What you've all been waiting for, S'MORES!

All right, here we go! Here's a method that I think would be great if you don't have access to a wooden fire. I'll have to find a recipe that works in the microwave for all of us college kids! Maybe I'll try baking s'mores bread in my bread maker here at PSU.

Items: Graham crackers, chocolate bars, and marshmallows. 

Cooking Method and Time: Oven, 6 minutes.

Procedure*: Place graham crackers on baking sheet. Put 1 square of chocolate on each cracker. Place a marshmallow on each piece of chocolate. Put in a 350° oven for 4 to 6 minutes, just long enough to melt marshmallow and soften the chocolate. Remove from oven and put another graham cracker on top to make a sandwich.

ENJOY!

*Procedure taken from Diana Rattray on About.com (http://southernfood.about.com/od/candyrecipes/r/bl40129e.htm)

The comments are tastier than the articles!

Reading the Article

Have you ever found yourself reading a financial article and saying "Man, how the hell is this guy writing for this high-end newspaper?! He is an idiot!" Well I have, a lot!

I want to discuss a little news outlet called the Wall Street Journal. I received it in print last semester and it was quite enjoyable. Although I don't recieve print in the summer, and my subscription is "expired", I can still access everything on WSJ.com.

Today, I was reading an article titled: "Failure of a Fail-Safe Strategy Sends Investors Scrambling". The topic was asset-allocation and how "a fundamental tenet of investing had been proved wrong." I read over the article and I don't really agree with the idea of asset-allocation being proven wrong, here is my reasoning:

1) CASH is an asset.

2) Asset allocation isn't a specific strategy, you can tailor it to your needs.

THEREFORE:

3) "Correct" asset allocation in 2008/2009 would have been extremely cash biased. If your portfolio was chalk full of cash, you would have easily cut your losses by a lot.

This doesn't mean that it would have been clear to anyone that they should have been very cash biased. I am just saying that holding more cash than investments for a bit can be a sort of asset allocation strategy! So if no one used this strategy, how can it have been proven wrong?

Going beyond the article, comment time!

So, to see what other WSJ.com readers thought, I flipped to the Comments tab. All 10 comments I read basically had the same mentality: the author is an idiot. They brought up points that the author clearly did not consider. Such points included: cash allocations, how asset allocating isn't a clear-cut strategy, and allocating assets in speculative ways.

I have been finding more and more articles on WSJ.com that are like this. The best part about it is that I kind of like it! It is great to see how other like-minded readers are thinking. Comments that deal with value investing are my favorite. This is because they help me understand how the principles of value investing can be applied to prove Wall Street "experts" wrong.

Good stuff!

What the heck is an investor, anyway?

What is an investor/investment?

"Investing in a solid pair of shoes is a good idea."
"I might invest in a nice gaming computer."
"Designer makeup is a worthwhile investment."

The word "investment" is used pretty often in our daily lives and in the media. But what is an investment? Benjamin Graham defines an investment in his 1934 book Security Analysis as, "a financial operation that, upon thorough analysis, promises safety of principal and a satisfactory return." So Graham broke the definition down into three parts: research, safety of principle, and a good return.

An investor seeks these three goals:

With research, you begin to understand exactly what you are getting yourself into. Research of a company, when you are considering purchasing a stock, is important. It could lead you to realize the company has tons of debt, and might be in bad financial condition.

Safety of principle means insuring that your initial investment is not lost. If you are investing $100 in stock of a company, you don't want to end up losing your $100 because the stock was too risky. Gaining very little is preferable to losing anything.

Adequate Return means that you gain money on your investment that is satisfactory to your goals. Obviously this is somewhat of a broad term, but indexes can help you understand how well you are doing. If you compare the return on your stocks after 1 year with the return of the S&P 500 index, you can get an idea of how good of a return you have achieved. For most mutual funds and individuals, just beating the S&P 500 by 1-2% is a huge achievement.

So basically, an investor is someone who makes an investment with those three ideas in mind.

The way in which these goals are achieved are extremely vast. Investments can range from stocks to gold to real estate. You could even invest in coins or collectibles which you think will rise in value over time, but that is another hobby.


The difference between Speculators and Investors

As mentioned in the previous post, called "Hey! You're Not an Investor! Get Outta Here!", speculators are not investors. To elaborate on this topic, consider what speculators hope to achieve in relation to the investor. A speculator's goal is to make money by gambling his or her money on the idea that an asset will appreciate in value. This goal is usually sought after by purchasing risky assets. By doing this, the speculator hopes to gain a much higher profit than if they would have invested in a low risk asset. The problem here is that with high potential for profit, comes high potential for loss. Additionally, the high gains that speculators can make are not usually sustainable over a long period of time. Think decades. What is the point of making a ton of money, if you just end up losing it a few years later?

Essentially, speculators seek very high returns, but without seeking safety of principle. Without seeking safety of principle, gains cannot be sustainable over long periods of time.

Stay Tuned!

My upcoming posts will discuss different types of investors, investing on a college budget, and more about the methodology of value investing. Don't worry, I'll manage to find some good recommendations for s'mores soon!

Hey! You're not an investor! Get outta here!

What an investor is NOT

Wall Street uses the word "investor" with reckless disregard for the true meaning of the word. To Wall Street, an investor can be many types of people. Often times, Wall Street confuses the investor with the speculator. In Security Analysis, Graham discusses this issue by stating investors judge "the market price by established standards of value," while speculators "base their standards of value upon the market price." Speculators essentially gamble on stock prices, hoping they will make money. Would you be comfortable with gambling on your stream of income for the next several years? I hope not!

Anyway, let me show you some examples of how Wall Street distorts the idea of the investor:

• T.D. Ameritrade Commercials - "Independence is the spirit that drives America's most successful investors." Notice how TD's use of the term investor is contorted. If you have watched one of their commercials, it is easy to notice that the people depicted are clearly either "traders" or "day traders". Traders and day traders are NOT investors. Traders are speculators. They use methods like technical analysis, to see how the stock prices are moving, not how the value of the underlying company looks or has changed. The idea of being an investor is to focus on long term, sustainable gains. The trader keeps short term, weekly or monthly gains in mind. These gains are almost never sustainable for long periods of time. To top it off, individual traders drown themselves in trading costs and taxes inherent with buying and selling stocks frequently. Note: These costs and fees do not apply to institutional traders, as they work on Wall Street.
  

• E*Trade Commercials - I'm sure you've seen the TV commercials with the baby talking about how easy it is to buy stocks using E*Trade. This is another example of a trader. The commercial doesn't mention trading costs, valuation of stocks, or even thinking about what your buying. After all, if it is easy to buy a stock, that means you will make money right? Hah, I wish.

I realize these are only two examples, but can you see what I mean? Many "reliable" sources of Wall Street news will throw around the word "investor" when they actually mean "speculator". It is important to differentiate between these two, as I will only be discussing investing in my blog.


Traders and Day Traders

Now don't get me wrong, a skilled (and small) number of traders can and do make boatloads of money. The downside is that often times these gains are not sustainable over a period of decades, think 30 years. The long term is where value investing really shines.

One reason Wall Street does not generally like value investing is because it does not like thinking long term. Wall Street enjoys the daily, exciting, and drama-filled activities of the markets. I don't know about you, but I'm not really the kind of person who enjoys getting overexcited or depressed about daily occurrences that don't mean a whole lot in the long run. Wall Street loves to publish daily articles about what companys' stock is going up, where analysts think stocks will go, and why you should buy stock XYZ.

Please, don't just buy everything that Wall Street says (no pun intended). Think for yourself, and do your homework!

Lets Make S'mores!

Welcome! This is my first blog post here on Graham Cracker.



Who I Am

My name is Jonathan Williams. I am currently a Sophomore at The Pennsylvania State University. I am double majoring in Accounting and Math, and hope to someday work on Wall Street in the finance industry. At Penn State, I am a member of the Penn State Investment Association, in the IT sector. PSIA is an organization under the Nittany Lion Fund. The fund is a $3.0 million student run mutual fund at Penn State. I intend to apply for an analyst position in the Nittany Lion Fund during the Fall 2009 semester. I consider myself very knowledgeable when it comes to computers and technology, with somewhat of a specialty in computer hardware.

I decided to name my blog "Graham Cracker" because Benjamin Graham's Intelligent Investor was my first introduction into finance. From then on, I have been hooked. I love reading about finance. I am actually reading his book a second time over and taking notes. I am open to learning about all financial methodologies, but I am pretty biased to value investing as you might guess.

Why I Am Blogging

So what about my readers? I hope to provide my readers with alternative views and interesting ideas that they may find useful, with a focus on value investing.

I am constantly reading about finance, and creating my own ideas. As I mentioned, my biggest influence so far is Benjamin Graham. My goal is to discuss the practice and potential improvement of Graham's methodology of value investing, as well as comment on current happenings.


What I Will Be Blogging About

I will discuss everything finance, from current news to investment ideas. More specifically, I plan on writing about: Graham's teachings, investing for college students, views of the markets, current news, and other topics. And what blog about Graham would be complete without mentioning his protege, Warren Buffet? Buffet's methodology will also be discussed.

And of course, discussion of proper methods of making s'mores and graham cracker recipes will be sprinkled in ever so often, haha!

Feedback?

Yes Please!

Commentary is appreciated and welcome! You can also e-mail me at: Jonathan.Williams (at) GMX (dot) com