An investor mindset to beat the market

Book Review: ‘The Most Important Thing: Uncommon Sense for the Thoughtful Investor’

Image courtesy of Columbia Business School Publishing.

Book Review
Title: “The Most Important Thing: Uncommon Sense for the Thoughtful Investor”
Author: Howard Marks
Publisher: Columbia Business School Publishing, 2011; 200 pages; $29.95

This is a do-it-yourself, consumer-education-and-empowerment-oriented media age. There is a constant flow of simplifying, demystifying tips and how-to guides for those looking to take more control over their personal finances. For some subjects, that makes sense.

But while there is certainly a market for books that break some complex money matters down to eighth-grade level, the fact is that other topics simply cannot be rendered so simple, in good faith.

This is the premise of Howard Marks’ new book, “The Most Important Thing: Uncommon Sense for the Thoughtful Investor.” In fact, the first point Marks makes is his position that there are actually 18 or so “most important things” when it comes to investing for market-beating returns, all of which must be managed at the same time to achieve success.

Marks makes plain from the jump his belief that successful, above-average investing is just not simple, and his belief that “those who try to simplify investing do their audience a great disservice.” Marks also makes clear that this book is not intended to be a how-to guide, but rather a statement of his investment philosophy, a fundamental way of thinking about investing that facilitates good decision-making and the avoidance of money-losing pitfalls.

(If, by chance, you’re wondering what makes Marks, who is the chairman and co-founder of Oaktree Capital Management, qualified to bestow such advice, consider these words of Warren Buffett: “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something.” Yes, that Warren Buffett.

After very little introductory ado, Marks gets straight on with it, drilling through 20 chapters of his most important things and thoughts on putting them all together to achieve superior results.

This book is deep — not “surface level” at all — as are the thinking styles, viewpoints, understanding and priorities it demands readers take in the course and scope of their self-education and investment decision-making processes. It is not at all about math tricks, rules of thumb or algorithms; instead, it is all about acquiring the edge over average investors by taking different approaches and going much, much deeper than the ordinary, simplicity-seeking, highly computerized investor does.

Marks makes no bones about admonishing readers to carry out what he calls “second-level thinking”: starting up the process of analyzing a stock where others leave off, then going several steps further, going “deep, complex and convoluted” to answer a dozen or more questions that average investors rarely, if ever, take the time to consider.

Marks applies this level of depth and unconventional thinking to such matters as market efficiency (and the lack thereof); value investing; understanding, recognizing and controlling risk; market cycles; how to avoid mistakes through mindset management (minimizing the impact of greed and fear, among other powerful emotions; contrarianism; opportunism and more.

Is this the most user-friendly book on investing? No. Does it contain oodles of tips, tricks and sidebars with bullet lists of “million-dollar musts”? Not even close. But if you’ve decided, as I have, to invest the work and effort it takes to be serious, involved and proactive with respect to your investment decision-making and retirement planning, it provides a very deep, rich understanding of the elements that can power you to above-average results.

Will the results of an intense program of self-study and assertive investing results in returns that are worth the extra time and extra work? Only time will tell, but one way to look at it is to consider Marks’ own words: “only if your behavior is unconventional is your performance likely to be unconventional.”

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

12 cool tools for handy dads

Make painting, woodworking easy for under $300

When it comes to a gift for Father’s Day, you know you can never go wrong with a cool new tool! So here are some great suggestions, listed in order of average street price, for you or the family to consider for Dad this year.

Kreg Square-Cut ($14.98): Here’s a simple, easy-to-use tool that lets you accurately align your circular saw to your pencil mark when cutting wood to length. Adjustable to align perfectly to your specific saw, for fast, repeatable cuts in lumber, siding, and a variety of other materials up to 12 inches wide.

Craftsman Ratcheting Wrench Sets ($17.99 and up): Craftsman is offering a wide range of open-end and box-end wrench sets with ratcheting mechanisms for added convenience. There’s a four-piece open-end set in metric or SAE (standard size) that lets you turn nuts and bolts without removing the wrench. There are also seven-piece open-/box-end Elbow Ratcheting sets, also in metric and SAE ($79.99), with ends that adjust and lock at different angles.

True Temper Graphite “Shock Zero” Hammer ($19.99 and up): A very comfortable hammer with a tough graphite handle and non-slip grip. It features a wider striking face, and a handy magnetic nail holder that helps save your fingers. Well-balanced and virtually indestructible, these 16- and 20-ounce hammers should last a lifetime.

Craftsman Max Axess Mechanics Tool Set ($70): This is a truly unique, open socket and wrench design that allows the bolt to pass through the socket and even through the ratchet. It eliminates the need for deep sockets, and even allows the use of a socket wrench on threaded rods. The complete kit includes 42 sockets in SAE and metric sizes, 1/4-inch and 3/8-inch ratchets, extensions and other fittings, in a great case that holds things very well. It’s all the sockets a do-it-yourselfer should need around the house or shop.

Black & Decker 12V Piranha Pruning Saw ($79.99): This handy pruning saw cuts through branches up to 3 inches thick, and features a pivoting clamping jaw that grabs the branch for a clean cut with less vibration. The 12-volt lithium battery has enough power to cut more than 50 one-inch branches per charge. The saw also accepts any “T” shank jig saw blades, so you can use it for cutting PVC pipe, copper pipe, plywood and lumber.

Dremel Trio ($99): A versatile tool for a variety of DIY projects, the Trio gets its name from its ability to cut, sand and route. The handle pivots 90 degrees for more versatility, and the non-marring foot telescopes for accurate depth control. Great for wood, plywood and drywall. Features variable 10,000 to 20,000 RPM speed control, and comes in a kit with a case and several handy accessories.

DeWalt DCF815S2 12-Volt Max 1/4-Inch Impact Driver Kit ($139): DeWalt offers several different tough, compact tools that utilize the new 12-volt lithium ion battery technology. This is their impact driver, which drives screws and lag bolts with ease. Three LED lights circle the bit for great visibility, and the clever flat, bottom-mounted battery design lets the tool stand up on its own. Very powerful, but light enough and small enough to easily fit in a tool belt. The kit includes two batteries, charger and a soft case.

Ryobi TEK 4 Inspection Scope ($139): If you need to know what the framing’s like inside the wall, where that leak’s coming from, or exactly what’s going on behind the dishwasher, here’s the perfect tool at an affordable price. With a bright LED light, 3-foot waterproof cable, 2-times digital zoom, and a bright, clear viewing screen, now you can see inside walls and behind hidden objects with ease. Uses interchangeable 4-volt TEK 4 batteries. Charger and battery included.

Milwaukee 2411-22 M12 38″ Cordless Hammer Drill Driver Kit ($159): This is one of Milwaukee’s line of compact, heavy-duty 12-volt lithium ion tools, offering 275 inch-pounds of torque while weighing only 2.8 pounds. Has a two-speed gear box (0-400 RPM and 0-1,500 RPM), with 0-22,500 beats per minute (BPM) in hammer mode. It also has an bright LED work light, on-board fuel gauge, and 30-minute charger, all in a fitted case. It’s a lot of tool in a small package.

Wagner 515040 Procoat Max Airless Paint Sprayer ($299): Here’s an affordable airless paint sprayer that can tackle all your big projects, including home exteriors. Sprays 0.26 gallons per minute at 2800 PSI, with a 1/2-horsepower motor and variable pressure for spraying a variety of materials. Includes a 25-foot hose with a professional-grade, all-metal spray gun with reversible tip and filter. Telescoping cart allows painting from a 1- or 5-gallon can.

Husqvarna 356BT Back Pack Blower ($479.95): For larger yards, Dad will really appreciate the unique design of this lower-emission, two-stroke, gas-powered backpack blower. The engine, fan housing, and exhaust tube are all designed and insulated specifically to dampen noise. The blower operates at only 64 decibels, which meets many community noise ordinances, and the tone is a lot gentler on the ears. The comfortable padded and ventilated backpack harness has nice wide shoulder pads and a hip belt. The fan generates 177 MPH of air flow, with a tube-mounted throttle control.

Porter-Cable 77240 24-Inch Omnijig Joinery System ($579.95): If Dad’s a woodworker, here’s the ultimate gift that you might want to get the whole family in on. The well-designed Omnijig works with any router to cut a variety of dovetail and box joints in wood up to 24 inches wide, and from 1/8 inch to 1 1/2 inches thick. Templates allow half-blind dovetails to be cut with a single pass of the router. There are also fingers that are independently adjustable for a unique, hand-cut dovetail look. The various color-coded on-board instructions, depth guides, and bit stops minimize test cuts and ensure greater speed and accuracy.

Remodeling and repair questions? Email Paul at paulbianchina@inman.com. All product reviews are based on the author’s actual testing of free review samples provided by the manufacturers.

   

Fix a flood insurance shortfall

Must borrower boost coverage after lender’s mistake?

Mortgages are complicated instruments subject to a myriad of rules and regulations from the many private parties and government entities that are involved. With so much complexity, mistakes are inevitable.

Q: Last December I did a refinance, which required a flood insurance policy on my home. Everything was fine when, out of the blue, I receive a letter from the bank that purchased the loan stating that I needed to increase the coverage on my flood insurance policy within 30 days or the bank would buy the additional coverage for me. Can the bank do this when the policy I bought met the requirements of the lender I dealt with?

A: This letter is typical of many that I receive about mistakes committed by lenders. First, the mistake arose out of the complexity of a process involving multiple players. The lender was required, as a condition of granting a mortgage, that the borrower purchase flood insurance, because the property was located in an area designated a Special Flood Hazard Area by the Federal Emergency Management Agency (FEMA).

The required coverage, which the originating lender did not get right, is set forth in the Flood Disaster Protection Act.

Another common feature of the letters I receive from borrowers about mistakes is a presumption on their part that because the mistake was not theirs, they should not be required to bear any of the cost of fixing it. That is not the case.

While there are exceptions, in general the law does not allow a borrower to profit (or avoid loss) from a lender’s mistake.

A third common feature is that ownership of the mortgage changed hands before the mistake was discovered. This shouldn’t matter, except that it seems to strengthen the borrower’s presumption that the cost of a fix is someone else’s problem by identifying who that someone is (the originating lender, for example). If the mortgage had changed hands more than once, as is often the case, resolution could become even more complicated.

I advised the borrower in this case to take the path of least resistance, which was to buy the additional coverage and avoid further hassles. I warned her that if the current lender purchased the additional coverage, it could cost her two or three times as much. I also pointed out that the originating lender had no self-serving reason to have her buy inadequate coverage. On the contrary, it exposed that lender to a possible buyback demand from the purchasing lender.

Taking an ex off the hook

Q: You break up with the one you have been living with, and part of the break-up agreement is that you get your ex removed from the loan so that she is no longer liable. Is there any way to do that, aside from refinancing?

A: The only way is to induce the lender to take her name off. That isn’t easy because, from a lender perspective, taking her name off the note weakens it.

What is in it for the lender?

If you have a $1 million deposit or trust account at the bank that holds the mortgage, they would probably do it for you, but that is very uncommon. Most loans are serviced by firms that don’t own them, and these firms don’t have discretion to make changes in the note unless the changes are in the interest of the owner.

The one point of leverage that you may have is that you will refinance if you can’t get her name off the note, which means that the owner would lose the loan. In such case, the servicer might agree if you can demonstrate that you have the assured capacity to make the payments on your own. Documenting that you have in fact been making the payments on your own for a year or more would probably do the trick.

Use a reverse mortgage to repair a home?

Q: I heard a financial expert on the “Today Show” say that using a reverse mortgage to fix up a house was a terrible idea. Do you agree?

A: No, I read the statement and it makes no sense.

Reverse mortgages are for elderly homeowners who need income and are not concerned with the size of their estate. How the additional income will be used, so long as it is the considered judgment of seniors in full command of their faculties, is totally irrelevant. If, rather than leaving the equity in their homes to heirs, they prefer to fix them up, or take a trip around the world, or raise orchids, it is their call to make. Second-guessing the call is presumptuous, to say the least.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

My garden is a daunting thing at this time of year. In fact I often stand looking at it in stark terror, the way that I would look at the prospect of crossing one of those decrepit rope bridges over a gorge of sharp rocks while being chased by zombies.
 

It never used to be this way. I think it’s a combination of factors this year, but mostly the weather. We basically had rain every day in May. And lots in April too. My sandy soil, which can look like a desert during an August drought, has been saturated. The lower part of my garden near the dug well is basically a quagmire. It’s like quicksand and I worry that my boots will be pulled off my feet when I try to walk through it.

Even the upper parts of the garden that usually dry out quickly have been too wet to inspire me to plant. Plants need some sun, and heat, and got next to none of it in May. So while I usually start planting as soon as I can in the spring, this year it was so wet I was afraid the seeds would rot.
 

At this time of year everyone that I meet asks, “So have you got your garden in yet?” It’s usually non-gardeners who would ask this, because they view rain as something that requires you to take an umbrella to work as opposed to something that can prevent you from getting your vegetable garden planted.

At the beginning of March our kitchen was taken over by the new three-shelf grow light and seed table. We just moved the grow light to storage in the barn since at this time of year we move our seedlings from the back porch to the back lawn and then back to the porch on cold nights. Our nights here are still as low as 7 or 8° Celsius (40°F) so I’m still keeping my heat-loving plants like peppers, eggplants, sweet potatoes and tomatoes, inside. I have planted some tomatoes under cloches but I’ve discovered after many, many years of gardening that even if I put a few tomato plants in early, they produce ripe tomatoes at about the same time as the plants that I put in later. I think the reality is that they just need a certain number of heat units to mature so you’re not much further ahead putting them in earlier.
 

There is still an enormous amount to be done otherwise and I’m overwhelmed. When I spend the whole day in the garden on the weekends I start to feel like I’m making progress. But during the workweek when I get out there by 6 am and have to stop at 9 or 10 am to head to my home-office to work on the computer, I feel like I’ve hardly made a dent. That’s when I ask myself, “If I worked in the garden all day, every day, how much money could I make?” Unfortunately I realize that at my scale it would be very difficult to support my meager lifestyle by just growing food. I would really have to scale up the gardens to the point where all the cleared land around the house was in production. It’s a huge task, especially without a tractor. And a tractor would cost me $20,000 or $30,000. I’d have to sell a lot of garlic to pay for a tractor.

Then I would need to find a way to sell it. I could go the Community Shared Agriculture (CSA) route but the question is how many people could I get to join and what could I charge? There are a number of them operating in Kingston but it’s almost an hour’s drive, so the economics of that is questionable. I could try to get local people to join a CSA but there is a much smaller population within an easy drive and many have their own vegetable gardens. We will be selling in town on Saturdays but right now that’s an unknown commodity in terms of what we’ll be able to make in a day.

To a certain extent I believe with growing food I’m in the “go big or go home” zone and being a fair drive from a reasonable population center, it seems I’m still advised to not quit my day job. Not that it’s a real job. Running your own electronic publishing does not guarantee a paycheck. Not in this economy anyway.

I have thousands of dollars worth of computer equipment and sophisticated software to lay out books and produce DVDs and to do websites, so this is where I should be concentrating my efforts. But my heart’s not in it anymore. I still believe in spreading the word about renewable energy and living sustainably, but what I really want to do when I grow up (i.e. now) is to earn a living growing food.

I think this is kind of unfortunate. I believe our society is misdirected in terms of who gets rewarded financially. The most important people in the economy are caregivers who look after children and people who grow food, and most often the people who perform these jobs receive the lowest pay. Who does get paid well in our society? Guys (people) in suits. People who don’t DO anything really.  They push paper around, or bits of digital information on a computer. Any business has an impact on the planet; so the people we pay the most, tend to have the greatest impact. They make “stuff”. They sell “stuff”. They mine stuff from the earth and take from nature to make that “stuff.” And pretty much all of it is “stuff” that we can do without. Food, like air and water though, we need.

Please don’t get me wrong. I’m not complaining,  “Oh woe is me, wannabe farmer who can’t figure out how to make enough money while growing food.” I am extremely grateful to even own the land and have the luxury of dreaming about such a prospect. I just know how much easier it is for me to earn an income on a computer. And safer. I’m not at the mercy of the sun and wind and insects and commodity prices. Or raccoons when the corn’s ripe.

I believe this paradigm is about to change though and peak oil is bringing it on. You can’t pick up a paper without reading an article warning about how much food prices are going up. And in the process farmers are making more money. And there’s a real movement with many consumers to want to know where and how their food was grown, and to try and eat as sustainably as possible. And that just makes it that much easier for young, smaller scale farmers to make a go of it.

So be advised that come the third week of July I’m going to be turning this blog into one big advertisement for our “mail order garlic”. You can think of it as a contribution to the “Cam Mather attempt to make money growing food project” and you will get some of the most delicious and amazing garlic in return! I grow great garlic. I take infinite pride in it. We process every head with love. It has countless proven health benefits like lowering your cholesterol, and best of all, you’ll feel good, helping out that wannbe farmer who lives off the grid in the woods in Eastern Ontario fulfill his love long dream. I don’t want a sports car, I don’t want to walk to Manchu Pichu, I don’t want to go Disney World, I just want to grow food.
 

 

For more information about Cam Mather or his books visit www.cammather.com or www.aztext.com