After researching Mohnish Pabrai (Trades, Portfolio) and Guy Spier and their investing philosophies, I decided to listen to their advice, and I read the book “Bull” by Maggie Mahar. Mahar has also written "Money-Driven Medicine," and she writes a blog on health at http://www.healthbeatblog.com/.
In her book she discusses the dramatic boom of the Internet bubble and how short-term influence and fluctuation can affect people's judgment. She writes about how Henry Blodget went from being a relatively unknown young analyst at CIBC Oppenheimer in December 1998 to working as the head of research for Merrill Lynch in 2001.
Blodget predicted that Amazon (AMZN, Financial) would rise from $150 to $400 a share. Within weeks, the holding had skyrocketed past $400, making Blodget look like an absolute genius. Blodget was later hired by Merrill Lynch and was paid a hefty sum of $12 million per year largely because of his one great call with Amazon.
Mahar does a great job of showing the volatility in the stock market by discussing several events that took place from 1982 to 2001. She discusses what happened with Blodget as well as what happened with Worldcom, Tyco (TYC, Financial), Adelphia and Enron as the CEOs were all stealing millions of dollars from their companies.
Mahar's research shows the importance of doing your own due diligence by looking at companies' management and CEOs before you make any kind of purchase in a holding. Warren Buffett (Trades, Portfolio)'s rule is that a company must be run by a vigilant leader. He also wants that leader to act as a duke and be honest, hardworking and able. After reading "Bull," I have a greater appreciation of the importance of conducting thorough research on upper management to ensure that I know that I am not being taken advantage of.
Another thing I enjoyed was her research on dividends and her comparisons of reinvesting dividends in the Standard & Poor's 500. She compares capital gains only versus S&P 500 dividends reinvested. She goes on to thoroughly look at strong cycles in the market vs. weak cycles when dividends were reinvested and when they weren’t. Her research was very useful.
This is a book that is worth reading.
Cheers to your investment success.
