Imparting His Wisdom to the Very End

 | Feb 28, 2017 | 11:00 AM EST
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It has been a long, strange trip.

When I started writing for Real Money back in 2008, I had no idea what to expect or how long this adventure might last. Since then, I have written a column every single day the markets were open without missing a single day.

I have written columns on airplanes, the beach, a hospital, a few bars and a host of other interesting locales. I have gotten a lot right, and hopefully I have helped you make some money along the way. I have made my share of mistakes, but on balance we are way ahead of the game. Now I find that my schedule is crowded as I take on some new ventures and it will be impossible to continue putting out a regular column, and I need to take a break.

Before I go, I want to leave you with a few final thoughts and share some lessons learned along the way. Doing the research and study needed to produce a column each and every day has been quite the learning experience for me, and the process has helped me to evolve a bit and become a much better investor than I was back in February 2008.

When I started down this path, I was a strict proponent of buying stocks below book value. That has changed somewhat over the years. After much study and research and an occasional kick in the rear from folks such as Tobias Carlisle, I have determined that book value is the best measure for financial companies and most of the time for REITs. However, for most other companies, the enterprise value to earnings before interest and taxes (EV/EBIT) ratio is a better measure of value. That's the multiple that the private equity folks use to measure value and it works better than price to book value for businesses that make and sell stuff.

You probably do not own enough real estate. Studies by the National Association of Real Estate Investment Trusts (NAREIT) show that REITs consistently have outperformed the S&P 500 since they became available back in 1972. Like anything else, they need to be purchased when they are out of favor or the broad market has declined for the best results. The combination of high yields and steady appreciation makes real estate a very attractive long-term investment.

The better-known investors own large-cap stocks because they must. When you are running billions of dollars, buying a company that has a $300 million market capitalization or a $30 million community bank doesn't move the needle no matter how much the stock goes up while they own it. You as an individual investor do not have that problem. Remember the liquidity study done by Roger Ibbotson that found that low liquidity value stocks outperformed large liquid growth stocks by a factor of eight from 1972 to 2011? Small companies off Wall Street's radar screen give you the best chance of outperforming the market and reaching your investment goals.

Speaking of small, the Trade of the Decade in community banks is still intact. We have gone from 18,000 banks in the 1980s to about 6,000 today. We are heading to 2,000 or fewer over the next decade or so. Regulatory costs, increasing technology costs, low interest rates and a host of other factors are helping drive by consolidation, but the main drivers are that we have too many banks in the United States.

It is also true that bank executives are getting older as the average CEO is over 60 and the average board member at a small bank is over 70 and banking just isn't fun anymore. The best way to get out of banking and move on is to sell the bank. Buy small banks below book value and keep an eye on the activists and you should make plenty of money from the trade of the decade for many years to come.

Keep in mind that 99% of you will not make it as traders. The skill set and temperament needed to be a successful trader are found in a very small subset of the population. You will make plenty of money and even outperform some of the great traders by buying solid companies at bargain prices and extending your time frame.

It has been quite an experience writing for Real Money the past nine years. I have met some great people along the way, including editors, contributors and readers. I have learned a lot and made a lot of friends, and you really cannot ask for more than that. I want to thank all the folks at The Street and Real Money for what has been an incredible opportunity and great experience. Most of all, I want to thank all of the subscribers who make up the Real Money community.

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