Thoughts towards Purchasing a Company

Tonight, 1st September 2011, I learned that my favorite neighbourhood grocery store is closing in about three weeks time.  This is a small operation not unlike the mom-and-pop stores of a generation ago and the store was affiliated with the Super Value distributor.  The recent arrival of a Rainbow Foods store in the glamorous new mall on the east side of town precipitated the demise of the local store.  The new Rainbow Foods is situated such that it is nightmare to get into and out of the parking lot; the store is not well maintained, and the store clerks are a snooty lot with generally unkempt physical appearance and demeanor.  It is my fond hope that the new Rainbow Foods store will falter and go out of business.  Perhaps this is a bit self serving because I really liked the local store even though sometimes the prices there were a bit higher than could be obtained at the larger stores.

The news of the demise of the local store brought me to the following set of thoughts:  turn back the clock to say five years ago before ground was broken for the fancy new mall on the east side of town; would I have purchased a partial ownership in the local grocery store?  A brief list of some options that others might follow are as follows:  to rely upon every utterance of the poker-playing Amy Calistri with her moronic hat; to chase after promises of  Carla Pasternak, of 69%, 100%, 152%, or more in yield, whom I believe would not recognize a proper investment opportunity if it jumped up and slapped her on the nose; to follow the methods of the technicals that indicate when a one line goes this way and another line goes that way then you either buy then sell or sell then buy, or stand on your head a spit BB’s; slobber all over yourself following the silly brothers at Motley Fool who can only manage no more than about a 7.2% before tax annual yield over a 9 year period; or, perhaps, buy into one of the plethora of penny-stock SCAMS populating finance.yahoo.com hoping to get rich quick.  No, I suspect that, since you are reading this blog, you would want to do something altogether different.

Before my blog was obliterated, I raised the possibility of creating a support group amongst my audience for the purpose of providing mutual aid in determining when and in what companies to invest.  The loss of my local grocery store and the lack of a competent resource on the Internet has caused me to return to thinking about such a group.  To my way of thinking, no membership would be required, no annual subscription fee would be levied, and no hyperventilating hyperbole about selecting the correct three stocks to beat the market for the next fourty-five picoseconds.  No, this group would borrow the model used during the studies I undertook for my doctorate in Biomedical Engineering and my doctorate in Chemical Engineering.  Yes, I actually hold two of those pieces of paper.

In our study groups, each member would be free to ask relevant questions and push as hard as he needed until he fully understood the underlying concept to a problem and was able to derive the correct solution for himself.  That model could work well for a group dedicated to understanding the concepts underlying the purchase of a particular company and to work through the execution of that purchase.  The concept precludes a member from making a vacuous statement to purchase company X at price Y because the moon is full and Jupiter is in conjunction with Mars.  

The group would dig into all of the available and necessary information to place a value on shares, or bonds, of a particular company.  The information and analysis would be freely shared amongst the members of the group.  The members would then stand to potentially profit from the long-term change in the price of that share.

Your thoughts would be appreciated.

Nathan A. Busch

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4 Responses to “Thoughts towards Purchasing a Company”

  1. Very good idea, as always. Please count me in.

  2. As you are aware you have decribed here the idea put forth by Napoleon Hill in the power of the master mind. Rather than quote anything this man has said I refer readers to the Think and grow rich PDF which can be found online. Page 153 begins the chapter and it describes organized effort which without a question works without fail. Finding and keeping a group of like minded people together is essential and oce a group is slated to the task at hand it can be very rewarding. I firmly believe that your idea would work quite well and would be far less open to attacks by unsavory folks who wish to defraud their fellow man. I feel that any group that undertakes the challenge of the markets can be beneficial. There is massive opportunity everyday in the markets and all the more eyes and ears looking at potential longs and shorts is without question a chance for substantial rewrd. Let’s rock and roll.

    • Steve:

      Thank you for the information about Napoleon HIll and the book “Think and Grow Rich.” I will purchase and read this at the earliest possible moment.

      Thank you for your enthusiastic support of the concept.

      Nathan A. Busch

  3. Thank you to those of my audience who have responded to my invitation to study investment possibilities.

    My understanding of the problem of properly investing has grown over the course of the past year. While I have had money in the market for some time, those funds were managed by an “expert” working for a very large financial institution. No need to prolong the suspense: I lost a lot of money even though the market had been on a strong rise and the institution charged north of 2.5% to invest most of the funds in equity and debt mutual funds. About a year ago, I decided that I could do no worse than the “experts” at this institution.

    Initially, I thought that Teva, Abbot Labs, Weyerhauser, Partner Communications would be acceptable companies to own. Two because they were Israeli companies, Weyerhauser as a long-term investment, and Abbot Labs because this company was being dragged downward by problems within the pharmaceutical industry. Of course, I also purchased Conoco Phillips, Exxon, BP, and Noble Energy in the first week of July 2010. In retrospect, I had no idea what I was doing purchasing the first four of the aforementioned companies. The oil companies have now headed south after a strong increase. I am still strong on petroleum, perhaps because it is an industry for which I have some modest understanding and because the diminishing long-term prospects for finding major new fields of oil that can be exploited at historic prices.

    I have now studied the books of Joel Greenblatt, Margin of Safety by Seth Klarman, and now am about half way through Common Stocks and Uncommon Profits by Phillip Fisher. Next on my reading list is Security Analysis and Intelligent Investor by Benjamin Graham. By no means am I an expert at the present time. However, I now know that I knew nothing about investing when I started taking over the management of my own portfolio over a year ago. Of considerably greater import is the following: that ignorance of a subject makes us labile to those more interested in their own profits than about our long-term financial security. Over the years, I have come to recognize the power of many minds focussed upon a single problem, particularly when those minds are willing to openly, honestly, and candidly discuss both the design of their experimental methods, the manner in which data was collected, and the techniques used to analyse that data. Further, the conclusions and suggestions for further action are strengthened when non-threatening conversation ensues based upon logic, data, and appropriate analytical methods. I believe that such a method can be of great benefit to a group that I am attempting to establish.

    I also know that I have no idea as to how to properly organize a group of people on the Internet, who have never met each other, of disparate backgrounds, and of unknown moral character. Sure, there may be those that occasionally peruse the workings of the group in the hope of obtaining a new “magic stock pick” upon which they can act without having invested the time and work. However, the success of such people will, most likely, be short lived. Others may become frustrated at the pace of the group: these will chase after a quick dollar and miss developing the more valuable skill of knowing how to select a company that is worth our hard-earned dollars. Others will be timid and feel that they have nothing to contribute. These we must treat with especial tenderness as they have more to contribute than they can ever know and the group will benefit at such time that they feel they can contribute. As always, I am open to suggestions.

    For myself, I have some modest understanding of the petroleum market and of the electricity market. My thinking is that these two industries will be around and doing well 100 or more years from now. Even if others in the group favour other types of industries, or even service sector companies, the lessons learned and the technical skills obtained in working on investing in these industries will certainly be portable to companies in other sectors of the economy. Also, I have some understanding of the U.S. economy and of western europe. Certainly, the economy in each of several countries in east asia and South America are doing splendidly well. However, I do not understand the accounting practices in these countries, I have no idea as to the longevity of those companies, and the governments there may or may not be stable on the 20 to 30 year time horizon. That is not to preclude considering companies that make a considerable fraction of their money there; rather, I would be uncomfortable dedicating a lot of time, at least at the beginning, towards understanding companies that generate most, if not all, of their revenue from such countries.

    As always, I look forward to comments, critiques, and suggestions from my audience.

    Nathan A. Busch

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