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Topics   Academia   Accounting   Banks   Behaviour   Bonds   Books   Brokers   Christmas   Crime   Debt   Derivatives   Disaster   Dividends   DRPs   Economics   Economy   Fun   Funds   Government   Growth Investing   Halloween   Health   Indexing   Law   Management   Markets   Real Estate   Retirement   Stingy Investing   Stocks   Taxes   Thrift   Trusts   Value Investing   Wealth   World Personalities   Warren Buffett   Benjamin Graham   Charlie Munger   David Dreman   Martin Whitman   Tweedy Browne   James Montier   John Dorfman   Seth Klarman   Nassim Taleb   James Grant   John Bogle   Bill Gross   Tim Cestnick   Norm Rothery Article Archive   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   2011   2012	Article Archive: 2012 Leaving the Euro 05/16/12   Permlink   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   Permlink   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   Permlink   World "Nomura has taken a shot at calculating just how significantly population changes can hit GDP ..." Buy Low, Sell High 05/13/12   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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." Modern portfolio theory is bunk 04/21/12   Permlink   Markets "A basic tenet of modern portfolio theory is that investors who are willing to take on greater risk can expect a greater reward. But a new study released this week turns that belief on its head, claiming that less risky stocks, as measured by volatility, actually outperform more risky, or more volatile, stocks." Owning too much real estate 04/21/12   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   Value Investing "Mohnish Pabrai, Managing Partner, Pabrai Investment Funds talks to Ivey students" Behavioral Biases of Mutual Fund Investors 03/07/12   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   Markets "112 years of market data for 19 countries." For savers in Canada, a sinking feeling 02/05/12   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   Stingy Investing We've updated our Asset Mixer to include data for 2011. Periodic Table Update 01/20/12   Permlink   Stingy Investing We've updated our periodic table of annual returns for Canadians to include data for 2011. Super fracking 01/18/12   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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   Permlink   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." Archive: 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12
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