The Intelligent Investor” (1949), Graham wrote: “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory [or ‘adequate’] return. Operations not meeting these requirements are speculative.”

I used to regard that description as definitive, but I began to see its flaws a few years ago. Can any analysis ever be thorough enough to “promise” safety or a positive return?

The traditional view, dating back at least to the 19th century, is that an investor buys to capture a predictable long-term stream of cash flow, while a speculator buys to harvest a short-term change in price.

Comment: Click on the image above for larger. On the right is Mark Wahlberg from The Gambler . On the left is the Speculator. In the middle is the planter who patiently waits. Several have asked about my own investing strategies. Here goes:

• Basically the speculator is the gambler but the gambler may just not care.
• I try to "treat every nickel like a manhole cover"
• I don't pay an investment advisor so right there I am saving myself 1% (or more). And I figure that I could be an investment advisor and I care more about my assets than another.
• About "my assets" - they really are The Lord's. All came from Him - I must glorify Him. A practical outcome of this is that I do not hoard and I do not invest in companies such as tobacco stocks (although their returns are attractive as in MO or BTI)
• The aforementioned The Intelligent Investor by Benjamin Graham is the definitive read.
• I do not Day Trade. Never have. I doubt I could make $$ doing it. I regard it as gambling
• I rarely trade any stock short term 
• I don't trade Options. I've thought about it and have investigated it but have not and doubt I ever will.
• If I don't understand what I am buying I pass on the investment
• I research the company sufficiently to know something about it. I have many examples but here is just one. We think Cracker Barrel is a great restaurant and we have stock in it. 
• I explain it and "sell" the investment to my wife. She has to agree.
• It has to, there are exceptions such as BRK-B, pay a dividend.
• I have to have some confidence that the equity will continue to pay a dividend.
• Diversification: No one stock dominates. Although we are heavy into several stocks such as ED, JNJ, MMM, and KMB
• I don't need to beat another investor. I'm not in a contest with another
• I hope to have a combination of dividends + some growth. I'm happy with 5%
• I am not looking for spectacular returns - sounds like speculate
• I buy and hold
• I try to live humbly (I have a 10 year old car with just about 100,000 m and a 15 year old truck)

Internet poker: new ways to fund the welfare state

D.C. Plays Fizzbin With Online Poker - How to make the poor pay for the welfare state: online gambling.
Excerpt:

Sometimes only a Star Trek metaphor will do. Remember the episode about a primitive people who developed a planet-girdling civilization based on the principles of the Chicago gangs? Many modern economic anthropologists would tell you that the state begins as organized crime, dividing up rackets and controlling turf.

Case in point: anything having to do with Internet poker.

It starts with the enterprising activities of the Justice Department. Seizing on a 2006 law making it illegal to process U.S. payments for online gambling, federal prosecutors last year brought charges against three offshore poker websites. While admitting no wrongdoing, the sites quickly settled and agreed to hand over substantial sums of money to the department.

Some of these funds were supposed to reimburse the "victims," U.S. poker players who had money in their accounts when the sites were shut down. But so cumbersome and legalistic is the process created by Justice that many lawyers say they don't expect their clients to find it worth the trouble or legal fees. Justice may end up keeping much of the loot itself under asset-forfeiture rules.

Don't expect a hue and cry from gambling interests, however. Bigger stakes are up for grabs, not unlike the turf war Captain Kirk found when he beamed down to the gangster planet Sigma Iotia II.

Having cleared the online poker marketplace of its incumbents, Justice decided that under the 1961 Wire Act most Internet gambling isn't illegal after all. This new "interpretation," which came at the behest of Illinois and New York, has inspired a new light in the eyes of state officials looking for ways to fund the welfare state. Dancing in their heads are visions of new state-sponsored gambling empires built on online poker, online slot machines and online lottery-ticket sales, with politicians collecting most of the vig.

Comment: I missed that episode but I was never really a Star Trek fan. On Fizzbin. Fizzbin image source.  On Chicago Mobs of the Twenties. And Star Trek Season 2 » Episode #17 - A Piece of the Action

Electronic pull-tabs: Revenue Reality Check

Can electronic pull-tabs pull in enough stadium revenue?

Excerpt:

A major pillar of the Vikings stadium proposal unveiled last week is tax revenue from an expansion in charitable gambling. But such a financing plan has lots of unknowns — and one key question: Will the introduction of electronic gambling gizmos generate enough income to repay the bonds?

The financing proposal depends on electronic pull-tabs supplying funds to repay $398 million in bonds the state plans to float to build the facility. (Minneapolis will back another $150 million in bonds with sales taxes, pending City Council endorsement to the financial arrangement.

The entire public financing plan, Gov. Mark Dayton said last week, wouldn't use "a single dollar of general fund tax revenues.")

Minnesota already allows paper pull-tabs. To win cash prizes, players match pictures on the front of the cards they purchase, usually for $2 each, under tabs that they tear off. Bars and restaurants sell them on behalf of nonprofits, and the proceeds -- minus the prize money, expenses and taxes -- go to charity. Among those who benefit in Minnesota: American Legion posts, VFW groups and others who use the money to support local sports leagues, scholarships and the like.

Comment: I'm not particularly naive but until pull tabs were recently explained to me, I didn't even know what they were. Sounds like a giant waste of time and money! The linked article examines the dubious propects of the electronic pull tab revenue source. A must read because if this stream fails, all Minnesotans will be holdlng the bag for the Vikings stadium

Lottery luckless guy

Thousands Later, He Sees Lottery’s Cruelty Up Close

Excerpts:

Last year, he spent $30,000 on the lottery. ... For the last three years, he has utterly failed to recoup a rather staggering investment: $500 to $700 on the lottery a week.

....

Such a habit goes well beyond “social gambling,” said Jim Maney, executive director for the New York Council on Problem Gambling. John Charlson, a spokesman for the New York State Lottery, declined to discuss the specifics of Mr. Otero’s situation, but said that independent studies showed that the average New York lottery player spent about $350 a year and that other surveys showed that 75 percent of all New Yorkers have, at one time or another, put down money on the games.

Mr. Otero, 52, came to New York City from Puerto Rico nearly 30 years ago and worked as a mechanic in the Bronx. He has held his current job for about 10 years and supports his wife and two children on a yearly take-home pay of $40,000, he says, which does not include the free apartment, odd jobs or the typical Christmas tips.

But working is for poor uneducated men — a sucker’s game, he said, where one must run increasingly fast to keep one’s place in line. “You’re making money on the one side and spending it on the other,” he said. “If all you’re doing is working, you’re never going to win.”

So, for the last three years, Mr. Otero has been searching for an entry to the easy life — to win the lottery and move back home to Puerto Rico; to put his feet up with his family by his side.

He plays the game in shifts: one bet in the morning at 11 o’clock, another in the middle afternoon. His bets will range from $10 to $20 on a scratch-off game or on the daily numbers. He picks his digits, he explained, from the license plates of parked or passing cars.

....

In three years, Mr. Otero has won only three times: He earned $1,000 on a scratch-and-win last year and pulled in more than $2,000 on the Pick Five twice.

Comment: How's that phrase go? "The lottery is a tax on the stupid"!

Gambling: The house always wins

CT: Gambling Opponents Say Moral Argument No Longer a Trump

Excerpt:

"The church's opposition to gambling has not been widely effective," said the Rev. Tom Grey, spokesman for the National Coalition Against Legalized Gambling, "because (the church is) not relevant in an irreverent age."

Grey, who fought gambling for years from the pulpit as a United Methodist pastor, said the moral argument that gambling is a sin is too easily swept aside as impeding the personal freedom of others.

As a result, Grey's anti-gambling coalition avoids explicit mentions of religion, and presents more economically grounded arguments that center around addiction, bankruptcy and crime, Grey said.

"There's a cost when people lose — they chase the loss," Grey said. "It's the government's dirty little secret. The house always wins."

Comment: I see gambling as a regressive tax on the ignorant.

'look like an altar boy'?

Rose rips steroid users, says Hall hopes helped

Excerpt:

“I never thought anybody would make me look like an altar boy,” Rose said.

“I’ve been suspended 18 years for betting on my own team to win,” he added. “I was wrong ... but these guys today, if the allegations are true, they’re making a mockery of the game.”

Rose was banished from baseball for life in 1989 for betting on games while he was manager of the Cincinnati Reds, his former team. He denied the gambling allegations until 2004, when he came clean in his autobiography. He is not eligible for the Hall of Fame.

“If you’re going to put these guys that supposedly did steroids into the Hall of Fame, I mean I’ve got to get a shot somewhere,” he said.

Rose finished with 4,256 hits, breaking Ty Cobb’s career record.

Comment: Pete should never be in the Hall! I grew up in Cincinnati and in Pete's general neighborhood. He went to Western Hills High ... I went to Oak Hills (adjacent schools). I was a huge Pete Rose fan. But his gambling disqualified him!

Indicted one season too late

Bonds' indictment sparks talk throughout baseball

Excerpt:

Barry Bonds, baseball's all-time leading home run hitter, was indicted by a federal grand jury Thursday on charges of perjury and obstructing justice for allegedly lying about using steroids.

The indictment in San Francisco probably ends the 43-year-old slugger's career three months after he broke Hank Aaron's home run record under a cloud of suspicion about whether Bonds had taken performance-enhancing drugs. Now Bonds — a hulking symbol of an era in baseball that featured booming home runs and questions about whether steroids were tainting the game's integrity — could face up to 30 years in prison if convicted on all charges.

The indictment stems from a four-year probe into steroid use by athletes who got supplements from a firm known as the Bay Area Laboratory Co-Operative (BALCO). Bonds, formerly an outfielder for the San Francisco Giants, faces four perjury counts and one count of obstructing justice stemming from his testimony to a federal grand jury in December 2003.

During that grand jury appearance, the indictment says, Bonds repeatedly was asked whether he had received anabolic steroids, human growth hormone and other performance-enhancers from a longtime friend — and whether Bonds had used such substances. The indictment recounts more than a dozen denials by Bonds during his testimony and alleges that they were lies.

See CFG: * Ball

Comment: Too bad he was not indicted before he broke Aaron's HR record! Barry and Pete Rose ... 2 guys who should never be in the Hall of Fame

Bonds won't make Hall of Fame, but records should stand

Excerpt:

Barry Bonds, if convicted, faces up to 30 years in prison (a year or two would be more likely) and the loss of whatever chance he had, after years of alleged steroid use, of enshrinement in the Hall of Fame. The churlish, bulky slugger — Major League Baseball's all-time home run leader — has been indicted by a federal grand jury on perjury and obstruction of justice charges.

Pete Rose, baseball's all-time hits king, served time in prison on tax evasion charges and is stuck with a lifetime ban from the game and, for all practical purposes, from Cooperstown for violating rules against gambling.