The Stingy News Weekly (06/26/2011)
Stingy News Flash
I was very pleased that the Summer Book Draw yielded many interesting entries and kind offers. Many thanks to all those who participated! As promised, here are the suggestions with very minimal editing and in no particular order ...
A dirty business
"In the language of hedge funds, Galleon’s strategy was to “arbitrage reality” with the consensus on the Street—to find information about a given company that diverged from Wall Street’s view, allowing Galleon to cash in when the company’s stock price rose or fell."
Dividend growth stars
"Using data going back to 1992, CPMS created annual portfolios of all TSX-listed stocks that increased their dividend over the previous year. The annualized return through 2010 was 13.9 per cent, compared to 9.7 per cent for the S&P/TSX composite total return index."
Private-public wage disparities
"When I negotiate collective agreements, I find a distinct difference between the instructions I receive from entrepreneurs -large or small -who are spending their own money compared to professional managers. The former are almost invariably more parsimonious and do not succumb to collective agreement 'creep' wherein, in each round of bargaining, more and more is given, until the collective agreement can be weighed in pounds, each clause providing another impediment or cost."
The importance of being audited
"When a company’s auditors resign and disclose that prior financial statements “should no longer be relied upon,” investors should head for the hills because there is a very good chance fraud has been discovered. Unfortunately if that company is a Chinese operation that obtained an American listing through a so-called reverse merger, then it is probably too late to salvage much if anything from the investment."
Swinging for the fence not a sustainable strategy
"There are many investors who roll the dice on just a one or two stocks. Some people choose well and hit the jackpot – again through varying proportions of luck and skill. These are the investors that often visit firms like ours for advice. We just don’t see the other investors that saw their concentrated bets work against them. In other words, while hearing many of the strike-it-rich stories can give the impression that this is the path to prosperity, believe me when I tell you that far greater numbers of investors have permanently destroyed wealth using this approach. This is not a high probability way of building wealth."
Burned by Chinese shares
"The epidemic fraud affecting dozens of U.S.-listed China stocks is one of this year's big newspaper stories—after being one of last year's big stories in your favorite stock-market weekly. But the scams that have disgraced many Chinese listings on Nasdaq and the NYSE weren't unmasked by the exchanges, auditors, investment bankers or market regulators. The detective work was done by research-oriented hedge funds, who found the lies behind these multibillion dollar stock promotions, shorted the shares, and then blew the whistle. And for that public service, the shorts have been punished in an unexpected way."
A license to lie, backdated
"if you are considering an investment in a mutual fund or ETF, you should understand that you will have little recourse if information provided in the prospectus turns out to be misleading or incomplete, even outright fraudulent"
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