Monday, September 13, 2010

Correspondence With An Inquiring Investor And Opera Aficionado

I regularly attend the annual opening night gala of the San Francisco Opera, which took place last Friday.  It's a great excuse to have fun and be seen hobnobbing with folks who matter.  Plus it's a giant boozefest for my fellow members of the SF Opera's BRAVO! Club who are destined to take the reins of power in The City when the old geezers running things now are no longer around. 

This year at the Gala I met a fellow private investor with a background in the military.  People like that are just naturally drawn to the extremely intense wisdom of yours truly, and I was more than happy to share my extraordinary knowledge.  He asked me for background knowledge about portfolio diversification with ETFs and analyzing the BRIC economies.  My response is below.

(begin genius language)

It was good to see you enjoying the Gala. Hopefully you made a good impression on the high school students you were meeting. 

I do try to put an original spin on financial analysis. Using your own money to learn about investing is fine as long as you have a solid philosophy. Read "Buffettology" for hints at how a master thinks about stocks, and read John Bogle's books to see why most professional money managers fail. There is a lot of baloney and deliberate misinformation published in financial services thanks to analysts and others who are too lazy, inbred, spoiled, or conflicted by bonuses tied to sales of certain products. Ignore almost everything you see on CNBC and in rags like SmartMoney, as those are mere vehicles for advertisers. Think long term, don't get emotional, and keep your costs and trading frequency as low as possible. 

The BRICs are tough to analyze as their reported statistics on growth, unemployment, etc. are distorted by their governments' desires to appear attractive to investors. China is seriously overheating right now thanks to a real estate bubble. 

Check out I like ETFs because they are low-cost and often come with call and put options (useful in risk management).

The key to analysis is reading, just as the key to intelligence is a collection effort. Country analysis means looking at reported macro-level stats (even if distorted) and regional data from sources like the World Bank and OECD. Sector analysis means picking an industry you find naturally attractive, or else you won't be excited about following its stocks. For me, that's primarily defense and logistics thanks to my background. I get regular email alerts from journals in those industries with links to articles I can scan for insights. 

One final word on careers in business. I discovered to my chagrin that Corporate America is mostly indifferent or hostile to the qualities that veterans bring to the workplace. Perhaps a few ex-officers each year grab the brass ring by parlaying a top-ten MBA or law school sheepskin into a job at Goldman Sachs or some fast-track program in the Fortune 500. I've found that self-employment is the only way to have both professional success and personal integrity, while in the corporate world those eventually prove mutually exclusive. You never have to surrender either if you work for yourself.

(end genius language)
See what happens when you meet Tony Alfidi in person?  You end up as the owner of some amazing, mind-blowing, one-of-a-kind wisdom that will make you almost as smart as I already am.