How to Be Richer, Thinner and Happier... In Five Easy Steps, Part 4

Alexander Green
by Alexander Green, Chief Investment Strategist, The Oxford Club

Part 3

We’ve spent this week discussing how you can apply the same principles to your efforts in investing and weight loss. Yesterday, I explained why it’s crucial to cure your knowledge deficit; to hold realistic expectations; and to eschew all-or-nothing thinking. Today, let’s conclude our crash course in how to become both richer and thinner...

Control Your Environment

I’ve practically made a fetish of telling readers to avoid CNBC and the other “financial porn” channels.

The basic premise of these programs is that you should be in a constant state of reaction: “The federal government has revised GDP growth down a half point. What should you do with your portfolio?”

“The Fed is going to taper its $85-billion-a-month bond buying program. What should you do with your portfolio?”

“Punxsutawney Phil saw his shadow. What should you do with your portfolio?”

This is meaningless noise.

And so are the regular pronouncements of the perennial merchants of doom who use fear and anxiety to sell financial products and spook you out of the stock market, causing you to forfeit higher returns.

Dieters need to control their environments, too. If your cabinets are stuffed with crackers, chips, cookies and cake, you’re going to find it awfully hard to eat healthy. By the same token, you should keep nutritious snacks - like almonds, walnuts and cashews - in your car or bag. That makes it less likely you’ll fall prey to vending machines and fast-food joints.

Stick to Proven Principles

Investors who understand the basics - asset allocation, diversification, trailing stops, etc. - can still see things go awry. Warren Buffett’s mentor Benjamin Graham often commented that an investor’s biggest problem is likely to be his own fallible emotions.

It’s easy to think you will stay the course when times are good. But what really matters is what you do when the dark clouds gather - as they inevitably do from time to time - and the market turns unfriendly.

Sadly, Wall Street is the one place where the customers won’t buy when the merchandise goes on sale. Contrarians know better. Use bear markets as buying opportunities. And if you don’t have the guts for that, at least reinvest your dividends at lower prices. History shows you’ll be well rewarded.

Likewise, don’t say you’re trying a new diet. Say you’re adopting a new lifestyle: nutritious foods and regular exercise. And remember: if you’re not hungry enough to eat an apple, you’re not that hungry. If you want a piece of cake or a bowl of pudding, that is not genuine hunger.

With real hunger, you are hungry for anything (preferably something healthy) and not just craving a particular food. Whenever you’re tempted to eat something unhealthy, walk away for 10 minutes to curb the urge. Trust me, you will never regret in the morning what you didn’t eat last night. And fit feels better than anything tastes.

In sum, there are many similarities between successful investing and healthy, long-term weight loss. The key to being both richer and thinner is gaining knowledge, managing your expectations, thinking realistically, controlling your environment and having the discipline to stick with proven principles.

If you can do this on your own, great. If you need a mentor, a coach or a partner, that’s fine too. After all, that’s why The Oxford Club exists. If you’re not already a member, let me invite you now to join us.

Our specialty is turning dreams into reality... not with magical solutions or secret formulas but with reason, due diligence and uncommon good sense.

Good investing,

Alex

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This Stock Embodies Alex’s Stock-Picking Strategy

Today, Alex wanted to share a company that embodies his proven strategy for picking stocks. It’s also why he tells investors to generally tune out the mainstream media and all the gurus who talk about the direction of the economy, the markets or any other macro-talk.

Here’s what he told us:

“There are two distinct styles of global equity investing: top-down and bottom-up.

“The success we’ve had with Italy’s Luxottica (NYSE: LUX) illustrates why the bottom-up approach works better. Top-down analysts are most concerned with macroeconomics. They look at a country’s government policies, GDP growth, unemployment rate, inflation levels and currency strength.

“By that token, Italy is one of the worst places on the planet to invest. The country is enduring its longest and deepest slump since World War II. (The nation’s economy just contracted for the eighth consecutive quarter.) Italy’s public debt - at 130% of GDP - is second only to Greece, the basket case of the developed world. Unemployment is at an all-time high. And its currency - the still overvalued euro - makes it difficult to promote Italian tourism and exports.

“If we took a top-down approach to investing, we wouldn’t touch Italian stocks with a barge pole. But instead we use a bottom-up approach. Our primary interest is identifying great, undervalued businesses - not evaluating national policies and government statistics. Our criteria are things like sales, earnings, market share, product innovation, share price valuation and the defensibility of profit margins. And in these areas Luxottica shines.

“Based in Milan, Luxottica is the world’s leading designer, manufacturer, and retailer of prescription frames and sunglasses.

“The company has over 7,000 retail stores in more than 130 countries across five continents. Its portfolio includes house brands like Ray-Ban, Oakley, Revo, and Vogue, as well as licensed brands like Anne Klein, Bulgari, Burberry, Brooks Brothers, Chanel, Dolce & Gabbana, Coach, Prada, Versace, and Ralph Lauren. The company also owns leading retail chains such as LensCrafters, Pearle Vision, Oliver Peoples, Sears Optical, and Vault. Plus, it owns Sunglass Hut, the largest sunglass chain in the world.

“This is a great business for four reasons. The first is that as people age, their eyesight inevitably begins to weaken. Demographics tell us that hundreds of millions of new customers will assuredly be coming to Luxottica in the years just ahead.

“Another is that consumers now feel they need different glasses for different activities: a pair (or several) for reading, a different lower-magnification pair for a computer screen (which is generally farther from your face than a book), a progressive pair for driving or social activities, a pair for running, a pair for skiing, and so on.

“A third reason is that perceptions about glasses have changed dramatically in recent years. They used to be considered uncool. No longer. Glasses are now referred to as eyewear and essentially considered face jewelry. And if you know anything about the jewelry industry, the markups are substantial.

“That brings me to reason four: the margins here are plenty healthy. Glasses are essentially made with a couple pieces of plastic, some small screws and glass. Yet Luxottica routinely sells its products for up to 20 times what they cost to make. Many pairs are more expensive than an iPad. This, to put it mildly, is a good business. The average pair of frames and lenses sold at LensCrafters is approximately $300.

“Luxottica’s biggest competitors in the United States are Walmart and Costco, as well as up-and-coming online firms like Warby Parker. Yet competitors rightly complain that Luxottica has them in a chokehold. If you make glasses, you need to have them in Luxottica’s stores. And if you have a store, you need to carry Luxottica’s brands. This is a company that competitors can’t ignore.

“You might reasonably think that insurance companies covering vision would complain about this market domination. Think again. Luxottica owns the nation’s second-largest vision-care plan: EyeMed, covering eye exams and glasses.

“As you might expect, the financials here are excellent. Sales hit $9.5 billion over the last 12 months. Earnings are up 10% on a 7% increase in revenue. Operating margins are 15%. And management is earning a healthy 15% return on equity.

“Our shares recently hit a 52-week high and are up 46% from our entry point last November. And this firm is determined to maintain its dominance. So while the Italian economy may continue to sputter, Luxottica remains an attractive ‘Buy.’”

- Justin Dove with Alexander Green

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