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The Stingy News Weekly (01/26/01)

The Markets This Week

  DOW 30: 10,659.98 +0.68% to a P/E of 26.0
  TSE 300: 9,158.19 -0.03% to a P/E of 23.7

The DOW moved ahead this week on increased earnings whereas the TSE 300 was flat. Nonetheless, the TSE 300 remains the better deal on a price-to-earnings basis.

Stingy Links

A Trip Down Memory Lane
An interesting review of the last few decades of investing. Several graphs show that following the winners can be dangerous to one's wealth.

Direct Purchase Plans
Big news for DRIP investors from the OSC. Be sure to send them an email!

The Case for the Bull
The first part of TheStreet.com's bull/bear debate.

The Case for the Bear
The bearish rebuttal...

Focus on Fees
A quick look at the fees charged on pensions. Gasp, they happen to be important.

Stingy Books

Buffett: The Making of an American Capitalist
I enjoyed reading this hefty biography of Warren Buffett. It gave me a better idea of Buffett's investment philosophy than I got from the many "Buffett How-To" books. A great used book buy.

Market Trivia

The trivia questions this week are:
  1. What was the total return of Buffett's original partnership?
  2. How often did Buffett report performance to his partners?
  3. Buffett's style was formed by taking the best of which two authors?
The trivia questions and answers from last week are:
  1. How many years would it take to make $1,000,000 if you started with $10,000 and it compounded at a 15% annual rate?
  2. As per Q1, but the tax man takes 50% of the profits in the last year.
  3. As per Q1, but the tax man takes 50% of the profits each year.
  1. 33
  2. 38
  3. 64

The Winter Warmth Contest

Inspired by Hersh Shefrin's book "Beyond Greed and Fear" I'm starting a contest similar to one that was run by the Financial Times in 1997. Hersh's description of that contest is:

"Readers were told to choose a whole number 
between 0 and 100.  The winning entry would be 
the one closest to two-thirds of the average entry.

The Financial Times provided the following short 
example to help readers understand the contest: 
Suppose five people enter the contest and they 
choose 10, 20, 30, 40, and 50.  In this case, the 
average is 30, two-thirds of which is 20.  The 
person who chose to enter 20 would be the winner.

What is the point of this pick-a-number game?  
The point is that if you are playing to win, you 
need to understand how the other players are thinking.  
Suppose you think everyone who enters the contest will
choose 20, since that is the winning choice in the 
example.  In that case, you should choose the integer 
closest to two-thirds of 20 or 14.

But you might reflect on this for a moment, and wonder 
whether most other entrants would also be thinking 
along these lines, and therefore all be planning to 
choose 14.  In that case, your best choice would be
10.  And if you kept rethinking your choice, you would 
eventually come down to choosing 1.  And if everyone 
thinks along these lines, then the winning entry will 
indeed be 1.

But in a group of normal, even well-educated, people, 
the winning entry will not be 1.  In the Financial 
Times contest the winning choice was 13. [...]  The 
real point of this game is that playing sensibly 
requires you to have a sense of the magnitude of the 
other players' errors.

The pick-a-number game illustrates two of the three 
themes of behavioural finance.  People commit errors 
in the course of making decisions; and these errors 
cause the prices of securities to be different from 
what they would have been in an error-free 
environment."

The rules of the Winter Warmth Contest are similar to those mentioned above. This time contestants are asked to pick a number between 0 and 1,000 (no decimals or fractions). The winner will be the one who is closest to 3/4 of the average entry with ties resolved by random draw.

The winner will receive a bottle of Dave's Insanity Sauce. I've found it most pleasing when added to a bowl of chili.

To enter the contest you must be a current subscriber to the Stingy News and email your choice of number, before February 14 2001, to:

Contest@stingyinvestor.com

Only one entry per person. Good luck!


Bullishly Yours,
Norman Rothery



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