Martin Bodenham's Blog, page 6

Reader Contest

I am launching today a reader contest to help find a title for my next thriller novel.  The book is almost finished and should come out later this year, but I am still struggling with a suitable title, so I need your help, please.

If I use a title suggested by one of my readers, I will include the winner’s name on the acknowledgements page and send that person a signed copy of the published book.  Please email me with your title ideas at: contact[at]martinbodenham.com.  Good luck and thanks for your ideas.

Here’s what the novel is about…

Would a desperate government conspire against its own people to avoid financial collapse?

Josh Traynor leaves a glittering career on Wall Street to set up his own private equity business. When it wins the multi-billion dollar auction for a government-owned defense company, his firm’s future success looks certain.

But soon after the deal closes, Josh makes an alarming discovery—something that makes the recent acquisition worthless. Then he learns he was duped by the federal government and that there are others in the same position. Facing financial ruin, he investigates the US treasury officials behind the transaction.

What Josh uncovers is a terrifying web of deceit and corruption, extending to the top of the administration, involving blackmail and assassination on an industrial scale.

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Amazon Giveaway

I am giving away three paperback copies of my psychological thriller novel set on Wall Street, Once a Killer, on Amazon Giveaway this week.  It is only available to my US readers at the moment, but I hope to run one for other readers later this year.  No purchase is necessary.  Just head over to the Amazon Giveaway page by clicking on the link below to find out how to enter.

Click here to enter

Here’s the summary of Once a Killer from the back page:

Michael Hoffman has come a long way from his deprived childhood in Chicago’s south side. Now he’s a young, successful partner in a major New York law firm, handling some of its clients’ most prestigious M&A deals. With a beautiful wife, and two young daughters who look up to him, he has built the perfect life.

But Michael has a secret: one that goes back to his childhood; a secret so dark it would destroy his family and brilliant career. Discovered by the wrong people, it would get him killed.

There is only one person who knows about his past, and he is a career criminal who manages a low profile hedge fund, bankrolled by Eastern European mafia money. Michael is safe, but only for as long as he agrees to feed details of his firm’s deals to the fund so it can make millions from insider trading.

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Is the Market Cap to GDP Ratio flashing BUBBLE?

As a former private equity investor, I still get a nosebleed when buying stocks at a P/E ratio in double digits.  I know what you are thinking: how can anyone find stocks at a single digit P/E in this market?  I agree that it’s difficult, and even I have had to swallow valuations that make me choke in recent years as the stock market has driven ahead.  But, when so-called “safe” stocks such as some REITS and utilities are trading at 20+ P/E ratios, it is time for me to do a sanity check.

The investment metric favored by my hero, Warren Buffett, is the market cap to GDP ratio.  I like this tool as it provides a useful means of obtaining a helicopter view of the market’s value.  Common sense tells us that the overall market value of quoted companies should have a reasonable correlation with the value of goods and services produced by an economy.  Sure, there will be lags and periods of disconnection, but over time the ratio should tell us something meaningful.

Mr. Buffett has said that when the ratio is north of 100%, we should be wary about stocks.  In my opinion, the metric for the US market is flashing red right now and indicates we are in bubble territory.  Currently, it sits around 130% and it has only been above 100% twice before now in the last fifteen years.  Those times were in 2000 and 2008, immediately before the dot-com crash and the financial crisis, respectively.  The ratio today sits somewhere in the middle of its level during those two previous periods.  Shortly after those two earlier peaks were reached, the ratio fell between 40% and 50% in a matter of a year or so.

It may be that the US market continues to climb for some time before we see a correction but, with value hard to find among stocks and the Fed having taken away the punch bowl recently by ending quantitative easing, my sense is that this party is over.

All views are my own and should not be regarded as investment advice.

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Why I love Bloodline on NetFlix

I have just finished watching Bloodline on NetFlix, and it has to be the best TV I have seen in years.

All the main characters had shades of light and dark, something which made them more credible, and the understated acting was superb in bringing them to life.  What I really liked was that the series took the time to drip feed us the back stories and motivations of each member of the Rayburn family.  Taking time to do this was brave of the production team, given what we are told about diminishing attention spans, but it really helped avoid creating another cast of two-dimensional people, about whom we care little.  The dialogue was clever too, avoiding the usual clichés.

As an author, I admire the smart writing and cleverly crafted scenes and I look forward to more revenge, back-stabbing and duplicitous antics in the Florida Keys when season two comes out.

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Successful investing is easy, but it’s hard to do!

Making money as an investor has very little to do with intelligence or luck.  Patience, independent thought and thinking like an owner are the keys to successful investing.  It really is that simple.

In his 1996 annual letter to Berkshire Hathaway investors, Warren Buffett summed it up well. “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.”

So why do so many find it hard to follow this seemingly simple guidance?  Well, let’s unpick the key strands of Mr. Buffett’s advice to see if we can learn why investment success eludes so many.

Purchase at a rational price. This doesn’t mean an investor has to buy stock on the cheap.  After all, many so-called cheap stocks are inexpensive for good reason: they are poor companies.  Great companies, those whose earnings “are virtually certain to be materially higher in five, ten and twenty years from now” are rarely cheap, but there are periods—during downturns, or perhaps when the company slipped up—when a patient investor can acquire the stock at a modest entry multiple.  To achieve this, however, means the investor will sometimes be sitting on cash, watching from the sidelines—not always easy when, like now, the markets continue to rise from high to exorbitant levels.  For a fund manager, measured against this or that benchmark index, sitting on cash can be harder still.  Many would rather be judged on their performance relative to peers than strive to achieve higher absolute returns by being out of the market from time to time.  For that, independence of thought is required, something tricky to pull off when such managers are measured on a quarterly basis against the market.


Easily-understandable business. Investing involves thinking like an owner, knowing more about the company than its current stock price.  It means having to research what the company does and how it sits in its market relative to the competition.  It is time consuming and laborious work, but only with that understanding can an investor make a judgment as to how sustainable the profits will be.  One thing that separates a trader from an investor is the level of insight into the underlying company and its operations.  I have met many traders, particularly those who buy and sell technology and bio-tech stocks, who don’t have a clue what the company actually does.  Traders are driven only by the momentum of the stock price on the market, an activity closer to gambling than investing.


Own a stock for ten years. Investing success can involve long periods of inactivity.  Compounding of returns takes time.  Sure, there are some stocks that double in price in months, but these are for traders, not investors.  Doing nothing is not easy, particularly when stock prices are visible on a daily basis, thus highlighting paper profits and losses.  Once again, acting like an owner helps maintain the right posture.  Owners of private companies, such as those I used to invest in when I ran a private equity fund, don’t have the “luxury” of a daily stock price to monitor.  That way, they can focus on what the company is doing to increase long term value and not be affected by the distractions of today’s stock quote.

 

 

 

 

 

 

 

Buy well, be patient and act like an owner.  Sounds easy, doesn’t it?

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