A+ Investors A+ Investors: If You Give an Investor a Cookie
by Chris Mayer
The Rude Awakening
Wall Street, New York
Thursday, February 9, 2006 Chris Mayer explains the difference between A+ Investors and average ones: impulse control. ------------------------- - How you can trade like an "A grader" by exercising
some patience, - Replicating the orgasm high with dollar signs in your
eyes and, - Icelandic Krona delivers some hot returns...
------------------------- You are receiving this email as a part of your FREE
Subscription to The Daily Reckoning. Should you wish to
unsubscribe please follow the instructions at the bottom of
this email. ------------------------- Eric Fry, reporting from Wall Street, the "frontal cortex"
of New York City.... "The pleasure of orgasm, the high from cocaine, the rush of
buying Google Inc. at $450 a share – the same neural
network governs all three," relates Bloomberg's News' Adam
Levy, citing the research of Dr. Brian Knutson, a professor
of neuroscience and psychology at Stanford University.
"What's more, our primal pleasure circuits can, and often
do, override our seat of reason, the brain's frontal
cortex...In other words, stocks, like sex, sometimes drive
us crazy." Dr. Knutson's provocative research suggests that investing
is not quite as cold and dispassionate a process as most of
us assume. While it's true that avid "readers" of Playboy
magazine would never consider the Wall Street Journal a
worthy substitute, investing does sometimes incite primal
instincts and urges...like the urge for instant
gratification. And, of course, the instant gratification
that investors grave is that kind that fills up a bank
account. "We very quickly found out [during our research]," Dr.
Knutson observed, "that nothing had an effect on people
like money – not naked bodies, not corpses. It got people
all riled up." But why, Dr. Knutson wanted to know, do some investors walk
away rich, while others walk away losers. "The answer,"
Bloomberg's Levy deduces from Knutson's research, "may lie
in the 96,000 kilometers of neural wiring in our brains."
In other words, successful traders might be "wired
differently." And if so, perhaps neuroscientists could
develop psychoactive drugs, or "neuroceuticals," that would
render people much more successful traders...or maybe not. While awaiting these wealth-inducing wonder-drugs, most of
us ordinary investors would be well-advised to exercise a
bit more self-discipline and long-term thinking...as Chris
Mayer explains below. --- Advertisement --- The ONLY Stock You Need to Own... This stock is seriously the ONLY stock you
will need to own over the next 10 years. In fact, it's looking to be the next Berkshire Hathaway.
Buffett already has over $300 million in this company...
it's one of the biggest in his portfolio, even though
it's hardly a household name!
Find out how you too can get in on this amazing
opportunity! http://www.agora-inc.com/reports/FST/EFSTG209
------------------------- If You Give an Investor a Cookie...
By Chris Mayer A-plus students are self-disciplined, long-term
planners...so are A-plus investors. When a couple of researchers from the University of
Pennsylvania conducted a recent two-year study of 8th
graders, they expected to find a very close connection
between high IQs and good grades... Not so! Instead, these two researchers, Angela Duckworth and Martin
Seligman, identified a very different key to success: self-
discipline. The most successful students possessed a
superior ability to defer gratification. In fact, the study
identified a whopping .67 correlation between self-
discipline and final GPA, compared to only a .32
correlation for IQ. The most self-disciplined 8th graders
beat their "more impulsive peers on every academic
performance variable." A+ Investors: Grab the Cookie Two decades before Duckworth and Seligman's study, another
researcher had reached a similar conclusion. He found that
a 4-year-olds' ability to delay gratification (to wait a
few minutes for two cookies, for example, instead of taking
one cookie right away) was predictive of academic
achievement a decade later. Sound familiar? Most of us struggle with the urge to grab
one cookie immediately...rather than hold out for two later
on. We don't want to wait. We want results we can see
today. Not surprisingly, the world's "A+ investors" take the exact
opposite approach. For example, the celebrated mutual fund
manager, Bill Miller, tends to trade rarely and hold
positions for a very long time. His Legg Mason Value Trust
has beaten the S&P 500 each and every one of the last 15
years. But really, how important is such a record? Is it
really a worthy goal to try to beat the market EVERY year? Sign Up for The Rude Awakening Start your mornings off with a dose of Rude news. The Rude Awakening is dedicated to highlighting phenomena in the financial markets that others may not see. Let the Wall Street Journal and the New York Times "break news." Sign up FREE Today! We will not share your email address with anyone else, period.
-Andrew Palmer, Director E-commerce Marketing
We Value Your Privacy |
Barton Biggs says, "No"...and the facts seem to back him
up. Biggs, as the longtime investment strategist of Morgan
Stanley, encountered many brilliant investors during his 30
years with the firm. The best of the best, Biggs relates,
produced inconsistent returns – sometimes trailing behind
the S&P 500 for long periods of time. The table below presents a list of fund mangers that have
produced better investment returns than Bill Miller over
the last 15 years, even though they did not beat the market
every year. Instead, we would find that their meaty returns
were not consistent.
 That's to be expected, says Biggs. In his new book,
Hedgehogging, he examines the track-records of the
"superinvestors" that Warren Buffett's mentions in his
famous essay "The Superinvestors of Graham-and-Doddsville."
Biggs notes that these superinvestors produced returns that
lagged the S&P 500 about 30–40% of the time. John
Templeton, another legend — but not included in Buffett's
essay — lagged the big index about 40% of the time. "None in the group always beat the S&P 500," Biggs
relates, "probably because no one thought that was the
primary objective." Even more interesting, some of the
greats had relatively long periods of time – three or four
consecutive years – where they lagged behind the S&P 500.
"Almost invariably, sustained bursts of spectacular returns
either preceded and/or followed those bad periods," says
the former Morgan Stanley guru. An extreme example was Pacific Partners, which went through
four straight years of lagging the market, and five out of
six. Yet, it had several years where it bagged returns of
120%, 114% and 128% — so that overall, it beat the market
over 19 years by a wide margin, 23.6% per year, versus only
7% for the market itself. A+ Investors: Cookie, Now! Many investors would not have stuck with Pacific Partners
for the four long years of lagging returns. (They would
have wanted their cookie...NOW!) But imagine what a mistake
it would have been to bail out of Pacific. "Two or three
straight years (much less four) of performance worse than
the S&P 500 today would result in most investment managers
getting fired," Biggs remarks. "People have short
memories." Biggs also notes the study done a few years ago by Dalbar,
an investment research organization. Dalbar's study showed
that the average mutual fund earned a return of 13.8% per
year (during the great bull market that ended in 2000). Yet
the average investor earned only 7% per year. Why? Because
the average investor was switching his money in and out at
the worst times. He takes his money out when the market has
a bad year and puts it back in when things are back up. It seems clear from experience that beating the market
every year is a dubious goal. "Beating the market" makes
for interesting cocktail party chatter, but successful
investing tends to blossom over a long-term time-frame. "We're primed to think that talent is the key to success,"
one scientist remarked about the results of the
Duckworth/Seligman study. "But what counts even more is a
fusion of passion and perseverance. A-plus investors, just like A-plus students, think long-
term. They don't mind foregoing one cookie today, for the
sake of eating two cookies tomorrow...or ten cookies five
years from now. [Joel's Note: Another great thing about investing in rock
solid companies is that you don't have to do as much work
once your in them. Get the fundamentals right and little
maintenance is needed. Chris Mayer does all the research
and helps his subscribers get into companies that they
don't need to check on or trader every other day. It's not
just buying a stock, it's buying peace of mind. Learn more
about how Chris set you up with some long term winners
right here: The Fleet Street Letter:
http://www.agora-inc.com/reports/FST/EFSTFB06 --- Advertisement --- New from EverBank® World Markets, the Icelandic Krona CD! EverBank World Markets announces the Icelandic Krona CD,
the latest addition to their popular and growing line of
WorldCurrency CDs. The krona edition comes with a cool
8.24% APY, a 3-month term, FDIC insurance, and no account
fees. Based on the following economic indicators, this new
currency opportunity should come as no surprise: 1) In the
last two years alone, the krona has gained almost 14%
against the U.S. dollar; and 2) Iceland's GDP grew over 5%
in 2005 and is expected to go higher in 2006. Apply today
at: www.everbank.com/main.asp?affid=eb&idpage=pro_wc_cd_t1&referID=11925 ------------------------- And the Markets... | Wednesday | Tuesday | This week | Year-to-Date | DOW | 10,859 | 10,750 | 65 | 1.3% | S&P | 1,266 | 1,255 | 2 | 1.4% | NASDAQ | 2,267 | 2,245 | 4 | 2.8% | 10-year Treasury | 4.59 | 4.58 | 6.00 | 19.00 | 30-year Treasury | 4.68 | 4.67 | 5.00 | 14.00 | Russell 2000 | 721 | 717 | -3 | 7.1% | Gold | $551.10 | $548.55 | -$17.80 | 6.6% | Silver | $9.43 | $9.31 | -$0.31 | 6.9% | CRB | 336.07 | 336.43 | -9.83 | 1.3% | WTI NYMEX CRUDE | $62.66 | $62.96 | -$2.71 | 2.7% | Yen (YEN/USD) | JPY 118.52 | JPY 118.09 | 0.34 | -0.5% | Dollar (USD/EUR) | $1.1954 | $1.1975 | 69 | -1.0% | Dollar (USD/GBP) | $1.7415 | $1.7438 | 206 | -1.2% |
| 
