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Article Archive: 2019 The Stingy News Weekly: October 18, 2019 10/18/19   SNW This week we have Mauboussin, Cialdini, O'Shaughnessy, value investing, and more. Michael Mauboussin interview 10/18/19   Markets "Michael Mauboussin talks about luck and skill with Tobias Carlisle" [video] Dividend Monsters 10/18/19   Stingy Investing "The Dividend Monster portfolio looks through the high-yield portfolio and invests an equal amount of money in the 10 stocks with the highest returns over the prior year. It gained an average of 17.7 per cent annually over the 20 years through to the end of September, according to Bloomberg's back-testing facility. That's a monstrously good result." [$] Robert Cialdini interview 10/18/19   Behaviour "Dr. Robert Cialdini has long been recognized as a leading voice in the fields of persuasion, compliance, and negotiation. Daniel Pink is the author of six provocative books - including his latest, When: The Scientific Secrets of Perfect Timing. What happens when you bring them together? Join what will surely be a lively conversation on influence, behavior, and the quirks of the human mind." [video] O'Shaughnessy's Q3 2019 10/18/19   Value Investing "The rapid stretching of growth multiples in large cap, and the breadth of highly-levered, money-losing companies in small cap stand out as dominant themes in this market." Owner managers 10/18/19   Value Investing "Joe Boskovich talks to Tobias Carlisle about finding great owner/operators." [video] The Stingy News Weekly: October 11, 2019 10/11/19   SNW This week we have Buffett, Graham, value indexing, momentum investing, and more. BAC blocks Buffett's call 10/11/19   Buffett "In an interview with Bloomberg Television, Bank of America Chief Executive Officer Brian Moynihan recalled how Buffett initially tried to reach his company with a proposal eight years ago. The legendary investor called a public phone line and was rebuffed." The asymptote of joy and woe 10/11/19   Thrift "Once enslaved to onerous debts, it becomes very difficult to get out of the slimy pit." It's a code red 10/11/19   Markets "Campbell Harvey is a Professor at Duke University and a partner at Research Affiliates. He sat down with Michael Batnick and Josh Brown of Ritholtz Wealth Management to discuss the meaning of the yield curve indicator, which he discovered in 1986 while working on a dissertation." [video] Enhance momentum strategies 10/11/19   Momentum Investing "A strategy that buys small value winners and sells large growth losers (MAX strategy) generates significantly larger momentum profits than a standard momentum strategy, is robust to common return controls and does not suffer from return reversals for holding periods up to 3 years." Graham's Net-Nets 10/11/19   Value Investing "The implication of calculating the arithmetic mean return vs the geometric mean return is stark. The arithmetic mean would, on the balance of probability, have materially overstated returns." Lawrence Hamtil talks about sectors 10/11/19   Markets "Through his blog and his Twitter account, Lawrence frequently discusses the under-the-radar influence of uncompensated sector bets on the performance of value, small and micro, and international strategies." [video] Beyond the 500 10/11/19   Value Investing "The cost of adding a standard liquidity filter to systematic value portfolio takes about 4-5% off your returns" The Stingy News Weekly: October 4, 2019 10/04/19   SNW This week we have fees, commissions, bubbles, value indexing, and more. Forces shaping the world 10/04/19   History "When people talk about what nation will own the next century they point to leadership in AI and Machine Learning, where China looks so competitive. But it's staggeringly hard to grow an economy when you lose a fifth of your working-age population in a single generation. China could invent something as big as the next internet, but when mixed with its demographics have an economy that muddles along. Europe, Japan, and South Korea are the same or worse." The great fee war 10/04/19   Fees "Fund fees get lower by the year. We now have access to more strategies, fund types, and geographies at a low cost than any investor class in history. Technology in the space has improved by leaps and bounds. And the frictions of creating and managing a portfolio continue to fall. These are all wins for the investment consumer at the expense of the investment producer" Bubblicious 10/04/19   Markets "Most of us value investors don't believe in market timing at all. It is so amusing to watch the market go down 200 pts (or more) on a tweet only to reverse itself within a day or two by another tweet. Why anyone would trade based on this stuff is beyond me. I am a believer that headlines almost never mark turning points in the market. If the market is making a new high and then plunges on some negative headline, you can bet that that high will not be a high of any significance. I have seen various attempts over the years to analyze peaks and troughs in the market and matching it with news headlines; there usually is no headline that marked the top or bottom of a market." Dan talks to Morningstar 10/04/19   Hallett "you would think that maybe high net worth investors, say, $500,000 or more for portfolio size, would allow them to get access to better advice. And yet, I've seen a lot of instances, again, anecdotal, where they're getting, I would say, poor advice" [video] The Acquirers Fund 10/04/19   Stingy Investing "The value strategy used by the Acquirers Fund is heavily informed by the methods highlighted in Mr. Carlisle's books. More specifically, he likes to look for bargain stocks by comparing a firm's enterprise value - in simple terms, the market value of its equity plus net debt - with its operating income after depreciation. The ratio is a close cousin of the enterprise-value to earnings-before-interest-and-taxes ratio. You can think of both as fancier versions of the more familiar price-to-earnings ratio." [$] The Stingy News Weekly: September 25, 2019 09/25/19   SNW This week we have the hot potato, retirement, microcaps, and more. What number 09/25/19   Retirement "In retrospect, I learned that the idea of a single number is compelling, even if it isn.t realistic. After my initial failure at communicating the results, I tried a different tack. I took a narrative approach. I explained to my wife that we were on track for a comfortable retirement." How high can markets fly 09/24/19   Markets "The graph of the ratio of imputed US household net worth to GDP is more of a statement about the low cost of capital than it is a statement of improved economic prospects in the US." Jim Mitchell on microcaps 09/24/19   Value Investing "His fund documents illustrate just how unusual his strategy is. They refer to market capitalization 'below $100 million,' no 'quarterly SEC filings,' and average holding periods of 'more than five years.' This is not a typical investment vehicle. But he has been at it for more than 38 years and racking up impressive returns in the process." The hot potato portfolio 09/24/19   Stingy Investing "While the humble spud fills bellies, it also lends its name to two portfolios in the investing world. The passive couch potato portfolio is standard fare for index investors and sports a solid record. More adventurous souls nibble on the hot potato portfolio and its scorching returns." [$] The Stingy News Weekly: September 17, 2019 09/17/19   SNW This week we value, vol, waiting, fraud, and more. Why value investing works 09/17/19   Value Investing "Greenblatt's simple idea is so insightful. Value investing works (over the long term) because it sometimes does not work (in the short term)." Low vol is not the new value 09/17/19   Markets "Investors that sort the stock market for cheap stocks are primarily looking to generate excess returns by buying companies that might be somewhat unpleasant to hold given firm- or sector-specific issues. On the other hand, investors buying low-risk stocks are hoping for equity-like returns with a reduced downside. These are two fundamentally different investment philosophies." Private equity destroys investors' wealth 09/17/19   Markets "A passive portfolio of small, low EBITDA multiple stocks with modest leverage and hold-to-maturity accounting produces an unconditional return distribution that is highly consistent with that of the pre-fee aggregate private equity index." Thomas Braziel on distressed activism 09/17/19   Value Investing "Thomas Braziel is the managing partner at 507 Capital, an investment firm specializing in unlisted credit opportunities. Thomas hunts for very unusual, off-the-run opportunities in bankruptcy, and presses his claims through activism, receivership and other active means." [video] The cost of waiting 09/17/19   Markets "My results show that any stock/bond portfolio combination (even a 100% bond portfolio) would have, on average, outperformed a 24-month DCA into an all-stock portfolio." The Stingy News Weekly: September 11, 2019 09/11/19   SNW This week we have a fishy video, discussion of the gap, indexing, and more. The Perch Portfolio 09/11/19   Stingy Investing Video "Here's a link to the first in my new video series, which is currently rather rough around the edges. In this video I take a very brief look at the Perch Portfolio, which recently appeared in the Globe & Mail." [Video] The Return Gap 09/11/19   Stingy Investing Video "A brief discussion of the return gap, which is often used improperly." [Video] Beating the index in bonds 09/10/19   Bonds "Why do investment-grade bond managers seem to consistently beat the index, and why do high-yield managers so consistently fail? And what lessons should investors take away from this data about how to win in bonds?" Kung Fu fighting 09/10/19   Indexing "So, this was all a long-winded way of saying, at least at the market level, that we do not think that the tail is yet wagging the dog. We do not believe that passive investing is a bubble, nor do we believe that it is to blame for the underperformance of small caps or value, nor even that they deserve credit for strong equity markets in the US." Horizons swap ETFs 09/10/19   Indexing "Should investors be concerned about additional risks in the new corporate class structure? And what is the likelihood that the new ETFs will continue to deliver the returns of their underlying indexes with no taxable distributions?" A virus might cause obesity 09/10/19   Health "Dr Dhurandhar began studying the known human adenoviruses, and discovered that Human Adenovirus #36 can infect mice, and demonstrated directly that infected mice gain large amounts of fat as a consequence. He then demonstrated that antibodies against this virus are easily found in the blood of Americans." Personalized Returns 09/09/19   Stingy Investing "When it comes to money-weighted returns both the sequence of returns and the flow of money into, and out of, the portfolio matter. It's a big reason why it's important to be careful when comparing money-weighted returns to time-weighted returns. (Generally speaking, when evaluating funds, or indexes, one should compare their time-weighted returns.)" The Stingy News Weekly: September 6, 2019 09/06/19   SNW This week we have the gap, retirement, indexing, value investing, bonds, and more. Get busy living, or get busy dying 09/06/19   Retirement "Waiting for 75% of life to pass by before doing stuff you enjoy is a pretty dumb strategy." The horse story 09/06/19   Stocks "I admit, FFH is not exciting. It's not fake meat or pot or sending billionaires into space. But it shouldn't hurt you and has potential to deliver a very nice return. The current disappointing share performance could be, in the spirit of the horse story, a gift." Bonds are expensive 09/06/19   Bonds "Furthermore, the U.S. bond yield might be record low on our combo value/carry metric, but it's still high versus some major parts of the world attempting to discover how negative a government guaranteed bond can yield before savers build private fortresses to store cash." The gap 09/06/19   Stingy Investing "The simple choice to save before retirement or to spend in retirement can make a big difference on the return gap calculations even for very disciplined investors." [$] Value and the yield curve 09/06/19   Value Investing "We observe that the returns of the Value factor were negative when the yield curve was flattening and positive when steepening in the period between 1971 and 2019. These results are intuitive as a steepening yield curve typically implies a risk-on environment where investors are more inclined to take larger risks, such as betting on cheap, but problematic companies. On the contrary, when the yield curve flattens, investors tend to expect worsening economic conditions and are more likely to allocate to stocks associated with safety." The passive bubble 09/06/19   Indexing "It's like worrying about a trend where everyone decides to eat better, thus hurting sales at McDonald's." The Stingy News Weekly: August 31, 2019 08/31/19   SNW This week we have a fishy portfolio, factor investing, risk profiles, net-nets, plagues, and more. The perch portfolio 08/31/19   Stingy Investing "When it comes to lunch, many investors pay for their lakeside repast using money sent their way in the form of dividends from large companies. But smaller companies also pay dividends and often generate succulent returns." [$] Factor investing works 08/31/19   Value Investing "Don't fall for claims by highly respected asset managers that factor-based investing isn't working. Factor-based strategies have outperformed capitalization-weighted indices over long time horizons." Contrarian investing in commodity cyclicals 08/31/19   Value Investing "Some investors avoid these cyclical industries because of their wild and unpredictable fluctuations, but these data suggest that using economic data to evaluate investment opportunities in cyclicals and buying at economic troughs can provide above-market returns." Factor investing on the country level 08/31/19   Markets "It is worth noting that the performance of the Value factor on country level is similar to that on single stock level. In both universes, the factor experienced a significant boom-and-bust cycle over the last 30 years. Investors have been buying cheap and selling expensive stocks as well as countries at approximately the same time periods." Risk-profile questionnaires don't work 08/31/19   Behaviour "I love the idea that risk tolerance is something that can be quantified by answering certain questions that magically reveal what your asset allocation should be. I'm opposed to using them, however, because reality indicates they don't work." All-in fee of top investment advisors 08/31/19   Fees "When added to the management fee of 1.0%, the average advisor has an all-in cost of 1.5% per year." Trouble in the land of OZK 08/31/19   Management "Construction lending is a high-risk business; it tends to do well when the economy is doing well and tends to be painful during a recession" Bye-bye net-net 08/31/19   Value Investing "The problem for the value investor is that long-term leases create long-term assets, so the assets are not part of working capital, but, to adhere to IFRS 16, the increased liabilities are deducted to calculate net-net working capital. With current assets unchanged and total liabilities increased, there will be even fewer companies that pass the net-net working capital screen. I think that it is now an interesting historical artifact with no practical application for today's investors." [$] The plague years 08/31/19   Health "Sam Harris speaks with Matt McCarthy about his book Superbugs: The Race to Stop an Epidemic. They discuss the problem of drug resistant bacteria, fungi, parasites, and viruses, and the failure of the pharmaceutical industry to keep pace with evolution." [audio] The Stingy News Weekly: August 19, 2019 08/19/19   SNW This week we have the behaviour gap, recessions, Buffett's banks, and more. Buffett is buying banks 08/19/19   Buffett "Warren E. Buffett's Berkshire Hathaway has been building its position in banks over the past year. It is now among the five biggest shareholders in Bank of America, JPMorgan Chase, Wells Fargo, Goldman Sachs, U.S. Bancorp and Bank of New York and owns big stakes in others. Its latest disclosure of its holdings showed that the firm had added to its positions in some of those companies in the second quarter." Recession probability 08/19/19   Markets "If the rest of August is like the first half, then the probability of recession in August 2020 is 47%." Advantage flywheels 08/19/19   Moats "In systems thinking, reinforcing feedback loops are almost always slowed by a balancing loop attached to it. Growth doesn't continue unchecked, and flywheels always run into friction. Some of these limiting factors are overcome, others are so strong they stop or reverse the entire growth engine." Mind the Gap 2019 08/19/19   Funds "On the one hand, allocation funds produced a positive gap of 0.22% on annualized returns of 5.54%. A positive gap means a majority of the money going in was well-timed. The reasons are instructive about what works best for investors." How painful can factor investing get? 08/19/19   Value Investing Very Lyme disease is baffling 08/19/19   Health "We now have not only a plausible explanation but also a potential solution for patients who suffer from persistent Lyme-disease symptoms despite standard single-antibiotic treatment" The Stingy News Weekly: August 12, 2019 08/12/19   SNW This week we have rebalancing, low vol, bankruptcy, BBQ, and more. Sludgy advice 08/12/19   Stingy Investing "Investors should be mindful that the application of behavioural technology can be used for both good and ill. Conscientious advisers will use it to help their clients, while others will use it on their clients to their detriment." [$] LBOs go bankrupt more often 08/12/19   Bonds "Healthy companies acquired by private equity firms through leveraged buyouts see their probability of defaulting on loans increase ten-fold, new research shows." Finance books in one sentence 08/12/19   Books "Give yourself a margin of safety because Mr. Market can be insane." Low vol rises 08/12/19   Markets "In this short research note, we will investigate if the Low Volatility factor has changed structurally over the last 30 years as its status changed from obscurity to a common staple in investment portfolios." Portfolio rebalancing 08/12/19   Hallett "Our analysis suggests that rebalancing every 2-3 years on average (over time) is likely to be sufficient. Accordingly, a rebalancing method that involves frequent monitoring but infrequent action should nicely balance the goal of controlling risk exposure with capturing the benefits of momentum." How much it costs to make BBQ 08/12/19   Pricing "This balancing act plays out on menu at Adamson Barbecue in Leaside, where the smoked brisket takes 24 hours to make and sells for $30 per pound - of which only $2.14 is profit." The Stingy News Weekly: July 31, 2019 07/31/19   SNW This week we have innovation, withdrawal rates, age, and more. Fraud spotting 07/31/19   Value Investing "The portfolio manager's smile and relaxed posture immediately disappeared. With a furrowed brow he asked me to confirm: in Florida? Yes, in Florida. Why, was that a particularly poor state to purchase a house in?" 200 years of safe withdrawal rates 07/31/19   Markets "200 years of Safe Withdrawal Rates in one chart!? Is that interesting, or what?" Vol can be improved 07/31/19   Value Investing "Not all low-volatility stocks outperform. Those that are expensive relative to their profitability actually underperform the market." Age vs success 07/31/19   Science "Backed by mathematical analysis, network theorist Albert-Laszlo Barabasi explores the hidden mechanisms that drive success - no matter your field - and uncovers an intriguing connection between your age and your chance of making it big." [video] Mispriced innovation 07/31/19   Tech "quantitative measures of innovation have the potential to identify mispriced growth opportunities in the market; supporting the notion that innovation is tied to future economic value." Inflexible spending rules 07/31/19   Retirement "Moving from a rule-of-thumb to a dynamic model is like moving from analog to digital. While we may pine for the simplicity of the good old days, the fact is today we have much better tools to get the job done." The Stingy News Weekly: July 26, 2019 07/26/19   SNW This week we have 3 takes on value investing, unconventional wisdom, and more. Opposite of conventional wisdom 07/26/19   Markets "One-month U.S. Treasury bills, often put in the risk-free bucket, went 68 years with a negative real return. Sure stocks can kill you fast, but bonds can kill you slowly." Tobias Carlisle talks to Tim Melvin 07/26/19   Value Investing "Before writing full time, Tim was vice president at Ferris Baker Watts, a boutique investment firm, where he specialized in deep value investing. He has also worked as a stockbroker, advisor and portfolio manager." [video] Value investing and concentration 07/26/19   Value Investing "Given that Value beat Growth over this time sample, what one finds is that on average, the more concentrated the portfolio (on average), the higher the CAGR over this time period (especially when keeping the holding period the same). Additionally, over the full-time period, while there is deviation amongst the Value metrics, they are generally similar in CAGR performance." Long live value 07/26/19   Value Investing "Value has underperformed since the beginning of 2007. Another prolonged period of underperformance for Book-to-Price and Earnings-to-Price happened between 1926 and 1941." Fire and fraud 07/26/19   Crime "The May 11 fire at Enloe State Bank set off a chain of events unlike anything the town.s 2,000 residents had ever seen. Before the month ended, the Texas Department of Banking had closed the bank, citing 'insider abuse and fraud by former officers.'" Home kidney dialysis 07/26/19   Health "CVS Health Corp. is beginning human trials of a new home dialysis machine that could shake up the $35 billion market for end-stage kidney care and create a new business for the drugstore chain." The Stingy News Weekly: July 7, 2019 07/07/19   SNW This week we have nuclear, Tetlock, value investing, and much more. Eric Cinnamond interview 07/07/19   Value Investing "Eric Cinnamond, CFA is a partner at Palm Valley Capital Management and a portfolio manager at the Palm Valley Capital Fund (PVCMX). Eric focuses on absolute return small cap value" [video] Bill Gurley interview 07/07/19   Markets "My guest this week is Bill Gurley, a general partner at Benchmark Capital and one my favorite investment thinkers. As you'll hear, despite enormous success through his career, Bill is clearly still in love with business and investing. Where many might discuss past glories, I've been incredibly impressed with how both Bill and his partners emphasize the current portfolio and market landscape." [audio] Quant Cassandra 07/07/19   Asness "But the real magic skill of his is that despite some fairly horrific and none-too-short relative and absolute return periods, he's stuck with his style, and his risk level, like grim death." Why did Enloe State Bank fail? 07/07/19   Crime "The failure of Enloe State Bank is fascinating, and after a little digging I'm convinced there's a lot more here than meets the eye. First off in the FDIC's press release they note that the bank had assets of $36m and deposits of $31m. So then why did Legend Bank (the acquiring bank) only take $5.2m in assets and why did this little bank incur a $27m hit to the FDIC's insurance fund? Secondly if you Googled the bank news articles from two weeks ago appeared saying that the ATF was investigating a suspicious fire at the bank. Someone was seen burning papers inside. Suddenly this is starting to sound like a movie plot and merited further investigation." The Costco cult 07/07/19   Stocks "Since the day Costco went public in December of 1985, investors have complained that the company has been 'too generous' with its customers and employees. They've called for higher markups on goods, steeper prices, and reduced benefits for workers. But Costco has always insisted that their policies aren't just altruistic - they're good for business" The earnings mirage 07/07/19   Markets "The conceptual problems with book value as an accounting tool are well-known. But one problem that often gets missed is the problem of inflation. Book values are not adjusted for inflation over time, and therefore they tend to understate the true value of corporate net assets. We recently developed a new technique for calculating book value, called 'integrated equity' that corrects this distortion. Our original research piece, "The Earnings Mirage" carefully explains this technique and uses it to generate data for sectors, countries, periods of history, and even factors." Professor Tetlock interview 07/07/19   Academia "He has spent 40 years as a meticulous social scientist, collecting millions of predictions from tens of thousands of people, in order to figure out how good humans really are at foreseeing the future, and what habits of thought allow us to do better." [audio] Talk about nuclear 07/07/19   World "Serious people are finally talking about decarbonizing national economies by mid-century, but such talk must be accompanied by credible plans - and no plan can be considered credible if it does not deal explicitly with nuclear power." The Stingy News Weekly: June 26, 2019 06/26/19   SNW This week we have value investing, dividend investing, buybacks, metal illness, and more. The Frugal Dividend portfolio 06/26/19   Stingy Investing "Mixing a gin and tonic yields a satisfying summer drink. Combining investment ingredients can provide sunny returns. In that spirit, I'd like to introduce the Frugal Dividend portfolio. It adds a value investing twist to the Stable Dividend portfolio. The idea is to seek out low-volatility dividend stocks that trade at reasonable prices because the combination has worked well over the past 25 years." [$] Tattersall on Canadian buybacks 06/26/19   Markets "A similar situation has developed in the United States in spite of huge buybacks in that market. The S&P Buyback Index has outpaced the broad S&P 500 Index by more than five percentage points a year over the past 10 years, but all of this occurred during the first five years. For the year to date and the latest one and five years, it has marginally trailed the 500 index." On the value factor 06/26/19   Value Investing "Given that the performance of the Value factor is similar across stock markets and asset classes, indicates one common driver that is likely related to market structure. Our research suggests that it is mainly risk sentiment that is driving the performance of the Value factor, although that framework requires further validation." Tobias Carlisle talks to Dan Rasmussen 06/26/19   Value Investing "Verdad's Founder and Portfolio Manager Dan Rasmussen talks about his replication of private equity investing in the public markets using undervalued, levered, small-cap stocks." [audio] O'Shaughnessy talks to Livermore 06/26/19   Markets "This week I have a very special guest years in the making. Like another favorite episode, with anonymous guest Modest Proposal, this conversation is with one of the stars of the financial twitter universe who writes anonymously and goes by the pseudonym Jesse Livermore." [audio] When the body attacks the mind 06/26/19   Health "The idea that madness might have a discrete, biological cause - that it isn't just in your head - stretches back at least to the late 19th century, when Europe's asylums were full of delusional and demented patients suffering from neurosyphilis, a late-stage complication of the venereal disease." The Stingy News Weekly: June 21, 2019 06/21/19   SNW This week we have the curious, death, of value investing, and more. Curious Chuck Akre 06/21/19   Value Investing "My guest today is Chuck Akre, a now widely famous investor who founded Akre Capital Management in 1989, which now manages approximately $10B dollars. We discuss his investing style and his 'three-legged stool' for evaluating companies. Please enjoy this great conversation." [audio] Why the American shoe disappeared 06/21/19   Economics "There's really very little commercial reason for why you would make footwear in the U.S. today." [audio] Be Bach, not Darwin 06/21/19   Behaviour "A study published in the Journal of Applied Sport Psychology in 2003, which charted the life satisfaction of former Olympic athletes, found that they generally struggled with a low sense of personal control when they first stopped competing." Tobias Carlisle talks to Peter Rabover 06/21/19   Value Investing "Peter "Russian Bear" Rabover, CFA is the Managing Director at Artko Capital based in San Carlos, California." [video] Beat online bookmakers 06/21/19   Markets "A team of researchers found a way to make money legally from online bookies. But then their troubles began." Stay in the game 06/21/19   Behaviour "His anxiety set in, and his depression set in. At the darkest point, he almost called it. And there was nothing we could do about it. Even if we weren't 5,000 miles away there was nothing we could do about it. But, for some reason, he decided not to. Max decided to stay in the game." Cash reserve strategies don't work 06/21/19   Retirement "Cash reserve strategies that hold aside several years of spending to avoid liquidations during bear markets are a popular way to manage withdrawals for retirees. In theory, the strategy is presumed to enhance risk-adjusted returns by allowing retirees to spend down their cash during market declines and then replenish it after the recovery. Yet recent research in the Journal of Financial Planning reveals that the strategy actually results in more harm than good; while in some scenarios the cash reserves effectively allow the retiree to .time. the market by avoiding an untimely liquidation, more often the retiree simply ends out with less money due to the ongoing return drag of a significant portfolio position in cash." The Stingy News Weekly: June 15, 2019 06/15/19   SNW This week we have value investing, nudging, working, and more. Meatless future or vegan delusions? 06/15/19   Growth Investing "With my story, which I believe reflects an upbeat story for the company, the value that I obtain for its equity is $3.3 billion, yielding a value per share of about $47. At the end of June 10, when I completed my valuation, the stock price was close to $170, well above my estimated value." Becoming wise to your nudge 06/15/19   Behaviour "Two thirds of the British public (65 percent) interpreted examples of scarcity and social proof claims used by hotel booking websites as sales pressure. Half said they were likely to distrust the company as a result of seeing them (49 percent). Just one in six (16 percent) said they believed the claims." What works 06/15/19   Value Investing "From January 1, 1963, through December 31, 2012, the stocks in the best decile of the value composite earned an average annual compound return of 17.3%, approximately 6.2% better than the All Stocks universe, which earned 11.1% over the same period." Is value overcrowded? 06/15/19   Value Investing "Summarizing, comparing relative valuations at the end of 2018 to those at the end of 1999, we find that, with the exception of the still-wide gap in the P/B of large growth stocks, the rest of the ratios look similar, with (in terms of P/E) small growth being relatively far more expensive (with a ratio of 6.1versus 5.1) than it was just before the growth bubble burst in 2000." Indigo to go private? 06/15/19   Value Investing "Minority shareholders will be reluctant to tender at the current depressed price, but by chance we have tangible evidence of what a smart insider thought the stock was worth a year ago. During several weeks in January and February of 2018, Mr. Schwartz reported significant insider purchases of Indigo shares in the $19-to-$20 range." The Stingy News Weekly: June 6, 2019 06/06/19   SNW This week Jim O'Shaughnessy talks, John Neff passes, F scores down under, and more. Jim O'Shaughnessy talks to Tobias Carlisle 06/06/19   Value Investing "Jim published his first book Invest Like the Best in 1994, followed by the first edition of What Works on Wall Street in 1997, How to Retire Rich in 1998, and Predicting the Markets of Tomorrow in 2006." [video] John Neff dies at 87 06/06/19   Neff "He brought considerable wit, as well as investment wisdom, to the proceedings, and was always generous with his time and insights. He was a brilliant contrarian, common-sensical investor, and one of the nicest, most decent people I have ever known." Volatility targeting 06/06/19   Markets "When viewed through the lens of the Sharpe ratio, the research demonstrates that while MV has enhanced outcomes, on average, over the buy-and-hold benchmark, it does so with great variation. In addition, enhancements are period-dependent. However, they do alter the higher moments of the return distribution in a favorable way, enhancing skewness and removing fat tails. Thus, they improve utility for risk-averse investors. It's also important to note that MV strategies are characterized by material turnover and trading activity due to their dynamic adjustment of exposures. The result is that MV strategies are likely to be tax inefficient." F Score in Australia 06/06/19   Value Investing "We show that when applied to the 200 largest stocks in the Australian market, the Piotroski signal generates long/short portfolio returns of 1.0% per month. However, much of this return is on the short side. The long/short return is much higher against smaller cap stocks and is evenly balanced between the long and short sides. Positive returns are generated in 74% of months. The premium to high F score stocks is robust to controls for the size, value and momentum risk premia. We use three separate tests to show that the standard explanation for the power of the F score signal - analyst neglect of the news contained in small stocks - isn't supported by the data. Other underlying forces must be at work." The Stingy News Weekly: May 27, 2019 05/27/19   SNW This week we lever million dollar questions in the dark forest. The million dollar question 05/27/19   Behaviour "Answering this question and daydreaming about that situation is a lot of fun, but there's actually something really useful buried in this question. If you give it some serious thought, it's actually an indication of what your personal plans should be, and thus what your financial plans and professional plans should be like." The dark forest theory 05/27/19   Media "In response to the ads, the tracking, the trolling, the hype, and other predatory behaviors, we're retreating to our dark forests of the internet, and away from the mainstream." Cheap vs expensive countries 05/27/19   World "An alternative to selecting single stocks is to focus on entire countries and rank these as cheap or expensive. The rationale for abnormal returns from buying cheap stocks should apply on country level as well. From the perspective of a current Value portfolio, this might result in replacing the shares of Deutsche Bank with indices for Greece or Portugal, which are two countries that have been trading cheaply in recent years given structural problems in their economies." China, leverage, and values 05/27/19   World "The truth is that the U.S. China relationship has been extremely one-sided for a very long time now: China buys the hardware it needs, and keeps all of the software opportunities for itself - and, of course, pursues software opportunities abroad. At the same time, U.S. acquiescence to this state of affairs has denied China the necessary motivation to actually make the investments necessary to replace U.S. hardware completely, leading to this specific moment in time." Invest your way onto the Rich List 05/27/19   Thrift "Is it feasible? Can you invest your way onto the Rich List?" The Stingy News Weekly: May 20, 2019 05/20/19   SNW This week we have brain bending, dividends, volatility, value, interest rates, momentum, and more. Dividends plus low vol 05/20/19   Stingy Investing "the Stable Dividend portfolio, goes a step further. It starts with the dividend payers from the 300 stock portfolio and buys an equal amount of the 20 stocks with the lowest volatility (over the prior 260 days) each year. It fared even better with an average annual return of 13.7 per cent over the 25 year period." [$] Interest rates and returns 05/20/19   Value Investing "Across multiple interest rate cycles in the United States between April 1965 and December 2017, there has been no meaningful relationship between changes in interest rates and returns on the broad equity market, small value stocks, or leveraged small value stocks." Improving momentum 05/20/19   Momentum Investing "The Momentum factor has two issues: a recent lack of performance and an image problem. We highlight that the performance of Momentum can be improved by combining it with other factors or implementing a volatility filter. However, despite highly attractive long-term returns, investors have allocated magnitudes more capital to Value than to Momentum strategies. Partially this is explained by the simplicity of Momentum, which seems unappealing to many sophisticated investors. Naturally better performance would also lead to higher allocations, so these two issues are somewhat circular." How fake news gets into our minds 05/20/19   Behaviour :"We might like to think of our memory as an archivist that carefully preserves events, but sometimes it's more like a storyteller." What happens when your brain explodes 05/20/19   Health "One unpleasant side effect of having brain surgery is that everyone around you, visitors included, is frightened that your brain could explode again at any second. Fair enough, but as a result, no one ever listens to you." The biggest returns 05/20/19   Thrift "Personal savings and frugality - finance's conservation and efficiency - are parts of the money equation that are largely in your control and have a 100% chance at being as effective in the future as they are today." The Stingy News Weekly: May 15, 2019 05/15/19   SNW This week we have superpowers, Charlie, honesty, and more. Honesty instead of cheer 05/15/19   Behaviour "Practising the Greek virtues of wisdom and courage is one thing. But being cheerful the American way borders on psychosis" Investing for the disaster to come 05/15/19   Thrift "The way I see it, by spending less on fancy caffeine now I either reach my goals more quickly, or I am better insulated against my personal apocalypse, if and when it happens." Financial superpowers 05/15/19   Behaviour "Having, and sticking to, a true long term perspective is the closest you can come to possessing an investing superpower." Charlie Munger interview 05/15/19   Munger "But of course, when people use the word "common sense," what they mean is uncommon sense. Because the standard human condition is ignorance and stupidity. And when they say, old Joe has common sense, what they mean is he has uncommon sense." 10 times sales 05/15/19   Markets "First, over the past 10 years, buying stocks trading above a relatively high level of sales (10x) was actually a decent strategy as it would have beat the market (before transaction costs and taxes). However, over a longer time period, this was a bad bet." The big risk 05/15/19   Behaviour "The real risk is not that you'll see your portfolio decline, that's a promise, the real risk is that you'll seek too much comfort in your early years and leave yourself uncomfortable in your later years." The Stingy News Weekly: May 8, 2019 05/08/19   SNW This week we have 9 hours worth of the Warren and Charlie show. The peculiar blindness of experts 05/08/19   Behaviour "The best forecasters, by contrast, view their own ideas as hypotheses in need of testing. If they make a bet and lose, they embrace the logic of a loss just as they would the reinforcement of a win. This is called, in a word, learning." Berkshire Hathaway AGM 05/08/19   Buffett "Video of the 2019 Berkshire Hathaway Annual Shareholders Meeting" [video] Warren Buffett, Charlie Munger and Bill Gates 05/08/19   Buffett "Warren Buffett, Charlie Munger and Bill Gates sit down with Becky Quick to discuss a variety of topics including the markets, the state of the economy, the China trade talks and the state of health care around the world." [video] The Stingy News Weekly: May 1, 2019 05/01/19   SNW This week we have the Top 1000, a valuation horse race, too personal finance, and more. 2018 Morningstar fee study 05/01/19   Funds "Morningstar's annual fee study of U.S. open-end mutual funds and exchange-traded funds found that the asset-weighted average expense ratio was 0.48% in 2018, a 6% decline from 2017." Role of shorting, firm size, and time 05/01/19   Academia "We examine the role of shorting, firm size, and time on the profitability of size, value, and momentum strategies. We find that long positions comprise almost all of size, 60% of value, and half of momentum profits. Shorting becomes less important for momentum and more important for value as firm size decreases. The value premium decreases with firm size and is weak among the largest stocks. Momentum profits, however, exhibit no reliable relation with size. These effects are robust over 86 years of U.S. equity data and almost 40 years of data across four international equity markets and five asset classes. Variation over time and across markets of these effects is consistent with random chance. We find little evidence that size, value, and momentum returns are significantly affected by changes in trading costs or institutional and hedge fund ownership over time." Valuation horse race 05/01/19   Value Investing "Value isn't necessarily dead - it all depends on how you measure it, when and where it is measured. This inconsistency suggests that value is merely 'noisy,' which is well-established." Personal finance is a bit too personal 05/01/19   Thrift "So, how do you become a millionaire by age 30? Make a ton of money and don't spend most of it. Shocking, right? The issue is that this advice just isn't an option for basically everyone." Million dollar coffee 05/01/19   Thrift "A 12% annual return sounds wonderful in a latte factor example but it's not realistic." Two returning megastar stocks 04/27/19   Stingy Investing "I invite fellow investors to dig into Report on Business magazine's Top 1000 guide to Canadian companies (distributed to Globe and Mail subscribers this past Friday and found online at tgam.ca/top1000). It contains detailed data on the largest 1,000 firms in the land and comes with a star system that ranks stocks based on their attractiveness as potential value and momentum investments. Firms with the best characteristics make it into the 20-stock team of Megastars." [$] Top 1000 stock picks 04/27/19   Stingy Investing "The Megastar system has what it takes to succeed over the long term because it combines two proven schools of investing: value and momentum." [$] The Stingy News Weekly: April 21, 2019 04/21/19   SNW This week we have bear market, concentration, survival, and more. Direct indexing 04/21/19   Indexing "ETFs disrupted mutual funds by offering something a little bit better. Now ETFs face disruption because direct indexing offers several new features that make them much better." Concentration is cool 04/21/19   Value Investing "Sharpe ratios tend to be maximized in a value portfolio around 25 positions." A bin of bargains 04/21/19   Stingy Investing "The Canadian stock market is up 20 per cent from its Christmas Eve low. Despite the gain, it appears to be reasonably valued. Looking at the exchange sector by sector reveals a bin of bargains." [$] The will to survive 04/21/19   Markets "In the world of investing, you don't have to be bold. You don't need to find alpha. You just need to survive." Recessions vs. bear markets 04/21/19   Markets "So stress is not necessarily proportional to how good or bad things are in. Much of it has to do with the changes to our current situation. Going from great to just OK could cause a much worse reaction in the markets than going from awful to not-so-great." Ten behavioural advantages 04/21/19   Behaviour "Amateur investors have a number of behavioural advantages" The Stingy News Weekly: April 16, 2019 04/16/19   SNW This week we have factor, happy, space, cats, and more. You have to live it 04/16/19   Behaviour "Another takeaway is remembering that people whose views and decisions look crazy to you may be less crazy than you think, because they're being made by people whose views on risk and reward were shaped in a different world than you've experienced." Notes from the FFH AGM 04/16/19   Watsa "Fairfax's meeting day is a miniature version of Berkshire's, with better food." Never be happy 04/16/19   Behaviour "There is a silver lining here though. One of our defining characteristics as humans is that we're rarely, if ever, satisfied or content. Maybe it's a good thing people haven't decided to rest on their laurels just because things have gotten better over time. There's still room for improvement." Factor exposure of Berkshire Hathaway 04/16/19   Buffett "BRK.A had positive exposure to the Value, Size, Low Volatility, and Quality factors as well as negative exposure to Growth and Dividend Yield" Stock picks from space 04/16/19   Markets "Panos N. Patatoukas, one of the study's co-authors, told me he thinks the use of satellite imagery creates opportunities for sophisticated investors at the expense of small individual investors." The Stingy News Weekly: April 13, 2019 04/13/19   SNW This week we are recovering from the Fairfax Lollapalooza in the research graveyard. OSAM Q1 letter 04/13/19   Funds "One of the best ways to evaluate a manager is to ask them about their research graveyard. Of the research projects we've pursued over the decades, a significant majority end up like the ownership data project - dead. The quantitative research process is default frustrating." Tax-loss harvesting alpha 04/13/19   Taxes "We find that a tax-loss harvesting strategy yields a geometric average of 51 basis points per year from 1926 to 2018. However, this tax alpha is highly variable: over four successive 23-year periods, the tax alpha ranged from 26 to 88 basis points per annum" We overestimate and underestimate our abilities 04/13/19   Behaviour "Do you think you are an above-average driver, as most people do? How do you compare with others as a parent? Are you better than most at dancing? Where do you rank in your capability to save humanity? Many of you will answer these questions incorrectly. For some of these skills, you will think you are better than you actually are. For others, you will think you are worse." Multi-factor ETFs 04/12/19   Indexing "There is a lot to consider in relation to the composition and performance of multi-factor ETFs in the US stock market. Perhaps the most interesting insight is that these products feature factors such as growth that are not supported by academic research and lack exposure to established ones like quality and momentum." Dividends fade 04/12/19   Dividends "In the past, dividends were the only reason investors placed their money in equities. Now, dividends play a much smaller role, for better or worse, in the overall stock market." The Stingy News Weekly: April 3, 2019 04/03/19   SNW This week we are preparing for Fairfax Lollapalooza and more. Fairfax Lollapalooza 2019 04/03/19   Value Investing Check out the schedule of events for next week's Fairfax Lollapalooza. Real estate vs stocks 04/03/19   Real Estate "Comparing real estate to the stock market or bonds or any traditional asset class is difficult because there are so many other variables involved in real estate. There are taxes and costs involved just like there are in the stock market, but then you have to consider the leverage involved, the cost of borrowing, the length of time in the home, the imputed rent, the psychic income from home ownership and the fact that you have to live somewhere." Momentum in Imperial Russia 04/03/19   Momentum Investing "Some of the leading theories of momentum have different empirical predictions that depend on market composition and structure. The institutional theory predicts lower momentum profits in markets with less agency. Behavioral theories predict lower momentum profits in markets with more sophisticated investors. One risk-based theory predicts occasional momentum crashes. In this paper, we use a dataset from a major 19th century equity market to test these predictions. We find no evidence to support the institutional theory due to the lack of delegated management. We exploit a regulatory change in the middle of our sample period to test behavior theories. We find evidence consistent with overreaction theories of momentum. We find no evidence to support a rare disaster theory." ETF tax dodge 04/03/19   Indexing "It turns out that transfusions like these are tax dodges, carried out by the world's largest asset managers with help from investment banks. The beneficiaries are the long-term investors in exchange-traded funds." Forward vs trailing price to earnings 04/03/19   Value Investing "It also became clear in my study that had an investor focused on low trailing P/E ratio stocks she would have done much better than focusing on low forward P/E ratio stocks." Price matters 04/03/19   Thrift "Motusbank's fee for chequing accounts is zero, and that includes unlimited debits, including e-transfers, and an interest rate of 0.5 per cent (competitive for a chequing account). On savings, the bank will pay a rate of 2.25 per cent on regular accounts and 2.5 per cent on tax-free savings accounts." Chou's letter 04/03/19   Chou "In summary, although the markets have been less kind to value investing, we exacerbated the problemas practitioners." [pdf] The Stingy News Weekly: March 25, 2019 03/25/19   SNW This week we have small, fees, taxes, budgets, indexing, and more. The size premium should persist 03/25/19   Markets "To repeat, investors must expect that any risk-based factor will experience long periods of underperformance. One only has to observe the U.S. value factor to see that it's having a very rough decade. However, that's not a reason to avoid exposure to a factor, such as size. In fact, investors should find satisfaction in the erratic performance of small stocks. If you believe that small stocks are riskier than large stocks, it should follow that small stocks should not always outperform large stocks in all periods - sometimes the risks show up. This is true even though the expected returns are greater for small-cap stocks over the long term." Canadian Government's predatory mortgage scheme 03/25/19   Government "The Government of Canada is using taxpayer money to invest in real estate at near peak valuations. The Department of Finance revealed the 2019 Budget yesterday, including new housing measures. Most notable is the First-Time Home Buyer Incentive, which allows the CMHC, Canada's national housing agency, to become an investor in your real estate. On the surface, it seems like it may provide a boost to the market, and is a generous gift to first-time buyers. The program's timing however, makes it a predatory loan scheme that will do more harm than good." People do not value informative news 03/25/19   Media "We examine how people's perceptions of media bias affect their demand for news. Drawing on a large representative sample of the US population, we measure and experimentally manipulate people's beliefs about the extent to which newspapers suppress information. Inconsistent with the 'more-information-is-better principle,' we find that people who learn that a newspaper is less likely to suppress information have alower demand for news from this newspaper. Our results demonstrate that people have a demand for biased news, consistent with a desire to confirm pre-existing beliefs" The equilibrium consequences of indexing 03/25/19   Indexing "As indexing becomes cheaper (1) indexing increases, whileindividual stock trading decreases; (2) aggregate price efficiency falls, while relativeprice efficiency increases; (3) the welfare of relatively uninformed traders increases; (4)for well-informed traders, the share of trading gains stemming from market timing in-creases, and the share of gains from stock selection decreases; (5) market-wide reversalsbecome more pronounced. We discuss empirical evidence for these predictions." [pdf] Don't open a restaurant 03/25/19   Management "there is a limit to what people will pay for a sandwich and what people feel comfortable paying for a sandwich. Despite the quality of the ingredients inside, despite the amount of labor that goes into all that, there's a certain amount you can charge for a sandwich and people will not pay any more." [audio] Fees and taxes can ruin your retirement 03/25/19   Stingy Investing "The stock market produced big gains in the past and investors dream about retiring on similar returns in the future. But their plans might be ruined because the market's gains do not include some major costs." [$] The Stingy News Weekly: March 18, 2019 03/18/19   SNW This week we have the good, the bad, and the ugly of value investing, and more. The good, the bad, and the ugly of value investing 03/18/19   Stingy Investing "The simple low-P/E method generated good long-term returns. But I doubt many investors would have been able to stick with it through its bad and ugly periods." [$] Guy Gottfried talks at Ivey 03/18/19   Value Investing "Guy Gottfried talks to Dr. George's class" [video] Most Amazon brands are duds 03/18/19   Stocks "Turns out most Amazon-branded goods are flops that don't threaten other businesses at all, according to Marketplace Pulse." Getting high on their own supply 03/18/19   Stocks "The industry will surely grow on a macro level, but whether the stocks are investable is a different story. Incorporating even the most optimistic assumptions about future growth, the industry is trading at nosebleed valuations. The total market cap of all marijuana stocks in the US and Canada is about $50 billion, despite sales of only $580 million. That translates to a price/sales multiple of 85x." DSCs should be banned 03/18/19   Hallett "The financial advisory industry needs to think about what being a client is like, and remember the adage: 'Take care of clients and they will take care of you.'" Seventy over seventy 03/18/19   Kahn "One of the things that's great about the investment business is that there are people who stay active and sharp into their eighties and nineties. Buffett and Munger, the archetypes of the category, will once again be on stage in a packed arena come May." The Stingy News Weekly: March 12, 2019 03/12/19   SNW This week we have GARP, taxes, downside, information abundance, and more. What is the heck is going on 03/11/19   World "The striking parallels between commerce, education, and politics isn't a coincidence. In fact, it's inevitable. In the past decade, the information environment has inverted from information scarcity to information abundance, and the effects are evident in every corner of society." How hedge funds get rich 03/11/19   Funds "However, what if I told you that in less than 20 years the hedge fund would have more money than you (regardless of the size of your initial investment)." A leader in tax compliance 03/11/19   Taxes "Then there's Greece, where economists have struggled to even calculate a VCR. According to the International Monetary Fund, more than half of Greek households pay zero income tax. Indeed, tax evasion is practically a national sport. Take the swimming-pool trick. After the 2008 recession, the government placed a luxury tax on private pools. When only 324 residents in the ritzy suburbs of Athens admitted to having one, tax collectors knew they were being swindled - but didn't know how badly until Google Earth photos revealed the real pool count: 16,974. It's now common to conceal chlorinated assets with floating tiles, army nets, and pool interiors painted to mimic grass." Building a trading wall 03/11/19   Fun "Look, obviously the move here is to build the hotel, no? Why shouldn't Aurora have a 40-story hotel in the middle of a field? With no windows? And made out of lead? Then just put your tower on the other side of it. Building your own tower is good, sure, but again you can get most of the same benefits just by blocking theirs." Growth at a reasonable price works 03/11/19   Value Investing "Our results suggest a GARP approach can generate enviable results, although how enviable depends on the observation period. Perhaps the strategy's key benefit is forcing investors to adopt a systematic framework so they can allocate to exciting growth stories - the rising Amazons - albeit only when they are trading at reasonable valuations." Pure downside 03/11/19   Behaviour "A miserable event with no offset, no silver lining, is when the economy stalls and asset prices fall, and because the economy stalls you lose your job, and because you lose your job you have to sell assets at low prices, all because you didn't have enough cash." Guy Gottfried at Ivey 03/11/19   Value Investing "Ivey Business School's Value Investing Program of 2019 welcomed Guy Gottfried as a Guest Speaker." [video] The Stingy News Weekly: March 4, 2019 03/04/19   SNW This week we have a blockbuster study from Dan Rasmussen, and more. The private debt crisis 03/04/19   Debt "One of the key and largely overlooked reasons for this disappointing growth is hiding in plain sight: the increasing global burden of private debt - the combination of business debt and household debt. Even though government debt grabs all the headlines, private debt is larger than government debt and has more impact on economic outcomes." Superstar economy lacks superstars 03/04/19   Economy "Imagine that in the 1960s you were to double the productivity of GM - that would clearly have a huge impact on the economy. If you were to double the productivity of Facebook overnight, it wouldn't even move the needle. Nothing would happen. You would get slightly better targeted ads, but zero impact on the economy" Bill Gates on Energy 03/04/19   World Bill goes nuclear on energy. [video] On being wrong 03/04/19   Markets "All of the fundamental investors - the straight-A students - don't want to make an investment with a 40% chance of being wrong. Imagine being an analyst at Viking and pitching stocks with 40% error rates each month: How many disasters would it take before you got fired? In contrast, quantitative investors would look at the base rates and prefer these characteristics." The MBA Myth and the Cult of the CEO 03/04/19   Management "MBA programs simply do not produce CEOs who are better at running companies, if performance is measured by stock price return." From Time to a Ponzi scheme 03/04/19   Media "Spin your radio dial, download a podcast or sit down at your next corporate gathering and you'll have no trouble finding a self-styled financial guru to tell you what to do with your money. What you may not know: Financial experts, even those with bulletproof credentials, may be trying to sell you something." Retirement plans 03/04/19   Retirement "Saving for retirement means navigating a potential minefield of high fees and bad advice." [video] Investing at a market peak 03/04/19   Stingy Investing "Starting at the market peak in 2000 didn't result in disaster for diligent savers. Instead, they were able to buy more when the market was low and profited over the long term. Young accumulators who fret about investing at a peak should remember they'll be buying more for years to come." [$] Too risky 03/04/19   Behaviour "It's a little odd to pay someone to tell you to do what you should be able to do on your own, but an adviser wouldn't even be necessary if you didn't have a portfolio that scared the bejeezus out of you once every few years. It wouldn't be necessary if you had a portfolio that you could set and forget." The soft side of planning 03/04/19   Brokers "To my reading, the rise of the independent financial planner is the most significant financial event of my tenure at Morningstar. We did not anticipate this movement, but it proved crucial to our company's success. More importantly, millions of investors have benefited from this development as financial services began to work for those who purchased them, as opposed to mostly enriching those who sold them. It was a powerful and profound change." The Stingy News Weekly: February 25, 2019 02/25/19   SNW This week we have Warren, productivity, population disaster, a puzzle, and more. What else matters 02/25/19   World "All economic growth is just population growth plus productivity growth. Half of that equation turns ugly over the next 30 years in a way it wasn't over the last 30 years. Or 50. Or 200." Buffett interview 02/25/19   Buffett "CNBC's Becky Quick sits down with Berkshire Hathaway CEO Warren Buffett. The billionaire investor weighs in on Kraft Heinz, Apple, the financial sector and his own investment strategy." [video] Why markets go up 02/25/19   Markets "The data point we seek to explain is real earnings growth of 3.42% using the forces of Productivity and Population Growth." How to invest a lump sum 02/25/19   Markets "While 3.7% is the average underperformance of DCA, 5%-10% underperformance is far more common. More importantly, the distribution is quite symmetric, meaning that DCA has roughly the same amount of underperformance as outperformance at the tails of the distribution. So your fear of a market crash needs to be balanced out by the fear of being left behind as the market shoots upward." Buffett's 2018 letter 02/23/19   Buffett "Long-time readers of our annual reports will have spotted the different way in which I opened this letter. Fornearly three decades, the initial paragraph featured the percentage change in Berkshire's per-share book value. It's now time to abandon that practice." The Stingy News Weekly: February 20, 2019 02/20/19   SNW This week we have Charlie, value investing, worst case, and more. The dirty little secret of value funds 02/20/19   Value Investing "The mystery is deepest in the case of value funds. Many shelves of academic research have demonstrated that one of the more dependable ways to beat the market, at least on paper, is to buy cheap stocks and shun expensive ones." [$] Why most active managers fail 02/20/19   Value Investing "To put it simply, the cheapest stocks are disproportionately small in terms of size and volume. This means that an active manager looking to choose, say, the best 40 of these stocks would be unable to manage more than $200M or so. Even a more passive, quasi-indexed, approach owning the 200 cheapest stocks could only handle about $1B." Time varying factor premiums 02/20/19   Value Investing "For value investors, the above findings are good news, as the relatively poor performance of value stocks in the U.S. over the past decade has led to a widening of the book-to-market spread between value and growth stocks, restoring it to about the same level it was when Eugene Fama and Kenneth French published their famous study" Charlie Munger's AGM 02/20/19   Munger "Charlie Munger addresses shareholders at Daily Journal annual meeting" [video] The Next Millionaire Next Door 02/20/19   Books "Sarah Stanley Fallaw says seventy-five percent of millionaires paid less than $1000 for their most expensive suit. Fifty percent of millionaires paid less than $300 for their most expensive watch. Three-quarters of American millionaires paid less than $300 for their most expensive pair of shoes. She also found that 65 percent of American millionaires live in homes that are currently worth less than a million dollars." The worst case 02/20/19   Markets "Then I came to realize that just getting market returns is no walk in the park." The Stingy News Weekly: February 13, 2019 02/13/19   SNW This week we have timing, retirement, in a shrinking world, and more. Retiring on low income 02/13/19   Retirement "Retirement savings advice doesn't always work for everyone, especially those living on low incomes. The Agenda discusses the reality of retirement for Ontario's low-income earners." [video] The world is shrinking 02/13/19   World "Dire predictions about an impending overpopulation crisis have loomed large in the human imagination for centuries. Darrel Bricker and John Ibbitson co-authors of, 'Empty Planet: The Shock of Global Population Decline,' say these predictions have been greatly exaggerated. In fact, the global population is on the decline." [video] DCA vs buy the dip 02/13/19   Markets "My point in all of this is that Buy the Dip, even with perfect information, typically underperforms DCA. So if you attempt to build up cash and buy at the next bottom, you will likely be worse off than if you had bought every month. Why? Because while you wait for the next dip, the market is likely to keep rising and leave you behind." Where big leaps live 02/12/19   Behaviour "Few talented people get all their value from being great at one thing. Being so good at one thing that it's enough to make you extraordinary is rare. More likely are people who are pretty good at a few things and combine those things to make a big leap into something great." Paul Volcker talks to Ray Dalio 02/12/19   Government "I sat down with one of my greatest heroes, Paul Volcker, to talk about the state of the economy and U.S. government as well as learn about the principles that guided his incredible career." [video] Sovereign bonds since Waterloo 02/12/19   Bonds "This paper studies external sovereign bonds as an asset class. We compile a new database of 220,000 monthly prices of foreign-currency government bonds traded in London and New York between 1815 (the Battle of Waterloo) and 2016, covering 91 countries. Our main insight is that, as in equity markets, the returns on external sovereign bonds have been sufficiently high to compensate for risk. Real ex-post returns averaged 7% annually across two centuries, including default episodes, major wars, and global crises. This represents an excess return of around 4% above US or UK government bonds, which is comparable to stocks and outperforms corporate bonds. The observed returns are hard to reconcile with canonical theoretical models and with the degree of credit risk in this market, as measured by historical default and recovery rates. Based on our archive of more than 300 sovereign debt restructurings since 1815, we show that full repudiation is rare; the median haircut is below 50%." Trying to time the market 02/12/19   Stingy Investing "Trying to time the market might be tempting but it's failure-prone. Most investors should focus on the fundamentals instead." [$] Broken beta 02/12/19   Indexing "Smart beta will disappoint some investors, but that's as much their fault as the product providers. Investors do not appreciate the significant tracking errors relative to their benchmarks. This has led ETF issuers to create index products with only slight factor tilts. Given the higher price tag of smart beta ETFs compared to plain-vanilla equity ETFs, they are probably not worth the higher fees." Looking for the intuition 02/12/19   Value Investing "After a very tough 2018 for many quantitative strategies, particularly in market-neutral stock selection, one hurdle many investors face is getting some basic intuition about results, and even more elementary, about what one actually owns in such a portfolio. This matters as the more intuitive something is the easier it is, all else equal, to stick with it. I can't fully fix this problem. A multi-factor process, by design, lacks simple one-liner explanations. Frankly, that's much of the idea of diversifying across factors and stocks. But, while I can't fix this completely, I do hope I can help." The Stingy News Weekly: February 5, 2019 02/05/19   SNW This week we have rebalancing, retirement, happiness, and more. Time for happiness 02/05/19   Behaviour "most of us fall into a trap of spending time to get money, because we believe money will make us happier in the long run. Our thinking is backward. In fact, research consistently shows that the happiest people use their money to buy time." One big thing 02/05/19   Thrift "74% of retirement success had to do with one thing: savings rate. The other 26% was explained by asset allocation and related decisions." An economic story 02/05/19   Markets "The Great Depression experienced a GDP decline of nearly 27% with a high unemployment rate of 25%. The downturn technically ended in 1932. In that year, wages fell 60% while stock market dividends were slashed 57%." Where is the Value 02/05/19   Value Investing "The countries noted above as being deeply discounted relative to peers and history are also showing up as having favorable Earnings Growth relative to peers - Portugal, Greece, and Russia." Rebalancing for ETFs 02/05/19   Indexing "Rebalancing spreadsheets are not new, but this one has an additional feature I hope you will find useful: it allows you to incorporate ETFs that hold more than one asset class." The retirement age is too low 02/05/19   Retirement "When the Canada Pension Plan came into effect in 1965, life expectancy was just shy of 72 years. Canadians could thus expect six or seven years of public pension benefits before moving on to their greater reward. Since that time, however, tremendous improvements in health care and geriatric medicine have pushed life expectancy to 82 while the traditional retirement remains stuck at 65, creating an extra decade of leisure." The Stingy News Weekly: January 28, 2019 01/28/19   SNW This week we have solace for retirees, fake goose, tax, and more. Morgan Housel talk 01/28/19   Behaviour "Morgan Housel's presentation on What Other Industries Teach Us About Investing" [video] Is risk a function of sector or size? 01/28/19   Markets "It would appear that the realized risk and returns in these were largely functions of their sector characteristics as opposed to size." A fake goose 01/28/19   Fraud "When the coat arrived, it was army green instead of the forest green I had ordered. It was heavy, not lightweight. It didn't fit. It smelled of chemicals. And the white Canada Goose patch? It looked off; it's the patch on the right at the top of this article. On Canada Goose's website, a page dedicated to the dangers of counterfeiting explains that every one of its products has a hologram label with a polar-bear image, proof of authenticity. With a $925 pit in my stomach, I checked my coat. It had a hologram sewn into the seam but, sure enough, no polar bear." Tax reform 01/28/19   Taxes "We have to do better, not just for the sake of convenience, but for reasons of fairness. As things now stand, the staggering amount of red tape discourages people from applying for credits they deserve. In 2018, a Senate committee discovered that fewer than 40% of the adults who were entitled to the disability tax credit in 2012 succeeded in claiming it, in large part because of the daunting amount of paperwork required. The question is how to reform a system that has sprawled in every direction" The ugly future of news 01/28/19   Media "Years of erosion have damaged the paper's ability to cover the community. This is true everywhere: Since 1990, nearly 65 percent of all newspaper jobs have been eliminated, more than in the fishing, steel or coal industries." Venezuela is a socialist catastrophe 01/28/19   World "In the meantime, the larger lesson of Venezuela's catastrophe should be learned. Twenty years of socialism, cheered by Corbyn, Klein, Chomsky and Co., led to the ruin of a nation. They may not be much embarrassed, much less personally harmed, by what they helped do. It's for the rest of us to take care that it never be done to us." Bob Robotti's blog 01/28/19   Value Investing "In this first video Bob Robotti follows-up on our year end letter with the story of Mr. Market, a tale well known to value investors. We look forward posting more short videos as a regular feature of the blog." Solace for those retiring at a peak 01/28/19   Stingy Investing "Investing in retirement can be nerve-racking. Take the wrong step and you might walk into the poor house. But a sensible approach can help you make it through the bad times." [$] The Stingy News Weekly: January 22, 2019 01/22/19   SNW This week we have a moat, mixer, momentum, arbitrage, and more. The Bogle collection 01/22/19   Bogle "John C. Bogle was well-known for being the founder of The Vanguard Group and father of the index fund. What is sometimes not known as well is that he was a prolific educator and author - having written 10 books and countless articles, including 16 for CFA Institute. Below are the 12 he wrote for the Financial Analysts Journal." A bad bond idea 01/22/19   Bonds "The Agenda assesses the value of social impact bonds - a tool used by some governments to raise private capital to pay for social services." [video] Whither fragility 01/22/19   Momentum Investing "Those wanting to reduce short-term volatility can add a modest allocation to bonds instead of using multiple lookback models. This would be easier to do, less costly, and potentially more tax efficient. Results are also better." Conventional retirement advice may fail 01/22/19   Retirement "For many Canadians, retirement income planning is a bit like completing a jigsaw puzzle: the challenge is to fit all of the pieces together. But for those approaching retirement with fewer resources, the puzzle can be more difficult to complete." Retail arbitrage 01/22/19   Markets "I was introduced to a suspiciously profitable practice called retail arbitrage. The concept is fairly simple: You purchase products from a retail store, like Walmart or Target, and then you sell them somewhere else, like Amazon, for a higher price." Is risk a function of sector or size? 01/22/19   Markets "It would appear that the realized risk and returns in these were largely functions of their sector characteristics as opposed to size." Buffett's wide-moat theory works 01/22/19   Stingy Investing "While the no-moat portfolio won when it came to raw returns, it got those returns at the cost of a huge amount of volatility. It's a pattern that's fairly common when it comes to different stock picking (and market timing) strategies." [$] Asset Mixer Update 01/18/19   Stingy Investing We've updated our Asset Mixer to include nominal and real data for 2018. Periodic Table Update 01/18/19   Stingy Investing We've updated our periodic table of annual returns for Canadians to include nominal and real data for 2018. The Stingy News Weekly: January 16, 2019 01/16/19   SNW This week we have doing something, for the long-term, and the passing of a legend. Time to do something 01/16/19   Behaviour "How sensitive are your investment actions to new information?" Long-term thinking 01/16/19   Markets "On a daily basis, it's more or less a coin flip between being positive or negative but the further out you extend the time horizon the better your chances of success." Payday anomaly revisited 01/16/19   Markets "First, by replicating and comparing the initial paper to other data sets, we found out that yes, there were days with stronger average returns, specifically day 16, day 1, day 2, and end-of-the-month days." Dual momentum fragility 01/16/19   Momentum Investing "By simply diversifying across multiple implementations, we can dramatically reduce model specification risk and even potentially see improvements in realized metrics such as Sharpe ratio and maximum drawdown." Battle for Stuart Olson 01/16/19   Value Investing "As a long-term shareholder, I wish Crescendo Partners and Jamarant Capital every success in their quest to reduce the valuation discount that we all see in the Stuart Olson stock price. Depending on whom they nominate for the board, I may very well vote for their candidates. But in spite of my optimism, I suspect that we have seen only the opening salvo of a protracted battle for the future of the company." [$] John Bogle dies at 89 01/16/19   Indexing "John C. Bogle, 89, who revolutionized the way Americans save for the future, championed the interests of the small investor, and railed against corporate greed and the excesses of Wall Street, died of cancer Wednesday at his home in Bryn Mawr, his family confirmed." The Stingy News Weekly: January 8, 2019 01/08/19   SNW This week we have the long awaited Top 200, Top 500, Asset Mixer, and Periodic Table updates. Declines in hours worked 01/08/19   Economy "Declines in hours worked per person are among the least-sung benefits of economic development. In the late 19th century workers in industrialised economies knew labour and little else. In 1870 full-time work generally meant between 60 and 70 hours of labour per week, or more than 3,000 hours per year. Over the century that followed rising incomes were accompanied by a steady drop in weekly hours, which had fallen to about 40, on average, by 1970. Though less conspicuous a boon than larger pay packets or higher living standards, the drop was a gift to working people of a thousand or so precious hours of free time each year." Bad economics 01/08/19   Taxes "A top marginal income tax rate of 70 percent is bad economics and even worse politics." Popularity 01/08/19   Behaviour "Popularity is a word that embraces how much anything is liked, recognized, or desired. Popularity drives demand. In this book, we apply this concept to assets and securities to explain the premiums and so-called anomalies in security markets, especially the stock market." The forgotten bear markets 01/08/19   Markets "There's been plenty of ink spilled about history's great market crashes but investors pay little attention to the other historical bears that didn't reach ludicrous mode. Here is a list and short synopsis of some of the forgotten bear markets of the past 80 years" Top 200 2019 01/08/19   Stingy Investing "The Heroes have done well over the long term. They climbed by an average of 12.2% per year since we started way back in 2004 not including the dividends they paid along the way, which would have added a few percentage points to the total (Up until this year, it was published as the MoneySense All-Stars). The return assumes an equal dollar amount was put into each Hero in the first year and rolled into the new Heroes each year thereafter. By way of comparison, the S&P/TSX Composite (as represented by the iShares XIC exchange traded fund) climbed by 4.0% per year over the same period. The Heroes beat the market by an average of 8.2 percentage points per year." Top 500 2019 01/08/19   Stingy Investing "The U.S. Heroes have been on a roll since the crash of 2008. They surged 14.5% per year, on average, over the last 10 years while the market (as represented by the SPDR S&P 500 exchange traded fund) gained 10.2% annually." Asset Mixer Update 01/02/19   Stingy Investing We've updated our Asset Mixer to include nominal data for 2018. Periodic Table Update 01/02/19   Stingy Investing We've updated our periodic table of annual returns for Canadians to include nominal data for 2018. The Stingy News Weekly: January 1, 2019 01/01/19   SNW We start the year with the cost of living, after-tax, in a late cycle, retirement, and more. What I learned at work this year 01/01/19   World "Global emissions of greenhouse gases went up in 2018. For me, that just reinforces the fact that the only way to prevent the worst climate-change scenarios is to get some breakthroughs in clean energy." Cost of living 01/01/19   Thrift "Living in less costly areas can enable you to spend less and to invest more of your income. You will pay less for your home and correspondingly less for your property taxes. Your neighbors will be less likely to drive expensive motor vehicles. You will find it easier to keep up, even ahead, of the Joneses and still accumulate wealth." After-tax alpha 01/01/19   Taxes "The costs of our active strategies are high enough without paying Uncle Sam. Capital gains taxes, when combined with transactions costs and fees, make indexing profoundly advantaged, I am sorry to say." Late cycle lament 01/01/19   Montier "In order to believe that U.S. equities are going to generate a 'normal' return from these levels, you have to believe some quite extraordinary things. Perhaps you believe that P/Es are going to soar to levels not even seen at the height of the TMT bubble; or perhaps you believe that profitability is going to rise (from already extended levels) so that every firm in the U.S. looks like a FAANG stock; or perhaps you believe that growth is simply going to reach unprecedented levels." Retirement finance 01/01/19   Retirement "If we were to over simplify and say that there are three types of retirees - the non-feasible, feasible but just barely, and really rich - only the middle cohort cares about this subject and the closer to the line the bigger deal it is. This is why I took up retirement finance: fear of the line." 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