When To Sell A Stock

" investment is grounded on the past whereas speculation looks primarily to the future."
Benjamin Graham, David Dodd, Security Analysis - Principles And Technique, p. 66

When the Oracle of Ottawa bought his first stock he was called a fool, then later on, having survived and thrived, he was called lucky, continuing on until the time of this writing, people just call the Oracle of Ottawa "Sir". As mentioned many times before in this humble blog, stocks have been very good to the Oracle of Ottawa. Now the Oracle of Ottawa is not Warren Buffet, nor does he ever want to be. The Oracle of Ottawa has no desire to be listed as one of the richest Canadians. The Oracle of Ottawa just wants to enjoy a benevolent level of prosperity, read all the books he has never read, so far, and write the truth to power in his blog, completely unowned by any corporate whore.

Capitalism? Nuttin' to it!

Right from the start the Oracle of Ottawa had no trouble on what and when to buy. There is a ton of literature and success stories on that. The Oracle of Ottawa is an old time value investor. He simply seeks a stock that is priced at or below its book value, between two and ten dollars and  with a P/E ratio of less than 10, with a dividend between 2 and 55 percent and recently, a P/S ratio less then 3. The Oracle picks one stock every month, which he calls "Stock of the Month". Been doing it for years and years.

Soon the Oracle of Ottawa had a pretty wacking portfolio of stocks very deep into the money. But the great Oracle sweated on when to sell a stock. The Oracle of Ottawa found the decision to sell much much harder then the decision to buy. Oddly enough, every one else the Oracle knows, has the same problem in reverse. They always sell a double right away and sweat about what to buy next.  Don't be like everyone else. Taking a mere double will never make you rich. The Oracle discovered that buy and hold is still very powerful, and that it is not unusual to get a ten to fifteen bagger! Ya, you read that right, 1,000 to 1,500 percent profit is not out of the ordinary with the Oracle of Ottawa.

Then, after much gifted thought, as the Oracle of Ottawa is an "85", he realized that it could all be reduced to a simple rule of thumb (ROT), or what the undergraduate text books refer to as heuristics. And the rule of thumb is: NEVER OWN A STOCK YOU WOULDN'T BUY. When the statement arrives at the end of the month, the Oracle lists all his stocks in the money by percentage difference of book to market value. Then he lists the top 19 stocks in order for the month past. Yeah it does take a while to do it by hand, especially when you own way over 100 different stocks!  Then you go through the list checking the fundamentals on your favorite quote sight, and you sell the stock that has gained the most, but appears to be at the point of being unsustainable. i.e. Sell that stock that you presently own, but would never buy.

The Oracle of Ottawa will provide a simple example of two stocks. One is a very large REIT that the Oracle purchased many years ago when it was not a very large REIT. He paid $2.60 a share at the time. Today the REIT is one of the TSX 300 stocks, and is selling for nearly $27.00 a share. Another ten bagger. But it is still paying a monthly dividend with an annual yield of nearly 7 % ! And its P/E ratio is under 7! Aside from the price, this is still a value stock. Keep this one. Now going done the list, the Oracle sees that he has another stock that he bought for around two bucks that is now pushing 15 bucks a share, and the dividend yield is only a lousy 1.4%, and worst of all it is at 100 times earnings. The Oracle will sell this stock as soon as possible. It is now a growth, momentum darling. Never Own A Stock You Wouldn't Buy! Get it?

Searching For Schopenhauer

Money is human happiness in abstracto, consequently he who is no longer capable of happiness in concreto sets his whole heart on money.
Arthur Schopenhauer, Essays and Aphorisms, On Psychology, No. 9

Arthur Schopenhauer lived from 1788 to 1860. Karl Marx lived from 1818 to 1883. Yet as far as my research has gone, these two men did not even know of the others existence. My introduction to Arthur happened in a book store in Ottawa, where I came across a stray volume II of The World as Will and Representation, while on the search for unabridged texts on philosophy for my ongoing Thinking About Thinking Project. Not only was Arthur a legend of a philosopher, but he could write like hell. The man knew totally how to turn a word.

Arthur Schopenhauer

Now the big idea of Schopenhauer was the Will To Power, and how it was futile to even try to satisfy all your piggish Babylonian fantasies! You simply can't drink all the booze, smoke all the dope, have all the money, and fuck all the ladies! The Oracle of Ottawa quite regrets not having discovered Schopenhauer sooner. But better late than never! We live, love and hopefully learn. And if I had discovered Schopenhauer at 17, instead of 54 I probably wouldn't have half the wicked and riotous memories that I now still very much enjoy! There is quiet a lot to be said for late blooming.

Karl Marx

As you have probably deduced, for some strange reason, the Oracle of Ottawa is quite familiar with Karl Marx. This guy has fascinated me most all my life. Now his big idea was the dialectic of class struggle. Or more simply put; us getting fucked over by them until we all have had enough and start stringing them up on lamp posts and lining them up against a wall, to clear the way to start again. Got that? But the really important part is the dialectic bit. If you are an old white guy like me, the method of dialectical thinking is why you have the leisure to read this. The Asian guys, that are driven by Confuscist thought are still too busy working...Loyalty to the Family (nepotism), and letting yourself get drilled up the ass by the state (corruption) is simply not axiomatic to a lot of free time! Remember that Grasshopper!!

Then I had a real brainer. It was like a mercury vapor lamp going off in my head. What would happen if you used The World as Will and Representation as the thesis, and Capital as the antithesis? Could the resulting synthesis be a guide book for the 21st century?

Arthur Schopenhauer was quiet the lad! Pay attention!

Worried About China? - Forget About It!

Marriage is encouraged in China, not by the profitableness of children, but by the liberty of destroying them. 
Adam Smith, The Wealth of Nations, Book I, Chapter VIII, p. 87,


Even the most uninformed student of International Relations  has a pretty firm grasp of the problems that China faces at this moment, in this present day. Lets go over a few of them. The first and most dangerous is the ever increasing gap between the rich and the poor. The second is the soon to come demographic melt-down due to the results of the "one child" policy and the Chinese macho, peasant, penchant for the ego hard-on of having to have a male heir.This moronical thinking has resulted in an estimated group of excess young men not un-adjacent in size to about 42 million souls! Now there are not 42 million free women to be imported to China for love or money! Let alone 42 million Chinese women. The third problem, and this one really is lurking dark and low in the background, the total lack of countervailing power inside the mechanics of the essentially communist state. But as I will prove, this the least of China's problems...

China, just a stone tiger...

If you are an interested China watcher, you would really like the last Charlie Rose interview with Henry Kissinger, on the occasion of the release of his latest book, (and hopefully his last book), on China. Now my usual opinion of old Henry is that he is nothing but a bloody toff! Did you ever read any of his books? The babble is elegant and goes on and on, but soon you are like that old lady in the burger commercial; Wheres the beef! Well the Oracle of Ottawa was quite surprised that after nearly a million written words old Henry has truly hit it out of the park! Which I guess is proof that if you live damn near a hundred years even Henry will have one good idea or realization. Somewhere in that interview, Henry states the great discovery of why we just don't, in the long run, have to really worry about China. In the great western democracies any one can be a citizen. For example a black, white, brown, red or yellow human being can be a citizen of the United States. But at the end of the day only a Chinese can be a citizen of China! The same thing is true about Japan and most of the other Asian states, isn't it? You have to praise Henry Kissinger on that one, a brilliant realization.

Canada - China Friendship Society Meeting?

Now to the meat dear reader! The Oracle of Ottawa loves to do his own thinking. And when teamed up with a self managed brokerage account, and a penchant for picking stocks, the Oracle of Ottawa has done mighty well for himself. To achieve clarity and depth, to see where and what other people can't, you must get right down to the basic philosophical axioms that drive a civilization. Now what is the underlying driving philosophical force in China and the Western World? In China the basic driver is the social philosophy of Confucius. Basically this is built on family loyalty and social stability in government. Let the Oracle of Ottawa translate that into modern English: Nepotism and Corruption! Now Western Civilization is based essentially at the end of the day, on the Classical Dialectic. This is the method of the classical Greeks, such as Socrates as recorded by Plato. The system is based on thesis, antithesis, synthesis. That is, one party presents an argument the other party presents his argument and this is discussed at length, with the hope of reaching a new piece of knowledge. Now the greatest thing about this dandy algorithm is not its age and shine in our history but rather its total flexibility! It also works very well indeed inside the head of one person, and the starting bits can be taken from anywhere in time, or one from different times. Think of an infinite tree graph. of the Cantor variety. China doesn't stand a chance...

Modern China in microcosm, this is all we are essentially up against, do you get it?