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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: 2004 The decade of the dividend? 12/29/04 Dividends "It's a little ahead of itself, relative to where the recent valuation levels should currently be. Usually, the market trades at about 100% to 110% of gross domestic product, and now we're at about 140% of GDP. So either the market needs to drop substantially or the GDP has to catch up to market valuation. Therefore, we expect very modest returns over the next decade. We expect that dividends will be a much more integral part of your returns going forward. And we expect dividend payouts will increase substantially over the next several years." This year growth may be the way to go 12/27/04 Value Investing "Some might consider Bill Nygren a turncoat. The manager of Oakmark Fund (OAKMX ) is known to be a cautious value investor who buys the stocks of downtrodden, sometimes obscure companies. So why is his fund full of brand names -- Wal-Mart Stores (WMT ), McDonald's (MCD ), Citigroup (C )? "Today, you don't have to pay as much for growth or earnings consistency as you normally do," Nygren says. "So we're trading up."" Free land in the heartland 12/26/04 Thrift "Small towns in Kansas, North Dakota and other states are rolling out the red carpet for newcomers." Charitable donation deadline looming 12/26/04 Taxes "Clients wanting to make a charitable donation are running out of time, if they want to claim it on their 2004 tax filing. Perhaps a gentle reminder is in order, pointing out that New Year's Day will be too late." Scrooge and your CRA taxman have much in common 12/26/04 Taxes "If you're looking for some holiday cheer this year, don't ask Canada Revenue Agency (CRA) to provide it. Scrooge might as well have been a tax collector. In Dickens' story, Scrooge acted a lot like CRA today." Learn the lesson of Poseidon 12/26/04 Markets "I serve as the chairman of trustees of a medium-sized pension plan and when listening to various investment managers pitching to look after the fund's assets, the phrase "We only invest in things we understand" is repeated often. Legendary investors such as Warren Buffett apparently hold this philosophy. I can see how it might work for him, since Berkshire Hathaway has tended to stick to a few specialist sectors such as insurance and media, but most fund managers diversify their holdings widely across many dozens of industries. Are these professional investors really bright enough to understand so many businesses?" A word from a dollar bear 12/26/04 Buffett "Buffett said that he began buying foreign currency forward contracts when the euro was worth 86 U.S. cents, and kept buying until the price reached $1.20. It's now worth $1.33. Buffett said he is not adding new positions now but has been rolling over contracts as they mature. Berkshire lost $205 million on currency speculations in the first half of 2004, but more than made that back with a $412 million gain in the third quarter. It's likely that the December quarter report will show another huge gain." Keeping in with niche market leaders 12/26/04 World "One of the reasons why we do better than our peer group is that they think about diversification just in terms of country and sector. I try to think in terms of growth drivers you might have two companies in the same sector of the market that have completely different growth drivers." Queen's message in full 12/25/04 Christmas "The Queen has appealed for tolerance and understanding between cultural and religious groups, in her Christmas message." Pope's Christmas Day message 12/25/04 Christmas "Christus natus est nobis, venite, adoremus! Christ is born for us: come, let us adore him!" Intelligent Indexing 12/24/04 Stingy Investing "Investors hurt by the speculative bubble in internet stocks have turned from high-fee technology funds to lower-fee index funds. The relative advantages of intelligent indexing are super-low fees, broad diversification, and relative simplicity." What Warren Buffett learnt from Graham 12/21/04 Buffett "When Buffett graduated with a master's degree from Columbia Business School, he asked for a job at Graham-Newman, offering to work for no salary if necessary. Jokingly, Buffett has said Ben "made his customary calculation of value to price and said no."" Francis Chou flies quietly under the industry's radar 12/20/04 Chou "Chou screens about 2,000 names and looks at basic financial metrics, including price/earnings and price/book ratios and strong balance sheets. He may find 20 to 30 names that he deems "worth looking at." He then looks for opportunities in which firms are 40%-50% undervalued." Man, it's cold -- a great time to discuss the cottage 12/19/04 Taxes "As I contemplated the gifts of the wise men this week, it occurred to me that wise men and women today will take the time this holiday to look after the family cottage. After all, it's not often that the entire family is in the same place at the same time. So, use your holiday gathering to talk about the cottage. Here are some tips to help that discussion." Three out-of-favor stocks to consider 12/17/04 Dreman "I asked Dreman to recommend just one stock from his fund portfolio to hold for the next five to 10 years and tell us why. I got more than I asked for -- a lot more!" The scuttlebutt advantage 12/17/04 Tilson "Investing legend Philip Fisher, in his classic book, first published in 1958, Common Stocks and Uncommon Profits, wrote extensively about scuttlebutt and his techniques for collecting it" Mutual-fund giants pay price of betrayal 12/17/04 Funds "The settlement spotlights an amoral attitude among certain players on the Street. It's an attitude that says if there's no law forbidding an activity, and that activity earns us a profit, then it must be fine to do it, right? Because the paper trail here is clear. Most money managers resolutely refused to allow the market-timers in the door, on the grounds that their activities would garner higher returns than long-term investors, which just wasn't fair. A few firms left the doors wide open, or took great pains to ensure that such trading could take place." We are never prepared by what we expect 12/16/04 World "At the moment, the Japanese market cap is 9% of total market cap in the world. The US is 52% and the rest of Asia is 3.5%. So for 12.5% you get the whole of Asia's 3.6bn people will the fastest growing economies of China, Vietnam and India but for the US you have to pay 52% for a country that is economically doomed." Brokerages hit with $41 million in penalties 12/16/04 Brokers "Three Canadian bank brokerage firms have been penalized more than $41 million by the IDA for mutual fund market timing violations. It's the largest penalty decision ever issued by the brokerage industry association." Fundcos to refund millions to investors 12/16/04 Funds "Every penny of the $156.5 million will go to the people who were negatively affected by the frequent trading market timing" Firms must expense options 12/16/04 Accounting "Companies must start expensing employee stock options in earnings statements next year, U.S. accounting rule makers declared on Thursday, a move that could signal the end of a long-standing bookkeeping practice that many argued allowed the masking of a key compensation cost." Stock repurchases are replacing dividends 12/16/04 Dividends "A new study by Amy Dittmar and Robert Dittmar of the U-M's Stephen M. Ross School of Business shows that the fraction of earnings paid out in dividends decreased steadily over the course of the 1990s, declining from its peak of 55.6 percent in 1991 to a low of 26.3 percent in 1999. During that same time period, the share of public firms paying dividends reached an all-time low of 24 percent. In 1997, the dollar value of stock repurchases surpassed that of dividends paid for the first time." iUnits Canadian Bond Index Fund 12/16/04 Indexing "This change will give the Fund a more diversified exposure to the broad Canadian investment grade bond market. We believe that this approach will reduce the degree of fluctuations of the Fund's returns over time and provide the potential for more favourable performance during periods of rising interest rates. Additionally, under the new investment objective, we expect that the Fund will be able to make quarterly rather than semi-annual distributions." New ETF brings you the whole bond universe 12/16/04 Indexing "It looks like there's a nice little holiday season present on the way to index investors." Money for nothing 12/15/04 Government "While it is true there is no actual EI fund (the premiums collected go straight into the government's consolidated revenue fund), the impact of this over-collection is by no means theoretical. Economic studies suggest that for every 1% increase in employer-paid payroll taxes, there is a corresponding 0.32% decrease in employment. If Ottawa followed its own legislation, a case could be made for an EI-premium rate holiday for the next two and a half years. Think of the impact that could have on employment." Gates Elected to Berkshire Hathaway Board 12/14/04 Buffett "Berkshire Hathaway Inc., the conglomerate run by billionaire investor Warren Buffett, on Tuesday said it elected Bill Gates, chairman of Microsoft Corp., to be a director. Gates, co-founder and chairman of software giant Microsoft, is a friend and bridge partner of Buffett and a long-standing Berkshire shareholder." Bigger than Coke? 12/14/04 Fun "I really think it's a bigger brand.... " - and good chuckle Born suckers 12/14/04 Markets "Human beings, it turns out, are wired to make dumb investing mistakes. What's more, we are wired not to learn from them, but to make them again and again. If there is consolation, it is that it's not our fault. We are born suckers." - Consider the source... Flimsy foundations 12/12/04 World "Calculations by The Economist suggest that house prices have hit record levels in relation to incomes in America, Australia, Britain, France, Ireland, the Netherlands, New Zealand and Spain. In other words, ratios of prices to incomes are now above levels that have proved unsustainable in the past. Taking the average ratio of house prices to incomes in 1975-2000 as a baseline, American house prices are now almost 30% overvalued." CEOs and their Indian rope trick 12/12/04 Management "The new rules should not, however, deter companies from trying harder to design compensation schemes that more closely align actual pay with actual performance. Huge pay packets for bosses would be much less controversial if there was evidence they had actually earned them." The warranty windfall 12/12/04 Accounting "Critics say the companies are taking advantage of a gray area of accounting that involves judgment calls. Charles Mulford, a Georgia Institute of Technology accounting professor and expert on financial transparency, says the companies could make a case that product and contract sales are so intertwined that they don't need to be reported separately. But he contends that the companies should treat warranty sales as a separate business and break out its revenues and profits." Getting a fix on broken trusts 12/12/04 Trusts "Valuations are so high that many of these trusts are likely to get slaughtered once interest rates move up. And rates will go up eventually. What's a trust investor to do?" Tax schemes can come back to bite you 12/12/04 Taxes "Now, many people will think they're safe in buying these tax shelters because: (1) the shelter has a CRA identification number, and (2) they actually receive a refund in April. But neither is an endorsement of the tax shelter. The identification number will allow the CRA to track the users of the tax shelter later, and the CRA has three years from the date on your notice of assessment to reassess you." Deadline looms for RESP grants 12/12/04 Thrift "In a survey conducted for Heritage Education Funds, Decima found only 15% of parents realized the RESP contribution deadline is December 31. Unlike the RRSP deadline, which allows for contributions within the first 60 days of the new year, RESP contributions must be made within the calendar year to qualify for the federal grant." Corporate culture still self-serving 12/12/04 Management "It was three years ago that Enron Corp. filed for bankruptcy, ushering in the "post-Enron era" that optimists hoped would curb corporate sin. If only it had. Two recent news stories, following many others in the last 36 months, underscored how much improvement American corporate culture still needs." Has a Chinese Enron popped up in Singapore? 12/08/04 World "No matter how all this plays out, China Aviation Oil is a timely wake-up call for those who think China's 9 percent growth will shield them from problems there. Ditto for those who thought investing in other countries' markets would save them from ugly surprises. If this scandal turns out to be the tip of the iceberg in terms of China-related risks, investors are in for a rude awakening." Financial time bombs 12/08/04 Buffett "The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." Fund legend Gabelli shares insights, lessons 12/07/04 Value Investing "Similar to one of his heroes, Warren Buffet (see below), Gabelli was a disciple of the investment approach taught by Graham and Dodd. He shared a clip of a series of lectures he had recorded from his former Professor at Columbia University in the 1970s discussing the concept of "Private Market Value." "Was private market value merely intrinsic value dressed up to make it more appealing?" The difference was that Private Market Value equaled intrinsic value plus a control premium. Valuation of companies using this concept is now the basis for the way Gabelli researches each stock." Successful investing starts with saving 12/07/04 Thrift "To profit as an investor, you need to regularly divert money into your investment account. Here are ways to save -- and the best ways to invest the cash." Beware funds bearing gifts 12/06/04 Funds "Investor advocates, who've long griped about high fund fees, are understandably delighted by Fidelity's initiative. It's worth remembering, however, that this is a defensive move, born out of a mounting sense of desperation in the industry. Fidelity's fee cut is not about generosity, it's about ensuring long-term survival. And it shows just how far the fund sector has fallen, and how fast." Money for nothing 12/06/04 Indexing "Should you care about the near-futility of active management? If your time horizon is only a few years, no. Over this period, the cost drag won't amount to much, and you might as well play a few spins of the active-management roulette wheel (some funds do beat the market, and hope springs eternal). If you're investing for the long term, however, you should care a lot. On average, active funds underperform passive funds by about a percentage point a year (or more). Over 20 years, assuming 10 percent annual appreciation, this difference will eat nearly a fifth of your return. Over 40 years, it will gobble almost a third." S&P index versus active funds scorecard 12/06/04 Indexing "The Standard & Poor's Index Versus Active (SPIVA) methodology is designed to provide an accurate and objective apples-to-apples comparison of funds' performance versus their appropriate style indices, correcting for factors that have skewed results in previous index-versus-active analyses in the industry. SPIVA scorecards show both asset-weighted and equal-weighted averages, include survivorship bias correction to account for funds that may have merged or been liquidated during the period under study, and show style consistency for each style group across different time horizon" S&P launches Canadian fund scorecard 12/06/04 Indexing "Survivorship bias can significantly skew results as funds liquidate or merge. The five-year survivorship is 71.5%, 67.7% and 70.1% for Canadian equity, U.S. equity and Canadian small-cap mutual fund categories, respectively. For example, only 71.5% of the mutual funds offered five years ago in the Canadian equity category in Canada remained at the end of the period- the other 28.5% were either wound up or merged with other funds." Chou named fund manager of the decade 12/06/04 Chou "Chou, the manager of several top-performing mutual funds received major recognition at the Awards for the second straight year. Chou RRSP Fund had a 10-year compound annual return of 17.3% at Oct. 31, compared with 7.8% for the Morningstar Canadian Equity Mutual Fund Index." The dividend rediscovered 12/06/04 Markets "After years in the doghouse, dividends have investor appeal again" Bank-sold wrap accounts don't live up to sales pitch 12/05/04 Funds "The sales pitch for bank-sold wraps is that they're an easier, more intelligent, more personalized approach for investment know-nothings than using individual funds. The reality is quite a bit more mundane, according to Prof. Milevsky. "Finance academics look at these things and they say, 'wrap account, what is this?' It's just another mutual fund."" Give with a passion and get the best tax relief 12/05/04 Taxes "It's the time of year when many of us consider giving to charity. This year, I'd like to discuss giving with a passion, and how to gain the most tax relief from giving." Gaining an investment edge 12/03/04 Tilson "There are only three ways to beat the market: better stock picking, better market timing, or more portfolio leverage. It seems obvious, to me at least, that the former is the best option. Market timing is a fool's errand -- I challenge you to show me anyone among the wealthiest Americans who made their fortune doing so -- and if you use much leverage, the market will eventually carry you out on a stretcher. But with so many smart people with so much money looking for bargains, even the traditional pockets of inefficiency such as distressed securities, spinoffs and micro caps are increasingly picked over. So how can one pick stocks that will outperform? Only by having an edge. If you don't -- if you're the proverbial sucker at the poker table -- you're going to get creamed." Students pay homage to Sage of Omaha 12/03/04 Buffett "On a subsequent question, Mr. Buffett dispelled the seeming contradiction between his preaching about the importance of honest and competent managers and his purchasing businesses after spending just a few minutes with management. The key factor, Mr. Buffett explained, is to determine whether the managers love the money or the business. Characteristically humble, Mr. Buffett admitted that occasionally he makes mistakes." The new kings of capitalism 12/01/04 Markets "In two decades, private-equity firms have moved from the outer fringe to the centre of the capitalist system. But, asks Matthew Bishop, can they keep it up?" Pickings remain slim for FPA's Rodriguez 12/01/04 Value Investing "Overall, the funds are run with a value orientation, though Rodriguez is the biggest cheapskate of the bunch. And unlike many shops which aim to remain fully invested in the market regardless of the conditions, FPA managers aren't afraid to build big cash stakes if they're unable to find attractive values." All that glisters 12/01/04 Markets "Perhaps a better argument can be made for other scarce metals: platinum, say, or silver. Silver, after all, not only spent centuries vying with gold as a form of money, but also has many industrial uses and is not held by central banks; annual demand is much higher than annual production. Along with many other metals, the price of silver fell sharply in April, but unlike gold it has not even regained the ground it lost." Too much! 11/30/04 Gross "there's no doubt that the dollar is on the run and that higher U.S. interest rates are the inevitable consequence. Dollar depreciation leads to higher inflation and ultimately forces foreign creditors to question their rationale and indeed their sanity for continuing purchases of U.S. Treasuries." Value skeptics 11/30/04 Value Investing "Of course, it's very easy to talk about waiting and having patience, but it's very hard to actually do that. Many feel guilty or unproductive when they're not doing something. Their mind set is geared to change. Buffett tries to soothe the restless anxiety of some by saying that one of the wonderful things about the investment game is that you don't have to be right on everything. You only have to get a good idea every year or two. If you're right on a very few things in your lifetime, you can do very well as long as you never make big mistakes. As he's said many times, you just have to wait for the fat pitch." 4 ways to simplify your life and save 11/29/04 Thrift "Alas, most people have seen the same tips a thousand times: * Live on less than you earn. * Track your spending so you can see where your money goes. * Never buy anything new. * Whenever possible, slaughter your own livestock, etc." The best ways to give to charity 11/29/04 Charity "'Tis the season for giving. And, for many people that means more than just buying presents for friends and family -- it means giving to charity." Dodging the potholes 11/29/04 Dreman "Overcapacity in tech and rising inflation will keep stock gains moderate in 2005. The antidote: Buy shares with nice dividends." In defense of scrooge 11/28/04 Christmas "Maligned for his thrift, besieged by home invaders, the old guy gives in to terrorists. This is the message of Christmas?" Crash landing coming for China 11/28/04 World "What we have witnessed in China is not about efficient markets, rational investors, or bell curves of the fairy tale land of financial theory. It's about rank speculation on the part of the crowd, with the People's Bank of China and the US Federal Reserve acting in key supporting roles as accomplices." Make the most out of capital losses 11/28/04 Taxes "If you're like many investors and have some losers in your portfolio, do your best to make lemonade out of those lemons with the following tips on dealing with capital losses." 15 worst holiday gift ideas 11/28/04 Christmas "You're sweating, panicked. You're about to recycle an old gift, buy a weight-loss book for Aunt Josephine or grab the Victoria's Secret catalog. Stop! Break the cycle of Holiday Gift-Shopping Syndrome!" Who are the low-cost leaders? 11/28/04 Funds "None of these companies, Fidelity included, poses any serious competition to no-load companies such as Phillips Hager & North, Saxon, McLean Budden, Beutel Goodman and Mawer. These firms have much cheaper MERs than the big guys, but they don't register with most investment advisers because they pay little or nothing in the way of commissions (that's why their fees are so low)." Borrowing to invest backfires badly 11/28/04 Debt "In 2001, she added $50,000 to her $45,000 mortgage in order to buy stocks within mutual funds that she hoped would produce capital gains sufficient to pay off her mortgage and the new loan. She wound up with a $17,000 loss. Today, she doubts it was wise to make bets on the stock market. She wants to recover financially -- pay down her enlarged mortgage, cut her investment risk, and put the losses behind her." Japan: A rising sun for investors 11/26/04 Value Investing "The Ivy Cundill Global Value Fund adheres to the classic deep-value investment philosophy of Graham and Dodd, selecting stocks with strong balance sheets, but trading at significant discounts to historical averages and industry peers." Income trust myopia could be a dangerous thing 11/23/04 Trusts "An epidemic of self-destructive performance chasing has broken out among mutual fund investors. They're selling equity funds, notably global funds, and moving into income-oriented funds that hold dividend stocks, bonds and, of course, those ever-enticing income trusts." Doing the math on the have and have-not provinces 11/23/04 Economy "It's time again for the annual tally of some numbers that Ottawa and many provincial governments love to hate. Who gains and who loses from the federal government's getting and spending? Which provinces send more money to Ottawa than they get back in spending, and which get more from the federal treasury than they chip in?" The Third Avenue Management investor conference 11/23/04 Value Investing "We were pleased therefore to have the opportunity to hear from four notable value investors including Marty Whitman, Chris Browne, Jean-Marie Eveillard and Mario Gabelli at a recent event in New York City." A how-to guide on capital gains 11/22/04 Taxes "Sometimes investors have to take the bad with the good. The good? Sometimes you make money. The bad? Sometimes you don't. My next two articles will talk about my top dozen year-end strategies for dealing with capital gains and losses. Today, let's start with tips on capital gains." Fund companies tinker with sales charges 11/22/04 Funds "The problem is all those fund sales in the nineties are now coming off the DSC schedule. Fund companies keep the details under lock and key but it is safe to say that every month, there's less incentive for billions of investment dollars to stay put. It's created a mess of competing interests." Anatomy of an ID theft 11/22/04 Crime "Five months rolled by without incident, but then the red flags popped up in rapid succession. A call from her bank, Wells Fargo, inquiring about her application for a line of credit. The same question from Chase, where she had no accounts. Then a message from a local Ford dealer, who said he hoped to see her later that day with the additional paperwork they had discussed. Harding knew nothing about these transactions. Instead, she realized, she had become a victim of one of the fastest-growing crimes in the U.S.: identity theft." Gleaning insights from Berkshire 11/21/04 Buffett "Overall, it was a quiet quarter of trading for Berkshire. It added net shares worth about $150 million -- driven primarily by the addition of $140 million of Comcast shares and ServiceMaster shares worth $72 million. These additions were offset by reductions in its holdings in HCA, Zenith, and Mueller." New ETF brings you the whole bond universe 11/21/04 Indexing "Barclays Canada, the company behind the iUnits series of Canadian exchange-traded funds, announced yesterday that it wants to convert its 10-year government bond exchange-traded fund into a new product that tracks the Scotia Capital Universe Bond Index." Too patient with your funds? 11/21/04 Funds "You have a money-losing mutual fund on your hands, but you're sticking with it. Are you a sensibly patient investor or a patsy?" Is Wal-Mart good for America? 11/20/04 Stocks "I was trying to make the same point that the great economist Joseph Schumpeter made about the Industrial Revolution. In his book, "Capitalism, Socialism and Democracy," he said, "The capitalist achievement does not typically consist in providing more silk stockings for queens, but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort."" The top givers 11/19/04 Buffett "Warren Buffett is famous for two things. First, for amassing the second-biggest fortune in the U.S. as one of the most talented investors the world has ever known. Second, for an aversion to spending a dime of that $41 billion on anything but the strictly necessary. That includes declining to provide his kids with fortunes of their own, collecting yachts or racehorses, or giving large chunks of his wealth to worthy causes. Thus it may strike some as the supreme paradox that the man who is one of America's greatest misers in life will probably become one of its greatest philanthropists in death." Do the right thing, Mr. Buffett 11/19/04 Buffett "The insurance scandal has rocked an industry, but I don't think Berkshire will be dragged into the mess. Of course, Buffett could go one better and unwind any questionable contracts." The perfect business 11/19/04 Tilson "Understanding the quality of a business is critical to being a successful investor, as it is a major determinant of what one should be willing to pay for a stock." The high cost of smoking 11/18/04 Thrift "Add it up: cigarettes, dry cleaning, insurance, breath mints. And the toll doesn't stop there." Oddball investing 11/18/04 Value Investing "It all started with Forrest Berwind "Bill" Tweedy in 1920... Bill was a strange fellow. No one really knows where he came from or when he was born. And if you saw him today, you would probably laugh. The man wore suspenders, had a bushy mustache and a good-sized potbelly. He never married or had kids. He ate lunch at the same place at the same time every day. He was an oddball, to put it bluntly. And if you happened to walk past 52 Wall Street, chances are, you would see Tweedy working at his cluttered desk - busy writing letters and looking through company reports." Origins of the crash still present? 11/18/04 Markets "Lowenstein places special emphasis on the insidious effects of excessive executive compensation, largely in the form of stock options, which in the end led to massive speculation and widespread corruption of corporate America and the institutions designed to regulate it. Lowenstein clearly doesn't believe that those excesses have been washed away." The dividend elite 11/17/04 Value Investing "Apart from warming the hearts of retirees who make an old-fashioned distinction between principal and income, dividends serve a beneficial function in braking executives' penchant to squander corporate resources. So argues Michael Jensen, a Harvard professor emeritus who believes that payouts make managers think twice about overspending on iffy projects that might endanger the dividend. Some contend that increasing dividends portend good things for the market overall. A study by AQR Capital Management's Clifford Asness and First Quadrant's Robert Arnott in the Financial Analysts Journal last year found that when dividend payout ratios are high, solid earnings growth lies ahead because managements are confident about the future." Searching for an explanation 11/17/04 Markets "Once again, investors are rushing to buy internet stocks. Will they never learn?" Retirees don't have to be so frugal 11/17/04 Thrift "Maybe you don't have to order the early-bird special after all. Many retirees have trimmed their spending during recent years, and it isn't just because of plunging bond yields and tumbling stock prices. Instead, they have been reacting to dire warnings from Wall Street, cautioning them that their portfolios can't sustain the sort of withdrawal rates that used to be considered safe. Feeling pinched? Don't resign yourself to a lifetime of scrimping and saving just yet." Buffett fans visit Neb. to learn tips firsthand 11/17/04 Buffett "Wharton junior Douglas Sherrets went to a Wharton Council function last January and was asked to introduce his club. After listening to other prestigious clubs list their accomplishments, Sherrets got up and simply said, "I am founder of the Warren Buffett Club." Sherrets said he was practically laughed out of the room. However, the Warren Buffett Club began to add accolades to its resume last weekend, after members took a trip to visit its namesake -- a former Wharton student and the second-richest man in the world." Veteran value manager took a big risk 11/15/04 Value Investing "In recent years, mutual-fund manager Jean-Marie Eveillard went from being revered, to reviled, then back to being revered againall without changing his self-described "quirky" investment strategy." A new kind of risk, and it's your fault 11/15/04 Markets "To company risk and market risk, add 'career risk' -- the danger that career-minded money managers take too many chances to satisfy the public's unrealistic expectations." Destination disaster 11/14/04 Thrift "Did I ever feel saddened by the loss of those students who did not return after my depressing lecture? Not at all. If they were sufficiently discouraged in just two hours to abandon their fledgling aspirations, I helped save them time and money and spared them a trip down the road to failure. It's far less costly to abandon a business in the classroom or on paper than in the dog-eat-dog atmosphere of the real world." P&C industry agrees to full compensation disclosure 11/14/04 Brokers "Canada's property and casualty (P&C) insurance industry has agreed to provide full disclosure of how brokers are compensated, beginning in the new year. But it's too early to say if the life and health side will take similar steps, according to an industry spokesperson." Sometimes they do ring a bell 11/13/04 Markets "Why does this "chasing the hot stock" happen? Dreman and Lufkin tell us it is because investors become overconfident that the trends of the fundamentals in the first 10 years will repeat forever, "thereby carrying the prices of stocks that appear to have the 'best' and 'worst' prospects. Investors are likely to forecast a future not very different from the recent past, i.e., continuing improving fundamentals for favorites and deteriorating fundamentals for out-of-favor issues. Such forecasts result in favorites being overpriced, while out-of-favor issues are priced at a substantial discount to the real worth. The extrapolation of past results well into the future and the high confidence in the precise forecast is one of the most common errors made in finance."" What's going on behind Nortel's closed doors? 11/12/04 Stocks "Of all of the accounting tricks in the book, revenue games are probably the sleaziest. The principles of revenue recognition are fairly straightforward. In simple terms: If you've done the work, the customer accepts ownership of your product and is likely to pay the bill, you can count it as revenue. If not, you can't. No points for shipping your products to your own warehouses, or sending out phony invoices, or selling stuff to customers who don't have the money to pay. So let's look at what Nortel did. It booked revenue "before legal title . . . had passed to customers," and before the company had done anything to earn the money (i.e., it hadn't delivered on the contract). It booked revenue when it knew it probably couldn't collect. And the company played these tricks during the go-go years, when people were paying $100 or more for the stock on the basis of -- you guessed it -- unprecedented growth in revenue, while Mr. Roth and other insiders gorged on their stock option gains." Down at the dog pound 11/11/04 Bonds "Just how unlikely investors are to get their money back can be gauged by the default statistics that the rating agencies produce. According to Standard & Poor's, another big rating agency, a bit more than 13% of issuers with a rating of B- or less will default within a year, and 39% of them within five years. For those with a rating of CCC (roughly, its equivalent of Caa1, Moody's rating for Mueller) the figures are 30% and 53%. According to Standard & Poor's, 85% of junk bonds issued so far this year have a maturity of more than seven years. Chances are, in other words, that anyone hanging on to such bonds until maturity will not get their money back." Some shoppers find fewer happy returns 11/10/04 Stocks "As the holiday shopping season gets into full swing, a number of major retailers -- including KB Toys and Sports Authority, according to store personnel -- are rolling out electronic systems that weigh the number of returns and exchanges a person has made, the dollar value of the items, and the dates of the transactions to decide whether a consumer should be granted another. The systems are designed to catch shoplifters and those who "wardrobe," wearing clothes and then returning them for a full refund." Best Buy hopes to exorcize devil patrons 11/10/04 Stocks "As far as the old adage "the customer is always right" goes, Best Buy doesn't buy it. The massive retailer is being vocal about something that at first might sound a little uncouth: frankly, they'd rather not have 20% of their customers as customers. In an age where it seems like everyone casts their nets as wide as possible to bring in more eyes, feet, and wallets, Best Buy is doing the opposite. They believe that a small portion of their customers are bad for business, and they're looking to shut them out." Unlucky in riches 11/10/04 Thrift "For a lot of people, winning the lottery is the American dream. But for many lottery winners, the reality is more like a nightmare." Patient Capital Management Q3 11/09/04 Value Investing "Many would be surprised to learn that the TSX Composite Index is extremely concentrated in just three sectors. Approximately seventy per cent of the TSX Composite Index is comprised of three industry groups; Energy at 18.5%, Materials at 17.5% and Financials at 33%. For those expecting diversification this index is not it! Canadian investors are unwittingly incurring this "concentration risk" through index funds and active money managers who mimic the index." Global bond default rate rises slightly 11/08/04 Bonds "The four corporate bond defaults in October totaled US$2.3 billion, and all were by companies based in the U.S. The largest default last month also was the largest thus far in 2004: US$1.30 billion by Trump Atlantic City Associates. " The best way to buy dividends 11/07/04 Value Investing "A stock with a growing dividend is the investment of a lifetime. Own the shares of a company that regularly increases its dividends and you put yourself in a position to receive an ever-growing flow of income and benefit from a rising share price. The total return possibilities over a long period of time are just amazing." Why your index fund is lagging the market 11/07/04 Indexing "Why should market cap be the best way to assign G.M.'s weight in an index? The conventional academic response is that investors, in their collective wisdom, determine the company's value. But investors sometimes make spectacular mistakes. During the bubble of the late 1990's, cap-weighted benchmarks assigned far too much weight to Internet stocks. As a general rule, in fact, cap-weighted indexes overweight stocks that have become expensive because of fads, and underweight unfashionable ones. This leads such indexes to under-report the market's true return." Cheap home loans today, trouble tomorrow 11/07/04 Real Estate "Anyone with a pulse can now get a home loan. But higher interest rates in the future will mean fewer buyers and surplus inventory." First families, second marriages 11/07/04 Trusts "If you're in a second marriage and you want your kids from your first marriage to eventually inherit what you leave behind, you had better plan for this to happen." Getting government money from your RESP 11/07/04 Government "The Registered Education Savings Plan (RESP) has become the cornerstone vehicle for saving money for children and grandchildren's education." Don't stretch for performance 11/05/04 Tilson "How tight are credit spreads today? Here's one example: An index of speculative B-rated credits -- which are well below investment grade, with long-term five-year default rates exceeding 25% -- last week was yielding a mere 6.85%, only 368 basis points above Treasuries, the lowest spread ever. For comparison, only two years ago, for the week ending Oct. 10, 2002, the spread for the same B-rated index was 1088 basis points, an all-time high." Downgraded: Triple-A credit ratings 11/05/04 Bonds "S&P's Nicholas Riccio on how the ranking's importance has been eroded by other priorities like growth and more cheap financing options" Non-financial reporting 11/05/04 Accounting "Yet even as NGOs are becoming more cynical about what firms are producing, some investors now think it is (or could be) a valuable source of information, such as about business risks in a swathe of areas not included on standard financial balance sheets. "We are not social activists; we're independent risk assessors," says George Dallas of S&P. The information in non-financial reports "contributes to building up a company's risk profile." And although it has still not been convincingly demonstrated that good environmental and social practices create value for shareholders, it is clear, says Mr Dallas, that bad ones can destroy it. Exxon's cavalier attitude to the oil spillage from the Exxon Valdez drove customers away from its pumps." JasonZweig.com 11/05/04 Indexing "When it comes to investing, there's a world of difference between good advice and advice that sounds good. The vast majority of personal finance commentary, both online and in the "dead-tree" world, certainly sounds good enough -- "put all your retirement money in stocks," or "aggressive growth funds are the place to be," or "small stocks return more than large stocks." But there's something odd about this kind of advice: It's always asserted as if it's true, and yet its truth is never proven. Unfortunately, you can't afford to take investing advice on faith. To prosper in the long run, you've got to be able to separate the good advice from the advice that just sounds good. My goal here is to help you do that." Index funds best way to go for a little Americana 11/05/04 Indexing "Whether you're rejoicing or retching over the U.S. election results, there is one investing fact that stands out: Accounting for just over half of the global stock market, the United States is a must-have in your portfolio." Growth and value data 11/05/04 Markets "Further analysis of the complete set of style indices shows an interesting Sharpe Ratio pattern. It seems that not only do the value series outperform growth series on average, but their Sharpe Ratio is much higher. Sharpe Ratio is a measure of reward to variability. Basically, it measures the level of return per level of risk for an asset class. The specific measure is asset class return minus the risk-free rate (U.S. 30-day T Bills), divided by the standard deviation of the asset class. Every one of the Ibbotson value series has a higher Sharpe Ratio than its corresponding growth series. The traditional risk-return tradeoff does not seem to hold with regard to the split between growth and value. The value indices are offering more return and less risk." The secret pensions of fat-cat executives 11/04/04 Management "When it comes to retirement plans, many top execs look forward to goodies unknown to most pensioners. Here's how companies pile on the pension perks." Short haircuts all round 11/03/04 World "Besides, Argentina is a past master at bilking its creditors. In a recent IMF study, Kenneth Rogoff, Carmen Reinhart and Miguel Savastano estimate that it has spent more than a quarter of its history since 1824 either defaulting on its debt or restructuring it. The default at the end of 2001 followed those of 1989, 1982, 1890 and 1828. Each time investors returned, albeit at a price. Mr Lavagna will hope they display a similarly short memory this time. The world's capital markets can be bitten more than once, it seems, before they turn shy." Close, but no cigar 11/03/04 World "A good outcome would be a gentle but sustained fall in the dollar. A bad outcome would be a dollar crisis." Five key economic challenges for Bush 11/03/04 World "Bush, who did not veto one spending bill in his first term, campaigned on a pledge to cut the deficit in half over the next five years by growing the economy and limiting discretionary spending. That may not be easy. Many economists say that Bush's spending proposals, combined with his desire to make permanent the tax cuts of recent years, mean that the numbers simply don't add up." A reality check on your financial fantasies 11/01/04 Thrift "Waiting for the lottery or for Prince Charming to come and wipe away all your personal finance woes? It's time to stop dreaming and face reality." The wolf at the door 11/01/04 World "In the three years from 1985, the dollar fell by 50% against the other main currencies. Inflation and bond yields rose and, in October 1987, the stockmarket crashed. America's current-account deficit is now almost twice as big as it was then, so the total fall in the dollarand the fall-out in other financial marketscould well be larger. The wolf is licking his lips." Six frightful scenarios for a scary Halloween 10/31/04 Halloween "All those ghosts and goblins coming to your door can be a real treat. But the trick could be on you. Without proper care, you could find yourself booed by a hooligan or sued by a ghoul." Receiving Social Security? Thank 9 workers 10/31/04 Government "It takes nine minimum-wage or one highly paid worker to cover the cost of the average monthly Social Security benefit. Now which kinds of jobs should we be trying to create?" My purloined portfolio 10/31/04 Value Investing "I regularly monitor the portfolios of money managers I admire. Sure, they are my competitors. So what? Occasionally I pick up an idea worth stealing." Tipping over 10/31/04 Gross "one of PIMCO`s new strategic bets based on this hypothesis is to own intermediate TIPS with real yields higher than 0.5%. We`ll be voting with our dollars." Customer service saved Xerox 10/29/04 Stocks "Salvation for Xerox Corp. started with a steak dinner in Nebraska four years ago. As Xerox's newly named president and chief operating officer, Anne Mulcahy faced many tasks, including resuscitating a company burdened with debt, a free-falling stock and a dwindling customer base. Who was she gonna call? Famed financier Warren Buffett, who invited her for dinner at one of his favorite restaurants and told her she had been "drafted into a war" she didn't start and to focus on customers." The troll under the bridge 10/29/04 World "The Ambassador Bridge is Detroit's lifeline to Canada. Sept. 11 turned it into a choke point and a security risk. The story of why it hasn't been fixed revolves around one man." Welcome to the risk economy 10/29/04 Economy "The current economy has shifted risk to the individual. We shoulder more burden for our retirements, our paychecks and our insurance than previous generations. No wonder we're anxious." A watched pot makes me boil 10/28/04 Markets "I have several bad investing habits. The worst, clearly, is that I sometimes buy stocks that go down. But a close second is my propensity to watch my portfolio a little too closely, occasionally wasting time staring at real-time changes in the fortunes of my 55 stocks. In my defense, I only do so on three occasions: when I'm up a lot on the market, when I'm down considerably or when I'm close to even." The day the '20s died 10/28/04 Markets "It was not the first great crash in Wall Street history. Far from it. Major sellers' panics had swept the Street in 1837, 1857, 1873, 1893 and 1907, all except the last marking the start of a severe depression. Nor was it the greatest one-day decline in the market's history. Regardless, the stock market crash of 1929 has entered into the folk memory of the American people. Like 1492 and 1776, it is one of those dates that every schoolchild knows. Like the Alamo, the sinking of the Titanic and Custer's last stand, it has served as the historical backdrop of innumerable novels, plays, movies and songs." Too many let 'fruitcake' market dictate investments 10/27/04 Graham "But when it comes to their financial lives, millions of people let the stock market tell them how to feel and what to do, despite the obvious fact that, from time to time it can get nuttier that a fruitcake." China misconceptions 10/26/04 World "In the following Ad Hoc comment we review what we believe are some of the more common consensus misunderstandings about China. Granted, we might be very wrong. After all, when looking at China, one is forced to look at either the official government statistics, or the limited market data. And making educated guesses with the above data points are often just that: educated guesses!" Can active management beat index funds? 10/26/04 Indexing "The best course may run counter to popular thinking." The effect of skill on the success of the less skilled 10/26/04 Academia "This paper uses computer simulations to examine the effect of highly skilled gamblers on the success of moderately skilled gamblers. It shows that skilled players negatively impact the outcome for less skilled players. A player's winnings are not only affected by the house rake or vigorish but also by the skill of other players. It is concluded that less skilled players are often better off playing a game of chance than a game of skill." A signal of future stock performance 10/26/04 Academia "our value-stocks research team has studied how balance-sheet data that serve as indicators of the reliability and likely persistence of reported earnings can be used as a signal of future stock performance." Users' guide to the business media 10/26/04 Media "Many of us are hooked on the financial press and, as a result, we get most of our investment information from the newspaper, the Internet or the specialty cable TV channels. In light of this dependence, it's useful to pause once in a while and think about how we use it." Insurers getting dragged out of disclosure stone age 10/26/04 Brokers "Badger someone in the mutual fund industry about fees and disclosure and you'll often hear muttering along the lines of "yeah, but you should really should take a look at the insurance business." Too true. Compared with insurance, mutual funds have the transparency of freshly Windexed glass." Still blowing bubbles 10/25/04 Markets "On this day in 1929, America's stock market was hit by a selling wave of more than 12 million shares. Five days later, on October 29, the daily selling total soared to 16 million shares. The market lost 47% of its value in 26 days, and 89% by the time it finally bottomed on July 8, 1932. Within two years 12 million Americans were out of work, hundreds of banks and 20,000 companies had gone bust. It took 25 years for the market to recover." Money for nothing 10/25/04 Stingy Investing "When you find a dollar on the sidewalk, do you pick it up? I bet you do. After all, free money doesn't come along every day. What you may not know is that the stock market also offers up cheap money from time to time. You just have to learn how to spot it." Most expensive colleges 10/24/04 Thrift "Quick: What will $36,750 buy you? Only a year's worth of tuition at the country's most expensive college, not including room and board." Unorthodox approach builds a winner 10/23/04 Value Investing "Mr. Michael's investment approach is bottom-up and purely value-driven, with no strictures on company size. "We're an all-cap deep value fund," he says, adding hard work and a focused perspective are keys to the fund's success." Battle your budget back into shape 10/23/04 Thrift "Household budgets don't run themselves. When yours begins to break down, don't run away -- roll up your sleeves and start getting it back into condition." The best idea is to toss those credit card cheques 10/23/04 Debt "For a glimpse of the big banks at their worst, just open your monthly credit card statement. If you think this is a rant against credit card interest rates, you're only partly right. Card rates are high, but immaterial if you pay your balance off in full every month. What's objectionable is the way some financial institutions try to circumvent this fact. They do it with an odious little device that presents itself as a cheque that you can write to anyone and have the money applied to your monthly credit card bill." Focus Investing 10/23/04 Tilson "While there are a handful of exceptions such as Peter Lynch, the overwhelming majority of great investors that I'm aware of practice focus investing. They invest infrequently, only when they're highly confident that the odds are heavily in their favor, and then they bet big." Searching for rational investors in a perfect storm 10/21/04 Value Investing "In 1991, I wrote a book, Sense and Nonsense in Corporate Finance, in which I set out several criteria for selecting fund managers. The secrets haven't changed. Funds should (a) hold no more than 20 stocks; (b) hold their stocks on average for at least two years; c) eat their own cooking, i.e., the managers should personally invest in the fund, and of course (d) invest on Graham-and-Dodd principles" Longleaf Partners Q3 10/21/04 Longleaf "To summarize, many widely accepted investment assumptions lead to the conclusion that indexing is the best choice for investors. Lowenstein counters that this is wishful thinking, dangerous stuff that has seduced the public to have a lazy confidence that one need not bother with the arduous task of patient, thoughtful selection and has encouraged fund managers to cater to those impulses.Observing patterns during the recent five year boom-crash-rebound' cycle indicates that the market is not particularly efficient. Lowenstein challenges the EMT beliefs of many of his fellow academicians by presenting a group of investors who have beaten the market over the long run by meaningful amounts and in a systematic way." Market realities can't sustain TransAlta's dividend 10/21/04 Stocks "We note that the dividend yield, at 6.1 per cent, is only modestly higher than the yield on the company's 2011 bonds (about 5.5 per cent). (The gap is larger than it appears because of the dividend tax credit.) Still, to the conservative investor who's looking for TransAlta for income, what's better to own: a high-yield stock that's likely to cut its payout, or a slightly lower-yielding bond that, by comparison, looks pretty secure?" Interlopers on the value-stocks turf 10/19/04 Value Investing "Studies have shown that the most relatively undervalued 10 percent of stocks have outperformed the most expensive 10 percent by more than 10 percentage points annually. The problem is that value stocks can also suffer from long periods of underperformance. Michael Hughes, portfolio manager of the JPMorgan Fleming Europe Strategic Value fund, said that value stocks underperformed the market about 35 percent of the time. "Many investors do not have the patience to live though a long downturn," he said. Also, when value investing is in vogue, it can be more difficult to find genuine value plays." Why Wall Street hates the "S" word 10/19/04 Brokers "These realities create what might be described as Pascal's Wager for Brokerage Analysts, a risk/reward equation that, when everyone else is positive, makes it risky to be negative:" La Grippe of the Trial Lawyers 10/19/04 Health "If Kerry thinks he can solve the flu vaccine problem, he need look no further than his own running mate, trial lawyer John Edwards. Vaccines are the one area of medicine where trial lawyers are almost completely responsible for the problem. No one can plausibly point a finger at insurance companies, drug companies, or doctors. Lawyers have won the vaccine game so completely that nobody wants to play." Passing the baton 10/16/04 Management "What is the best way to replace the boss? A recent study of large, non-diversified publicly traded American manufacturing firms in the Academy of Management Journal suggests that companies perform better under a new leader if that person has been groomed as the heir apparent" Fast-forward and grow rich 10/16/04 Thrift "If you consider the 61 hours of ads the average American sees each month, there's nothing more expensive than free TV. Here's why the alternatives pay off." Canadian residents face tax on U.S. rental income 10/16/04 Taxes "We would like to purchase a condo in Florida to spend our winters down south. In the summer months, we would like to rent out this condo. How will income from this condo be treated from a Canadian and U.S. tax perspective?" Big Mac's makeover 10/16/04 Stocks "The world's biggest fast-food company has pulled off a remarkable comeback" Peter Bernstein interview 10/15/04 Markets "In 1995 I said, "Dividends don't matter." I've been eating those words ever since. I assumed that reinvestments [the cash that companies put back into the business instead of paying out as dividends] would earn the same rate of return. I was wrong. Managements are more careful when they're not floating in cash." Money trends 10/15/04 Markets "The investment business is constantly evolving; one of its eternal questions is how closely today's and the future's patterns will resemble the past. One of the most important developments in recent years is the burgeoning interest in hedge funds and the growing role they're playing in the markets. But innovations continue along a broad front." Ben Stein's funny money 10/14/04 Fun "Ben Stein (he of "Win Ben Stein's Money," on Comedy Central) and Phil DeMuth have written Yes, You Can Time the Market! They demonstrate that investors who move in and out of the market based on such simple criteria as price-earnings ratios and dividend yields will do better than the dollar-cost averager who dutifully invests a fixed amount in stocks month after month, year after year. Their numbers make perfect sense. Their advice to you does not." Discount brokers are good for trading stocks, not bonds 10/14/04 Brokers "Mr. Brownridge believes spreads are so high at discount brokers that investors are effectively paying a similar cost to the one charged on bond mutual funds through their management expense ratios. Ironically, the type of investors who buy bonds directly are the sort of people who fancy themselves too savvy to buy bond funds." Grant strategy can provide immediate education cash 10/14/04 Taxes "I then shared with Gerry a clever strategy using a registered education savings plan (RESP) that can provide a tidy sum of cash, almost immediately, to help pay for Jared's education costs." Spitzer sues broker, insurers 10/14/04 Crime "New York Attorney General Eliot Spitzer Thursday sued Marsh & McLennan Cos., the world's No. 1 insurance broker, for steering unsuspecting clients to certain insurers in exchange for lucrative payoffs." Outsourcing the lawyers 10/14/04 Law "Contrary to popular perception, Shakespeare didn't really suggest that killing all the lawyers might be a good thing. But that hasn't stopped some people from wishing they would just go away." The disastrous history of money 10/14/04 Markets "Charles II was king of England from 1660 - 1685, when wooden sticks were being used as a form of money until the system collapsed. The story has obvious parallels to the modern world." Con job redux 10/14/04 Gross "My point, however, was as follows. The CPI inaccurately calculates Americans' cost of living." A Federal inflation conspiracy? 10/12/04 Gross "Influential bond guru Bill Gross says the government is intentionally understating the CPI -- and what a howl that has raised" Build wealth in any market 10/11/04 Indexing "So many investors -- maybe even you -- bought into some wild notions about stocks in the headiest days of the bull market. Today, perhaps a bit poorer, you're certainly wiser." Blue-chip bargains? 10/11/04 Tilson "I'm often asked how I generate stock ideas. There are many sources, but mostly, I read constantly, regularly talk to a lot of smart investors, and occasionally use stock screens. There are dozens of screening tools -- some free, others very expensive -- and countless criteria that one might use to filter stocks, but I've found that one of the best is to simply search for stocks trading at or near their 52-week lows. This makes sense since I'm looking for 50-cent dollars -- stocks trading for half or less of their intrinsic value -- and such bargains are likely to be severely out of favor." Value Hunting 10/09/04 Value Investing "Columbia students bet on ugly ducklings" Hudson's warmer bay 10/09/04 World "Global warming means Hudson Bay is now open to shipping an extra week a year. Some scientists predict that as soon as 2010 there could be a regular shipping service during the summer in the Arctic, and that by 2050 there will be a year-round sea passage to Hudson Bay." The taming of the shrewd