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"Are You Missing the Real Estate Boom?" needled the title of a 2005 book by David Lereah, chief economist of the National Association of Realtors. Now, with the housing market in a slump, renters who sat out the boom are finally getting some satisfaction." Irrational optimism 12/30/06 Markets "Elroy Dimson discusses: * Observations on investor expectations in relation to historical returns. * A long-term analysis of stock market returns around the globe. * A warning against expecting safety in equities, even over long holding periods." Eight Graham Stocks for 2007 12/29/06 Stingy Investing "Over the past six years I've used Benjamin Graham's time-tested strategy for defensive investors to uncover undervalued U.S. stocks. Overall the results have been stellar but last year the method hit a speed bump and posted a small loss." I make $6.50 an hour. Am I poor? 12/28/06 Thrift "As a single professional woman, for years I sat securely among the lower rungs of the middle class. Now I've fallen off the ladder. In a matter of months, I went from a comfortable life with decent pay and health insurance to a $6.50-an-hour job with no insurance, no furniture and just enough resources to keep the wolf from the door." How Warren Buffet made his billions 12/26/06 Buffett "Warren Buffett is a man who has made millions but he also started working at his father's brokerage when he was 11 years old, that's an age when most other kids were playing hide-n-seek and didn't know how to spell 'brokerage'. This financial wizard is by recent estimates, worth $46 billion but how he got there is the fascinating story." The corporate Scrooge contest 12/24/06 Christmas "Our appeal for corporate Scrooges - tales of office parties canceled, miserly bonuses, and pathetic gifts - generated a generous response. Nearly 200 Slate readers wrote in, providing enough fodder for several episodes of The Office. We heard from employees of car dealerships, doctors, and small law firms, but also from blue workers at blue chips, including Burberry, Dow Jones, Goldman Sachs, Disney, Wells Fargo, and Wal-Mart." Short the exchanges 12/22/06 Dreman "There's nothing better for piling up the cash to pay Wall Street bonuses than a hot stock offering. And since the market recovery began in late 2002, some of the hottest public offerings have been in securities exchanges themselves. Exchanges are the new Internet. That is, they are presumed to be capable of growing higher than the blue sky. That would make them good shorting candidates, if only you could get your hands on some borrowed shares." Economics discovers its feelings 12/20/06 Behaviour "The hedonimeter was never invented, and for a century or so economists fell silent about both weights on man's scales. They studied outward behaviour, not inward feelings; choices made, not pleasures taken. But in recent years, economists have become newly confident that they can measure utility as Bentham conceived it: as a quantum of pleasure or pain. How do they do it? Mostly they just ask people. Daniel Kahneman, a psychologist at Princeton University who won the Nobel prize for economics in 2002, reckons people are not as mysterious as less nosy economists supposed." Free to choose? 12/20/06 Behaviour "For millennia the question of free will was the province of philosophers and theologians, but it actually turns on how the brain works. Only in the past decade and a half, however, has it been possible to watch the living human brain in action in a way that begins to show in detail what happens while it is happening. This ability is doing more than merely adding to science's knowledge of the brain's mechanism. It is also emphasising to a wider public that the brain really is a just mechanism, rather than a magician's box that is somehow outside the normal laws of cause and effect. Science is not yet threatening free will's existence: for the moment there seems little prospect of anybody being able to answer definitively the question of whether it really exists or not. But science will shrink the space in which free will can operate by slowly exposing the mechanism of decision making." 10 mutt stocks that will shine in 2007 12/19/06 Value Investing "My Dog Star list contains some of the market's most-reviled names. These beaten-down but sound stocks should rise in price in the new year." Give me your tired, your poor, your big losers 12/19/06 Dorfman "The dregs. That's what you might call the stocks I'm writing about this week. They are the 10 stocks down the most this year, among the stocks in the Standard & Poor's 500 Index. Why bother looking at such a bunch of losers? For a simple reason: This year's scurvy dog may be next year's best in show." Southern stars: The Top 500 U.S. Stocks 12/18/06 Stingy Investing "If you're intrigued by the results of our Top 200 listing of Canada's largest stocks, you may be interested in extending your search for good investments beyond Canada's borders. If so, we invite you to join us as we embark on a road trip through the largest 500 stocks in the U.S. Our goal? To find tomorrow's stars today." Tax changes that may be in store for us 12/17/06 Taxes "Today, let's peek at the potential tax changes coming in the federal budget expected in late February. You see, on Dec. 7, the finance committee released its prebudget report detailing, among other things, recommendations as to what tax changes should be considered. So, let's unwrap these recommendations." Smashing the clock 12/14/06 Management "Ressler and Thompson saw their opening in these two vanguard managers. Would they be willing to partake in a private management experiment? The two outlined their vision. They explained how in the world of ROWE, there would be no mandatory meetings. No times when you had to physically be at work. Performance would be based on output, not hours. Managers would base assessments on data and evidence, not feelings and anecdotes. The executives liked what they heard and agreed. The experiment quickly gained social networking heat. Waiting in line at Best Buy's on-site Caribou Coffee (CBOU ), in e-mails, and during drive-by's at friends' desks, employees in other parts of the company started hearing about this seeming antidote to megahour agita. A curious culture of haves and have-nots emerged on the Best Buy campus, with those in ROWE sporting special stickers on their laptops as though they were part of some cabal. Hance, the hunter, started taking conference calls in tree stands and exchanging e-mails from his fishing boat. When Wells wasn't following around Dave Matthews, chances were he was biking around Minneapolis' network of urban lakes, and digging into work only after night had fallen. Hourly workers were still putting in a full 40, but began doing so wherever and whenever they wanted. At first, participants were loath to share anything about ROWE with higher-ups for fear the perk would be taken away or reversed." Bunny's picks 12/12/06 Dorfman "What is this Bunny Portfolio? It is a simple computer-driven stock-selection program that I devised seven years ago. To qualify as a candidate, a stock must: * Have 25 percent compound average annual earnings growth for the past five years. * Sell for 12 times earnings or less. * Trade in the U.S. * Have a market value of $250 million or more. Usually, about three dozen stocks a year meet the entrance requirements. This year, 73 stocks did. To narrow the field to 10 stocks, I take the five with the fastest historical earnings growth rates, and the five with the lowest price relative to the previous four quarters' earnings." Bet the house 12/12/06 Grant "By a margin of almost 2-to-1, economists surveyed by WSJ.com last month judged that the worst of the residential real estate slump was history. House prices will soften in 2007, the sages predicted, but by only a little bit. In fact, 20 of the 49 respondents forecast a rise. Ebenezer Scrooge was a mortgage banker, and the arguments I am about to marshal for a hard landing in housing might sound un-Christmaslike. But during the just-pricked bubble, it wasn't the Scrooges and the Marleys who lent more than 100% of the purchase price of a house without bothering to verify the income or employment of the applicant, or even to insist that he or she pay down a little bit of the principal now and then. House prices soared on the wings of the modern, optimistic, growth-obsessed mortgage industry." Dairy industry crushed innovator 12/11/06 Government "In the summer of 2003, shoppers in Southern California began getting a break on the price of milk. A maverick dairyman named Hein Hettinga started bottling his own milk and selling it for as much as 20 cents a gallon less than the competition, exercising his right to work outside the rigid system that has controlled U.S. milk production for almost 70 years. Soon the effects were rippling through the state, helping to hold down retail prices at supermarkets and warehouse stores. That was when a coalition of giant milk companies and dairies, along with their congressional allies, decided to crush Hettinga's initiative." Whitman profile 12/11/06 Whitman ""We're such cowards!" said Martin Whitman, the 82-year-old legendary superinvestor, at a seminar organized by New York Society of Security Analysts on February 16, 2006, "We only want to be the senior-most creditors in distressed situations. We only want to be the adequately secured lenders in Europe and overseas. We don't want to be subordinate to any of the asbestos or tobacco liabilities..." And he brilliantly calls himself the "safe and cheap" investor." These dogs are barking 12/11/06 Dividends "At the beginning of this year, you would have looked foolhardy if you had piled into General Motors Corp., Merck & Co. Inc. or Verizon Communications Inc. All three stocks were beaten up, and they looked likely to receive more poundings in the months ahead. Amazingly, though, each one has since exceeded all but the most eccentric expectations. So far this year, GM shareholders are basking in an 80% share-price gain, while Merck and Verizon are up 43% and 23%, respectively. Those kinds of numbers would bring a smile to the lips of any investor. The problem is, who could have guessed that stocks that looked so bad at the start of 2006 would make such gains? Well, if you had followed the Dogs of the Dow stock-picking strategy when making your investments back in January, you would have put a good-sized chunk of money on GM, Merck and Verizon. And you would now be feeling pretty good about making calls that seemed to defy all common sense only a few months ago." Saving Mom from annuity pitches 12/08/06 Brokers "Have you ever heard the expression "to a man with a hammer everything looks like a nail"? Well, some financial advisers who make a good part of their living selling annuities see variable annuities as the answer to virtually every client's financial needs. Looking for tax-sheltered returns? A variable annuity will do the trick! Retirement investment? Can't beat a variable annuity! Looking for safety and guarantees? I've got just what you need - a variable annuity!" The New, Soft Paternalism 12/08/06 Government "But what if it could be shown that even highly competent, well-informed people fail to make choices in their best interest? And what if the government could somehow step in and nudge them in the right direction without interfering with their liberty, or at least not very much? Welcome to the new world of 'soft paternalism'. The old 'hard' paternalism says, We know what's best for you, and we'll force you to do it. By contrast, soft paternalism says, You know what's best for you, and we'll help you to do it." Rethinking your investment risk 12/07/06 Economics "The Poor Should Invest in Riskier Assets than the Rich. This statement runs counter to conventional financial planning wisdom. But it.s in full accord with conventional economics. Like Joe, the poor, broadly speaking, are in a better position than the rich to invest in risky assets. Although the poor obviously have a much lower living standard than do the rich, it.s much closer to the level effectively guaranteed by the government through its various welfare programs, including Food Stamps, Medicaid, and Workfare. Hence, the government provides the poor much better downside protection against a major percentage drop in their economic resources than it provides the rich. That the poor should hold more stocks than the rich is just one of several financial mindbenders that emerge from a proper view of investment risk." Insiders with a curious edge 12/07/06 Management "Executives appear to be using their flexibility to the max. People selling shares in 10b5-1 plans generate returns substantially better than would be expected if the trading were truly automatic. As reported in BusinessWeek on Nov. 6, Alan D. Jagolinzer, an assistant professor at Stanford University Graduate School of Business, recently completed a study of roughly 117,000 trades in 10b5-1 plans by 3,426 executives at 1,241 companies. He found that trades inside the plans beat the market by 6% over six months.Those numbers imply that the rules allow execs to benefit from inside knowledge. "The SEC's intent was to shelter people who didn't have any [material] inside knowledge from liability," says Jesse Fried, co-director of the Center for Law, Business & the Economy at the University of California at Berkeley School of Law, and an expert on executive compensation who has reviewed Jagolinzer's study. "But that outperformance suggests instead that it's the people using what information they have who are most often entering into trading plans." Says Walter Riccardi, deputy director of the SEC's Enforcement Div.: "Setting up a 10b5-1 plan while in possession of material information...could be Securities fraud."" A big lender's credit card trap 12/06/06 Debt "Capital One Financial keeps the limits low and offers its most vulnerable borrowers additional cards instead -- helping them dig ever-deeper holes with penalties of hundreds of dollars a month." Fa-la-la-la-lawsuit 12/06/06 Christmas "The Christmas season is upon us, and that means invites to the office holiday party, open houses, and preschool-benefit auctions are starting to pile up on the table next to your front door. You're probably starting to get anxious - wear velvet headband or diamond clippie? bring potted plant or midrange merlot?.and yet you are likely ignoring the most important holiday question of all: Who are you going to sue this holiday season, and, more vitally, who is going to sue you?" Appealing small stocks 12/05/06 Dorfman "For this column, I used a Bloomberg stock-screening program to identify stocks with a market value of $250 million to $1 billion, selling for 15 times earnings or less, with debt less than equity. I also required good profits in the latest fiscal year, with a return on equity of at least 15 percent. Fifty-seven stocks passed the screen, and I am recommending seven of them here." Invest like the masters 12/01/06 Stingy Investing "Want to invest like a master? Then look to the works of Warren Buffett, Peter Lynch, David Dreman, and James O'Shaughnessy. These four gentlemen are all great investors, and all of them have either written books on how to invest or, in Buffett's case, produced years of informative shareholder letters. Remarkably, none are shy about sharing their market-beating techniques. In this feature, we examine how each of these wizards thinks and we spell out what each looks for in a stock. But that's just for starters. We've also scoured the markets for stocks that our famous investors might be interested in buying right now." How did investors really do? 12/01/06 Funds "There were a few bright spots. All of the fund categories that mix stocks and bonds posted 10-year investor returns that nearly matched or even outpaced their total returns. Investor returns for bond funds also tended to stay within close proximity of their total returns." Steal this column 11/29/06 Value Investing "In the investing world, talk is cheap. We're bombarded by a never-ending stream of chatter in the form of newspaper articles, marketing material, television interviews and, yes, even magazine columns. Buy oil, sell gold, get out of the house builders, get into biotech stocks - how can an investor (especially one who is just starting out) make sense of this babble of often contradictory advice? It's easy. Stop listening to what the investment experts are saying. Look instead at what they're doing. While legendary investors like Warren Buffett won't take your phone calls, they are obligated by law to regularly report their major portfolio holdings. These days, thanks to the Web, you can click a few links and see exactly what these geniuses are up to. It's like being at a giant poker game, where you can peer over the shoulders of many of the smartest money managers on earth and see precisely what cards they're holding." A bullish bet on joe consumer 11/28/06 Value Investing "Q: What's another stock you like right now? A: Allstate (ALL). The company has had problems, but new management has come along and fixed it. They are at about eight times 2006 earnings, generating a lot of cash, and buying their own stock. But that is a company-specific play; I'm not buying insurance companies across the board. Q: What is the future of property and casualty insurers like Allstate that sell primarily through traditional brokers, given the success of companies such as Geico, which sells direct to consumers? A: I have no opinion. Q: You don't have an opinion, even though you see enough merits to the company to recommend it? A: If Allstate were 12 or 15 times earnings, those things become relevant. At eight times earnings, I don't care. It's a better company than it was; they fixed their problems and they are still selling cheap." Why Warren Buffett's a genius again 11/28/06 Buffett "On Oct. 23, Warren Buffett's Berkshire Hathaway hit a price of $100,000 a share. As far as I can discover, that's the highest price ever for shares of a publicly traded company. The A shares are up about 5,555 times since May 1965, when Buffett took control of what was then a modest textile company. With that milestone behind the shares, of course, the question now is, will Berkshire Hathaway A become the first $200,000 stock? Yes. Not a doubt. Remember that you heard it here first: Berkshire Hathaway A will be the first $200,000-per-share stock." January bounce candidates 11/28/06 Dorfman "Every year, some stocks are unfairly kicked while they're down. Stocks that have had a tough year often get roughed up more in October and November as investors dump their losers for tax reasons. By selling stocks that are down, investors can offset gains elsewhere in their portfolios. As a side effect of this tax maneuvering, some decent stocks get undervalued near year-end, paving the way for a 'January bounce.'" Procrastination will cost you 11/26/06 Retirement "I'm inspired to write about something as basic as starting your retirement savings sooner rather than later. You see, I was reminded once again that each generation has to be educated on the fundamental truth that time is your biggest ally when it comes to financial security. Make sure your kids understand this." I want it now! 11/25/06 Behaviour "One of my daughter's favorite bedtime stories is A Birthday for Frances. I like it, too, for the charming illustrations, hilarious dialogue, and instruction in cutting-edge behavioral economics. Frances, the story's young heroine, secures an advance on her allowance in order to buy bubblegum and a Chompo bar as a birthday present for her little sister Gloria. Yet, as she returns with her father from the sweet shop, Chompo bar in hand, Frances begins to think of all kinds of reasons why she, not Gloria, should eat the chocolate." Down on the street 11/23/06 Markets "No longer can America take for granted its global superiority as a market for capital. Regulatory reform might let it keep up with the pack" E*Trade raises the stakes with high-rate offering 11/22/06 Brokers "E*Trade is fighting the dominant, bank-owned discount brokers for market share in Canada and it already slashed the cost of trading stocks to as low as $9.99, compared to as much as $29 elsewhere. Now, it's offering a solution to a quandary faced by virtually all investors: How do you squeeze a decent return from the cash in your brokerage account in a low interest rate environment? E*Trade will announce a new offering today called the Cash Optimizer Investment Account, which carries a rate of 4.15 per cent for Canadian-dollar balances and 4.75 for U.S. dollars. There are no fees of any kind or any minimum deposit." The 400-square-foot dream home 11/20/06 Real Estate "Teeny-tiny houses are the next big thing on the horizon. Those who've downsized say you can save a ton of money and time -- if you can handle the challenges of living small." Pattison goes deeper into the woods 11/18/06 Value Investing "But he has watched the sector for long enough from close up to know that when it seems beyond hope, that's probably the best time to put your money in. "We've been here [in B.C.] virtually all my life," he says. "Ever since I can remember, forest products has had its ups and downs and ups and downs . . . . Being up, you know it isn't going to last. And when it's down, hopefully it doesn't last." Some of the best value investors on the continent are thinking the same thing. Several have placed large bets that the red ink in the woods is bound to stop flowing, eventually, and that by investing now, they will reap huge gains in the recovery. Their theory, contrarian as it may seem, is that the industry's economics have been so bad for so long that it has no choice but to undergo massive change. Weak players will go bankrupt, scores of mills will close forever, and a wave of takeovers will knock out the smallest players." New ETFs will whet your appetite 11/18/06 Indexing "Let 2006 go down as the year that diversity finally came to the achingly bland Canadian ETF market. Not a lot of diversity, mind you. We now have 27 exchanged-traded funds listed on the Toronto Stock Exchange, compared with about 350 in the United States and dozens more to come. But with the introduction of nine new ETFs in the past couple of months, things are looking up for Canadian investors who like the low cost and flexibility of these index funds that trade like a stock." Whiff of cash can be a sour note 11/16/06 Behaviour "Merely the sight of money can change a person's behaviour, says a study done by an American marketing professor and financed by Canadian research institutions. Kathleen Vohs, an assistant professor at the University of Minnesota, and colleagues conducted a series of nine experiments in which people were asked to do puzzles or other tasks. The behaviour of people exposed to money was compared to others who were not prompted to think about it." Browne searches for value: why don't you? 11/16/06 Value Investing "Tweedy, Browne is money management's equivalent of the Republican cloth coat: nothing flashy, ever dependable, transcending style. It is an organization that was founded in 1920 to deal in thinly traded stocks, and which in the 1950s realized that more money was to be made in owning such typically undervalued shares than in trading them. The firm began to take in outside funds in 1968, and has grown to now managing over $13 billion. It did not hurt that one of the firm's earliest and best clients was Benjamin Graham, co-author in 1934 of the nearbiblical "Security Analysis." Indeed, the company's early association with Mr. Graham (and proximity they moved into office space down the hall from the revered investor) led also to a relationship with Walter Schloss, Warren Buffett, and Tom Knapp, who joined the firm in 1957 and spear-headed its entr e into the investment game. These are formidable value bloodlines." The greatest money manager of our time 11/15/06 Miller "It goes without saying that Miller is an iconoclast. You simply can't do what he's done in the supremely competitive, ultra-efficient world of stock picking by following the pack. On the outside Miller and his operation look like a standard-issue money management firm - it's a buttoned-down, conservative-looking crew - but spend some time with the man and his brain trust, and you realize that this is more like some sort of academic enclave or wonk house." Alcan, BCE, Nortel cited for pension deficits 11/15/06 Accounting "Alcan Inc., Nortel Networks Corp. and BCE Inc. top a list of 10 companies singled out yesterday by Moody's Investors Service Inc. for their underfunded pension plans. Moody's bond raters have been studying pension liabilities at the 300 or so Canadian entities it covers because the liabilities can have an impact on corporate credit ratings. Moody's hasn't cut any ratings because of underfunded pensions, said Waylon Iserhoff, senior accounting analyst and vice-president at Moody's, Toronto. But pension deficits bear watching because costs to top them up can reduce a company's flexibility to spend in other areas, Mr. Iserhoff said." Short sellers want to crash the Tupperware party 11/14/06 Markets "When the Federal Trade Commission proposed new rules this spring for multilevel marketers - businesses best known for commercials that promise riches selling herbal supplements and beauty supplies - it drew howls of protest. Tupperware party-givers, diet pill vendors and knife salesmen sent the agency more than 15,000 letters complaining that the proposed rules would undo a $30-billion-a-year industry. Now the regulator has gained an unusual ally: short sellers." Are you on track to retire rich? 11/14/06 Thrift "Yes, the typical household really can save $1 million to retire on, but most don't. Here's how your friends and neighbors are doing." Sleazy CEOs have even more options tricks 11/14/06 Management "To corporate America, the new rule was a minor hassle; to a first-year New York University finance professor named David Yermack, it was a new source of interesting data. Yermack began examining stock prices before and after options grants, and found the eerily consistent pattern displayed (in updated form) in the chart on this page: The average company's stock price dropped in the days before its CEO was given a bushel of options, and rose afterward. Executive options are usually granted "at the money" - i.e., if the stock is at $10, the CEO gets options to buy it for $10 a share - so getting options on a bad day for the stock is good news for the recipient. Yermack figured that this wasn't just luck, and theorized that companies were timing their grants to precede good-news announcements and follow negative ones. His findings began making the rounds in 1995, sparked a flurry of interest among finance and accounting scholars, and were published in The Journal of Finance in 1997." The rally builds steam 11/14/06 Dreman "First, it's impossible to get a good grip on how far the housing slump will go. The optimists state the decline in new home sales is almost over and home construction will bounce back vigorously both next year and in 2008. That's a hard story to buy because of the strong headwinds that await this important industry. Even if new construction is cut back fairly sharply, there is still a large inventory of new units to work off. With diving house sales, stocks of home builders look cheap today. However, proceed with caution. My fellow columnist Laszlo Birinyi finds several a buy, despite weakening earnings. I'd wait a bit. Many builders have bought call options on new land. They would argue that they are thus protected if land prices drop because they do not own the land. That's true only up to a point. Call options on land are not free. A 12- to 18-month option to buy land can cost as much as 15% of the property's value. Let that option lapse and you eventually have a hit to earnings for the premium paid." The billionaire next door 11/13/06 Buffett "Buffet takes Claman on a personal tour of his hometown of Omaha, Nebraska from his grandfather's store where he turned his first profit selling chewing gum and soda, to the $31,500 house he's owned for almost a half-century. The unassuming billionaire says, "I like the way I was living when I was in my 20's. I still like that way...I like to go home and put on a sweat suit." Buffett owned his first stock at the age of 11, but admits, "I don't know why I wasted time before that stock...I got started late." In the hour-long special, Claman gets Buffett to open up on a variety of topics such as his gut instincts about business, his feelings about Wall Street, how he feels when he makes a deal, his surprising view about his own tax rate and his $31 billion pledge to the only person in the world with more money, his good friend Bill Gates." Boom and gloom 11/13/06 Behaviour "A few years ago, the Nobel Prize-winning psychologist Daniel Kahneman conducted an odd experiment. He had a group of students eat a bowl of their favorite ice cream while listening to a particular piece of music eight days in a row. After the first day, Kahneman asked them to predict how they'd feel about the whole experience once it was over. Their predictions turned out to be way off base. Some students who thought that they'd hate having to eat the same flavor eight days in a row became addicted to it. Some who thought they'd enjoy the experience were eventually repulsed by it. The upshot: people may know when they're happy, but they often don't know what will make them happy. That poses a problem for the basic tenets of modern economics: that people act in their own self-interest most of the time, and that they usually know what that self-interest is." Huge debts, paid off fast 11/13/06 Thrift "A $150,000 mortgage erased in five years. About $49,000 in credit cards, almost gone in just a year. These debt-payoff champions share their secrets." Hit reset: online calculators 11/12/06 Stingy Investing "Replay history: We've mentioned this calculator before and we'll do so again it's a wonderful way to see how different investment strategies would have fared over the years. You select a portfolio composed of up to six major asset types, then pick start and end dates. The calculator tells you how much you would have made or lost. Our take: A great way to try out various approaches to investing without betting a dime of real money. You may be surprised at the volatility of even the best-balanced portfolio." Dividend stars: How to make up for trust tax 11/11/06 Dividends "It's a great time to look hard at dividend stocks, even if many aren't exactly bargain-priced right now. Interest rates are expected to fall in the year ahead, which is positive for all income-producing investments. With the income trust market struggling to come to grips with a federal government crackdown on the sector, dividend stocks stand out as an obvious alternative. And if the stock market were to weaken next year, not an unlikely prospect with a fourth successive great year just about in the books, dividend stocks stand a good chance of escaping the worst effects." NYSSA honors Walter Schloss 11/10/06 Value Investing ""I worked for Benjamin Graham for 9 1/2 years, and Ben said he was going to retire and move to California," began Schloss. "I had to get another job, so one of the people who was a stockholder of Graham Newman came to me and said, 'Walter, if you start a fund, I will put some money in it.' We ended up with $100,000. The structure was that I would not get paid unless we realized gains. The kind of stocks I bought were not growth stocks. Graham was really value-oriented. In those days he would buy stocks that were selling below working capital. There were less of them, but they were still around." "Since I only liked to buy stocks that were undervalued from a statistical point of view, they were not necessarily great companies. There was no particular point in hanging on to them indefinitely. We were buying companies on the way down and selling them on the way up. Not every company worked out, but enough of them did, so we had a pretty good record."" The defiant one 11/10/06 Brokers "The ex-employee who tried to bring down Saskatoon financial advisor Brian Mallard died two years ago. But Mallard's fight for his reputation didn't." Have a tightwad's Christmas 11/09/06 Christmas "Try these ideas for keeping holiday spending under control, finding alternative gifts and making your hard-earned dollars go farther this year." Rewriting history 11/07/06 Academia "Comparing two snapshots of the entire I/B/E/S analyst stock recommendations database, taken in 2002 and 2004 but each covering the same time period 1993-2002, we identify nearly twenty thousand changes of an unusual nature: the selective removal of analyst names from historic recommendations ("anonymizations"). This practice turns out to be pervasive and non-random: Bolder recommendations are more likely to be anonymized, as are recommendations from more senior analysts, Institutional Investor "all-stars," and those who remain in the industry beyond 2002. Abnormal stock returns following subsequently anonymized buy recommendations are significantly lower (by up to 11.0% p.a.) than those following buy recommendations that remain untouched, suggesting that particularly embarrassing recommendations are most likely to be anonymized. Analysts whose track records appear brighter due to anonymizations experience more favorable career outcomes over the 2003-2005 period than their track records and abilities would otherwise warrant." Buy? sell? hold? delete! 11/07/06 Markets "This is breath-taking - but it also begs more questions than it answers. Nearly 20,000 analysts' recommendations sitting on the IBES research database, owned by Thomson Financial, were somehow doctored between September 2002 and May 2004, according to an academic paper due to be delivered in January to the American Finance Association's annual meeting in Chicago." Where Were The Auditors? 11/06/06 Accounting "It's pretty clear by now that the stock option backdating scandal is much more widespread than initially believed. More than 150 companies are either embroiled in internal probes or are now being investigated by the Securities and Exchange Commission for potential stock option backdating abuses. The deluge is growing daily, with a fresh batch of companies announcing stock option accounting problems with each passing day." Why your 'lizard brain' makes you a bad investor 11/05/06 Thrift "Investors often make foolish financial decisions, and lots of folks are trying to figure out why. Specialists in behavioral finance have sketched out some of our more persistent mental mistakes. Neuroeconomics is looking at how the brain functions. Happiness researchers are trying to understand why our rising standard of living hasn't made us happier. Now, some experts are turning to evolutionary psychology. Why do we make so many financial errors? Maybe, deep down, we're just cavemen and women." The Dodge & Cox mystique 11/04/06 Value Investing "In its 76-year history, Dodge & Cox has launched precisely four mutual funds. The firm doesn't advertise and has no marketing department. Yet investors are so taken with its funds that it has had to shut half of its tiny lineup to new customers to stanch the flood of money." Repo men 11/04/06 Bonds "Mr Clouse said there could now be a "strong sense of history repeating itself" - a reference to the scandal at Salomon Brothers in the early 1990s, in which the investment bank was caught dodging rules on treasury auctions in order to gain control over certain issues." Gift to income-splitting pensioners 11/04/06 Taxes "How much tax can this save you? Consider a senior couple. Assume the husband has $60,000 of income, $50,000 of which is eligible pension income that he will split with his wife. She has $10,000 of her own income before the allocation from him. If he allocates one half, or $25,000, of his pension income to her, the couple will save $4,196 in taxes (assuming 2006 Ontario tax rates, and assuming the allocation of income to her also qualifies her for the pension tax credit). This tax savings represents 6 per cent of their total income of $70,000. Not too shabby. This new change could affect retirement planning for some by making it more desirable to create eligible pension income that can be easily split than to earn other types of investment income in retirement." It's too early to throw in the towel on trusts 11/04/06 Trusts "The income trust market is incredibly vulnerable right now and any news development that suggests a bleak future is going to make things worse. Still, veteran money manager Rick Howson says there's an argument to be made that trusts have been wrung out as much as they deserve to be in light of the new trust tax. Mr. Howson, manager since 1997 of the Saxon High Income Fund, said the new tax essentially will treat trusts just like a corporation, whereas trusts now have an advantage in that they pay no corporate tax. Previously, trusts were considered more valuable because they had this tax benefit. Now that the benefit is on the way out, trusts and corporations deserve to be valued similarly. In Mr. Howson's estimation, this is exactly what the markets did to trusts this week -- pull them down in price to put them on par with corporations. "I would say that if we look at income trusts as a group, the bulk of the damage has been done in terms of price declines," he said. "Trusts are now reasonably priced compared with comparable companies, as a group." Does that mean trusts are a buy right now? Mr. Howson warned that there could be still more adjustment ahead for trusts as details emerge on what shape they'll take after 2011. Despite this uncertainty, it can be argued that some trusts will continue to be attractive investments." The reluctant briber 11/03/06 World "Meanwhile, although he no longer wants to do business in Russia, things are returning to normal in Ukraine. The team that ran the country before the revolution is back in power, and Ivan once again knows who, when and how much." A simple way to get rich 11/03/06 Stingy Investing "I suggest taking a tip from Benjamin Graham, the legendary Wall Street financier and Columbia University professor who taught Warren Buffett about investing. Graham devised many techniques for identifying undervalued companies, but particularly remarkable is the record of his Simple Way formula, which he outlined in a 1976 article called The Simplest Way to Select Bargain Stocks. Despite its utter lack of complexity, this recipe has been a smashing success. I highlighted the Simple Way to MoneySense readers in early 2004 and I provided an update in 2005. I'm pleased to report that both batches of Simple Way stocks have performed superbly, gaining an average of 45.2% in less than 32 months, not including dividends. Over the same period the S&P500 was up only 16.3%." Trust tax plan 11/01/06 Trusts "The measures in the Tax Fairness Plan include: * A Distribution Tax on distributions from publicly traded income trusts and limited partnerships. * A reduction in the general corporate income tax rate of one-half percentage point as of January 1, 2011. * An increase in the Age Credit Amount by $1000 from $4,066 to $5,066 effective January 1, 2006. This will benefit low and middle-income seniors. * A major positive change in tax policy for pensioners. The government will permit income splitting for pensioners beginning in 2007." This is going to be ugly 11/01/06 Trusts "Trusts are found in mutual funds, pension funds, individual investment accounts and registered retirement accounts. All kinds of investors are going to be hurt, and the pain will be unavoidable as the stock markets adjust to the uncertain new future for trusts. Better brace yourself." Purloined portfolio 10/31/06 Dorfman "Once a year, I devote this column to investment ideas stolen from other investment managers whom I respect. Call it homage, competition research, or just good dirty fun. This year my lineup of seven 'victims' to pilfer ideas from is the same as last year's: Scott Black, David Dreman, Randall Eley, Mason Hawkins, Ken Heebner, David Katz and Charles Royce." Halloween is an economist's biggest nightmare 10/31/06 Halloween "Economists haven't adopted the vainglorious practice of physicists and applied numbers to their laws, but if they did, the first law of economics would be that lump-sum transfers are more economically efficient than in-kind transfers. If you are going to give a gift to somebody, you should just give them the money. They will be a better judge of the best way to spend it. If instead, you give them a specific good, then you make them worse off, unless you somehow miraculously anticipate what the recipient would purchase if he received the money instead. Now if you know someone well, perhaps you can anticipate the type of gift they might like. But Halloween is no time for thoughtful, targeted gift-giving. At Halloween, each house on a typical American block picks out one type of candy, and they give that exact same candy willy-nilly to everyone who shows up at the door. It's an economic nightmare." Top stocks with share purchase plans 10/30/06 Stingy Investing "The long-term risk-averse investor should consider three factors when selecting stocks with Share Purchase Plans (SPPs). 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." Hit with a loss? Your spouse can ease the pain 10/30/06 Taxes "If you own investments that have lost value, it might make sense to trigger the capital loss so that you can apply the loss against capital gains this year, or in one of the three prior years (losses can be carried back up to three years if you can't use them this year). If you haven't got capital gains now or in the past, you can also carry forward your loss to use in any future year. But, if your spouse has capital gains this year, or in the three prior years, it may make sense to transfer the capital loss to your spouse so that he or she can use it instead. This way, the loss is used up sooner." Patient Capital Management Q3 10/27/06 Value Investing "In essence these two books instruct its readers on how to apply Mr. Graham's principles. His two primary methods were to calculate a firm's long-term 'earning power' and purchase the shares at a price to earnings multiple of less than 10x's or purchase shares at net-net working capital. Graham argued and proved through his investment partnership that a well diversified portfolio of securities that fit either of these two criteria would provide excellent long term results with substantially less risk than the market." M.B.A.s: the biggest cheaters 10/27/06 Academia "Many of these students reportedly believe cheating is an accepted practice in business. More than half (56%) of M.B.A. candidates say they cheated in the past year. For the study, cheating was defined as plagiarizing, copying other students' work and bringing prohibited materials into exams." Are you an investor - or a gambler? 10/27/06 Health "According to psychologists who study gambling behavior, it's all too easy for an innocent investing habit to swell into a gambling problem if a person is so disposed. Both investing and gambling let you wager big money and win or lose huge sums within minutes. Indeed, it can be difficult for even a professional to know at what point a sincere interest in investing edges over the line and becomes something darker and more compulsive. What ultimately distinguishes gamblers from investors, says Dr. Marvin Steinberg, executive director of the Connecticut Council on Problem Gambling, is a lack of control. Smart investors may decide to occasionally make big bets on a stock. But they can also go for months without buying a stock or even shuffling their portfolio. "With any kind of compulsive behavior, you wind up being out of control," says Steinberg. "So if you tell yourself that you're going to do one thing and you wind up doing more, you have a problem. An alcoholic says he'll just have one drink and winds up having 12, a problem gambler goes to the casino with $100 in his wallet and winds up spending $3,000 on his credit card. In the same way, if you put more money into risky investments than you can afford to lose, that's a sign you have a problem."" Bill Miller's Q3 letter 10/26/06 Value Investing "Behavioral advantages are the most interesting because they are the most durable. The field of behavioral finance is still in its infancy yet has already yielded results that can be incorporated profitably into a sound investment process. The best part is that such results are likely to be systematically exploitable and not able to be arbitraged away as they become more widely known. That is because they represent broad findings about how large groups of people are likely to behave under well-defined circumstances. Until large numbers of people are able to alter their psychology (don't hold your breath), there is money to be made from prospect theory, support theory, cognitive psychology, and neuroscience." The simple way 10/26/06 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. Very few people truly have the temperament to be value investors and while it's relatively easy to find value stocks holding them is the real test. Value stocks usually become inexpensive for a variety of unappealing reasons. As a result, even when value stocks are identified, relatively few investors want to buy them. Even worse, a few value stocks inevitable do badly and decline as their business weakens which tends to scare off investors." Death of the bond salesmen 10/25/06 Bonds "Mr. Levitt said the corporate bond market used to work like an "Oriental bazaar." "Transparency was at the core of all of its problems," he said. "Our intent was to make the market fairer. The result was that it was also less expensive." Now that fixed-income prices are available on NASD's website, bond salesmen have lost their advantage. "You're lifting the veil of ignorance," said Peter Campfield, head of taxable fixed-income trading at San Francisco-based Charles Schwab Corp., which trades an average of 500 corporate bonds a day. "Pre-Trace? It wasn't pretty. Price discovery was a challenge. You had to hunt and peck and dial numerous dealers to ascertain what a real market looked like."" New lows list 10/24/06 Dorfman "In the past week, while the financial pages highlighted the news about the Dow Jones Industrial Average climbing past 12,000 for the first time, 15 stocks with market values of $500 million or more each touched 52-week lows. Bargain hunting among stocks on the New Lows list can be dangerous. But danger, better known as risk, is an inherent part of the stock market. Sometimes you can snatch real bargains from the New Lows list." Just a little patience 10/24/06 Montier "As is my want I am going to start from the value perspective. Is time arbitrage a profitable pursuit for value investors? Certainly a priori one would expect so. As Ben Graham said, "Undervaluations caused by neglect or prejudice may persist for an inconveniently long time". As I have written many times before, when a value position is established, one can never be sure which potential return pathway will be taken. Effectively, any value position falls into one of three categories: 1. those that enjoy a re-rating as the market more generally recognizes a mis-pricing has occurred (type I) 2. those that generate a higher return via dividend yield, but are not immediately re-rated (type II) 3. those that simply don't recover, the value traps. (type III) So patience really should be a virtue for value managers as long as we are dealing with a type I or type II value stock. The chart below confirms just how strongly this is true. It shows the cumulative returns to an incredibly simple value strategy (buying the lowest 20% of the MSCI Europe ranked by trailing PE). The chart provides very graphic evidence for the rewards to patience. The strategy tends to generate around 3% outperformance relative to the market in the first 12 months. But if you carry on holding for another year, this rises to 5.7% (a year two return of just over 2%). However, at three-year time horizons and beyond, the excess return pick-up is much sharper, running at the rate of 8-10% p.a. for years 3, 4, and 5! Also noteworthy, is that the value strategy appears to start working from day one. This surprised me as I expected to see a period of underperformance or non-performance, rather than an immediate return to the value approach." Abitibi: A perennial loser 10/22/06 Whitman "Marty Whitman, the octogenarian investor and Wall Street legend, was once prodded on the stock-picking style of his firm, Third Avenue Management. "We are offbeat," he said. That's one word for it. Canadian investors, seeing what he has been up to lately, might have a few others. "Barking mad" comes to mind. "Insane" works. "Masochistic" fits, too, because one of the stocks Third Avenue has been buying by the truckload is -- wait for it -- the pride of Montreal: Abitibi-Consolidated. Oh, please, try not to laugh. It's impolite. Try not to tell yourself the Americans have been suckered again, buying into a Canadian manufacturer because it "looks cheap" when it is, in fact, one of the best living examples of wealth destruction in modern capitalism." [or why people have a hard time being value investors] 10 hated stocks you'll love in 2007 10/20/06 Value Investing "Buy 'em when they're hated. I don't mean "out of favor" or "disliked." I mean HATED. And buy 'em at the end of the year. Not in November. Not in January. But around the middle of December. That's the simple foundation of the Dog Stars strategy" Gluttons at the gate 10/20/06 Markets "Buyout firms have always been aggressive. But an ethos of instant gratification has started to spread through the business in ways that are only now coming into view. Firms are extracting record dividends within months of buying companies, often financed by loading them up with huge amounts of debt. Some are quietly going back to the till over and over to collect an array of dubious fees. Some are trying to flip their holdings back onto the public markets faster than they've ever dared before. A few are using financial engineering and bankruptcy proceedings to wrest control of companies. At the extremes, the quick-money mindset is manifesting itself in possibly illegal activity: Some private equity executives are being investigated for outright fraud. Taken together, these trends serve as a warning that the private-equity business has entered a historic period of excess. "It feels a lot like 1999 in venture capital," says Steven N. Kaplan, finance professor at the University of Chicago. Indeed, it shares elements of both the late-1990s VC craze, in which too much money flooded into investment managers' hands, as well as the 1980s buyout binge, in which swaggering dealmakers hunted bigger and bigger prey. But the fast money--and the increasingly creative ways of getting it--set this era apart." Old growth as value? 10/20/06 Value Investing "Investors looking to buy should look for four psychological states: apathy, disgust, fear, and anger. Of the four, anger is the most irrational--and offers a wonderful time to buy stocks." Under-the-radar small-cap fund 10/19/06 Dreman "Over the past two years, the fund has benefited from a sizable stake in energy stocks (now a bit more than 10% of the portfolio). A large position in financials -- specifically shares of small banks -- has also given the fund a boost. The portfolio, which contains 90 holdings, includes such companies as natural gas transporter Southern Union (SUG) and Foster Wheeler (FWLT), an engineering and construction firm." Dividend appeal 10/17/06 Dorfman "A company that pays an above-average dividend, and that has increased its dividend at an above-average rate, must be doing something right. Dividends are an indicator of financial health. They show a desire to treat shareholders well. Even better, a rising dividend indicates a board's confidence in a company's future in a way that mere words never can." More sneaky options schemes 10/17/06 Management "Just when backdating options seemed like the state-of-the-art method for executives to line their pockets, along comes a crafty yet legal tactic that involves stashing stock grants in the furthest corners of the footnotes: Call them backdoor options." The rise of the income trust 10/14/06 Trusts "Until this week, in fact, when Mr. Sabia announced the creation of Canada's largest income trust, the company had argued that the telecom business was changing too rapidly for management to adopt such an inflexible business structure. But the straitjacket, for many, explains much of the appeal of the almighty trust. What started as a way for small companies to cut their tax bills has become something else - a tool for shareholders to reclaim some of the discretion that once belonged almost exclusively to CEOs and directors, and at the same time address one of their deepest concerns: a lack of faith in corporate executives to spend their excess cash wisely." The 5 most expensive addictions 10/13/06 Health "Despite growing publicity about 'soft' addictions, drinking, smoking, drug abuse, overeating and gambling still are the most costly to society." 'Dilbert' deserves the economics Nobel 10/11/06 Thrift "Quietly hidden in Adams' groundbreaking work is a financial formula so simple it rivals Einstein's E=mc2. In its original form Adams' formula was apparently so heretical and so explosive that no major house would touch it when he proposed publishing it as a one-page book. After initial rejections, he announced sadly that "if God materialized on earth and wrote the secret of the universe on one page, he wouldn't be able to find a publisher" either. Fortunately for America's 95 million investors, Adams' secret nine-point formula was finally revealed in "Dilbert and the Way of the Weasels." Notice its simple brilliance in the exact reproduction of his formula" Billion-dollar portfolio 10/10/06 Dorfman "Each October beginning in 2001 I have compiled a Billion- Dollar Portfolio, recommending 10 stocks with a market value very close to $1 billion. The average 12-month return for this portfolio in the past five years has been 28 percent, versus 9 percent for the Standard & Poor's 500 Index. So far, all five Billion-Dollar Portfolios have been profitable and outperformed the S&P 500." Hedge funds are older than you think 10/09/06 Buffett "In a letter to Financial History, the magazine of the Museum of American Finance, Buffett gently begs to differ with a statement in the magazine that the first known hedge fund was started in 1949 by Alfred Winslow Jones. This is, says Buffett, "an error that has often appeared elsewhere, including in a Federal Reserve report." While Jones was indeed an early practitioner of the hedge-fund art, says Buffett, he was not the first. The esteemed investor and writer Benjamin Graham managed a hedge fund as early as the mid-1920s." The organic myth 10/06/06 Health "Next time you're in the supermarket, stop and take a look at Stonyfield Farm yogurt. With its contented cow and green fields, the yellow container evokes a bucolic existence, telegraphing what we've come to expect from organic food: pure, pesticide-free, locally produced ingredients grown on a small family farm. So it may come as a surprise that Stonyfield's organic farm is long gone. Its main facility is a state-of-the-art industrial plant just off the airport strip in Londonderry, N.H., where it handles milk from other farms. And consider this: Sometime soon a portion of the milk used to make that organic yogurt may be taken from a chemical-free cow in New Zealand, powdered, and then shipped to the U.S." Noise reduction 10/04/06 Value Investing "Managing a $6 billion fund holding only 20 stocks requires strong conviction and an iron will - two traits Oakmark's Bill Nygren has in abundance." Ouch! Your house payment just doubled 10/03/06 Real Estate "Big, fat surprises are ahead for about 20% of homeowners: Their complicated, often-risky adjustable mortgages are going to soar as introductory interest rates expire." Charity + tax-free dividends = win-win 10/03/06 Taxes "Thanks to the changes in the last federal budget, a donation of flow-through shares to a registered charity will result in the taxable capital gain on those shares being eliminated. So, you won't face tax on the capital gain, and you'll be entitled to a donation tax credit for the value of the shares when you donate them. In the end, it's possible that your donation will cost you just 8 cents for each $1 donated (if the value of your flow-through shares remains unchanged, and you're in the top marginal tax bracket. Savings will vary by province)." Dorfman's new casualty list 10/03/06 Dorfman "Buying stocks of good companies when they are down is a time-tested investment method. In this column, I try to incorporate that approach into a quarterly Casualty List. It contains stocks that have been roughed up in the latest quarter, and that I think have strong potential for a comeback." Interview Charles de Vaulx 09/28/06 Value Investing "Our featured guest this morning is Charles de Vaulx. He is the Chief Investment Officer at the First Eagle Funds Value Group, where he helps to manage about $32 billion. Charles' funds have had virtually no down years; he focuses on absolute rather than on comparative returns. He says if they don't find the security at the correct price, they are happy to just hold cash." Index changes and losses to index fund investors 09/28/06 Indexing "We showed that index fund investors lose a significant amount because of the predictability and timing of index changes coupled with fund managers' objective of minimizing tracking error. The loss to an investor in the Russell 2000 may be about 130 bps a year and can be as high as 184 bps a year, and S&P 500 investors may lose as much as 12 bps a year. Consistent with this finding, we found that the Russell 2000 underperformed other small-cap indices by more than 3 percentage points a year in the 1995-2002 period, even though comparable indices did not entail greater risk. Moreover, the underperformance was concentrated in months surrounding the annual reconstitution of the index." 15-15 Screen 09/27/06 Dorfman "Exxon Mobil Corp., Berkshire Hathaway Inc. and K-Swiss Inc. all pass a simple but important test. Their earnings have been growing at a pace of at least 15 percent annually the past five years. Even so, their shares are inexpensive, selling for less than 15 times the past four quarters' earnings. That's a combination I like." Third Avenue Q3 2006 09/27/06 Whitman "In NAV investing, scant attention is paid to top down factors such as predicting Gross Domestic Product, interest rates, the Dow-Jones Averages, federal deficits or balances of payments. Rather, the emphasis is on bottom-up "nitty gritty". It is assumed that the NAV investor ought to do okay long term as long as there exists political stability and an absence of violence in the streets. This has been the case for value investing since World War II. The Fund is betting that the environment of the last 60 years, where macro factors have been relatively unimportant for value investors, will continue." Oil: Will the Malthusian View Carry the Day? 09/26/06 Markets "In his article, "Oil: Will the Malthusian View Carry the Day?" Charles postulates that the price of oil could fall over the next several years. He defends his position with some teaching on the dynamics of energy, a review of historical cycles, and some thoughts on alternatives." The economics of trust 09/26/06 Economics "Imagine going to the corner store to buy a carton of milk, only to find that the refrigerator is locked. When you've persuaded the shopkeeper to retrieve the milk, you then end up arguing over whether you're going to hand the money over first, or whether he is going to hand over the milk. Finally you manage to arrange an elaborate simultaneous exchange. A little taste of life in a world without trust--now imagine trying to arrange a mortgage." Partners in crime 09/26/06 Crime "The SEC figured out that many of the stocks were involved in mergers or acquisitions -- and that Merrill Lynch had worked on each of the deals. "It was an aha moment," says Markowitz. "It looked like there was a constant leak out of one of the biggest banks in the country." About a week into the investigation, Melissa Coppola, an SEC forensic accountant, came into Markowitz's office. While the Merrill Lynch explanation worked for five of the stocks the group traded, it didn't for the 22 others. Then Markowitz remembered an old scam he'd heard about: "Were any of these stocks mentioned in Business Week?" he asked. When Coppola checked, she unlocked much of the rest of the case." Derivative danger 09/26/06 Derivatives "With the global numbers and values already enormous, adding U.S. pension funds, more institutions and a retail investment audience to the hundreds of trillions of capital the derivatives market attracts could further shift the scale in favor of them more than any other financial instrument or asset class. Yet, it wouldn't take all that much to create a domino effect of market mishap. And there is no net. The Securities Investor Protection Corporation, which insures brokerage accounts, recently announced its reserves. It has a little more than $1.2 trillion. That may sound like a lot. Compared with half a quadrillion, it's a pittance." A history of neglect 09/26/06 Trusts "If the Spanish philosopher George Santayana had been a Canadian, his oft-quoted aphorism about history might have read: Those who cannot remember the past are condemned to exceed it. Certainly, this is the case when it comes to investor protection. Unlike the U.S., Canada has actually managed to systematically erode the integrity of its capital markets." Location is key to tax breaks on risky assets 09/25/06 Taxes "The Amaranth debacle should remind us that there's a best place to hold risky investments -- and that is outside your registered retirement savings plan or registered retirement income fund. The reason is simple. If you hold an investment inside your RRSP or RRIF and it drops in value, you'll get no tax relief from the loss." Short-selling contest 09/22/06 Dorfman "Who likes wars, recessions, hurricanes, terrorist threats and corporate scandals? Short sellers do, if you listen to their detractors. Short sellers are investors who profit when a stock declines. Some folks view these renegade investors as antisocial. I have a more positive view." America's 400 richest 09/22/06 Wealth "A nine-figure fortune won't get you much mention these days, at least not on these pages. This year, for the first time, everyone in The Forbes 400 has at least $1 billion. The collective net worth of the nation's wealthiest climbed $120 billion, to $1.25 trillion." Fat cat sleaze escapes our outrage 09/22/06 Crime "We are in the midst of a slimy, sleazy, putrid scandal of corporate self-dealing and cronyism. It points up just how elitist and corrupt the power-suited set of the corporate boardroom can be. And it is widespread. Over 100 companies -- major corporations -- have been implicated so far. And yet ... where's the outrage? C'mon. Even a dead man was getting a piece of the pie." Sticking to 'Dogs of Dow' strategy 09/21/06 Dividends "Hennessy invests 75 percent of his fund's net assets in the 10 highest-yielding Dow stocks and 25 percent in U.S. Treasuries that mature in less than a year. He buys the dogs in equal dollar amounts each month and, in effect, runs 12 mini-portfolios that hold the stocks for a year. Then he sells shares to reallocate the proceeds among the Dow's 10 new dogs. The fund has a Sharpe ratio of 0.74, less than the 1.24 average for large-company value funds, according to Morningstar. While a higher Sharpe ratio indicates better risk-adjusted performance, the Hennessy fund's ratio is lower than its peers because of its Treasury market investments." Rob's on-line brokerage rankings 09/20/06 Brokers "Costs are the most important factor in this eighth edition of the Globe's broker ranking, and the reason is that they're uppermost in the mind of do-it-yourself investors. In a survey conducted recently on the Globeinvestor.com website, a little more than one in three of the 1,641 participants ranked cheap commissions and fees as the top attribute of an on-line broker. No other attribute was even close." Fortune's fools: why the rich go broke 09/18/06 Debt "Mr. Foreman, who stared down financial collapse as an adult despite a troubled, impoverished childhood, said he knew real wealth when he saw it. "If you're confident, you're wealthy," he says. "I've seen guys who work on a ship channel and they get to a certain point and they're confident. You can look in their faces, they're longshoremen, and they have this confidence about them." He says he can spot a longshoreman who has enough equity in his home and enough money in the bank to feel secure, and that some people, no matter how much money they have, never get there. "I've seen a lot of guys with millions and they don't have any confidence," he says. "So they're not wealthy."" Seminar in value investing 09/17/06 Value Investing "In this archive you will find recordings of guest lectures delivered by accomplished and world renowned investors. These individuals have generously contributed their time to share their insights with Columbia Business School students and have kindly agreed to have their lectures shared on this website as a valuable resource to the value investing community." A cowardly approach by Whitman? 09/14/06 Whitman "Whitman, who describes himself as a "cowardly" investor, says he basically looks for four things in an investment: 1. A high quality balance sheet. 2. Competent and shareholder-orientated managers. 3. Understandable and honest disclosure documents. 4. Priced at 50c-60c on a dollar. The first three characteristics are related to safety and the fourth to how cheap the stock is. "And 'safe' is more important than 'cheap'", says Whitman." A tale of two factories 09/14/06 World "To get a sense of how China's rise is playing out, Fortune went to two factories -one in China and one in the U.S. - that make the same product for the same company. Our conclusion: China's progress is impressive, and it will continue. That said, America's factories have strengths of their own: U.S. manufacturers have improved productivity at least 4% a year for the past decade. Although wages in Shanghai are rising sharply, labor is still comparatively cheap. But that is an advantage that goes only so far." Naked fines 09/13/06 Markets "Brad Niswonger, a senior vice president for brokerage firm Robert W. Baird Co., complained in a July letter to the SEC, "It seems like every day the SEC fines someone for fraudulent stock transactions, but they walk away after collecting their fee without completing the transaction by making these players buy in the illegal short positions." A Canadian brokerage firm also complained to the SEC about its experience trying to settle its purchases of shares in Overstock.com. The broker, Research Capital of Toronto, says it tried to buy shares of Overstock to satisfy customer orders but has never received the actual shares it bought, even after 39 attempts to force the brokers who sold it the stock to produce the shares. Research Capital says this has been going on since February 2006. "The failed deliver has simply been replaced with another delivery commitment which also fails," the brokerage says." The battle of the billionaires 09/13/06 Buffett "You don't become a billionaire by making a lot of bad bets. But two of the world's richest men are now on opposite sides of a wager that may see one of them lose a fair chunk of change. The two men: Warren Buffett, whose mastery of value investing has helped him accumulate more than $40 billion, and Carl Icahn, the corporate raider who has earned more than $8 billion with astute and aggressive stock plays. They are now taking sides over the fate of USG Corp., the leading gypsum wallboard maker, which just emerged from bankruptcy protection. Which investor turns out to be right will depend in large part on the ultimate health of the U.S. housing market." Saxon finds value in oilpatch juniors 09/13/06 Funds "What they "keep doing" is in fact bottom-up, value-oriented investing. Sector weightings are "serendipitous" as a result, explains Tattersall. They employ a variety of measures of value; price-to-book was the key measure at inception, he recalls, but they are relying much more these days on standard measures of cash flow. Their value style translates into overweight in industrials, underweight in technology - and no gold stocks. The key, he concludes, is not so much what they own as what they don't own." U.S. diversifiers 09/13/06 Dorfman "While Europeans often pepper their portfolios with stocks from several countries, Americans often stick with U.S. stocks. I like the American market very much, yet a portfolio exclusively based in the U.S. may be too plain vanilla. If you stick to only one country, you may miss some bargains. You certainly miss the chance to diversify." Fear of flying 09/13/06 Fun "Your life-jacket can be found under your seat, but please do not remove it now. In fact, do not bother to look for it at all. In the event of a landing on water, an unprecedented miracle will have occurred, because in the history of aviation the number of wide-bodied aircraft that have made successful landings on water is zero. This aircraft is equipped with inflatable slides that detach to form life rafts, not that it makes any difference. Please remove high-heeled shoes before using the slides. We might as well add that space helmets and anti-gravity belts should also be removed, since even to mention the use of the slides as rafts is to enter the realm of science fiction." Suspicions and spies in Silicon Valley 09/11/06 Crime "HP has now admitted to spying on its own directors' personal phone records in order to root out a leaker. It did so by using private investigators who engaged in "pretexting - calling up phone companies and impersonating directors seeking their own records. HP late last week additionally admitted to spying on the phone records of nine journalists, including at The New York Times and Wall Street Journal, some of which date to 2005. HP's Dunn stands accused of orchestrating the investigation. Perkins quit in a rage over the surveillance and wants Dunn out as chairman; HP is painting him as an angry traitor with a vendetta against Dunn. Lying, spying, name-calling, finger-pointing - all of it is a tragicomedy that Shakespeare might've penned had he gotten an M.B.A." City forecasts are for suckers 09/10/06 Markets "Errors in the way fund managers make decisions are caused by a number of behavioural traits, chiefly over-confidence and over-optimism (in a survey 75 per cent of fund managers said they were above-average at their jobs). The love of forecasting is also driven by a tendency known as 'anchoring' - fixating on irrelevant numbers for support. Montier suggests we anchor share values on something we can measure, like dividends. These errors are deeply ingrained, he says : 'It's hard to go to fund managers and say "you are wasting your time", but really analysts need to get back to analysing and forget about forecasting. And as for knowledge, it really is a case of less is more.'" Self-employment can pay for your child's education 09/10/06 Taxes "Here's the overall result: Mike claims a deduction for the $15,000 in wages paid to Rick, which will save Mike $6,900 in tax (assuming a marginal tax rate of 46 per cent). Rick has $15,000 in his bank account, pays no tax on the amount, and now uses the $15,000 to pay for school. In effect, Mike has claimed a deduction for the amount used to pay for his son's education. And it doesn't really matter what costs Rick uses the $15,000 to cover; the amount is still deductible to Mike regardless." A 'layer cake' plan for your retirement 09/10/06 Retirement "The "conservative" client wants to leave a legacy and assumes a longer than 30-year lifespan, reducing her withdrawal rate to 4 percent. The "aggressive" client assumes a shorter than 30-year lifespan, a performance-based withdrawal approach, and other factors that boost his withdrawal rate to 7.6 percent."