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Institutional investors, just like us 06/18/17   Funds "But what if you picked the top allocation per decade for the next decade, how would that do? ... It would reduce your return by 1.5% per year" Great returns, gut-wrenching drawdowns 06/18/17   Markets "Our bottom line result is that perfect foresight has great returns, but gut-wrenching drawdowns. In other words, an active manager who was clairvoyant, and knew ahead of time exactly which stocks were going to be long-term winners and long-term losers, would likely get fired many times over if they were managing other people's money." Whiplash: Value vs. Growth 06/18/17   Value Investing "With mean reversion, investor behavior, and interest rates all lining up on the same side, things are indeed starting to look up for value." The Safer Dogs of the TSX 06/18/17   Stingy Investing "The Safer Dogs now appear to be relatively cheap - provided they can grow their earnings over time. If a good part of those earnings can be turned into dividends or share buybacks then shareholders will likely be a happy bunch." Quant vs traditional investors 06/18/17   Markets "Our conversation centers on the massive shift from what we call discretionary portfolio management - basically stock picking - to a landscape that is increasingly dominated by quantitative investors of various types. We talk about how any investor might hope to earn alpha, and how doing so is harder and harder." [audio] Still not crazy 06/18/17   Markets "Putting all of this together, it means that some of the FAANGs will be back in these stories (for positive or negative impact) soon enough over some ex post time period (3 months, 5 months, 1 year, we'll figure it out after it happens!). And it will likely be just as normal then as it is now and as it was after 2015 when Cliff first noted this." The Stingy News Weekly: June 11, 2017 06/11/17   SNW This week we have the dangerous retirement of morally bankrupt mattresses and more. Morally bankrupt 06/11/17   Management "Most Americans have assumed their bank accounts are sacrosanct. But with the major scandal unfolding at Wells Fargo, angry former employees illuminate the alarming pressure that allegedly led local bankers to defraud perhaps more than a million customers." Testing mattresses with Buffett 06/11/17   Buffett "This year, Warren took me on a tour of Nebraska Furniture Mart, a super-successful megastore owned by Berkshire. We tried out some lounge chairs, played with remote-controlled mattresses, and somehow managed to get lost. Take a look..." [video] The hardest problem in finance 06/11/17   Retirement "Challenging as those may appear, none compare to what Nobel laureate William Sharpe, 82, calls 'decumulation,' or the use of savings in retirement. It is, he says, 'the nastiest, hardest problem in finance.'" Safe vs. optimal 06/11/17   Retirement "In one case in the article we identify a 7 percent withdrawal rate as 'optimal.' That is not a 'safe' withdrawal rate. With the market assumptions in the article, the 7 percent withdrawal rate has a 57 percent chance of failure over a thirty-year retirement. Though it is not safe, it does maximize the overall expected lifetime satisfaction for a fairly flexible retired couple who has a secured income base of $20,000 from Social Security." Hannibal spirits 06/11/17   Markets "The Buffett Ratio is back near its record high of 1.81 during Q1-2000. It is simply the US equity market capitalization excluding foreign issues divided by nominal GDP. It rose to 1.69 during Q4-2016. It is highly correlated with the ratio of the S&P 500 market cap to the aggregate revenues of the composite. This alternative Buffett Ratio rose to 2.00 during Q1 of this year, matching the record high during Q4-1999. It is also highly correlated with the ratios of the S&P 500 to both forward revenues per share and forward earnings per share. All these valuation measures are flashing red." Testing DALBAR's claims 06/11/17   Behaviour "DALBAR suggests that equity mutual fund investors have underperformed the S&P 500 by over 600 basis points annually. In contrast, Russ Kinnel, my colleague at Morningstar Research Services, has noted a more muted impact in his annual Mind the Gap report, typically in the neighborhood of 100 basis points annually." The Stingy News Weekly: June 4, 2017 06/04/17   SNW This week we have guessing, bubbles, changing marshmallows, Chilton, and more. You can change 06/04/17   Behaviour "The marshmallow test became the poster child for the idea that there are specific personality traits that are stable and consistent. And this drives Walter Mischel crazy. 'That iconic story is upside-down wrong,' Mischel says. 'That your future is in a marshmallow. Because it isn't.'" Dave Chilton interview 06/04/17   Markets "We discuss business, investing, and writing." [audio] High yield becomes low yield 06/04/17   Bonds "Fast forward to today and we have reached the opposite extreme, with European junk bonds at an all-time low yield of 2.67%." The new normal 06/04/17   Real Estate "These days, the average home price is between seven and eight times income. To return to the ratio of the 1980s, the average household income has to jump to $160,000, or home prices have to fall back to $460,000." Marc Andreessen interview 06/04/17   Economy "The kicker to the whole thing, back to your question, is the sectors where prices are crashing by definition are shrinking as a percentage of the economy and the sectors where prices are rising are growing as a percentage of the economy, and so what's actually happening is the sectors where tech is not having a big impact are growing and will eventually be the entire economy. So TVs are going to cost $10 and healthcare is going to cost $1 million. This is where this is all headed. As a consequence, jobs, the answer is we are all going to employed in healthcare and education which is actually what's happening." A long-term return guess 06/04/17   Stingy Investing "Afterwards I was asked what my expectations were for the market, and the couch potato portfolio, over the next 10 years, or so. It's an interesting question and one that investors would love to know the answer to - both in advance and with certainty. Alas, it is something that I'm less than certain about. But I can try to entertain you with a few wild - or at least somewhat educated - guesses." The Stingy News Weekly: May 28, 2017 05/28/17   SNW This week we have happy retirees, active futility, bad behaviour, and more. The internet is broken 05/28/17   Media "The trouble with the internet, Mr. Williams says, is that it rewards extremes. Say you're driving down the road and see a car crash. Of course you look. Everyone looks. The internet interprets behavior like this to mean everyone is asking for car crashes, so it tries to supply them." Revenue per employee 05/28/17   Markets "We found that Energy companies have the highest average Revenue per Employee, while Industrials and Consumer Discretionaries perform worst on this metric." The math behind futility 05/28/17   Indexing "The distribution of returns in the stock market is bizarrely lopsided. Often, equity benchmarks are so reliant on gigantic gains in just a handful of stocks that missing them - as most managers do - consigns the majority to futility." Branching out in search of value 05/28/17   Stingy Investing "Investors should also look up from their portfolios, from time to time, to gauge the state of the market. To do so it is useful to break down the market by sector to see which ones are faring the best and where there are bargains to be found." [$] The cost of bad behaviour 05/28/17   Behaviour "Through December 2016, the average Canadian diversified equity fund returned 4.37% per year, yet the average diversified equity fund investor earned 2.99% annually over the decade - a 1.38% gap. This gap is costly: In dollar terms, the difference between the two numbers equates to nearly $20,000 in lost gains on a $100,000 investment." Retirement without trepidation 05/28/17   Retirement "The widespread contentment among Canada's seniors suggests that many of us are approaching retirement with needless trepidation" [$] The Stingy News Weekly: May 21, 2017 05/21/17   SNW This week we have Mauboussin, dividend growth, the hot potato, and more. Michael Mauboussin interview 05/21/17   Markets "He and his team have been prolific in the last six months, publishing several long research reports on the most interesting aspects of the investing landscape. In this conversation, we talk about business moats, industry analysis, and how to combine man and machine when building an investment strategy and portfolio." [audio] A monster ETF trade 05/21/17   Indexing "Until 11:49 a.m. EST, exactly one share had traded hands. Then, boom, 15 million shares. It's not often you see a tape like this" Vultures are circling 05/21/17   Media "A decade ago, most media companies were still slapping ideas against the wall, trying to see what would stick. A decade ago, it wasn't so clear that Google and Facebook were going to rule the internet ad business, leaving everyone else to beg for scraps. That's why the New York Times Co., Conde Nast Inc., Hearst Corp. and News Corp., among others, have all figured out that they can't rely on advertising alone, but need to be able to extract circulation revenue from their internet viewers." A terrible strategy 05/21/17   Momentum Investing "But historically waiting for the market to fall has been an abysmal strategy, far worse than buying and holding in both absolute and risk-adjusted terms." Chasing dividend growth 05/21/17   Stingy Investing "Income-oriented investors love stocks that have a habit of growing their dividends. I confess to being one of them because I've done extraordinarily well by buying such stocks when the market gets a little panicky." [$] A Hot Potato update 05/21/17   Stingy Investing "Who says Couch Potato portfolios are boring? Norm Rothery's spicy twist on the popular strategy has been effective, but it's not for everyone" The Stingy News Weekly: May 14, 2017 05/14/17   SNW This week we have Canadian real estate, Home Capital, Munger, Doddsville, and more. Mayday at Home Capital 05/14/17   Stocks "In the early hours of Monday, May 1, exhausted representatives for Home Capital and a group of lenders hung up the phone in frustration. A deal to give the company an emergency $2-billion loan appeared to be falling apart. Directors at the mortgage firm felt that without the money, they wouldn't be able to open for business a few hours later." [$] Too much housing 05/14/17   Real Estate "Don't let the mushrooming condos downtown fool you. There is no housing shortage in Toronto, says new planning research out of Ryerson University." Trading costs and factor investing 05/14/17   Academia "It seems that everywhere you look there is a promotion related to factor investing and/or smart beta. The incentives to develop strategies with strong backtests are strong, both in academia and in industry. This natural conflict of interest should raise concern for investors who are trying to ascertain the validity of a particular study or investment approach. One must always consider the possibility of data-snooping, overfitting, and transaction costs - do they make the strong results null and void?" Graham and Doddsville Spring 2017 05/14/17   Value Investing "In this issue, we were fortunate to speak with three investors who provide a range of perspectives and investment approaches. All three apply variations of value investing and fundamental research to find overlooked opportunities. These investments could be stable businesses in turbulent geographies, misunderstood businesses engrossed in controversy, or compounders that are hiding in plain sight." Charlie Munger interview 05/14/17   Munger "If you don't learn, you're going to be stuck in yesteryear and clobbered by fate." [video] The Stingy News Weekly: May 7, 2017 05/07/17   SNW This week we have the BRK AGM, betting with Buffett, costly ETFs, pension failures, and more. The bet with Buffett 05/07/17   Buffett "Ted and I discuss the origins of the bet, the nuances beneath the headlines, and whether he'd make the bet again for the next ten years. Along the way, we cover many hot topics like hedge funds, alternatives, fees, and indexing." [audio] Index fund contrarian 05/07/17   Funds "Global value investor David Winters takes on index funds, saying they are more expensive, less diversified and higher risk than commonly believed." [video] Hope triumphing over experience 05/07/17   Retirement "The return forecasts of US public pension plans offer another example of hope triumphing over experience. The average pension plan expects to generate 7.6 percent per year, even though the average plan only realized a 5.7 percent return per year from 2001-2015. The low levels of returns over this period reduced the funding status for many plans from 99 percent in 2001 to 74 percent in 2015. However, the plans with the largest shortfalls still tend to have the highest expected future returns and the lowest willingness to reduce those expectations." ETF labelling 05/07/17   Hallett "Accurate labelling has long been a problem in retail investing. This issue is about to bubble up for ETFs" Our world outsmarts us 05/07/17   Behaviour "Given the likely childhood educational advantages and familial and peer encouragement common to most Harvard medical students, house staff and faculty, their shaky performance on this test of predictive probabilities challenges traditional explanations for the dreadful mathematics and science performance endemic in the US. If those at the top of the educational heap can't do better (75 per cent fell for the so-called base rate neglect fallacy), what can be reasonably expected from the rest of us?" Idiosyncratic Momentum 05/07/17   Momentum Investing "They found that despite similar performances over the first year, these momentum portfolios perform dramatically differently beyond year one - relative-return momentum reverses strongly (producing returns of -0.40 percent per month in months 13 through 60), while abnormal-return momentum continues for years (producing returns of 0.20 percent per month in months 13 through 60)." Ben Graham MBA contest for 2017 05/07/17   Stingy Investing "In a narrow victory, the team from Saint Mary's - and my personal favourite - got the top prize of $10,000. A big congratulation goes to Bill MacGregor, Morris MacLeod and Dev Jyoty Nath who earned the first-place award. Unfortunately for the bulls, they rated Sabre as a strong 'no-buy.'" [$] A dividend growth downer 05/07/17   Stingy Investing "Instead of outperforming by a large margin since 1973, dividend growers returned 12.89% annually while all dividend payers gained 12.83% per year and the equally-weighted S&P 500 climbed 12.35%. In other words dividend growth provided an insignificant edge over dividend payers more generally." Berkshire Hathaway AGM 05/07/17   Buffett "Video of the Berkshire Hathaway Annual Shareholders Meeting in Omaha, NE." [video] The Stingy News Weekly: April 30, 2017 04/30/17   SNW This week we have the big short, Todd and Ted, a dividend disaster, and more. The big short and beyond 04/30/17   Markets "My guest this week is Danny Moses, who was directly in the middle of the biggest trades in market history, chronicled by Michael Lewis in his book the Big Short. Danny was the head trader on the Frontpoint team led by Steve Eisman, which was one of a small group of firms that figured out, in real time, the dire situation with mortgage-backed securities during the financial crisis, and how to build a portfolio to bet against the U.S. housing market. We cover his part in the Big Short story, but also lots of other interesting ground, including the state of sell-side research and financial markets." [audio] You need a Shultz hour 04/30/17   Behaviour "Shultz, who's now 96, told me that his hour of solitude was the only way he could find time to think about the strategic aspects of his job. Otherwise, he would be constantly pulled into moment-to-moment tactical issues, never able to focus on larger questions of the national interest. And the only way to do great work, in any field, is to find time to consider the larger questions." Warren talks Todd and Ted 04/30/17   Buffett "I recently sat down with Buffett, Combs and Weschler in Omaha for a rare three-way interview. What emerges is that Combs and Weschler are actually a whole lot like Buffett and his partner Charlie Munger." [video] Online shopping suckers 04/30/17   Behaviour "Will you pay more for those shoes before 7 p.m.? Would the price tag be different if you lived in the suburbs? Standard prices and simple discounts are giving way to far more exotic strategies, designed to extract every last dollar from the consumer." The dividend growth myth 04/30/17   Dividends "Now, with its updated return calculations, Ned Davis shows dividend growers returning 12.89%, all dividend stocks 12.83%, and equal weight S&P 500 12.35%! (All beginning in 1973.) So, an entire generation of funds was sold on the premise of dividend growth outperformance. The problem is it's misleading because it doesn't tell the whole story." Student stock-picking tips 04/30/17   Value Investing "In order to be successful, you need a system to help you spot the few gems that professionals have already picked over. For the last several years, the Ben Graham Centre for Value Investing at the Ivey Business School has run a stock picking competition for university students, seeing it as a way to expose participating students to the value investing approach of stock analysis and to spread the word of value investing with MBA programs around the world." The Stingy News Weekly: April 23, 2017 04/23/17   SNW This week we have market timing, bloated ETFs, alt-facts about value investing, and more. The freemium business model 04/23/17   Economics "Freemium describes a business model in which a business gives one product away for free or at a subsidized price and then either sells another profitable product to this user base or sells access to that user base to third parties" The market timing myth 04/23/17   Stingy Investing "I found myself pondering bad behaviour after being drafted as a possible juror for a murder trial. To escape from the drudgery of waiting for the judge to make his way through the pool of prospective jurors, my mind turned to the accusation that investors are poor market timers." [$] An ETF gets too big 04/23/17   Indexing "Can an exchange-traded fund get too big for its index? That's the question investors in one popular gold miner ETF are grappling with after rapid asset growth pushed it to significantly deviate from its underlying index." Alt-facts about formulaic value investing 04/23/17   Value Investing "We believe that even the simplest systematic value strategy will likely earn higher expected returns than the broader market over the next 50 years, but it may not be 'healthy' and it will surely be volatile as heck. We also believe that more sophisticated systematic value strategies will likely earn a marginal premium over the simplest value strategies over the next 50 years. But let's not fool ourselves, the bulk of the excess expected returns that may be realized by these 'sophisticated' value strategies will be driven by the fact that these portfolios will own cheap companies the world hates, not from the 'sophistication.'" Cheap Chick-fil-A franchise 04/23/17   Management "The barrier to entry for being a franchisee is never going to be money" Fairfax Valu-palooza 04/23/17   Stingy Investing "I was recently nominated for jury duty and narrowly avoided serving on a six week murder trial. It was pleasing to be let off because a lengthy trial would have put a dent in my income and kept me away from this year's Fairfax Lollapalooza for value investors. I'm not sure which would have been worse." The Stingy News Weekly: April 16, 2017 04/16/17   SNW This week we have Arnott, Asness, retirement, interviews, and more. Work longer to retire earlier 04/16/17   Retirement "In our experience, many continue to put up with the grind of Intel (or any other employer) simply because they are married to hitting a target portfolio number, when in reality they could step away from the routine, and take a pay cut no doubt, but still earn enough income that allows them financial freedom sooner than they may have envisioned - and this may have the dual benefit of allowing them to pursue an area of work they've been putting off for years but are passionate about getting involved in." Shrinking factor return 04/16/17   Arnott "Our research shows that over the last quarter-century the real-world return for the value and market factors is halved or worse than theoretical factor returns imply, and the momentum factor has provided no benefit whatever to the end-investor." Lies and data mining 04/16/17   Asness "We are the whipping boy for a recent article on the dangers of data mining in our field. And the whipping is delivered largely based on an unsupported shot taken by my frequent foil and sparring partner, Rob Arnott." Bank counselling 04/16/17   Fun "Realistic expectations is the key to happiness." [video] Winner takes all 04/16/17   Markets "The reason these music companies were able to control the industry for so long is because they had the scale to release such a high number of albums and incur those costs to allow the few winners to more than make up for it. But they also had little competition from new technologies, that is, until the MP3s and streaming came along." The uselessness of job interviews 04/16/17   Management "Research that my colleagues and I have conducted shows that the problem with interviews is worse than irrelevance: They can be harmful, undercutting the impact of other, more valuable information about interviewees." The Stingy News Weekly: April 9, 2017 04/09/17   SNW This week we have Greenblatt, O'Shaughnessy, fair inequality, market valuation, and more. Diversification, adaptation, and valuation 04/09/17   Markets "To summarize: over time, markets have developed an improved understanding of the nature of long-term equity returns. They've evolved increasingly efficient mechanisms and methodologies through which to manage the inherent risks in equities. These improvements provide a basis for average equity valuations to increase, which is something that has clearly been happening." Joel Greenblatt talks at Google 04/09/17   Value Investing "Since 1996, he has been a professor on the adjunct faculty of Columbia Business School where he teaches Value and Special Situation Investing. He is the author of three books, You Can Be A Stock Market Genius (1997), The Little Book That Beats The Market (2005), and The Big Secret for the Small Investor (2011)." [video] ETFs are the new bond kings 04/09/17   Indexing "Exchange-traded funds are transforming debt markets as big investors use them in ways considered crazy a few short years ago." Jim O'Shaughnessy talks at Google 04/09/17   Value Investing "Investors who do not have the following traits and emotional quality should index their portfolios. I find they are the majority of investors today." [video] Why people prefer unequal societies 04/09/17   Behaviour "There is immense concern about economic inequality, both among the scholarly community and in the general public, and many insist that equality is an important social goal. However, when people are asked about the ideal distribution of wealth in their country, they actually prefer unequal societies. We suggest that these two phenomena can be reconciled by noticing that, despite appearances to the contrary, there is no evidence that people are bothered by economic inequality itself. Rather, they are bothered by something that is often confounded with inequality: economic unfairness. Drawing upon laboratory studies, cross-cultural research, and experiments with babies and young children, we argue that humans naturally favour fair distributions, not equal ones, and that when fairness and equality clash, people prefer fair inequality over unfair equality. Both psychological research and decisions by policymakers would benefit from more clearly distinguishing inequality from unfairness." The Stingy News Weekly: April 2, 2017 04/02/17   SNW This week we have undead ideas, bad math, the permanent portfolio, and more. Chou's Annual Letter 04/02/17   Chou "Based on the information we now have, the average price we paid of less than seven times free cash flow is on the high side, but at less than two times free cash flow it is a totally different story. If these numbers hold, we believe that the intrinsic value is much higher than the current price of Valeant." The permanent portfolio 04/02/17   Stingy Investing "Investors rushed to rediscover the permanent portfolio after suffering from painful losses caused by the crash of 2008. It promises a soothing combination of relative safety and reasonably good returns." [$] Bad behaviour or bad math? 04/02/17   Stingy Investing "Wade D. Pfau, the professor of retirement income at The American College, recently fired a broadside at DALBAR's annual research study on the 'Quantitative Analysis of Investor Behavior.' The professor claims the study is deeply flawed." A slippery idea 04/02/17   Economics "Like many business ideas, short-termism fits the experience of some individual business people. But as a theory about how the economy works it is too nebulous to be much use." Undead theories 04/02/17   Science "Science is embattled in a raging replication crisis, in which researchers are unable to reproduce a number of key findings. On the front lines of this conflict is psychology. In a 2015 review of 98 original psychology papers, just 36 percent of attempted replications returned significant results, whereas 97 percent of the original studies did." Einhorn rediscovers preferred stock 04/02/17   Stocks "Every four years or so, David Einhorn, the founder of Greenlight Capital LLC, rediscovers the concept of preferred stock and publishes a big presentation about it. I think it is about the most moving and beautiful recurring event in finance, like the migration of the Demoiselle cranes over the Himalayas, but for preferred stock." Venezuela leaps towards dictatorship 04/02/17   World "The regime is in desperate need of the money that such ventures bring. Although Venezuela has the world's largest proven reserves of oil, the socialists have mismanaged the economy so badly that people struggle to buy food and hospitals are bare of medicines." The Stingy News Weekly: March 26, 2017 03/26/17   SNW This week we have O'Shaughnessy and O'Shaughnessy, bond ETFs, asset allocation, pensions, and more. The permanent portfolio 03/26/17   Indexing "The Permanent Portfolio strategy is about as promising as any that I have seen for preserving the value of assets through a wide number of macroeconomic scenarios. The volatility is low enough that almost anyone could maintain it. Finally, it's pretty simple. Makes me want to consider what sort of product could be made out of this." Simple asset allocation 03/26/17   Stingy Investing "Providing good advice to investors that have relatively little money has always been a tricky affair. After all, the price of a good adviser can be too high for those of modest means. In practice, small investors find themselves left to their own devices or paying through the nose for the little advice they can get." [$] Latest crop of fixed-income ETFs 03/26/17   Indexing "Another panel member, Mark Yamada, president of Toronto-based PUR Investing Inc. says Vanguard is mostly filling in gaps in their product lineup but there were a couple of surprises. While Vanguard is the acknowledged cost leader, at least one competitor has fixed-income ETFs with slightly lower fees." Mean reversion via momentum 03/26/17   Momentum "For an investor the takeaway is good news... rather having to allocate to an underperforming asset class over the past x years, simply wait for that underperforming / cheap asset class to start performing well. While you may miss the exact turn, you may be able to capture the longer run success when the asset class starts working without having to deal with the pain that created the opportunity." Pension crisis 03/26/17   Government "The question is why haven't the headlines presaged pension implosions? As was the case with the subprime crisis, the writing appears to be on the wall. And yet calamity has yet to strike. How so? Call it the triumvirate of conspirators - the actuaries, accountants and their accomplices in office. Throw in the law of big numbers, very big numbers, and you get to a disaster in a seemingly permanent state of making. Unfunded pension obligations have risen to $1.9 trillion from $292 billion since 2007." O'Shaughnessy and O'Shaughnessy 03/26/17   Funds "My guest this week is my father, Jim O'Shaughnessy. He was a pioneer in quantitative equity research, part of an early group of explorers who combed through data to find factors which predicted future stock returns." [audio] The Stingy News Weekly: March 19, 2017 03/19/17   SNW This week we have climbing cats, life's headwinds and tailwinds, factor timing, taxes, and more. The Climbing CATS 03/19/17   Stingy Investing "The Climbing CATS strategy is based on a momentum plus value combination. It starts with reasonably-sized Canadian firms and then focuses in on value stocks. Call them Cheap And Thrifty Stocks, or CATS, if you will. But it also looks for firms with strong relative momentum that have Climbed higher in recent times. Thus, the Climbing CATS strategy is born." Valeant's rise and fall 03/19/17   Stingy Investing "Bill Ackman recently dumped his fund's stake in Valeant Pharmaceuticals International Inc., which ended a distressing period for his investors. While it might be tempting to use the opportunity to wallow in an ocean of schadenfreude, it's more useful to step back and to try to learn from his misfortune." [$] Why is my life so hard 03/19/17   Behaviour "Most of us feel we face more headwinds and obstacles than everyone else - which breeds resentment. We also undervalue the tailwinds that help us - which leaves us ungrateful and unhappy. How can we avoid this trap?" [audio] Best mutual fund disclosure 03/19/17   Zweig "While the long-term bias in stock prices is upward, stocks enter a bear market with amazing regularity, about every 3 - 4 years. It goes with the territory. Expect it. Live with it. If you can't do that, go bury your money in a jar or put it in the bank and don't bother us about why your investment goes south sometimes or why water runs downhill." Get serious about retirement ages 03/19/17   Retirement "The Liberal government has declined to listen to the advice of its own economic advisory council on retirement age. Perhaps the Liberals might be more willing to listen to one of its ideological soul mates, someone who shares its views on the use of deficits to boost economic growth. Someone like Christine Lagarde, the managing director of the IMF." Capital gains tax is already unjust 03/19/17   Taxes "the current Liberal government's rumoured plan to increase the capital gains tax can be expected to hammer another nail in the coffin for Canadian investments, particularly at a time when our economic outlook is already relatively weak." Factor timing is hard 03/19/17   Value Investing "Adding value from market timing is very hard even though the aggregate market price (e.g., the CAPE) matters and varies a lot over time. In our latest paper, we again show that factor timing is likely even harder than market timing." The Stingy News Weekly: March 12, 2017 03/12/17   SNW This week we have Akre on compounding, taxes, fees, bubbles, and more. Chuck Akre talks at Google 03/12/17   Value Investing "Chuck talks about compounders at Google." Selling pressure at TD 03/12/17   Management "A CBC report earlier this week about TD employees pressured to meet high sales revenue goals has touched off a firestorm of reaction from TD employees across the country - some of whom admit they have broken the law at their customers' expense in a desperate bid to meet sales targets and keep their jobs." Let your winners run 03/12/17   Markets "Modern capitalism is built on the idea that as companies get big, they become fat and happy, opening themselves up to lean and hungry competitors who can underprice and overtake them. That cycle of creative destruction may be changing in ways that help explain the seemingly unstoppable rise of the stock market." The most broadly overvalued moment 03/12/17   Markets "Recall that the 2000 market peak was dominated by breathtaking overvaluation among a subset of very large capitalization stocks, while the broader market was less extreme, particularly among smaller capitalization issues. That didn't prevent the S&P 500 Index from losing half of its value, or the Nasdaq 100 Index from losing 83% of its value, but it did create the basis for a long period of relative outperformance by small cap stocks. By contrast, we presently observe, by far, the most extreme median valuations in history." Tax court justice seen at KPMG-linked party 03/12/17   Taxes "The Canadian Judicial Council began the review following the documentaries that showed two judges attending evening social events during a KPMG-sponsored tax conference in Madrid last fall. A third judge, the chief justice of the Tax Court of Canada, was revealed making a speech in which he promoted drinking alcohol with the tax industry." DFA Funds and fees 03/12/17   Funds "DFA adviser fees in some cases all but erase their advantages" Dividend tax changes 03/12/17   Taxes "So when the budget comes down later this month, keep a close eye on tax brackets and on how capital gains and dividends may be taxed going forward. There has also been speculation about raising the capital gains inclusion rate from the current 50% to as high as 66.7% or even 75%." The Stingy News Weekly: March 5, 2017 03/05/17   SNW This week we have personalized returns, economic predictions, valuations, and more. Your personalized rate of return 03/05/17   Stingy Investing "Personalized rates of return are starting to appear on brokerage statements across Canada. But the new addition might cause more than a little confusion because it depends both on the returns generated by the portfolio and the flow of money into, and out of, it." Asset markets as banks 03/05/17   Markets "It's important to remember that as long as cash is yielding zero or something very low, there's no arbitrage to force asset prices lower, no dynamic to force them to conform to some historically observed level or average. They can go as high as they want to, and stay as high as they want to, provided investors are able to develop and retain the confidence to buy at those levels. Note that the same point doesn't hold as readily in the other direction, when considering how low prices can go. That's because financial assets have intrinsic value. Below that value, they're worth owning purely for their cash flow streams, regardless of the prices at which they can be sold. The market can take those prices all the way to down to zero, they'll still be worth owning as incoming cash flow streams." What do economists know? 03/05/17   Economics "I am arguing that the math and science of economic predictions and assessments are nothing like the math and science of space travel. Economics provides the illusion of science, the veneer of mathematical certainty." Buffett on valuation 03/05/17   Markets "The stock market has been overvalued in the eyes of many since the 1990's and hasn't reverted back to 'normal' levels in a long time. I think the error is that many look at raw P/E's and don't account for interest rates." The latest investment scam 03/05/17   Crime "Canadian securities regulators have started a task force to raise awareness and protect Canadians from the latest investment scam, so-called binary options that can cost investors everything they have." The Stingy News Weekly: February 26, 2017 02/26/17   SNW This week we have Buffett's letter, momentum, freedom, the global yearbook, and more. Q and A with Wes Gray 02/26/17   Momentum Investing "The article suggests that the world of investment ideas is almost like religion or politics - you're on one team or the other - but you can't be on both teams at the same time, and there's very little room for conceptual overlap across dissonant ideas. So if you are a value investor, the idea of momentum disgusts you. Similarly, if you are a momentum/technical investor, the idea of value investing is horrid." Rich or free 02/26/17   Retirement "The best combination is to probably be rich and free. But even that lifestyle is not much better than that of a regular income earning person who is living a purposeful lifestyle. Appreciate what you have right now. Being rich is not an amazing panacea. Being free with the consistent ability to help other people is." Credit Suisse Yearbook 2017 02/26/17   Markets "Over the period since 1900, the average annualized real bond return across the 21 countries was just 1.0% per year, with disappointing returns in many countries. Yet, by the end of 2015, world bonds were level-pegging with world equities over the previous 34 years, giving the same annualized real return of 6.9%." Why facts don't change our minds 02/26/17   Behaviour "Coming from a group of academics in the nineteen-seventies, the contention that people can't think straight was shocking. It isn't any longer. Thousands of subsequent experiments have confirmed (and elaborated on) this finding. As everyone who's followed the research - or even occasionally picked up a copy of Psychology Today - knows, any graduate student with a clipboard can demonstrate that reasonable-seeming people are often totally irrational." Factor zoo 02/26/17   Momentum Investing "Factor-based investors and advisors now think they have an advantage. They base this belief on the results of theoretical asset pricing models, many of which have failed empirically." Warren Buffett's letter 02/25/17   Buffett "I'm certain that in almost all cases the managers at both levels were honest and intelligent people. But the results for their investors were dismal - really dismal. And, alas, the huge fixed fees charged by all of the funds and funds-of-funds involved - fees that were totally unwarranted by performance - were such that their managers were showered with compensation over the nine years that have passed. As Gordon Gekko might have put it: 'Fees never sleep.'" The Stingy News Weekly: February 19, 2017 02/19/17   SNW This week we have taxes, mistakes, Munger, Buffett, Gates, and more. A hard pill for savers to swallow 02/19/17   Stingy Investing "There are no sure things in this world except death and taxes but, with a little luck, medical advances will allow death to take a long sabbatical. News on the tax front isn't as encouraging because rumours are rife that the upcoming federal budget will punch savers right in their portfolios." [$] How Warren taught us optimism 02/19/17   Buffett "Warren Buffett is one of the best loved people in the world -- and it's easy to see why. He's jovial and friendly. He's funny and wise. He makes people feel good about themselves. But he has one quality that fuels all the others: Warren is the most upbeat, optimistic person we know." Charlie Munger speaks 02/19/17   Munger "Charlie Munger speaks at the Daily Journal annual meeting" [video] The enemy of investment returns 02/19/17   Stingy Investing "The Federal budget rumour mill is ramping up and word has it that savers will be asked to pay more. Some pundits think that the tax rate on capital gains will be kicked into overdrive this year. Problem is, taxes already cut deeply into investment returns." How being wrong can help 02/19/17   Behaviour "The irony is that disconfirmatory feedback is the most useful kind of feedback imaginable. If I'm making serious mistakes while cruising along in a complacent bubble of self-satisfaction, I badly need someone to explain exactly what I'm doing wrong. But what I need and what I might enjoy are, of course, quite different." The Stingy News Weekly: February 12, 2017 02/12/17   SNW This week we have taxes, dividends, myths, and more. Gross margin for fun and profit 02/12/17   Accounting "Businesses come in all varieties and the gross margins generated by various businesses are no exception. Software businesses and pharmaceutical firms have high gross margins. Costco and Exxon have low gross margins." Virality is a myth 02/12/17   Markets "Raymond Loewy [is] the father of industrial design. He designed the modern locomotive, the modern car, the livery, Air Force One and the interior habitat of the first NASA space ship. He basically designed the middle of the 20th century in America, and he had a rule for why people like what they like, MAYA: Most Advanced, Yet Acceptable." Dividend policy 02/12/17   Dividends "The shift is remarkable. In 1988, almost 70% of all cash returned to stockholders took the form of dividends and by 2016, close to 60% of all cash returned took the form of buybacks." A taxing trend 02/12/17   Taxes "The odds of a federal budget that targets investors with higher taxes on capital gains or even dividends are rising." Klarman's letter 02/12/17   Value Investing "President Trump may be able to temporarily hold off the sweep of automation and globalization by cajoling companies to keep jobs at home, but bolstering inefficient and uncompetitive enterprises is likely to only temporarily stave off market forces" Betting against correlation 02/12/17   Behaviour "These findings are a strong indication that leverage aversion is indeed an important part of the low-risk effect though by no means does it rule out other contributing explanations." The Stingy News Weekly: February 5, 2017 02/05/17   SNW This week we have brain-bending and the impact of smiling dynamic dividends on a messy retirement. The brain-bending world 02/05/17   Stingy Investing "A new performance measurement is beginning to appear on brokerage statements in Canada. It's called a money-weighted return and it has the potential to cause a great deal of confusion." [$] Messiness is good for the soul 02/05/17   Books "he says, disorder can actually be good for our brains because when conditions around us aren't perfect, we are forced to use creativity to solve problems, and perhaps come up with solutions that are better than we could have imagined otherwise." Doing better than you think 02/05/17   Stingy Investing "Last week the venerable Dow Jones Industrial Average climbed above 20,000 for the first time. The event came as a relief to newscasters who could comment on the record rather than making up a reason for why the stock market moved a little higher that day." Factor investing art and science 02/05/17   Value Investing "My conclusion is that we are still a long way away from understanding the so-called 'science' of investing. We're probably better off understanding the insanity of investors and the incentives of delegated asset managers if we want to understand the science of investing, but this is controversial among many financial economists." The retirement spending smile 02/05/17   Retirement "The following exhibit provides Blanchett's spending smile for a retiree that begins retirement with expenditures of $100,000. On average, this household can expect to experience declining real expenditures through age eighty-four, when real spending reaches a trough of $74,146. This reflects a nearly 26% drop in real expenditures. After this point, average real expenditures increase, though they do not necessarily exceed their initial retirement levels until retirees reach their mid-nineties." Do stocks outperform Treasury bills? 02/05/17   Markets "Most common stocks do not outperform Treasury Bills. Fifty eight percent of common stocks have holding period returns less than those on one-month Treasuries over their full lifetimes on CRSP. When stated in terms of lifetime dollar wealth creation, the entire gain in the U.S. stock market since 1926 is attributable to the best-performing four percent of listed stocks. These results highlight the important role of positive skewness in the cross-sectional distribution of stock returns. The skewness in long-horizon returns reflects both that monthly returns are positively skewed and the fact that compounding returns over multiple periods itself induces positive skewness. The results also help to explain why active strategies, which tend to be poorly diversified, most often underperform." Too much versus too little dynamism 02/05/17   Economy "Of course, the too much versus too little dynamism diagnoses aren't mutually exclusive; there are probably elements of truth in both. Maybe the economy really isn't working for many Americans because globalization, automation and changing labor practices have thrown them to the wolves. But maybe there are also deep-seated structural shifts preventing communities and individuals from tapping the great opportunities the modern economy offers." The Stingy News Weekly: January 29, 2017 01/29/17   SNW This week we have Buffett, Gates, Grant, Chou, Ellis, and more. Burst your filter bubble 01/29/17   Behaviour "See if you can make the best case for whatever you might find to be deplorable, or at least objectionable, in today's debate. If you're feeling really secure, show it to someone you disagree with, and ask them if they can recognize their own views in there, honestly stated." The momentum index 01/28/17   Indexing "Momentum investors cut their losers and let their winners run. In a roundabout way, that's exactly what the stock market has done over time." Francis Chou profile 01/28/17   Chou "At the moment, no sector stands out in terms of valuation - it's all expensive, he says - but he's being patient." Charley Ellis interview 01/28/17   Indexing "Ellis explains that the best approach for most individual investors is a simple asset allocation composed primarily of low cost index funds." Gates and Buffet town hall 01/28/17   Buffett "Bill Gates and Warren Buffet at Columbia University" [video] James Grant interview 01/28/17   Grant "A different investment world. Financial Thought Leader, James Grant, Editor of Grant's Interest Rate Observer declares the 35 year bull market over and sees few opportunities to replace it." [video] The Stingy News Weekly: January 22, 2017 01/22/17   SNW This week we have the 4%, value by sector, family firms, and more. Charles de Vaulx interview 01/22/17   Value Investing "Veteran value fund manager, IVA Advisers' Charles de Vaulx explains why he has nearly 40% of his portfolios in cash." [video] More wishful thinking than rule 01/22/17   Stingy Investing "As a result, those who follow the 4% rule - or even a more conservative 3% rule - might be gambling with retirement ruin. At a minimum they should be prepared to tighten their belts should the markets turn against them." Value by sector 01/22/17   Stingy Investing "When it comes to fishing for stocks, value investors are skating on thin ice because the bargains they desire are disappearing as the markets warm. To find the few bargains that remain it is useful to take a step back, consider the market as a whole, and drill down into different sectors." [$] And that's OK 01/22/17   Value Investing "I don't know a lot of things when it comes to investing. I don't know exactly how or when the current market cycle ends. I don't know when valuations will matter again. I don't know when central banks lose control and free markets return. I don't know the next time I'll be fully invested. And I certainly don't know the near-term direction of stock prices. But I get asked about these things frequently. I wish I knew, but I don't." Fortress fails to silence critic 01/22/17   Real Estate "In 2011 the Ontario Securities Commission accused the pair, along with a third man, of engaging 'in conduct contrary to the public interest' by selling clients of their debt-management business shares of companies caught up in a B.C. stock scam. Petrozza and Rathore agreed to pay close to $3 million and were slapped with a 15-year ban on trading securities." The Stingy News Weekly: January 15, 2017 01/15/17   SNW This week we have cash cows, the 4%, Big Macs, risky ratings, and more. Cash cows of the Dow 01/15/17   Value Investing "The Cash Cows, despite having the lowest dividend yield, have by far the largest buyback yield resulting in a total shareholder yield that is nearly double that of the Dogs and about a third higher than the Dow." The global 4 per cent 01/15/17   Retirement "With a 50/50 asset allocation, the 4% rule did not survive in any country, though it came very close in the U.S. (3.94%) and Canada (3.96%). Even allowing for a 10% failure rate, 4% made the cut only in Canada, the U.S., New Zealand, and Denmark." Risky risk ratings 01/15/17   Funds "Over the past two years, I tracked risk rating changes for nearly 100 unique mutual funds and ETFs. 77% of those funds saw risk ratings reduced despite the fact that we're nearly 8 years into one of the longest bull markets in history for stocks and bonds." Be wary of junk bonds 01/15/17   Bonds "Junk bonds have defaulted historically at an average rate of 4.2% a year, according to data from Standard & Poor's. That is more than the current spread, meaning the extra yield investors hope to capture by owning junk could easily evaporate. Investors tend to forget this, especially during periods of low defaults. Defaults don't always wipe out investors - typically they will recover 40% (of the par value of the bond) from a default. Still, when one accounts for both defaults and recoveries, the loss rate on junk bonds has averaged about 2.5% a year." Big Mac index 01/15/17   World "In Big Mac terms, the Mexican peso is undervalued by a whacking 55.9% against the greenback. This week it also plumbed a record low as Mr Trump reiterated some of his campaign threats against Mexico. The peso has lost a tenth of its value against the dollar since November. Of big countries, only Russia offers a cheaper Big Mac, in dollar terms, even though the rouble has strengthened over the past year." Absolute vs. relative value 01/15/17   Value Investing "In keeping with Montier's absolute value philosophy, we investigated several dynamic allocation strategies based on reducing or eliminating exposure to markets as they get more or less expensive, using the real earnings yield as our yardstick. In every case we tested the absolute value based approach delivered a higher Sharpe ratio, and a much higher ratio of returns to our approximation of Montier's measure of risk - maximum drawdowns." Friedman's theory laid to rest 01/15/17   Economics "Milton Friedman was wrong about the permanent income hypothesis. But unlike with the first two examples, where scientists quickly realized the mistake, economists haven't yet come to grips with the reality." The Stingy News Weekly: January 7, 2017 01/07/17   SNW This week we have a contest, speculations, the asset mixer, moats, and more. Speculating on 2017 01/06/17   Stingy Investing "As we head into the new year, it.s only natural to speculate about what it has in store for us. 2017 is shaping up to be an interesting one on many fronts, but my task today is to focus on the markets from the value investing point of view." [$] Designing better decisions 01/06/17   Behaviour "In this conversation, we explore everything from science fiction, automation, investor behavior and how Betterment tries to solve problems that goes beyond the automated asset allocation that is their bread and butter." Looking for the next Amazon 01/06/17   Stocks "This massive outperformance has led to an explosion in hindsight bias, with investors fooling themselves into believing Amazon's ascent was somehow obvious or inevitable. But the truth is this 38,000% return was handed to nobody, it was earned through enormous dedication. Actually, lunacy might be a better way to describe it, being that you had to be some sort of sociopath - void of any human emotions, to earn these monstrous gains." Moats and podcasts 01/06/17   Media "Podcasts face the public good problem. Fortunately 'talking into a microphone' is similar to 'talking to a theater' and 'talking words onto a page,' two excludable services." Asset Mixer Update 01/06/17   Stingy Investing We've updated our Asset Mixer to include nominal data for 2016. Periodic Table Update 01/06/17   Stingy Investing We've updated our periodic table of annual returns for Canadians to include nominal data for 2016. Pick winning stocks for 2017 01/05/17   Stingy Investing "We started 2016 with a friendly stock picking contest, which means that it's high time to look at the results - and to issue a new challenge for 2017." The Stingy News Weekly: January 2, 2017 01/02/17   SNW Happy New Year! This week we have Zweig, Sinegal, Barry, short selling, and more. Dave Barry's 2016 01/02/17   Fun "Yes, we've seen some weird years. But we've never seen one as weird as 2016. This was the Al Yankovic of years. If years were movies, 2016 would be 'Plan 9 From Outer Space.' If years were relatives, 2016 would be the uncle who shows up at your Thanksgiving dinner wearing his underpants on the outside." Lessons from a short seller 01/02/17   Markets "Wilson managed a hedge fund - Wilson & Associates - that he launched in the late 1960s. During his career, his fund generated annualized returns of about 30%. His net worth peaked at $800 million, most of which he donated to charity." Learn from James Sinegal 01/01/17   Management "It has a frantic desire to serve customers a little better every year. When other companies find ways to save money, they turn it into profit. Sinegal passes it on to customers. It's almost a religious duty. He's sacrificing short-term profits for long-term success." The pension warning bell 01/01/17   Retirement "By the time Calpers gets that assumed rate of return down to 7 percent, as its CFO recommends, the fund may very well be thinking about lowering expectations even further." A word from a portly gentleman 01/01/17   Stingy Investing "At this festive season of the year it is more than usually desirable that we should make some slight provision for the poor and destitute, who suffer greatly at the present time. Many thousands are in want of common necessaries; hundreds of thousands are in want of common comforts." A portrait of Jason Zweig 01/01/17   Zweig "When an inmate in federal prison reminisces about what you were like as a child, you pay attention." Archive: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
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