At age 61, Earle McEwen has been a CPA for many years, but only began investing in the stock market (using the services of a professional broker) about ten years ago. Until then, his capital was invested in raising seven children with his wife, Karen, an Idaho farm girl. He also started a computer store in 1979 which failed, followed by many successful years as a partner at Hood & Strong, an accounting firm in San Francisco. He moved to Idaho 18 years ago to run his own accounting business. Then, three years ago, he decided he wanted to more fully understand his investments and be more involved in the decision making process. He has worked hard for his money and was seeing some evidence that relying on professional brokers posed more of a risk than he was willing to take. It seemed that professional brokers, much like mutual fund managers, were pressured by the need to appear to be responding to the market fluctuations. He just wanted more control over what happened to his money!
Mr. McEwen has two main investment goals:
- Preserving the value of the money he has taken a long time to get, and
- Building an income stream for retirement.
He calls himself a “scared” or cautious investor. That is why he immediately began making contacts with other individual investors. One group he found pooled their money, then tried to convince each other how to invest it. Being more interested in an exchange of ideas while he managed his own investments led him to The American Association of Individual Investors (AAII). There were not any meetings occurring at that time in the Boise area; and there were not enough members in the Boise area to meet the criteria of a “chapter“, but AAII would help handle the email for a “discussion group.” Mr. McEwen took the initiative to organize a group and there has been a monthly meeting since then, usually in a room at one of the public libraries.
While being an independent CPA who specializes in QuickBooks and filing taxes for local small businesses makes it easier for him to read a financial statement, it doesn’t make him a stock market guru. He points out that he still has to do things like:
- familiarize himself with specific industries
- hunt down management strategies for each company
- study resources to decide how to value a company (Valueline is a good resource publication available online through the library around here)
- observe how politics affect the market
- be wary of fraud and manipulation of information
To prepare himself for the responsibility of investing his (and his parents’ money), he read books such as The Intelligent Investor by Benjamin Graham (considered a foundational book by value investors), many things by Warren Buffet, Common Stocks and Uncommon Profits and Other Writings by Phil Fisher, and books like You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profitsby Joel Greenblat. He likes the quote, “Without data you are just another person with an opinion,” but also believes there is a sense that is developed for making good stock market decisions that can be difficult to explain. (Truly, it is like that in any endeavor. The facts are necessary, but nothing replaces experience in handling the facts).
Work schedules and tax deadlines have a lot of influence on when and how much Mr. McEwen is able to study individual investments and do actual trading. (Not day trading, but the buying and selling of stock for longer term investment.) Although he tends to look at the market and his positions one to two times a week, he can only set aside a couple of days every three months to do in depth study and evaluation. He makes it a point to NOT react to market fluctuations, but he does want to watch the apparent value of given companies. Where once he only bought to hold long term, he now will look for chances to sell his favorite stocks when they are priced relatively high, then buy them back when they go back down.
For reasons not totally planned, but comfortable for now, about 1/3 of Mr. McEwen’s investments are in tax sheltered accounts. He is not excited about most tax sheltered accounts because of government stipulated required minimum distributions after a given age. This can lead to unexpected taxes levied on other retirement benefits being received, specifically Social Security. He DOES like ROTH accounts, which do not have the same constraints.
Although he says the initial fun of learning to invest on his own has worn off some, he likes the process of the AAII discussions as it helps either solidify his understanding or expose his flawed conclusions. Here are some of his current stances:
- He is leery of mutual fund and bond funds in a bear market, because, again, he wants to be in charge of his buying and selling. He is content to wait on devalued, but solid, companies and let them pay him dividends.
- Diversification is over emphasized. If you have something of everything, you have the mediocrity of the market at best.
- But he does have limits of how much he will invest in any given company.
- A company with high debt is a big risk. This makes them more susceptible to market fluctuations. He uses two main measures of debt: Current ratio (current assets – current liabilities), and the long term debt to equity ratio (which is recommended to be less than one)
He recommends the website marketocracy.com for learning more about the actual mechanics of investing in the stock market. He also suggests reading The Warren Buffetts Next Door: The World’s Greatest Investors You’ve Never Heard Of and What You Can Learn From Them.
Mr. McEwen looks forward to future AAII meetings, as members share good ideas relevant to what is happening in the market and the world around us. Being an accountant sometimes means he just has more questions than answers and a good discussion helps him with his thinking process. He can then narrow down what risks he is willing to take after developing a reasonable idea of what the market has to offer.