Confessions of a Street Addict – Jim Cramer

I spotted Cramer’s book in a bookstore recently and was persuaded to read it from the claim of being a national bestseller on the front cover. I do not like to listen to Cramer when he is on CNBC. His autobiography and stories about operating his hedge fund were amusing.

One topic that stuck out was Cramer’s take on CEO’s who pay attention to their company’s stock price. Constantly.

“We also discovered that the chief executives who followed their stocks as a matter of course and cared about shareholders and shareholder value were a breed apart. They were competitive to a fault, disliked anyone who knocked their companies, and took everything said about their stocks personally. The ones who could distance themselves or not take it as a life-or-death experience, who didn’t care about a decline of a couple points, those we culled or marked as sortable, meaning that if we had negative news we were confident we would ‘put the stock out’ and not worry that we would be hurt by an upgrade or a rising stock.” – (pg 63)

Warren Buffett looks at the price of Berkshire once every couple of weeks.

Warren has long established the criteria of the type of shareholder/partner he wants. This is why Berkshire has the lowest trading volume on the NYSE and all other exchanges. Warren’s attitude was never life or death if the value of Berkshire went down on an exchange. On the contrary, if it was low enough, he will buy it.

“It is the biggest determinant of stock price gains over time, yet it is something that almost all of the Wall Street promoters and analysts are blind to because their ‘rigorous’ methodology handcuffs them into worrying about a stock that was ‘cheap’ statistically, something we could have cared less about.” – (pg. 63)

Your margin of error increases when the price of a company goes down. If it is a quality company, you are buying more shares for your money. Cramer is all about riding momentum stocks. Speculating.

“We wanted stocks with buzz, with chief executives who were managers of both their businesses and their stocks. Those combinations began to produce fabulous returns for my fund and we quietly grew over time.” – (pg. 63)

Carl Icahn said a great line once. “Never confuse a bull market for brains.” Enron was known as a company that managed their stock price. The management had their stock price available to be seen everywhere in their headquarters, even in the elevator.

“One of my biggest weaknesses, one of all traders’ biggest weaknesses, is an inability to value myself beyond my last trade, and all of our last trades at Cramer Berkowitz were stinking up the joint.” – (pg. 147)

Cramer was letting Mr. Market control his emotions and actions. Benjamin Graham would not have approved of this. Jumping from flower to flower is not investing.

“They understood that I felt the losses as no one else did, that I carried them with me on my back wherever I went, and that I couldn’t bear to be down even for a day, let alone a month or a quarter. A down year would be the stuff of true personal catastrophe.” – (pg. 171)

Couldn’t bear to be down even for a day? As Buffett stated in the past, “This attitude towards investing would make me feel guilty when I walk to the refrigerator for a Coke.” Cramer’s attitude does not surprise me.

Page 182 describes how brokerages will turn against their clients when they realize their clients’ trades are moving against them. The brokerages will take the other side of the trade, knowing they have a fish in a barrel.

Lastly, Cramer describes throughout the book his start-up website company and the roller-coaster ride he had to endure to just take it public. He had to battle lying employees, a fall-out with his equity partner, equity hungry venture capitalists, and bottomless pit burn rates. It felt like one heart attack after another. Once public, he faced challenges of dealing with venture capital members and the management they installed. His story shows how the odds are against you when investing in any start-up.

Pay a fair price for a quality company.

The Education of a Coach – David Halberstam

 

I was prompted by a friend of mine who spoke very highly about Bill Belichick’s unique educational background compared among other coaches in the NFL. He made the point that Belichick attended one of the “Little Three” Ivy colleges.

After scanning the list of Belichick books on Amazon, I noticed David Halberstam’s. I had read Halberstam’s, “Summer of ’49” twice while in high school. I had just finished reading his, “The Best and the Brightest” a couple of months ago.

Bill’s Croatian paternal grandparents, John and Mary Bilicics, soon changed to Belichick, were hard working first generation Americans. They first settled in Monessen, Pennsylvania and then moving to Struthers, Ohio, a suburb of Youngstown. His grandfather worked the backbreaking shifts of the typical steel mill laborer. This is where the work ethic started.

Bill’s father Steve was one of five. All of the children worked and contributed more then 80% of their earnings to the family kitty. Steve’s gridiron athletic ability provided him a scholarship to Western Reserve, later Case Western Reserve.

His father later became a highly regarded scout in college football. “Steve Belichick was also incredibly smart. ‘It was the superior intelligence, too.’ said Bill Walsh. ‘Steve has superior intelligence and intellect, and he not only saw the game as very few scouts did, but as he was seeing it, he understood it as very few scout do.” – (Halberstam, pg. 72)

I found Bill’s father as a man who saw an opportunity in life to escape the mind numbing day laborer work of the steel mills. He applied himself with maximum effort and enjoyed it as well.

“Most of the other scouts were assistant coaches who did not really want to be scouting. They wanted to be back with their teams on Saturday, watching their handiwork in action, and their work habits showed it. They were, Bill Belichick remembered from watching them when he was a boy, “all so casual about it, talking to each other, paying attention but not really paying attention, doing a lot of coaching small talk, gossiping really. Not really paying attention to the game, but thinking that they were. Instead they were halfway interested. There were a lot of questions they would be asking each other, like ‘Hey, did the guard pull on that play?’ It was like a social occasion for them, and they would be ordering hot dogs and coffee.

And, by contrast, he was always working. Every minute. He was like a hawk up there. And by watching him, I learned to see the game, how well prepared you have to be and how quickly your eyes have to shift. He had his own sheets which he had created himself to make it easier to get the information down, and he could get the basics down, the rest to be filled in later. The other guys were barely operating off the programs.” – (, pg. 73)

Bill never forgot his father’s middle class work ethic and belief system. “Nothing was to be bought on credit – if you could not afford the price, you didn’t buy it.” – (pg. 78) Bill’s father was future oriented and forward thinking. This is the recipe for success in life.

“The one big expense that lay ahead of them, they were aware, was Bill’s college expenses, and so each year, starting relatively early in his career, Steve ran a football camp at a nearby college for a few weeks, with the proceeds, which were hardly huge, perhaps $1,000 a year – ticketed specifically for his son’s college expenses.” – (pg. 78) That was incredible foresight and thriftiness on his parent’s part.

Bill attended Annapolis High School and played football there. After high school, his father decided Bill should spend one year at the small boarding school of Andover in Andover, Massachusetts. The cost was $2,700 for one postgraduate year in 1970. The money was well spent.

There he played under coach Steve Sorota who would display a calm, ever thinking and calculating manner. Sorota graduated from Fordham, class of ’36 and two years ahead of Vince Lambardi.

“When he had first arrived at Andover in 1936 to coach football, the school’s headmaster had given him marching orders very different from those given to most new coaches: “Your job is to teach, not to win a lot of football games.”

Also at Andover, Belichick met his would be long time friend and equally football obsessed classmate, Ernie Adams. “Adams, the son of a career naval officer, was already in his fourth year at Andover, one of the truly great preparatory schools in the country, when Bill arrived there to do a fifth year of high school – it was called a PG or postgraduate year.” – (pg. 36) Adams was more then likely the only non scout in the country who purchased Steve Belichick’s book “Football Scouting Methods”. Adams has been with Belichick since their time with the New York Giants.

After Andover, Belichick was accepted to everywhere that he applied: Bates, Duke, Middlebury, Wesleyan, Wittenberg, and Penn. He chose to attend Wesleyan.

The main point that Halberstam made throughout the book was Belichick had the pedigree, but his hard work and focus are what separated him from his peers. This is what moved him up into the 20% of the Pareto distribution of top coaches.

“He wanted the grunt work. He understood that the key to success, the secret to it, was the mastery of the grunt work, all the little details.” – (pg. 110) Like the economic environment, the football industry is always changing. Belichick realized this early.

Another insight that caught my attention was Belichick’s attitude toward organization. He is known as the king of post it notes. “The more organized you were at all times, the more you knew at every minute what you were doing and why you were doing it, the less time you wasted and the better a coach you were.” – (pg. 131)

This organization, focus, intellect, and hard work immediately moved him ahead of 80% of the current coaches in the league in the 1970’s.

“When he first got together with Adams on the Giants, the two of them would often run laps around the field after practice, and he would tell Adams that he did not understand how some of the other coaches in the League had decided they were only going to understand one side of the ball – offensive specialists who did not master the defensive side, and the defensive coaches who seemed to have equally little interest in the offense. That absolutely amazed him.” – (pg. 155)

This reminds me of Warren Buffett in his early 20’s teaching a night class in Omaha on investing. Warren wants to be known first as a teacher and then second an investor.

Halberstam’s writing was a joy to read. This book can be devoured in a couple of days; it was a fun read.