12/4/2012 7:45 PM ET|
12 stock rules good for 40 years
These rules worked for a proven money manager for more than 4 decades. They'll work for the next 40 years, too.
Doom and gloom are filling the air. Some economists and market gurus warn that we may be going into another recession. Indeed, some say we may already be in a recession. And what will happen if we head over the "fiscal cliff"?
At times like this, I think of my marvelous old friend Dan Bunting, a man who successfully managed money on behalf of private individuals and institutions for nearly 40 years.
Along the way, he learned to take most economic prognostications with a grain of salt. If you listened too much to economists, he said, you would never invest a penny. "Just remember," he used to tell me with a smile, "the economic fundamentals always look terrible."
Dan died recently, after a short illness. The news has me thinking again about Bunting's Laws of Investing.
The first time he told me about them was over lunch, a decade ago. This was back in the days when I worked in London, and journalists could still go out for lunch. He had accumulated the rules over the course of his long career. At the time, I thought they were interesting but whimsical. After the past 10, turbulent years, I'm amazed at how useful they are. It's been like a "Twilight Zone" episode.
What are Bunting's Laws?
1. Sell stocks of companies that announce huge acquisitions, that overdiversify or that spend a fortune on a lavish new headquarters, he said. Hello, New York Times (NYT).
3. Watch out when executives start selling a lot of stock -- though they will, he added, always offer a plausible-sounding excuse when doing so. (Top executives in homebuilding companies, mortgage banks and Wall Street firms dumped billions of dollars' worth of stock before 2008.)
4. "Run a mile" from all stocks in an industry going through a huge investment boom. This will lead to massive overcapacity and a consequent collapse. (Cite any recent bubbles you care to name.) Avoid the fallen stars after the bubble bursts, too.
5. As a rule, steer clear of investing in manufacturing companies. Their industries are usually plagued with extreme cycles of boom and bust, overcapacity and slumps.
6. Pay little attention to economists or market "gurus," Dan always advised. (Incidentally, the corollary of economists always predicting a recession is that they generally fail to predict one when it actually does happen.)
7. Mistrust all mathematical trading formulas as well. As Dan noted, they invariably fail just when you most need them to work.
Not all of Bunting's Laws are about stocks to avoid.
8. Look for companies where the insiders are buying lots of stock, he said.
9. Look for companies generating a lot of cash, as that is almost always the start of sustained outperformance.
10. Look for companies which have monopolies, or near monopolies, and those that manage to take out their main competitors.
11. Remember you are buying businesses, not just stocks. So pay close attention to the quality of the business, and especially the quality of the management. They make an enormous difference. Over time, Dan would say, "class shows."
12. Look for companies in the consumer sectors -- in particular, companies that have earned the trust of consumers and have very strong brand names. "As a rule, the closer you are to the consumer, the more money you will make," he said. "The ultimate guarantee of profit is to possess the trust of the consumer." Hello, Apple (APPL).
These rules may sound obvious, and they are -- or ought to be. You'd be amazed how many investors manage to forget them, though, especially on Wall Street.
For those willing to take risks, Dan also said, there are great profits to be made by jumping on an investment bandwagon -- as long as you jump off again in time. "You always make the biggest profits on the worst stocks," he used to say. (It sounds ridiculous. It isn't.)
The last time I saw Dan Bunting was a year ago. He was waiting for me in an old London pub near Leicester Square, wearing a pinstripe suit and clutching a pint of warm beer. We headed over to London's Chinatown for lunch. I will miss him. But Bunting's Laws will live on. I will think of him every time one of these rules is validated, yet again.
More from MarketWatch:
VIDEO ON MSN MONEY
When every "common" person is excited about a stock offering, run away from it like a forest fire
(I'm looking at you Facebook.) Wall Street firms are professional carnival barkers and if it really was such a good investment they would have kept this information to themselves to try and profit off of it as much as possible.
40 years ago, many big businesses were still directed by their Founder and the title "CEO" was less prevalent. Businesses employed bookkeepers in-house and the US Tax Code was fairly cut and dry. Investing had aspects of Risk mitigated today by over-compensation in way too many ways. To buy and hold stocks today is to assume that- a world growing more and more angry with departures from commonsense and Reality- will continue. That's not a horse I am willing to gamble on. Even Buffett cannot deny the honomgenization of approaches to business being more dangerous than beneficial. The prevailing "global" approach is as a platform or detached management unit with Board Directors and disposable or contract everything else. While Legal, Executive and Financial are important parts of any business, there was a time (40 years ago) when these were disposable or contract and everyone else was important. The difference? That 40 years ago you invested in something that operated in a way that attracted both external and employee investments. Today, a regular employee gets his/her 401K match dumped into stock and the bright ones move it to some other investment option as soon as possible. There is no faith trust or pixie dust left in businesses that run counter-productive to the nation's interest. If it's only about money- go play Monopoly with your friends. It's about National Security, Integrity and Continuance. No publicly traded business today functions for or to this standard and is therefore a hazard. What's in your wallet? Mine does not harm my neighbor or vilify labor, mine bolsters my community and I don't mine paying my fair share of taxes.
"This is the most unloved bull market ever.The Dow is up 5,000 points"
15 years ago there was $50-60 Trillion in currencies worldwide. Today there are 3 types of currencies (cash, debt contracts and derivatives) exceeding $1 quadrillion. It isn't "unloved" as much as it is very much recognized that our share of falsely printed and electronically obligation far exceeds what 5,000 points on the Dow should be in equality. You have to be a total idiot (or greedy grubber) to buy stock that is artificially priced in every possible way. Founder-less businesses sold the factories, assets and brand components to overseas concerns. They terminated personnel and operate solely as importers that middle-manage on margin. WHEN the economy stops and it will very soon, there won't be some sort of threshold to compress to where the business can operate as a core. The core was sold and is leased space, talent and legalese today. Think about it... WHEN we crash, some 50 countries can still make the same brand products they have been exclusively since at least 1999 and keep selling them here and elsewhere. The hollowed-out publicly traded cardboard cut-out of the original brand gets to what-- send retained lawyers to stop them? The sub economy is certainly more robust than the busted organized platform business economy. You are SCREWED if you have your retirement invested in the air inside the bubble created by businesses that went "global". All that really means is that they hired college kids as administrators who made the business a facsimile of a business, not a real one and compensated themselves for doing so.
bubbles are created so they can burst and take your money, it is no accident
States it is a game of roulette..
Except for CEO's dumping stock in 2008
Is all the reason in the world to never get into this casino.
The one armed bandits payout better and are more honest...
Watch your money like a hawk every moment and every hour because the bullies on top want your lunch money
TSA NOT ON THE CUTTING BLOCK
ATF NOT ON THE CUTTING BLOCK
DEA NOT ON THE CUTTING BLOCK
DHS NOT ON THE CUTTING BLOCK
DEFENSE (offensive contractors) CONTRACTORS NOT ON THE CUTTING BLOCK $400.00 per hammer?
WAR ON DRUGS NOT ON THE CHOPPING BLOCK
CONGRESS PAY/ENTITELMENTS NOT ON THE CHOPPING BLOCK
SENATES PAY/ENTITELMENTS NOT ON THE CHOPPING BLOCK
SENATE & CONGRESSIONAL STAFF PAY AND ENTITLEMENTS NOT ON THE CHOPPING BLOCK
FEDERAL EMPLOYEE'S ENTITLEMENTS ARE NOT ON THE CHOPPING BLOCK
BANKER BAILOUTS NOT ON THE CHOPPING BLOCK
STIMULUS IS NOT ON THE CHOPPING BLOCK
NSA IS NOT ON THE CHOPPING BLOCK
You invest in Wall Street
Your investing in Obama... Wall Street loves Obama... Obama is Wall St's Boy
Goldman Sach's gave Obama how much?
JP Morgan gave Obama how much?
Wall St. got Obama reelected as their ringer...
He is doing everything they want to destroy the middle class and enslave everyone to bankers debt.
QE's are being used to entrap you to bank derivatives
The rules are changing
The mega banks are buying up GOLD to stock pile. Soon the central banks will state the if gold is held in holding in a bank by a bank it will have triple the value. NoT you or I but just the banks.
Fiscal cliff and both parties want to take from granny and children but not their enforcers...
Fed's enforces budget need to end
That is what is wanted?
HISTORY DOES REPEAT ITS SELF
If you think monopolies are good to invest in...
then you truly are sheeple being herded right over the cliff and enslaved and indebted to the COMPANY STORE FOR GENERATIONS!
Just come and get all YOUR FREE OBAMA MONEY FROM WALL ST AND CENTRAL BANKS...
$85 billion per month
This is how obama got reelected
Giving Obama Money to the banksters of the WORLD
The column shared worthy advice.
Most of the responses showed anger, resentment and not much thought.
Take sound advice and incorporate into your daily life. It will be beneficial to all.
I have been in the market since 1981 and have watched it go up , down and all around.
Fired my stock guru in 1987 and have simply used common sense in buying.
When I buy, I know the company and never sell. If you do that, you can never fail.
Dont ever try to be a genius or get rich quick. Just buy and keep it. Over time you
will discover the sheer joy of compounding.
Are their laws about insider trading?
Are you an INSIDER?
Will they allow you to be an insider?
2-2= 10,000 plus
Really they use math that is taught in 3rd grade?
If so 2-2=0 not 10,000 in the positive
Go straight to jail if we did math like this w/ the IRS man with guns and badges taking everything
If people followed these rules they wouldn`t be buying high and selling low.The time
to buy is low,like March 2009.You would have doubled your money.This is the most
unloved bull market ever.The Dow is up 5,000 points with Obama, but if you listened
to the far right you`ll think it was dowm 80%.Don`t believe our far right media.
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