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Article Archive   2001|2|3|4|5|6|7|8 Topics   Academia   Accounting   Banks   Behaviour   Bonds   Books   Brokers   Christmas   Crime   Debt   Derivatives   Disaster   Dividends   DRPs   Economics   Economy   Fun   Funds   Government   Growth Investing   Halloween   Health   Indexing   Law   Management   Markets   Real Estate   Retirement   Stingy Investing   Stocks   Taxes   Thrift   Trusts   Value Investing   Wealth   World Personalities   Warren Buffett   Benjamin Graham   Charlie Munger   David Dreman   Martin Whitman   James Montier   John Dorfman   Seth Klarman   James Grant   John Bogle   Bill Gross   Norm Rothery Sign up now to receive our FREE eNewsletters   Your Email Address:	Article Archive: 2002 When creative leases are a red flag 12/31/02 Accounting "A number of large-scale bankruptcies, not to mention the Enron debacle, have made investors realize the importance of scrutinizing a company's financing activities. So here's something to watch for in 2003: references to "sale-leaseback transactions." These are deals where companies raise cash by selling corporate real estate, then sign a long-term lease to continue using it. Expect to find a lot more of them." Show us the dividends 12/30/02 Value Investing "Investors are demanding proof of corporate profits. And what more tangible evidence is there than dividends?" The new vocabulary 12/29/02 Fun "Here are 33 handy excuses for saving too little or making foolish investments, plus translations for what each excuse really means." Portfolio risk in dollar cost averaging 12/29/02 Retirement "In fact, volatility - or risk - is the enemy of any wealth accumulation program. And investors who take excessive risks, in pursuit of illusory gains, may only wind up broke in the long run. Forget that comfortable retirement." Stingy Selections & Dartboard Dynamos 12/27/02 Stingy Investing Last year I attempted to achieve success by hand picking twelve value stocks from the S&P500. Well, I managed to avoid the success part. My twelve picks lost an average of 1.92% from December 5, 2001 to December 5, 2002. Mind you, this was much better than the S&P500 which fell by 22.12% over the same period. Normally outperforming the index by 20.20% would be cause for celebration but a loss is still a loss. Templeton Growth fund may be down but ... 12/26/02 Funds " Templeton Growth, the country's largest mutual fund, may soon need a new name. Templeton Shrinkage, maybe? Between its losses in the market and fleeing unitholders, this fund has become a lot smaller than it used to be." Stemming flow out of stock funds may take a while 12/26/02 Funds "On the evidence to date, marginal shifts in buying or selling by fund investors are a coincident or a lagging, not a leading, indicator." Desirable Dividends 12/26/02 Stingy Investing Dividends are making a big comeback with investors and it's not hard to see why. Many blue-chip stocks are now paying more than GICs, government bonds or high-interest savings accounts. The tax advantages of Canadian dividends makes them even more attractive. Santa Claus vs. The Marketers 12/25/02 Christmas "When Santa Claus finds his popularity waning, the directors of Claus Inc. vote to bring in a group of marketers on board to refine his 'brand' and improve his business processes. But the cure can be worse than the problem, and when problems with CRM, privacy issues, and copyright infringement may make Claus Inc. miss the Christmas shipping deadline, Santa launches an undercover project to get the gifts out on time." Going against the crowd really paid in 2002 12/24/02 Markets "The best SuperModels ideas were those that discounted so-called expert opinions like those from Standard & Poor's. The worst: an early-year play on a rally and a misfire on defense." The economics of Santa's workshop 12/22/02 Christmas "The physical impossibility of Santa got me thinking about the economics of the old boy's operations. After all, he is not paid for the goods he delivers, and it would be improper for him to send a bill the next morning. Nobody asked him to leave the stuff, or contracted with him to do so. But that means he gets no feedback from the consumer, much less a clear indication of profit or loss." Invest in some holiday giving 12/21/02 Gifts "The fact is, your attitude will dictate how much you're willing to give to charity, and whether you give at all. To those who have asked me in the past about how much they should give, I always respond by saying that there is no answer that's right for everyone. Rather, if your attitude toward giving is governed by three principles, you'll know you're giving the right amount." Bonds, GICs most common financial presents 12/21/02 Gifts "Still, if you can live with a reaction ranging from incomprehension to ingratitude, then presents from the financial world are an interesting option for kids whose toy quota has been amply filled by other gift givers." Spitzer's slap: Small change on the street 12/21/02 Brokers "The fines aren't onerous, and skeptics are scoffing at the required shift to independent research. This remedy may be more crock than cure." How fear rules the fund flock 12/19/02 Funds "At T. Rowe Price's annual investment briefing earlier this month, Growth Stock fund manager Robert W. Smith worried aloud about investor short-sightedness, saying, "Individuals must stop renting stocks and start owning stocks again." Smith said this trader mentality heightened market instability, and his point was well-taken. Then again, so was a question put to Smith by a reporter: "When do you think fund managers will stop renting stocks and start owning them?"" Are enhanced index funds worth the added cost? 12/19/02 Funds "Indexing is one of the investing world's great bargains, but enhanced indexing is a whole other matter." A billion up his sleeve 12/19/02 Management "Magician and radio baron Allan Slaight still has a few surprises to pull out of his hat." Ok, now the end is nigh 12/18/02 Taxes "Now is the time to take action on taxes. Most people, since we have until the end of February to do RRSPs and we don't actually pay taxes til April, forget the primary chance we have save taxes happens now, before the calendar ends. Here are some quick points to remember and consider acting on before you go out for a New Year's party." Conseco collapse deals new blow to CEO cult 12/18/02 Management "Even now, nobody is connecting the dots when it comes to Gary Wendt's role in the demise of Conseco. Most reports about Tuesday's bankruptcy filing by the Carmel, Ind., insurance and lending behemoth have suggested that the former CEO's turnaround plan was more or less doomed from the start. The assumption appears to be that, given the large debt load taken on by previous management, Conseco was too sick to be cured even by Wendt -- who joined the company in June 2000 with one of the most impressive reputations in corporate America. " Bill & Bill's excellent bull signal 12/18/02 Markets "The stars of 2002's financial news programs aren't the slick CEOs of the boom years -- they're the more circumspect money managers shepherding their flock away from the bear's grasp." Fake escrow site scam widens 12/18/02 Crime "Six months later, the scam has widened considerably, and it now appears to be among the most successful Internet cons ever. By taking advantage of Net auction winners' inherent trust of escrow sites, the con artists are stealing as much as $40,000 at a time from big-ticket auction winners. Their total take may well reach into millions of dollars so far. And while federal authorities, including the Department of Commerce and FBI, are investigating, there seems to be no way to slow down the con artists." Year of the scandal 12/18/02 Management "2002: greed, accounting conflicts, book-cooking helped derail Wall Street. Will 2003 be any better?" Ontario Savings Bonds new variable rate 12/17/02 Bonds "The new interest rate for Variable-Rate Ontario Savings Bonds (OSBs), series 1997 through 2002, for the next six months will be 2.5%." The rise and fall of Dennis Kozlowski 12/17/02 Management "Kozlowski's claims to greatness were shredded this year by his indictment on two sets of charges brought by Manhattan District Attorney Robert M. Morgenthau. The first startled in the pettiness of the greed it exposed: A mogul worth at least $500 million chisels New York City out of $1 million in sales tax due on fine art. But the second indictment, handed down on Sept. 12, shocked in the scale of corruption alleged. In essence, prosecutors accused Kozlowski and former Chief Financial Officer Mark Swartz of running a criminal enterprise within Tyco's executive suite. The two were hit with 38 felony counts for pilfering $170 million directly from the company and for pocketing an additional $430 million through tainted sales of stock." The hunch that led to Tyco's tumble 12/17/02 Law "Perhaps the most remarkable thing about the fall of former Tyco CEO Dennis Kozlowski is the unlikely string of events that brought him to Manhattan criminal court for the first time on June 4, 2002. The discovery that set off a subsequent cascade of indictments, firings, and frozen bank accounts, seems nearly a fluke in retrospect. Here's what happened, based on numerous interviews with people close to the case." Amazon: heading for a hangover? 12/16/02 Stocks "Holiday shoppers are flocking to the online retailer in record numbers. Its lofty stock price, however, looks way overvalued." If it sounds too good to be true 12/16/02 Crime "I shall not dwell on the painful, embarrassing and lingering consequences of the Internet investment "bubble", but rather set out below some of the more popular ways in which attempts are made to part us from our money" Defer income till new year to shave tax bill 12/16/02 Taxes "Not unlike those postal workers in Virginia, most Canadians would prefer to receive their income as quickly as humanly possible. But what if I were to tell you that delaying the receipt of certain income until the new year can actually make sense -- for two reasons. First, effective tax rates are expected to be lower in 2003, and second, the time value of money can create a lower tax burden itself. Let me explain." The war against excess worker waistage 12/16/02 Management "Companies are taking on employees' ever-widening girths in a quest for lower health-care costs and higher productivity." Patient Capital Management Q3 12/14/02 Value Investing "Ever since the market bubble burst accountants and analysts have been blamed for the huge losses that have been incurred. In our view, investors (particularly institutional investors and mutual fund managers) have nobody to blame but themselves. It is their fiduciary duty to carry out the proper analysis and due diligence before making an investment decision on behalf of the clients who have entrusted their capital to them. To now blame the accounting establishment and brokerage analysts for the losses experienced over the past two and one half years is extremely inappropriate." Doo-doo economics 12/13/02 Fun "The economist-pundit wanted to find a way to describe the workings of the Bank of Canada in terms that everyone could understand and enjoy talking about at Christmas parties, and which could possibly be the basis of a handsome book that would be bought by middle-aged people desperate for something to give their elderly uncles." Dividend tax cut could shift the investing landscape 12/13/02 Value Investing "At long last, there's serious talk in Washington of ending the double taxation of corporate dividends. Here's why investors should care." Income trusts need all the help they can get 12/12/02 Trusts "Ontario has been asked to give income trusts a level of legitimacy they've been unable to attain despite three years of stellar returns. While retail investors have embraced trusts, institutional players like pension funds have shunned them out of concern that unit holders could be held liable in case of bankruptcy or a catastrophic lawsuit." Turning the page 12/12/02 Business "As founder, chairman and CEO of BC's Northland Properties Corp., Bob Gaglardi has had his ups and downs, no doubt about it. In fact, his bumpy career is one of the reasons you won't catch him spending much downtime relaxing in front of the boob tube these days. Instead, most nights anyway, he sits at his computer and hammers out a few more pages of a book he hopes will inspire his grandchildren to keep going when the going gets tough in their lives. Think of it as a modern version of The Little Engine That Could-one without the happy little train, the toy animals and all that "I think I can, I think I can" crap. Gaglardi's plot is darker, more realistic. It revolves around the trials and tribulations of a hard-working guy, a risk taker who becomes a hotel and real estate mogul, then almost loses everything-including his shirt-when interest rates soar and a nasty power struggle with bankers (OK, so maybe his story has the odd clown) puts a till-dipping crook in charge of his multimillion-dollar empire." Stocks on stilts 12/11/02 Grant "The entire U.S. is heavily leveraged. Now the bulls want you to leverage still more, mortgaging the house to buy stocks--even if you have to pay 50 times earnings to get them." Bubble trouble 12/11/02 Grant "Investing in fallen tech stocks is hard when both Wall Street firms and investors are scared of them. But the question is: Do you have a strong stomach?" Four simple rules 12/11/02 Dreman "We still just can't trust earnings, despite all the talk about reform. So here are some tips on other ways to gauge stocks." Look out! Insiders are bailing 12/10/02 Markets "Want one more reason why this rally might not be for real? Insiders sold in droves in November." Revealing the secrets of fund turnover 12/10/02 Funds "Despite all the solemn talk about long-term investing, the average stock fund has a 111% turnover rate, according to Morningstar, the mutual fund trackers. So here's the question: Does all that trading do any good? The answer: Sometimes. But not necessarily with the funds you'd expect." The KREMEY warning for Krispy Kreme 12/09/02 Stocks "For this reason, many stock-pickers are proceeding with caution: "It probably would be a little bit safer to buy Krispy Kreme if the price declined and provided a decent entry point," says investment manager Robert Burgoyne, of Burgoyne Investment Services. Likewise, critics and shortsellers are again declaring the stock full of hot air. The skeptics quieted after seeing Krispy Kreme fall to a temporary low point of $27.40 this past summer. But short interest, a measure of how many traders are betting that the stock will decline, remains high." The jewels in Berkshire Hathaway's crown 12/09/02 Buffett "Robert P. Miles, professional speaker and the author of The Warren Buffett CEO: Secrets From the Berkshire Hathaway Managers, and 101 Reasons to Own the World's Greatest Investment, shares his insights into Warren Buffett's investment strategy and his entry into the jewelry industry." OSC: lawmaker, judge and executioner 12/08/02 Government "Does the current regulatory model, which has securities commissions functioning as lawmaker, prosecutor, judge and executioner, work?" The future of the fed 12/08/02 Government "Is the glass half full or half empty? The last couple of years have been tough for the U.S. economy and for Federal Reserve Chairman Alan Greenspan. A shallow recession has been followed by a recovery that still shows few signs of taking off. Greenspan has sounded oddly uncertain about the economy's direction: "This is one of the most difficult periods of forecasting we have confronted," he told economists in London on Sept. 25." Don't leave family feuds as legacy 12/06/02 Planning "From the anger of a middle-aged woman, who smashed a coveted crystal vase rather than let her brother sell it, to the anguish of a son cut out of his parents' will during a brief period of teenage misbehaviour who remained excluded when they forgot to put him back in, lawyer Les Kotzer has seen too well what can happen to families when parents don't plan ahead properly for the distribution of their possessions after they die. And, says Mr. Kotzer, it's only going to get worse. He predicts a wave of family feuds and lawsuits by siblings fighting over their parents' assets." The holiday bonus bait and switch 12/06/02 Management "Achille says her firm will continue to give bonuses "come hell or high water." Her reason? Achille is determined to retain talented staffers, whom she calls the company's "greatest assets." Every one of her 15 employees can count on getting a yearly check, based on corporate profitability and their own contributions to the cause." Sell on strength, legendary investor says 12/05/02 Value Investing "Age can turn a man bearish. For the greater part of the past half-century Wall Street financier Leon Levy has been an optimist. Levy believed that the U.S. economy would, through a succession of business cycles, reignite and spark the higher profits that are the fuel of rising share prices. Today, at 77, worn but wealthy and still active as an investor, he is more pessimistic about the U.S. economy and stock market than ever before in his adult life. "The outlook for profits is disappointing," Levy says. "It's very hard to tell how bad the economy will be. Still I feel it will be worse than any time since World War II."" Compensation is getting personal 12/05/02 Management "Imagine that your company's human-resources department does away with standard salaries, one-size-fits-all benefits, and the usual raft of yawn-inducing seminars. Instead, HR execs huddle over computer programs that slice and dice data on you and your cube-mates -- controlling for age, tenure, educational background, commute time, residential Zip Code, even the age and condition of the office you work in." Lots of consumer help on money matters 12/05/02 Funds "There are so many financial ombudsman services in Canada now that you can't tell them apart without a program. Seriously. With the opening of the Centre for the Financial Services OmbudsNetwork last week, five agencies are now devoted to protecting the interests of consumers in their relations with banks, brokerages, sellers of mutual funds and insurers." Questions for the genie 12/04/02 Gross Bill Gross talks about inflation, interest rates and the outlook for bonds. Fund industry's sound of silence 12/04/02 Funds "In the drive to reform North America's capital markets, the mutual fund industry has enjoyed a long period of amnesty. But the honeymoon is almost over. New proposed regulations from the Ontario Securities Commission and the U.S. Securities and Exchange Commission would require mutual funds to disclose how they voted their proxies at annual and special meetings of the companies they invest in." November sees more fund redemptions 12/04/02 Funds "The Investment Funds Institute of Canada reported today that, based on a sample of preliminary data from some of its members, net new sales for the month of November are estimated to be between minus $900 million to minus $500 million." Don't go hungry in the coming yield famine 12/03/02 Bonds "Stalking yield is trickier than ever -- you need to build enough of the right kind of returns into your retirement portfolio so that you cut risk down to size. Here are some of your choices." The fallen financier 12/03/02 Funds "Ken Lipper wanted to be a big wheel in Hollywood and New York. But he may be remembered most for the collapse of his hedge fund empire-and huge losses for the rich and famous." Enron, one year later 12/02/02 Government "The real macro focus (apart from the Fed) should be the "agency problem," the problem of management not having the incentive to efficiently use stockholder funds. Agency problems definitely played a major role in recent scandals, especially given that the wave of corruption was almost completely isolated to corporations, not proprietorships and partnerships. Business per se in America hasn't been shown to be corrupt." Financial Services Ombudsnetwork running 12/01/02 Funds "If consumers have concerns or complaints with their providers and are unsure how or where to begin, they can make one call and be put in touch with someone who will guide them through the complaint resolution process." Tis the season for tax tips 11/30/02 Taxes "Having trouble prioritizing your to-do list? I've got a simple solution: Procrastinate. Eventually, one of the tasks on your list will become a dire emergency -- like the implementation of year-end tax strategies. Consider these ideas to save tax for 2002" 10 Graham Picks for 2003 11/29/02 Stingy Investing December is filled with family, friends, and, for investors, the dreams of healthy dividends. In what has become a December tradition, I look at Benjamin Graham's strategy for defensive investors using the MSN.com stock screener. Long-time Canadian MoneySaver readers will note that this is the third time I've discussed Graham's conservative technique. Myths about business 11/29/02 Economy "Of course, people by nature are "greedy." We want not only more money and more possessions, but also more time to spend with our family, more time to read and learn, and more time to relax. Would you go to work everyday if you didn't get paid? Have you ever turned down a pay raise or Christmas bonus? I think I know the answer. So, why aren't we portrayed as evil or greedy for trying to get as much as we can, but businesses are evil if they want to get as much as they can?" Private Capital Management Q3 11/29/02 Value Investing "The bull market's decline began early in 2000, after the NASDAQ/Internet bubble reached its zenith in March. For some time we had warned of valuation excesses, particularly within the technology sector. Still, the magnitude of the mania seems all the more remarkable in retrospect." Lessons from the man who sells to Buffett 11/28/02 Value Investing "Chief executive of secretive Private Capital Management of Naples, Fla., Sherman specializes in taking large to very large stakes in up to 75 companies at a time, and holding for as long as it takes to make a bloody fortune. In the past four years alone, he has sold four companies to the Buffett investment vehicle Berkshire Hathaway, including the ice-cream joint International Dairy Queen, carpet maker Shaw Industries and children's clothing maker Garan." Pick good mutual funds, then commit to long term 11/28/02 Funds "If you invest in mutual funds, you're bound to notice a disconnect every so often between your actual returns and those reported by your fund company. While your fund company is boasting of excellent long-term gains, your own funds are up only a little, or maybe they're even down. This, unfortunately, is typical." Two star managers leave Altamira 11/28/02 Funds "A shakeup at Altamira Investment Services Inc. sent two of its star fund managers out the door, as the mutual fund company seeks to change direction in the wake of lagging fund performance, heavy redemptions by investors and a recent takeover by National Bank of Canada." Charitable gifting 11/27/02 Taxes "As current Canadian governments continue to place a greater priority on fiscal responsibility, universities, charities, and other non-profit causes are made to suffer. Yet, our social safety net is one of the very reasons that Canada is considered one of the best places in the world to live. How do we balance social responsibility with fiscal responsibility? I emphasize that we all have responsibilities to our social well being and collective culture." Will Wal-Mart take over the world? 11/27/02 Stocks "First it gobbled the mom-and-pops, then mauled discount department stores. What's the insatiable chain's next target?" The great milk fiasco 11/27/02 Government "Parity and fairness are the two watchwords when discussing farm subsidies, and we find ourselves up against the old conflict. Not surprisingly, Mises had a strong grasp of the likely outcome when he wrote, "what those people who ask for equality have in mind is always an increase in their own power to consume."" Royal Bond Fund no refuge from stock crises 11/26/02 Funds "A bond fund sold by one of the big banks is the type of place an investor goes for refuge from stock market disasters such as WorldCom Inc., Adelphia Communications Corp. and Calpine Corp. But if you owned the $1.8-billion Royal Bond Fund, you'd have been exposed to all of these companies in the past while, not to mention the debt of Latin American countries such as Brazil." RBC Funds can hold shares in Royal Bank 11/25/02 Funds "Managers at Royal Bank of Canada's mutual fund arm will be allowed to buy and hold shares of the parent in their funds, after receiving approval yesterday from national securities regulators." Location, location, location? 11/25/02 Stocks "Few of the Rankin Inlet families buzzing by on their quads bother to look over at the gaggle of outsiders-mostly executives and upper managers of the North West Co. Inc. (TSX: NWF.U)-climbing out of the store manager's crew-cab pickup. Despite the extreme isolation of this community of 2,200-there are no roads to the outside world, and the nearest major city, Winnipeg, is nearly 1,500 kilometres to the south-the heavy hand of government and the resurgence of mining in the region have resulted in a stream of visitors to the remote town on the windy western shore of Hudson's Bay. Besides, there are plenty of familiar faces among the group, thanks to their past visits. Moments after they step inside the store, a squat Inuit woman hustles over from behind the KFC fried-chicken counter located near the entrance. "My nine-year-old daughter harpooned her first seal the other day," she tells them with a wide, toothy grin. No, Toto, we're not in Toronto anymore." Funds still actively trading 11/24/02 Funds "On average, trading costs added 18 basis points to the cost of a Canadian equity fund (commissions are calculated outside the management expense ratio). Trading costs were constant over the previous two years. Costs are calculated using commissions as a percentage of average assets for two fiscal yearends." Markets hurt DP plans 11/22/02 Retirement "Dismal stock markets have left some companies with future funding shortfalls in their defined-benefit pension plans, but experts say that, in the vast majority of cases, employee pensions are secure." TD fees target inactive investors 11/22/02 Brokers "At the country's largest discount brokerage, buy-and-hold is being replaced by a new mantra: trade or else." Hedge your fund picks with good information 11/21/02 Funds "The hedge fund industry likes to portray itself as the investing big leagues, where only the smartest, most skilled money managers get to play. There's some truth to this, but don't take it for granted. Fact is, there are substandard hedge funds out there, just as there are in the mutual fund business. In the past year, at least seven hedge funds have either been wound down or closed. Some had serious losses, while others failed to attract enough assets to make a go of it." Probate revenue plunges 11/20/02 Taxes "Ontario's public coffers suffered a dramatic one-third drop in probate tax revenue this year, which, estate planning experts say, is probably the result of clients' growing use of tax planners." High dividends are now a predictor of growth 11/19/02 Value Investing "It may seem too good to be true, but companies that pay the highest dividends are also likely to grow the fastest. For years, many finance professors have taught just the opposite. Reinvesting current earnings back into a company is supposed to promote earnings growth. Higher payout ratios are supposed to be followed by lower earnings growth. But research conducted by Robert D. Arnott of First Quadrant and Clifford S. Asness of AQR Capital Management reveals a very different picture. For the overall stock market between 1871 and 2001, corporate profits grew fastest in the 10 years following the calendar years in which companies had the highest average dividend payout ratio. In contrast, the 10-year real earnings growth rate was the lowest following years with the lowest average payout ratios." Even stodgy bonds can take nasty bite 11/19/02 Funds "Things are so twitchy in financial markets these days that even a run-of-the-mill bond fund can rear up and bite you. That's what the $1.8-billion Royal Bond Fund has done to its unitholders recently. The Royal Bank of Canada fund lost 2.9 per cent in the 12 months to Oct. 31, which makes it the third-worst performer among Canada's 118 bond funds over that time period." Radical fund reforms pitched 11/17/02 Government "BCSC wants to raise 10% cap on owning firms, make public ask for disclosure data." Beware advisors who sell their own funds 11/16/02 Brokers "The media-savvy Richards is quickly leaving his imprint on Cartier. Since it is publicly traded as CPF-X on the TSX Venture Exchange, the five partners and new CEO Richards all stand to get wealthy, St-Pierre says. But will Cartier clients get nearly as rich buying the firms' funds?" Where did everyone go? 11/15/02 Management "Firms are laying off workers even as business revives. That boosts profits - at the cost of morale." October another tough month for fund sales 11/15/02 Funds "Foreign equity funds remained the biggest target for redemptions in October, with more than $299 million pulled from those funds in the month. Another $231 million came out of balanced funds, and Canadian equity funds lost $195.8 million. U.S. equity funds dropped just $21.5 million. However, investors showed some signs of faith by plowing $110.8 million into dividend and income funds." Growth can be bad for investors 11/15/02 Stocks "Companies often pursue expansion long after their golden opportunities have passed, when they should be paying dividends. McDonald's and The Gap illustrate just how costly this can be." The other side of Adam Smith 11/15/02 Economy "A neglected work by the 18th-century economist is the taking-off point for a fine new book on how economics can improve society." Patient Capital 1st Quarter 11/14/02 Value Investing "The figures provided in the following table show the valuation of the Dow Jones Industrial Average at market lows. Today's valuations are substantially above the average and those of every individual bear market bottom. Just as interestingly, valuations have been far lower than they are today at even lower levels of interest rates." Hedge funds: Complex animals that bear special scrutiny 11/14/02 Funds "Hedge funds can beat a bear market, but sometimes the bear wins, too. At least seven hedge funds in Canada have been closed or wound up in this most difficult year for stocks, some of them with heavy losses. Hedge funds were the hot investment of early 2002 because of their potential to not only protect investor capital in a down market, but also to make money. In fact, many of the 100 to 150 hedge funds available in this country have done just that." Was the IPO frenzy rigged? 11/14/02 Crime "Remember those high-flying stocks sold for the first time in the 1990s, the ones that soared from $20 a share to $100 a share in hours? Some insiders now say the great price leaps for these "initial public offerings" - IPOs - were the result of insider agreements designed to force prices artificially high. The scam is called "laddering."" Casino research 11/14/02 Fun "It was an odd roulette wheel. Labeled "S&P," it had 500 slots. There were others nearby that were even larger. It was a strange casino I was in. But, hey, here to play, right? I moved my chip toward Red 19 -- an old favorite play of mine." Bankruptcies: investors do have a hope 11/14/02 Stocks "It's conventional wisdom for investors unfortunate enough to own a stock in a company that files for bankruptcy: Just get out. Even if you have to sell for pennies a share, that probably will be more than you'd get when the company emerges from bankruptcy, since shareholder equity is usually wiped out in the reorganization." Unlock locked-in dollars for more flexibility 11/13/02 Taxes "There's another familiar, yet true, story in which the good guy loses. It might even be your story. It's about a person who has saved for retirement for years only to find that he's not able to withdraw all that he wants from his registered plan. It's a locked-in plan. But his story has a good ending after all. He's discovered a way to unlock some of those locked-in dollars. Let me explain." Pestering millions offers path to profit 11/13/02 Marketing "Ms. Betterly's messages joined the roughly two billion other unsolicited commercial e-mails that hit in-boxes around the world every day. The company she runs from her home, Data Resource Consulting Inc., sends out as many as 60 million such messages a month. That puts the 41-year-old single mother in the most hated breed on the Internet. She sends spam." Initial confusion 11/13/02 Brokers "The financial planning profession is a puzzling sea of acronyms with a deluge of designations contending for the public's attention. And there's no solution in sight." Dividend funds show long-term strength 11/08/02 Funds "In the waning years of the last millennium, dividend and bond fund managers might as well have been fossils wallowing in a primordial ooze for many investors. One bear market later, however, and those same managers look more like the action heroes of mutual-fund investing." U.S. seizes Tri-West assets 11/08/02 Crime "Approximately 400 Manitobans invested in Tri-West. The club required investors to invest in units of US$1,000 for a period of one year with a return of 10% per month. A referral program was also part of the scam, whereby investors could make more money if they referred people to the club." The paradox of corporate democracy 11/08/02 Stocks "Here's a job for an aspiring philosophy student: Give us a pithy thesis on the tyranny of corporate democracy. It sounds ambitious but you won't have to look far for a case study. The tale of a little ice cream shop called CoolBrands International is perfect." The long shadow of Big Blue 11/08/02 Stocks "Can Microsoft now hold on to its dominant position-or might it go the way of IBM in the 1980s?" Advisers' critiques take aim at their less-involved peers 11/07/02 Brokers "Ms. Gaudreault is a 34-year-old business owner who is unhappy with the level of service she gets from her financial adviser. Though her portfolio and income are measured in six figures, her adviser has shown no apparent interest in her beyond setting up a portfolio of stocks and mutual funds. Her case, featured recently in this column, prompted numerous e-mails from financial advisers." What a fool believes 11/07/02 Gross Bill Gross continues to be negative on stocks and takes a swing at proforma P/Es Running with the 'Dogs of the Dow' 11/07/02 Value Investing "Just as a contrarian would have predicted, the strategy started working just as disillusionment with it peaked. The formula beat the Dow in both 2000 and 2001. While the jury is still out on this year for the strategy, it is running neck and neck with the blue-chip index itself through the end of this third quarter." Income trusts still enjoying the ride 11/06/02 Trusts "The trust phenomenon goes back to the mid-1990s, when a few large and innovative initial public offerings came to market from the mining and energy sectors. The concept caught fire, and the number of deals spread across the business landscape." MFDA launch of investor complaint service 11/06/02 Funds "The Mutual Fund Dealers Association of Canada announced today that its Investor Complaints Service is now fully operational. Clients of MFDA firms can now complain to the new self-regulator for fund dealers by calling 1-888-466-MFDA (6332) from anywhere in North America. Toronto-based clients can call 416-361-MFDA. Complaints may also be filed over the web site at www.mfda.ca under Enforcement or by sending a written complaint." Subsidies for stock pickers 11/06/02 Government "The bureaucrats have designed a broad plan to tax the investment banks and transfer the money to smaller stock research firms with no investment banking business. While the plan for a government board to choose the recipients of this revenue is meant to guarantee research free of conflicts of interest, it can do no such thing. In fact, the plan will create a stock research cartel more prone to conflicts and corruption than the system it replaces." Buffett emerges as major Lloyd's insurance backer 11/06/02 Buffett "Recent investments by firms in Warren Buffett's empire have made the Omaha-based billionaire one of the biggest backers of the prestigious, but cash-strapped, Lloyd's of London insurance market." Growth Eh? 11/05/02 Stingy Investing Growth is what it's all about for investors. Every investor wants to see their portfolio grow and many attempt to generate wealth by buying growth companies. At first glance, it seems to be a simple matter to buy companies that have grown the most and, therefore, are likely to continue growing. Regrettably, as with many simple investment concepts, selecting growth stocks is fraught with difficulty. Dealing with some financial planning fallacies 11/05/02 Retirement "In conclusion, there may be selected situations where an RRSP is not appropriate, but for most Canadians an RRSP is a plan they cannot afford to ignore. The degree to which RRSPs are to be used by Canadians depends heavily on the investor's beliefs and assumptions of expected rates of returns, both before and after tax, on various asset classes." Will Rogers on Government 11/05/02 Fun "The only difference between death and taxes is that death doesn't get worse every time Congress meets." Want higher yield and lower taxes? Consider a REIT 11/05/02 Trusts " To buy or not to buy: That is the question a lot of investors are asking about real estate investment trusts right now. The debate has mainly concerned the investment outlook for REITs after several strong years, but there's another factor to consider as well. It's taxation, an area where there's no doubt at all about the benefits of this type of investment." From EDS, some scary silence 11/04/02 Stocks "EDS, which has hit investors with a barrage of bad news this year, left unresolved a host of issues, from the timing of a recovery to its ability to win important new contracts and the future of its withering cash flow. And hovering like a Halloween ghost: a Securities & Exchange Commission inquiry started in the wake of a Sept. 24 revelation that EDS sold put options on its own shares that wound up costing it $225 million. "A lot of question marks are still out there," says UBS Warburg analyst Adam Frisch, who has been bearish on EDS since early 2001." Boys will be boys 11/02/02 Academia "Theoretical models predict that overcon.dent investors trade excessively. We test this prediction by partitioning investors on gender. Psychological research demonstrates that, in areas such as .nance, men are more overcon.dent than women. Thus, theory predicts that men will trade more excessively than women. Using account data for over 35,000 households from a large discount brokerage, we analyze the common stock investments of men and women from February 1991 through January 1997. We document that men trade 45 percent more than women. Trading reduces men's net returns by 2.65 percentage points a year as opposed to 1.72 percentage points for women." Goodbye REOP, hello "pursuit of profit" 11/01/02 Taxes "Given the CCRA's periodic propensity to ignore the applicability of court decisions, Canadian tax advisors have been waiting eagerly to find out whether the Stewart v. The Queen decision, released by the Supreme Court of Canada in May, means the dreaded "reasonable expectation of profit" test is dead." Buffett succeeds at nothing 11/01/02 Buffett "Warren Buffett is known as being one of the best investors of all time. But it might come as a surprise to many that his investing strategy often encompasses long periods of what he calls "sitting on my butt." There have been periods of years when Berkshire Hathaway has purchased not a single share of stock, interspersed with some enormous activity. Sometimes doing nothing is the best thing you can do." Cognitive biases in market forecasts 11/01/02 Value Investing "There is no statistically significant relationship between dividend yields and P/E ratios and returns in the subsequent one or two years. The relationship between P/E ratios and dividend yields and stock returns over 10-year periods is much stronger, but it offers far less than perfect reliability." The P/E myth 11/01/02 Value Investing "There is no linkage of market P/Es to subsequent returns--no matter how you measure the ratio and no matter over how long (up to five years) you measure returns." 4 scary new ways creditors gouge you 10/31/02 Debt "If you snooze, you can lose -- by getting hit with fees, fees and more fees. With delinquencies up about 30%, credit-card issuers are trying to take more money out of your wallet. Here's how to protect yourself." Nothing pays dividends like a new dividend 10/31/02 Value Investing "Investors would do well to look for cash up front. Few companies are launching dividends anymore, but those that do often follow up with market-beating performance." Don't get caught in a one-sided deal with your adviser 10/31/02 Brokers "Annie Gaudreault is 34, owns her own company and has a salary and investment portfolio that run to six figures each. In other words, she's an appealing client for a financial adviser to have. Except her own adviser, that is. Ms. Gaudreault says she doesn't feel appreciated by this guy." Pedal to the metal 10/30/02 Stocks "Metal Supermarkets is one of Canada's top retail chains. You'll never guess what they sell." Respect your elders 10/30/02 Funds "Perhaps a little desperate for a silver lining amid the storm clouds blanketing the stock market, Morningstar gave the 8,169 domestic stock funds it tracks the once-over and found evidence of what most investors should already know: Experience matters." Handle deceased's home properly 10/29/02 Taxes "The bottom line? If your heirs expect to sell your home after your death and hope to claim a capital loss in the process to recover tax you paid at the time of your death, be sure that no beneficiary (or someone related to a beneficiary) ordinarily inhabits the place after you're gone." Canada's top MBAs 10/29/02 Education "What's an MBA really worth? That's been the question almost every business publication seems to be asking this year-and most have arrived at decidedly negative answers. Well, we beg to differ, and we've got proof-at least as far as Canada's business schools are concerned." Why James Grant will never be Louis Rukeyser 10/29/02 Grant "One of the striking things about the financial press during a bear market is what isn't in it: bona fide financial celebrities." Killing the money vacuum 10/28/02 Debt "Getting out of debt is a major goal for many people, but most do not have a plan for doing it. Well, if you're in this group - NO MORE! With a few minutes, a piece of paper, ruler, and a pencil, we can create a basic plan that will get you out of debt." The painful truth about profits 10/28/02 Economy "But let's be blunt: Profits may very well rise next year--but it won't simply be a normal business recovery. The process of boosting earnings is going to be far more difficult than most people expect, and it is going to entail far more pain for workers. Under mounting pressure from investors and corporate boards to get their earnings up--without accounting tricks--executives are going to have to make deep cuts in payrolls and productive capacity." Ticking sound may be your pension fund 10/27/02 Stocks "Wall Street is waiting for the next shoe to drop. The next smackdown may come from the big hole the stock market's crash has punched in corporate pension funds." Caveat investor 10/26/02 Crime "Bad investment decisions, corrupt brokers and tax reassessments can occur whether the investor is a near-retirement schoolteacher or a crusty day-trader." Saxon on income trusts 10/25/02 Trusts "Of all the different sectors of the income and royalty trust market, I think the oil and gas royalty trusts are the ones most subject to potential overvaluation and it's because investors are focusing too much on the non-immediate taxability of the distributions and not enough on the concept of a depleting asset and not asking the hard questions, like what would their business be worth to a sophisticated knowledgeable oil & gas operator from Calgary. And why would we be willing to pay a higher price?" RRSPs a long-term tax asset for Ottawa 10/25/02 Government "Part of Canadians' pool of retirement savings represents a $300-billion long-term asset for Ottawa and the provinces because they eventually will tax those savings as they are withdrawn from registered plans, according to a new study by the C.D. Howe Institute." A patently absurd invention? 10/25/02 Fun "Inventors have been registering bright ideas with the UK Patent Office for 150 years. While the flush toilet, computer and aspirin have proved invaluable, the same cannot be said of every innovation." A lost generation of job seekers? 10/25/02 Economy "The young and those in mid-career are bearing the brunt of layoffs. And new jobs are harder to find, as older workers delay retirement." The case against professionalism 10/25/02 Management "It is easy to forget that professionalism is the enemy of the high-tech startup. If these companies were operated by professionals, they would never have been founded. Nor would a professional tolerate the conditions necessary for startup survival. Michael Eisner never emptied a wastebasket at work, but I'll bet Walt Disney did." Doors now closing 10/24/02 Bonds "Yet evidence continues to grow that the supply of capital is being shut off, too. It is a process that started with the riskiest securities-that is, junk bonds and new issues of shares-but is now spreading to the safer parts of the credit markets, including those for bank loans and for high-grade corporate bonds." Corporate America's crunched numbers 10/24/02 Markets "S&P's "core earnings" calculation accounts for stock options and pension costs -- revealing profits that are far lower than reported." Is that a $100 bill lying on the ground? 10/24/02 Academia "A few days before Kahneman and Smith got their phone calls from the Nobel Prize committee, Wharton hosted a debate that addressed these questions. Called "Two Views of Market Efficiency: A Discussion of Behavioral Finance and Efficient Market Theory," the scrimmage took place between Burton Malkiel and Richard Thaler, and was moderated by Wharton finance professor Jeremy Siegel, author of Stocks for the Long Run." REITs are appealing, but is it the best time to buy? 10/24/02 Trusts "There's a new and easy way to invest in real estate investment trusts, a segment of the stock market that has been outstandingly solid over the past year. This sounds like good news for retail investors, but is it? There are those who believe REITs are peaking in terms of their appeal and could head lower as the overall market rises." Apple's sweet-and-sour season 10/23/02 Stocks "Which brings me to the good news in Apple's fourth-quarter numbers. With $4.3 billion in cash, the company has the wherewithal to ride out the tough times. Better yet, signs of a turnaround are on the horizon. For starters, the advertising industry is starting to revive, especially in the higher end. TV experienced one of its strongest upfront ad-buying seasons in memory. Much TV advertising -- especially animation -- is done on Macs. Hopefully, this resurgence will prompt ad agencies to start upgrading their equipment." New technology, old scam 10/23/02 Crime "Sometimes, in this scam, the sucker's money is simply taken out of his account after receiving the necessary access codes. More traditionally, the fool is to be separated from his money in a follow-up conversation, after he goes for the bait, in which he is told that he has to advance some money because of a glitch in the transfer of the loot." Managers get rich while investors lose 10/23/02 Funds "Rip-off? You bet. Not only do these guys lose a lot of your money, every one lost more than the market! Worse yet, these guys are supposed to be hot-shot active managers, yet they are miserably under-performing the market, and they still have the audacity to paying themselves huge salaries while investors lose huge amounts. You'd have been a lot better off in a simple S&P 500 index fund." Fatalities of Kyoto 10/22/02 Government "When this risk analysis is combined with the Department of Energy's conclusion that Kyoto would reduce GDP $397 billion by 2010, the results are startling. Based on Lutter and Morrall's findings (adjusted for inflation), Kyoto would result in 32,000 to 42,000 additional deaths per year by 2010. Unfortunately, because these deaths would be seemingly random, linking individual deaths to Kyoto could prove extremely difficult. Thus, while morally unacceptable, these deaths won't be politically damaging." Trading is hazardous to your wealth 10/22/02 Academia "Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that trade most earn an annual return of 11.4 percent, while the market returns 17.9 percent. The average household earns an annual return of 16.4 percent, tilts its common stock investment toward high-beta, small, value stocks, and turns over 75 percent of its portfolio annually. Overconfidence can explain high trading levels and the resulting poor performance of individual investors. Our central message is that trading is hazardous to your wealth." Making the most of capital losses 10/22/02 Taxes "As investors, the dark cloud of the market has been hanging over us for some time. Can you see the silver lining? Is there some way we can make lemonade out of the lemons the market has handed us this year? You bet. Just deal with your capital losses properly." Dive right in, Siegel says, the P-Es are fine 10/22/02 Markets "Siegel is just as bullish now as he ever was, insisting that investors can confidently expect to make an average of 5% a year after inflation over the next 20 to 30 years. The main reason? Today's buyers are getting in at prices more than 40% lower than in March, 2000. That matters because the five big market busts of 40% or more over the last century were followed by above-average annual real returns of 8.6% over the next five years. "You're starting from a much lower base," says Siegel. "I don't consider this market to be dirt-cheap, but it is a good, if not better-than-average, time to buy equities."" The stupid loan bubble 10/22/02 Stocks "The case of Motorola and Nokia vs. the Uzans may read like a gangster novel. But it also opens a window onto an unexamined chapter of Internet mania, one with urgent relevance for the ongoing crisis in the telecom industry. Motorola and Nokia agree with the Uzans on only one thing: that the loans looked sensible from the dizzying heights of the bubble, when dozens of telecom start-ups vied to rule the coming Internet world. Many of the world's most famous banks are now in trouble because of bad loans they extended to telecom start-ups. But at least JPMorgan and Commerzbank have some expertise in the business of lending money. The two biggest mobile-phone makers in the world could hardly make the same claim. And it was not only Motorola and Nokia but Lucent, Cisco, Nortel and others that started acting as reckless creditors, vying with one another in a race to extend millions, even billions, in financing to-telecom-bubble start-ups, often after those companies were refused loans by real banks." Through the past, darkly 10/22/02 Markets "In fact, markets typically fall five years in a row, and they would have recently, except for those two extenuating circumstances. The S & P (or its reconstructed equivalent) fell five years in a row from 1825-29 (inclusive). It fell seven years in a row from 1836-42, five years in a row from 1853-57, and five years in a row from 1873-77. Look at the charts. The S & P fell four years in a row from 1881-84, five years in a row from 1892-96, and five years in a row from 1910-1914, and every one of these declines was part of a longer bear cycle." Lights out for Lucent 10/21/02 Stocks "How all this happened - one of the most damning chronicles of failure in the whole sweep of American enterprise - is not the story of lazy, over-indulged workers (the excuse of the 1970s). Nor is it the story of those scheming Japanese and their unfair trade in the American market a decade later (the excuse of the '80s). At the end of the 1990s, we confront the excuse none dare utter - the total, complete, and abject failure of the one group that plotted and maneuvered to seize the reigns of power for 30 straight years; then, having gotten them, went giddy-up at the gate and in no time at all fell flat on its face: The management class of American business." Insider Loans 10/20/02 Management "It isn't just the Enrons and the Tycos of the world that will eat huge losses on insider loans. It turns out that the practice -- now banned -- was common at 75 percent of the country's biggest corporations." Performance is a thing of the past 10/20/02 Funds "An academic study shows it's not possible to prove decisively that success is down to skill rather than luck." A look inside fund returns 10/20/02 Funds "Expenses take a big bite out of the gains of many mutual funds." Nightmare in the corner office 10/18/02 Management "Imperial-style perks. Hero-worship media coverage. A stock market that moved in one direction. In the New Economy's stock-option bonanza, who didn't want to be a Chief Executive Officer? Today, the question is: Who does?" Is Buffett buying? 10/17/02 Buffett "Rumors abounded Tuesday that the Oracle of Omaha was getting out of bonds, and getting into stocks." Now's the time to get active, brokerage says 10/17/02 Funds "Canadian authors like Brian Noble (The Index Investing Revolution), and indexing executives Ted Cadsby and Howard Atkinson have come to similar conclusions in their own books: costs matter." Treasurys crap game 10/17/02 Grant "U.S. government bonds are great havens for those suffering from equities. Great, that is, unless yields pop back up to 6%. Don't count on a Japan scenario." Watch those estimates 10/17/02 Dreman "Analysts still haven't learned their lesson. They persist in using numbers that have little relationship to reality. Just what are "operating earnings" anyway?" Predator or prey? 10/17/02 Stocks "Amid a flurry of lawsuits and countersuits, the murky world of death-spiral financings-one in which Toronto financier Mark Valentine loomed large-is coming to light." Sultans of schtick 10/17/02 Stocks "While Buck A Day's commercials (which are created in-house, by the way) may not be considered high art in advertising circles, you can't argue with success. Since the company's start in the fall of 1999, Dennis says about half a million Canadians have dialed Buck A Day's 1-800 number in response to the radio and TV ads (including the "Knock-knock-knockin'" and "Do you really really want a clone?" spots), which in a typical 24-hour period air every five minutes somewhere in Canada." CI merges 33 funds 10/16/02 Funds ""We have reduced duplication within our lineup while maintaining our industry-leading selection of funds," said CI president Peter Anderson, in a news release. "More importantly, the mergers have created larger, more efficient funds, which will lead to savings for unitholders."" -- Oh? Show me the lower MERs! Five-year losers burn investors 10/16/02 Funds "Here's a quick test to see if investing in mutual funds is for you. Just ask yourself if you can stand to lose money over a five-year period." Why the housing scandals? 10/16/02 Government "We find, on the one hand, that there is scarcely one statute connected with the administration of public relief which has produced the effect designed by the legislature, and that the majority of them have created new evils, and aggravated those which they were intended to prevent." A collection of fine articles 10/14/02 Indexing "The first four articles are among the best that I have read about investing, and the final three discuss more practical considerations. May these articles help you to gain a better understanding of investment fundamentals." Prices just keep plunging 10/13/02 Economy "The economy is growing, and consumers, who still seem to have plenty of cash to spend, are turning out in droves to buy houses, autos, and lots, lots more. So are stores and goods makers jacking up prices? Hardly. In these topsy-turvey times, the opposite is more often the case." Math prof tests investing formulas 10/12/02 Academia "Retired University of Waterloo professor Peter Ponzo, who has found statistics have limits when trying to predict the future." Bear diaries 10/12/02 Markets "Some investors are in denial and simply refuse to open their monthly or quarterly statements. Others live in hope the bull will soon return, while those who foresaw the carnage and sold at the top sit complacently on their cash and bonds." Of debt, deflation and denial 10/11/02 Economy "The risk of falling prices is greater than at any time since the 1930s." Pay up! 10/10/02 Stocks "Hey Microsoft, Cisco, Oracle and Dell! Give us some money! None of these technology giants offers investors a dividend. But all of them, despite massive drops in their stock prices, are still stable market leaders with healthy balance sheets. As a result, some money managers think it's time for them to suck it up and start doling out some of their earnings to shareholders." Deadwood advisers: Take heed! 10/09/02 Brokers "One benefit of a bear market is that it helps clean some of the deadwood from the financial advice profession." Nobel prize in economics 10/09/02 Academia "for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty" Will war bring prosperity? 10/09/02