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Old Republic International Corporation Message Board

  • archman8201 archman8201 Feb 20, 2004 11:30 AM Flag

    Come on now!!!


    Really people.
    Some of you are sounding like traders- barely able to focus past a day's, week's or month's worth of stock price movement.
    Someone wrote that ORI has performed "Terribly".
    WHAT?? Lets define terrible. How about a 70% drop in stock price?? Not a 15% drop in stock price of a fundamentally good company.
    If someone thinks that sounds terrible then get your cash in a bank or a piggy bank.
    The stock is being sold for three reasons.
    People got their cash dividend.
    People always sell shares after a split because they mentally see themselves with to many shares even though the amount of money you have invested did not change (go figure that one out- but leave it to the inexperienced to do that)
    Lastly, there is concern about their title insurance and anything related mortgage business exposure. However it only makes up 50% of their business. Yes 50% sounds like alot but lets face it, its not 100%, and they are diverisfied and a very conservatively run business. This stock is meant to be a slow, buy on the dips, stock. With a market cap of only 4 Billion this stock has so much room to grow that in 20 years, im not the least bit worried about it. So really guys, keep it in perspective. Lets leave the terrible stock performance to the folks that are going to lose it all AGAIN, once the non-profitable tech stocks come crashing down to earth.
    This is a great board and good luck to all!!!

    Michael- NY

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    • millionaire, your analysis of Mr. Stein's book is accurate.
      The idea of buying ONLY a broad-market-index fund ONLY when the market is cheap by the measure of one or more of his five indicators is Boring. The book acknowledges this method would've kept an investor entirely out of the market for 12 and 15 year intervals over the last century. In fact, the advantage of the method is not so much that it put one in the market when it was good, but that it kept one out of every market collapse. It is fundamentally a very-low-risk strategy.
      And, to be more emphatic, Mr. Stein in his book and on-air interviews cautions that the individual investor should NEVER buy individual stocks. (You can see him fairly regularly during the 2-hour block of business shows on FoxNews on Saturday mornings.)

      For those interested in Mr. Stein's methodology but with more action, I suggest a middle-path. The advent of new investment vehicles such as ETF's offers the investor an opportunity to buy an "index" concentrated in a single industry or sector or geographical region.
      In all likelihood similar analyses of these "sub-markets" would reveal more frequent opportunities to buy when they are cheap and sell when they are dear.

      (Disclaimer: I do invest primarily in individual stocks, although I seek cheap stocks based on the same measures Mr. Stein employs for the overall market. (That's why we're all in ORI.) I also bet football games and spend time at the blackjack tables; different strokes for different folks. Nonetheless, I have recently taken a position in an Oil-Services ETF with very positive result so far - an example of the middle-path I suggested above.)

    • the_millionaire_next_door the_millionaire_next_door Feb 24, 2004 6:49 PM Flag

      Yes, Ben Stein's suggested approach is boring with a capital "B". But that is just what some people want.

      Good luck to you as well.

    • Well, at least I know now what the book is about. I assumed from the title it was some ridiculous trading system. Thanks for the info. It actually makes some sense.

      However, the problem, it seems to me, is again rooted in human behavior. What kind of person would, at one and the same time -- a) know and care about measurements like price to book and earnings yield, yet b) engage in such a boring system that requires him to do nothing with this market analysis for apparently years at a time? Also, it strikes me as somehow un-Buffett to say "the market" is a "hold." The whole way he got to where he is was to find market mistakes, not as a whole, but on individual securities. I might have more respect for the system if it ever said "Sell" the market, but apparently it doesn't.

      Best of luck going forward.

    • the_millionaire_next_door the_millionaire_next_door Feb 24, 2004 3:05 PM Flag

      Ben Stein's book is about valuing the S&P500 based on several key indicators. I believe they are: Price, P/E, P/Book, P/Sales, Earnings Yield, and Dividend Yield. These are all compared to a 15-year moving average and adjusted for inflation. He actually keeps a web-site so you don't have to do all of the calculations yourself. www . yesyoucantimethemarket . com. But, the market is given either a buy (when more than 1 of the indicators is green) or hold (instead of sell).

      He advocates dollar-cost averaging with this twist: Instead of buying when the market is high, put that money into an interest-bearing account. Then, when the market becomes "cheap", you put the normal amount in, plus an equal amount from the cash account that you've created. He back-tested this using almost a century of data and it seems very practical. Today's market would absolutely be a "hold".

      Thank you for the kind words on TSA. I haven't been investing in stocks (previously all mutual funds) very long and that was a great way to get started. It encourages me to keep learning when I see what is possible given the right timing, circumstances, and research.

      You are right, TSA at the price I paid (16.11) was not a great risk. I only say it carried more risk because it is a small cap stock.

      I hope you will reassured that I am looking to invest more in individual stocks, while keeping index investments at or below current levels in my portfolio (except 401k, where I have little choice)

      disclaimer: not a real millionaire

    • (changing the name of the thread which had become misleading)

      Okay, I'll bite. If index-fund investors can really be price-sensitive in a good way, and if you really can "time the market," then tell me this: Is the market a Buy or a Sell today?

      My answer is: I have no idea.

      ORI is something I can speak to. A key variable in investing success is conviction. I personally cannot see how one can have a conviction about an index (or, if you have a conviction, for it to be right more than about 51% of the time).

      One thing: I don't know why you need to feel you took undue risk with TSA (I admit, I had to look it up). My real-world theories indicate your risk attaches to your investments *as a whole*, not one by one. I'd advise you to stop comparing your investments to the S&P on an individual basis. Your TSA investment deserves congratulations, period. Just trying to make sure you don't psych yourself out of ORI. I very rarely call anything a Strong Buy. This is about the best buy-in situation I've seen in quite some time.

    • the_millionaire_next_door the_millionaire_next_door Feb 24, 2004 11:42 AM Flag

      Yes, my dollar figures were based on a lump-sum investment with no additional cash added to the positions. I'm too lazy to do anything more than that.

      But do not assume that all index-fund investors are dollar-cost-averagers. You can be equally price-sensitive if you are an index investor, only investing when it represents good value. Just like with ORI, you can overpay or get a good price.

      I'll refer you to the book "Yes, you can time the market" for an example of how to invest in index funds when they are cheap. Don't be misled by the title, the book is really about value investing.

      I'm not trying to persuade anyone to invest in index funds. I own 7 individual stocks and 3 different index funds. The index funds have been primarily purchased lump-sum. The ones I have in my 401k were dollar-cost averaged when I believed the market as a whole was underpriced. I can't buy stocks in my 401k, so I buy index funds. After all, statistics show that the vast majority of actively managed funds have performance that is inferior to the S&P500's performance. I think the more time and inclination you have for doing research, the better you can do picking stocks.

      I agree on knowing a company's fundamentals as best you can. Comparing companies to each other within the same industry is another completely valid way of measuring performance. My use of the S&P500 as a comparative tool is not perfect, for one because it doesn't factor in risks. I like to compare my purchase of TSA to the S&P500's return because it makes me look like a genius. That pick is up over 150% in the last 12 months, but in reality I bore a greater risk than the S&P500 (although I like to think I knew those risks before investing).

      I'm starting to ramble, so I'll stop here.

    • Your counterexample is inconsistent. Watch closely.

      You did the calculations (thank you, I can't be bothered) and correctly came up with the fact that Investor B (index fund investor) outperformed Investor A (people like us) by a not insignificant margin. I fully agree with you so far.

      But now go back to the beginning of your message. We know Investor A exists in the real world; you and I are proxies for this type of person, or at least we try to be. But your proof that Investor B exists is that he invests periodically or dollar-cost averages. In that case B's performance will not be anything like the quadrupling of money in your subsequent example. It will be much, much less because on average he rode up his cost basis over the 10-year measurement period. I don't even know how to do the calculation but I am willing to bet in that case B will dramatically under-perform investor A.

      Your last comment reveals the key difference between the way we think. I didn't know ORI has outperformed the S&P by 5%. The things I did know is that the company's tangible book value is growing in a beautiful line, the price to book is a little over 1, and the PEG ratio is below 1. Then I know all the qualitative things we've discussed.

      As I've mentioned before, my 3 insurance stocks are JP, ORI and SIGI. As is so often true of a well-researched diversified portfolio, occasionally for some reason (or no reason!) stocks fairly rapidly reprice upward. Recently that's happened with JP and to some extent SIGI. It hasn't with ORI which has performed poorly (in a stock market, not corporate, sense), and that's why I'm focusing my attention on ORI and not the others. The point is, my money is ALREADY in these 3 stocks, and more is going into ORI now, so any future comparison to an index is only meaningful to the extent the index reflects real people's money at the beginning of the measurement period, which it almost never does.

      I will repeat my basic point: The only investment return that counts is the one you actually achieve in the real world with real money. Best to you and all ORI shareholders.

    • the_millionaire_next_door the_millionaire_next_door Feb 24, 2004 8:33 AM Flag

      I think we can agree to disagree on this because we agree on most everything else.

      There are many "Investor B"s out there who either periodically drop a chunk of cash into an index (hopefully when it is relatively cheap) or dollar cost average through a 401k or whatever. I'm not sure why you would say these people don't exist. I can understand those who want to research and own individual companies. You can't research an index (at least not in the same way) since it is a conglomeration and not a real company. But remember that an index is also self-improving. It gets rid of the bad companies and adds the good ones all the time based on market cap.

      Putting some real numbers into your example, suppose both A and B invest $10k. That 2% difference is a big one. After 10 years, A has $33,194. B ends up with $40,540. The only difference is that an index fund will have some low expense (typically 0.25% or lower for S&P500 - so subtract a few hundred dollars for B).

      You are right, A is not UNsuccessful, since he has made a decent return on his money. He is just not as successful as B. If he is consistently less successful than B, he might as well join B.

      One of the reasons I invested in ORI, aside from strong fundamentals and belief in mgmt, is that they have outperformed the S&P500 by around 5% on average per year in the past. If I didn't think they had a good chance to continue to beat the index, I probably wouldn't have invested the money here.

    • To take an absurd example just to make the point, imagine two investors. Millionaire Next Door invests all his money in ORI (don't try this at home!) and it returns a compound average 12% total return over the next 10 years. Imaginary Investor B invests all his money in an S&P Index Fund for the same period. It returns an average 14% over 10 years.

      Is Millionaire a successful investor or a failure?

      The answer is: A huge success! Because a) Millionaire got 12% a year on his portfolio, and who cares what anyone else did; and b) Imaginary Investor B doesn't exist in real life -- no one really behaves that way. People who tout index funds as a "solution" forget that index funds are investments too. People are no more likely to buy that at the bottom than any other equity investment. By contrast, Millionaire actually received his return because he had actually researched ORI and actually put his real money in the stock because he had conviction, something that is almost impossible to have with an index.

      As far as brody's comments, they're the same as mine. Absolutely, when something is overpriced, it's a candidate for sale. But to do this you have to then sell when the backwards-looking comparative charts look good and buy when the backwards-looking comparative charts look bad. Most people find that hard to do.

      As I say, this is a minority view on the boards, which attract an even more excessive quantity of fear (i.e., sell low) and greed (i.e., buy high) than usual. Don't want to get too far off topic so again there's more on this on the BBT board from recent weeks. I hope that's clear; if it's not, don't worry about it and let's move on.

    • I'm not quite sure what you're saying either. Obviously we long term investors could drive ourselves nuts if we over-analyze every possible entry and exit point where we could have gotten richer by moving into something else. On the other hand, I don't want to get married to even my favorite stocks if I believe better potential exists elsewhere. I try to buy stocks that I'll be confortable holding if I get stranded on a desert island for a few years, but that doesn't mean I don't keep a critical eye on them when I'm not. Even great companies get overpriced.

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