Thursday, October 24, 2013

"I Want My Stocks to Decline in Price for a Few Years So I Can Buy More Shares" - Get Real!

As a frequent reader at Seeking Alpha, I notice certain trends in investing and comment streams. Two of the recent high frequency comments that have been nagging me lately are the title above about wanting your stocks to underperform for several years so you can add more, and the other is benchmarking against the S&P 500.  The latter goes something like this, "I don't care how I do against the S&P 500, my goal is income and income growth."

I think both notions are ridiculous, and related, but I'll focus on the falling share price myth with this article.

Crazy as it seems, price appreciation in your stocks is DESIRABLE.  To illustrate the concept, I'll run a simple comparison of a model portfolio using a 15 year time horizon and the following assumptions:

  • Price appreciation/depreciation in the first three years as the variable to compare
  • A constant increasing price appreciation of 8% per year for the remaining 12 years
  • Steady increases in dividends - 8%/year for the entire 15 years
  • A 10%/year price decline in years 1-3 vs. a 10%/year increase in price years 1-3

Here is the data table for the 10% price decline in each of the 1st three years:



The "scenario 1" portfolio grew to $1.44M in value after 15 years and is spinning off $74k/year in income.  Next, I'll show a spreadsheet for the same sized portfolio, growing in stock price at 10%/year for the first three years, then settling into the same growth rate of 8% for the remaining 12 years.  As with scenario 1 above, dividends are reinvested at the end of each year:




In "scenario 2," we end up with a portfolio worth $1.78 M, spinning off annual income of $50k.  So which outcome is better?  Income investors might argue that the second scenario is better because you are receiving more annual income, even though the total value is lower by $340k.  This is kind of crazy to my way of thinking.  I can get the $340k by selling some shares (gasp), then re-purchase higher income producing stocks, specifically, the stocks in scenario 1 with a lower share price and therefore, higher yield.  In fact, if I liquidate the scenario 2 portfolio at the end of year three (double gasp), then purchase the same shares in the scenario 1 analysis, I get really great returns - the best of both scenarios, or scenario 3:


In scenario 3 we enjoy the first 3 years of 10%/year share appreciation plus dividends, then liquidate, and simply buy the exact portfolio over in scenario 1.  The new portfolio has far more shares in year 4 from which to grow and generate income.  By year 15, the portfolio in scenario 3 is worth $2.5M and spinning off $126k/year in income.




So, here are my two options presented side by side:

"I hope shares drop for three years so I can buy more with my dividends"
  • Year 15 portfolio value = $1,440,000
  • Year 15 annual income = $74,000
"I like when the price of shares rises because then I have more money"
  • Year 15 portfolio value = $2,455,000
  • Year 15 portfolio income = $125,500
This is a pretty stark example.  Liquidating the portfolio after 3 years of good performance would be very difficult, and trigger some nasty taxes if done in outside an IRA.  A more likely scenario, if I want more income, is to rotate into better yielding investments at better valuations after a few years of good performance;  exactly what I'm doing with the Chump IRA.

Regardless of the details, the difference in outcomes between rising and falling prices is pretty meaningful, and magnified further beyond 15 years.


Summary

In my mind, falling share prices are good only under the following circumstances:
  • If I don't own the shares falling
  • If I have cash ready to invest, and I don't own the shares falling
  • If shares of companies I'd like to own are falling more than shares I currently own
  • If you have a large chunk of cash from other sources, ready to invest now
  • When I have a short position in the stock (e.g. TSLA ;-))
I like it when the prices of my stocks RISE.

That's all for now,

Chump


Wednesday, October 23, 2013

Fun with the Tesla Disciples

For those of you who read these posts, all the way to the end, you'll remember the following blurb I posted on September 6, 2013....

"And just for fun, I bought two March 22 puts on Tesla Motors (TSLA).  Ostensibly as a hedge, but as a value investor, I just have to laugh at their stock price and market cap.  The puts cost me $2200, and I'm down around $400 on the "investment," but I enjoy having a short position in this company!"

At that time the stock was trading around $165/share and rising every day.  The strike price of the put options is $100.  This means that on March 22, 2013, if the share price is below $100, I'll exercise the options and sell $200 shares of TSLA for $100/share and collect the difference between $100 and whatever the lower price is.  

Bank of America came out with a downgrade on the stock today, with a price target of $45/share.  If the stock were trading at $45/share come March 22, I'd collect:

2 x((100 shares x $100/share) - (100 shares x $45/share)) = $11, 000.  Then, subtracting the cost of the options, I'd have $11,000 - $2,200 = $8,800

My basic premise for the short was simply overvaluation.  I love the FAST Graphs for Tesla, which I show here:



The price has run a wee bit ahead of earnings, which at present are negative.  The company is saying they'll be positive for 2013, but this remains to be seen.  The FAST Graph for discounted cash flow based on a very strong growth rate in the future of 20% is shown below, and quite entertaining:


Better than the money however, would be knowing that I "won" a bet against a person who believes the following:

  • Tesla isn't a company, its a new religion
  • As such, it doesn't follow conventional rules of valuation
  • Elon Musk is more than just a demagogue, and his daily PR bursts on Twitter are gospel
  • I'm going to sell puts to punish non-believers
I'm still down on the trade, and admittedly, the positive momentum around the stock is crazy, and not normally a short opportunity I would consider, but it just feels good!  And oh, don't look now, but the stock has lost a bit of it's lustre these past few days....we shall see




That's all for now,

Chump

Friday, October 18, 2013

Selling an XOM Put Option

While I don't own XOM in the Chump IRA, I do own it in my taxable account.  I worked at Exxon in the mid/late nineties, and have owned shares ever since.  The point is, its a great company, and I follow the news and price movements of the stock.

Looking at a price chart for XOM the past six months,


you'll notice that the price is really down in October, hitting a 52 week low.  With the price down for all the major oil & gas companies, and the budget impasse hitting all stocks, I was thinking about adding more XOM shares on weakness.  I had cash available in the IRA from the recent sale of my FDO position (earlier blog post), so why not.

Then I read an article by Dr. Paul Price on his Market Shadows site, talking about XOM puts, which inspired me to give it a try.

I've bought puts in the past on stocks I think are extremely overvalued, betting they will decline before my put expires.  I've had mixed success.  They can also be a useful hedge, increasing in value during a market decline.  But until now, I've never sold a put.

I pulled up a list of put options for XOM.   Here is where it gets a bit confusing.  If you sell a put option, the buyer pays you a fee to own the option.  You collect the fee, the buyer has the right to sell you shares of the security in the future for the option's strike price.  The buyer of the option will exercise his right to sell you his shares only if the price drops below the option strike price.  The buyer is betting that the price of XOM shares at that future date will be lower.

From my perspective, I sold the buyer this option.  He paid me for the option (called the option premium), and in the future, if he excises that option, I must buy the XOM shares at the agreed price.

Here is the actual transaction example:

  • I entered the symbol XOM, then called up the associated options chain
  • I searched for all PUTS
  • I scrolled though the many expiration dates, and found one out in 2015
  • The share price at the time for XOM was around $84.75 on the day of the trade
  • I selected a 2015 put option with strike price of $85, and an option premium of $800
  • I then selected this verbiage:  "Sell to Open" 
  • I placed a market order for 1 contract, and the order was filled immediately
My IRA cash balance increased by $800 immediately following the trade, less a $7.95 commission.

If the price of XOM stock goes up, or stays above $85 until the expiration date in 2015, the option will not be exercised, and I keep the $800.

If the price drops below the $85 mark in 2015, the option is exercised, and I lose only if the price is below ($8,500-$800)/100 = $77/per share.  Below $77, I lose the difference x $100.  

If XOM goes bankrupt, and shares go to $0 by 2015, I lose $7,700 - this is my maximum risk.

Over the subsequent several days, the price of XOM went up and down, but mostly up.  As the price rose, the value of the PUT option I sold declined (to the buyer).  As the price was going up, the likelihood of the buyer exercising his option for shares at a lower price than $85 began to decline.

A few days later, the market was down a few hundred points, and wanted to add some shares of SO, IBM, and VMI.  Unfortunately, my account rejected the trades saying there wasn't enough cash available in my account... Aha!  That was when I learned the downside to selling puts;  the one contract for 100 shares of XOM at $85 ties up exactly $8,500 until the option is exercised in 2015, expires in 2015, or is bought back by me, effectively closing out the position.

So if XOM continues to rise in price between now and 2015, I'll lose money on the option if the price ends ($800/100 shares)= $8/share higher, or at $94/share or more.  Dang, this seems like a bad bet to me, so my next move was to close the position.

Here are the actual steps:
  • Next to option listing in my account, selected trade
  • Chose the following verbiage: "Buy to Close" and selected
  • Chose 1 PUT contract
  • Chose market order, and hit submit
  • The order executed immediately
Because XOM was trading higher on the day of the trade, around $87/share, the put option was worth less, approximately $720, so I paid $720 to buy back the put option, closing the position.  I made $80-$15 (commissions) = $65 on the round trip, and freed up my $8,500 to invest.

Sometimes the best way to learn about these things is to actually make the trade.  Based on my learnings from this experience, it doesn't seem like a great strategy it ties up chunks of cash for long periods.

Thats all for now,

Chump



Thursday, October 17, 2013

Adding to positions in IBM and VMI

IBM is off over 6%, and VMI is down again today.  I'm adding to both of these positions today.

**Update

I placed limit orders for both the stocks mentioned above after writing the headline this morning, and both were filled. I bought IBM at $174.40 and VMI at $132.30.  Both are below my initial position prices, and bring down my average cost.  I like IBM for the long run, and I like VMI for the short to intermediate term.  Both are trading at nice discounts to "fair value."  I'll add a couple of FAST Graphs tomorrow with today's closing prices. (FAST Graphs take a day to update prices)

I also trimmed my position on WAG today on strength.  I own WAG in both my IRA and my taxable account, and the position has grown significantly via price appreciation this year.  In the Chump IRA, it was approaching 4.8% of the portfolio, where the target average size of a full position is more appropriately 3.1%.  My sale takes the position from 4.8% down to 4.4%.

I also closed out an (by selling) a put contract on XOM.  I'll discuss this in more detail in my next post, it was a good learning experience.

That's all for now,

Chump




Wednesday, October 2, 2013

Question of the Day

The UN has published it's latest report on global warming, stating that the IPCC is now 95% sure that man is responsible for warming the planet, up from 90% in 2007, the last time they published their report.

So, from today's Wall Street Journal, I pose the question of the day:

"Between 1998 and 2012 the global economy more than doubled in size—to some $71 trillion in GDP from $30 trillion. That's the good news. Over the same period the world pumped more than 100 billion tons of carbon dioxide into the atmosphere. That is supposedly the bad news. Yet global surface temperatures have remained essentially flat. That's the mystery: If emitting CO2 into the atmosphere causes global warming, why hasn't the globe been warming?"

The report offers no obvious explanations.  Here is a link to the article:

http://online.wsj.com/article/SB10001424052702304713704579092883286839894.html?mod=hp_opinion

Stay warm,

Chump

Tuesday, October 1, 2013

The Secret to Raising Smart Kids

A parent from my 7th grade daughter's math club sent this around to the parents of club members. There is some great advice to parents in this paper.  The pdf link is here, and full text is copied below:

http://www.ccsf.edu/Campuses/Downtown/scientific_american.pdf

Title: The Secret to Raising Smart Kids.
Authors: Dweck, Carol S.
Source: Scientific American Mind; Dec2007/Jan2008, Vol. 18 Issue 6, p36-43, 8p

The Secret to Raising Smart Kids
Hint: Don't tell your kids that they are. More than three decades of research
shows that a focus on effort — not on intelligence or ability — is key to success in
school and in life

A brilliant student, Jonathan sailed through grade school. He completed his assignments
easily and routinely earned As. Jonathan puzzled over why some of his classmates
struggled, and his parents told him he had a special gift. In the seventh grade, however,
Jonathan suddenly lost interest in school, refusing to do homework or study for tests. As
a consequence, his grades plummeted. His parents tried to boost their son's confidence by
assuring him that he was very smart. But their attempts failed to motivate Jonathan (who
is a composite drawn from several children). Schoolwork, their son maintained, was
boring and pointless.

Our society worships talent, and many people assume that possessing superior
intelligence or ability — along with confidence in that ability — is a recipe for success.
In fact, however, more than 30 years of scientific investigation suggests that an
overemphasis on intellect or talent leaves people vulnerable to failure, fearful of
challenges and unwilling to remedy their shortcomings.

The result plays out in children like Jonathan, who coast through the early grades under
the dangerous notion that no-effort academic achievement defines them as smart or
gifted. Such children hold an implicit belief that intelligence is innate and fixed, making
striving to learn seem far less important than being (or looking) smart. This belief also
makes them see challenges, mistakes and even the need to exert effort as threats to their
ego rather than as opportunities to improve. And it causes them to lose confidence and
motivation when the work is no longer easy for them.

Praising children's innate abilities, as Jonathan's parents did, reinforces this mind-set,
which can also prevent young athletes or people in the workforce and even marriages
from living up to their potential. On the other hand, our studies show that teaching people
to have a "growth mind-set," which encourages a focus on effort rather than on
intelligence or talent, helps make them into high achievers in school and in life.

The Opportunity of Defeat

I first began to investigate the underpinnings of human motivation — and how people
persevere after setbacks — as a psychology graduate student at Yale University in the
1960s. Animal experiments by psychologists Martin Seligman, Steven Maier and Richard
Solomon of the University of Pennsylvania had shown that after repeated failures, most
animals conclude that a situation is hopeless and beyond their control. After such an
experience, the researchers found, an animal often remains passive even when it can
affect change — a state they called learned helplessness.

People can learn to be helpless, too, but not everyone reacts to setbacks this way. I
wondered:

Why do some students give up when they encounter difficulty, whereas others who are
no more skilled continue to strive and learn? One answer, I soon discovered, lay in
people's beliefs about why they had failed.

In particular, attributing poor performance to a lack of ability depresses motivation more
than does the belief that lack of effort is to blame. In 1972, when I taught a group of
elementary and middle school children who displayed helpless behavior in school that a
lack of effort (rather than lack of ability) led to their mistakes on math problems, the kids
learned to keep trying when the problems got tough. They also solved many of the
problems even in the face of difficulty. Another group of helpless children who were
simply rewarded for their success on easy problems did not improve their ability to solve
hard math problems. These experiments were an early indication that a focus on effort
can help resolve helplessness and engender success.

Subsequent studies revealed that the most persistent students do not ruminate about their
own failure much at all but instead think of mistakes as problems to be solved. At the
University of Illinois in the 1970s I, along with my then graduate student Carol Diener,
asked 60 fifth graders to think out loud while they solved very difficult patternrecognition problems. Some students reacted defensively to mistakes, denigrating their
skills with comments such as "I never did have a good rememory," and their problem solving strategies deteriorated.

Others, meanwhile, focused on fixing errors and honing their skills. One advised himself:
"I should slow down and try to figure this out." Two schoolchildren were particularly
inspiring. One, in the wake of difficulty, pulled up his chair, rubbed his hands together,
smacked his lips and said, "I love a challenge!" The other, also confronting the hard
problems, looked up at the experimenter and approvingly declared, "I was hoping this
would be informative!" Predictably, the students with this attitude outperformed their
cohorts in these studies.

Two Views of Intelligence

Several years later I developed a broader theory of what separates the two general classes
of learners — helpless versus mastery-oriented. I realized that these different types of
students not only explain their failures differently, but they also hold different "theories"
of intelligence. The helpless ones believe that intelligence is a fixed trait: you have only a
certain amount, and that's that. I call this a "fixed mind-set." Mistakes crack their self confidence because they attribute errors to a lack of ability, which they feel powerless to
change. They avoid challenges because challenges make mistakes more likely and
looking smart less so. Like Jonathan, such children shun effort in the belief that having to
work hard means they are dumb.

The mastery-oriented children, on the other hand, think intelligence is malleable and can
be developed through education and hard work. They want to learn above all else. After
all, if you believe that you can expand your intellectual skills, you want to do just that.
Because slipups stem from a lack of effort, not ability, they can be remedied by more
effort. Challenges are energizing rather than intimidating; they offer opportunities to
learn. Students with such a growth mind-set, we predicted, were destined for greater
academic success and were quite likely to outperform their counterparts.

We validated these expectations in a study published in early 2007. Psychologists Lisa
Blackwell of Columbia University and Kali H. Trzesniewski of Stanford University and I
monitored 373 students for two years during the transition to junior high school, when the
work gets more difficult and the grading more stringent, to determine how their mind-sets
might affect their math grades. At the beginning of seventh grade, we assessed the
students' mind-sets by asking them to agree or disagree with statements such as "Your
intelligence is something very basic about you that you can't really change." We then
assessed their beliefs about other aspects of learning and looked to see what happened to
their grades.

As we had predicted, the students with a growth mind-set felt that learning was a more
important goal in school than getting good grades. In addition, they held hard work in
high regard, believing that the more you labored at something, the better you would
become at it. They understood that even geniuses have to work hard for their great
accomplishments. Confronted by a setback such as a disappointing test grade, students
with a growth mind-set said they would study harder or try a different strategy for
mastering the material.

The students who held a fixed mind-set, however, were concerned about looking smart
with little regard for learning. They had negative views of effort, believing that having to
work hard at something was a sign of low ability. They thought that a person with talent
or intelligence did not need to work hard to do well. Attributing a bad grade to their own
lack of ability, those with a fixed mind-set said that they would study less in the future,
try never to take that subject again and consider cheating on future tests.

Such divergent outlooks had a dramatic impact on performance. At the start of junior
high, the math achievement test scores of the students with a growth mind-set were
comparable to those of students who displayed a fixed mind-set. But as the work became
more difficult, the students with a growth mind-set showed greater persistence. As a
result, their math grades overtook those of the other students by the end of the first
semester — and the gap between the two groups continued to widen during the two years
we followed them.  Along with Columbia psychologist Heidi Grant, I found a similar relation between mindset and achievement in a 2003 study of 128 Columbia freshman premed students who
were enrolled in a challenging general chemistry course. Although all the students cared
about grades, the ones who earned the best grades were those who placed a high premium
on learning rather than on showing that they were smart in chemistry. The focus on
learning strategies, effort and persistence paid off for these students.

Confronting Deficiencies

A belief in fixed intelligence also makes people less willing to admit to errors or to
confront and remedy their deficiencies in school, at work and in their social relationships.
In a study published in 1999 of 168 freshmen entering the University of Hong Kong,
where all instruction and coursework are in English, three Hong Kong colleagues and I
found that students with a growth mind-set who scored poorly on their English
proficiency exam were far more inclined to take a remedial English course than were
low-scoring students with a fixed mind-set. The students with a stagnant view of
intelligence were presumably unwilling to admit to their deficit and thus passed up the
opportunity to correct it.

A fixed mind-set can similarly hamper communication and progress in the workplace by
leading managers and employees to discourage or ignore constructive criticism and
advice. Research by psychologists Peter Heslin and Don VandeWalle of Southern
Methodist University and Gary Latham of the University of Toronto shows that managers
who have a fixed mind-set are less likely to seek or welcome feedback from their
employees than are managers with a growth mind-set. Presumably, managers with a
growth mind-set see themselves as works-in-progress and understand that they need
feedback to improve, whereas bosses with a fixed mind-set are more likely to see
criticism as reflecting their underlying level of competence. Assuming that other people
are not capable of changing either, executives with a fixed mind-set are also less likely to
mentor their underlings. But after Heslin, VandeWalle and Latham gave managers a
tutorial on the value and principles of the growth mind-set, supervisors became more
willing to coach their employees and gave more useful advice.

Mind-set can affect the quality and longevity of personal relationships as well, through
people's willingness — or unwillingness — to deal with difficulties. Those with a fixed
mind-set are less likely than those with a growth mind-set to broach problems in their
relationships and to try to solve them, according to a 2006 study I conducted with
psychologist Lara Kammrath of Wilfrid Laurier University in Ontario. After all, if you
think that human personality traits are more or less fixed, relationship repair seems
largely futile. Individuals who believe people can change and grow, however, are more
confident that confronting concerns in their relationships will lead to resolutions.

Proper Praise

How do we transmit a growth mind-set to our children? One way is by telling stories
about achievements that result from hard work. For instance, talking about math geniuses
who were more or less born that way puts students in a fixed mind-set, but descriptions of
great mathematicians who fell in love with math and developed amazing skills engenders
a growth mindset, our studies have shown. People also communicate mind-sets through
praise. Although many, if not most, parents believe that they should build up a child by
telling him or her how brilliant and talented he or she is, our research suggests that this is
misguided.

In studies involving several hundred fifth graders published in 1998, for example,
Columbia psychologist Claudia M. Mueller and I gave children questions from a
nonverbal IQ test. After the first 10 problems, on which most children did fairly well, we
praised them. We praised some of them for their intelligence: "Wow … that's a really
good score. You must be smart at this." We commended others for their effort: "Wow …
that's a really good score. You must have worked really hard."

We found that intelligence praise encouraged a fixed mind-set more often than did pats
on the back for effort. Those congratulated for their intelligence, for example, shied away
from a challenging assignment — they wanted an easy one instead — far more often than
the kids applauded for their effort. (Most of those lauded for their hard work wanted the
difficult problem set from which they would learn.) When we gave everyone hard
problems anyway, those praised for being smart became discouraged, doubting their
ability. And their scores, even on an easier problem set we gave them afterward, declined
as compared with their previous results on equivalent problems. In contrast, students
praised for their effort did not lose confidence when faced with the harder questions, and
their performance improved markedly on the easier problems that followed.

Making Up Your Mind-set

In addition to encouraging a growth mind-set through praise for effort, parents and
teachers can help children by providing explicit instruction regarding the mind as a
learning machine. Blackwell, Trzesniewski and I recently designed an eight-session
workshop for 91 students whose math grades were declining in their first year of junior
high. Forty-eight of the students received instruction in study skills only, whereas the
others attended a combination of study skills sessions and classes in which they learned
about the growth mind-set and how to apply it to schoolwork.

In the growth mind-set classes, students read and discussed an article entitled "You Can
Grow Your Brain." They were taught that the brain is like a muscle that gets stronger
with use and that learning prompts neurons in the brain to grow new connections. From
such instruction, many students began to see themselves as agents of their own brain
development. Students who had been disruptive or bored sat still and took note. One
particularly unruly boy looked up during the discussion and said, "You mean I don't have
to be dumb?"

As the semester progressed, the math grades of the kids who learned only study skills
continued to decline, whereas those of the students given the growth-mind-set training
stopped falling and began to bounce back to their former levels. Despite being unaware
that there were two types of instruction, teachers reported noticing significant
motivational changes in 27 percent of the children in the growth mind-set workshop as
compared with only 9 percent of students in the control group. One teacher wrote: "Your
workshop has already had an effect. L [our unruly male student), who never puts in any
extra effort and often doesn't turn in homework on time, actually stayed up late to finish
an assignment early so I could review it and give him a chance to revise it. He earned a
B+. (He had been getting Cs and lower.)"

Other researchers have replicated our results. Psychologists Catherine Good, then at
Columbia, and Joshua Aronson and Michael Inzlicht of New York University reported in
2003 that a growth mind-set workshop raised the math and English achievement test
scores of seventh graders. In a 2002 study Aronson, Good (then a graduate student at the
University of Texas at Austin) and their colleagues found that college students began to
enjoy their schoolwork more, value it more highly and get better grades as a result of
training that fostered a growth mind-set.

We have now encapsulated such instruction in an interactive computer program called
"Brainology," which should be more widely available by mid-2008. Its six modules teach
students about the brain — what it does and how to make it work better. In a virtual brain
lab, users can click on brain regions to determine their functions or on nerve endings to
see how connections form when people learn. Users can also advise virtual students with
problems as a way of practicing how to handle schoolwork difficulties; additionally,
users keep an online journal of their study practices.

New York City seventh graders who tested a pilot version of Brainology told us that the
program had changed their view of learning and how to promote it. One wrote: "My
favorite thing from Brainology is the neurons part where when u [sic] learn something
there are connections and they keep growing. I always picture them when I'm in school."
A teacher said of the students who used the program: "They offer to practice, study, take
notes, or pay attention to ensure that connections will be made."

Teaching children such information is not just a ploy to get them to study. People do
differ in intelligence, talent and ability. And yet research is converging on the conclusion
that great accomplishment, and even what we call genius, is typically the result of years
of passion and dedication and not something that flows naturally from a gift. Mozart,
Edison, Curie, Darwin and Cézanne were not simply born with talent; they cultivated it
through tremendous and sustained effort. Similarly, hard work and discipline contribute
much more to school achievement than IQ does.

Such lessons apply to almost every human endeavor. For instance, many young athletes
value talent more than hard work and have consequently become unteachable. Similarly,
many people accomplish little in their jobs without constant praise and encouragement to
maintain their motivation. If we foster a growth mind-set in our homes and schools,
however, we will give our children the tools to succeed in their pursuits and to become
responsible employees and citizens.

Side Box: A for Effort
According to a survey we conducted in the mid-1990s, 85 percent of parents believed that
praising children's ability or intelligence when they perform well is important for making
them feel smart. But our work shows that praising a child's intelligence makes a child
fragile and defensive. So, too, does generic praise that suggests a stable trait, such as
"You are a good artist." Praise is very valuable, however, if it is carefully worded. Praise
for the specific process a child used to accomplish something fosters motivation and
confidence by focusing children on the actions that lead to success. Such process praise
may involve commending effort, strategies, focus, persistence in the face of difficulty,
and willingness to take on challenges. Here are some examples:

•  You did a good job drawing. I like the detail you added to the people's faces.
•  You really studied for your social studies test. You read the material over several
    times, outlined it and tested yourself on it. It really worked!
•  I like the way you tried a lot of different strategies on that math problem until you
    finally got it.
•  That was a hard English assignment, but you stuck with it until you got it done.
   You stayed at your desk and kept your concentration. That's great!
•  I like that you took on that challenging project for your science class. It will take a
   lot of work — doing the research, designing the apparatus, making the parts and
   building it. You are going to learn a lot of great things.

Parents and teachers can also teach children to enjoy the process of learning by
expressing positive views of challenges, effort and mistakes. Here are examples of such
communications:

•  Boy, this is hard — this is fun.
•  Oh, sorry, that was too easy — no fun. Let's do something more challenging that
   you can learn from.
•  Let's all talk about what we struggled with today and learned from. I'll go first.
•  Mistakes are so interesting. Here's a wonderful mistake. Let's see what we can
   learn from it. — C.S.D.

FAST FACTS Growing Pains

1. Many people assume that superior intelligence or ability is a key to success. But
more than three decades of research shows that an overemphasis on intellect or
talent — and the implication that such traits are innate and fixed — leaves people
vulnerable to failure, fearful of challenges and unmotivated to learn.

2. Teaching people to have a "growth mind-set," which encourages a focus on effort
rather than on intelligence or talent, produces high achievers in school and in life.

3. Parents and teachers can engender a growth mind-set in children by praising them
for their effort or persistence (rather than for their intelligence), by telling success
stories that emphasize hard work and love of learning, and by teaching them about
the brain as a learning machine.


Adding Valmont Industries (VMI)

Started a 1/4 position in VMI today.


Overview of the company from Reuters:


From FASTGraphs:


Decent undervaluation, beaten up pretty well the last six days or so.   Pays a small dividend, but has been increasing it the dividend every year for 11 consecutive years.  Dividend growth rate for the past 14 years in 9.1%.  Looking at the past 5 years shows that today's price of $136 or less is a good entry point, with a margin of safety of approximately 17%.


While not that important, analysts are pretty bullish on the stock.  From Fidelity:


I filled a limit order today at $136.

That's all for now,

Chump