Make Money in Any Market

The market was down significantly today, almost 2%.  Despite this my portfolio was up about 1%.  Now you might think that is because I am short the market but that would not be the whole story.  I made money yesterday when the market was up by almost 2%.  Now I did not make as much money as the market but I also did not give anything back today.  One of the secrets that Warren Buffet always uses is to not lose money.  In a market like this one, it can be hard to do because of how it is whip-sawing back and forth.

I am achieving this through a very specific strategy.  I am pairs-trading.  This strategy is relatively simple.  You go long of one thing and short of another.  For example.  Say you are bullish on Broadcom.  You would like to buy it but it has had a pretty good run the last three months running up more than 50% in that time period.  To do a pairs trade you can buy Broadcom and go short of a broader index like the Nasdaq or the Semi-conductor index (SMH)  Why would you do this?  You are taking the market risk out of your stock purchase.  Stocks move up and down for any number of reasons.  Only half of a stock's price has anything to do with the actual company itself.  The other half is related to the broader market and the sector.  You are betting that the thing that you buy will outperform its peers but hedging yourself in case the market does crazy things.

I am short of the Dow, the real estate sector, and U.S. Treasuries while being long China, Materials, and a bunch of individual stocks.  This on a whole has performed quite well.  I've lost some money on my short positions since the market has continued to rally, but my long positions have more than carried me up.  Could I have made more money if I wasn't short?  Sure.  But the hedges have kept me sane by limiting my gains and more importantly limiting my losses.

I continue to use this strategy to great effect.  I think we are about to have another leg lower from here, there is weakness in the market right now and that is pretty evident.  I would like to get more short of the  market but won't get too crazy right now as I can easily be wrong.

Is There Any Good News?

Don't look now, but the market closed below the November bottom.  As I said in my last post, if it closed below this, all bets are off.  Next week is a make or break week.  Either stocks need to bounce here or we could easily have another 100 points to the downside.  Just a few weeks ago, I honestly could not  imagine a scenario where we could lose that 100 points. But in this type of market, it is impossible to really predict what the heck is going on next.

The news out there right now is just bad and looking to get worse.  A few things that caught my eye

• Markets reach down to twelve year lows.


• California unemployment reaches double digits.


• Buffet has his worse year ever.


• States budgets will continue to take a beating for years.


• Government needs to take even more action to help ailing AIG.

They say, when there is no good news, that is the time to buy stocks.  I am not so sure I believe that right now.  I still think we are only in the 6th inning with plenty of more pain to go.  At the very least, I think we are probably flat for the next several months here so there is no rush to buy anything.  I may take a small long position and see if a bounce happens, but it will be a very small position.  It will be a position I will get in and out of quickly either direction the market moves.

Thriving in a Crisis

About two weeks ago, my company just went through a second round of layoffs.  This is happening about six months after we already had one round of layoffs.

Most people in my situation would probably be very concerned right now.  I am not.  I have been through layoffs before, and these are not quite the same.  This round was truly a right sizing of the company.  The company is still profitable and there are very few situations which would cause that to change.  Now, we have not been making as much money as we had forecast a year ago, but the fact is that we are still making money.  This is contrast to my experiences at a former company where we were bleeding cash and were doing everything possible from going under.   That was a pretty miserable experience as there was very little chance of turning that company around.

This is not the same situation.  There is very much some good opportunities for the company and for its employees.   How can I say this?  Some of the best opportunities are created when things look their worse.  One can just look at Warren Buffet's strategy, buy assets when they are distressed.  Right now is a great time to invest in the market if you can buy the right things at the right price.  While it can be scary to double down when things look so awful, those are when the best opportunities arise.

The same is true during layoffs.  For those individuals who step up and do more, the opportunity is great.  During most layoffs, it is not as if the work just disappears.  The work has to get done somehow.  In fact, most of the time, there is more work to do as the company must better execute on a plan if it hopes to return to the "good" times.  During this round of layoffs, I have had to take on much more responsibility.  I had originally come in as the senior Program Manager on the team.  Shortly after the first round of layoffs, I inherited the responsibility of managing the development staff on a temporary basis  It was a responsibility I took reluctantly even though many saw it as a step up (I did not see it as a step up but that is another discussion). After this round of layoffs, I inherited even more responsibility and am now in charge of another development group as well as the entire testing organization.  Along with the additional responsibility came a promotion to a Director level position.   While I would have achieved this promotion in due time, it was much easier to obtain given my additional level of responsibility and the current organization structure.

My career growth has been quite fast and most of that has been through hard work and a good attitude.  But I've been lucky at times because I have been in the middle of turbulent and often difficult situations.   If things do not change, new opportunities are not created.  This is why change is good.   This is why I am not panicking even though my portfolio has taken a huge hit in the last year.  I planned carefully and was prudent when I should have been.  Because of this, I can now take advantage of opportunities when they present themselves.

A Bite Out of Apple

What is Apple thinking?  I am going to take a slight detour from my new blogging pattern to talk about Apple's announcement after hours.  It was announced that Steve Jobs is going to take a leave of absence to take care of health issues.  These issues surfaced months ago, and Apple dismissed it.  As recently as a week ago Apple said there was nothing seriously wrong with Jobs and today they come out and say, "Oops we were wrong".  What could have materially changed in one week?

If there is one thing I know, is that you really need to set expectations correctly, especially with things as important as this.   A week ago, Apple should have either said they had nothing to say or that they did not know the full extent of the problems.  Many people who have seen Steve Jobs recently have said that he is looking pretty bad.  Reports are that several people who have talked with him say he is actually somewhat delusional about the current state of his own health.  That is not good to hear if you are an Apple investor.

Whatever the case may be, this is pretty bad news for Apple.  While I do not think any one person is the key reason for the success of a company as big as Apple, Steve Jobs comes pretty close.  I could argue that he is more important to Apple than Buffet is to Berkshire, and that is saying something.  I don't think I know the name of even one other employee at Apple, and that is pretty rare for me.  Especially at a technology company as important as Apple.  Do you think this is a big blow to Apple, or am I just overreacting?

The Last 10 Years - Gone

Take a look at the above chart (Click on it to see the full picture size).  It is a picture of the S&P 500.  On Friday, the S&P closed at 800 but it touched 740 intra-day.  The S&P has been at this level twice.  Once in 2002 and before that in 1997.  Is this the real state of our world?  Have we really made no progress in the last 10 years?  Is this at all realistic?

It is hard to say.  I'll be the first to say, I never thought we would get this low.  I thought 850 was reasonable level for us to come back to.  But we fell right through that and kept on going down.   I knew this correction was coming.  I knew it was coming for a very long time.  In fact, I have been in a cash position for a LONG time because of this.  When I transferred my 401K almost three years ago on my way to Microsoft, I left most of it in cash because I though the market was so overvalued.  It is why I'm in such good position today to buy up assets.

But it is hard to imagine us right back where we started 10 years ago.  The prevailing wisdom espoused by so many experts, including Warren Buffet, is that buy and hold works.  It certainly did work when Buffet made his billions, but it has not worked if you have been in the market for the last ten years.  Granted, if you go twenty years back, or you go ten years in the future, you might be OK.  What do you think?  Do you really think we should be at the same levels we were at 10 years ago?   An age which just saw the explosion of the internet?  An age where most people did not own a cell phone?  Then again, it was the age when 20% down and 30 year fixed mortgages were the standard.  So maybe we do deserve to be here.

The "Plan" Keeps Getting Better

Today, it was announced that there was a change to the government bailout plan.  The new plan calls for the government to, instead of buying bad assets, to inject NEW capital into the banks by obtaining equity stakes in exchange for the money.

Now, while this plan is actually slightly better than the old one, it still is pretty bad and in fact maybe worse in the long run for the country.  Here is my big problem with the plan.  We live in a capitalistic society.  This is a good thing.  The cornerstone of any captialistic society is the banking system.  Banks are the ones with capital. They put the capital in Capitalism.  The antithesis of capitalism is government run enterprise, socialism.

Now while this plan doesn't actually give control of the banking sector to the government, it is a step in that direction.  And all it takes is one little step, and another one, and before you know it we have government controlling that entire sector.  The plan is similar to the one Warren Buffet got earlier, just worse.  The hope is that this injection of money will spur banks to start the lending the is so important to the proper running of the economy.  But even if this plan succeeds in the short term, it has scary implications in the long term.

Government is notoriously inefficient.  It is scary to think that we would put the model of inefficiency over the very institutions that need to be the most efficient.  Banks need to base their decisions on profit motives.  However selfish and non-humanitarian that sounds, it is vital to the proper running of an economy.  Banks need to provide capital to those who will best deploy it.  Don't believe me?  Look what caused this financial crisis.   The housing crisis was caused when GOVERNMENT decided that it was a good idea to start lending to people with poor credit histories and who could not afford their payments.

Now what will happen if we let government start having a say in who should get capital and who shouldn't?  What happens the next time it is decided to help those who don't deserve it.  Maybe it determines that the failing American car industry needs to be saved, and the banks should lend it money.  How can we prevent the people who run the banks not to curry to their employers and owners, the American government?  We can't.  Nor can we prevent this from going past a "temporary" solution.  Too many times, "temporary" fixes become permanent.

I get their will be pain.  I get we might have a recession.  But really, should we be transferring taxpayer money to corporations that took huge risk and lost?  Does that seem fair?

Money Begets Money

Lost in all the news of the crisis is that Warren Buffet is starting to put some of his cash to work.  He has made two deals, one with Goldman Sachs and one with GE, for very very good terms.  Both investments are relatively similar and both are very very good.  He is guaranteed a 10% dividend for at least the next three years and has warrants to buy more stock at a relatively good price.

Here is the thing.  He is able to get these terms because he is Warren Buffet. Nobody else on earth could get this deal.  You could even argue that both GE and Goldman have an endorsement deal with Buffet in this case because, although they are forking over a lot of money, the get a lot in return with Buffet essentially telling the market what a great investment both of these companies are (I agree and really like Goldman Sachs long term).  Buffet has made a lot of money over the years, and because of that he gets to make a lot more money for years to come.

Oops

This is why you don't do short term trades.  I woke up early this morning to check my long positions to find out that what was going on.  But what I thought would happen went the exact opposite way.  The market started down, which confused me, and continued to go down.  I kept watching it go down, and then closed half my position as I reached a 7% loss threshold.  I'm going to hold on to the other half for probably a move 3% either way and then close it out.

Like I said, wild ride.  If you don't have the stomach for it, better to just stay out.  I will close out my long market position but I will probably open up positions somewhere.  I'm interested now in Novartis (NVS) becasue I want a drug play and I want an international play, and it does both for me.  I also want to buy a bank somewhere as I think the strong banks will do very well going forward.  Maybe US Bank (USB) which has weathered the storm very well.  And of course I want to buy Berkshire.  Seriously, Buffet is a genius, but I'm going to write about that tonight.

Why Recessions Are a Good Thing

One of the things that bothers me a lot when I hear people speak of the need to do something immediately is the fear of recession.  Recessions are not bad things.  In fact they are pretty necessary in a well running capitalistic economy.  Granted, you don't want to have a Great Depression sized recession, but it is absolutely needed if we wish to have the benefits of a boom cycle.

Think of it this way.  The economy has some average growth path.  But like any average, it is a combination of highs and lows.  The economy does just that, it has highs and lows.  There are going to be times when the economy is going strong.  This is a cycle that feeds on itself, growth begets growth.  But growth can also beget excess.  Economic growth, like a rising tide, raises all boats.  Some of these "boats" really don't deserve to be raised.  They ride the tide of economic growth but really need to sink to the bottom.  These are the people who get rich by adding very little of real economic value.  These are the idiots who made a fortune buying houses with no money down, sitting on them for a month, and then flipping it for instant profits.  There is no real economic value in that and these are the type of people who shouldn't be successful.

That is where recessions come in.  They are the great equalizer.  Recessions seperate winners from the losers.  Those who really do add value, continue to survive.  People who were prudent and realize that there is always a bust following any boom, are the ones who make it on to the next boom.  These are the people who realize that a long term outlook is the only outlook.  These are people like Warren Buffet who don't ride the volatile cycle of boom and bust, but keep a level and even head amidst all the calamity.

In any well functioning society, there need to be winners and losers.  Sometimes in the short term, the winners and losers end up in the wrong bucket, and that is unfortunate.  This is when an average Joe loses his job despite doing nothing wrong.  But in the long run, it always works out.   If he is truly a winner, he will come out ahead before the race is over.

As a personal note, my family was destroyed during the recession in the 1990's.  My father's business went under and he subsequently deserted my family.  It wasn't an easy thing to get over.  At the time it seemed like the end of the world.  But in retrospect, it was absolutely necessary and the best thing for everyone.  My father, although a good cook, probably wasn't the best business man.  It wouldn't be in anybody's best interest, even my own family, to have propped him up and let his business continue.  My family survived it all and came out stronger for it.  I like to think that is because I really do belong on the "winners" side.

Trying to Sell the Bailout Plan

Hank Paulson went to the Hill today to attempt to sell his $700 billion bailout plan.  Surprisingly, those in congress questioned them hard about why this plan is necessary and why it is important to do something immediately.

As the hearing progressed, Paulson and Bernanke were on the defensive.  Several times they admitted there were several problems with the plan.  They admitted that the plan might not even work but that they had to do something and that they have to do it now.   The fundamental problem they want to solve is the confidence problem that investors and the credit markets are having.

You  know what the most ironic thing is?  These actions, and similar ones before it, have likely caused most of this mess.  Investors EXPECT the government to do something.  They always come to the rescue.  This is the type of moral hazard problem I fear most.  Investors get used to the government stepping in, and thus refuse to do anything until a plan is revealed.  This of course makes it worse the next time becaue the expectation is set, and until the government steps in, most investors will refuse to do anything.

I'm sure they will say, "Just this one time", or "This is a special circumstance".  I hear the same thing at work every day when we agree to do a hack or we rush something out that shouldn't go out.  Every case is a "special" case.  Of course, that means none of them are, and neither is this one.  The scariest thing? Pauslon is raising such an alarm and then he is asking for carte blanche in the situation.  He just wants us to hand over the $700 billion with no strings attached.  Want to buy the worse assets from the worse banks?  Sure, why not?  We wrote him a blank check.  It just reeks of man with an ego too large for his own good; someone who thinks that they can solve any problem.

The plan should make sense.  With this much money involved, it should be obvious what benefits it would provide.  How come only Bernanke and Pualson seem to be the ones selling this plan?

The Little Book That Builds Wealth

I'm trying to get back into the swing of reading. Of course, I naturally gravitate toward financial investment books.  As I've posted before in my blog about the best investment books to read, the best books are those you will actually pick up and finish.  I've been hard for time lately, so I decided to pick up another book in "The Little Book" series.

This time, I picked up The Little Book That Builds Wealth by Pat Dorsey.   You will notice that this is the same Pat Dorsey who wrote another one of my recommendations, The Five Rules for Successful Stock Investing.  I like his style of writing, even though some might find it dry.  I find it to be easily understandable for even the average person with little investing background.

The book focuses on the concepts of economic moats.   It is a concept used heavily by the likes of Warren Buffet as well as the company Pat Dorsey works for, Morningstar.  The idea is simple.  Those companies that have sustainable and strong competitive advantages, will in the end be worth more money than those that don't have such advantages.  Despite the rather simple concept, the book does spend some time trying to convince the reader why the concept is important.  It actually is something that needs to be explained, because it is a rule often ignored by so many (myself included).

For me personally, the most useful thing was not how to think about companies that I am looking to invest in.  It was most useful to me as a way to think about my own company.  It got be thinking about the industry I am in as well as my company's position in it.  The book made me think about ways I can help my company create a lasting economic moat or if it was a waste of time to even try given my industry's dynamic.  I actually recommend it highly to anyone who has major influence in a company and is looking to jump start ideas on how to create strong competitive advantages.

So overall I recommend the book.  Probably because it fits in so nicely with my own investment style.  Just take a look at my Shopping List (which I know needs to be slightly updated) .  Almost every single one of those picks are a wide moat company.  All of them were picked before I ever read this book.    Great minds just think alike.

Best Investment Books for Beginners

I've often been asked what are the best investment books for someone to read if they are just starting out. I've read a lot of books on the topic and I'm happy to share my opinion on what the best books are for someone just starting out.

One Up On Wall Street- If there is one book the average investor should read about buying individual stocks, this is probably it. It is very well written and offers very pragmatic advice on how tho think about individual stocks.  It is written by Peter Lynch who became famous running Fidelity's Magellan fund and it is written to show how an ordinary person has some rather large advantages over the boys in Wall Street.

Robert Hagstrom's The Warren Buffett Way -Readers of my blog know how much I admire Buffet. I believe his technique (despite what I may espouse on this website) is the way to go. Buy well run companies that are easy to understand and that are attractively priced. Buffet himself has never written a book, but Hagstrom clearly outlines what Buffet has done to make himself one of the wealthiest men on the planet.

Pat Dorsey's The Five Rules for Successful Stock Investing - This is a really great book to teach you the basics of how to evaluate a company and what the important metrics are.  I also like the fact that it has in its appendix how to evaluate companies in different sectors.  Evaluating a bank is much different than evaluating a tech company, and this book shows you the basics so you can get started.

Joel Greenblatt's The Little Book That Beats the Market-  The best book is the book that you read and you finish.  That's why I put this book on the list.  It's very short and a very quick read.  The advice is actually half way decent, but more importantly it is simple to follow.  He even has a website that does all the work for you.  The thing I like about it most is that it should make it really simple for you to invest, and the most important thing when it comes to investing is to just start.

There are a lot more books I suggest you read, but this should give you an excellent starting point.  Like I said, start with the basics and then go from there.

Great Minds Think Alike

Berkshire Hathaway disclosed a very large stake in Kraft yesterday. They are the largest shareholder and own a little under 9% of the cheese maker. I like this pick up because I too own Kraft. In fact it is one of the few stocks I do own. I have kept most of attention in the consumer staple area as I have believed for a long time that we were heading into a recession, and consumer staples will do well in this environment. In addition, I thought that a lot of value would be unlocked as soon as it split up from Altria.

I told someone else this and I will say it here too. Berkshire here is a good buy if you can hold on for several years. Stocks are getting cheap and Buffet is going to be like a kid in the Candy store. He is going to pick up some names that seem crazy in this environment, but his craziness has made him the second richest man in the world.

Why The Market Will Piss You Off

The market just loves to move up and down for no particular good reason. This has been especially true the last few weeks where the market has seen fit to gyrate up and down, mostly down, somewhat erratically. So today I go to Yahoo Finance to read the above as the top story.

Now really, this is a non story. But for some reason the so called "experts" are pointing to this as why the market has rallied. Is there really anyone out there who didn't think Buffet would get in on this market? The entire sub-prime sector is in turmoil. People don't know what is going on with these mortgages and there is wide spread panic. When people panic, Buffet makes a fortune. I for one have been one of the loudest voices for quite some time that the housing market has been over-inflated and that it would come bite us in the ass very soon. That being said, we have probably reached a point where most of the dust has settled and people are going to start looking around for bargains.

But these are the types of things that can infuriate novice investors. The markets can and will move seemingly randomly in the short term. I can't tell you the number of stocks I've bought with solid reasoning only to lose my shirt because my stock was out of favor at the moment. The market determined what my stock was worth and it just didn't agree with me. It wasn't based on data, it was based on psychology.

Don't be shocked if the market just dips on no news tomorrow, it went up today on very little.

Don't Panic!

The market has been quite turbulent. I myself have decided to walk away from it and not pay too much attention. Even in my regular portfolio, I'm not that heavily invested in stocks, so I can afford to not worry too much. That being said, with the wild swings of the market as of late, I have seen one day drops in my portfolio in the $1000 range which makes me nervous.

However, when things look bleak, it is time to start looking to buy things. You can essentially think of the market as going on sale, and don't we all like a good sale? Like my man Warren Buffet says, “Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market”. Given this bit of advice, this little 10% drop or so at the beginning of the year is nothing. I'm in fact somewhat excited by it because I really want to buy into some good stocks.

That being said, wait a few more percentage points down. The perfect case study in this is Google. Google is down to about $500 from a high of $740. This stock is in no mans land at this point. I would not be a buyer of it, but I also might not be a seller of it. Google has good long term prospects, but right now the stock is getting beat up along with the rest of tech. Is this panic selling? Absolutely! But if you can't stand to watch the stock drop another $100, you shouldn't be in it. It can easily go down another $100 because it is so tied to online advertising, and in a recession, which everyone is predicting, advertising is one of the things businesses cut back on first.

If however, you can buy the stock and ignore it, than this would be an excellent time to consider buying into it. It is all about the type of person you are. Long term investors want to seriously start looking at the market, and trying to pick some stocks up that you have wanted for a while. All others who let their emotions ride the roller coaster along with their stocks are best to avoid the market until things start leveling out.

600 Point Swing

This is why you wait to invest right now.  The market is just sloppy right now and you have to be a pretty brave soul to tread into this quagmire.  My advice to you is this, if you have some stocks you have been looking to get rid of, do it now.  Sell on this bounce, because the market is going down from here.  Take something off the table.

Some stocks are starting to look pretty interesting here.  I still like Altria here.  It is down with the market and there is no good reason for it.  You can buy this stock on the dips.  I haven't been a big fan of Google stock and was strongly advising people to sell at the $720 level (it topped out at $747).  However, it is back in the $500's and went as low as $519.  If it comes down to around $510 I'll have to take a very hard look at it.  I also would love to buy into Berkshire.  This is exactly the environment that Buffet will kick some ass in.  Great long term play if you have the cash right now.

Index Funds are for Dummies

A few weeks ago, Aaron had asked me why I buy individual stocks rather than invest in index funds. He makes a good point. Index funds beat 80% of the market. When you factor in their very low cost, it would seem silly to invest your money any other way.

And I generally agree with the principle that for most people, the right thing to do is to invest your money in index funds. However, I'm not most people. I love thinking about what trade to make. I love doing the research before I buy a stock.

Some liken stock picking to gambling. I really don't think anything could be further from the truth. True, short term stock picking can be very hard. There are random fluctuations that happen for no other reason than the sentiment "feels" something is going to happen. That can be quite scary.

However, a stocks long term price is 100% correlated with its earnings, and with enough homework, you can figure out which stocks have the best earnings potential. You won't be right 100% of the time, nobody ever is, but you can certainly pick more winners than losers.

I take the Warren Buffet advice on investing. Put all your eggs in a basket, and watch the basket closely. My portfolio at this time is relatively small, and I watch it closely. That being said, I'm getting hammered along with the rest of the market. So who knows, maybe I'm totally wrong about picking individual stocks, but I'm having fun doing it.

Update: It occurs to me that my point wasn't totally clear here.  I actually think that index funds are good things.  Most of us are dummies when it comes to the market.  Most people don't need to be experts.  If you aren't, then you should invest in index fund.

New Years Resolutions - 2008

I'm actually not one for New Year's resolution. I'm much more the type to just start something whenever the mood hits me rather than wait for a specific point in the year to take on a new challenge. However, since I have this blog up, I've decided that it would be good to lay out some financial resolutions for myself and see how it stacks up at the end of the year. So my financial goals for 2008:

1. Double my $20,000 - Obvious but worth mentioning.


2. Develop another source of Income - Right now I have two. I have my job and I have my investments. I really would like to have at least three if not four. It would be great if I could get this blog to make money. But if not that, I really want to at least come up with an idea on how to get my income to go up. I could probably save myself to being rich, but it will be a much easier journey to get there with another income.


3. Watch my basket more carefully - Warren Buffet advises that you put your eggs in one basket and then watch the basket very carefully. That is something I got away from in my investments this year with all the other things going on in my life. I need to be more choosy in picking stocks for my long-term portfolio, and watching that basket like crazy. I made a big mistake with ETrade, and should have gotten out much earlier. I paid the price for it.


4. Spend more money - OK. I know, this is usually the exact opposite of what most people try to do. Problem is, I'm not most people. I suffer from the exact opposite problem that most people do. I save way too much. I probably save about 60% of my net take home pay in one form or another.

That's it for now. They are actually pretty big goals. #4 may seem easy to some, but it has proven very difficult for me in the past. I even started a "spending" plan about two years ago, and it didn't work. I couldn't make it stick. Odd huh?

What are you New years resolutions?

Buffet Buys Stake in Carmax

This is somewhat off-topic because I believe this to be a good long-term investment, and not appropriate for the goals of this blog.

It was disclosed yesterday that Buffet took a stake in the used car dealer Car Max. It's funny that he would do this, because I've thought long and hard about investing in them myself and I consider myself to be more of the Warren Buffet school of investing, slow and steady wins the race. The stock was near its 52 week low after a pretty decent run up in 2006. I liked their business model, and even told my friend Mona to check them out when she was in the market for a used car. However, the stock was punished after they announced they reduced their forecast.

Used cars have generally been the domain of sketchy used-car lots and individual sales. Carmax is changing that and making a business of having a national brand. I believe they can succeed because it's a niche I believe somebody needs to fill. People feel safe when they buy a known brand. That's why McDonald's and Starbucks is so successful, despite the fact that there is almost always a better local alternative. For a business that people distrust as much as used-car sales, having a recognizable brand will help to alleviate some of those fears. With only 86 stores in 39 markets, they still have lots of room to grow.

Again, I am not going to invest in them for this blog, but I may take a position in my long-term portfolio. This is a multi-year play. I don't buy everything Buffet does, but when he and I have the same idea, I use it as an additional data point. I might hold out a little bit longer. I've avoided almost all things consumer related, as I have believed for quite some time that we would hit a recession soon. Car purchases, even used-car purchases, will be affected if this happens. However, this is still a bearish call on the economy, which I have, so I might look into buying in soon.