Posts filed under “Markets”
Templeton’s 22 Principles For Successful Investing
1. There is only one long term investment objective, maximum total after tax return.
2. Success requires study and work. It’s harder than you think.
3. Outperforming the majority of investors requires doing what they are not doing.
4. Buy when pessimism is at its maximum, sell when optimism is at its maximum.
5. Therefore, buy what most investors are selling.
6. Buying when others have despaired, and selling when they are full of hope, takes fortitude.
7. Bear markets aren’t forever. Prices usually turn up a year before the business cycle hits bottom.
8. Popularity is temporary. When a sector goes out of fashion, it stays out for many years.
9. In the long run, stock index prices fluctuate around the EPS trend line.
10. Stock index earnings fluctuate around replacement book value for the stocks in the index.
11. Buy what other people buy and you will succeed or fail as other people do.
12. Timing: buy when short term owners have finished selling and sell when they’ve finished their buying, always opposing the fashion.
13. Stock prices fluctuate more than values. So stock indexes will never produce the best total return performance.
14. Focus on value because most investors focus on outlooks and trends.
15. Invest worldwide.
16. Stock price fluctuations are proportional to the square root of the price.
17. Sell when you find a much better bargain to replace what you are selling.
18. When your method becomes popular, switch to an unpopular method.
19. Stay flexible. No asset or method is forever.
20. Stock market investing takes more skill than any other kind of investing.
21. A person can outperform a committee.
22. If you begin with prayer, you will think more clearly and make fewer mistakes.
I first came across this list in Charles Ellis book, The Investor’s Anthology: Original Ideas from the Industry’s Greatest Minds. Its also online here: William Proctor, from The Templeton Touch (1983).
I originally wrote this about 6 months ago, but never got around to doing anything with it. Since then, we’ve seen E*Trade bid for Ameritrade (only to get rebuffed) while Ameritrade approached T.D. Waterhouse about a merger. I imagine others in the discount online brokerage space are engaged in similar manuevers.
Its all wasted energy.
Why? Think about Clorox, Kleenex, Post-its — these are commodity products that have differentiated themselves through branding from their competitors. Even specific brands of Premium gasoline are known to auto afficianados (Amoco Ultimate and Sunuco 94 are the most liked).
Even commodity products can distinguish themselves from the competition in a commodity field."
Competing on price doesn’t work; Your peers just engage in a price war. Bulking up doesn’t work; There’s still many competitors who will step in to fill the void. And while E*Trade spends almost $100 million per year on advertising, their competitors (collectively) spend even more.
There’s a better solution: Its called Differentiation.
I’ve thought about this for some time now. I’ve always followed E*Trade closely, because that’s how I got into this business. Well over a decade ago, a friend was running a branch office of E*Trade in NY — they were a proprietary trading house before they rolled out on-line trading. He brought me into the biz as a trader (hence my focus on capital preservation and technicals/internals).
We know there’s a price war, and that discount on-line trading is merely a commodity business. There’s significant customer churn. To break out from the back requires something significantly distinguishing from the other firms. Size isn’t what’s required, a better business model is. Something that is value-added for the customer, gives them a reason to pick you versus the other guy.
Here’s a way for an online trading house to distinguish themselves:
Since they popularized online trading, E*Trade has built tremendous brand recognition. But its come at a cost: Spending north of $86+ million in advertising over the past fiscal year, one must ask if the company is truly maximizing their return on advertising dollars.
It has become a crowded marketplace, but the firm that differentiates itself from the rest of the online brokers — Schwab, Ameritrade, Brown, ScottTrade, etc. — garners a huge advantage.
Of the full list, I believe Schwab and E*Trade are best positioned to put such a plan into full effect, with Ameritrade a close third.
After considerable thought (and using what little expertise and experience I posses), I have put together a series of ideas as to how an online broker can do this. When discussing this with a colleague, he made the astute observation that the ideas were alphabetical: A-B-C-D-E-F. (Talk about pattern recognition!)
This was purely coincidental, but because of it, I present the list — not in priority form — but in alphabetical order:
A) Advertising (pundit)
Here are the details of each:
Given the astounding amount of money each of these players spend on advertising (E*Trade’s $86M is an example), I do not think the companies are getting as much for their money as they could. An editorial presence in print, radio, internet and, of course, TV would extend the advertising dollars and dramatically improve ROI.
In my own work, I garner millions of dollars in PR for my firm — TV, Radio and Print. My motivation are not PR — I do it because I enjoy participating and furthering the debate — but that is surely the main reason my firm pays me a salary (btw guys, I want a raise).
Where is E*Trade’s talking head? Its astounding to me they dont have one — Schwab and Ameritrade do. It would extend and further the huge advertising outlay they make. The platform alone guarantees at least moderate coverage.
I figure for about a million a year (plus or minus) — the Chief Investment Strategist position, staff, office, research, etc — they could add close to a 50% increased return on their massive ad outlay.
That’s the first layer; consider each of the following topics (B – F) as supporting the PR/Branding/Marketing aspect of the firm:
B. Blog (Web logging)
Blogging is a great way to provide a readership with an overview of topical issues related to current media. By frequently posting short, interesting blurbs related to a given topic — i.e., the macro-economy, market moves, releases, etc. — a readership develops, drives traffic, and stays within a given website.
I’ve maintained a weblog in various forms — most recently The Big Picture — since after 9/11. Since moving it to Typepad, readership and traffic have grown nicely. According to one traffic ranking site, The Big Picture consistently ranks in the top 100 web blogs. This is out of millions of blogs, with no advertising budget, staff, or research dollars.
There are a few examples of where a business’s website added a known blogger and drove their own traffic and reader retention much higher. The best example I know of is Washington Monthly, which integrated Kevin Drum’s CalPundit blog into their front page. But other companies have been using them for a variety: see Jupiter Research and Microsoft as examples of different applications of Blogging to a corporate need.
E*Trade needs to hire a talking head, start a blog (with some editorial assistance and a small blogger crew), make their site stickier and actually be useful for their clients. Further, you
can use it to attract new clients who are not reached thru newspapers or TV ads.
On a ROI basis, I’ll bet a good blog utterly kicks TV advertising’s ass.
On-line brokers need a stickier site, a reason for customer and non-customers alike to hang around their — perhaps even open an account.