Roger Lowenstein: "Make Every Investment Count"

ROGER LOWENSTEIN: The first thing is keep it simple, buy the stuff you understand. Buffett has never bought a technology stock. He says he doesn’t understand it. He’s made enough money in things he does understand. You don’t have to, as he says, swing at every pitch. There are no called strikes. You can let a thousand good investments go by because you don’t understand them, you’re not sure about them, you don’t feel well that day. It doesn’t matter. They’re always going to throw a new pitch at you the next day. Wait for one you are really sure about. Probably it’s in a business you understand, maybe with a company you’re familiar with. Be a little bit greedy about the price. Don’t chase a stock going up. Wait. Sooner or later Wall Street is going to get depressed. Wait until they get depressed. When everyone is fearful, as Buffet likes to say, that’s the time to be greedy. When everyone is greedy, that’s the time to be fearful, and invest for the long term.

He likes to say invest as if they gave you a card and you could punch 20 holes in it each time you bought a stock. When you’re done with those 20 punches, you are done for your career. You would be pretty careful about the stocks. You’d say, this stock is good but is it worth one of my 20 punches? Do I want to use one up? Make every investment count because every investing career is just a summation of all these decisions, which may seem small at the time. If you treat each one like they really count, you’ll do better.

CONSUELO MACK: So how do you invest?

ROGER LOWENSTEIN: I try to follow the lessons I’ve given you. I buy stocks I think I’m going to want to hold onto for a long time, that I’m really not worried about what happens day to day in the market price because I think I’m getting them at a significant discount to value. I do things where I think I understand what the risks are going to be, where the company’s strength can’t be suddenly outmoded by some new invention. Some examples of stocks I don’t own, but if you look at big consumer international franchises these days, Coca-Cola, Procter & Gamble, Johnson & Johnson. They are trading for about 15 times earnings. None of these companies are going to go out of business tomorrow. People aren’t going to stop buying Coke or the products of those companies. At 15 times earnings, they may go down in the short term but you are basically getting an earnings yield of 6%, which is a lot better than what bonds are yielding these days. To me that is a safe long-term investment.

CONSUELO MACK: So why don’t you own them?

ROGER LOWENSTEIN: Well, I just don’t. I own other stuff. And if I owned them, I wouldn’t talk about them because I don’t like to talk about stuff I own. By the way, nothing is safe irrespective of the price. These stocks were very high in early ‘70s. They were touted as being so safe, part of the nifty 50. They went up to 70 times earnings. A stock that is safe at 15 times earnings is definitely not safe at 70 times earnings. You have to be careful with that. The same thing is true with a Treasury bond. When they are so in favor and yields are so low, there is only one way for yields to go. So you have to really be careful.

CONSUELO MACK: Roger, looking at what is going on on Wall Street and at the financial system, the banking system, the global system, all of the things that we have talked about, is there one overriding investment theme that you think that we should be paying attention to, that we can take advantage of? As a contrarian, are there some opportunities out there that you think is an area we should delve into?

ROGER LOWENSTEIN: I would be very wary of public debts and the effect that they are going to have on tax levels going forward. We are going to have to defray these debts with taxes. I don’t know any other way, unless we discover gold some place. I wouldn’t give up on the United States. I wouldn’t give up investing in stocks, but I wouldn’t be investing in them for 18 months. I’d be doing it for the long term.

CONSUELO MACK: Roger Lowenstein, it’s so great to have you with us. Thanks so much.

ROGER LOWENSTEIN: It’s a real pleasure to be on the show.

CONSUELO MACK: Having heard Lowenstein’s interview, it won’t surprise you that this week’s Action Point is to read just about everything he has written and does write. For summer reading, my two current favorites are first, his most recent book, The End of Wall Street. It is the best description I have read about what happened during those harrowing months when the financial system fell apart. And Roger’s analysis of same is valuable. Also, take Lowenstein’s biography of Buffett, Buffett: The Making of an American Capitalist with you on vacation. It is an amazing tale and a treat!