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Article Archive: 2012

Low bond yields reveal stark choices on risk
12/31/12   Hallett
"In the course of attending several client proposals and meetings over the past several weeks, a common thread has emerged. Since bonds are needed to limit total portfolio risk, they also limit potential total returns. And this is causing investors to have to choose whether risk or return is more important."

Scary beats safe when it comes to Net Nets
12/31/12   Stingy Investing
"Cheap and safe are two attributes I look for when picking stocks. But seeking safety doesn't always pay. History suggests that a cheap-and-scary approach may be the better way to go - if you have the stomach for it."

Why do Value Investors like Indexing?
12/29/12   Indexing
"In general, most value investors like indexing. Buffett and many others agree on this. But why? 1) Most value investors that I have known want ordinary people to have an option of doing pretty well, without investing with them, because the minimums are too high - investing in index funds fits that... 2) The second reason is less noble. We like less competition."

Housing affordability crisis
12/29/12   Real Estate
"For just the second time in the past century, the country's housing market is pushing the limits of affordability, according to key statistical measures, shutting many potential buyers out of the market, and making it harder for those who have already taken the plunge to pay off their mortgages."

Zero-Sum doesn't add up
12/29/12   Government
"Is life like a pizza, where if some people have too many slices, other people have to eat the pizza box?"

Heading over the fiscal cliff
12/29/12   Government
"Even if the United States slips back into recession in the short-term, the fiscal cliff's economic prescriptions will make it better in the long-run: The Congressional Budget Office estimates that, a decade after going over the edge, debt will be 58% of GDP - which is much better than 100%."

The illiquidity premium
12/29/12   Markets
"This paper examines the illiquidity premium in stock markets in 45 countries. The premium is the excess return on high-illiquidity stocks minus low-illiquidity stocks across volatility portfolios, after controlling for volatility. The average monthly premium is 0.95% (0.44%) for equally-weighted (value-weighted) portfolio return. After controlling for six common global and regional risk factors, the monthly alpha is 1.04% (0.54%). The premium is much higher for emerging markets than it is for developed ones and it is lower in countries with better disclosure and legal\governance rules. We document significant comovement of country illiquidity premium with both the global and regional average illiquidity premiums."

Merry Christmas!
12/25/12   Christmas
"Merry Christmas! Oh, and a "Bah! Humbug!" to all. ;-)"

Small, illiquid, value
12/23/12   Stingy Investing
"While the return potential of small value stocks is well known, the benefits of low liquidity may be less obvious. That's why I was pleased to read a study on the topic by Roger Ibbotson, and others, in the latest Financial Analysts Journal, which dissects mutual funds."

The Insourcing Boom
12/22/12   Markets
"What has happened? Just five years ago, not to mention 10 or 20 years ago, the unchallenged logic of the global economy was that you couldn't manufacture much besides a fast-food hamburger in the United States. Now the CEO of America's leading industrial manufacturing company says it's not Appliance Park that's obsolete - it's offshoring that is. Why does it suddenly make irresistible business sense to build not just dishwashers in Appliance Park, but dishwasher racks as well?"

Bond bears' growl is all noise
12/22/12   Hallett
"Without failure, for my entire 18+ year career the overriding expectation has been for interest rates and bond yields to rise from their 'historic lows'. My start was in 1994 - notable since that year stands alongside 1979-80 as the worst bond market in North American history. That year, however, was immediately followed by one the best calendar years on record for North American bonds - comfortably recouping 1994 losses and then some. After all this time, the same 'rates must rise' argument continues to proliferate. It's true that the lower that yields fall, the less they can continue falling. That's a mathematical fact. But that alone doesn't mean that yields are bound to rise. And save for one grim scenario, a rise in bond yields is no death sentence for bonds."

Gérard Depardieu, the heroic exile
12/22/12   Taxes
"Over 45 years, Depardieu said, he had paid 145 million euros in tax, and to this day employs 80 people. Last year he paid taxes amounting to 85 per cent of his income. 'I am neither worthy of pity nor admirable, but I shall not be called 'pathetic',' he concluded, saying that he was sending back his French passport."

Manitoba credit union depositors take note
12/22/12   Government
"An experienced accountant with more than two decades of experience in government, Mr. Dalgliesh said he had been relegated to the Manitoba Information Technology Branch after trying to blow the whistle on Crocus, a disastrous labour-sponsored investment fund."

How to burn $50 billion
12/22/12   Government
"Ottawa has increased by $50-billion the amount of residential mortgages that it is willing to guarantee. But this time the Canada Mortgage and Housing Corp., the biggest provider of mortgage default insurance, is not getting any. Instead, the additional backing is going only to private-sector players such as Genworth Canada, who will see their maximum raised to $300-billion from $250-billion."

Shaky foundations
12/22/12   Real Estate
"When Dennis Gilmore gathered financial analysts and investors on a conference call last summer, the head of California-based First American Financial Corp. had some troubling news. It was what he referred to bluntly as 'the situation' up in Canada. The Los Angeles-area insurance company was losing tens of millions of dollars due to hidden problems in the Canadian housing market, and there were no assurances that the bleeding was going to stop."

Ryan Morris, activist value investor
12/21/12   Value Investing
"When an activist investor like Carl Icahn tries to take over a household brand, it plays out on CNBC. Most shareholder struggles occur when little-known investment funds try to take over little-known companies like InfuSystem. Of the more than two dozen activist battles in 2012, most involved companies with a market value under $50 million."

Not enough Canadian content
12/16/12   Economy
"Every one of the ailments we imagine ourselves to be suffering is a reality in the United States: where our incomes are growing, theirs are stagnating; where poverty here is at record lows, there it is at record highs; where inequality in Canada has not grown in recent years, in the United States it has surged."

Saving economics from the economists
12/15/12   Economics
"Economics as currently presented in textbooks and taught in the classroom does not have much to do with business management, and still less with entrepreneurship. The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate."

Pay giveaway
12/15/12   Government
"From coast to coast, states are cutting funding for schools, public safety and the poor as they struggle with fallout left by politicians who made pay-and-pension promises that taxpayers couldn't afford."

Save more, work longer
12/14/12   Markets
"AQR Capital co-founder on the fiscal cliff and why he sees challenging times ahead for the U.S. economy."

Focus on the numbers
12/13/12   Stingy Investing
"Simple numerical strategies may well represent a ceiling to returns for most investors. It's something that's well worth considering the next time you screen for stocks."

Income malaise complicates tax talks
12/13/12   Taxes
"If the two parties fail to come to a deal by Jan. 1, taxes on the average middle-income family would rise about $2,000 over the next year. That would follow a 12-year period in which median inflation-adjusted income dropped 8.9 percent, from $54,932 in 1999 to $50,054 in 2011."

A compilation of Buffett articles
12/08/12   Buffett
"If you have an hour or so and are interested in reading some of Mr. Buffett's works check out the following articles available online. And prepare to be amazed by a guy who has made some astonishingly prescient market calls despite claiming to have no idea where the markets are headed short-term."

Private REITs require careful due diligence
12/08/12   Hallett
"In the early days of income trusts - the late 1990s - portfolio manager Rick Howson used to talk about whether a trust's 'brains' were inside or outside of the 'body'. (He managed Saxon High Income, now known as Saxon Dividend Income, one of Canada's first income trust mutual funds.) Howson preferred trusts where the management 'brains' resided inside of the trust 'body' - in large part for governance reasons. It's no wonder he preferred this structure. A group of companies provide services to the REIT that I reviewed ranging from property due diligence to day-to-day property management and sales (i.e. attracting investors into the fund). There are two problems with this structure. First, each of the companies are completely outside of the REIT structure. Second, each is owned by the REIT's co-founding general partners. While I didn't not delve into this issue further, this structure has potential conflicts all over it. I could not find a single word even mentioning that a conflict exists, let alone how the REIT deals with this conflict."

Why college may be free
12/08/12   Academia
"...there will always be students able and willing to pay for a traditional college experience and for them it will be a worthwhile investment. But for the vast majority, from a financial standpoint that kind of education makes no sense and is fast becoming unnecessary. He believes the higher education revolution is coming soon and will happen fast - perhaps fast enough to keep the next generation from finishing school with debts they may never be able to pay."

Acquisitions: Winners and Losers
12/08/12   Stocks
"The winner in public company acquisitions is easy to spot and it is the target company stockholders, who gain about 18% over the 41 days. On average, bidding company stockholders have little to show in terms of price gains - the stock price for acquiring firms drops about 2% during the announcement period and about 55% of all acquiring firms see their stock prices go down. Note that while the percentage price drop is small (relative to the price increase for the target firm), acquiring firms are typically much larger than target firms and the absolute value that is lost by acquiring firm stockholders from acquisitions can be staggering. A study of 12,023 acquisitions by large market cap firms from 1980 to 2001 estimated that their stockholders lost $218 billion in market value because of these acquisitions. While this number was inflated by some especially bad deals done between 1998 and 2000, they illustrate the potential for massive value losses from acquisitions and the reality that one big, bad deal can undo decades of careful value creation in a company."

The bad luck of winning
12/08/12   Behaviour
"From one point of view - the point of view of lottery officials - you couldn't ask for more ideal winners than the Hills. Mark works for a meatpacking plant. Cindy is a clerical worker who was laid off in June 2010. When they were introduced to the news media on Friday, their adopted daughter in tow, they talked about how the money might allow them to adopt another child. They said they were going to help various relatives pay for college. They insisted that the money wouldn't change them. The only extravagance they mentioned was a red Camaro that Mark wanted. They made winning the lottery seem downright heartwarming. But it's not. On the contrary, lotteries may well be the single most insidious way that state governments raise money."

Deck the halls with macro follies
12/06/12   Economics
"Each year, our attention turns to the holidays... and to holiday consumer spending! We're told repeatedly that, because consumer spending is 70 percent of measured GDP, such spending is vital to economic growth and job creation. This must mean that savings, the opposite of consumption, is bad for growth. This view of macroeconomics was first popularly asserted by Thomas Malthus in 1820, nearly 200 years ago."

Kindly note the impending bankruptcy
12/01/12   Government
"You cannot simultaneously enjoy American-sized taxes and European-sized government. One or the other has to go." [Some colourful language.]

What value is good value for stocks?
12/01/12   Stingy Investing
"Next time you're in the bathtub, consider the dynamics of the rubber duck - an easy-to-submerge toy that quickly pops to the surface when it is released. In much the same way, value investors buy stocks that the market has pushed deep underwater because they expect these firms to turn around and head back to more normal levels."

Capital preservation and financial repression
11/30/12   Montier
"Essentially, Bernanke's first commandment to investors goes something like this: Go forth and speculate. I don't care what you do as long as you do something irresponsible."

Taleb mishandles fragility
11/28/12   Books
"Another key to understanding Taleb is that he has a French post-modern tendency to write to impress rather than explain. He provides hundreds of loosely related anecdotes, reminding me of the Talmud quote that 'when a debater's point is not impressive, he brings forth many arguments.'"

Charlie talks to Warren and Carol
11/27/12   Buffett
"Warren Buffett and Carol Loomis on the book 'Tap Dancing to Work'"

Simple but not easy
11/24/12   Value Investing
"Tobias Carlisle makes the case for quantitative value."

Virtual Brokers becomes ETF leader
11/24/12   Brokers
"I think it is fair to say that Virtual Brokers now offers the most compelling suite of services to ETF investors. I have often discouraged people with small accounts from using ETFs because the trading costs can make them far less efficient than index mutual funds. But with VB, you can now add new money to your portfolio every week or every month at no cost: you'd only pay commissions once or twice a year if it becomes necessary to trim a holding or two while rebalancing."

Sculpting a portfolio by subtraction
11/22/12   Stingy Investing
"Rather than look for stocks at the extremes, I take a different tack. Instead of seeking the best, I endeavour to avoid the worst. It's like sculpting: I start with all the stocks on the Toronto Stock Exchange then slowly whittle down this long list through a series of relatively mild cuts."

Garbage for brains?
11/17/12   Bonds
"Corporate bonds, still carrying all the idiosyncratic risks of single companies, are priced as if they were safer than Treasurys."

Value vs CAPE
11/17/12   Stingy Investing
"To probe what value investors can reasonably expect, it's interesting to look at how value stocks tend to do at various levels of market valuation."

Canadian Graham stocks
11/17/12   Stingy Investing
"I'm a big fan of Benjamin Graham's investment techniques and frequently use strategies from the father of value investing to uncover interesting Canadian stocks. With markets looking a bit shaky in recent days, it's an opportune time to focus on Mr. Graham's defensive approach, which I've used profitably for over a decade"

Fitting factors into the formula
11/10/12   Markets
"For this issue's Morningstar Conversation, we talk with two quant-investing legends. Cliff Asness, co-founder of AQR Capital Management, and Robert Arnott, chairman of Research Affiliates - to gain insights on where academic theory is being practically applied in the marketplace."

Low risk stocks outperform
11/10/12   Markets
"The fact that low risk stocks have higher expected returns is a remarkable anomaly in the field of finance. It is remarkable because it is persistent - existing now and as far back in time as we can see. It is also remarkable because it is comprehensive. We shall show here that it extends to all equity markets in the world. And finally, it is remarkable because it contradicts the very core of finance: that risk bearing can be expected to produce a reward."

An old friend: the stock market's Shiller P/E
11/10/12   Markets
"It's been a long-time since we've discussed this, but since it's actually the source of some current controversy, now seems like a good time to re-examine the valuation of the entire U.S. stock market, and particularly the relevance and meaning of the Shiller P/E, a measure we have favored in the past."

RBC Direct Investing disappoints
11/10/12   Brokers
"It came to our attention recently that earlier this year, RBC's discount brokerage, RBC Direct Investing, ceased to offer funds sponsored by Leith Wheeler, Mawer and Steadyhand. The move was described by RBC as a "business decision," and we assume this reflects the fact that the funds offered by these firms do not pay trailers, and thus RBC does not receive any revenue from their sale. If this is indeed the reason behind the decision, it is not a strong one."

Income trust fans have no reason to cry
11/10/12   Hallett
"For many income-oriented investors October 31, 2006 will forever be etched in their brains. That was the day that our Federal Finance Minister lowered the tax boom and ended the tax arbitrage of income trusts. The market reacted by slicing about 17% from market prices of trusts to reflect the tax impact of the announcement. Despite the massive outcry at the time - and since - it's hard to find reasons for trust investors to shed any tears."

How Apple avoids paying billions in taxes
11/10/12   Taxes
"Thanks to a complex network of offshore accounts and cleverly named subsidiaries, Apple, the world's most valuable company, paid just $713 million on its $36.8 billion in foreign earnings last quarter. That amounts to a rate of just 1.9 percent, a figure that makes Mitt Romney's 14.1 percent effective tax rate look downright generous. And believe it or not, Apple actually reduced its foreign tax rate by nearly 25 percent as the company's market cap soared to new heights this year. According to the Associated Press, it was 2.5 percent at this time in 2011. Did Apple get a tax cut? Nah, it just got better at avoiding the IRS."

Last refuge of scoundrels
11/03/12   Bonds
"Governments involved in financial repression (keeping savings rates below the inflation rate) encourage their citizens to do stupid things by reaching for yield. Remember, most people think of yield as a magic chicken that lays eggs on schedule, and never gets sick or dies. Those who truly understand markets know that yield is an allocation of free cash flow, and that many businesses can.t control their free cash flow, so dividends are less than fully certain."

Is the stock market overpriced?
11/03/12   Stingy Investing
"The market is 29 per cent higher than its average CAPE of 16.5, and 31 per cent higher than its average P/PeakE of 11.3. As a result, despite their differences, it turns out that both methods point to similar levels of overvaluation."

Measures of value
11/03/12   Stingy Investing
"The results are clear: You would have done well by buying stocks with low ratios"

One for the ages
11/03/12   Bonds
"The next bankruptcy cycle, whether in 2 or 3 or 4 years, is going to be one for the ages."

The guide to trading candy
10/28/12   Fun
"Everything you need to know to get ahead in candy trading."

Merton vs. Low Vol
10/27/12   Markets
"Low volatility investing is becoming more popular, but the question is perhaps it could be better captured via a more inclusive metric of volatility. The Merton model of default popularized by Moody's KMV is basically a function of two inputs: volatility and leverage. If this model is correct, then a probability of firm failure is better captured than mere volatility alone, and perhaps it also captures the true, fundamental volatility that is driving the low vol effect."

The flaws of finance
10/27/12   Montier
"The problems inherent in VaR are further amplified by the use of short runs of data to estimate the inputs. This creates an even more pro-cyclical element, adding to the problems of VaR. If the immediate past is a period of tranquillity, then the future is held to be the same. If a risky asset, let's say a CDO, happens to have been less volatile than U.S. treasuries over the last couple of years, the model says (with a straight face) that the CDO is less risky than treasuries!"

21 reasons why you should never date an economist
10/27/12   Fun
"7. On average they are pretty mean."

Taxes, inflation, default
10/25/12   Debt
"Buffett is uncomfortable with the idea that the Fed can expand its balance sheet indefinitely. He doesn't know why it won't work, but he knows that there are no free lunches, and wonders what might happen as a result."

Buffett on CNBC: Summary
10/24/12   Buffett
"Buffett was on CNBC this morning. Who has time to sit in front of the TV from 7:00 - 9:00 am? Only hardcore Buffett-heads would click through and watch all the videos or read the full transcript. So here are some notes."

Sponging boomers
10/19/12   Taxes
"The IMF estimates that fixing America's fiscal imbalance would require a 35% cut in all transfer payments and a 35% rise in all taxes - too big a pill for a creaky political system to swallow."

Should we worry about rising interest rates?
10/19/12   Economy
"But the Fed has only limited power to control interest rates. And sharply higher yields would be far from unusual. For instance, 30-year Treasury bond yields are currently under 3 percent. As recently as last year, they topped 4.5 percent, and in early 2000 they briefly exceeded 6.5 percent. Because of the long maturity, a single percentage point rise in rates would translate into roughly a 20 percent decline in the value of long bonds."

The real deal
10/19/12   Markets
"Perhaps none of this would matter if the bad news was already reflected in share prices. The biggest bull markets have started when shares looked cheap. But on two crucial measures - the cyclically adjusted price-earnings ratio (as calculated by Robert Shiller of Yale University) and the dividend yield - the American stockmarket looks more expensive than the historic average. Some people may think that low real rates will ignite an equity bull market. But history does not suggest that will be the case."

When cheap funds cost too much
10/13/12   Indexing
"Exchange-traded funds have quickly become one of the cheapest and simplest investing tools in the world. They also are the raw material for an increasingly popular but potentially expensive and confusing way to invest."

You do the math
10/13/12   Dividends
"One of the nice things about dividends is that they're taxed at a lower rate than interest or other income. Most people know that. What they may not know is that, depending on the province, it's possible for an individual with no other sources of income to earn nearly $50,000 in dividends without paying any tax at all."

The Halloween Indicator
10/13/12   Markets
"We use all available stock market indices for all 108 stock markets and for all time periods to study the 'Halloween indicator' or 'Sell-in-May' effect. In total 55,425 monthly observations over 319 years show winter returns - November through April - are 4.52% (t-value 9.69) higher than summer returns. The effect is increasing in strength: The average difference between November-April and May-October returns is 6.25% over the past 50 years. A Sell-in-May trading strategy beats the market more than 80% of the time over 5 year horizons. The data allows us to address a number of (methodological) issues that have been raised with respect to the effect."

Half of the facts you know are probably wrong
10/13/12   Science
"The field of scientometrics - the science of measuring and analyzing science - took off in 1947 when mathematician Derek J. de Solla Price was asked to store a complete set of the Philosophical Transactions of the Royal Society temporarily in his house. He stacked them in order and he noticed that the height of the stacks fit an exponential curve. Price started to analyze all sorts of other kinds of scientific data and concluded in 1960 that scientific knowledge had been growing steadily at a rate of 4.7 percent annually since the 17th century. The upshot was that scientific data was doubling every 15 years."

What would Buffett buy?
10/13/12   Stingy Investing
"Warren Buffett, the Oracle of Omaha, is the world's most successful value investor. Here's how you can follow his strategies to find your own bargain stocks."

Low volatility value
10/13/12   Stingy Investing
"Removing the most volatile stocks from the low-P/B portfolio boosted returns by nearly a percentage point annually and reduced volatility by almost two percentage points. As a result, value and low-volatility work well together."

The long arm of Uncle Sam
10/06/12   Taxes
"New U.S. laws targeting overseas tax cheats have not only left a million Canadians facing the potential of financial ruin, but have put local credit unions in an impossible bind."

Backseat drivers
10/06/12   Government
"Yet our private sector is forever being treated as if it were, in fact, part of the public sector. I don't mean the normal laws and regulations to which all of us are properly subject, so far as our actions might cause harm to others. I mean the habit of certain busybodies, in government and out, to dictate how private firms should run their business, just as if the backseat drivers were the owners."

Multiclass shares suffer
10/06/12   Markets
"In the past decade, the number of U.S. companies with controlled share structures has climbed higher, but a new study found their investors sometimes suffer from it."

Value and dividends
10/06/12   Stingy Investing
"Combining a search for dividends with a nose for value often produces good results. But let's take a look at a few practical issues you might encounter when looking for stocks with this tempting combination of features."

Hey, small spender
10/06/12   World
"This slowdown is partly owing to lower prices for Canada's resource exports, weak demand for its goods from Europe and a strong currency. But home-grown factors have also played a part."

He's not a billionaire, he just plays one on TV
09/29/12   Funds
"'[O'Leary's] stated investment philosophy was at odds with what they are doing,' says Hallett. 'My basic conclusion was there was a lot more marketing than real investment steak.' When asked whether he would invest with O'Leary Funds today, Hallett said, 'There are no funds they have that really jump out at me.'"

A Grahamian diagnosis
09/29/12   Markets
"In a review of a book on statistics and predictions, Burton Malkiel says that the price/earnings multiple was 'devastatingly inaccurate' for much of the 1990s. Malkiel doesn't say whether he means a trailing P/E or the Cyclically Adjusted P/E (CAPE). Whatever the case, we think the Princeton professor is displaying the classic impatience of an inexperienced investor despite having spent his life studying the markets."

A lost decade for savers
09/26/12   Thrift
"The 1990s were a lost decade for Japan. The 2000s delivered a lost decade to U.S. investors. Now, five years into the onset of the financial crisis, with stock and bond markets booming, housing resurgent, and even Detroit redeemed, it.s savers who find themselves in a lost decade."

The school of patience and pluck
09/26/12   Stingy Investing
"You don't need special sources of information or cutting-edge analysis to make money in the market. It helps, though, if you have patience and the willingness to buy stocks that other people despise. For proof, look to the career of Walter Schloss."

Walter Schloss 2008 talk
09/26/12   Schloss
"Get some inspiration from Walter's talk at the Ben Graham Centre for Value Investing"

65 years on Wall Street
09/26/12   Schloss
"Walter Schloss talks at a Grant's event. An oldie but a goodie."

50 is the new 40 but ETFs are the new Mutual Funds
09/26/12   Hallett
"For years I've been hearing from individual investors and financial advisors who are disappointed with their meagre long-term performance. This jives with calculations I completed four years ago, which showed that Canadian mutual fund investors largely missed out on the available risk premium over nearly 15 years prior to the worst of the last bear market (as illustrated in this chart). As a result, many have cast their mutual funds aside in favour of cheaper exchange-traded funds (ETFs) expecting higher returns. But I'm convinced that in 2022 or 2027, similarly-disappointing performance figures will be printed about ETF investor returns."

The iPhone's sexy, but 'I save' is far smarter
09/22/12   Thrift
"But iPhones are also symbolic of a change in society's attitude toward money. We now get our gratification through spending money rather than by saving it. The savings rate in Canada has been falling for decades, more or less in line with the decline in interest rates. Today, savings accounts offer less than 1 per cent in many cases and barely 2 per cent at best. As a result, a lot of us have come to believe that saving is useless, even foolish. And so, we've moved on to spending."

Hayek on the standing committee
09/22/12   World
"In the past year, the spirits of Keynes and Hayek have done battle for the minds of China's policymakers. This month Andrew Batson of GK Dragonomics, a research consultancy in Beijing, argued that Hayek seems to be winning. China's leadership is now keen to avoid the 'Hayekian risk' of wasted investment, he wrote, even if that increases the 'Keynesian risk' of inadequate demand and weak growth."

Krugman's Baltic problem
09/22/12   World
"All the southern European countries have overregulated labor markets that have caused persistently high unemployment. In Spain, it is easier to get a divorce than to sack a worker -- which explains in part why companies are very reluctant to hire new ones."

Looking for a bargain?
09/19/12   Stingy Investing
"When I explain the theory of value investing to people, they always love the idea. Everyone is excited by the notion of snapping up a dollar's worth of assets for 60 cents. Then they see an actual value portfolio. And they recoil in horror."

Why I'm a value investor
09/17/12   Stingy Investing
"Value investing is all about finding stocks (and other securities) that are both cheap and relatively safe. The two are intimately related because buying at a low price is inherently safer than buying at a high price, everything else being equal."

New Value Investing Strategy Lab
09/17/12   Stingy Investing
"Follow my value investing scribblings at the new Globe Investor Strategy Lab."

False positives
09/14/12   Science
"the lack of an avenue in which to publish failed attempts at replication suggests self-correction can be compromised and people such as Smeesters and Stapel can remain undetected for a long time."

Fiscal cliff
09/14/12   Fun
"'What will happen if we hit the fiscal cliff?' asks Merle Hazard, in an animated surf-style music video."

Shiller launches value indexes
09/14/12   Indexing
"The new indexes look for cheap sectors based on this approach, finding those with low cyclically adjusted price-to-earnings, or CAPE. The numbers are persuasive. Using data going back to 1902, Mr. Shiller found that an investing strategy that focused on sectors with low cyclically adjusted price-to-earnings ratios outperformed by an average of 1.13 per cent a year."

Bad policies
09/14/12   Economics
"It is common to fix the blame for this on the banking crisis. Economies typically take a long time to recover from 'balance-sheet' recessions, as businesses and households focus on paying down debt and rebuilding savings. But what if the problem of slow growth has deeper roots than that? What if slow growth caused the crisis?"

A conversation with Ray Dalio
09/14/12   World
"Ray Dalio, founder and co-chief investment officer of Bridgewater Associates, L.P., discusses global economics."

All time low yields
09/11/12   Bonds
"According to both the Barclays high-yield index and the CS HY index, yields in high yield have reached an all time low of 6.6%. Further, over the last few weeks, traders and syndicate desks have been whispering of a simply gargantuan amount of high yield and leveraged loans coming this month. Certain desks have been advocating a move to CCC assets as they still yield approximately 100 bps over their all time low seen on...wait for it...May 2007."

The weatherman is not a moron
09/08/12   World
"The one area in which our predictions are making extraordinary progress, however, is perhaps the most unlikely field. Jim Hoke, a director with 32 years experience at the National Weather Service, has heard all the jokes about weather forecasting, like Larry David's jab on 'Curb Your Enthusiasm' that weathermen merely forecast rain to keep everyone else off the golf course. And to be sure, these slick-haired and/or short-skirted local weather forecasters are sometimes wrong. A study of TV meteorologists in Kansas City found that when they said there was a 100 percent chance of rain, it failed to rain at all one-third of the time."

We live in remarkable times
09/08/12   Bonds
"As Deutsche Bank points out in its long-term asset return study, the longest series of bond yield data is for the Netherlands dating back all the way to 1517. In June, those yields reached a record low. Not just any old record, then, but a 500-year nadir. In America, yields go back only to 1790 but they too have been at all-time lows. The Bank of England was founded in 1694 but never felt the need to push base rates down so low; not in two world wars or a Great Depression. Nor did the Bank ever feel the need to expand its balance sheet to such a great extent (although Deutsche only has data back to 1830); currently it is around 25% of GDP."

The global debt clock
09/08/12   Debt
"Our interactive overview of government debt across the planet"

You can't trust airport security
09/08/12   Books
"When the plumber knocks at your door, why do you let him in? He's probably bigger and stronger than you. And he has a wrench. He could easily kill you and steal your money and your stuff, which would certainly be a better deal for him than receiving a moderate payment and having to fix your toilet. But you trust that he won't; and trust, that mysterious and invaluable substance, is the subject of Bruce Schneier's ambitious "Liars and Outliers: Enabling the Trust That Society Needs to Survive," which starts with the homely parable of the plumber and builds into a treatise on every aspect of trust, from marital fidelity to transnational terrorism."

No hands
09/08/12   Tech
"It may sound like science fiction, but much of the technology needed to turn ordinary vehicles into self-driving ones already exists. Indeed, almost all carmakers are developing sensors, control systems and other equipment that turns cars, in effect, into autonomous robots. Prototypes are on the roads today."

Graham's Net Net in London
09/02/12   Graham
"In this paper we focus on the early value metric devised and employed by Benjamin Graham - net current asset value to market value (NCAV/MV) - to see if it is still useful in the modern context. Examining stocks listed on the London Stock Exchange for the period 1981 to 2005 we observe that those with an NCAV/MV greater than 1.5 display significantly positive market-adjusted returns (annualized return up to 19.7% per year) over five holding years."

Inside Warren Buffett's private poker game
08/31/12   Buffett
"Warren Buffett is a famously world-class bridge player, putting in 12 hours a week at the table, often with Bill Gates, and sponsoring the Buffett Cup, which mimics golf's Ryder Cup, except with cards. 'Every hand fascinates me,' he recently told me, in explaining this obsession. But relatively quietly, over the past seven years he's emerged as the host of one of the planet's most exclusive poker games."

How Eric Sprott got solar burn
08/31/12   Funds
"The story of Timminco - which concluded early this year with the bankruptcy of the company and the delisting of its stock on the TSX - has, since its beginning, inspired doubters and believers. The company never delivered on its promise to produce cheap solar-grade silicon on a commercial scale. The believers maintain Timminco never got the chance to prove itself because the solar industry collapsed and demand for high-purity silicon dried up almost overnight. The doubters insist the company could never have made the breakthrough."

China's growing economic crisis
08/31/12   World
"One problem is that China has run out of obvious ways to kick-start its $7.3 trillion economy. It was easy in 2008: Pump tens of billions of dollars into a sweeping stimulus project and 10 percent growth followed. China's success gave markets the impression that its leaders could wave some magic wand and growth would be the result. Magic is in short supply now. Local governments are cash- strapped and awash in debts that could turn bad. The euro zone seems locked into permanent-crisis mode while the U.S. is bogged down with debt, economic stagnation and political paralysis. China proved it can live for a few years without U.S. and European customers, but not forever."

Buffett pledges $3 Billion more
08/31/12   Buffett
"Billionaire Warren Buffett has pledged an additional $3 billion of shares in his Berkshire Hathaway Inc. to his three children's foundations."

Mohnish Pabrai and Guy Spier talk
08/23/12   Value Investing
"Mohnish Pabrai and Guy Spier share their considerable wisdom with UC Davis's MBA Value Investing class on 8/22/12."

Global Value: 10 Year CAPE
08/22/12   Value Investing
"Over seventy years ago Benjamin Graham and David Dodd proposed valuing securities with earnings smoothed across multiple years. Robert Shiller popularized this method with his version of this cyclically adjusted price-to-earnings ratio (CAPE) in the late 1990s, and issued a timely warning of poor stock returns to follow in the coming years. We apply this valuation metric across over thirty foreign markets and find it both practical and useful, and indeed witness even greater examples of bubbles and busts abroad than in the United States. We then create a trading system to build global stock portfolios based on valuation, and find significant outperformance by selecting markets based on relative and absolute valuation."

The secrets of See's Candies
08/22/12   Buffett
"Charles A. See, a salesman from Ontario, opened the first See's shop in 1921 in Los Angeles. With its now iconic black-and-white tiles, it was made to look like the kitchen of his widowed mother, Mary. Today the shops still offer the same experience: walk-in customers can sample any piece."

Tim McElvaine's conference
08/22/12   Value Investing
"Tim talks about his portfolio and the world more generally at his partners' conference."

How to play the market
08/20/12   Kahn
"You stick to value, to Benjamin Graham, the man who wrote the bible for the market. It's a mistake to believe you can do more, I warn you. John Maynard Keynes was one of the most famous economists in history. He was a genius, but he failed as a macro investor. It was hard to believe at the time. But when he became a bottom-up value guy, well, he became very successful. With value investing, you don't have to bend the truth to accommodate periods with derivatives and manias. Value investing will almost always be right."

Skilled work, without the worker
08/19/12   Science
"The falling costs and growing sophistication of robots have touched off a renewed debate among economists and technologists over how quickly jobs will be lost. ... the advent of low-cost automation foretells changes on the scale of the revolution in agricultural technology over the last century, when farming employment in the United States fell from 40 percent of the work force to about 2 percent today."

Why does financial strength forecast stock returns?
08/18/12   Value Investing
"The authors measure financial strength with Piotroski.s F-score. They demonstrate that investors can achieve higher returns by investing in stocks of firms with greater financial strength primarily because of institutional demand for stocks with better F-scores and the gradual incorporation of public information into stock prices. Stock return momentum and institutional momentum trading cannot fully explain the relationships between the F-score and subsequent returns and the F-score and subsequent institutional demand."

Inevitable slow recoveries?
08/18/12   Economy
"If a slow recovery is the inevitable result of a financial crisis, why was the Administration forecasting the "normal" fast recovery all along? The natural conclusion is that the administration thought, as I thought, that the economy should have grown quickly, as it typically has in the past. The "slow growth after financial crises" isn't a fact in the first place. And to the extent that it is a fact (it's a "fact" over a sample of countries not very representative of the US now), slow growth is not the inevitable result of a financial crisis itself, but a result of the mismanaged policy that typically follows a financial crisis, such as bailouts, close-the-barn-door-after-the-horse leaves banking regulation, trampling of property rights that scare creditors away, high taxes and so forth."

Statistically significant?
08/18/12   Academia
"A new paper by psychologists E.J. Masicampo and David Lalande finds that an uncanny number of psychology findings just barely qualify as statistically significant."

Apocalypse not
08/18/12   World
"When the sun rises on December 22, as it surely will, do not expect apologies or even a rethink. No matter how often apocalyptic predictions fail to come true, another one soon arrives. And the prophets of apocalypse always draw a following.from the 100,000 Millerites who took to the hills in 1843, awaiting the end of the world, to the thousands who believed in Harold Camping, the Christian radio broadcaster who forecast the final rapture in both 1994 and 2011."

Looking at China's problems
08/12/12   World
"The Austrian approach raises the possibility that there is no way for China to make good on enough of its oversubsidized investments. At first, they create lots of jobs and revenue, but as the business cycle proceeds, new marginal investments become less valuable and more prone to allocation by corruption. The giddy booms of earlier times wear off, and suddenly not every decision seems wise. The combination can lead to an economic crackup - not because aggregate demand is too low, but because the economy has been producing the wrong mix of goods and services."

It's just totally irresponsible
08/12/12   Government
"What we're actually witnessing - and have been for years now - is not gridlock, but the abdication of responsibility by Congress and the president for performing the most basic responsibilities of government. Despite the fiscal crisis that Washington knows will occur if it fails to deal with unsustainable spending and debt, it hasn't managed to produce a federal budget in more than three years."

The state of the States
08/12/12   Government
"For operational purposes, 'states' are best understood as undercapitalized health care and pension funds that write speeding tickets on the side."

In praise of copycats
08/11/12   Behaviour
"The conventional wisdom today is that copying is bad for creativity. If we allow people to copy new inventions, the thinking goes, no one will create them in the first place. Copycats do none of the work of developing new ideas but capture much of the benefit. That is the reason behind patents and copyrights: Copying destroys the incentive to innovate. Except when it doesn't. There are many creative industries, like finance, that lack protection against copying (or did for a long time). A closer look at these fields shows that plenty of innovation takes place even when others are free to copy."

The risky new world of ETFs
08/11/12   Stingy Investing
"A little more than a decade ago ETFs were rare things. The few that were available were much like the chocolate and vanilla of the investment world - plain but satisfying options. They tracked the big indexes and charged relatively low annual fees (MERs). If you pointed new investors to ETFs in those days, they would likely find reasonable funds on their own. But that was then."

Charting a map for investors
08/09/12   Graham
"The notion that the prices of stocks and bonds bear a sane relationship to their underlying value is not, at present, in high regard. Wall Street is widely said to be a betting parlor, if not an adjunct of the underworld. Its repute was even worse when Benjamin Graham published 'Security Analysis,' an investment manual that urged investors to calmly dissect securities and then plunge into issues trading at a sizable discount to intrinsic value. Stocks at a discount, Graham wrote, offered a 'margin of safety' - a cushion that would protect the investor from loss and, in time, assure him of a reasonable gain."

Vancouver crash
08/04/12   Real Estate
"The bottom line is that I'm confident that there are many households now reliant on home equity extraction to maintain their current lifestyle and likely to continue making timely payments on debt obligations. I suspect that when the tide goes out, we'll be shocked at how many Vancouver households have been swimming naked:"

Unintended consequences
08/04/12   Economics
"President Clinton raised taxes in the 1990s and the economy grew. So does that mean it would grow today if we did the same thing?"

Just how bad is the economy?
08/01/12   Economy
"The second-quarter GDP numbers came out. The newspapers and Republicans pounced on low growth and anemic job growth. The Democrats rebut growth is growth and tell us of the steady job gains. How bad is the economy?"

After this, therefore because of this
08/01/12   Behaviour
"Correlation isn't causation. It's a hint or a possibility, but no sure thing. This entire process is so difficult because we have so much trouble isolating causation. It's easy to see that bad traffic can cause one's commute to be longer than normal, but ascertaining causation where there are huge numbers of variables can be astonishingly difficult. Finding a causal chain in the hard sciences can be made easier by creating experiments that limit the variables or even eliminate all other possible variables. That's simply not possible in the markets."

Six policies economists love
07/28/12   Economics
"Tuesday's show presented the common-sense, no-nonsense Planet Money economic plan - backed by economists of all stripes, but probably toxic to any candidate that might endorse it."

A Greek story
07/28/12   World
"Tsanis said he steadfastly refused to bribe anyone. In one incident, in 2005, he appealed to a minister in Athens to get a permit unstuck. "The minister called in the public servant who was refusing to give us the permit and ordered him to issue it the next morning," he said, declining to specify the minister or ministry involved. "When we went back to get it, the civil servant told me: 'Australian, that guy is a politician and he'll be gone tomorrow, but I'll be here waiting for you.'"

Generational warfare
07/28/12   Government
"Flash forward half a century, and the boomers who once sang along with Dylan have become the reactionary elders, clinging to their power and perks at the literal expense of everyone younger. There's a new generation gap opening up, one that threatens to tear apart the country every bit as much as past confrontations over war, free love, drugs, and sitar music. This fight is about old-age entitlements and whether the Me Generation will do what's right for the country and stop sucking up more and more money from their children and grandchildren."

Lonely puppies
07/28/12   Value Investing
"I have often owned companies with little to no sell-side analyst coverage. Ask yourself this, how many companies trading on US exchanges are there: that have no analyst coverage, that are US-based, that have a Market Cap over $250 million, that aren't passthrough vehicles, and have pitiful liquidity at least"

Covered-call strategy: expectation vs reality
07/28/12   Hallett
"Investors are snapping up exchange-traded funds (ETFs) that use covered call-writing strategies. The strategy isn't new - covered call writing has been used by portfolio managers for more than two decades - but retail investor interest is growing. Last month alone, covered-call ETFs grabbed a third of the nearly $270-million in net new sales of Canadian-based ETFs. But I suspect that a fundamental misunderstanding of covered call strategies is behind the gap between investor expectations and reality."

Shiller-PE in emerging markets
07/27/12   Markets
"We test the reliability of the Cyclically Adjusted PE (CAPE) or Shiller PE as a forecasting and valuation tool for 35 countries including emerging markets. We find that the Shiller-PE is a reliable long-term valuation indicator for developed and emerging markets and we use the indicator to predict real returns on local equity markets over the next five to ten years."

Why we're driven to trade
07/22/12   Behaviour
"Most of the folks who say buy and hold is dead don't talk much about their long-term returns. Instead, they stress how they have done recently, a tactic that for many potential clients has the same irresistible appeal as the last couple of pulls on a slot machine."

Ideologue vs. Estonia
07/21/12   World
"'What Krugman has not mentioned at all,' says Urmas Varblane, 'is that when economic crisis entered Estonia in 2008, then we had already our own crisis.' For Varblane, who teaches economics at the University of Tartu, the real crisis was what came before the downturn: unsustainable, debt-driven growth that distorted the economy."

Muddled models
07/21/12   Economics
"Economists have regularly failed to predict recessions and were completely caught out by the recent financial crisis, as the Queen famously noticed. The shortfalls of the profession are old news. All the way back in 1994, Paul Ormerod wrote a book called The Death of Economics, lamenting the failure to forecast the Japanese recession or the collapse of the Exchange Rate Mechanism, from which Britain was turfed out in 1992. 'The ability of orthodox economics to understand the workings of the economy at the overall level is manifestly weak (some would say it was entirely non-existent)' Ormerod wrote."

Third Avenue is buying HK real estate
07/20/12   Funds
"Wolf started buying up Centro's distressed debt at less than 60 cents on the dollar late last year, while it was still in bankruptcy. The debt was converted to equity, and now Third Avenue owns more than 13.8 million shares of the new company."

Why Berkshire is killing it right now
07/18/12   Buffett
"The reason why the stock has gotten this burst of momentum is very simple - Berkshire is the single greatest play on the housing market resurgence extant. It's got the safety of a well-diversified business and it hits the housing market from virtually every angle - remodeling, re-mortgaging, recovering prices etc."

Howard Marks interview
07/16/12   Value Investing
"Howard Marks, chairman of Oaktree Capital Group LLC, talks about Europe's debt crisis, the global economy and investment strategy."

Buffett speaks with Betty Liu
07/13/12   Buffett
"Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., talks about JPMorgan Chase and Co.'s $4.4 billion trading loss at its chief investment office and the U.S. banking industry. Buffett also discusses his investment strategy and holdings, the U.S. economy and housing market, and the outlook for the euro."

David and Goliath
07/10/12   Books
"What should the strategy of the weak be when facing the strong? Does being an underdog - whether as a team a country or an individual - help foster creativity?"

Online ads decline
07/10/12   Markets
"The average cost to reach 1,000 people with an online display ad fell to about $11.50 at the end of 2011 from $13.35 in late 2009, according to SQAD Inc., which tracks negotiated ad deals. In July 1998, Yahoo was getting about $25 per thousand, according to The Wall Street Journal."

Irving B. Kahn interview
07/10/12   Kahn
"At 106, Irving Kahn is the oldest living, active investment professional. Here, he recalls being mentored by the legendary Ben Graham and learning first-hand the principles of finding large profits in small-risk investments"

Funds vs. ETFs
07/07/12   Funds
"The question is, would these studies arrive at a different conclusion if mutual funds were compared to ETFs instead of uninvestable indexes? It's hard to say definitely without getting into the data, but a rough assessment based on the Vanguard numbers would suggest that Canadian equity ETFs would still be leading an albeit closer race. If a charge for investment advice was factored in, it would be a dead heat, with some categories going to ETFs and others to mutual funds."

The Oracle of Boston
07/07/12   Klarman
"Mr Klarman is a devotee of 'value investing', a discipline forged by Benjamin Graham and popularised by Warren Buffett, which involves buying stocks at a discount to their intrinsic value. He will look beyond equities for bargains - a good example is Lehman Brothers, which at the end of last year was Baupost's largest distressed-debt position. But in every investment he insists on a 'margin of safety', the buffer between what investors pay for the stock and what they think it is worth, so they are protected against unforeseen events or miscalculations."

Figuring it out
07/07/12   Books
"Before Benjamin Graham started to work on Wall Street, investment analysis was a hit-and-miss affair, focusing more on recent price movements than on the merits of individual companies. Graham, a brilliant mathematician, took the process to a much higher level."

Consumers are hopeless at math
07/06/12   Pricing
"You walk into a Starbucks and see two deals for a cup of coffee. The first deal offers 33% extra coffee. The second takes 33% off the regular price. What's the better deal?"

Investors prefer ethical ETF
07/05/12   Funds
"Of course, what those standards actually are is a complex question, which is why it is important investors make sure they understand the parameters used to make such judgments, Mr. Rothery said. 'I'd caution anyone thinking about buying one of these funds to make sure that your morals and ethics correspond with that of the fund,' he said. 'It can be very tricky.'" [Please ignore the 'financial advisor' reference, it was a holdover from my days working for Dan Hallett. I don't take on private clients these days.]

Disrupting the pipeline business
07/01/12   Markets
"Perry is quickly discovering the power in cutting out a middleman. In pipelines, heavy oil can only flow if it's diluted. In railcars, it is shipped undiluted - and one shipper observed that undiluted crude is a lot like Bunker C, the sludgy fuel that is used to power ocean-going ships. So now small volumes of heavy crude are being loaded directly into those vessels, skipping refineries altogether. Perry relishes the disruption: 'We don't have to sell this heavy oil to refineries,' he says. Railcars are already 'breaking open the market.'" [Ignore the dumb lifter lead, arbitrage is the important lesson.]

Big Insurance worries about the future
07/01/12   Stocks
"Life insurance used to be the quintessential safe and boring business in Canada. No more."

Business out of excuses
07/01/12   Management
"As other economies stumble, the Canadian economy looks golden. But any gold is badly tarnished when it comes to productivity. Output per hour worked in the Canadian business sector has grown less than 1% per annum over the past decade. Productivity from labour and capital combined has not grown at all. This is one of the worst records in Canadian history and one of the worst among developed economies."

The great gouge
06/30/12   Economics
"In Episode One of The Invisible Hand, we'll see gouging at work everywhere from a Canadian hockey arena, to a busy agricultural market in Mali. We'll even introduce you to a man who was arrested for trying to sell generators at twice their normal price after a storm that left thousands of people homeless. And then we'll show you how to see gouging the way economists like Mike Munger see gouging -- as a force that gets much needed goods where they need to go, when they need to get there fastest."

10 reasons countries fall apart
06/30/12   World
"Some countries fail spectacularly, with a total collapse of all state institutions, as in Afghanistan after the Soviet withdrawal and the hanging of President Mohammad Najibullah from a lamppost, or during the decade-long civil war in Sierra Leone, where the government ceased to exist altogether. Most countries that fall apart, however, do so not with a bang but with a whimper. They fail not in an explosion of war and violence but by being utterly unable to take advantage of their society's huge potential for growth, condemning their citizens to a lifetime of poverty. This type of slow, grinding failure leaves many countries in sub-Saharan Africa, Asia, and Latin America with living standards far, far below those in the West."

Asness on healthcare
06/30/12   Health
"If we choose to subsidize a portion of the population we should do so openly, using taxation and government spending, which at least shines sunlight on the cost, not through tricky regulation that hides it."

The psychology of discounting
06/28/12   Pricing
"Consumers often struggle to realise, for example, that a 50% increase in quantity is the same as a 33% discount in price. They overwhelmingly assume the former is better value. In an experiment, the researchers sold 73% more hand lotion when it was offered in a bonus pack than when it carried an equivalent discount (even after all other effects, such as a desire to stockpile, were controlled for)."

Tax amnesty offered to Americans in Canada
06/27/12   Taxes
"The United States has announced details of a long-promised amnesty program for the millions of Americans living in Canada and offshore - many who haven't filed taxes for years."

Sand in the gears
06/27/12   World
"Cleaning up this mess is what we mean by 'structural reform.' How to achieve it politically seems like a nightmare to me. Fighting each of ten thousand regulations one by one seems hopeless. Each one sounds good, each one taken alone seems minor, each one has an entrenched interest backing it and an army of bureaucrats whose jobs depend on its enforcement. And the economy dies the death of a thousand cuts. Can you really abolish it all in one fell swoop or grand bargain?"

Mortgaging the future
06/23/12   Debt
"Uncontrolled public debt threatens to rupture society as the older generation thrives at the expense of the young."

Mauboussin on buybacks
06/23/12   Stocks
"This report looks at buybacks from four distinct points of view: companies, shareholders, prospective shareholders, and the media. Naturally, the issues are intertwined."

Michael J. Burry commencement address
06/23/12   Markets
"2012 UCLA Department of Economics Commencement featuring Dr. Michael J. Burry as keynote speaker"

Desperately seeking income
06/21/12   Hallett
"Many retail investors - and their advisors - are desperately seeking higher-income solutions in this ultra-low-rate environment. And institutional investment themes continually draw the retail sector to the trough - but usually only after the easy money has been made. Unlike institutions, however, retail investors must accept trade-offs. In an ideal world, retail exposure to institutional investment themes would boast abundant liquidity and reasonable fees to go along with their high income. But this has proven to be an elusive combination as high fees have squeezed returns and exposure is sacrificed for liquidity."

Operation Un-Twist
06/21/12   Government
"I don't know who in their right mind is lending the US government money for 10 years at 1.59% and for thirty years at 2.67%. You have to believe inflation will be lower than these values just to get your money back, let alone make any real return. (The best I can do is to opine that these are not long-term investors, and they think they can get out before rates rise. I will admit that understanding such low rates is stretching my rational-investor efficient-market prejudices.) Well, no matter. When offered a screaming good deal, you should take it!"

Why Mutual Fund Boards Are Failing
06/21/12   Funds
"But while individual qualifications are rarely an issue, investor advocates say mutual funds allow far too many directors to serve on multiple boards. In the realm of public companies, people can draw criticism for sitting on more than a handful of boards. But YieldPlus's trustees, in 2010, each served on the boards of 72 other Schwab funds -- each with its own lengthy prospectus, regulatory filings and compliance issues to review. And that, it turns out, is nothing compared with Bruce Crockett's responsibilities on behalf of investors in the Invesco family of funds. Crockett, a former CEO of satellite company Comsat, is a shareholder watchdog for 140 stock and bond funds, roles for which he was paid $693,500 in 2011. For many critics, vetting so many funds is hard to fathom and is a prescription for overwhelmed and passive boards. 'Maybe we're just not as smart as they are,' says Steven Melnyk, a former ABC golf commentator-turned-investment banker, who says he has his hands full serving on three fund boards at Longleaf Partners. 'But I can't imagine how, if you're at a large fund complex, you could find the time to really review everything you need to look at.' The required reading alone, says John Bogle, founder of fund giant Vanguard, underscores the challenge. 'Mutual fund directors,' he says, 'are either not being paid nearly enough for what they should be doing -- or far too much for what they actually do.'"

A glimmer of hope?
06/18/12   World
"We've got a bank run. How to stop it? Ah, deposit insurance! But who is going to pay for that? 'Countries' are not credible. The whole problem is that 'countries' used their banks as piggy banks, stuffing them with sovereign debt. So, if the countries default on their sovereign debt, the banks go under, and the same 'countries' obviously don't have the money to guarantee deposits. A cross-national deposit insurance scheme, while banks are already stuffed with sovereign debt, is back to Plan A, run for the exit and stiff Germany with the bill."

The allure of long-term treasuries
06/18/12   Bonds
"Financial advisers continue to profess that US treasuries should be a large part of a balanced portfolio. With the 10-year treasury yielding around 1.6%, the advice is hardly based on return expectations. It is also not due to expectations of mark to market gains. The up-side case in being long the 10-year treasury would be if the rate were to drop to the level of Japan's - just over half (a fairly unlikely outcome). The mark to market gain would be 7.5%. The downside case on the other hand would be if the 10-year yield rose to what it was just a year ago (or higher) - say around 3%. The mark to market loss would be around 11.5%. So the instrument effectively has an asymmetric payout profile and terrible current yield. What gives?"

Newspaper Work
06/18/12   Buffett
"Over the years, newspaper owners have built monuments to themselves in the form of giant buildings, statues and plaques commemorating their roles in their communities and the country at large. At the headquarters of The Buffalo News here, a sand-colored office building across the river from a fragrant Cheerios factory, the only visible sign of the owner is a small photograph hanging in the office of the publisher, Stanford Lipsey, signed, 'To the best in the business, Warren.'"

Euro explosion
06/17/12   World
"I read last week say that payments are simply stopping in Greece. If there's a chance to pay in Drachma next month, why pay in euros now? Shipments are stopping -- if your invoice might get paid in drachma, no point in sending goods today. This is simple implosion."

Saving too much for retirement?
06/17/12   Thrift
"So you're worried you haven't saved enough for your retirement? What if all the conventional wisdom is wrong and you are actually saving too much?"

How spending declines with age
06/12/12   Retirement
"Most of us already have a hunch that consumption declines with advanced age. If you had a middle-class upbringing, you might have had a grandmother who regularly gave cash gifts to her grandchildren every so often because she no longer spent the money on herself. She probably hadn't bought a car nor had she travelled anywhere for years. Once people cross over into their 80s, they just seem to be less inclined to spend their money. But we can't rely on anecdotal evidence for something as important as this. Fortunately, some hard data exist."

How to kill a currency
06/12/12   History
"As the world considers the possible death of the euro, it's worth considering a famous historical example. Ok, it's not that famous. But it's still worth looking at: The break-up of the Austro-Hungarian currency union in 1918."

Europe really is on the brink
06/12/12   World
"The European Union was created to avoid repeating the disasters of the 1930s, but Germany, of all countries, has failed to learn from history. As the euro crisis escalates, Berlin should remember how the banking crisis of 1931 contributed to the breakdown of democracy across Europe. Action is urgently needed to stop history from repeating itself."

Failure and rescue
06/09/12   Behaviour
"But there continue to be huge differences between hospitals in the outcomes of their care. Some places still have far higher death rates than others. And an interesting line of research has opened up asking why. Researchers at the University of Michigan discovered the answer recently, and it has a twist I didn't expect. I thought that the best places simply did a better job at controlling and minimizing risks - that they did a better job of preventing things from going wrong. But, to my surprise, they didn't. Their complication rates after surgery were almost the same as others. Instead, what they proved to be really great at was rescuing people when they had a complication, preventing failures from becoming a catastrophe."

Exhausting the Earth's resources?
06/09/12   World
"But firms that make their money mining this planet say the Earth is one big, practically inexhaustible mine, with just as many unexplored corners as outer space. 'We think there are 10,000 more years of minerals left for civilization,' said Andrew McKenzie, a geologist and BHP Billiton PLC's chief executive for nonferrous metals. 'Civilization will change, of course, and there will be different minerals involved, but 10,000 more years.'"

Housing market jitters keep lid on Genworth
06/07/12   Stocks
"Mortgage insurer Genworth MI Canada Inc has a perception problem and its bargain-basement valuation tells the tale."

Turning slumdogs into millionaires
06/07/12   World
"The idea behind Dakshana was to find some of India's most brilliant and poorest kids and prepare them for the rigorous entrance examination for the Indian Institutes of Technology. The IITs are a group of the nation's most prestigious engineering and technology universities. Its graduates are virtually guaranteed employment and success."

Euro breakup precedent
06/07/12   World
"It was a currency union of 15 states in 1992. Two years later, as budget deficits spiraled out of control, hyperinflation reigned and economies shriveled, just two members of the Soviet Union's ruble zone were left. As Greek politicians threaten to break terms of the country's bailout with international lenders, Spain calls for financial help, and northern European nations balk at funding the south, historians are asking whether the euro region is about to face a similar exodus. They take a longer view of the European Union's crisis than economists, and it's much bleaker."

Q ratios and stock market crashes
06/04/12   Markets
"At current valuations - and if this 110-year relationship continues - there is an expected (median) drawdown of 20%, and a 20% chance of a larger than 40% correction in the S&P500 within the next few years these probabilities continually reset as valuations remain elevated, making an eventual deep drawdown from current levels highly likely."

Equity Q ratio
06/04/12   Markets
"Tobin's Q ratio is the ratio between the market value of the stock market and against the aggregate net worth of the constituent stocks measured at replacement cost. It can be defined to include or exclude debt. We exclude debt for ease of calculation, and refer to it in this form as 'Equity Q'."

The austrians and the swan
06/04/12   Markets
"Over the past century-plus there have clearly been sizeable annual losses (of let's say 20% or more) in the aggregate U.S. stock market, and they have occurred with exceedingly low frequency (in fact only a couple of times). So, by definition, we should be able to call such extreme stock market losses 'tail events.' But can we say this, just because of their visible depiction in an unconditional historical return distribution?"

A contrarian moment
06/01/12   World
"Ian Harnett of Absolute Strategy Research, a consultancy, says that European equities are trading on a cyclically adjusted price-earnings ratio - a measure that averages profits over seven years - of 11, towards the bottom of its range over the past 30 years. By contrast, the ratio for American shares is 18.1 (see chart). Wall Street generally trades at a premium to Europe but the premium today is more than three times the historical average."

Low P/Es are possible when interest rates are low
06/01/12   Stingy Investing
"It is entirely possible for the market to trade at low ratios when rates are low. If anything the recent ratios have been high compared to past levels. If you just consider times when interest rates have dipped below 3 per cent, you'll find that Shiller's P/E has averaged 13.6. As a result, history provides even more meat for the bears because it bolsters their arguments that stocks are pricey."

Austerity and debt realism
06/01/12   World
"Aside from wringing their hands, what should governments be doing? One extreme is the simplistic Keynesian remedy that assumes that government deficits don't matter when the economy is in deep recession; indeed, the bigger the better. At the opposite extreme are the debt-ceiling absolutists who want governments to start balancing their budgets tomorrow (if not yesterday). Both are dangerously facile."

Predictability of the simple trading rules
05/28/12   Markets
"In a true out of sample test we find no evidence that several well-known technical trading strategies predict stock markets over the period of 1987 to 2011. Our test is free of the sample selection bias, data mining, hindsight bias, or any of the other usual biases that may affect results in our field. We use the exact same technical trading rules that Brock, Lakonishok and LeBaron (1992) showed to work best in their historical sample. Further analysis shows that this poor out-of-sample performance most likely is not due to the market becoming more efficient - instantaneously or gradually over time - but probably a result of bias."

Making no cents
05/28/12   Economics
"Inflation killed the farthing just as it has killed the Canadian cent. Small coins are living on borrowed time once they become useless for buying individual items. A single penny could buy the first British postage stamp, the Penny Black, in 1840 and was still sufficient to buy a small ice cream for a short-trousered Buttonwood in the late 1960s. Nowadays you would struggle to find a humble ice lolly selling for less than a pound."

Equity cult still dying
05/28/12   Markets
"Since then, two 50% bear markets have taken their toll. On our measures, the equity cult is now dead in continental Europe and Japan. It is looking decidedly unhealthy elsewhere. A bond cult has risen in its place."

A run they cannot stop
05/28/12   World
"It's been a week since shares in Bankia plummeted on reports, later denied, that customers were pulling deposits out of the Spanish lender. Fears of a full-scale bank run in Greece have not yet materialised. But the possibility of a deposit run in Europe's peripheral states is still very much alive. It is also the thing that policymakers are least prepared for."

Information suppression in competitive markets
05/28/12   Pricing
"Following Becker (1957) we ask whether competition eliminates the effects of behavioral biases. We study products with add-ons. In competitive markets with costless communication, Bayesian consumers infer that hidden prices are likely to be high prices. Hence, firms choose not to shroud information. However, information shrouding may occur in an economy with some myopic consumers. Such shrouding creates an inefficiency. Sometimes firms have an incentive to eliminate this inefficiency by educating their competitors' myopic consumers. However, if add-ons have close substitutes, a"

'Fair and square' pricing? That'll never work
05/28/12   Pricing
"Sounds like a sales pitch aimed at consumer advocates and collectors of fine print frustration, like me. As it turned out, it was a sales pitch that only a consumer advocate could love. Shoppers hated it."

Why value stocks lag
05/26/12   Value Investing
"Wherein it is observed that value stocks have performed poorly of late. If the pattern holds, value portfolio managers will start to be fired and people will chase after expensive stocks like Facebook. It should all set up some rather good times for patient value investors."

Dividend stocks for bargain hunters
05/26/12   Stingy Investing
"Fortunately, there is good news even during a rough patch like this. Lower prices can be an opportunity for bargain hunters. In fact, a bear market can be an excellent time to track down a few juicy dividend stocks while they're on sale."

The future is more than Facebook
05/23/12   Economy
"The debate about whether America will own the global economy in the 21st century or else become a dude ranch for rich Chinese and Brazilians hinges on whether innovation can break out of the box. Can it go mainstream and transform the really big things: transportation, energy, electricity, food production, water delivery, health care and education? If it can't do that - or if it is thwarted by high taxes and complex regulation - then welcome to the new normal of 2% annual growth. Our future will become sadly familiar. Just follow Spain, France and Great Britain down history's sinkhole of lost status and influence. But America can do better than that, and it will. In fact, the seeds are being planted now."

Buffett's idiot challenge seized by Jain
05/23/12   Buffett
"Ajit Jain, who helped build Berkshire Hathaway Inc. into a $200 billion firm by underwriting risks that others shunned, is hunting for insurance-premium growth that his boss Warren Buffett says may be a thing of the past."

Buffett deal secrecy
05/23/12   Buffett
"They hammered out the deal in a 20-minute telephone call on Sept. 23 in which Trott said he wanted Buffett to be the 'cornerstone' of the transaction. After they reached a tentative agreement, Buffett told Trott not to telephone until later that afternoon because he had an important appointment. 'He told me he promised his grandkids to take them to Dairy Queen, and he was not to be interrupted,' Trott said."

Dissecting shareholder yield
05/23/12   Dividends
"We study a variety of previously examined payout yields over time: dividends, share repurchases cash flow, and equity issuance. We confirm on a newer dataset what other research has found dividend yield no longer works, but more complete measures of shareholder yield hold promise. We contribute to the literature by examining an additional variable to payout yield, net debt pay down. The addition of net debt pay down helps performance, but is not a panacea. We find that regardless of the yield metric chosen, the predictive power of separating stocks into high and low yield portfolios has lost considerable power in the last twenty years. We also explore the concept of separating yield metrics by payout percentage as a way to salvage the predictability of yield metrics. We find no evidence that using payout percentage within a yield category can systematically improve portfolio performance."

Creative destruction hits university
05/23/12   Academia
"Without diminishing learning outcomes, automated teaching software can reduce the amount of time professors spend with students and could substantially reduce the cost of instruction, according to new research."

How to be a better, happier investor?
05/18/12   Stingy Investing
"You should mentally prepare yourself for the overwhelming likelihood that, as a stock investor, your portfolio will see a great many bad days even if your long-term results are good. Indeed, you'll likely spend much of your life with a portfolio that has declined from its prior peak."

Norway's day traders take on the algos
05/17/12   Markets
"Yet despite the prevalence of these supposedly smart machines, some traders are making a tidy profit getting the better of these systems, which can make costly mistakes if they are not set up correctly or if their trading patterns can be understood."

Leaving the Euro
05/16/12   World
"Some two decades ago, when Europe's leaders worked out the details of their grand vision to connect the European Union with a single currency, virtually every economist on this side of the Atlantic - and most of those on the other - figured out that the euro would be fatally flawed."

The crazy way Europe measures inflation
05/16/12   World
"There's a long list of things that could kill the euro zone. But the most deadly might also be the most overlooked. It's the crazy way that Europe measures inflation."

What price a slowing population?
05/16/12   World
"Nomura has taken a shot at calculating just how significantly population changes can hit GDP ..."

Buy Low, Sell High
05/13/12   Value Investing
""Buy low, sell high" is often quoted in finance. While its wisdom is hard to question, its application is hardly extensive. To understand why this is so, it is helpful to put ourselves in the shoes of a typical investor."

When Julia tried to start a business
05/11/12   Funds
"Last week, the Obama Administration released a campaign piece about the life of Julia, showing how Julia benefited from taxpayer largess and oversight by the state at many points in her life. But the campaign piece was incomplete, and missed the part where Julia attempted to start her own business. Long before she started a web business out of her home, she tried to start a retail business."

The devil in HML's details
05/11/12   Value Investing
"This paper challenges the standard method for measuring 'value' used in academic work on factor pricing and behavioral finance. The standard method calculates book-to-price (B/P) at portfolio formation using lagged book data, aligns price data using the same lag (ignoring recent price movements), and hold these values constant until the next rebalance. We propose two simple alternatives that use timely price data while retaining the necessary lag for measuring book. We construct portfolios based on the different measures for a US sample (1950-2011) and an International sample (1983-2011). We show that B/P ratios based on timely prices better forecast true (unobservable) B/P ratios at fiscal yearend. Value portfolios based on the most timely measures earn statistically significant alphas ranging between 305 and 378 basis point per year against a 5-factor model itself containing the standard measure of value, as well as market, size, momentum and a short term reversal factor."

The flaws of finance
05/09/12   Montier
"James Montier discusses how bad models, bad behavior, bad incentives, and bad policies interact to create perfect storms for markets"

Red tape keeps poor people out of jobs
05/08/12   Government
"One way to help improve the lives of low income people is to focus on how the government can give them more. Sometimes this can be very effective, and even desirable. But a far less common way is to look at how the government can stop doing stuff that is making them worse off. Occupational licensing is a great example of this."

Can Fairfax's bear market strategy work for you?
05/05/12   Stingy Investing
"Prem Watsa is worried about the stock market. In fact, the famed value investor and CEO of Fairfax Financial has hedged his company's stock portfolio against a market downturn. When an investor as successful as Mr. Watsa adopts such cautious measures, should ordinary investors follow his lead?"

Another Warren Buffett?
05/05/12   Buffett
"Buffett is a man of character, unequaled in the investment business. He folded his private partnership in 1969 because he didn't want his investors to be rocked by the bear market he saw coming."

We're spent
05/04/12   Government
"This is why pleas for 'Stimulus now, austerity later' in the U.S. and Europe have the ring of chalkboard economics: Looks great in (someone's) theory, but out in the real world the market and the citizens see right through it. The biggest economic problems are political: And the biggest political problem is commitment."

Berkshire's Charlie Munger speaks
05/04/12   Munger
"Vice-chairman of Berkshire Hathaway Corporation Charlie Munger talks to CNBC's Becky Quick about the consistency of Berkshire, Warren Buffett's health, the company's succession plan and his feelings on the future of the company."

Lessons of the recession
05/03/12   World
"In fact, today's economic troubles are not simply the result of inadequate demand but the result, equally, of a distorted supply side. For decades before the financial crisis in 2008, advanced economies were losing their ability to grow by making useful things. But they needed to somehow replace the jobs that had been lost to technology and foreign competition and to pay for the pensions and health care of their aging populations. So in an effort to pump up growth, governments spent more than they could afford and promoted easy credit to get households to do the same. The growth that these countries engineered, with its dependence on borrowing, proved unsustainable. Rather than attempting to return to their artificially inflated gdp numbers from before the crisis, governments need to address the underlying flaws in their economies."

What was the very first hedge fund?
05/01/12   Graham
"The legendary economist and investor Benjamin Graham is widely known as the father of value investing. He may also be the father of the hedge-fund industry. While most historians and industry professionals credit Alfred Winslow Jones with launching the first hedge fund in 1949, some people, including Graham's protege, Warren Buffett, disagree."

Which price ratio outperforms the EM?
05/01/12   Value Investing
"Having just anointed the enterprise multiple as king yesterday, I'm prepared to bury it in a shallow grave today if I can get a little more performance. Fickle."

Which price ratio best identifies value stocks?
05/01/12   Value Investing
"Which price ratio best identifies undervalued stocks? It's a fraught question, dependent on various factors including the time period tested, and the market capitalization and industries under consideration"

Price controls in action
04/30/12   World
"Similar problems have played out with other agricultural products under price controls, like lags in production and rising imports for beef, milk and corn. Waiting in line to buy chicken and other staples, Jenny Montero, 30, recalled how she could not find cooking oil last fall and had to switch from the fried food she prefers to soups and stews. 'It was good for me,' she said drily, pushing her 14-month-old daughter in a stroller. 'I lost several pounds.'"

Cutting back on bonds
04/28/12   Bonds
"The strongest consensus I could find relates to interest rates. There are few managers who aren't running light on bonds and/or keeping their maturities short (including holding cash) to protect against rising rates. Carl Hoyt at Seymour Investment Management used Warren Buffett's words to make the point. "Current rates ... do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label.""

Mawer Q1
04/28/12   Real Estate
"In Fairfax Financial's Annual Letter to Shareholders, Prem Watsa observes, "there are more condos in construction in Toronto than in the 12 major cities in the U.S. combined, including New York and Los Angeles." According to the Toronto Real Estate Board, the average condominium in the City of Toronto went for $361,488 in the fourth quarter of 2011, up 7% year-over-year. Condo sales were up 10.5% year-over-year. The average sales price to list price registered 98%, which is well above the historical long-term average. The Toronto condo market is hot. Looking at the situation from a national perspective, the Canadian Real Estate Association reported that the average house price in Canada was $372,763 in February 2012. This compares to the $203,100 average price reported by the National Association of Realtors in the United States. Our question is simple: why should the average house in Canada sell for 84% more than the average house in the United States over the long run?"

Real house prices
04/28/12   Real Estate
"The Shiller graph has suggested to many observers that house prices track inflation (i.e. that house prices adjusted for inflation are stable - except for bubbles). Last year I pointed out the slope depends on the data series used, and that if Professor Shiller had used either Corelogic or the Freddie Mac house prices series, before Case-Shiller was available, there would a greater upward slope to his graph."

Corruption Law
04/28/12   Law
"Increasingly, the FCPA has become a tool for American prosecutors to police the world's large multinationals. Corporations whose shares trade on American exchanges are considered fair targets. So are corrupt transactions that pass through American banks. Using that theory, the Justice Department brought a case against against Japan's JPC, a company that, as the Shearman and Sterling report put it, had 'no apparent commercial connection with the United States whatsoever.' Rather than test the government's arguments in court, and risk criminal convictions for their executives, most companies have chosen to settle using deferred prosecution agreements."

McGuinty's high-income tax
04/24/12   Taxes
"The new, higher marginal tax rate proposed comes dangerously close to the psychological threshold of 50 per cent where individuals become extremely frustrated with the prospect of paying more to the government than they keep for themselves. Mr. McGuinty is only fooling himself if he thinks that wealthy Ontarians will do nothing about it."

Origins of the indebted homeowner
04/22/12   History
"Not long after the economic crisis began, the president's landmark Conference on Homeownership reported that 'down payments of 10 percent, 5 percent, and even nothing down' had become common practice in the home-mortgage market. Reliance on second mortgages and novel financing terms, the report noted, were also widespread. Although these developments sound all too familiar, this Conference on Homeownership was held in 1931 and the president sponsoring it was Herbert Hoover, not George W. Bush or Barack Obama. We often think of the expansion of easy mortgage financing as a relatively recent development, but the growth of indebted homeownership has older and more complicated origins."

Exercise to a better brain
04/21/12   Health
"The value of mental-training games may be speculative, as Dan Hurley writes in his article on the quest to make ourselves smarter, but there is another, easy-to-achieve, scientifically proven way to make yourself smarter. Go for a walk or a swim. For more than a decade, neuroscientists and physiologists have been gathering evidence of the beneficial relationship between exercise and brainpower."

Owning too much real estate
04/21/12   Real Estate
"In the past, young families first purchased a starter home, lived in it for a few years and then sold it and upgraded to a bigger home to accommodate a growing family. These days, many families appear to opt to rent out their starter home when upgrading to a larger property."

Dividend stocks aren't fail-safe
04/21/12   Stingy Investing
"Dividend investing has many sterling qualities but protection against downturns is not one of them. With few exceptions, dividend stocks fall just as hard as other stocks when the market crashes."

Bias in government forecasts
04/21/12   Government
"Clearly, part of the blame lies with voters who don't want to hear that budget discipline means cutting programs that matter to them, and with politicians who tell voters only what they want to hear. But another factor has attracted insufficient notice: systematically over-optimistic official forecasts."

Doctored papers
04/20/12   Behaviour
"Dr. Fang became curious how far the rot extended. To find out, he teamed up with a fellow editor at the journal, Dr. Arturo Casadevall of the Albert Einstein College of Medicine in New York. And before long they reached a troubling conclusion: not only that retractions were rising at an alarming rate, but that retractions were just a manifestation of a much more profound problem - "a symptom of a dysfunctional scientific climate," as Dr. Fang put it. Dr. Casadevall, now editor in chief of the journal mBio, said he feared that science had turned into a winner-take-all game with perverse incentives that lead scientists to cut corners and, in some cases, commit acts of misconduct."

Buffett battles cancer
04/17/12   Buffett
"This is to let you know that I have been diagnosed with stage I prostate cancer. The good news is that I've been told by my doctors that my condition is not remotely lifethreatening or even debilitating in any meaningful way. I received my diagnosis last Wednesday. I then had a CAT scan and a bone scan on Thursday, followed by an MRI today. These tests showed no incidence of cancer elsewhere in my body."

Howard Marks at NYSSA
04/14/12   Value Investing
"Howard Marks, legendary investor and Chairman of Oaktree Capital Management, spoke at New York Society of Securities Analysts. He is also the author of the book, "The Most Important Thing: Uncommon Sense for the Thoughtful Investor." Distressed Debt Investing was in attendance as he presented his views on the topic of "Human Side of Investing.""

Lessons learned in the wealth management
04/14/12   Funds
"The investment industry has the attention span of a 4-year-old. Two of its key drivers - compensation (fees and commissions) and past performance (what's done well recently) - lead to changing strategies and a steady stream of new products. Unfortunately, this hyperactivity kindles clients' psychological need to take action (especially males). It makes a "stay the course" strategy, which is often the best option, difficult to maintain."

Richard Koo presentation
04/14/12   World
"His new presentation looks at the current state of the global economy, what's been tried to jump start things, what's worked, and what hasn't."

New funds, old flaws
04/14/12   Indexing
"But you shouldn't confuse ETFs with a newer mutation called 'exchange-traded notes,' or ETNs. These instruments, 284 at last count, have gathered $133 billion in assets, nearly all in the past three years by comparison, 1,154 ETFs hold $1.1 trillion in total assets. The ETNs often track currencies, commodities and other assets rarely held by traditional ETFs - and can surprise unwary investors with high costs, quirky taxation and prices that may wander far from their asset value."

Leucadia Letter
04/13/12   Value Investing
"A world-wide recovery in the near future is not a foregone conclusion. Europe and the future of the Euro are far from settled. Growth in China is slowing and the risk of a "Chinese Spring" cannot be ruled out. Iran is a big problem. In an environment of slow growth at home and a dysfunctional government, we believe that less financial leverage is better. We expect many other companies and investors share this view. We emphasize that we are not pessimistic, just cautious."

'Fortune 500' of 1812
04/11/12   History
"Fortune magazine began publishing annual rankings of U.S. corporations by revenue in 1955. Ever since, scholars and forecasters have analyzed changes in the Fortune 500 to help inform their judgments about industry concentration and the relative importance of different sectors of the economy. Historians would love to have snapshots of the nation's largest corporations at earlier dates. Unfortunately data are scarce, especially before the Civil War. Based on our research, however, it is now possible to create a sort of historical 'Fortune 500' ranked by corporate capitalization -- the total sum stockholders were supposed to pay for their shares."

The dividend-fund dilemma
04/08/12   Dividends
"Sooner or later, the markets always punish investors who do the right thing for the wrong reason. Some investors in dividend-oriented stock funds might end up learning that lesson the hard way."

Shiller's earnings yield
04/07/12   Stingy Investing
"Many stock market indicators are about as useful as cracked crystal balls. But Robert Shiller, a professor of economics at Yale University, advocates one forecasting tool that has demonstrated a modicum of predictive power over the long term."

When safe assets return
04/07/12   Markets
"Less debt, lower value, higher haircuts, and reduced collateral velocity: in our view, this is an ongoing and significant monetary shock."

The price of nails
04/07/12   Pricing
"This dramatic change in productivity of nail production has the implication that nails were far more expensive in relative terms back in the 1700s. Sichel offers a number of vivid anecdotes and statistics to support this claim."

High-speed trading hurts ETFs
04/07/12   Indexing
"Maybe someone can explain to me how a trading system where virtually all the orders are canceled helps capital markets or investors. Key liquidity measures like bid/ask spreads and depth of book depend on order information. With high-speed trading, almost all of that information is false. In short, it seems to me that high-speed trading promises liquidity, but delivers something else entirely: market manipulation."

No normal recovery
04/03/12   History
"With the U.S. economy yielding firmer data, some researchers are beginning to argue that recoveries from financial crises might not be as different from the aftermath of conventional recessions as our analysis suggests. Their case is unconvincing."

The unintended lifetime commitment
04/02/12   Hallett
"When entering a marriage, it's a bad sign if you start planning your exit before vows are ever exchanged. While many of life's lessons extend to the world of investing, the exit strategy is a notable exception. Unlike in marriage, investors should spend more time contemplating their exit strategy to help avoid the unexpected liquidity trap."

The case for being a copycat investor
03/30/12   Stingy Investing
"Is purloining good ideas distasteful? U.S. fund manager Mohnish Pabrai doesn't think so. He says it's a great way to make money and urges people to copy notable investors more often. You might want to take a page out of his book and improve your portfolio. "

Top 200 Canadian Stocks for 2012
03/29/12   Stingy Investing
"Walking downstairs on Christmas day was a ceremonial affair when I was young. It started by lining up with my brother to descend to the living room in order from eldest to youngest. Aside from heightening the anticipation of good things to come, it allowed my parents to see our reactions to the Christmas tree, fire, presents, and perhaps most delightfully, the stockings stuffed to the brim with treats. The felling of delight I had when pawing through my treat-laden stocking is now, alas, a thing of the past. But these days I get the same sort of excitement when I look through the largest stocks in Canada for this year's MoneySense's Top 200 All-Stars. This year marks the eighth in a row for the Top 200 tradition which, I'm pleased to say, has been very fruitful."

Top 500 U.S. Stocks for 2012
03/29/12   Stingy Investing
"There are a few skills that every Canadian should pick up in childhood and skating is one of them. But no one tells you that it all slips away after spending years reading books and sipping hot chocolate by the fire. That's something I discovered the hard way when I recently squeezed my feet into a pair of skates and tottered out onto the cold hard ice of my local rink. The prospect of falling seemed far less painful when I was younger, slimmer, and closer to the ground. As a result, my first hobble around the rink was more a triumph of will than of good sense. Just as with learning how to skate, the first leap into the world of stocks can be an uncertain one. That's why - in an effort to help you gain your footing - we search high and low for the best stocks in the U.S. to put in the annual MoneySense Top 500."

Stocks are a little pricey: Schiller
03/27/12   Value Investing
"'Technology has a fascination...it's part of our sense of the future,' he says. 'We've got an exciting thing going. All the new gadgets are just so breathtaking, there's going to be huge fortunes made. That kind of excitement I do feel in the air.' Having said that, Shiller is not predicting another tech bubble, far from it. He says predicting bubbles is impossible: 'It's like predicting an epidemic. It depends on the contagion of emotions and of ideas.' Furthermore, the author of Irrational Exuberance, which presaged the bursting of the tech bubble, and Animal Spirits believes there's a lot to be worried about."

Chou Annual
03/27/12   Value Investing
"Here is a funny story of a French tourist visiting Canada. Pierre, an expensively attired middle-aged French tourist on his first trip to Toronto strolls into the bar of his 5-star hotel. The elegant hostess smiles, leads him to a table and beckons her prettiest server to take care of him. They talk, flirt a little and she giggles a bit. When he draws her closer and whispers in her ear, she gasps and ..."

Warren Buffett's $50 Billion decision
03/26/12   Buffett
"The thing is, when I got out of college, I had $9,800, but by the end of 1955, I was up to $127,000. I thought, I'll go back to Omaha, take some college classes, and read a lot - I was going to retire! I figured we could live on $12,000 a year, and off my $127,000 asset base, I could easily make that. I told my wife, 'Compound interest guarantees I'm going to get rich.'"

The fine art of cashing in on class differences
03/24/12   Stingy Investing
"Dual-class stocks can provide some interesting profit possibilities. If you keep an eye on the spread between the two classes of shares, and swap at the right time, you can be handsomely rewarded."

Why we must end too big to fail
03/22/12   Government
"TBTF institutions were at the center of the financial crisis and the sluggish recovery that followed. If allowed to remain unchecked, these entities will continue posing a clear and present danger to the U.S. economy. As a nation, we face a distinct choice. We can perpetuate TBTF, with its inequities and dangers, or we can end it. Eliminating TBTF won't be easy, but the vitality of our capitalist system and the long-term prosperity it produces hang in the balance."

What goes up must come down
03/21/12   Montier
"Today I find myself once again digging through this toolkit, searching for a way to understand the development of profit margins. Currently, U.S. profit margins are at record highs according to the NIPA data. More freakish still is that these record high profit margins are coming during the weakest economic recovery in post-war history."

What would Graham say about Goldman?
03/20/12   Graham
"We were reminded, since the Greg Smith/Goldman Sachs brouhaha has still not died down, that Benjamin Graham had quite a bit to say about conflicts of interest in Chapter 21 of the 1940 edition of his great book Security Analysis."

Financial Repression
03/18/12   Government
"As they have before in the aftermath of financial crises or wars, governments and central banks are increasingly resorting to a form of "taxation" that helps liquidate the huge overhang of public and private debt and eases the burden of servicing that debt. Such policies, known as financial repression, usually involve a strong connection between the government, the central bank and the financial sector. In the U.S., as in Europe, at present, this means consistent negative real interest rates (yielding less than the rate of inflation) that are equivalent to a tax on bondholders and, more generally, savers."

Greece: same old high yields
03/17/12   World
"Yields on the Greek government's brand new bonds are already trading at distressed debt levels - suggesting that despite February's bailout package investors still see a strong chance that Greece will not be able to sustain even its much-reduced debt burden. As the first week of trading closed, yields on the benchmark 10-years were at 18.24 percent - down from Tuesday's closing high, but still the highest in the euro zone."

The end of Asia's demographic dividend
03/17/12   World
"Demographics is not destiny, though it does set the parameters of possibility. Asia has grown used to a demographic tail wind. For many of its economies, that wind is about to start blowing the other way."

Hubble, bubble, index trouble
03/14/12   Indexing
"There's one final hypothesis we can derive from the index bubble effect. If this theory is correct it would mean that active fund managers have been faced with an almost impossible task over the past twenty years, because they've been battling the wall of money cascading into index trackers. In such an environment it would mean that the average quality of active managers has declined because it's impossible to discern who's good and who's not and would also suggest that all of the careful and clever studies designed to show how active management is hopeless are so much wastepaper. How ironic would that be: genuinely good active fund managers driven to the margins by index trackers, researchers wasting their time proving a general theory of active management failure undermined by an environment biased by flow of funds to index trackers while passive funds themselves are the subject of a behaviorally induced bubble, caused by investors seeking to escape the underperformance of said active managers. It's reflexivity writ large. Hubble bubble: modern finance is a witches' brew indeed."

Meredith Whitney was right
03/12/12   Debt
"The more general point that Meredith Whitney was trying to make about public debt -- that municipal finances in this country were a mess that was only going to get messier -- was dead on."

Retirement 100: Fall 2011
03/12/12   Stingy Investing
"I'm a big fan of the British TV series Jeeves & Wooster, based on the comedic scribblings of P.G. Wodehouse. In the series a young Hugh Laurie (now better known as the acerbic Dr. House) plays the aristocratic and lovably foppish Bertie Wooster who must be regularly rescued by his clever servant Jeeves, played by an impish Stephen Fry. The show revolves around the bother caused by Bertie's newt-addled friends and unusually meddlesome aunts, who constantly interrupt his life of fun and leisure. But Bertie's carefree lifestyle is the product of inherited wealth and he would be in deep trouble without it. Such is the good fortune of the lucky sperm club. Alas, if you're like me, you weren't born with a silver spoon in your mouth and you have to worry about money. But fear not, there is hope for us common folk. A good dollop of thrift and hard work is all that's required to build up an income portfolio that can generate enough cash to support a comfortable retirement or life of leisure."

Index roulette
03/09/12   Stingy Investing
"The financial life of a prudent index investor is purposefully dull. You know the routine. Pick a balanced portfolio of basic low-fee funds and ETFs, rebalance occasionally, and hope to wake up comfortably rich one day. Where's the spark in that? Where's the pizzazz? Where are the piles of doubloons? To become stinking rich, you have to strap on the six shooters and shoot for higher targets."

Concrete Equities fraud
03/08/12   Crime
"Viewers of the early seasons of CBC's Dragons' Den will remember the oft-repeated ad wherein an improbably young, somewhat swarthy company president touted the safe, superior returns of an investment company called Concrete Equities. Between static promo shots of office buildings, Vincenzo De Palma extolled the security of investing in income-producing real assets in lazy diction, as if an up-and-comer like him lacked the time to pronounce every consonant. But Concrete Equities was the entrepreneurial reality show's lead sponsor, and that lent it a sheen of respectability. Had the producers at the CBC put the company's management in front of the Dragons, they likely would have discovered De Palma and Co. were neither licensed nor qualified to market and manage a portfolio of real estate investments. Following a two-year investigation, he and three other principals in Calgary-based Concrete Equities were disciplined in January by the Alberta Securities Commission - including the largest fine ever imposed on an individual in the province - for having sold investments without being registered, and lying to investors. But their comeuppance didn't occur before they had raised $118 million from 3,700 people and come close to losing it all."

Pity about your retirement
03/08/12   Real Estate
"Buying a house can wreck your retirement. Did your real estate agent or bank not tell you that? Of course not. All they worry about is whether you're making enough money to carry your debts. The question of whether there's enough money left over to save for retirement is of zero interest to them."

A monopoly a day
03/08/12   Pricing
"As Apple prepared to introduce its first iPad, the late Steve Jobs, then its chief executive, suggested moving to an 'agency model,' under which the publishers would set the price of the book and Apple would take a 30% cut. Apple also stipulated that publishers couldn't let rival retailers sell the same book at a lower price."

QE is eating your pension
03/08/12   Pensions
"Gilt yields are often used as a proxy for both investors' future earnings and inflation, exacerbating shortfall estimates. Ms Segars argued that, as a result, companies whose pension schemes already had large shortfalls could be forced to make even bigger contributions. "That diverts money away from jobs and investment and will lead to further closures of final salary pensions in the private sector," she said."

The Warren Buffett of....
03/08/12   Buffett
"Our article on Paul Desmarais called him "The Warren Buffett of Canada," which made us start wondering how many "Warren Buffett ofs" there are. We decided to do a deep Google search to try and put together a comprehensive list ..."

Mohnish Pabrai lecture
03/07/12   Value Investing
"Mohnish Pabrai, Managing Partner, Pabrai Investment Funds talks to Ivey students"

Behavioral Biases of Mutual Fund Investors
03/07/12   Behaviour
"We examine the effect of behavioral biases on the mutual fund choices of a large sample of U.S. discount brokerage investors using new measures of attention to news, tax awareness, and fund-level familiarity bias, in addition to behavioral and demographic characteristics of earlier studies. Behaviorally-biased investors typically make poor decisions about fund style and expenses, trading frequency, and timing, resulting in poor performance. Furthermore, trend-chasing appears related to behavioral biases, rather than to rationally inferring managerial skill from past performance. Factor analysis suggests that biased investors often conform to stereotypes that can be characterized as "gambler", "smart", "overconfident", "narrow-framer", and "mature"."

4 things to remember with today's low rates
03/07/12   Hallett
"For those seeking a safe and dependable income source, today's painfully low interest rates pose a real challenge. Bank of Canada Governor Mark Carney regularly reminds us that persistent low rates can be dangerous because they incent excessive borrowing. But low rates also pose some risk to the asset side of investors' balance sheets. It looks like low rates will be here for a while so here are a few things to keep in mind when structuring investment portfolios."

Time to panic
03/01/12   Real Estate
"More worrisome is where consumers have been getting their spending money. As wages stagnate and credit card use levels off, Canadian consumers have increasingly turned to their homes as a source of cash. As of last year, Canadians had pulled roughly $220 billion from their houses in revolving home equity lines of credit, a per capita amount three times larger than the U.S. at its peak."

Where to invest $100,000
02/28/12   Stingy Investing
"Standing in front of a giant glassed in freezer at the sweet shop in Tobermory, Ont., I was faced with a plethora of choices. Which sinful ice cream should I indulge in on a fine summer day? The selection of flavours, toppings, and cones was daunting. Thankfully, I had time to consider the fattening possibilities because the wee nippers in front of me were similarly perplexed. And, as important a choice as it may be, it was only ice cream. But when it comes to investing, the possibilities are vast once your portfolio grows beyond $100,000. Problem is, much like Bertie Bott's Every Flavour Beans (a devilish Harry Potter confection) the investing flavour you choose might wind up tasting like earwax. Alas!"

Where to invest $10,000
02/28/12   Stingy Investing
"Can you imagine anything better than studying calculus in the summer? I bet you can. But I found myself doing exactly that, late in my high school days, in a nerdy effort to graduate six months early. Aside from picking up an infinitesimal amount of calculus, I met a fellow keener in class who had the investing bug. He rattled on and on about odd things called mutual funds and how you could make a pot load of money from them. Naturally enough, I promptly forgot about funds for about a decade while exploring calculus a bit more. But I rediscovered them after I had amassed just over $10,000 by playing the part of Beaker to a series of loveable Dr. Honeydews in a variety of laboratories. At the time, I felt that $10,000 was a tidy sum for a young fellow. Not a fortune to be sure. But, just like today, more than a little walking around money. It was also enough to think about alternates to the old bank account and, after some pondering, I moved my grubstake into mutual funds. If only I knew then what I know now. But you can profit from my experience. Here's what I'd tell a younger me about investing, if I had the chance."

Raiding the coffers
02/28/12   Pensions
"The New York Times has an excellent piece today on how state pension plans are borrowing from their pension plans to fund their own pension contributions. This Alice-in-wonderland approach is a salutary reminder of the dangers of funded pension plans they create a pot of money that politicians are tempted to use for their own devices."

Warren Buffett Interview
02/27/12   Buffett
"If anybody is thinking about buying a home - five years ago they couldn't buy them fast enough because they thought they were going to go up, and now they don't buy them because they think they're going to go down. And interest are far lower. It's a way, in effect, to short the dollar because you can - you can take a 30-year mortgage and if it turns out your interest rate's too high, next week you refinance lower. And if it turns out it's too low, the other guy's stuck with it for 30 years. So it's a very attractive asset class now."

Another look at the performance of active funds
02/27/12   Funds
"In this study we evaluate the performance of actively managed equity mutual funds against a set of passively managed index funds. We find that the return spread between the best performing actively managed funds and a factor-mimicking portfolio of passive funds is positive and as large as 3 to 5 percent per annum. Our findings are inconsistent with the view that active funds have little or no incremental economic value over low-cost index funds."

Berkshire Hathaway 2011
02/25/12   Buffett
"At our limit price of 110% of book value, repurchases clearly increase Berkshire's per-share intrinsic value. And the more and the cheaper we buy, the greater the gain for continuing shareholders. Therefore, if given the opportunity, we will likely repurchase stock aggressively at our price limit or lower. You should know, however, that we have no interest in supporting the stock and that our bids will fade in particularly weak markets. Nor will we buy shares if our cash-equivalent holdings are below $20 billion. At Berkshire, financial strength that is unquestionable takes precedence over all else."

Is 'derisking' even riskier?
02/25/12   Markets
"When you 'derisk,' be sure you understand whether you are eradicating risk - or just replacing old risks with new ones."

Investing theory collides with new facts
02/24/12   Stingy Investing
"It makes one wonder just how long the long-term should be when studying stocks. Even the 5 decades from 1951 to 2003 weren't sufficient to suss out the weakness in the lowest decile of P/B stocks. Might more trouble might be revealed if the numbers are tracked back another 25 years - or followed forward for another 25?"

A crystal ball for stocks?
02/20/12   Stingy Investing
"At a very deep level, we're all suckers for patterns. The problem is, it's easy to stumble on erroneous patterns in large mounds of data. You can see the result on TV almost every night in the form of new medical breakthroughs. You know, titillating things like the discovery that eating yellow foods decreases the risk of having a heart attack. But after loading up on squash and turning a strange shade of pale, another study might come along that refutes the first and instead points to the cancer causing properties of yellow food. It's a wonder health-conscious people eat anything all. (Rest assured yellow foodies, these examples are fictitious.) The problem being, just because you've spotted a pattern doesn't mean that it's predictive or, in math speak, correlation does not prove causation. All too often what the researcher actually uncovered occurred simply by chance. That doesn't keep our love of predictable patterns from infiltrating the markets in all sorts of unexpected ways."

Negative real rates of return
02/20/12   Thrift
"If it's just you on a desert island and you have to bury food in the ground for safe keeping chances are you will dig up less food than you bury. In general investing only makes sense when there is seasonality, which is why tropical animals don't do it. And, animals that do invest always take a loss even if they invest in the form of fat stores. However, because the marginal product of labor is vastly different between the spring and the winter it is worth it in utility terms even if the material return is negative. That humans don't always take a loss is why the world we live in is so vastly different. Our world changes over time because we can use our brains to think of ways to get more out than we put in. However, this is a special case and should not be taken as some basic property of the world. Its just not."

Goodnight Sunshine
02/20/12   World
"Germany once prided itself on being the "photovoltaic world champion", doling out generous subsidies - totaling more than $130 billion, according to research from Germany's Ruhr University - to citizens to invest in solar energy. But now the German government is vowing to cut the subsidies sooner than planned and to phase out support over the next five years. What went wrong?"

RIP: Walter Schloss
02/20/12   Value Investing
"Walter Schloss, the money manager who earned accolades from Warren Buffett for the steady returns he achieved by applying lessons learned directly from the father of value investing, Benjamin Graham, has died. He was 95."

Apple not as cheap as it looks?
02/19/12   Accounting
"Thanks to an accounting- rule change for which it lobbied, Apple gets to book revenue from sales of bundled products such as iPhones -- which include hardware, software, services and upgrade rights -- more quickly than it used to. In short, one reason Apple's earnings have been so high is accounting inflation, and the market realizes this."

9 Stingy Stocks for 2012
02/16/12   Stingy Investing
"I started the method in 2001 in an effort to beat the S&P500 by picking value stocks within the S&P500 itself. Thus far the Stingy Stocks have gained 14.3% annually whereas the S&P500 (as represented by the SPY exchange traded fund) advanced only 2.3% a year over the same period."

Over-regulated America
02/16/12   Government
"Complexity costs money. Sarbanes-Oxley, a law aimed at preventing Enron-style frauds, has made it so difficult to list shares on an American stockmarket that firms increasingly look elsewhere or stay private. America's share of initial public offerings fell from 67% in 2002 (when Sarbox passed) to 16% last year, despite some benign tweaks to the law. A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee. It's a wonder the jobless rate isn't even higher than it is."

8 Graham Stocks for 2012
02/14/12   Stingy Investing
"Graham's time-tested strategy for defensive investors gained ground this year and beat the market once again. It also marks the ninth year of the last eleven in which the method has outperformed, which is a mighty fine showing."

Toronto condo bubble
02/13/12   Real Estate
"A record 27,504 condo units in the City of Toronto were under construction at the end of last year, according to Canadian Mortgage and Housing annual data, adding to the city's total of 199,000 units. "If builders stopped building today, there's five years worth of supply that is about to be delivered, relative to what normal population growth is," Bank of America's King said."

CPI retooling
02/13/12   Government
"If Statscan is successful in reducing overestimation of consumer price inflation, then annual increases in public or private wages and pensions indexed to the CPI will end up smaller than they would have been. This could mean companies have to pay out less in annual wage increases, but it will also offer some cost savings for Ottawa"

Be careful when delving too deep
02/10/12   Stingy Investing
"Value investors should be careful when delving too deep for outsized returns. It turns out that the cheapest stocks by one widely used measure are not always the best. This will come as a surprise to investors who like to rely upon price to book value as a key yardstick when making decisions."

A guide to private placement due diligence
02/10/12   Brokers
"Because I'm in the business of helping people, I thought I'd offer up my own 3-step guide for stockbrokers when conducting due diligence on private placements: Step 1: Make sure you have a copy of the Private Placement Memorandum (also referred to as the PPM). You're going to want to light this PPM on fire and drop it into a Hazmat dumpster at least five miles from your office. Step 2: Tell the banker/firm owner/branch manager or whoever brought it to you to go f' himself. Step 3: Head over to Dunkin Donuts, get yourself a Coffee Coolatta. Yes, I know they've got hundreds of calories - but you're worth it. You've done some good this day."

Look past emerging markets debt sales pitch
02/09/12   Hallett
"The sales pitch for emerging markets debt - like this one from RBC - might have us think that debt levels alone can be used to assess sovereign default risk. But judging by the 'spreads' of emerging markets bond yields above developed world sovereign debt, the global bond market is saying that other important factors determine default risk. Otherwise, emerging markets bonds would yield less than developed country debt. In This Time is Different - Eight Centuries of Financial Folly, Carmen Reinhart and Kenneth Rogoff examined - among other things - a history of default among developing countries. While high debt levels were universally linked to default episodes, the authors found that emerging markets defaults have generally occurred at debt levels that are generally considered 'safe' for more mature economies. They found that nearly half of the three-dozen emerging country defaults between 1970 and 2008 occurred at debt-to-GNP ratios below 35 percent."

Why stocks beat gold and bonds
02/09/12   Buffett
"Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power -- after taxes have been paid on nominal gains -- in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date."

Warren Buffett Interview
02/09/12   Buffett
"Ted Williams described in his book, 'The Science of Hitting,' that the most important thing -- for a hitter -- is to wait for the right pitch. And that's -- exactly the philosophy I have about investing...Wait for the right pitch, yeah, and... wait for the right deal. And it will come... It's the key to investing."

Credit Suisse 2012 Yearbook
02/08/12   Markets
"112 years of market data for 19 countries."

For savers in Canada, a sinking feeling
02/05/12   Thrift
"Bank of Canada Governor Mark Carney, among other central bankers, has kept interest rates near historic lows since the onset of the global economic crisis in an attempt to stimulate the flagging economy, and there's no sign of a rate hike any time soon. But some critics say the playing field is now tipped too far in favour of borrowers rather than savers. Canadians in droves have piled on debt to buy new homes and make other purchases, prompting warnings from Mr. Carney of the dangers of carrying too much debt - even as his policies encourage borrowing and provide little ability for savers to generate substantial low-risk income. "It's one thing for Carney to say this is a problem and warn people," says William Robson, president of the C.D. Howe Institute in Toronto. But "actions speak a lot louder than words." Inflation, while low at an annual rate of 2.3 per cent, compares with one-year guaranteed investment certificates (GICs) paying roughly 1 per cent a year. Simply put: A dollar saved today will be worth less a year from now."

United States then, Europe now
02/03/12   History
"Under the Articles of Confederation, the central government of the United States had limited power to tax. Therefore, large debts accumulated during the U.S. War of Independence traded at deep discounts. That situation framed a U.S. fiscal crisis in the 1780s. A political revolution - for that was what scuttling the Articles of Confederation in favor of the Constitution of the United States of America was - solved the fiscal crisis by transferring authority to levy tariffs from the states to the federal government. The Constitution and Acts of the First Congress of the United States in August 1790 gave Congress authority to raise enough revenues to service a big government debt. In 1790, the Congress carried out a comprehensive bailout of state governments' debts, part of a grand bargain that made creditors of the states become advocates of ample federal taxes. That bailout created expectations about future federal bailouts that a costly episode in the early 1840s proved to be unwarranted."

Look out below
02/03/12   Real Estate
"When the United States saw a vast housing bubble inflate and burst during the 2000s, many Canadians felt smug about the purported prudence of their financial and property markets. During the crash, Canadian house prices fell by just 8%, compared with more than 30% in America. They hit new record highs by 2010. "Canada was not a part of the problem," Stephen Harper, the prime minister, boasted in 2010. Today the consensus is growing on Bay Street, Toronto's answer to Wall Street, that Mr Harper may have to eat his words."

Pension forecasts are way too sunny
02/03/12   Pensions
"Consider a corporate plan projecting a long-term average annual rate of return of 8% and holding 50% stocks and 50% bonds. With the Barclays Capital U.S. Aggregate bond index yielding around 2.2%, a 50% allocation to bonds contributes 1.1% annually to the portfolio's overall return. Stocks have to make up the remaining 6.9% for the entire portfolio to hit the 8% target. If stocks gain 10% annually, a 50% allocation to them will provide 5% of return, not the 6.9% needed. For this hypothetical portfolio to return 8%, stocks need to gain an average of 13.8%. That would be nice - and unlikely. Over the past 10 and 20 years, respectively, the Dow Jones U.S. Total Stock Market Index has returned 3.9% and 8% annually."

Negative stimulus, 1946
02/03/12   Economics
"It's fun to go back and see how really smart people understood things at the time. Maybe it should give us some humility -- so much policy debate seems based on the idea that we know everything so well. If we understood things as well as we now see Klein understood things, would we still want to spend trillions on our best guesses?"

Why the clean tech boom went bust
02/03/12   Economics
"In 2005, VC investment in clean tech measured in the hundreds of millions of dollars. The following year, it ballooned to $1.75 billion, according to the National Venture Capital Association. By 2008, the year after Doerr's speech, it had leaped to $4.1 billion. And the federal government followed. Through a mix of loans, subsidies, and tax breaks, it directed roughly $44.5 billion into the sector between late 2009 and late 2011. Avarice, altruism, and policy had aligned to fuel a spectacular boom. Anyone who has heard the name Solyndra knows how this all panned out. Due to a confluence of factors - including fluctuating silicon prices, newly cheap natural gas, the 2008 financial crisis, China's ascendant solar industry, and certain technological realities - the clean-tech bubble has burst, leaving us with a traditional energy infrastructure still overwhelmingly reliant on fossil fuels. The fallout has hit almost every niche in the clean-tech sector - wind, biofuels, electric cars, and fuel cells - but none more dramatically than solar."

Have wages stagnated?
02/01/12   Economy
"Prof. Don Boudreaux responds to 'The Truth About the Economy', a recent video featuring former Labor Secretary Robert Reich. In the video, one of Reich's key points is that most people's wages have barely increased since 1980. However, when Reich's numbers are examined in greater detail, his claim does not hold up."

3 villains can steal your retirement dreams
01/28/12   Stingy Investing
"Building a strong financial castle to fund your retirement is hard. If you're not careful, you may discover a hole in your vault and three villains sneaking off with the family jewels."

Is the Value Effect Seasonal?
01/26/12   Value Investing
"This paper extends the research on value premium by examining patterns of seasonality exhibited in the book-to-market effect in major global equity markets. The results provide evidence supporting the January effect in the value premium phenomenon. Using stock market indices for Asia Pacific Europe, Australasia, and Far East (EAFE) and Europe, with and without the U.K., Scandinavian countries, the U.K., U.S., and Japan form 1975 through 2007, the paper provides out-of-sample evidence from twenty-one countries that comprise different index portfolios. As a robustness measures, we use regression analysis, paired means tests, and non-parametric tests to examine whether the persistence of the anomalous January value premium is real and significant. The annualized excess January value premium ranges from 42.96 percent for Scandinavian countries to 9.24 percent for EAFE markets with 20.28 percent for U.S. Even though such a predictable pattern exists, our analysis suggests that large standard deviations would not allow a viable investment strategy."

Invest like a legend: David Dreman
01/26/12   Value Investing
"How I'd invest $100,000 right now: I'd put it in good-quality stocks in a portfolio large enough to diversify, or, for the average investor, an index fund. Stocks have traditionally gone up if we see inflation coming. We're not seeing much inflation yet, but we've been printing an awful lot of money in the United States, they've printed $7 trillion since 2008. I've never seen the two not meet."

Active or passive? Process should drive choice
01/24/12   Hallett
"Too many view passive and active investment as mutually-exclusive strategies decided upon via some quasi-political debate. On the contrary, I view active and passive as two strategies on the same continuum. Indeed, the ETF industry - once synonymous with passive investing - has created a blurring of the lines between active and passive strategies. The likes of Fundamental Indexing, equal-weighted indexes and other quant-driven indexes are pushing so-called 'passive' approaches closer to the active management side of the spectrum. That notwithstanding, as highlighted in my most recent Investment Executive article I am indifferent between passive and active investing - a view shared by my HighView partners and, accordingly, written into our firm's investment philosophy."

The constancy of safe asset demand
01/23/12   Bonds
"The findings are preliminary, but the authors calculate that the safe asset share - the percentage of safe assets to total assets in the US economy - has been roughly the same since 1952, at about 33 per cent."

China housing set for hard landing
01/23/12   Real Estate
"The numbers are grim: China's property bubble is heading for a spectacular burst, and its effect on the country's economy will be widespread."

Watsa no stranger to value
01/22/12   Watsa
"For someone who built an empire while dodging the media's spotlight, Prem Watsa is taking an unusually public role by positioning himself at the heart of Research In Motion's attempted revival."

Keep it simple
01/21/12   Law
"Unlike many in the banking industry, Petrou is not ideologically opposed to regulation. For instance, she was a critic of the lack of regulation that allowed so many sleazy subprime mortgage originators to emerge from the precrisis ooze. Yet, now, she's worried about something different: that the hundreds of new mandates required by the Dodd-Frank law are creating a new kind of risk. She calls it "complexity risk." As she put it in a speech she delivered last week in New York: "If we don't understand the cross-cutting effects and inherent contradictions in all of the stringent standards now being written into final form, we risk doing real damage to the sound, stable and - yes - profitable financial industry regulators say they support and the economies sorely need.""

Asset Mixer Update
01/20/12   Stingy Investing
We've updated our Asset Mixer to include data for 2011.

Periodic Table Update
01/20/12   Stingy Investing
We've updated our periodic table of annual returns for Canadians to include data for 2011.

Super fracking
01/18/12   Science
"As regulators and environmentalists study whether hydraulic fracturing can damage the environment, industry scientists are studying ways to create longer, deeper cracks in the earth to release more oil and natural gas."

Lower prices via new tech
01/18/12   Markets
"Due to the record levels of natural gas production and the unseasonably warm weather this winter, prices keep falling. The price for U.S. natural gas futures contracts dropped to a ten-year low of $2.47 per million BTUs in trading on the NYMEX yesterday"

Protest SOPA/PIPA
01/18/12   Law
"Many of the webs most important and integral websites are protesting seriously flawed legislation called SOPA. It would greatly damage the linking structure of the internet, allowing companies to close down websites on flimsiest of premises. It would criminalize even pointing to any site that itself points to a site where there is a Copyright violation. Over the years, the copyright cartel - this includes Disney and other major content companies - have bought themselves a Congress. They prevented works that were scheduled to enter the public domain, as envisioned in the US Constitution, from doing so. SOPA is the latest attempt to censor the public's access to independent information and manipulate copyright laws. The new law works to their own benefit and the public's detriment."

How sneaky governments steal your money
01/17/12   Government
"Many nations in the developed world are in deep do-do with their debt levels. On one hand they need growth to earn their way out of their problems, while on the other they're being forced into anti-growth austerity measures by markets, concerned about their spiralling interest obligations. It's a grim position for those of us brought up to expect an unrelentingly rosy economic outlook. This isn't a new situation, though. We've been here many, many times before and governments have, by design and evolutionary accident, developed many, many ways of dealing with these problems. The cunning thing is that many of these involve stealthily thieving from their own citizens, but done so surreptitiously that, if we're not careful, we won't even notice it."

The rally that wouldn't die
01/17/12   Bonds
"Last year's surge came in the 30th year of a historic rally. Since 1981, long-term Treasury bonds have returned 11.03% annually, 0.05 percentage point better than the Standard and Poor's 500-stock index."

Mutual funds vs ETFs
01/16/12   Funds
"The market share lost by mutual funds is not surprisingly shifting to ETFs. ETF fees tend to be lower, yet they provide better liquidity and the ability to time the market, including intraday trading. That makes ETFs appealing not just to retail investors, but to institutions as well."

This relatively inegalitarian isle
01/16/12   Economics
"Of course, it's important to put charts like this in perspective, which is why we should also consult Miles Corak, the University of Ottawa professor whose work has been used here by Krueger (and Krugman). Here's Corak's unabridged Great Gatsby Curve. ... A rather different picture, innit?"

The scourge of inflation
01/14/12   Stingy Investing
"Inflation is the silent killer of retirement dreams. It sneaks in over the years and nibbles away at nest eggs, leaving people poorer than they once thought. How does it do the dastardly deed? By reducing the purchasing power of money over time."

The rise of the new groupthink
01/14/12   Behaviour
"Our companies, our schools and our culture are in thrall to an idea I call the New Groupthink, which holds that creativity and achievement come from an oddly gregarious place. Most of us now work in teams, in offices without walls, for managers who prize people skills above all. Lone geniuses are out. Collaboration is in. But there's a problem with this view. Research strongly suggests that people are more creative when they enjoy privacy and freedom from interruption. And the most spectacularly creative people in many fields are often introverted"

Should you hold bonds in taxable accounts?
01/13/12   Hallett
"Investors fortunate enough to have money to save and invest over and above their RRSP and TFSA contributions need both asset allocation and asset location strategies. The standard advice is to stuff all of the bonds in RRSP, TFSA and similar accounts to defer or shelter tax on interest income (otherwise 100% taxable). Similarly, stocks usually dominate non-registered accounts because they generate more lightly-taxed capital gains and (in the case of Canadian stocks) dividends. But with bond yields having fallen (i.e. bond prices having risen) in the face of weak stock prices, this traditional asset location advice may not hold for everyone."

What zero bound?
01/13/12   Bonds
"Negative interest rates are a big puzzle. Easy stories miss the point: 'flight to quality,' 'need for collateral,' etc. Those stories don't explain why bonds are worth more than money."

The economist zone
01/12/12   Economics
"Screen shifts to a sharp man with a cigarette. He begins to speak. "Picture a world, where people only eat apples. A man consults alleged experts on government deficits, and is taken on a journey that ultimately shatters his mind - a journey that ends, in the Economist Zone.""

Warren Buffett's Bizarre Non-Sequitur
01/12/12   Buffett
"In other words, the entire Republican point is "We don't want to pay any more in taxes, if you think you aren't taxed enough, then you are free to pay more in taxes." Thus, calling out Mitch McConnell like this, while sure to grab headlines, and result in high fives and "Oh no you di'ints" amongst liberals, makes no sense"

Cycle bodes ill for the markets
01/07/12   Markets
"In June 1964, the real return over the previous 15 years averaged 15.6 percent a year, the highest that figure had ever been. The stock market did not begin to fall then, but it could no longer maintain the torrid pace, and the 15-year return figures began to decline. On a real total return basis, stock prices hit their highs for the era in late 1968, and by the mid-1970s were in free fall as high inflation combined with a bear market. By 1979, an investor who bought stocks in 1964, when the market seemed to be a sure moneymaker, had lost money after adjusting for inflation, even after including dividend income."

Open letter to Apple shareholders
01/06/12   Fun
"You see, one day a competitor will come along and cut our core product line out from underneath us. We will need all the cash we can muster to fend them off. When that cash is done, we will mortgage the company. The first several times we may be successful. However, as is always the case, eventually time will get the best of us and we will be unable to meet our creditors demands. We will go bankrupt. Our creditors will seize the equity and the shareholders will be left with nothing and having made zero return on their investment. To our original investors, who are truly dear to us, we can only hope that you have long since sold out to some greater fool. If not, please do so at your earliest convenience."

Why you can't find heritage poultry
01/05/12   Government
"But here's what hasn't been said about supply management: It is the enemy of deliciousness."

Newspapers, Paywalls, and Core Users
01/04/12   Pricing
"This may be the year where newspapers finally drop the idea of treating all news as a product, and all readers as customers."

Scouring the market's bargain bin
01/03/12   Value Investing
"As a long time value investor, one of my favourite research tools is the famous Ben Graham "net-net working capital" screen. This analysis begins with current assets - typically dominated by cash, accounts receivable and inventories - and then deducts all liabilities, not just current liabilities, to arrive at a net working capital per share value. No value is given to fixed assets such as plant, machinery and real estate, nor to intangibles such as goodwill, patents, licenses or other intellectual property."

Analyst Expectations
01/02/12   Stingy Investing
"The New Year brings with it soon-to-be-forgotten resolutions, but here's one resolution that investors should strive to keep: Take analyst rankings with a large dose of caution."

Economic omens
01/02/12   Stingy Investing
"The global economy made it through 2011 despite Europe's debt problems, high unemployment in the United States and growing worries about China's red-hot housing market. But will 2012 be as forgiving?"

Natural gas bear market
01/01/12   Markets
"U.S. natural gas prices fell to their lowest point in more than two years, underscoring how the nation's booming energy business is becoming a victim of its own success."

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