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I believe that buying unpopular stocks is a better path to wealth than buying popular ones." Yield curve inversion 12/28/05 Bonds "As shown in the chart below, each of the past six recessions (shaded areas) was preceded by an inversion in the spread between the Treasury 10-year yield and the fed funds rate. But there were two other instances of inversion - 1966:Q2 through 1967:1 and 1998:Q3 through 1998:Q4 - immediately after which no recession occurred. It would appear, then, that an inverted yield curve is more of a necessary condition for a recession to occur, but not a sufficient condition. That is, if the spread goes from +25 basis points and to -25 basis points, a recession is not automatically triggered. Rather, whether an inversion results in a recession would seem to depend on the magnitude of the inversion and, to a lesser extent, the duration of it. Recession-signaling aside, the yield curve remains a reliable leading indicator of economic activity. Although the spread going from +25 basis points to -25 basis points might not result in a recession, it does indicate that monetary policy has become more restrictive." Riding the yield curve 12/28/05 Bonds "According to a 2003 analysis by the Federal Reserve Bank of San Francisco, each of the six recessions since 1970 was preceded by a yield curve inversion -- an unnerving precedence." The little essay that beats the market 12/27/05 Value Investing "So, what should you think? If you want to be a successful stock market investor, you should think about buying pieces of "good" businesses at "bargain" prices. Yes, that sounds simple, but if you actually could find a good business at a bargain price, wouldn't it make sense to buy it? Doesn't that sound like an investment strategy that should work!" A test of Graham's stock selection criteria 12/27/05 Graham "The applicability of certain combinations of Benjamin Graham's stock selection criteria were tested on the Industrial securities market in South Africa. Evidence that making use of Graham's stock selection criteria to determine a portfolio, would provide one which yielded abnormal positive returns would suggest, at least, that pockets of inefficiency existed in the overall efficient market, as represented by the industrial shares traded on the JSE." Peter Cundill in 1998 12/27/05 Value Investing "For example, if you adjust for the market value of their share portfolios, today 35% of the 3,000 companies listed in Japan are trading below book value. Roughly 10% are trading below net-net working capital. And many of them trade below net cash (which I'll come back and define) and at big discounts to their intrinsic value if their businesses are worth 6 times EBIT." Warren Buffett in 1974 12/25/05 Buffett ""I call investing the greatest business in the world," he says, "because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There's no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it." But pity the pros at the investment institutions. They're the victims of impossible "performance" measurements. Says Buffett, continuing his baseball imagery, "It's like Babe Ruth at bat with 50,000 fans and the club owner yelling, 'Swing, you bum!' and some guy is trying to pitch him an intentional walk. They know if they don't take a swing at the next pitch, the guy will say, 'Turn in your uniform.'"" The performance of equity premium prediction 12/25/05 Academia "Given the historically high equity premium, is it now a good time to invest in the stock market? Economists have suggested a whole range of variables that investors could or should use to predict: dividend price ratios, dividend yields, earnings-price ratios, dividend payout ratios, net issuing ratios, book-market ratios, interest rates (in various guises), and consumptionbased macroeconomic ratios (cay). The typical paper reports that the variable predicted well in an in-sample regression, implying forecasting ability. Our paper explores the out-of-sample performance of these variables, and finds that not a single one would have helped a real-world investor outpredicting the then-prevailing historical equity premium mean. Most would have outright hurt. Therefore, we find that, for all practical purposes, the equity premium has not been predictable, and any belief about whether the stock market is now too high or too low has to be based on theoretical prior, not on the empirically variables we have explored." Mean reversion, forecasting and market timing 12/25/05 Markets "Long horizon stock investing appears to be much riskier than most people believe. Predicting future stock returns and timing the market appear to be much harder than most people think." The Queen's Christmas message 12/25/05 Christmas "The Queen's Christmas Day speech focused on the natural disasters and acts of terrorism that dominated 2005. In her speech to the Commonwealth, she praised the response by people of all faiths to the tragedies of the past year." Who was Benjamin Graham, and why should I care? 12/25/05 Graham "Insights into - and from - the greatest investment thinker of all time." In defense of the Grinch & Scrooge 12/24/05 Christmas "After attacking corrupt politicians with his biting cartoons, and practically inventing the Republican elephant and Democratic donkey -- Nast drew his Santa Claus for Harper's Weekly in the 1860s. The benevolent 4th century Turkish St. Nicholas was now transformed into a chubby pipe-smoking red-suit wearing, gift-toting American icon, and it didn't take advertisers long to catch on. Victorian era ads, though larger and more visual, still proffer conservative gift choices for Christmas. How about a nice pen set, or some chocolates? By the turn of the century Santa is seen hawking Victrolas, Kodaks, bicycles and sleds. By the 1930s a highly commercial Saint Nick, fashioned from Nast's caricature, is seen swilling Coca-Cola and puffing on Lucky Strike cigarettes. In American, Santa even gives away lung cancer." In defense of Ebenezer Scrooge 12/24/05 Christmas " No businessman in the history of literature has been as misunderstood as Ebenezer Scrooge. His very name is now a synonym for pinch-fisted churlishness and humbuggery." Barclays Canada announces four new ETFs 12/24/05 Indexing "XTR will replicate the performance of the S&P/TSX Income Trust Index. XDV will replicate the performance of the Dow Jones Canada Select Dividend Index. The fund will focus on investing in stocks with higher yields and proven dividend growth and sustainability. XRB, which is designed to proved fixed income investors with inflation protection, will replicate the performance of the Scotia Capital Real Return Bond Index." Graham on fixed income 12/24/05 Graham "investors are led to believe that the very name 'bond' must carry some espcial assurance against loss. This attitude is basically unsound, and on frequent occasions is responsible for serious mistakes and loss." Still going strong 12/19/05 Value Investing "Kahn, the chairman of Kahn Brothers, a low-profile New York investment firm, might be Wall Street's oldest active investor. He's in the office every business day, reading scientific periodicals, annual reports and newspapers in search of undervalued stocks in the tradition of his friend and mentor, Benjamin Graham, widely considered the father of value investing." Why you'll grow rich...very slowly 12/19/05 Gross "In the past decade, we've ridden two jaw-dropping bull markets. First came stocks. Now real estate is the bubble du jour." A pink slip in your stocking? 12/19/05 Management "There was a time that layoffs took a holiday between Thanksgiving and New Year. Not any more." Sticker shock 12/18/05 Law "caught between lawsuits claiming they failed to protect consumers from "hidden" hazards--is there really any mystery about what can happen when you stand on the top of a ladder?--and the impossibility of making their products idiot-proof, manufacturers slap warning labels on everything but the kitchen sink in order to ward off liability." We're still too exuberant 12/18/05 Markets "So he uses a ten-year earnings average, an approach advocated by Graham and Dodd in Security Analysis, the value investor's bible. And while prices are clearly above the long-term trend any way you cut it, by that measure they are still mountainously beyond normal." Act like a saint but think like an investor 12/18/05 Taxes "TD Economics released a paper in October that provides a novel way to think about charity. The idea? Think about your giving as you do your investing. And why not? It can mean more meaningful and effective giving. Here are some highlights from that paper." Deep trouble 12/16/05 World "Nagle explains that the U.S. is compromised by the demands of security, environmental issues and other factors. This has had a serious impact on the pressing need to upgrade port infrastructures. For instance, the well-run South Carolina State Ports Authority is seeing a shortfall in federal funds promised versus those actually paid--and this authority is not alone." You're worth $135,500 12/16/05 Thrift "The country's net worth reached $4.4-trillion at the end of the third quarter, valuing Canadians' net worth at $135,500 per capita, Statistics Canada reported Friday." Yankee doodle dandies: the top 1000 U.S. stocks 12/16/05 Stingy Investing "This year we've expanded our successful stock selection method to cover 1,000 of the largest stocks in the U.S. We've focused only on the very best stocks and moved our giant Top 1,000 U.S. Stocks table online with all the detailed information that you've come to expect from the Top 200." So easy, so profitable: Benjamin Graham's Simple Way 12/16/05 Stingy Investing "If you're looking to pick up a few good value stocks, Benjamin Graham's Simple Way will tickle your fancy. Graham, who taught Warren Buffett, was the father of value investing. The system he outlined in his 1976 article, "The Simplest Way to Select Bargain Stocks" has since become a staple of savvy investors." Newspapers: buys among the battered 12/16/05 Stocks "If newsboys still stood on corners trying to hawk papers, this could be one of their pitches: "Extra, Extra, Read All About It! Pundits Ring Death Knell for Newspaper Biz!" The demise of the newspaper industry has become a favorite topic on both Wall Street and Main Street. Doomsayers point to perceived fundamental weaknesses as circulation figures weaken and advertisers shift spending away from newspapers and toward other media." The Top 200: rating every major Canadian stock 12/16/05 Stingy Investing "We're pleased to say that our modest experiment succeeded beyond our wildest dreams. Our highest-ranked stocks gained an average of 57.6% since we picked them. That's right, you read correctly. We said 57.6%. Even our second-tier picks thumped the market by double-digit amounts." Few bargains left 12/16/05 Value Investing "Based on a price-to-cash flow basis, Europe and Asia are around 9 1/2 times, versus 12 1/2 times, roughly, U.S. At 12 1/2 times, the U.S. is not cheap by historical measures. We are very much valuation-driven, as opposed to outlook-driven. Not that the outlook seems very rosy, by the way, but it is more because of valuation. Five years ago, the beauty was we had a bifurcated, two-tier market with very expensive growth stocks and tech stocks on the one hand and quite a few cheap small and mid-cap value stocks on the other. That gap has disappeared, so everything looks quite expensive in the U.S." Philip Morris wins 12/16/05 Stocks "'This win is very helpful on the litigation scene,' said David Dreman, who oversees $15 billion at Dreman Value Management in Jersey City, New Jersey, including 14.6 million Altria shares and 3.1 Reynolds American shares as of Sept. 30. 'This is a case that a lot of other states were watching.'" 10 rock-solid stocks 12/16/05 Stocks "After reviewing the latest research and interviewing dozens of analysts and money managers, we trained our sights on 10 moderate-P/E stocks positioned to benefit from secular -- not cyclical -- trends." Tweedy Browne goes gunning at VW 12/16/05 Tweedy "Look out Germany Inc., here come the angry U.S. investors. In a development that takes globalization of investor activism to a new level, the powerful U.S. fund manager Tweedy, Browne is mounting an all-out assault on Volkswagen's highest-ranking board member." ETFs are performing well at a lower cost 12/12/05 Indexing "Name a mutual fund category and I'll show you its slimmer, more athletic alter ego." TD plans to terminate ETFs 12/12/05 Indexing "Effective December 13, 2005, subscription orders for new units of the Funds will no longer be accepted. Redemption orders for baskets of shares and for cash will be processed until termination date, on or about March 13, 2006. The outstanding units of the Funds will continue to be listed and posted for trading on the TSX. Units may be purchased or sold on the TSX in the ordinary course of business until the close of market on the termination date, either through registered brokers or participating dealers." Your holiday present 12/11/05 Thrift "Commercialism runs rampant this time of year and while this type of consumerism is good for the economy and makes all those malls seem like the place to be it also usually means that January and February - when the bills start arriving - can be pretty tight financially. This is made worse by the fact that some many people wait until then to do their RRSP contribution as well." Bankruptcy law backfires on credit card issuers 12/10/05 Debt "The industry muscled through tough changes that were supposed to make more filers repay some of what they owe. But that isn't happening." Third Avenue's discount mantra 12/10/05 Whitman "Martin Whitman, manager of the Third Avenue Value Fund, hired Curtis Jensen in 1995 as a successor. A decade later, Whitman, 81 years old, still has not set a retirement date, and his mutual fund is outperforming the Standard & Poor's 500-stock index for a sixth consecutive year." When status has too high a price 12/10/05 Thrift "Dr. Shaun Saunders, a researcher at the University of Newcastle in England, studied more than 1,000 people and found materialistic folks who try to keep up with the Joneses are more likely to be angry, depressed, frustrated, and anxious." Europe's farm follies 12/09/05 World "But there is also a more general resistance to reform that reflects the special place of farming in the French imagination. Its importance runs deeper than agriculture's tiny 4% share of the workforce or its 3% share of GDP. It is not by accident that French politicians rush each year to the Paris Agricultural Fair to pose for the cameras with heaving bulls. Why are the French so infatuated by farming? And what would happen to French farming if subsidies were slashed?" Hear that hissing sound? 12/08/05 Real Estate "To judge the fair value of homes, the OECD uses the ratio of prices to rents, which is a sort of price-earnings ratio for housing. If prices are too high relative to rents, potential buyers will rent not buy, eventually pushing down real prices. In Australia this ratio is 70% above its average level over the period since 1970." Drowning in fines 12/08/05 Government "As an example of the record of state regulators, take the office of New York's attorney-general, Eliot Spitzer. New York received $100m in a settlement with Merrill Lynch, after the equity-research furore, and $40m in another with Canary Capital, over mutual-fund trades. All of it has been funnelled into the state's general fund. None has yet gone back to the investors who had been ripped off." Seth Klarman's guide to finding value 12/06/05 Klarman "If Benjamin Graham were alive today, he might, at first blush, be more impressed by the appreciated value of Seth Klarman's book Margin of Safety, than with the performance of his investment fund ... that's at first blush. Seth Klarman is a value investor and Portfolio Manager of the investment partnership The Baupost Group, and when Klarman first published Margin of Safety it had an original cover price of $25. The book is now out of print, and today sells on eBay for $1,145. That's an increase of 4580%." John Dorfman's small stocks 12/06/05 Dorfman "I'm partial to small stocks, partly because they are followed by fewer investors than large stocks. That increases my chance of finding a bargain." The world according to "Poor Charlie" 12/05/05 Munger "The academics have done a terrible disservice to intelligent investors by glorifying the idea of diversification. Because I just think the whole concept is literally almost insane. It emphasizes feeling good about not having your investment results depart very much from average investment results. But why would you get on the bandwagon like that if somebody didn't make you with a whip and a gun?" A Christmas Carol 12/04/05 Christmas "MARLEY was dead: to begin with. There is no doubt whatever about that. The register of his burial was signed by the clergyman, the clerk, the undertaker, and the chief mourner. Scrooge signed it: and Scrooge's name was good upon 'Change, for anything he chose to put his hand to. Old Marley was as dead as a door-nail." Christmas movies and bad economics 12/04/05 Christmas "But let's talk Christmas turkey. The engine driving the "commercialization" of Christmas is, quite simply, children's desire for presents. As every parent soon discovers, it is not the thought that counts for young children, but the goods. They want nice toys, which do not come free. They have to be made, and the cost of making them has to be recouped." Web site suggests financial planners 12/04/05 Value Investing "He is a passionate about value investing, investing in seemingly cheap stocks: "Certain patterns are obvious," he says, "and one is that virtually every successful investor over any 10-year period has been a value investor. It doesn't take a genius to figure that out." Something can go wrong with even the best companies and that's the time to buy, when there is a "margin of safety," he said, quoting Benjamin Graham." Investing logically 12/04/05 Markets "In looking at the polls, the strategists try to stay one step ahead. "Think of the investor polls as a crowded theater," Johnson said. "If the polls are telling us everyone is in the market, then, if the smallest thing happens, everyone tries to run though one door."" The true cost of changing careers 12/04/05 Debt "Just getting the education your dream job requires can cost a bundle. Consider all the trade-offs before taking out your student loans." Healthy planning 12/04/05 Retirement "Though the standard age for retirement is 65, only 64% of people age 55 to 64 are employed. The other 36%, not yet eligible for Medicare, either have to be married to someone with employer health insurance or have to scramble to find coverage. The scrambling is occasioned by two things. One is that, even for healthy people, medical insurance is fearsomely expensive. Employers have seen their costs climb 63% over the last four years, says personnel consultant Towers Perrin, and will spend an average of $14,500 next year on insurance for a family of four. The other is that individuals trying to buy insurance on their own confront a difficult marketplace whose providers don't particularly want their business, especially if they have a preexisting medical problem." Avoid paying someone else's taxes 12/04/05 Taxes "Sorry to tell you, but pleading ignorance is just as ineffective with the tax collector and the courts. One particular situation comes to mind -- and it's easy to get caught in this trap." True cost of Christmas: $18,348.87 12/03/05 Christmas "Avian flu is making it even more expensive for true loves to make the ultimate romantic holiday gesture -- buy every item mentioned in '12 Days.' With repetitions? Make it $72,608.02." Clicks, bricks and bargains 12/02/05 Stocks "The internet was supposed to batter traditional retailers. Instead they are coming to dominate it" Oops-onomics 12/02/05 Academia "Did Steven Levitt, author of 'Freakonomics', get his most notorious paper wrong?" Plenty of room for improvement 12/01/05 Indexing "Swensen counsels that intelligent investment behavior begins with a priority on asset allocation that rests on the bedrocks of diversification, equity orientation, and tax sensitivity. People should have realistic expectations, however, and remember that, while 200 years of data suggests the superior return advantage of equities, from 1921 to 1996 dividends provided the major part of equities' 4.3% real average annual return." Arab world, Iraq and al-Qaeda 11/30/05 World "As al-Qaeda scores own-goals in its backyard, many Arabs, including some Iraqis, are beginning to rethink their position on violence in the name of resistance" A world of trouble 11/30/05 Markets "I have found three things in life to be generally true: Never play poker with a man named Doc. Never eat at a place called Mom's. And--most important--never, never invest in anything with "emerging markets" in its title." Income trust checkup 11/30/05 Trusts "The number of trusts that have either suspended or cut their distributions continues to rise." Our elected insider traders 11/28/05 Markets "It turns out that our senior legislators somehow are very astute stock pickers, whose transactions, when evaluated at published market prices, delivered an overall performance twice as good as that of all the corporate insiders themselves, who must report their every trade in their respective stocks within hours of making them so that they can be published promptly. Could the senators (those who reported trading, anyway) know something the rest of us don't know? While we think about that question, consider that US households overall underperformed the stock market in the same period by 1.4 percent, while their elected representatives in the senate outperformed the market by 12 percent (those corporate insiders outperformed by 6 percent). A rising tide like the 1995r boats." What's in Buffett's shopping bag 11/28/05 Buffett "He's making up for missed chances and stocking the liquor cabinet while staying mum on key stakes" Trusts versus dividends 11/27/05 Dividends "Trusts are still king if you want the highest possible income, but dividend stocks will be surprisingly competitive on an after-tax basis. The appeal of dividends is all the greater when you consider that you're more likely to get a reliable, even growing, stream of dividends from the average blue-chip stock than you are to get an uninterrupted flow of cash distributions from the average income trust." Income trusts still the better tax deal 11/27/05 Taxes "But theory is never perfect. In this case, there will still be a tax advantage to income trusts. Consider an an Ontario resident, in the highest marginal tax bracket in 2006." Audio interview with Irwin Michael 11/26/05 Value Investing Find out what the ABC maestro is buying today. [MP3] Advertising: on the mat 11/25/05 Management "One of the biggest users of direct mail is the financial services industry, which spent around $2.5 billion on mail shots in America last year. Unfortunately, people seemed less interested than ever in signing up for new credit cards or insurance policies. The response rate from some campaigns has fallen to just 1.4%, according to America's Direct Marketing Association (DMA). In previous years it was well above 2%. When it comes to responding to "direct-order" mail shots (signing up to an offer, as opposed to merely expressing an interest), the rate has fallen even more dramatically, to 0.7% from 3.5% in 2004." Too many turkeys 11/25/05 Management "Executive pay is on the rise again - and so are complaints that ordinary performance is attracting extraordinary rewards" Income trust decision announced 11/24/05 Dividends "The federal government will cut dividend tax rates to deal with the tax arbitrage issue surrounding income trusts, and resume tax rulings on trust conversions" - Gee, only a few days before an expected election. Walking the line between scrooge and santa 11/23/05 Thrift "Here's how to prevent dreams of the Sugar Plum Fairy from becoming a nightmare when the credit-card bill arrives: Develop a holiday spending plan." Experts and markets 11/23/05 Academia "Economist Burt Malkiel says it this way: "While it is abundantly clear that the pros do not consistently beat the averages, I must admit that there are exceptions to the rule of the efficient market. Well, a few. While the preponderance of statistical evidence supports the view that market efficiency is high, some gremlins are lurking about that harry the efficient-market theory and make it impossible for anyone to state that the theory is conclusively demonstrated."" Ben Bernanke's favorite stock 11/23/05 Stocks "If you found out that Warren Buffett, Peter Lynch, or Alan Greenspan held only one stock in their personal portfolio, chances are you'd want to know what it was. So when I learned that Ben Bernanke, who is likely to succeed Alan Greenspan in the world's most powerful economic policymaking post, held only one stock, I found that newsworthy. Bernanke held stock of a company that evokes strong feelings -- both pro and con -- among investors. That company is Altria Group, formerly Philip Morris, one the world's largest manufacturers of cigarettes." FMF and 'predictable results' a cautionary tale 11/23/05 Trusts "FMF, for those who managed to sidestep the shrapnel and don't know the company, is in the mortgage-origination business. It sounds very safe and boring, but in the U.S., it's not. FMF's business model is to find people who need money to buy a home, then sell those loans to other investors at a profit, usually within 35 days. Most of its business is so-called "sub-prime" mortgages -- generally, borrowers with poorer credit. It operates in 38 states. Naturally, then, when it came time to go public, FMF looked to the Toronto Stock Exchange as the best place. FMF may not have any executives, customers or offices here, but it is based in Southfield, Mich., and isn't Michigan right on the border with Canada? You can see the logic. What our country does have is a group of yield-crazed investors and investment banks willing to cater to them. So out the door went FMF units, promising an 11-per-cent yield that was as solid as Jell-O." E*Trade slashes its fees in bid to shake up market 11/23/05 Brokers "Discount broker E*Trade Canada is to announce today that its minimum commission for trading stocks on the Internet will fall 26 per cent effective Jan. 10. The new rates are to be $19.99 for mainstream investors and $9.99 for active traders, down from E*Trade's current top fee of $26.99 and as much as $29.95 at other firms." 5 stocks that might exploit a year-end bounce 11/22/05 Dorfman "As a year winds down, many people sell their losing stocks to reduce their income tax. Traditionally, some of these stocks get oversold. They often bounce back in January as bargain hunters swoop in." Stock turkeys of 2005 11/22/05 Markets "But with the holidays and the end of the year fast approaching, investors are also bound to be pondering turkeys other than the birds Americans will be eating Thursday -- i.e., those of the stock variety. And there are plenty of them." Value investors struggle to find stocks 11/22/05 Klarman "Investor Seth Klarman is a patient man. Which is good, because as president of the $5.4 billion investment group Baupost Group, he isn't finding much to buy these days. About 45 percent of his Boston-based fund is in cash, waiting for good companies to fall from investor favor." Berkshire Hathaway reveals stakes 11/22/05 Buffett "According to amended U.S. regulatory documents, Berkshire Hathaway disclosed that it held 44.7 million shares of Anheuser-Busch stock valued at about $1.9 billion and 19.9 million shares of Wal-Mart stock valued at about $874 million as of September 30." Spur growth -- dump mortgage deduction 11/19/05 Real Estate "Then in 1988, Nigel Lawson, Margaret Thatcher's finance minister, the Chancellor of the Exchequer, changed the rules. He pulled the top tax rate down to 40 percent and cut back on MIRAS. Property values dropped as much as 20 percent -- for a while. The fact that interest rates were heading up at the time made the pain even worse." End the tax year right 11/19/05 Taxes "We're quickly coming to the end of 2005. And people can get pretty creative with their spending to create last-minute deductions. (Hey, sometimes deductions seem so logical you'd swear they must be legal.)" Norshield receiver finds little money 11/19/05 Funds "Retail investors in the failed Norshield Group of companies, which include Norshield Asset Management and Olympus United Funds, may only get back $8.5 million of the $132 million they placed in Norshield funds, according to the second report of receiver RSM Richter." Tweedy analyst the saga's driving force 11/18/05 Tweedy "Ms. Jereski, a former investigative reporter for The Wall Street Journal, had left journalism and taken up a job analyzing stocks with Tweedy, a small but storied New York firm built on the value investing model of Warren Buffett. For the better part of a year, Ms. Jereski had been hounding Lord Black and other officials at Hollinger International Inc. to explain why tens of millions of dollars worth of non-compete fees were being collected by the executive team, rather than the company itself." Warren Buffett, unplugged 11/17/05 Buffett "The hands-off billionaire shuns computers, leaves his managers alone, yet has notched huge returns. He just turned 75. Can anyone fill his shoes?" No good deed goes unpunished 11/17/05 Burgundy "Short-termism is not a victimless crime. It has been creeping up on us for years. In its earlier manifestations, it simply demanded earnings increases every quarter, and drove managements to give earnings guidance and sometimes to manipulate earnings. Later it made managers embrace compensation schemes like stock options that aligned managers with very shortterm oriented shareholders in seeking to pump up stock prices by any available means. And now, it appears that short-termism will increasingly affect the capital structure decisions and growth strategies that managers implement on behalf of their shareholders. These decisions are the very essence of stewardship and we wonder if shareholders are aware of what they might potentially be losing if companies end up remote-controlled by financial engineers. A company is not just an accumulation of assets and liabilities. It is a living organism with its own culture and rules, and it needs strong and committed leadership in order to thrive." Sarbanes-Oxley 'reform' harming economy 11/14/05 Accounting "Although Sarbanes-Oxley was sold as a cure for Enron-like corporate misbehavior, the law mostly fails to target the real wrongdoers and instead punishes all public companies as a class. Its costliest part, called Section 404, mandates that auditors not just sign off on a company's numbers, but also its "internal controls."" 3 big reasons couples fight about money 11/14/05 Thrift "Arguments about money are often really struggles for power. Managing these issues can smooth out the bickering." U.S. portfolio disclosures offer imperfect view 11/14/05 Markets "In addition to excluding short positions, the rules also allow filers wide discretion to exclude their long positions as well. The filers of 13-F's can apply to the SEC to keep certain stakes confidential. Even if unsuccessful, the lengthy SEC review process can result in months of secrecy." Guys, step aside - women are better investors 11/14/05 Markets "The logical conclusion is that men should be cleared off the trading floors. Hedge funds should be installing day nurseries. Investment banks should be getting rid of all that black granite and redecorating their offices in some nice pastel shades. The men have been in charge of the money for long enough. It's time to give the women a chance. It may not be that simple. The markets are competitive and ruthless. If women were better at investing than men, wouldn't more of them be running the big funds? Gender discrimination may be one reason. Yet it is also possible that the truth is more subtle than someone such as Horlick makes out. While a 'feminine' touch may well be the key to putting together a winning portfolio, it probably doesn't matter much whether such an approach appears in the office in trousers or a skirt." Patient Capital Q3 11/11/05 Value Investing "Income trusts have also increased in value because interest rates have declined. In effect they have behaved like fixed income instruments; rising as interest rates fall. It should follow then that as interest rates rise income returns should at best be muted. In our view, the combination of unsustainable distributions, very high valuations and rising interest rates spell the potential for a substantial loss of capital in the future." Stick to your guns, Fannie 11/11/05 Dreman "If you own either of these stocks, hang in there. If you don't, buy them. They're cheaper. Fannie Mae trades at an estimated 6 times trailing earnings, giving you a margin of safety even if earnings are restated downward. Freddie is at 15 times earnings." Disentangling size and value 11/11/05 Value Investing "When we separate the size effect from the value-versus-growth effect, we find that size as measured by market capitalization is far less powerful than is generally believed. And, reciprocally, the value effect - because some of its efficacy has been siphoned off by the mislabeled size effect - is far more powerful and more consistent than is generally believed." When index funds go bad 11/11/05 Indexing "The results indicated that, as with most active funds, investors' timing decisions were costly when it came to index funds. The dollar-weighted returns for virtually all large-cap index funds were worse than their official returns for the trailing 10-year period through the end of the third quarter 2005. As the table below shows, poor timing cost Vanguard 500 shareholders 2.7 percentage points of returns per year over the past decade." 5 Dow dogs about to have their days 11/09/05 Value Investing "The traditional Dogs of the Dow theory no longer works, so here's a better way. Track down giants like Wal-Mart and Home Depot that are snapping up their own stock." Invest one drip at a time 11/07/05 DRPs "Investing relatively small amounts every month in dividend stocks can add up to big money in the long run. Here's how to figure out what to buy -- and how to buy it." Better than Buffett 11/07/05 Value Investing "Companies mired in bankruptcy and turmoil may look ugly to some investors, but to Ian Cumming and Joseph Steinberg they're downright foxy. Using their publicly traded investment firm, Leucadia National, the duo have built a reputation as master takeover artists who buy distressed companies at discount prices, revive them and sell them for hefty profits." Don't wind up divorced and destitute 11/06/05 Thrift "The worst thing you can do is to ignore money matters while you're married. Here are 9 ways to divorce-proof yourself now." ETFs provide access to the world of bonds 11/06/05 Indexing "It's never easy to buy bonds in small, retail-sized amounts without getting hosed a couple of points in commission. It's not that dealers are trying to rip you off, it's just that it costs a dealer about $50 just to write a ticket; so on, say, a $5,000 bond purchase, the transaction costs alone are a point, and your broker, er, account executive, needs to get paid something, too." Volatility, thy name is bonds 11/06/05 Funds "Bonds are supposed to protect against the sort of stock market treachery we saw this October, but you'd never know it from what actually transpired. As stocks fell, bonds gave them a run for their money." Test yourself 11/06/05 Taxes "So you think you're smart when it comes to tax issues? How about taking the Mackenzie Financial Great Canadian Tax Test? This week, the mutual fund company released the results of a test given to 1,565 Canadians. Over all, Canadians get a "C" grade." Value investors value newspapers 11/03/05 Stocks "Despite obituaries detailing their demise, newspaper companies still hold intrigue for some contrarians. Here's why they haven't written off old media yet." Man versus machine 11/03/05 Economy "Both the automated parking and the automated ticket machine were new since the last time I'd been to that theater, no more than a few months ago. And that is why America's low-skilled workers are taking it on the chin. Forget the guy on the phone in Bangalore telling you how to use your new computer. He's a red herring. The job loss statistics tell the same story as they always have: Technology replaces far, far more low-skill jobs than foreign workers do. Think voice mail, ATM machines, automated customer service lines, self-serve gas, online bill paying, automated package tracking, and on and on." Simmering Six and Six-High Six 11/01/05 Dorfman "Each November, I write about two groups of stocks. One I call the Simmering Six. These are half a dozen stocks that have risen strongly in the first 10 months of the year, yet still meet some basic value criteria. These are stocks I like. The other group is the Sky-High Six. These are the six stocks with the highest price-earnings ratios among companies with a market value of $500 million or more and earnings per share of a dime or more. Almost without exception, these are stocks I would avoid." Investing 'cult' could use more members 10/31/05 Value Investing "Most business schools emphasize modern portfolio theory, the central tenet of which is that the market is so efficient it cannot be beaten with any regularity. Portfolio theory stresses, sensibly enough, diversification as the best way to spread market risk, but it also generally holds that because the market is efficient, those who beat it are lucky rather than skilled. As Buffett put it to me recently, ''You couldn't advance in a finance department in this country unless you taught that the world was flat.''" Held hostage in China 10/28/05 World "David Ji used a few good contacts in his homeland to build a billion-dollar business selling cheap DVD players in the U.S. Then he crossed a supplier--and disappeared." Digging for deep value 10/28/05 Value Investing "The basic idea of that approach is to find stocks that are attractively priced in relation to expected future earnings growth. And sometimes, the market hands value investors opportunities that are almost too good to resist. We'll call these kinds of stocks "deep value"." When lobster was fertiliser 10/28/05 Markets "Demand for lobsters, for example, has evolved in a curious way. The armour-plated delicacy used to be super-abundant and dirt cheap, he says - so cheap that it was fed to inmates in prison and children in orphanages. Farmers even fertilised their fields with it, and servants would bargain with their employers to be given it no more than twice or thrice a week. As the crustaceans became harder to find, canned lobster ceased to be profitable. Live lobsters, by contrast, grew in status as they became dearer. A meal that cost $4 (in today's money) in the 1870s cost $30 or more a century later. What was once a manure substitute is now a prized delicacy. What the lowliest servant once refused, the swankiest restaurateur now offers with pride. Mr Jones's menus may reveal something about the historical fate of fish, crustaceans and molluscs. But there is no accounting for that peculiar land-based mammal that eats them." The flu of 1918: Dow data 10/26/05 Markets The data shows that the big influenza epidemic of 1918 had little impact on the markets. 33 Stocks in the Buffett portfolio 10/26/05 Buffett "Many of these stocks aren't Buffett's picks, since Lou Simpson, who manages the equity portfolio at auto-insurance subsidiary GEICO also invests the firm's capital. Buffett and Simpson share similar investment styles--buying high-return businesses, focusing on best ideas--and they operate independently. Although we're occasionally asked, we rarely devote time to guessing which stocks are Buffett's picks and which are Simpson's. We think this is irrelevant--as Buffett pointed out in his 2004 shareholder letter, Simpson is one heck of an investor, having outperformed the S&P 500 SPX by 6.8% over the past 24 years. We'd gratefully learn from either." Share Purchase Plans 2005 10/26/05 Stingy Investing "The long-term risk-averse investor should consider three factors when selecting stocks with Share Purchase Plans (SPP). First, they should demand a low price. Second, they should require earnings stability. Finally, investors should look for modest, but not necessarily spectacular, earnings growth. I've used these three criteria to find interesting stocks for Canadian MoneySaver readers in 2001 and 2003. In this article, I take a look at the performance of my past picks and provide a new list of SPP stocks to consider." Q&A session with Warren Buffett 10/25/05 Buffett "The major themes Mr. Buffett spoke about--do what you're interested in, have passion, always act with integrity, don't follow the crowd, respect your community, the best ideas are the obvious ones" Profiting from the unexpected 10/24/05 Markets "Using options, he can keep betting for years on unlikely events, losing a small amount of money on his many bets that turn out wrong. But in the rare instances when he's right, he makes a fortune. It sounds impossible, but he is proof it works. "People see me lose money all the time," says Taleb, who shared his tax returns to show that he still makes a seven-figure income from trading even while only doing it part-time. "I reduced my trading out of love for philosophy," he says. "Not out of a desire to make money out of books."" Save big on a tiny income 10/23/05 Thrift "19 ways -- and counting -- to save when you make next to nothing." Tax Evasion 10/23/05 Taxes "My grandfather always had words of wisdom for me. He used to say: "Tim, if at first you don't succeed, skydiving is not for you." I think it's interesting that skydiving is a lot like tax evasion. If you do it once and you're successful, you'll want to do it again. And each time you succeed, and reap the personal benefits, you'll try it over and over. But let me tell you, when things go wrong, they can go very wrong." Polaris and Exxon show high profit and low debt 10/22/05 Dorfman "Two qualities I love in a company are high profitability and low debt. High profits signal that a company is doing something right -- providing superior service, offering an innovative product or filling a need that others haven't yet discovered. The allure of low debt is subtler. It's not just a matter of averting bankruptcy. Low debt allows a company the luxury of choice. For example, it can acquire strapped competitors, increase dividends or pour money into new products." Graham's Simplest Way 10/21/05 Stingy Investing "Benjamin Graham is often called the father of value investing and during his lifetime provided the world a variety of useful stock-selection techniques. Remarkably, some of his simplest methods have continued to outperform long after his passing. Although many of Graham's methods are easily described, their continued success relies on the fact that they can be psychologically hard to put into practice." Six feet under 10/21/05 Stocks "Is Batesville Casket deviously fixing prices and gouging the bereaved? Or is it just a tough company protecting the channel?" A hole in the middle 10/20/05 Bonds "At the end of the day, the sharpest shock may come from the bankruptcy courts after all. Delphi was known to be a vulnerable firm in a troubled industry. Refco, America's biggest independent-commission futures broker, caught the markets by surprise when it filed for protection this week. If the next couple of such surprises lead to a reduction in the supply of capital - either because investors take fright and bond spreads balloon or because banks turn stingy - that will make the cycle turn faster. Until then, all one can say is that credit quality, like Krispy Kreme's finest product, has a hole in it." Imitation is the sincerest form of flattery 10/18/05 Buffett "First we empirically determine the returns Berkshire Hathaway has experienced in both the long-term and risk arbitrage investment activities and estimate annualized returns in the arbitrage investments to be several times larger than even Buffett's estimates. Next we show a popular mischaracterization of Warren Buffett's investment style. Most books and financial press accounts describe Buffett as a value investor who looks for undervalued securities. This is not borne out by his investments from 1980 to 2003. Using the Fama and French size and book-to-market categories we show Buffett's style is consistent with a growth investor in big stocks. Buffett himself admits in his 1987 Letter to Berkshire Shareholders "Charlie and I have found that making silk purses out of silk is the best that we can do; with sows ears, we fail." His philosophy places emphasis squarely on the determinants of value: the estimation of future cash flows and growth rates which is also consistent with his principle of investing in businesses that he understands and is not difficult to predict." ConocoPhillips, GM are in my purloined portfolio 10/18/05 Dorfman "Once a year, I turn myself into a thief. Don't call 911. What I'm stealing are stock ideas from some of my favorite money managers. Yes, they are my competitors. But most of them are also my friends. And my theft is accomplished by combing through public filings of their holdings." Bill's bad bet 10/18/05 Value Investing "As Miller sees it, "Five thousand years of commodity-price history" says that oil should be priced at the "marginal cost of production"--the price at which it makes sense for companies to find and extract it from the ground. And that, Miller says, is currently about $40 per bbl." The $91 Billion conversation 10/17/05 Buffett "Warren Buffett and Bill Gates answer questions, first for 2,000 Nebraska students, then for FORTUNE. The billionaire buddies on the economy, philanthropy, and investment strategy" Bay St.'s rich secret: churning income trust funds 10/17/05 Trusts "Some day, investors will realize that they will get richer if they avoid turning over their trust investments every year. You don't churn your mutual funds because you don't want to pay the fees, so why would you churn your trust funds? Avoid it and you'll save the agent's fee year after year. Add it all up and you're talking real money. Churning your trust fund is even more ridiculous when you realize that the new fund you bought at the end of the year might look pretty much like the one you just sold." Rush to file for bankruptcy 10/16/05 Debt "For the week ending Oct. 8, bankruptcy courts reported a total of 102,863 filings, up from the previous record high of 68,387 the week before, according to data from Lundquist Consulting. Year-to-date, the number of filings has grown 19.4 percent compared with the same period in 2004. Based on preliminary data, Lundquist researchers are expecting to see more than 200,000 personal bankruptcy filings for for the week ending Oct. 15, said Jane Truch, senior manager of research and analytics at Lundquist." Barclays muscles in to zap TD's last advantage with ETFs 10/16/05 Indexing "Barclays dominates the ETF business in Canada to the extent that TD is very close to invisible. But while Barclays has offered ETFs for investing in the blue-chip S&P/TSX 60 index, it had nothing for investors who wanted to buy into the much broader S&P/TSX composite (200 stocks versus 60). Now, Barclays is about to neutralize TD's one small advantage." Canada Savings Bonds buyers are selling themselves short 10/16/05 Bonds "Old habits die hard -- that's the polite explanation of why people waste their time and money buying Canada Savings Bonds." Now for the reckoning 10/14/05 Stocks "Wilbur Ross, a financier who made an impasse-breaking deal with the USW that enabled the bankrupt steel industry to consolidate and leave Chapter 11 in good shape, notes two important lessons from that experience that the UAW - and others, too - might do well to heed. First, American firms need to be globally competitive and can no longer afford to award pay and fringe benefits solely according to American norms. Secondly, "at the end of the day, the only job worth having is one at a solvent company. What's the point of a gold-plated contract with a firm that is going bust?"" Which side are you on? 10/14/05 Stocks "Delphi's Mr Miller would have us focus on one: the clash between the interests of young workers and those of their predecessors. As he put it stirringly in an interview with the Financial Times, inter-generational warfare looms "as young people increasingly resent having their wages reduced and taxed away to support social programmes for their grandparents' income and health-care concerns". Short of flinging the oldsters to the sharks, there is no escaping the demographic trend that has fewer workers supporting more baby-boom retirees in most of the developed world (and part of the developing world). The question is whether the burden should fall on workers in specific firms, on all workers, or on taxpayers in general." A broker battered 10/14/05 Crime "The boss of Refco, one of America's leading futures brokers, has been arrested on fraud charges a couple of months after the firm's successful flotation. The scandal may damage the reputation of an industry that has lately begun to forge an image of respectability" Moral hazard 10/14/05 Government "A suprising thing happens when the government dishes out heavily subsidized pension insurance: People use it." Lexmark and Brunswick hit new lows 10/13/05 Dorfman "The New Lows list -- a daily compilation of stocks hitting 52-week lows -- is a rich hunting ground for stock-market bargain hunters." Pfizer and Kimberly-Clark show dividend appeal 10/11/05 Dorfman "Don't scoff at dividends. In flat and down years, they are a big component of total return in the stock market. And they are sincerity barometers, giving an indication of how much faith a company's board really has in its prospects." How fund rankings can cause stocks to gyrate 10/09/05 Funds "Mutual funds are a main cause of the boom-and-bust cycle that so often occurs among individual stocks and industry sectors, a new study has concluded." Amerigroup and Diebold are on the casualty list 10/09/05 Dorfman "Amerigroup Corp. stock was smacked around last quarter, ending with a 52 percent loss. Diebold Inc. was beaten down 23 percent. Wabash National Corp. was roughed up for a 19 percent decline, and H&R Block Inc. was bruised with a 17 percent thrashing. I am putting those four stocks on my quarterly Casualty List. At the end of each quarter, I put a few stocks that have suffered big declines, and that I think have comeback potential." Trailer fees: a vitamin or toxin? 10/09/05 Funds "Most investors don't understand trailer commissions and the inherent conflicts-of-interest they cause. Many don't know they exist despite the many articles that have been written on the topic. Now that you know they exist, ask your adviser to disclose them and make sure you get your money's worth." RRSP overcontributions can boost your nest egg 10/09/05 Taxes "When it comes to the last year for making contributions to your registered retirement savings plan, a little creativity can help you boost the final value of your portfolio. Here is one approach to take." Piggy bank -- or house of cards? 10/08/05 Real Estate "More and more homebuyers are discovering that in a bull market, acquiring assets with other people's money is the path to riches. They're borrowing a rising percentage of their purchase prices, contributing to the housing boom. The danger is that if prices begin to fall, people who have stretched to buy houses with 100% financing will be under water on their mortgages and at risk of default if they have to sell." The sun also rises 10/08/05 World "The slow growth in productivity that makes OECD forecasters gloomy about Japan's potential was a consequence of the country's astonishing waste of capital during the 1990s, combined with a reluctance to cut jobs. Money was misallocated during the great stock and property bubble of the 1980s, but then even more was wasted in the next decade, as banks kept "zombie" companies alive and politicians raided the biggest pork barrel in history. Now that is past, even a modest improvement in the allocation of capital and the use of labour would boost returns and productivity. Reforms in corporate law and changes in the capital markets make it likely that the improvement will be better than modest. And, as workers become scarce again, further investment in information technology and other sorts of automation should boost productivity." Is your kid a spoiled brat? 10/06/05 Thrift "Instead of an iPod nano, give your kids the tools they need to be financially independent adults." Weitz buys Wal-Mart, Tyco 10/06/05 Value Investing "Weitz has managed the fund since 1986 and sticks to the value- investing philosophy developed by the late Benjamin Graham and adopted by Buffett, the world's second-richest man according to Forbes magazine's annual survey. He buys shares of companies he views as inexpensive that have products or services he understands, excess cash and limited competition." Empty houses, falling prices: A boom dies 10/03/05 Real Estate "You can see how the housing bubble is bursting in places like Columbus, Ohio, where builders and lenders threw common sense away and enticed people to buy homes they couldn't afford." Blogging toward financial sanity 10/03/05 Thrift "I was skeptical about starting a blog, but then a real community emerged -- and together, we're bucking up our fiscal resolve to battle spending and debt." So what do you have to do to find happiness? 10/03/05 Health "It's difficult to resist the logic of the happiness doctors. Stay in your Eeyore-ish bubble of existentialist angst and have a life that's short, sickly, friendless and self-obsessed. Or find a way to get happy, and long life, good health, job satisfaction and social success will be yours" Think before giving a child the title to your home 10/02/05 Taxes "There are four key lessons to learn from this story: Parents should always talk to their kids about their estate planning. Mr. D and the others had no idea that they were on the title as owners of the property. They may have been able to do some planning to minimize the ultimate tax hit. Always get proper tax advice when doing estate planning. The lawyers involved in transferring the title to the children did not appear to understand all the tax implications. Think twice before putting a child on the title on your home. In most cases, all you'll save are probate fees, but the potential tax (and other) problems you create will far outweigh these fees." 8 financial train wrecks you can avoid 09/30/05 Thrift "'Just because they say 'I love you' doesn't mean they'll pay you back' -- and other tales of money misery. Watch. Learn. Take notes." Too broke even to declare bankruptcy 09/30/05 Debt "One of the indignities of going broke is that filing for relief is expensive and getting more so. Here are six ways to scrape up the cash." Saxon fund keeps it simple 09/30/05 Funds "Howson believes his value-investment style has also contributed to his success. He emphasizes the adherence to his style - the fact that he applies it consistently - and points to his outright rejection of technology stocks for Saxon Balanced fund over the past five years as an example of that discipline leading to strong results over the long term." Coffin spiral 09/29/05 Dreman "Military pilots call it a "coffin spiral"--when their plane is so out of control that they can't recover. That's the situation today for long-term bonds, those with maturities over ten years. The reason is that a killing turbulence of inflation is on the way, pushing bond yields up and prices down. The first sign is energy's rising price--filling up the tank is twice as expensive as two years ago--and that affects all corners of the economy." Make room for dividend payers 09/28/05 Dividends "You can't find a clearer sign that a company is profitable, well-managed, and committed to sharing the wealth with shareholders than a long track record of paying dividends. If the company has also consistently increased the amount of cash paid out in dividends, that's all the better. Studies have shown that the shares of companies that pay dividends tend to beat those that don't, usually with a lot less risk." The Caribbean and sugar 09/27/05 World "Four decades after independence, it is hardly surprising that colonial trade patterns are under threat. Caribbean economies do have a future, but a very different one, as service centres. As well as tourism and offshore finance, both of which could expand further, there are plenty of niches. A recent World Bank report noted that almost 70% of overseas medical graduates registered in the United States were trained in the Caribbean's 23 offshore medical schools. Some countries need help to make the switch from sugar and bananas. But the future need not be sour - provided that the Caribbean's politicians look to embrace it, rather than cling to the past." Dividends and the three dwarfs 09/26/05 Dividends "Dividends not only dwarf inflation, growth, and changing valuation levels individually, but they also dwarf the combined importance of inflation, growth, and changing valuation levels. This result is wildly at odds with conventional wisdom, which suggests that, while the return from bonds is wholly dependent on income, stocks provide growth first and income second." Beyond bling 09/25/05 Stocks "Claire's Stores meets five of those six criteria and has two other points of note. It has increased its dividends by at least 10% a year, on average, over the past 12 years, and it has no long-term debt. It has certainly made money for its shareholders. But should we care particularly about one smallish company, whose main stock in trade is selling flash fake jewellery?" Changing income trust rules could crack nest eggs 09/25/05 Taxes "Let's put this whole concern in perspective. In 2004, $300-million in tax revenue was "lost," according to the Department of Finance. Actually, not true. This claim ignores the fact that many of those dollars will be collected in the future. Income trusts typically result in a tax deferral rather than an elimination of tax. But let's not argue over such trivial details. It's also important to realize that $300-million represents just 15/100ths of 1 per cent of Canada's $195.8-billion in revenue in 2004-05. That's the equivalent of a $50,000-a-year income earner giving up $75. Heck, the income trust market has plenty of room to grow before deferred tax revenue should be a concern. A word to Mr. Goodale: Take a Valium." Steer clear of 'flood cars' 09/25/05 Thrift "Hurricane Katrina swamped hundreds of thousands of new and used cars. Some of them will be polished up and sold in used car lots near you. Here's how to protect yourself." Protect your wallet in a divorce 09/25/05 Thrift "Making plans to preserve your assets in case of a divorce may not be very romantic. But with half the population headed for divorce court after a trip down the aisle, it's not such a bad idea." Schnitzer, Chevron, Reebok pass '15-15' screen 09/22/05 Dorfman "The concept is pretty simple. These stocks show earnings growth of 15 percent or better for the past five years. And they sell for 15 times earnings or less. Hence the name 15-15. This year only 6 percent of the 2,448 U.S. stocks with a market value of $500 million or more passed the screen." Wild west accounting 09/21/05 Accounting "If you steal a Canadian's wallet, you could end up in jail. But if you steal a Canadian's retirement savings, little is usually said or done about it. Unlike in the United States, we are not seeing any exemplary prosecutions for securities fraud in Canada. And without any widely perceived deterrent, we are virtually encouraging the scam artists to continue taking advantage of Canadian investors." Investing in the dark 09/21/05 Accounting "One of my chief complaints about the trusts is that a majority of them don't seem to be setting aside enough money for maintaining their assets when it comes to calculating how much cash is available for unitholders. It didn't take some trust managers long to figure out that by underestimating maintenance needs, they could overstate distributable cash and get a higher selling price for their units. Recognizing that this is a problem, the CSA stated that it "might" require companies to improve disclosure on the issue in their prospectuses. The bigger problem, aside from the word "might," is how they are going to know who does and does not comply with this guidance. The truth will only be known years later when the selling shareholders have vanished and remaining investors have no recourse." FPA's Robert Rodriguez likes cash 09/20/05 Value Investing "If I look at the marketplace in general, we see the market as being very flat in valuation. So therefore, the undervaluation in small- and mid-caps has effectively been eliminated in the last five years because of their superior performance vs. large-caps. There may be some value in the micro-caps. But we still think that the earnings expectations are still overstated on average. We have been saying for a while that earnings in large-cap stocks will be disappointing, and you are starting to see that now." Betting against the crowd 09/20/05 Value Investing "For contrarians like Wadhwaney, 51, investing is a matter of avoiding manias and searching instead for bedraggled castoffs that are cheap precisely because the In crowd won't touch them. "I don't buy prime merchandise," he says. "I buy stuff that's fraught with discomfort. I buy some terrible things." Terrible things that produce terrific returns."