Tuesday, December 6, 2011

Do you think the world does no longer exist three years from now?

There is a good chance that three years from now Yellow Pages still exists, but holding on to its preferred shares is kind of painful. Would I buy them today? Not likely, but when I bought these preferreds they looked OK and today I have the choice to lock in 80% plus losses or to keep on collecting dividends until it goes kaput or the preferreds expire and I will get $25/share principal returned.

The choice is not difficult for me, I’ll hold on. Yellow Pages or better Yellow Media is a sign of the times. Today’s world is emotional; the air is filled with crises, panic and conflicting opinions and we assume that everything will go to hell in a hand basket. But do you really think we’re dead 3 years from now? Do you think we will lose all our retirement savings? Will Europe go under and what does the new world look like other than a small stack of smoke and with only small amounts of land still sticking out above sea level due to global warming? :)

Come on, we have never lived as prosperous as today! Yet, at the same time we’re scared by everything that can go wrong. Analysts and media make us build in pricing for the worst case scenario while trying to convince us that only they can foresee the future and provide you financial security… for a price. Many of these people are just observers standing on the sidelines; they are not the entrepreneurs that build companies like Blackberry, Apple or Microsoft. They do not even run the Royal Bank branch nor Seven-Eleven on the corner of your street for that manner. The same is true for all those much-quoted academics that watch from the economy’s sidelines without really participating. They are the worst backseat drivers you can find; they are like the obese soccer fan who can barely run, let be that he can play the game as well as the players he critiques.

The investor invests because he/she believes in the future why otherwise not stash all your money under the mattress or invest in U.S. treasury bills for 0.5% return which is 0.3% after taxes and minus 2.2% after inflation. They call THAT preservation of capital? No the investor knows in his/her heart and based on historical data that these times will pass too and that since nobody else wants to buy, this is the time to put his/her money down to work for the future. Corporate North America makes super high profits yet hardly anyone wants to pay for those profits even if the dividends and earnings yields are blowing us out of the water.

But when you every day go to work, do you feel that your job will be gone 3 years from now? That the company where you work will not be there 3 years from now? Why work for a lost cause? Why would senior management work so hard for a lost cause?

The answer is that nobody who works at a company, being manager or floor worker, truly believes the world is coming to an end. Look around in the company and see hard working co-workers laughing at the water cooler during coffee breaks. All of a sudden, the urgency and doom & gloom of the stock market are forgotten and you’re living in the ‘real world’. The thought that you can’t live in your home three years from now; that your kid’s daycare will be out of business tomorrow sounds like utter nonsense. Yes there is a remote chance that the world will go kaput in the next three weeks; probably because we’re hit by this one-in-a-trillion-chance meteor. But really, overall things have been very good as long as you don’t believe the news; the observers that always seem to see the glass as half empty. Investors, entrepreneurs and people who work in the real work place every day right besides you, know better. They believe in the future and they know these ‘bad times’ will pass and replaced  by good times. If the world evolved and improved year in and year out, for hundreds of years, then so will it likely in the future.

These are the times to invest in the companies that you believe will be around. Invest in companies that will not be around just a year or three from now - the 'fads'. Rather invest in companies with a real future that will be around for decades. That was the mistake I made with Yellow Media - its business model was no longer working and its future dim. Tellow Media will have to prove its new model is workable and that they can make the switch. Over time people will realize that things aren’t that bad after all; that things keep on getting better every day and that good investments will increase in value.There will come a day that even the sideliners realize that things got better. By that time you will not only have collected oodles of dividends but it will also be the day that your investments will have risen to reflect their true value. That is the time to take profits – many, many profits!

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