Archive for March, 2012

“John Bell”, 21st March 2012

Posted in Internet Frauds and SCAMS on 21, March 2012 by nathanbusch

Today, Wednesday, 21st March 2012, at 1140h Central Time, the price of TFER was $1.47. It looks like this “hot penny stock” SCAM of our mysterious “John Bell” is not working out very well for him.

Nathan A. Busch

“John Bell”, 15th March 2012

Posted in Internet Frauds and SCAMS on 15, March 2012 by nathanbusch

The following is the text of an e-mail that I received from our mysterious “John Bell” this morning, 15th March 2012, at 0421h.


Pick: Titan Iron Ore (TFER)

There’s not much time before the open, so I’ll be quick.

Titan Iron Ore or TFER is my new pick of 2012!

TFER is an exploration stage mining company.

TFER was formed solely to explore a single mining claim in Wyoming.

What’s special about this claim is that it was once owned by Union Pacific Railroad.

In the 1960’s Union Pacific spent $25m developing the claim, but abandoned it because at 1960 iron prices it was uneconomical to develop.

This is actually quite common in mining. You can find a huge resource but if the resource is of a low grade – The cost of recovering it can exceed the price of the commodity.

Here’s the “play”:

On the back of the commodity boom, lots of these “historical deposits” are now being developed into mines.

Because at today’s commodity prices, what was useless 50 years ago can now be a literal goldmine.

TFER’s latest quarterly report shows they plan to raise $16.6m to spend on exploration of this property over the next 3 years.

Titan Iron Ore was formed by an experienced group of mining executives.

Leading the group is Andrew Brodkey, an experienced mining executive who is best known for being one of the key executives who grew Magma Copper from $200m to $3.5bn.

Be sure to do your own due diligence. The best way is to look up TFER’s filings on, you will want to read the latest 10-K and 10-Q and all the 8-K’s in between.

Remember, this is a highly-speculative pick.

While my 2011 pick rocketed from $0.70 to $6.35 – A lot of that was due to a huge short squeeze.

It was a wild ride – But it wasn’t the kind of wild ride I’d want my mother on.

So if you cannot afford to lose the entirety of your investment – Please do not invest.

John Bell


There are very few concepts in this e-mail that have any basis in reality or that stand up to some modest scrutiny.  

First, Andrew Brodkey did not form Titan Iron Ore, Corporation.  As examined in my blog post of 14th March 2012, Mr. Edward Mulhern was President, CEO, CFO, Secretary, Treasurer, and Director of Titan Iron Ore, Corp., when the company filed the documents with SEC announcing the reverse merger with a shell company then known as Digital Yearbook, Inc.  It was not until about two weeks later, at which time Titan executed the Assignment Agreement with J2 Mining, to obtain a full interest in options for the Wyoming Iron Complex in Albany County, Wyoming, that Andrew Brodkey was hired to lead Titan.  Further, Mr. Brodkey was specifically identified as an asset acquired by Titan as part of the 30th June 2012 transaction with J2 Mining.  It is very misleading for “John Bell” to now imply that Mr. Brodkey had been instrumental in forming Titan Iron Ore, Corp.  The only other disclosed “executive” of Titan Iron Ore, Corp, was Ronald Richman who from his biography, has never even seen a mine, much less ever either explored for mineral deposits or developed a mining operation.

Second, “John Bell” claims that: “What’s special about this claim is that it was once owned by Union Pacific Railroad.”  There is no evidence available that Union Pacific Railroad ever either owned or developed any mining operations in Albany County, Wyoming at any time for which the records are available.

Third, “John Bell” claims that: “In the 1960′s Union Pacific spent $25m developing the claim, but abandoned it because at 1960 iron prices it was uneconomical to develop.”  This is preposterous on a number of points.  First, the Union Pacific Railroad has long been a good company managed by very skilled and talented people.  It would not have spent $25 million developing a claim in the 1960s for iron ore if it was not certain as to the probable return on that investment.  Second, if Union Pacific Railroad had developed the claim, then it would have obtained a patent from the federal government, or the State of Wyoming, or both for the claim.  Titan Iron Ore, Corp., has admitted in filings with the SEC that the claim was not patented.  Third, even if Union Pacific had performed the initial exploratory work to determine the extent of the mineral wealth, it would not have abandoned the claim and the land if it thought that the minerals would have ever been profitable to extract.  Payment of the real estate taxes on the land would have been cheap compared to the future value of the wealth when the price of iron ore rose.  Fourth, Union Pacific Railroad is in the business of transporting goods and has been profitable in doing so for decades; why would it even bother exploring Albany County, Wyoming, for low grade iron ore?

Fourth, “John Bell” claims that: “Because at today’s commodity prices, what was useless 50 years ago can now be a literal gold mine.”    This claim is absurd on its face and requires willful ignorance on the part of the investor to believe it.  Even if the price of iron ore had risen sufficiently such that the ore at the Wyoming Iron Complex became profitable to extract, competition from taconite from Minnesota and iron ore from Greenland, both of which are, most likely, far higher quality and far less expensive to extract and ship to the steel mills, would continue to force the iron ore extracted from Albany County to be uncompetitive.  Also, this statement requires ignoration of the market for recycled iron and steel, by companies such as Nucor, which is far less expensive that raw iron ore to turn into finished product.

Fifth, “John Bell” stated that: “TFER’s latest quarterly report shows they plan to raise $16.6m to spend on exploration of this property over the next 3 years.”  This could mislead an investor into believing that the $16.6 million would be raised from a stock offering.  However, nowhere in its filings with the SEC did Titan even mention such a stock offering.  Even if Titan were to make an offering to raise the $16.6 million, Depending upon which numbers one choses to believe, there are either 187 million or 49.7 million shares issued and outstanding.  At current prices, Titan would need to offer 11.22 million more shares.  This would dilute the current shareholdings by either 6.0% or 22.6%.  Assuming that the correct number of shares currently issued and outstanding is 49.7 million, issuance of a further 11.22 million shares would dilute the holding of each investor by 22.6%.  I cannot imagine any sane investor knowingly getting himself into such a situation.

The Ticker Symbol is TFER

Posted in Internet Frauds and SCAMS on 15, March 2012 by nathanbusch
Our mysterious “John Bell” has launched his latest penny stock SCAM.  The following is the text contained at the destination of a hyperlink, which was included in an e-mail that was sent at 1011h today, 14th March 2012.
Below is my full report about tomorrow’s pick.
Remember this email won’t give you the name or symbol of the pick – I’ll send you that tomorrow morning!
The Sector
When looking for picks that will rocket in price, in my experience you need two things.
A hot company in a hot sector.
The hot sector is important. A hot sector, a sector every investor wants to “exposure” to attracts a large amount of capital.
Tech is a hot sector, but the problem with tech is while there is huge demand for tech investments there is very, very little supply.
That’s why Facebook can get an impossibly high valuation – They’re selling themselves to a market that is already crying out for opportunities.
In my experience the really explosive picks come from buying the best company in a hot sector.
The reason is obvious.
If a lot of capital is flowing into one sector like tech or mining – This capital (of course) seeks the best, the most exciting prospects.
So if you own the most exciting prospect in a hot sector, you’ll be propelled not only by the company’s potential but also by the large capital inflows into that sector.
I’ve already mentioned what I believe are the hot sectors right now. Mining companies and Tech companies.
Tech is obvious, it’s been hot for years now due to the unprecedented growth that comes to a new idea that “gets it right”. Think Youtube, Twitter and Facebook.
But mining is I believe an even hotter sector than tech.
While the world could do without another Twitter… China, India, Brazil and Russia cannot go on developing without vast amounts of iron, timber, oil etc.
These raw materials are the building blocks of an industrialized nation.
And I believe the demand for these commodities is like a ratchet. It can only go higher. The more the developing countries grow and develop the more resources their populace demands.
These raw materials are so important to China that they will simply bid up the price of these commodities until enough is supplied to satiate their demand.
Scientists often warn us that within 20 or 30 years the world’s total resources of oil or iron or some other commodity will be depleted.
But this speculation by scientists has gone on for at least the past 40 years. And it is always based on faulty logic.
The scientists are basing their estimates of worldwide oil on the oil that is currently recoverable at current oil prices.
But the truth is… As the price of oil rises so too does the amount of oil that is economical to recover.
The rise in oil prices is what allowed deep sea drilling, which at one point was deemed impossible.
Hopefully you get my point:
The only way China, India, Brazil, Russia and all others can continue developing is if the price of commodities rise drastically.
A higher price on raw materials like oil and iron is the ONLY way there will be enough resources to go around.
While we’re on the subject, China can do without Gold. They cannot do without the raw materials that make up a modernized country.
The “Play”
So we’ve established I believe industrial metals mining is probably the hottest sector right now.
To my mind, the best method of “playing” a hot sector is finding a company you like so much that… Even if you are wrong about the sector, you’re still holding a hot prospect.
My 2012 pick is a company that I believe fits this mold.
It allows us to “play” the global commodity boom while also enjoying the blue-sky potential that comes with exploration companies.
There is a new trend in the mining world.
With the boom in commodity prices already underway, miners have started doing something really exciting.
Instead of exploring for brand new discoveries, exploration companies are now looking at historical mineral deposits.
In other words, mining properties that have previously been explored 20 or more years ago and where some kind of discovery was made and then abandoned.
There is always a reason why the discovery was abandoned and not developed into a mine. Most often the deposit was of too low grade or the cost of extraction was too high.
Whatever the case, some of these abandoned and forgotten discoveries can now be worth a lot.
With commodity prices so high, a property that was 40 years ago deemed uneconomical to mine – May now be very economical to mine, now that the price of the underlying commodity is 10x higher.
Exploration companies can therefore drill historical claims with a fairly good idea of what is below the ground.
One example of a company that did just this is Northern Oil and Gas or “NOG”. Northern bought up mineral rights to oil fields previously thought to be unrecoverable. When the price of oil rose, Northern was sitting on a goldmine.
The price of NOG swiftly followed, within 2 years it rocketed from $2.22 to $33.98!
The Company
The pick I’m sending you tomorrow is I believe a hot prospect in a hot sector.
It’s an iron ore exploration company intently focused on exploring a single mining claim.
This mining claim was 50 years ago owned by Union Pacific Railroad. In the 1960’s Union Pacific spent $25m developing the property.
Union Pacific was clearly excited about what they’d found. The $25m they spent is probably closer to $150m in today’s dollars.
In my opinion, it’s likely the property was abandoned because at 1960’s iron prices – It was not economically feasible to mine.
This property was forgotten about until just a few years ago when it was stumbled upon by an experienced mining executive.
This mining executive was so excited by what he found, he assembled a team of his colleagues in order to strike out on their own.
They quickly formed their own company with the sole purpose of exploring this claim and reconfirming the historical data.
I’ll send you the name and symbol of this pick tomorrow morning!
John Bell
P.S. If you cannot afford to lose the entirety of your investment, DO NOT invest in tomorrow’s pick.
I’m serious, this isn’t legal babble.
Mr. Krieger was correct, it appears that the company is Titan Iron Ore, Corp., and the ticker symbol is TFER.  It is interesting that a ticker symbol search on EDGAR returns the result that the symbol does not exist.  Howerver, a serarch of “Titan Iron Ore, Corp., returns a host of documents that have been filed with the SEC.
As expected, this company has no income, a minute negative free cash flow, a miserable EV/EBITDA, zero ROCI, zero ROA, a trading volume, on 14th March 2012, of 3,470,849, and a price of $1.38.  It appears that before about December 2011, the price was in the range of 30¢ per share, which means that the share price has risen about 460% since this SCAM started.
Before 24th June 2011, this company was called Digital Yearbook, Inc.  On, or about 15th June 2011, the name was changed to Titan Iron Ore, Corp.  The state of incorporation, as expected, is Nevada, and primary place of business is declared to be Arizona, while the offices are located at 4320 – 196 Street, SW, #111, Lynwood, Washington 98036-6754 and the telephone number is 425.286.3068.  A quick Google search indicates that this is the address for a strip mall in Lynwood Washington complete with a doctor’s office, a garage door repair place, and a law office.  Interestingly, there seems to be no mention, on Google Maps, of Titan Iron Ore, Corp., at the given address.  Since Shane Whittle is thought to operate out of the Seattle, Washington, and Vancouver, British Columbia, area, it seems reasonable that he would declare the initial location of the place of business as Seattle.  Nevertheless, given the past scheme of our “John Bell” and Shane Whittle, I would have been surprised if offices for Titan Iron Ore actually existed and if such offices actually existed in Lynwood, Washington.
In conformance with previous stock scams by our “John Bell”:
Also effective June 15, 2011 we [Titan Iron Ore, Corp.] effected a 37 to one forward stock split of our authorized and issued and outstanding common and preferred stock.  As a result, our authorized capital has increased from 100,000,000 shares of common stock with a par value of $0.0001 to 3,700,000,000 shares of common stock with a par value of $0.0001 of which 5,151,000 shares of common stock outstanding increases to 190,587,000 shares of common stock.
This is typical for penny stock scams.  A reverse merger is set into place and then a very large number of shares are authorized so that the initial “owners” of the shares can sell these during the SCAM for a tremendous amount of profit.  As at 17th June 2011, Mr. Ed Mulhern was President, CEO, CFO, Secretary, Treasurer, and Director of Titan Iron Ore, Corp.  Seems that he could have recruited at least one other person to bear one of those titles.
On 24th June 2011, Titan Iron Ore stated that it had sold 2,100,000 of securities to two investors for a price of U.S.$0.50 each.  Interesting here, each security included a single shares of common stock and one-half of one warranty.  Under the terms of the transaction, each “share purchase warrant entitles the holder to purchase one share of our common stock at a purchase price of US $0.75 per share for a period of three years.”  It does not take a genius to figure out when these warrants will be exercised.  Although the financial statements for the company disclose an amount of cash on hand equivalent to more than $1,000,000, there is no evidence that the U.S.$1,050,000 had actually been transfered onto the accounts of Titan Iron Ore, Corp.
On, or about, 30th June 2011, Titan Iron Ore, Corp., moved its designated offices from Lynwood, Washington, to 3040 N. Campbell Ave., Suite 110, Tucson AZ 85719 and changed the corporate telephone number to 520.989.0020.  This office building is next to an apparently abandoned Union filing station and the building appears to be completely abandoned.  Also, on 30th June 2011, Titan Iron Ore, Corp., announced that it had hired Andrew Brodkey as President and CEO.  
Of particular interest is that: a company named J2 Mining Ventures Ltd. had entered into an Assignment Agreement on 26th May 2011 with Wyomex LLC, pursuant to which Wyomex LLC, as optionor, granted to J2 Mining, as optionee, an exclusive right and option to acquire 100% undivided legal and beneficial interests in and to the Wyoming Iron Complex, consisting of certain unpatented lode mining claims, leased lands, and other interests in real property situated in Albany County, Wyoming.  On 30th June 2011, J2 Mining assigned the Assignment Agreement to Titan Iron Ore, Corp.  The term of the option commenced on May 26, 2011 and initially extended until June 26, 2011.  Under the terms of the Assignment Agreement between Titan, and now Wyomex, was that: the term of the agreement could extended for a maximum of six (6) successive one-month periods, at the sole election of Titan, by notice to Wyomex L.L.C. and tender of $5,000 from Titan to Wyomex, L.L.C. for each of the first three (3) additional months and $15,000 for each additional month for months four (4) through six (6) at the sole discretion of Titan Iron Ore, Corp.  Apparently, the first $5,000 has been paid  by Titan to Wyomex.  However, there is no indication that either further extensions of time were sought and paid for by Titan or that the option had been exercised.
If Titan Iron Ore decided to exercise its option under the Assignment Agreement, then it must pay to Wyomex, L.L.C. a total purchase price of $7,000,000, which consists of the following components: (1) payment at closing of $85,000 as an initial payment; (2) any monies or consideration previously paid by J2 Mining to Wyomex LLC; (3) commencing six (6) months from the date of closing and after receipt of the initial payment, and every six (6) months thereafter, Titan shall pay Wyomex LLC, as advance minimum royalty, $62,500, as adjusted under the Option Agreement, until the commencement of commercial production from the property; and (4) at the commencement of commercial production from the property, the semi-annual advance minimum royalty shall convert to a 4.5% gross metal value royalty on iron ore and/or other mineral materials produced and sold from the property and, except for events of force majeure, in no event shall the production royalty paid to Wyomex LLC be less than $150,000 in any given calendar year.  As of writing this entry to my blog, no evidence exists that production has actually started at the Albany County, Wyoming, complex.
Given the considerable cost of exercising the option, it seems highly unlikely that Titan Iron Ore, Corp., did so.  If it did not, then Titan owns nothing more than a piece of paper with some writing on it.  If it did exercise the option, and given the state of the world iron ore demand, then Titan is being managed by some people that are of dubious intelligence.
A further interesting set of facts about the aforementioned Assignment Agreement are the following: (1) the option agreement required J2 Mining and Wyomex LLC to assigned the 100% right, title and interest in and the Option Agreement from J2 Mining to Titan Iron Ore, Corp.; (2) Andrew Brodkey was to be hired as as President and Chief Executive Officer of Titan Iron Ore, Corp.; (3) Titan Iron Ore, Corp., would enter into consulting agreements with Kriyah Consultants, LLC, Sage Associates, Inc. and J2 Mining; (4) payment of $2,440 as reimbursement to J2 Mining for any direct out of pocket costs incurred by J2 Mining in acquiring the Option Agreement; and (5) the then shareholders of Titan Iron Ore, Corp., would transfer a total of 18,000,000 fully-paid, non-assessable common shares in the capital of Titan to J2 Mining and other persons as nominated by J2.  Not surprisingly, Mr. Brodkey received advanced payment in the form of 6,000,000 shares of common stock in Titan Iron Ore, Corp.
Now we have our information upon which we may arrive at a conclusion as to how “John Bell” got his shares of Titan Iron Ore, Corp., from which he will make a very handsome profit in this penny stock SCAM.  If one could possibly imagine that any of the transactions reported on 30th June 2011 were fully transparent, legal, and above board then I might suggest a very long visit to your local mental health facility.
On, or about, 12th July 2011, Dr. Ronald J. Richman was appointed as director of the company and given 800,000 common shares of Titan Iron Ore, Corp.  Accoriding to his biography:
Dr. Ronald J. Richman from 2008 to the present was a co-director at Arid Lands Bioenergy Institute at the University of Arizona responsible for developing industrial liaison program, and reviewing programs for potential commercialization responsible for developing industrial liaison program, and reviewing programs for potential commercialization. Dr.  Richman was appointed as a Director and to the Audit Committee of Pan American Lithium Corp. in 2010. From 2003 to the present, Dr. Richman was Director and Chief Executive Officer of Innovative Technology Development Center in Tucson, AZ a not-for-profit organization promoting sustainable economic development across Southern Arizona with focus on renewable resources. Prior to this, Dr. Richman held senior executive positions with IBM where he worked for 35 years. Dr. Richman received a Bachelor of Science Degree in Chemistry from New York University, a Master of Science in Chemistry at the University of Colorado, a Doctor of Philosophy in Chemistry from the University of Colorado, the Wharton Executive Program, Wharton School, Senior Management Development at Sands Point IBM.
None of these claims are currently verifiable.
Other useful pieces of information include the following: (1) Titan Iron Ore hired Manning Elliott, L.L.P., as the accountant for the company; (2) 3,700,000,000 shares are outstainding, of which 189,247,000 were issued and outstanding as at the end of June 2011; (3) Wolfe, Axelrod, Weinberger, and  Associates L.L.C. was hired in November 2011 as the investor relations agency for Titan Iron Ore with compensation amounting to payment by Titan Iron Ore of $8,000 per month as a fee and options to purchase 500,000 shares at various exercise prices; (4) on 11th January 2012, Titan Iron Ore entered into an agreement whereby it would sell 1,334,000 units to two investors at a price of $0.75 per unit for gross proceeds of $1,000,500, each unit consising of one share of common stock and one half of one warrant exercisable into one share of the company at $1.00 per share.
To prepare for the SCAM, Titan Iron Ore, Corp., announced that:
Effective November 22, 2011 our board of directors adopted and approved the stock option plan. The purpose of the stock option plan is to enhance the long-term stockholder value of our company by offering opportunities to directors, key employees, officers, independent contractors and consultants of our company to acquire and maintain stock ownership in our company in order to give these persons the opportunity to participate in our company’s growth and success, and to encourage them to remain in the service of our company. A total of 9,947,400 shares of our common stock are available for issuance under the stock option plan.
Let us think for a few minutes:  the first two announced investors obtained 2,100,000 common share for $0.50 each and warrants to purchase a further 1,050,000 shares at $0.75 per share.  Today, 14th March 2012, the price of TFER shares was $1.38.  These two investors have already had capital gains of $848,000 and, if they exercised their warrants, a further capital gains of $661,500 for a total capital gain of $1,509,500.  This is not a bad reward for a very low risk situation, to these two investors, over the course of about 10 months time.  The second set of two investors have already obtained a capital gain of $840,420 on the shares that they purchased for 75¢ per share and a further $253,460 if they have already exercised their warrants for a total of $1,093,000.
I must give credit where credit is due:  our mysterious “John Bell” and those that join his penny stock SCAM early on make a fortune in a very short span of time.
Tomorrow many fools will buy TFER; a few will make a lot of money if they get out at the correct time on the way up; most will come back from this nightmare with empty pockets.
More later.
Nathan A. Busch

“John Bell” Will Publish his Stock Pick on 15th March 2012

Posted in Internet Frauds and SCAMS on 14, March 2012 by nathanbusch
At 0427h, Tuesday, 13th March 2012, I received the following e-mail from our mysterious “John Bell”.
I’ll send you my pick tomorrow
Here’s how it will work:
On Wednesday, I’m going to email you a full report about my 2012 pick.
This report will give you all the details about the company, their operations etc.
BUT… It won’t give you the company’s name or symbol.
I’ll send you that on Thursday morning.
The reason for this is because if I send out a long email report on pick day – I know most will just not read it, they’ll be too busy excitedly watching the market.
So tomorrow morning; brew yourself a coffee, sit down and read my report carefully.
I think you’ll be glad you did.
John Bell
P.S. If this email means nothing to you. Perhaps you missed my previous messages.
Here’s the summary:
In 2011 I released just one pick, “Jammin Java”.
Jammin’ rocketed from $0.70 when I first picked it to a high of $6.35.
The reason Jammin’ rose to such a incredibly high level was due to a short squeeze. I DO NOT expect my 2012 pick to be as successful and neither should you.
What’s more… Investing in these picks is a highly speculative activity.
So if you are of a nervous disposition please DO NOT invest.
For the benefit of my audience, I will publish any e-mail that I receive from “John Bell” on 14th March 2012.
In his original set of advertisements, which were published in late 2010, our “John Bell” stated that he would provide analysis on about four to six “hot stock picks” per year exclusively to subscribers.  Of course, if he restricted the dissemination of information only to subscribers and if he had only hundreds of subscribers then his “hot stock picks” would not see gains of over 900% within four months.  To accomplish such a feat in the investing world requires convincing thousands of “suckers,” as P.T. Barnum called them, to buy when the stock is rising.  As I indicated in my missives during the Jammin Java SCAM, the only reason that the stock rose at such a rapid rate was because a well-orchestrated Internet campaign convinced a sufficient number of people to risk money by buying stocks in a company that had no business plan, no intellectual property, no income, no prospect of any income, and only liabilities.  Evidently, “John Bell” managed to recruit a very great number of suckers as subscribers to his service; apparently most of whom paid thousands of dollars in subscription fees.  He has now clearly stated in one e-mail as well as the one quoted above that he intends to publish only one “hot stock pick” per year.  Perhaps those that bought his subscription service are feeling a bit chagrined about now.
Thank you Dan for your e-mail regarding my progress with identifying the stock ticker symbol before he released his information on 15th March 2012.  Unfortunately, a badly broken leg has prevented my giving the netbots the required attention.  However, I can report the following:  our “John Bell” has erased all of his fingerprints from almost everything that he has ever touched.  This includes the SEC registration for Global Industries, Inc. (GBLS).  It is still possible to obtain copies of the documents for companies, with which he has been associated, that were filed with the SEC; however, the listing with the SEC has been erased.
I instructed my netbots to follow every name, address, telephone number, and investing concept contained in every document that I could find that could possibly be related to our mysterious “John Bell.”  Every single lead resulted in a dead end.  This guy has gotten very good at hiding his tracks.  However, he is about to make a mistake and I will, with luck on my side, publish the ticker symbol before he does on 15th March 2012.
I hope that this helps.
Nathan A. Busch


Posted in Observations during Life on 12, March 2012 by nathanbusch

I was strong, I ran, I worked on my furniture, I represented clients in court.

An accident changed all.

Slipped on the stairs; landed on my back, laying on my left leg; it was bent just above the knee; near to passing out; pulled the leg from under me; reset the broken femur myself; dragged my body back to the top of the stairs; passed out.

Awoke in the hospital, leg in traction, choked by a neck brace.

Skilled surgeon put a rod in my femur, it is held in place by screws.

Home now rebuilding my strength, learning to be “encumbered.”

Strength will return, spring is approaching, eventually I will return to my country home to plant the garden.

Nathan A. Busch

$1 invested in stocks in 1802 was worth $755,000 in 2006″

Posted in Uncategorized on 3, March 2012 by nathanbusch

Today, I read an article by Ms. Morgan Housel, who was writing for the Motley Fool, in which she claimed that the stock market is a good place to invest because: “$1 invested in stocks in 1802 was worth $755,000 in 2006”.

One should pay no attention to any commentator that uses statements like “$1 invested in stocks in 1802 was worth $755,000 in 2006” as Ms. Housel did here. First, it is not possible for any investor to wait 210 years to realise such a result. Second, some simple arithmetic with a pencil and paper will indicate that it is impossible to actually obtain any appreciation nearing that measured by any index that you chose over the very long term.

As to the second point, companies come and go. Bankruptcies occur and companies simply close their doors and go out of business. The indicies select only the companies then remaining in the market and adjust the value of the index to account for both the removal of the company that went out of business and the inclusion of the next company in line to join the index. As an individual investor, we must live with the loss accompanying the loss of a company. We do not have the privilege of living in the fantasy world that is populated by those computing the value of the various indicies.

The above quoted concept, which I have seen used repeatedly by commentators parading their wares, is misleading at best and a downright lie at worst. Each index, whether it be weighted by market capitalization, equally weighted, or value weighted, is adjusted daily based upon the criteria used to compute the value of the index. Even if one attempted to match the index of choice, it would not be possible to match the long-term performance of the index. This is one reason that Exchange Traded Funds tend to fail miserably at what these are claimed to do. This is because in computing the value of the index, no consideration is given to the transaction costs associated with buying or selling a certain number of shares according to the formula used to compute the value of the index. Further, computation of the value of the index at any point in time fails to include the spread between the bid price and the sale price of the share. It is not difficult to see that even the two costs associated with real engagement in the market will cause a strong downward pressure on the computed value of the index over a long period of time.

Before Ms. Housel starts spouting further statistics about a dollar growing to fantastic amounts of money over more than two centuries, I suggest that she does the following: (1) set a more reasonable starting time, say 12th April 1995; (2) select an index as it stood on that date, say the ^DJIA; (3) account for the losses associated with every company that was dropped from the ^DJIA between 12th April 1995 and the current date; (4) account for the cost of purchasing sufficient shares in the company that replaced the company identified in enumerated item (3); (5) account for the transaction cost of sale and purchase of sufficient shares in each company to match the adjustment required by the formula used to compute the ^DJIA; (6) account for the spread between the bid price and the sale price for each sale and purchase identified in item (5); and, (7) account for the taxes, including income and capital gains, associated with the aforementioned sale and purchase and any dividends that might have been distributed during the holding time. Finally, I challenge Ms. Housel to rationally compare the result obtained according to the real world implementation of the ^DJIA as described above with results obtained by buying 10-year treasuries, or municipal bonds, over that same period of time.

I am willing to wager the following: (1) that Ms. Housel will find that using the real world steps identified above will give a result on 3rd March 2012 of either a 0% increase over 12th April 1995, at best, or will be in the negative territory; (2) that the performance of 10-year treasuries or municipal bonds over that same period of time will beat the pants off of any real world strategy that includes the steps identified above.

By the way, the Gardner brothers parade the increase in their selected portfolio month after month. Has any one ever bothered to work out the average compound annual growth rate of their portfolio? I checked a couple of months ago and it was no better than 7.2%. Long term, the market exceeds 10%. My point is made.

Nathan A. Busch

What is “Long-Term” in Investing.

Posted in Investing on 3, March 2012 by nathanbusch

I hear a lot of questions lately about what is considered to be “long-term” when considering an investment. Some commentators think that two to three years is “long-term.” Others may view three to five years as being adequately “long-term.” To my way of thinking, an investment is just getting warmed up in such short periods of time.

I view long-term as 12-15 years. To my way of thinking, we will continue to need the following commodities for the long term: petroleum, aluminum, steel, uranium, copper, and wood, amongst a host of others. I am not very excited about lithium, independent of what the current administration in Washington thinks. Thus, I currently have very long positions in AA, NUE, and WY. Soon, I will take a very long position in each of BHP and FCX. Also, I am very long BP, COP, XOM, MPC, MRO; and will soon take positions in OXY and HES. On the boring side, I am long EXC and ED. On the slightly not boring side, I am medium-term CIM and NLY.

To moderate the effects of both an up market and a down market, I use a very disciplined approach. I know the exact amount of money that I will put into the market each year. I divide that amount by 12, which gives me the amount that I can put in each month. Also, I divide the monthly amount by (N+1), where N is the number of companies that I currently own and the one indicates that I may decide to purchase shares of one company on my watch list. On a monthly basis, then, I allocate the available money according to the following scheme: (1) I buy more shares in each of the companies that I already own, but only if the fundamentals are favourable such as COP is currently; (2) if the funds that were to be allocated are not invested in the current month, I hold the allotment intended for that company until the next month; (3) if one of the companies on my watch list has transitioned into the “vavorable” column based upon fundamentals, then I will initiate a position in that particular company; (4) a company does not make it to the watch list unless it pays a dividend.

The short-term fluctuations in the overall market, then, have absolutely no influence on the long-term results obtained using this scheme. Two further rules need to be mentioned: (1) even the high-dividend stocks are subject to the aforementioned set of rules; and (2) DRIPs are mandatory for all stocks.