With all Due Respect to Bernard Baruch


I know enough to know that when someone starts a sentence with the words “In all due respect…,” there’s no greatĀ love coming forward. You know the tone. The same one that’s used right before you hear something like “in my humble opinion.”

I tend not to use profanity, except when paying for sex, but when I hear either of those sets of words, my first response is “F**k you, will all due respect.”

Sometimes, I may instead say “In my humble opinion, you can go and F**k yourself.”

And then I stop listening to whatever it is that’s about to be uttered, but I amuse myself with an internal giggle at their expense.

Many years ago, when I was first getting started in life and the greaterĀ world of investments, I was very fortunate to have received a cold call from a young man named Bob Shapiro.

To make a long story short, Bob was just starting out with E.F. Hutton, of E.F. Hutton fame and became my stock broker for the next 25 years.

How often have you known a cold call to work out?

I followed him to Smith Barney and then to UBS and to all of the corporate in-betweens and iterations after E.F. Hutton gave up its soul and life.

Sadly, Bob passed away about 4 years ago.

Bernard BaruchAlthough I told him that I had, I never did read any of the writings of Bernard Baruch. Bob had recommended that I do so.

If you read my blog on a regular basis, you’ll know by the persistent presence of typos, I don’t even read my own blog, much less the writings of a long dead legendary investor, whose mere mention of his name causes phlegm filled sputum to be hurled outward.

It’s bad enough that there’s an entire summer’s worth of swatted flies on my computer monitor, I don’t need any Baruch related detritus.

I’ll never know whether Baruch had the same penchant for run-on sentences as I seem to have.

Anyway, Bob was a fan and being a man of structure and integrity, he ascribed to at least one one of Baruch’s investing principles. That was to cut your losses once you’ve reached the 10% mark.

Bob practiced what he preached. He was consistent in his application of the rules and he was a good shepherd of my portfolio, using his discretion to trade.

Sometimes performance disappointed, but Bob never did.

In the intervening years, I still haven’t read Baruch’s works, but I’ve adopted Bob’s belief in rules.

The only thing is that I don’t buy into Baruch’s “10% Rule.”

For starters, I hate to take a loss, unless its being done for tax purposes.

Sometimes, though, I’ll admit that I used “taxes” as an excuse to just get rid of a loser or what I think to be “dead money.”Ā  Invariably, those have been technology stocks. Other than Google, VMWare, Riverbed Technology, Apple and Microsoft, I’ve not had good luck with technology.

Actually, when I lay it out like that, the technology winners outnumber the losers. Dell, Hewlett-Packard and Research in Motion are my losers, but I hold grudges for a long time and human nature makes it easier to remember the dregs.

Part of the reason that I hate to take losses is that during my years with Bob, I saw many stocks recover from that 10% drop and often quite quickly. Beyond that, there were certainly many holdings that might have had paper losses approaching 10%, yet went on to recover and profit. Rio Tinto, a holding that I’ve had since 1994 was one such example.

In the meantime, though, I’ve had plenty of stocks that have had losses in excess of 10% but I’ve nursed them back to health.

Riverbed Technology is one example, but the most recent is Transocean, one of the bad boys of last year’s Gulf Oil spill.

I own shares of British Petroleum, Halliburton and Transocean and I refer to them as my Evil Troika, yet I welcome them to my portfoklio.

My current batch of Transocean has a cost basis of about $58.50 and I’ve owned it since mid-July. After a late day surge, shares closed at $53.

Using that simple rule, I should have banished the shares, even after that promising surge in the final hour of trading.

I suppose that if I included the $0.79/share dividend, we’d be borderline.

Yet there they are. Still sitting there, with a nasty shade of red clearly indicating that its been a loser.

Before today’s surge, I actually sold $52.50 calls expiring on Friday, for about $0.44 cents.

That seems like a pretty bad risk – reward, but as I looked at my history with Transocean going back to the most recent purchase in July, with the premium received today added to all of the other premiums, if assigned, I’ll net a 0.7% profit.

Paltry, sure. But still a profit. Annualized, that’s 2.8%, which is a lot better than the 1.6% S&P 500 deficit thus far this year.

Better yet, to compare apples to apples, during the period of ownership the S&P 500 has dropped from 1316 to Thursday’s close of 1215, which happens to be a 7.6% loss.

I’ll take 0.7% and forget about the annualization. Better yet, those particular shares are in a tax deferred account, so I have no concern about buying them back when they inevitably fall again, since the wash sales rule is moot.

In the past 6 weeks I’ve been up to New York twice to attend funerals and have had a chance to reflect a bit on the lives and memories of friends and family.

I also think about Bob fairly often, despite the fact that we only met a single time.

Strangely, I also end up thinking about Bernard Baruch, a man I’d never met and it’s very unlikely that I ever will. I doubt that he believed in reincarnation and I’m not certain that he and I will end up in the same place when it’s my time.

Thinking about what a different investing world it has become, with immediate access to information, bid-ask differences of a penny and significantly reduced transaction costs, I wonder what Bernard Baruch would teach us today?

In all likelihood, he would be going by the name “Barry Barch” and would be pushing whatever the intangible asset of the day happened to be.

In all likelihood, he’d be recommending sales of options on theĀ VIX futures, which themselves are a measure of the implied neurotic tendancies of investors who are uncertain of what to do in the face of earning’s season reports.

Bob, on the other hand, would probably not follow him in that direction.

In my humble opinion.




Ā Ā 




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