The Stingy News Weekly (11/07/2010)
70 Years Early
"Looking back into the 1920s, he found that investment-grade bonds went bust with alarming frequency, often in the same year they were rated. On average, he showed, a bank that followed the new rules would end up with a third of its bond portfolio going into default. The record was so unreliable that it would be 'still more responsible,' Mr. Palyi growled, to 'stop the publication of ratings altogether.'"
The Perfect Stimulus: Bad Management
"One day, a position opened above me, and I was the most obvious candidate to fill it. My boss called me into her office and said she had some bad news. She explained that the media was giving our company a lot of heat because almost all of our managers and executives were white males. Promoting me, she explained, would only make things worse. I asked how long I might need to wait for all of this to blow over. My boss was vague, but she said the timeline involved smoothing out the effects of two centuries of corporate discrimination."
You Can't Be Too Thin
"Roger Ibbotson has devoted a career to answering a question that has defied the greatest minds of finance. Namely, why some securities offer better returns than others, even when they have a close resemblance. Now a 67-year-old finance professor at Yale University, Ibbotson thinks he's discovered the answer. It's liquidity. Or the lack of it."
The Man Who Saved the Whales
"In the last half of the 19th century, whales were facing extinction. They were hunted in large part because their oil was the best, most affordable illuminant available to growing western nations. One man more than any other headed off their extinction, a man whose picture should be in on the wall of every Greenpeace office: John D. Rockefeller, founder of the Standard Oil Company."
Pensions: Angry populists' next target
"This is déjà vu: Generous retirement packages, enabling middle-age workers to retire early, helped sink Detroit -- eventually landing GM and Chrysler at Treasury's door. The United Auto Workers, of course, negotiated those packages -- and management signed off on them. Now a majority of union members work for the government, and labor is determined to protect its pensions. Unlike those in the private sector, government retirement packages are often embedded in law. Wait until politicians tell that to the taxpayers stuck footing the bill."
The Fed Loses Twice
"Bad timing for the Fed. They are powerless, or even negatively powerful (They will achieve the opposite of what they are intending), because they don’t understand how monetary policy really works, particularly during times of crisis. The Fed is imitating Japan, which has done horribly over the last 20 years. Can’t they learn from recent data? Interest rates that are too low cause businessmen to make bad decisions."
Why are High Risk Stocks so Crappy?
"The key to the dominance of low volatility equities is that high volatility stocks are bad investments on the two main dimensions of stockworthiness: volatility and return. Volatile stocks by definition have high volatility, and also high correlation with the overall market (CAPM beta) and the business cycle. They all have below average returns. So why do so many people like them?"
Are Monthly Seasonals Real?
"Over "68%" years of UK stock returns reveal that well-known monthly seasonals are sample specific. For instance, the January effect only emerges around 1830, which coincides with Christmas becoming a public holiday. Most months have had their 50 years of fame, showing the importance of long time series to safeguard against sample selection bias, noise, and data snooping. Only – yet undocumented – monthly July and October effects do persist over three centuries, as does the half yearly Halloween, or Sell-in-May effect. Winter returns – November through April – are consistently higher than (negative) summer returns, indicating predictably negative risk premia. A Sell-in-May trading strategy beats the market more than 80% of the time over 5 year horizons."
Patient Capital 2010 Q3
"At current bond prices we strongly believe prospective returns are very low while the potential for loss is extremely high. If interest rates were to rise to only one half of their historical average fixed income securities would suffer substantial losses! We would recommend only very short term fixed income securities at this time. For those looking for income, high quality dividend paying equities are safer and will likely provide returns that are superior to fixed income alternatives over the next several years."
The Papers of Benjamin Graham
"These papers are not part of either Intelligent Investor nor Security Analysis. The papers range from 1930 to 1974, basically Ben Graham's entire professional life."
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