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The Stingy News Weekly (02/07/2010)
Stingy News Flash We've been having some trouble recently getting our email letters past the Rogers/Yahoo filters. You can help by adding our "From" address (rothery@nanuq.csrnet.net) to your Safe Senders List or Address Book. If an email letter gets bounced back to us, we remove the address from our list. So, if you stop hearing from us, it's not that we don't like you. It's likely that an overzealous filter is at fault. Also, we're happy to add your address to our list again. Just sign up via our website. (If you have one, you can also try using a different email address.) New @ StingyInvestor Top 200 Canadian Stocks for 2010 "Our five-year results are similarly stellar. If you had bought equal amounts of the All-Star stocks and rolled your capital gains into the new team each subsequent year, you'd be sitting on a 19% average annual return. By way of comparison, that's more than 14 percentage points higher than the annual return of the S&P/TSX Composite, which sported 4.7% annual gains over the same period. It's been quite the ride, and it got me to reminiscing. Several years ago a former professor of mine came to visit with my performance record in hand. 'Did you know that you've outperformed most mutual funds?' he asked. I didn't. But it was a gratifying observation. That memory prompted me to look up Canada's mutual fund performance over the past five years. It turns out that the Top 200 All-Stars beat every single Canadian equity mutual fund over that period. We topped the best by about 3 percentage points a year and the second best by about 7 percentage points a year. The median Canadian equity fund trailed by 14 percentage points a year." Stingy Links Earl Jones: In Trust "Disgraced Montreal financial advisor Earl Jones awaits sentencing for orchestrating a Ponzi scheme that defrauded his investors of $50 million for more than two decades. The fifth estate investigates Jones' life, how he created his scheme and how he was able to get away with fraud for so long." Buffett on farming superhighway "Buffett became the second-richest American by investing in businesses he expects to grow for decades. He's said his $26 billion takeover of railroad Burlington Northern Santa Fe Corp., announced in November, will benefit Berkshire 'over the next century.' CTB, which Berkshire bought in 2002, may produce profits beyond the year 2200, Buffett, 79, said in the video." Japanese liquidation value "The fundamental problem in 1932 America, according to Graham, was that investors weren't paying attention to the assets owned by the company, instead focussing exclusively on 'earning power'" Six RRSP pitfalls "It's RRSP season, and you're going to get a lot of advice about how to maximize your contributions, borrowing to contribute, the benefits of contributing, and how to invest inside your registered retirement savings plan. It's all good stuff when the advice comes from the right sources. But I want to talk about the six most common mistakes that people make with their RRSPs. If you avoid these blunders, you'll save tax, create greater retirement savings for yourself, and protect those assets." The 'lost decade' "In sum, there has been no justice, and thus, no lessons learned or changes made. And so naturally, the theme continues to roll on with products like leveraged ETFs - long on advertised promises, and short on explanations of their inherent shortcomings. After these products lose steam, the theme will be recycled with the same conclusion, that the promise of higher returns was just too good to be true." Quants' risk-free ideas sink market "To become a potentially market- destroying 'it' group on Wall Street, you need some arrogance, enough brains to justify making huge financial bets, utter cluelessness about lessons learned from finance's booms and busts, and a sincere belief that your unique contributions to Wall Street will mean, ahem, that this time it really is different, so old truths can be ignored." Comparing taxes on RRSPs and TFSAs "Comparing marginal effective tax rates across income levels suggests that many Canadians with savings in tax-deferred vehicles, like Registered Retirement Savings Plans, should put more future saving in tax-prepaid savings plans, particularly Tax-Free Savings Accounts." Reported earnings versus "owner earnings" "Importantly, the ability of companies to increase book value over time has been a critical determinant of long-term earnings growth, and is likely to be even more important in an economy where debt financing is increasingly constrained. The long-term relationship between earnings and book value is very clear, with actual reported earnings fluctuating reliably around a cyclical norm of about 13.6% of book value. Economic booms can certainly boost return on equity (earnings / book value), and recessions can depress return on equity, but over the full economic cycle, it is dangerous to assume that these temporary departures from the norm will be sustained for long." Garry Kasparov, cyborg "What I love about Kasparov's algorithm - 'Weak human + machine + better process was superior to a strong computer alone and ... superior to a strong human + machine + inferior process' - is that it suggests serious rewards accrue to those who figure out the best way to use thought-enhancing software. (Or rather, those who figure out a way that's best for them; people always use tools in slightly different, idiosyncratic ways.) The process matters as much as the software itself. How often do you check it? When do you trust the help it's offering, and when do you ignore it?" In defense of home bias "Ideally, shouldn.t investors seek out the stocks that are likely to perform the best, regardless of where they are located in our world? Ideally, yes. Practically, there are difficulties." Loosen up, tightwads! "Many big companies with the financial wherewithal to pay dividends are being stingy about payouts -- for no good reason. By hoarding cash, the likes of Apple, Google, Cisco, Amazon, eBay, IBM and Amgen are doing their shareholders a disservice -- and it's time for that to change." Efficient markets theory disproved "But I'm a connoisseur of economic irrationality. And so I bent down and picked up the paper. On one side, the grim visage of Queen Elizabeth. On the other, Charles Darwin. It was a 10 pound note, worth about $16.25. Just lying on the floor, unmolested by Nobel Prize-winning economists, CEOs of Fortune 500 companies, and financial journalists." Justice, medieval style "Modern observers have roundly condemned ordeals for being cruel and arbitrary. Ordeals seem to reflect everything that was wrong with the Dark Ages. They're an icon of medieval barbarism and backwardness. But a closer look suggests something very different: The ordeal system worked surprisingly well. It accurately determined who was guilty and who was innocent, sorting genuine criminals from those who had been wrongly accused. Stranger still, the ordeal system suggests that pervasive superstition can be good for society. Medieval legal systems leveraged citizens. superstitious beliefs through ordeals, making it possible to secure criminal justice where it would have otherwise been impossible to do so. Some superstitions, at least, may evolve and persist for a good reason: They help us accomplish goals we couldn't otherwise accomplish, or accomplish them more cheaply." All those little Stuyvesant Towns "In a letter warning Vantage of impending litigation, Mr. Cuomo's office contended that Vantage, which has bought more than 125 buildings in Queens, Harlem and other areas since 2006, had engaged in a 'systemic pattern of harassment' to generate significant tenant turnover. Increasing turnover was central to Vantage's business strategy, the attorney general's office said, so that it could charge much higher rents after renovating the newly vacant apartments." What Toronto can teach New York and London "This tendency to react to the mere mention of Canada with either yawns or guffaws may be why, as the world struggles to figure out what went wrong in 2007 and 2008, not much international attention is being devoted to figuring out what went right in Canada. Canada is the only G7 country to survive the financial crisis without a state bail-out for its financial sector. Two of the world.s 15 most highly valued financial institutions - a list dominated by China - are Canadian and a recent World Economic Forum report rated the Canadian banking system the world's soundest." DOW 30 Value Screens
S&P/TSX60 Value Screens
The Rothery Report (Learn More | Subscribe Today) The Rothery Report provides research on select deep-value stocks in North America. Discover overlooked and undervalued stocks in quarterly investment reports which provide detailed analysis of Canadian and U.S. stocks. Weekly email news and additional updates keep subscribers informed about new opportunities and developments.
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