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Author: BuildMWell Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Re: After meeting with a Financial Advisor Date: 10/7/2003 3:33 PM
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"Most individual shareholders (99%?) don't own enough shares to make any difference in proxy voting. Not sure where you going with this." - ObliqueApproach

You know, I used to think the same thing. I used to tell myself my vote was useless because I only owned a few shares. But, I have come to learn that way of thinking is exactly what leaves the door open for the system to be abused. It is just the same with a political election...most voters think their vote does not matter so they stay at home. Then they bitch and moan when things do not go their way. I see my stock proxy votes precisely the same way.

If a person knows enough about the vote, he or she will care enough to cast a vote. Then, when the results are in, the informed voter knows what is going on. In a business, when the vote does not go your way, it is a sure sign that you need to take a second look and really understand what is going on. For instance, if the management has just asked you to vote them huge stock options, it is very likely time to get the Hell out! If they have cut themselves giant salary increases or benefit packages while the business is tanking, it is time to get the Hell out!

Unlike a political election where you cannot get out and have to suffer the consequences of a misguided vote, with a stock you always can have a recourse. That is unless you give that recourse up to a mutual fund or index fund manager who always votes with management. Ignorance is not bliss in investing. You have to know what is going on with your money.

On this subject I said, "The individual investor has given up control to the "experts" who have no real interest in the individual. If they do not like what a company is doing, they do not blow the whistle on the business, they just sell it."

To which ObliqueApproach replied, "What would you have them do? Engage in proxy battles? And who will pay for that?"

You're Damned right they should get involved with proxy battles! What are we paying them for anyway? Anyone can buy a bunch of stocks and take a commission for their trouble. A fund, in my opinion, has a duty to fight for the rights of their stockholders. That is unless they think that management shenanigans are just peachy! If so, they owe it to the investor in the fund to tell the buyer that they always vote with management. However, many funds hold millions of shares of a business...that voting block can make a huge difference to the management. Again, only if the shares are voted in the best interest of the stockholder. That is what a fund manager should be doing. But, they don't do that and the bad business manager knows that. The game rolls right on along!

"Just curious, are (you) computing returns on a time or dollar weighted basis? And how do you handle index comparisons when there is fluctuating capital in your portfolio?"

At the end of each calandar year, I take the closing balance in my accounts on December 31, and do a very simple comparison. I take the closing balance from the previous year for the funds and for my personal stocks and I subtract the present year's account balances from the previous year's amount and divide that number by the previous year's amount. That is how I figure my personal gain versus the index fund's gain. My gains usually run in the range of 30% to 40% while the funds either lose money or gain maybe 25% at their very best. Actually, my real gains run close to 100% per year but that is on my active investments. I always have some holdings that are just rolling along on cruise control.

What is so funny is I could teach anyone how to do what I do in about an hour. Every bit of data is available right here on the Motley Fool with under five key strokes. Plus, it is all very rational, easy to calculate and almost foolproof. It does help greatly to read the newspaper or listen to the news though. The news has way too much negative influence on the markets. That makes the making of money that much sweeter when you know what to believe and what to ignore. The most important thing I possess is a very solid belief system. I will invest large sums when I think I am right.

I can give lots of great examples in the past ten years. They appear all the time. Basically, I listen to the news and ask myself, "Does what I just heard make any sense?" If the answer is "NO!" I get real busy and see if the situation can make me some money. So far, I have yet to be disappointed.

When I receive a proxy statement, I ask myself, "Does what they are asking me to do make good sense for me as an investor?" I vote my pocketbook. If the vote goes against me, I begin to look for an exit strategy. There is going to be plenty of time because almost no one else even bothers to read their proxy statement. And, mutual funds just vote with management. That puts me anywhere from six months to a year ahead of the average investor.

Let me give you one prime example. Look at the Citicorp long-term graph:

http://quote.fool.com/Chart/chart.asp?osymb=&osymbols=C&symbols=c&currticker=C&time=all&uf=0&compidx=aaaaa%7E0&ma=0&symb=c&freq=1mo&lf=1&comp=&type=2&sid=117685

Remember when they were accused of being involved in the Enron debaccle in late 2001 and early 2002? I knew they were involved to some extent, but I also knew they were very, very smart people. Surely, they were not stupid enough to not have their backsides well covered. So, when I saw the stock going well below my desired buying price of $32/share I asked myself, "Does this make any sense?"

The answer was, "NO!" In my heart I knew Citicorp was way too smart to be caught up is some tawdry scandal like the Enron silliness. I figured out what Enron had been doing and I could see why the game worked and was also legal...there was no real exposure for Citigroup or for JP Morgan either. Both were being tossed out along with the Enron bathwater. All of the bad news overshadowed the strength of these great businesses. This made for a huge buying opportunity.

I bought way too many shares of both stocks but this example is about C. I got in at about $23 to $25 and knew that it was worth close to $50/share. Actually, it had been up to around $60 in 2000. Citigroup could easily see $55 before 2003 year-end. I will gladly take my 100% long-term gain on my shares, or I may just keep on holding it. After all, my analysis shows me that Citigroup has grown at about 16-17% per year since 1982 plus they pay a decent dividend. I can live with that until another great deal comes along...and it will. They always come along because the media loves bad news. I just bet on that simple fact. Meanwile, 17% per year will beat most funds!

So, while Citigroup will double my investment in 2002/2003, I still hold stocks that I bought with the same method in 1998, 1999, 2000 and 2001. These may only grow at 15%. But overall, I make my easy 30 to 40% total return...year after year. It really is not that hard to do. All you do is listen to the news and do the right thing.

I have lots more examples if anyone is interested. But, what we need to look at is in the future. My past success is worthless today. We need the next great investment for 2003 and 2004. I am still looking and listening for two or three new opportunities for next year. So far, I have found no way to make money off of Arnold's groping yet. However, this year I have made a 50% return on Gray Davis' lying about Duke Power's involvement in his energy debaccle plus I get a 9% dividend for as long as the dividend holds.

I was waiting for a buying opportunity for DUK below $25/share and a few weeks of bad press got me thousands of shares at half my "want" price. Duke could easily be at $35/share this time next year. I do not understand the market...maybe that is why it rewards me so nicely. I do not try to understand it. I just use it to my advantage. When the market acts stupidly, I recognize the stupidity and act rationally. Plus, I never believe what I hear on the news...the news is biassed as are most of the people who make the news. Most folks do not understand this fact. Mosy folks never ask themselves, "Does this make any sense?"



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