Pettit Funds

Grim times.

Since I retired a year ago, I’ve lost over 1/3 of my net worth. Yikes!

But I’m still committed to being 100% in stocks. The market goes up. The market goes down. (Mostly down lately).

That level of risk is not for everyone–but I’m comfortable with it. The market has served me well over the long haul…just not lately.

So, taking a deep breath, here we go:

I’m selling off a lot of my losers. And I’m going to leave much of the proceeds in cash for just a while longer–not that I’m trying to “time the market”. I’m just having trouble finding anything interesting to buy. (But a lot of garbage that I’m happy to sell).

I am going to take a position in Graham Corporation (GHM), however. That was all I could find that still intrigued me.

Good luck, and hang in there.

Ok, today’s pick is (throwing dart at the Wall Street Journal) Baldor Electric Company (BEZ).

Why? Don’t ask. I’ve lost a lot of confidence in myself in this market.

Most of the other stocks showing up in my screen, I already owned. This is new.

This is a larger cap stock than usual, and so has some “diversity” attractiveness.

I need something “attractive” to cover all the bloodstains.

This has been one terrible, terrible week.

Why do I even try to keep investing, you may ask? Well, after all…:

Today I’m loading up on Terra Nitrogen Company, L.P. (TNH).

They are in the fertilizer business.

Anyone who has paid any attention to my stock picks over the years has to be aware that I am no stranger to the use of fertilizer…

Nice price/earnings ratio. A pretty big company ($2.16B market cap)–I usually buy the small-caps–but no harm in diversifying.

Still waiting for the market to make a move…

Good luck!

Philadelphia Consolidated (PHLY), which was recommended by this blog a year ago on July 5, 2007.

According to this month’s MONEY Magazine the stock was up 67.1% over this last month–#1 in their monthly Top Ten list (although the magazine mistakenly states that as performance over this last year [sic]).

You’re welcome.

I actually feel pretty good about these two picks today, and I’ve already bought some of each.

First up is LB Foster Company (FSTR), which “…engages in the manufacture, fabrication, and distribution of products and services for the rail, construction, energy, and utility markets in the United States”.

And my second pick is, of all things, PetMed Express, Inc. (PETS). I had been surfing the Internet earlier in the day and some ad of theirs popped into my vision for some reason. And then, just now, they showed up on my screen. Eerie! This may sound like picking a horse race because you like the color of the horse, but–I still have faith in my screening process despite this lackluster year and a few real stinkers.

Good luck!

From the Carnegie Mellon site:

Why Play a Losing Game? Carnegie Mellon Study
Uncovers Why Low-Income People Buy Lottery Tickets

PITTSBURGH—Although state lotteries, on average, return just 53 cents for every dollar spent on a ticket, people continue to pour money into them — especially low-income people, who spend a larger percentage of their incomes on lottery tickets than do the wealthier segments of society. A new Carnegie Mellon University study sheds light on the reasons why low-income lottery players eagerly invest in a product that provides poor returns.

In the study, published in the July issue of the Journal of Behavioral Decision Making, participants who were made to feel subjectively poor bought nearly twice as many lottery tickets as a comparison group that was made to feel subjectively more affluent. The Carnegie Mellon findings point to poverty’s central role in people’s decisions to buy lottery tickets.

“Some poor people see playing the lottery as their best opportunity for improving their financial situations, albeit wrongly so,” said the study’s lead author Emily Haisley, a doctoral student in the Department of Organizational Behavior and Theory at Carnegie Mellon’s Tepper School of Business. “The hope of getting out of poverty encourages people to continue to buy tickets, even though their chances of stumbling upon a life-changing windfall are nearly impossibly slim and buying lottery tickets in fact exacerbates the very poverty that purchasers are hoping to escape…” [Rest of article]

This is a pretty disturbing story from the FREAKONOMICS Blog at the NY TIMES. I have run into this phenomenon all through my career as an attorney/tax advisor/investor, and have also run into it all the time dealing with friends and family who are othewise intelligent and informed but virtually clueless regarding their finances. For some reason, even though there is a very good chance that (if you do it right) you will, in your lifetime, make more money with your investments than with all of your paychecks, people just don’t educate themselves on these matters:

Let’s begin with two questions:

1. Do you consider yourself financially literate?

2. If so, how did you get that way?

And now, a third question:

3. How important is widespread financial literacy to the health of a modern society?

Before you answer the first question, take this little quiz, borrowed from the website of Annamaria Lusardi, a professor of economics at Dartmouth who knows and cares more about financial literacy than anyone else you’re likely to encounter:

1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much do you think you would have in the account if you left the money to grow?

a. More than $102
b. Exactly $102
c. Less than $102
d. Do not know

2. Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account?

a. More than today
b. Exactly the same as today
c. Less than today
d. Do not know

3. Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”

a. True
b. False
c. Do not know

The correct answers are …[Rest of article]

Ok…

Here’s a couple of weird ones. I’ve already bought them both this morning. I’m not going to recommend you bet the farm on them, because I think they’re both highly speculative.

But they’re interesting.

The first one is Internet Gold – Golden Lines, Ltd. (IGLD). They are an Internet provider in, gulp, Israel. Ridiculously low price/earnings ratio.

If you think I’ve completely lost my mind maybe you’ll like Capital Trust, Inc. (CT). What is it? A real estate investment trust? A REIT?!!! Am I crazy?! Those have been out of favor for years! Real estate? In this market??

We’ll see.

From MSNBC:

DES MOINES, Iowa - Tayeeb Foods Inc. always enjoyed a modest profit, but Nazar Osman said running his six-year-old Sudanese grocery was never about the money.

Now the survival of his store in Coralville depends on finding money, but unlike hundreds of other small Iowa businesses affected by last month’s flooding Osman can’t accept low-interest loans from the federal Small Business Administration.

Like many Muslims, he takes a strict interpretation of the Quran’s prohibition against paying interest. [Rest of article]

***

And there you have it, folks: Why the 1 billion or so people in the Muslim world are destined to remain in relative poverty until they receive financial “enlightenment”.

I read the other day that there are hundreds of billions of dollars of oil wealth just…sitting there, because earning interest on it violates their law. Tragic.

The Old and New Testament have various conflicting (what a surprise!) comments about the propriety of charging interest and having debt. GOOGLE for financial inspiration.

I could not have gotten where I am today without “healthy” debt: school loans, business loans, mortgages. Interest is not evil; investing is good; use of money has value. Keep borrowing, people. But wisely.

And stay away from the “payday loan” places…

***

By the way, it would not surprise me if, after all of this publicity, Mr. Osman receives an outpouring of financial support from his Muslim community and is able to start up his business again–all according to his god’s Great Plan.

So his success will come not from his hard work and business acumen and willingness to take a risk to get ahead to support himself and his family, but from adopting a posture of victimhood and willingness to take charity.

Whatever…

Ms. Singletary has a column on personal finance in the WASHINGTON POST that is reprinted on Sundays in our local OMAHA WORLD HERALD. She is also a featured contributor to NPR Radio and, of course, has her own website.

And she’s driving me crazy!

Matter of fact, I just had an extended discussion at Friday lunch about her and how her last week’s column encouraging us all to hurry and pay off our mortgages was just dead wrong. (Full disclosure: I don’t have a nickel of equity in my house, and likely never will. I’ll take those 6% fully-deductible loans all day long and put them into the stock market, which historically returns 10% or more per annum–23% per annum for me the last 5 1/2 years, even taking into account the loss this last year. Further full disclosure: My parents and both of my siblings have paid off their mortgages early and are very pleased with themselves, despite my futile ranting about it. But they are all drooling mouth-breathers when it comes to finance, so…)

Nevertheless, I usually read Singletary’s column every Sunday morning just to get my adrenaline going–probably for the same reason I always seem to read the “Love is…” panel on the comics page, which never fails to make me want to go out and strangle someone (perhaps the cartoonist who draws it).

Anyway, today she is talking about getting those school loans paid off early, or not even taking them out in the first place! But my position is that school loans are the second best kind of debt (if you must have debt) after mortgages. Take ‘em on, kids! (My own kids will vouch that I have always told them to get as much school debt as they can, meanwhile putting any extra funds they thus have into Roth IRAs). Ms. Singletary would faint at that advice.

In this morning’s column, a reader who has $25,000 in savings asks if he should cover the up-coming $75,000 graduate school bill entirely with loans and hold on to the savings. (Yes! Yes! I want to scream). Her advice: “I recommend you work awhile and save up the money to go to grad school.” This is idiocy to the point of evil. How long will it take to save up what Singletary thinks is an appropriate amount–especially at pre-grad-school rates of pay? My friend: Go to school, get the loans, and pay them off on easy monthly terms at your higher rate of pay. Wait too long to go to grad school and you just might end up not going. Things come up: marriage, babies, career challenges, health issues…

Anticipating some readers’ outcry: Yes, I understand that some people are drowning in school debt and don’t have suitable jobs yet. Waah, waah! So do you plan your life around the fear of the possibility of failure? If so, maybe college or grad school isn’t for you anyway. I also understand that many people just feel so very, very snuggly having that mortgage or school debt finally paid off.

Fine, and I feel snuggly having my big mortgage, but also having, well, quite a comfortable bit of money in the market that allowed me to retire a decade early. And a nice education that I borrowed for back when I was teaching school for $7500 per year (early 70s), and that otherwise would have taken quite a number of years to have “saved up” for.

Now, Ms. Singletary does have an audience–the financially inept, those that are unable to manage their money and manage their debt. They don’t get the education, or if they do they never learn how to manage their credit cards and other consumer debt. But those folks are losers. They are going to have problems whether they pay off their school and mortgage debt early or not.

For my readers, the advice is: Feel free to borrow if you can get a better “return” (investment earnings, education) elsewhere. Manage your debt wisely. Get rich.