Book - Money Machine – Power of Value Investing – Gary Smith
Retire Richly. Money Machine - Value Investing. Gary Smith. Jigsaw Pieces
“Money Machine - The Surprisingly Simple Power of Value Investing” by Gary Smith challenges conventional investing psychology and frames value investing methods to build an investment portfolio and financial independence. The financial landscape is often clouded by complex jargon, fleeting trends, and the allure of get-rich-quick schemes. Gary Smith advocates financially independent status results from simple, thoughtful, and fact investing to create create value year-after-year in an investment portfolio. Smith integrates key concepts from finance, statistics, and psychology to explain why understanding a stock's intrinsic value – the actual cash it can generate – is paramount, far outweighing speculative guesses about future prices or succumbing to market emotions like fear and greed.
“Think of stocks as money machines.”
“Investing is about creating value, year after year.”
RATINGS FOR MONEY MACHINE – VALUE INVESTING – GARY SMITH
Goodreads 3.4/5.0
Amazon 3.6/5.0
MONEY MACHINE - TOP THEMES ADVOCATES LONG-TERM VALUE INVESTING TO BE FINANCIALLY INDEPENDENT
Stocks as Money Machines. The book fundamentally shifts the perspective on investing from speculative guessing to evaluating assets based on the cash they generate. Instead of chasing quick profits by predicting daily price "zigs and zags," investors should view stocks as "money machines" that pay dividends. This approach emphasizes understanding a company's "intrinsic value" – how much you'd pay for the continuous cash flow, even if you never sold the stock. This principle applies not only to stocks but also to real assets like homes, which generate "home dividends" through rent savings.
Navigate Market Hype with Skepticism. The book warns against succumbing to market "fads, fancies, greed, and gloom," which can lead to "speculative bubbles and unwarranted panics". It argues that markets are only "semi-efficient," meaning that while information is widely available, human emotions often distort prices, creating opportunities for "sensible value investors". Examples like the dot-com bubble and "hot tips" show how investors confuse a "great company with a great stock" or chase unreliable trends. True insight comes from "thinking more clearly about information available to everyone" rather than possessing secret data.
Embrace Simplicity and Long-Term Discipline. The book advocates for a "Keep It Simple, Stupid (KISS)" approach to investing, contrasting it with frenetic trading and the pursuit of complex, often misleading, statistical patterns. It emphasizes that successful value investing involves patience, buying "solid stocks at attractive prices, and leaving them alone". This means focusing on long-term returns from cash generation rather than short-term price fluctuations, and being "fearful when others are greedy and greedy when others are fearful". Avoiding excessive trading and its associated costs and taxes also significantly contributes to wealth accumulation over time.
“Master investors need common sense; they need to control emotions.”
“Do not let lust or panic sway your decisions”
MONEY MACHINE – KEY MESSAGES FOCUS ON MARKET PSYCHOLOGY TO BUILD INVESTMENT PORTFOLIO
The "Money Machine" Concept: At its heart, the book teaches readers to view a stock as a machine that generates cash, primarily through dividends. The fundamental question for an investor should be: "How much would you pay to own this machine to get the cash?". This intrinsic value is based purely on the cash flow, not on predicting market zigs and zags. Legendary investor Warren Buffett encapsulates this by saying his "favorite holding period is forever," forcing a focus on cash generation rather than quick sales.
Speculation vs. Investing: Smith clearly distinguishes between speculation (buying a stock to sell to a "greater fool" for a profit) and investing (buying for the long-term cash generation). He warns against "get-rich-quick gurus" and their "fantasies," emphasizing that anyone peddling a "secret" profitable system would use it themselves rather than sell it for a mere $39 report. This underscores a crucial lesson: "What everyone knows isn’t worth knowing".
The Semi-Efficient Market: While financial markets quickly integrate readily available information, human emotions like greed and overconfidence mean that market prices are "only semi-efficient". This creates opportunities for those who can process information more clearly, rather than just possessing it. The book argues that the market's "inexactitude is hidden" beneath an appearance of mathematical regularity.
The Folly of Technical Analysis and Data Mining: Smith vehemently critiques technical analysis, which relies on past price patterns as a "rearview mirror" rather than a crystal ball. He demonstrates how "data mining" can "torture the data long enough" to find illusory patterns, even in randomly generated data, leading to disastrous investment decisions. Examples like the Super Bowl Indicator and the "Foolish Four Strategy" are presented as prime examples of finding coincidences without logical basis.
Human Behavioral Biases: A significant portion of the book delves into psychological traps that lead investors astray.
Fear and Greed: Illustrated by Blake (who held $1 million in a checking account due to fear of loss, missing out on significant dividends) and Emma (a day-trader addicted to the "thrills" of buying and selling). Smith encourages investors to "Be fearful when others are greedy and greedy when others are fearful".
Overconfidence: Many investors, like students in a statistics class, believe they are "above average" in intelligence or attractiveness. This leads to excessive trading and undiversified portfolios.
Anchoring: People tend to anchor their perceptions of value to past reference points, such as the price they paid for a home, leading to irrational decisions like refusing to sell at a loss.
Sunk Costs: The price paid for a stock is a sunk cost and irrelevant to future decisions, yet investors often cling to losing investments due to reluctance to admit a mistake.
Regression to the Mean: This statistical phenomenon explains why extreme performance (good or bad) tends to revert to the average over time. This often means pessimistic earnings forecasts tend to outperform optimistic ones, and stocks "booted" from the Dow Jones Industrial Average often do better than those that replace them.
Valuation Models for Value Investors: Smith introduces practical tools to assess intrinsic value:
The John Burr Williams (JBW) Equation: Total Annual Return (R) = Annual Dividend (D) / Current Stock Price (P) + Annual Rate of Growth of Dividends (g). This helps compare expected returns to required returns, considering risk premium.
Economic Value Added (EVA): Determines if a firm's earnings exceed shareholders' required earnings, valuable for non-dividend-paying companies like Yahoo (in 2000).
Robert Shiller's Cyclically Adjusted Earnings (CAPE) and Earnings Yield (CAEP): Smooths out short-term earnings fluctuations by averaging earnings over a decade, providing a more stable valuation metric.
John C. Bogle's Model: Projects stock returns over a ten-year horizon by considering dividend yield, earnings growth, and changes in the price-earnings (P/E) ratio.
The Conservation of Value: This principle states that a firm's value comes solely from the cash it generates, regardless of how that cash is "packaged or labeled". This implies that actions like stock splits, stock dividends, and share repurchases do not inherently create or destroy shareholder value; they are "nonevents" that merely alter the presentation of value.
Finding Opportunities: Smith points to specific areas where market inefficiencies create bargains: out-of-favor companies, closed-end funds trading at a discount to their net asset value, and even the home you live in (the "home dividend"). He illustrates this with examples like his investment in First Financial Fund during the S&L crisis, or the mispricings of dual-listed companies like Royal Dutch/Shell and Unilever.
PERSPECTIVE OF GARY SMITH – AUTHOR MONEY MACHINE
Gary Smith, Ph.D., is a distinguished academic with a 40-year career as a professor of economics at Pomona College. His background is deeply rooted in rigorous economic theory, having studied under Nobel laureate James Tobin at Yale, who notably recommended John Burr Williams's seminal work on investment value. This academic foundation, coupled with his extensive experience observing financial markets, provides him with a unique lens through which to analyze investing.
Smith's perspective is heavily influenced by the value investing pioneers like John Burr Williams, Benjamin Graham, and Warren Buffett. He openly admires Buffett's approach, emphasizing focusing on the "cash generated by the money machine" rather than market speculation. However, Smith is not a blind follower of academic theory. He demonstrates a healthy skepticism towards overly mathematical models that prioritize elegance over realism. He recounts a "future Nobel laureate" at Yale candidly admitting to "making whatever assumptions are needed" to make models "mathematically tractable". This cavalier attitude is "a recipe for disaster on Wall Street where real people risk real money".
He also expresses reservations about the uncritical reliance on "number crunchers" and computers, stating that "mathematics is not enough. Statistics is not enough. Master investors need common sense; they need to understand human nature, and they need to control their emotions". His own experience, including a significant personal outperformance of the S&P 500 in his self-directed retirement plan over almost thirty years, lends credibility to his practical, common-sense approach. Smith’s writing style, often praised for being clear, readable, and even funny, further reflects his desire to make complex financial insights accessible to a broad audience. He believes in keeping things "simple, stupid" (KISS) and avoids constant market monitoring, relying on his judgment of intrinsic value rather than daily price fluctuations. His willingness to engage with his own investments and reflect on them, even admitting to an "imprudently large fraction of my portfolio in Apple stock" at one point, adds a layer of relatability and honesty to his expert perspective.
“Value investors do not try to predict stock prices.”
“It is impossible to predict changes in stock prices”
MONEY MACHINE OFFERS CLEAR, COMPREHENSIVE ACTIONABLE ADVICE ON VALUE INVESTING
Exceptional Clarity and Accessibility: The book is consistently praised for its "clear, readable, accessible overview on the fundamentals of investing". Smith has a "masterful job of simplifying the complicated" and uses "simple and entertaining examples". Reviewers highlight his "common sense storytelling" and ability to be "clear and funny while actually conveying great insights". This ensures that complex financial concepts are not only understandable but enjoyable to learn.
Depth of Insight and Comprehensive Coverage: Beyond mere simplification, the book offers an "uncommon level of insight". It is lauded as the "most comprehensive book" on "faults in logic and math that plague investors". It draws on a rich blend of finance, statistics, and psychology, providing a holistic understanding of market dynamics and human behavior in investing.
Practical and Actionable Advice: The book is lauded as a "practical guide to making smart investments" and provides an "insightful fact-based, common sense tool for investing". Part II of the book dedicates itself entirely to "Value Investing Applied," offering detailed examples and strategies that readers can directly apply. The author's personal investment experiences, including his detailed valuation of Apple, Google, and Amazon stocks, as well as his contrarian energy fund investment, provide compelling real-world demonstrations.
Strong Foundational Principles: Smith firmly grounds his arguments in the wisdom of investing legends like John Burr Williams, Benjamin Graham, and Warren Buffett, building a robust case for value investing that stands the test of time. This provides readers with a reliable framework rather than fleeting fads.
Engaging and Humorous Writing Style: The book is described as a "rare pleasure—a book about investing that makes you laugh out loud" and a "joyful crusade". This engaging tone helps to make an otherwise dry subject highly palatable and memorable, keeping readers invested in the material.
UNDISCIPLINED READERS MAY NOT EMBRACE MONEY MACHINE SIMPLE, CONTRARIAN INVESTING PSYCHOLOGY
Demands High Emotional Discipline: The book's central message requires investors to overcome powerful human emotions like fear, greed, and overconfidence. While the book provides excellent insights into these biases, consistently overriding ingrained human tendencies in real-time market situations is incredibly challenging, even for informed investors. The book itself acknowledges that "those investors who can be true value investors, putting aside wishful thinking, greed, fear, and other destructive human tendencies, can do better than indexing" – implying that this discipline is the difficult part. For readers who struggle with this self-control, the actionable advice, despite its clarity, may be hard to implement successfully.
Simplicity May Not Appeal to All Advanced Practitioners: While praised for "simplifying the complicated", some highly quantitative or technically-minded investors might find the emphasis on "common sense" and fundamental principles to be too simple, lacking the intricate mathematical models they might seek. However, the book explicitly argues against overly complex models that sacrifice realism for elegance, so this is more a difference in philosophical approach than a true weakness of the book's stated goals. The author himself states that "mathematical models are too often revered more for their elegance than their realism", and that "humans aren’t as smart as computers" when it comes to certain trading speeds, but that computers lack common sense. The book's advice, while aiming for simplicity, requires significant analytical thought to determine intrinsic value and is not merely prescriptive.
“Financial markets are always changing, but core concepts endure.”
“Don’t bet the bank on historical patterns that have no logical basis.”
WHO SHOULD READ MONEY MACHINE – VALUE INVESTING – BY GARY SMITH?
New and Intermediate Investors: Its "clear, readable, accessible overview" makes it an excellent starting point for those new to investing or seeking to solidify their foundational knowledge beyond mere speculation.
Long-Term, Serious Investors: Those committed to building "personal wealth in a reliable and steady manner" and who are described as "serious long-time investor[s]" will find its focus on intrinsic value and long-term holding periods particularly resonant.
Individuals Prone to Emotional Investing: The book's deep dive into human emotions and psychological biases (fear, greed, overconfidence, anchoring, sunk costs) is invaluable for anyone who finds themselves making irrational decisions in volatile markets. It teaches them how to "control their emotions".
Skeptics of Market Fads and "Hot Tips": Readers wary of get-rich-quick schemes, technical analysis, and data mining will appreciate Smith's dismantling of these "faults in logic and math".
Those Looking to Increase "Investing IQ": The book is explicitly recommended for increasing one's "investing IQ" by emphasizing core concepts over "soon-obsolete facts".
WHICH OTHER VALUE INVESTING AND MARKET PSYCHOLOGY BOOKS ARE SIMILAR TO MONEY MACHINE?
Money Machine stands firmly within the pantheon of value investing classics, making direct comparisons to foundational texts and figures in the field. The book is lauded as being worthy of a place "right next to Security Analysis by Graham and Dodd", widely considered the bible of value investing. This immediately positions Money Machine as a contemporary extension of Graham and Dodd's enduring principles.
Smith openly acknowledges and builds upon the work of John Burr Williams, particularly his 1938 book The Theory of Investment Value, which laid the groundwork for assessing stocks based on the cash they generate.
The influence of Benjamin Graham is pervasive throughout the book, not just in direct citation but in its philosophical underpinning, particularly the "Mr. Market" analogy which Graham popularized.
Warren Buffett, perhaps the most famous living value investor, is frequently cited as an exemplar of the principles taught in Money Machine. Smith highlights Buffett's "favorite holding period is forever", his aversion to speculative tech stocks, and his preference for "boring companies that generate profits reliably". Buffett's famous "Be fearful when others are greedy and greedy when others are fearful" advice is also echoed. The book effectively illustrates how Buffett and other "legendary value investors" like Laurence Tisch and Michael Larson have achieved success by adhering to these core ideas.
The discussion on contrarian investing ties into works like David Dreman's The New Contrarian Investment Strategy, with Smith even citing Dreman's work on professional investor performance.
When discussing index funds, Smith aligns with and cites the recommendations of figures like John Bogle (founder of Vanguard) and Burton Malkiel, both proponents of low-cost indexing. Smith also features Bogle's model for estimating stock returns.
The inclusion of Robert Shiller's cyclically adjusted earnings method also places the book in conversation with leading academics who have challenged or refined aspects of efficient market hypothesis.
HOW DOES MONEY MACHINE DIFFER TO OTHER BOOKS ON MARKET PSYCHOLOGY AND INVESTMENT PORTFOLIOS?
Synthesis of Disciplines with a Behavioral Twist: While many investment books focus solely on financial models or market history, Money Machine uniquely combines "key concepts from finance, statistics, and psychology". It’s a "joyful crusade through the world of economics, behavioral science, value investing, market dynamics and their intersection with common sense". This multidisciplinary approach, especially its deep dive into human cognitive biases (e.g., anchoring, sunk costs, regression to the mean), makes it particularly insightful. It doesn't just tell you what to do but why human nature often prevents people from doing it.
Focus on "The Surprisingly Simple Power": The book delivers on its subtitle. Gary Smith excels at "simplifying the complicated". Unlike dense academic texts, Money Machine makes the often-abstract principles of intrinsic value and market efficiency accessible and intuitive, making investing less intimidating.
Debunking Modern Myths with Common Sense: Smith directly confronts and "dispels many common myths of technical data, data mining, and market bubbles" through "entertaining and engaging examples". He doesn't shy away from critiquing academic models that prioritize "elegance than their realism" or the pitfalls of relying on "number crunchers" who assume computers are infallible. His "common sense tool for investing" acts as a powerful counter-narrative to the prevailing complexity in finance.
Real-World Application through Author's Experience: The book's Part II, "Value Investing Applied," is rich with detailed examples, many drawn from Smith's own investment decisions. His transparent discussions of his personal portfolio's performance, including specific stock picks like Apple, Google, Amazon, and the Vanguard Energy Fund, lend immense credibility and a practical, relatable dimension not often found in theoretical investment guides. He even shares his own "imprudently large" stake in Apple at one point, illustrating the human element he writes about.
The "Home Dividend" Concept: A truly unique contribution is the detailed analysis of investing in one's home as a "money machine," generating a "home dividend" through rent savings and tax benefits. This extends value investing principles beyond traditional stocks and bonds into a relatable, significant personal finance decision that few other investment books explore with such depth and quantitative rigor.
CONCLUSION – MONEY MACHINE – GARY SMITH - VALUE INVESTING – FINANCIAL INDEPENDENCE
Money Machine by Gary Smith is an outstanding and highly recommended read for anyone serious about improving their investment acumen. It masterfully articulates the "surprisingly simple power of value investing", moving beyond the superficial "blips on the ticker board" to focus on the enduring principle of intrinsic value derived from a company's actual cash generation.
Smith's ability to blend insights from finance, statistics, and psychology into a coherent, accessible narrative is truly remarkable. He empowers readers to become discerning investors by equipping them with the tools to assess whether a stock's price is "too high, too low, or just right", rather than falling prey to common logical and mathematical fallacies that plague both amateur and professional investors. The book serves as a potent antidote to speculative fever, advocating for a disciplined, long-term approach that embraces market fluctuations as opportunities rather than threats.
While the book's core message requires investors to cultivate emotional discipline to overcome inherent human biases, it provides the necessary intellectual framework and practical examples to achieve this. It's a "must read", an "essential read", and "a great gift" that offers "great insights into rational and irrational approaches to stock market valuation". If you're looking to build wealth reliably and steadily by understanding how to genuinely make money in financial markets, Money Machine is an invaluable guide that will certainly increase your "investing IQ". It is, as one reviewer put it, "a joyful crusade" through the world of smart investing.
“What everyone knows isn’t worth knowing.”
“A home is a money machine just like stocks.”
FREQUENTLY ASKED QUESTIONS ABOUT MONEY MACHINE BY GARY SMITH
What exactly is value investing and how does it differ from other investment strategies?
At its heart, value investing is the practice of assessing stocks based on the cash they generate, particularly through dividends, to determine their intrinsic value. Unlike speculators, who buy stocks hoping to sell them at a higher price to an "even bigger fool" (the Greater Fool Theory), value investors think of stocks as "money machines". Their goal is to buy solid companies at attractive prices and hold them, sometimes even forever, focusing on the cash flow rather than predicting daily price fluctuations. This approach stands in stark contrast to:
Speculation and Trend Chasing: Value investors disregard attempts to predict short-term "zigs and zags" in stock prices. They avoid "chasing trends" or relying on technical analysis, which studies past price movements and trading volumes without considering a company's fundamentals. The book emphasizes that historical patterns often lack a logical basis and are unreliable predictors of future performance.
Hot Tips: Smith cautions against "get-rich-quick gurus" and "hot tips". He argues that if such schemes truly worked, their promoters would be using them themselves rather than selling advice. Genuine opportunities are rarely "easy money".
What are the common "faults in logic and math that plague investors" that the book addresses?
Confusing a Great Company with a Great Stock: Just because a company makes excellent products doesn't automatically make its stock a good investment, especially if its price is too high.
The Delusion of Crowds (Groupthink): While it's often assumed that the collective judgment of a crowd is accurate, investors' opinions are frequently influenced by fads, fancies, greed, and gloom ("animal spirits"), leading to "shared error" and speculative bubbles.
Overconfidence: Many investors, believing they are "above average," trade excessively, hold undiversified portfolios, and are reluctant to sell losing stocks, despite clear evidence that past performance is not a guarantee of future success [90, 154, 265–266].
Anchoring: Investors tend to "anchor" their judgment of value to irrelevant past reference points, such as the price they initially paid for a stock or historical interest rates. This can lead to irrational decisions, like refusing to sell a losing asset.
Sunk Costs Fallacy: The book explains that the price paid for a stock is a "sunk cost" that cannot be recovered and should not influence current selling decisions. However, many investors cling to losers to avoid admitting a mistake.
Ignoring Regression to the Mean: Investors often "incautiously extrapolate" impressive growth rates into the distant future, failing to recognize that exceptionally high (or low) performance often "regresses toward the mean" over time. This means overly optimistic earnings forecasts are often disappointed.
Data Mining: The book warns against the trap of finding seemingly profitable patterns in data through sheer persistence, even in random data, and then believing they will predict the future without a logical underlying reason.
How does the book suggest investors identify undervalued assets or "bargains"?
Smith advocates for a disciplined, contrarian approach to find undervalued assets, often by going against the market's prevailing sentiment.
Value Metrics: He suggests looking for companies with low prices relative to their dividends, earnings, and book value. This can involve strategies like the "Dogs of the Dow" (buying Dow stocks with high dividend yields) or focusing on small capitalization (small-cap) firms, which have historically outperformed larger companies and may be neglected by large institutions.
"Scuttlebutt" and Most-Admired Companies: While avoiding reliance on hot tips, Smith acknowledges the value of "scuttlebutt"—qualitative research such as talking to company insiders, employees, and customers to identify "able companies with good growth prospects". He notes that a portfolio of Fortune's most-admired companies has "soundly" beaten the S&P 500 historically.
Intrinsic Value Analysis: The primary method is to calculate a stock's intrinsic value based on its projected cash generation, not its current or expected future market price.
Focus on the "Home Dividend" for Real Estate: When investing in a home, the true value comes from the "home dividend," which is the rent you don't have to pay. This cash savings, minus expenses like mortgage payments, property taxes, and maintenance, is the real income generated by the home. The book argues that this "home dividend" is often a much more persuasive reason to buy a home than speculative price appreciation.
"Be Fearful When Others Are Greedy and Greedy When Others Are Fearful": This Warren Buffett aphorism is a cornerstone. Smith emphasizes that bargains are found when investors are pessimistic and the market is panicking, leaving "suitcases full of $100 bills on the sidewalk".
Does the book offer specific tools or models for valuing stocks or timing the market?
Yes, Smith presents several models that value investors can use to make informed decisions and to assess the market as a whole or individual stocks:
The John Burr Williams (JBW) Equation: This fundamental formula calculates the intrinsic value (V) of a stock as D / (R - g), where D is the current dividend, R is the shareholders' required return, and g is the dividend growth rate. It can also estimate the total annual return (R = D/P + g) by adding the dividend yield to the long-run dividend growth rate, allowing for comparison against Treasury bond rates.
Shiller's Cyclically Adjusted Earnings (CAPE) and Earnings Yield (CAEP): To account for short-term earnings fluctuations, Robert Shiller's model uses a ten-year average of inflation-adjusted earnings. The cyclically adjusted earnings yield (CAEP, the inverse of CAPE) provides a rough estimate of a stock's real rate of return, which can be compared to the real interest rate on ten-year Treasury bonds.
Bogle's Ten-Year Horizon Model: Developed by Vanguard founder John C. Bogle, this approximation for stock returns over a decade is calculated as dividend yield + annual growth of earnings + annual change in P/E. This model helps illustrate the "double blow" growth stocks can suffer if earnings or P/E ratios fall short of expectations.
Economic Value Added (EVA): This is an "appealing approach" for valuing firms that do not pay dividends. EVA determines if a firm's earnings surpass the shareholders' required earnings, and for firms that do pay dividends, it yields the same intrinsic value as the dividend-discount model.
Tobin's q: This ratio compares the market value of a firm to the replacement cost of its assets. A q greater than 1 indicates that the firm's profits exceed the shareholders' required return, suggesting that the firm should invest in new assets. While not a direct stock-picking tool, it provides insight into whether the market is valuing a company above or below its tangible asset base.
How does the author, Gary Smith, apply these principles in his own investing?
Gary Smith explicitly shares his personal investing approach, embodying the "Keep It Simple, Stupid (KISS)" philosophy.
Focus on Simplicity and Fundamentals: Despite being a professor of economics, he doesn't spend excessive time monitoring stock prices daily. Instead, he focuses on buying well-managed companies with large dividends and/or earnings relative to their stock price.
Contrarian Mindset: He embraces a contrarian stance, preferring to find bargains among stocks the market "hates" rather than those it "loves". He was a buyer during the dot-com bubble's aftermath (December 2008) when stocks were cheap and recognized the overvaluation in March 2000. He also tested a contrarian strategy by investing in an energy fund when professional forecasts for the sector were pessimistic.
Long-Term Orientation: He aligns with Warren Buffett's preference for holding stocks long-term, noting that his intrinsic value analysis assumes holding stocks "forever" to avoid being swayed by short-term price guesses.
Personal Track Record: Smith reveals that his own self-directed retirement plan, with an initial investment of $26,334 and no further contributions, grew to $1,812,639 over almost 30 years, representing a 15.4% annual rate of return. This significantly outperformed the S&P 500's 10.3% annual return over the same period, leading to a portfolio nearly four times larger than if he had invested in an S&P 500 index fund.
Specific Examples: His successful investments include well-known companies like Apple, Coca-Cola, GE, IBM, Johnson & Johnson, Unilever, Procter & Gamble, Costco, JP Morgan, Wells Fargo, and closed-end funds. He specifically highlights investing in First Financial Fund during the S&L crisis at a significant discount and buying Google stock after an insightful experience at the Googleplex, appreciating their openness to questioning their own business model.
Avoided Complex/Risky Strategies: He states he has never bought stock on margin or engaged in short sales. He also avoids brokers and uses low-cost online trading firms. He passed on investing in Amazon due to its high price-earnings ratio and lack of profits/dividends, despite liking the company.
ABOUT GARY SMITH – AUTHOR MONEY MACHINE – VALUE INVESTING TO FINANCIAL INDEPENDENCE
Gary Smith, Ph.D., is a professor of economics at Pomona College. His research has been featured in The New York Times, The Wall Street Journal, Forbes, Motley Fool, Newsweek, and BusinessWeek.
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