Hokum

Every once in a while, I see something new spring up in the online or computing world that just makes me go, “I get that!” This is how I feel about Photosynth, the Microsoft-owned (but not Microsoft-designed, in case you were wondering) interactive interface. Check out this video demo for a better idea of Photosynth’s power.

These chips of mine are from Vegas casinos that no longer exist, at least not as they were when I visited them. The buildings are still there in Vegas, there are replacement casinos in those buildings, but the businesses are no more. I miss them all to a degree.

The Aladdin was a fine, underrated place. It also was virtually impossible to reach from the Strip, had one of the most confusing layouts in the history of mankind and specialized in surliness. It went bankrupt. Planet Hollywood casino and hotel has opened in its place, although the Aladdin’s onion domes and stupid magic carpet motifs are still being removed; I have a room there for a Vegas boys’ trip in two weeks.

Harrah’s took over the Barbary Coast this year in a land swap deal and renamed it Bill’s Gamblin’ Hall for reasons unknown. It’s still my favorite little mid-Strip dump. This chip is from my greatest short-term haul in Vegas history: One hour, nine hundred bucks at a blackjack table. I was playing black chips by the time the streak ended, and I never play black chips.

And the Horseshoe…oh, how I miss the Horseshoe. The guy in the middle is Benny Binion, old-school Vegas legend, one-time Texas mobster, a guy who knew how to give a player a fair shake while siphoning away his cash. There’s still a building in its place in downtown Vegas called Binion’s, but they had to drop the ‘Horseshoe’ brand because Harrah’s owns that now, too. Harrah’s sold the place to a weak-sister West Virginia company, who just dumped it on the same company that owns the Four Queens (my favorite downtown gambling hall). Hopefully I’ll visit again in a couple of weeks, when I’ll see if there is still any of the old mojo at the craps table or if they still use those goofy clickers at the blackjack tables to get the cocktail waitresses to come around.

These chips remind me of some good times in a place that gets more corporate, more predictable, more expensive and more Disneyfied every time I go. But with the right crew and the right place, Vegas is still Vegas.

I’m a stock investor. I have a decent-sized self-directed IRA and a fairly small individual stock account. I’ve beaten the S&P over the past one, three and five years, and the more I invest, the more I learn.

What I’ve learned more than anything else: You can do a lot better as an investor than you can as a speculator. There is a difference. Under the former philosophy, you’re looking for a well-run, well-priced firm in which to place your money and your trust; in the latter, you’re playing the role of The Smart Guy, even The Gambler. Guess which philosophy wins in the long term?

Other lessons: Humility is good, both in yourself as an investor and in the management of companies you own. You’re going to be wrong sometimes. Believe in stock screens. Do a little journalism on your own. Ignore your gut, but pay attention to the ‘smell test.’ Really, the more you can keep emotion out of your investments, the better off you’ll be.

When I invest in a company, I’m looking for good management, a fair-to-bargain stock price, low debt, decent dividends, a nice track record against the S&P 500 and good future prospects. There are ways to measure these yardsticks, but that would take a book-length post to describe. There are many investing guides that can help you on that front.

On the other hand, when you buy and sell stocks at churn speeds, you’re trying to capture lightning in a bottle. That’s fertilizer for the hubris that crushes many speculators. The trades give you the gambler’s thrill — and the gambler’s depression. The strategy also gets beat by more conservative and even passive plays again and again over a multi-year measurement.

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My IRA is all in stocks — I keep my bonds in my 401K at work, where I have far fewer investment options. About half of my IRA is in a broad variety of index funds (large-cap value, broad mid- and small-caps, and international funds that target Europe, the Pacific sans China and emerging markets overall). This assures overall diversity and gives me a return somewhere in the neighborhood of the S&P 500 (although right now, because of my international exposure, this bundle is beating the S&P over the last 18 months).

To try to beat the S&P on a longer-term basis, I own a handful of individual stocks. Here are the individual stocks I currently own:

Chubb (CB) — an insurer. I think it’s significantly undervalued and ignored right now. It has solid financials; it has a P/E under 10; it just upped its guidance for the year; it pays a 2.3% dividend (dividends are wonderful things in an IRA because you don’t pay taxes on them until you withdraw the money). It’s up less than a point since I bought it last September but this is the kind of stock I will hold for several years, in anticipation that the market will catch up to it, as long as the underlying financials hold up.

ConocoPhillips (COP) — I’ve made several purchases of this stock over the last couple of years; combined, I’ve made about 40% over what I’ve paid for the stock. COP also pays a 2% dividend and *still* has a P/E under 10. I am confident that the world’s insatiable demand for petroleum will continue for many years to come; note that Conoco doesn’t have to *find more oil* to *make more money.* It just has to keep a good profit spread between costs and sales, and it has been doing that most effectively.

Cemex S.A.B. de C.V. (CX) — ‘Huh?’ you say? Cemex, a Mexican company, is one of the world’s largest manufacturers of good old boring cement. I was turned on to it by The Motley Fool website, which I recommend highly. I ran the numbers and it’s just what I’m looking for in a retirement investment. Its ability to ship cement around the world also helps cushion it against regional construction downturns. It has a long history of beating the S&P, has a P/E under 12 and pays a 2.1% dividend. I purchased it this week, just in time for a market downturn and an instant 2% loss, but that is precisely kind of thing that never bothers me.

Diageo PLC (DEO) — It’s a worldwide liquor distributor. Johnny Walker, Guinness, Tanqueray, Captain Morgan, Crown Royal? All owned by Diageo. It’s turned about 25% in a year and a half (actually just barely above the market return) and pays a 2.3% dividend. The P/E of 17 is about the fair value. One thing I like about this stock is that I think it will tread water in a bull market and outperform a bear market.

Freeport McMoran (FCX) — It mines copper and gold and it’s a smoking hot stock. FCX is up 73% since I bought it last September, still has a P/E under 13 despite rapid profit growth. Big institutional investors have been diving into this stock in recent months and that has pumped the price. The dividend is modest at the current price but was at close to 2% when I bought it — and I anticipate it will be bumped upward going forward.

Johnson and Johnson (JNJ) — Boy, the pharmaceuticals industry is unloved these days by Wall Street — despite all of the demographic trends that indicate this is a really dumb idea. This company has an outstanding record of increasing profits and dividends over the years, traditionally beats the S&P (although not recently), pays a dividend that’s inching toward 3% and has a fine history of corporate responsibility (something that’s missing with some of its competitors). It’s also gone up less than 2% in the year I’ve owned it — at a time when the S&P has gone up over 20%. It is, in short, undervalued. That’s why I’m still holding it — I’ll keep a stock like this for two or three years as I wait for the market to figure things out.

Arcelor Mittal (MT) — This company, the world’s largest steel manufacturer, popped up on a stock screen for me about 18 months ago because it had a P/E of FOUR. When you see that, it’s usually because of a one-time gain for a company (like a big asset sale), but that wasn’t true here. I did some more investigating and decided the reason it was so cheap was because big institutional investors have been burned many, many times by steel stocks. This company was completely different from classic steel stock, though, with its widely diversified mills and new-world management. So: insanely low P/E, good dividends (well over 2% at the time), big growth prospects, great management, price artificially low because of institutional prejudice. Buy! Buy! Buy!

MT is up 135% in 18 months — and that’s after a recent price drop. It’s been up as much as 145% since I bought it. It *still* has a P/E under 11, has good growth prospects, pays a decent dividend and is a huge, diverse, international monster. I might never sell this stock.

Unilever PLC (UL) — Unilever owns all sorts of loved consumer brands, including Hellman’s, Knorr, Wish-Bone, Bertolli, Ben&Jerry’s, Klondike, Popsicle, Lipton, Dove, Suave, Lifebuoy and Vaseline. It has a weird bifurcated stock — one represents the country’s HQ in the Netherlands and this one represents the other corporate HQ in London — but the two stocks perform similarly. A dividend of nearly 4% popped out at me when I bought this stock; it’s now closer to 3% but the stock’s up 12% in the five months I’ve owned it. It has a low P/E and is a likely acquisition target.

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That’s where I am today. You’ll note these stocks are in boring companies, pay strong dividends, mostly don’t have debt issues, are easy to understand and have a five-year record of beating the S&P. You’ll also note I’m overexposed in construction with a cement company and two metals firms. I’ll eventually sell one of the metals firms to correct that — unless things keep going crazy like they are now on that front.

Another interesting thing as that most of these companies aren’t headquartered in the USA — and my two dogs are USA-based. That’s just the way it is right now — the bargains to be found were in companies that sell products here and are headquartered overseas. That is a very interesting trend, particularly considering the way my international index funds are pounding the S&P, and its one that has some long-term implications for our country. But again: I believe in stock screens as a starting point, and these are the stocks that came up on the screens.

In a nutshell, that’s a look at my investing philosophy and holdings. Again, modesty beats hubris; boring beats exciting; and the screaming stock salesmen may get all the attention but the big stock winners are often the quiet guys. I hope I’m one of them.

You’ve probably read today about the leaked TSA document urging airport officials to be vigilant about possible ‘dry runs’ to test the agency’s ability to detect explosives being smuggled onto aircraft. What you might not have read — because it’s buried in most stories, is that the TSA has issued ninety such bulletins on a variety of topics in just the last six months.

This particular one, though, was conveniently leaked a few hours after President Bush tried yet still again to make his case for U.S. troops in Iraq — with the president again making the argument that Iraq would become terrorism’s worldwide hub if we left.

A cynic might suspect there is a tie between this leak and Bush’s speech. So might a pragmatist.

As Barry Bonds approaches the most important of all American sports records — the career home run number — I can’t help but feel overwhelmingly sad. My employer sums up my feelings nicely.

This should be an incredibly exciting time in baseball, akin to the McGwire-Sosa home run chase of a few years back when we all willingly put our our blinders about performance-enhancing drugs. Those blinders are off now, of course, and Bonds’ chase for the record has become something akin to a death watch because of the taint surrounding it. His recent power slump isn’t helping matters, as we all wait and wait and wait for him to get the damn thing over with.

It could have been worse, I suppose: For a long time, projections indicated Bonds might break the record at dumpy old RFK, where the homer ball might have rattled through a section of empty seats amid a handful of indifferent fans. That could still happen, although it’s a lot less likely now — but the irony of having this ‘record’ set in a near-empty stadium that is in the last weeks of its baseball life would add sadness atop sadness.