Greenblatt's Magic Formula

I just finished reading Joel Greenblatt's recently published book "The Little Book That Beats the Market." The essential idea behind Greenblatt's investment process is simple: own companies that have high earnings yields and high returns on capital. He calls this his "magic formula." In fact, there is nothing magical about his formula. It simply instructs investors to buy attractive businesses (i.e., those with high returns) at great prices. That is, of course,what all great investors do, including Warren Buffett and Charlie Munger.

While many professional investors may view Greenblatt's process as too quantitative and mechanical, I like the fact that it is disciplined and based on sound fundamental financial concepts (e.g., returns on capital and earnings yields).

If you are a day trader and you are reading this blog, you might want to do yourself a favor and pick up Greenblatt's book. You'll make a heck of a lot more money following Greenblatt's advice than you will watching CNBC and trying to trade every little wiggle in the market. Furthermore, you'll have lots of free time on your hands to read great books and acquire worldy wisdom.

Nothing But Net!

Larry Kudlow comments on the good news we received today regarding "control" of the Internet. Notice how people are characterizing the importance of the Internet/World Wide Web. I remember saying similar things back in 1994 to executives at Merrill Lynch who responded with blank faces and geniune disinterest.

Control of Internet Remains Safe in American Hands
By Larry Kudlow

Negotiators from around the globe threw in the towel and agreed late Tuesday to leave the United States in charge of the Internet's addressing system known as ICANN, averting an international showdown at this week's U.N. technology summit.

The deal means the United States will continue its day-to-day control of the quasi-independent body responsible for the main computers that control traffic on the Internet. An international forum will be created to address concerns. It will have no binding authority on the U.S.

The outcome was never really in doubt. The U.S. government did the right thing and made it clear all along that it would not go along with any major change to the Internet’s status quo.

Sounds good to me. After all, it was American sweat and ingenuity that created the Internet in the first place. It’s our baby. And a quick glance around the globe at anti-democratic, totalitarian countries like China and Iran, where repressive governments do anything and everything within their power to suppress ideas makes the idea of turning over ICANN appear ridiculous.

As media mogul Rupert Murdoch said earlier this week: “[T]he Internet has been the most fundamental change during my lifetime and for hundreds of years. Someone the other day said, ‘It's the biggest thing since Gutenberg,’ and then someone else said, ‘No, it's the biggest thing since the invention of writing.’

Whatever the case is, there’s nothing to be gained and everything to lose by giving up Internet governance and helping countries like China in their doomed efforts to put the cat back in the bag.

Peter Drucker: 1909 -2005

Peter Drucker passed away last Friday, November 11, 2005. He was 95 years young. I've been a Drucker fan since my college days, when I discovered his books at the library. I have read many of his books and always enjoyed reading his essays and articles published in the Harvard Business Review, the Wall Street Journal and elsewhere. Although I never got a chance to meet the man, one of the pieces he published in the Wall Street Journal back in 1984 changed my life. In the editorial, Peter noted that if you wanted to be successful in the business world, you should always strive to surround yourself with excellence. This simple insight became the foundation of my business career.

I'll miss Peter Drucker's wise counsel. He was one of the best in the business.

May he rest in peace.

Tech Maneya

My friend Kevin Maney, one of the best tech writers in the business and a fellow musician, just launched a blog. You can check it out at the link below:

http://blogs.usatoday.com/maney/

Make sure to visit often!

Waiting for Broadband Communications

Many folks here in the U.S. have heard about Broadband Communications (BC). I've been talking about BC for years now, and I'm still waiting for my broadband communications link to arrive to my home. My cable modem is nice, but it isn't BC. As my long-time tech friend Mark Anderson stated recently in one of his Strategic News Service newsletters, true BC penetration in U.S. homes -- measured as the ability to carry one video stream, or about 1.5 Mbps -- is currently close to zero. ZERO!!!

Think about it. We are still surfing the Web at home in the communications-equivalent of a Model T.

Mark and I both believe that the BC revolution is at hand in America. The investment implications of going from zero BC to somewhere north of 60% BC over the next several years are staggering. Indeed, as BC penetration rises sharply, expect to see a massive wave of creative destruction across many industries and sectors.

New Day Dawning

John Markoff's recent article "The Time Is Now: Bust Up the Box!" made some interesting observations that I suspect many investors aren't thinking deeply about yet. Here is some food for thought:

"This is new computational science," said Edward Lazowska, a computer scientist at the University of Washington in Seattle. In the future, he said, science will be based on data flowing across computer networks that can then be visualized and mined."

Sounds like a paradigm shift to me.

"People have spoken about how computer networks have flattened the world, said Larry Smarr, an astrophysicist who is director of the California Institute for Telecommunications and Information Technology. But it's more than that, disctance is vanishing and the world is now shrinking to a single point."

Sounds like a singularity event to me.


"A new computing era is clearly dawning. So far, the new epoch of computing has been described as grid computing, on-demand computing, utility computing, the planetary computer and Web 2.0. Although the titles are different, they are all efforts to describe an age that will be a fundamental break from earlier computing generations."

Sounds like Mr. Markoff is on to something big!


"Can you blow up the computer machine room and spread it over the surface of the planet?" Mr. Smarr said. "This is really happening."

You got that right!