When Porsche Comes to Shove…
…or, more accurately, when it comes to shoving a Porsche.

I have a friend who decided to become a client. Last week she informed me that the amount she was going to hand over to manage had to be reduced by the amount her husband was obliged to hand over the owner of a Porsche he “accidentally” backed into.

Now, being a non-owner of a Porsche myself (for now) I fully understand the urge to “accidentally” plow into one every now and then, but how many of us actually ever stop to consider the investment consequences of such impulses?

In other words, the more you give in to your impulses, the less likely it becomes that, the next time around, you will be the owner of the Porsche that gets backed into.

Of course, there’s much to be said about buying a less expensive car and investing the savings. Both a Porsche and, say, a Ford Taurus, will both get you from point A to point B in about the same time, albeit not with the same measure of style. And, as some image-conscious professional might assert, the journey from point A to point B isn’t necessarily a horizontal one.

Notwithstanding, a penny saved is a penny invested, unless you’re the type to keep your savings in your mattress, in which case your investment decisions are something “you sleep on.”

Economists tell us that to save money is to overcome one’s natural impulse to spend it now, and that in order to be induced to save most of us must be given a more lucrative alternative: more spending power in the future. This propensity to spend is easily seen by looking at (i) the ever increasing levels of personal debt—particularly credit card debt—and the attendant increase in personal bankruptcies, and (ii) the number of people who don’t maximize their RSP contributions.

The difference between our spending power today and that of some point in the future, when adjusted for inflation, is called the real rate of return on our investments. I would suggest that most of us need to get real.

On a related matter…

I tend to read much investment commentary in addition to dispensing it. Some of it is more interesting than useful, some the reverse. You decide on this one:

An article appearing on the Wall Street Journal Online, September 5th, 2007, cites a study which examines what happened to the profitability of 75,000 companies in Denmark following a death in the family of a CEO:

The results:
Loss of
Child: -21.4%.
Spouse:-14.7%
Any family member: -9.4%
Parent: -7.7%
Mother-in-law: +7.0%

Don’t try this at home.

Now, to be fair, the mother-in-law figure is not statistically significant, but had I mentioned this beforehand none of you who aren’t mothers-in-law would be smiling now.

How is this a related matter? Remember the old joke about the good news/new scenario: your mother-in-law driving your new Porsche off a cliff.

The full article, which also examines the relationship between the size of a CEO’s newly-purchased mansion and it’s subsequent share price, if still available, can be found at: http://online.wsj.com/article/SB118839767564312197.html?mod=hpp_us_pageone

Opening act....

I thought I'd kick things off by reposting an article I wrote for the Castlemoore Investment Letter, in which I shamelessly appropriate quotes from the hit TV show (now in syndication), "Cheers."

Enjoy:


Overweight's the Norm.

Coach: What's shaking, Norm?
Norm: All four cheeks and a couple of chins, Coach.

--from TV sitcom “Cheers”

Let me begin this column by apologizing…for last column, which many of you, due to a server hiccup, received up to eight times by email. And to those of you who did receive it that many times and didn’t read ANY of them, this apology does not apply.

Still and all, it’s nice to know that most of you have a sense of humour; otherwise you might not be reading my columns at all. Speaking of my last column, I briefly touched upon the idea that, in certain situations, being overweight was not necessarily a bad thing, “a waist being a terrible thing to mind” and all. I’m old enough to remember the inflationary ‘70s, when food was so expensive that being overweight was a status symbol.

But I digress.

Most investors have seen research reports from investment dealers which recommend that certain sectors of the market be “overweighted”, “underweighted”, or “market perform.” What these terms meant was certain sectors of the market were expected to outperform the broader market (or index), certain sectors were expected to under perform, and certain sectors to perform about the same.

I recall from my days as an analyst at a firm then known as Nesbitt Thomson (now “BMO Nesbitt Burns”) that we would rank sectors from “1” (worst) to “5” (best) based on how that sector was expected to perform relative to other sectors in the market. We would also rank individual stocks from 1 to 5 based on each stock was expected to perform relative to other stocks in its unique sector. I must say that both sectors and stocks ranked “4” and “5” consistently outperformed those ranked “1” and “2”. Overweighting the former would certainly have been a profitable strategy.

That idea hasn’t been lost on me throughout the years. What we do for our Focus clients at Castlemoore is an expression of that very thought, although implemented somewhat differently: we “Focus” our clients investments in what we believe will be the best performing sectors of the market (or countries) we expect to outperform.

Incidentally, if you’re a fan of legendary investor Warren Buffet, you might interested in knowing that he too follows a focused approach. He believes that spreading one’s money over too many investment opportunities only dilutes the effects any one of them, including the one’s expecting to outperform the others.

And speaking of Buffet, it’s time to eat. Here’s more from Norm, starting with my personal favorite:

"Hey Norm, how's the world been treating you?"
"Like a baby treats a diaper."

"Can I draw you a beer, Norm?"
"No, I know what they look like. Just pour me one."

"How about a beer, Norm?"
"Hey I'm high on life, Coach. Of course, beer is my life."

"How's a beer sound, Norm?"
"I dunno. I usually finish them before they get a word in."

"Beer, Normie?"
"Uh, Coach, I dunno, I had one this week. Eh, why not, I'm still young."

"What's new, Normie?"
"Terrorists, Sam. They've taken over my stomach. They're demanding beer."

"How's it going Mr. Peterson?"
"It's a dog eat dog world, Woody, and I'm wearing Milk-Bone underwear!"

"What will you have, Norm?"
"Well, I'm in a gambling mood, Sammy. I'll take a glass of whatever comes out of that tap."
"Oh, looks like beer, Norm."
"Call me Mister Lucky."

"How's life treating you?"
"It's not, Sammy, but you can!"

"Can I pour you a draft, Mr. Peterson?"
"A little early, isn't it Woody?"
"For a beer?"
"No, for stupid questions."

"Pour you a beer, Mr. Peterson."
"Alright, but stop me at one...make that one-thirty."

"How about a beer, Norm?"
"That's that amber sudsy stuff, right? I've heard good things about it!"

"What's going on, Mr. Peterson?"
"The question is what's going in Mr. Peterson. A beer please, Woody."



sheldon@castlemoore.com
1.416.306.5770 or toll free 1.877.289.5673