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The Stingy News Quarterly (Q2/2012)


New @ StingyInvestor

Shiller's earnings yield
"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."

Low P/Es are possible when interest rates are low
"It is entirely possible for the market to trade at low ratios when rates are low. If anything the recent ratios have been high compared to past levels. If you just consider times when interest rates have dipped below 3 per cent, you'll find that Shiller's P/E has averaged 13.6. As a result, history provides even more meat for the bears because it bolsters their arguments that stocks are pricey."

How to be a better, happier investor?
"You should mentally prepare yourself for the overwhelming likelihood that, as a stock investor, your portfolio will see a great many bad days even if your long-term results are good. Indeed, you'll likely spend much of your life with a portfolio that has declined from its prior peak."

Dividend stocks for bargain hunters
"Fortunately, there is good news even during a rough patch like this. Lower prices can be an opportunity for bargain hunters. In fact, a bear market can be an excellent time to track down a few juicy dividend stocks while they're on sale."

Dividend stocks aren't fail-safe
"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."

Can Fairfax's bear market strategy work for you?
"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?"


The Best of Stingy Links

Stingy Links: Academia

Creative destruction hits university
"Without diminishing learning outcomes, automated teaching software can reduce the amount of time professors spend with students and could substantially reduce the cost of instruction, according to new research."

Stingy Links: Behaviour

Failure and rescue
"But there continue to be huge differences between hospitals in the outcomes of their care. Some places still have far higher death rates than others. And an interesting line of research has opened up asking why. Researchers at the University of Michigan discovered the answer recently, and it has a twist I didn't expect. I thought that the best places simply did a better job at controlling and minimizing risks - that they did a better job of preventing things from going wrong. But, to my surprise, they didn't. Their complication rates after surgery were almost the same as others. Instead, what they proved to be really great at was rescuing people when they had a complication, preventing failures from becoming a catastrophe."

Doctored papers
"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."

Stingy Links: Bonds

Cutting back on 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.""

The allure of long-term treasuries
"Financial advisers continue to profess that US treasuries should be a large part of a balanced portfolio. With the 10-year treasury yielding around 1.6%, the advice is hardly based on return expectations. It is also not due to expectations of mark to market gains. The up-side case in being long the 10-year treasury would be if the rate were to drop to the level of Japan's - just over half (a fairly unlikely outcome). The mark to market gain would be 7.5%. The downside case on the other hand would be if the 10-year yield rose to what it was just a year ago (or higher) - say around 3%. The mark to market loss would be around 11.5%. So the instrument effectively has an asymmetric payout profile and terrible current yield. What gives?"

Stingy Links: Buffett

Buffett deal secrecy
"They hammered out the deal in a 20-minute telephone call on Sept. 23 in which Trott said he wanted Buffett to be the 'cornerstone' of the transaction. After they reached a tentative agreement, Buffett told Trott not to telephone until later that afternoon because he had an important appointment. 'He told me he promised his grandkids to take them to Dairy Queen, and he was not to be interrupted,' Trott said."

Buffett battles cancer
"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."

Newspaper Work
"Over the years, newspaper owners have built monuments to themselves in the form of giant buildings, statues and plaques commemorating their roles in their communities and the country at large. At the headquarters of The Buffalo News here, a sand-colored office building across the river from a fragrant Cheerios factory, the only visible sign of the owner is a small photograph hanging in the office of the publisher, Stanford Lipsey, signed, 'To the best in the business, Warren.'"

Another Warren 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."

Buffett's idiot challenge seized by Jain
"Ajit Jain, who helped build Berkshire Hathaway Inc. into a $200 billion firm by underwriting risks that others shunned, is hunting for insurance-premium growth that his boss Warren Buffett says may be a thing of the past."

Stingy Links: Debt

Mortgaging the future
"Uncontrolled public debt threatens to rupture society as the older generation thrives at the expense of the young."

Stingy Links: Dividends

Dissecting shareholder yield
"We study a variety of previously examined payout yields over time: dividends, share repurchases cash flow, and equity issuance. We confirm on a newer dataset what other research has found dividend yield no longer works, but more complete measures of shareholder yield hold promise. We contribute to the literature by examining an additional variable to payout yield, net debt pay down. The addition of net debt pay down helps performance, but is not a panacea. We find that regardless of the yield metric chosen, the predictive power of separating stocks into high and low yield portfolios has lost considerable power in the last twenty years. We also explore the concept of separating yield metrics by payout percentage as a way to salvage the predictability of yield metrics. We find no evidence that using payout percentage within a yield category can systematically improve portfolio performance."

The dividend-fund dilemma
"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."

Stingy Links: Economics

Making no cents
"Inflation killed the farthing just as it has killed the Canadian cent. Small coins are living on borrowed time once they become useless for buying individual items. A single penny could buy the first British postage stamp, the Penny Black, in 1840 and was still sufficient to buy a small ice cream for a short-trousered Buttonwood in the late 1960s. Nowadays you would struggle to find a humble ice lolly selling for less than a pound."

Stingy Links: Economy

The future is more than Facebook
"The debate about whether America will own the global economy in the 21st century or else become a dude ranch for rich Chinese and Brazilians hinges on whether innovation can break out of the box. Can it go mainstream and transform the really big things: transportation, energy, electricity, food production, water delivery, health care and education? If it can't do that - or if it is thwarted by high taxes and complex regulation - then welcome to the new normal of 2% annual growth. Our future will become sadly familiar. Just follow Spain, France and Great Britain down history's sinkhole of lost status and influence. But America can do better than that, and it will. In fact, the seeds are being planted now."

Stingy Links: Funds

When Julia tried to start a business
"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."

Lessons learned in the wealth management
"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."

Why Mutual Fund Boards Are Failing
"But while individual qualifications are rarely an issue, investor advocates say mutual funds allow far too many directors to serve on multiple boards. In the realm of public companies, people can draw criticism for sitting on more than a handful of boards. But YieldPlus's trustees, in 2010, each served on the boards of 72 other Schwab funds -- each with its own lengthy prospectus, regulatory filings and compliance issues to review. And that, it turns out, is nothing compared with Bruce Crockett's responsibilities on behalf of investors in the Invesco family of funds. Crockett, a former CEO of satellite company Comsat, is a shareholder watchdog for 140 stock and bond funds, roles for which he was paid $693,500 in 2011. For many critics, vetting so many funds is hard to fathom and is a prescription for overwhelmed and passive boards. 'Maybe we're just not as smart as they are,' says Steven Melnyk, a former ABC golf commentator-turned-investment banker, who says he has his han! ds full serving on three fund boards at Longleaf Partners. 'But I can't imagine how, if you're at a large fund complex, you could find the time to really review everything you need to look at.' The required reading alone, says John Bogle, founder of fund giant Vanguard, underscores the challenge. 'Mutual fund directors,' he says, 'are either not being paid nearly enough for what they should be doing -- or far too much for what they actually do.'"

Stingy Links: Government

We're spent
"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."

Red tape keeps poor people out of jobs
"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."

Bias in government forecasts
"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."

Operation Un-Twist
"I don't know who in their right mind is lending the US government money for 10 years at 1.59% and for thirty years at 2.67%. You have to believe inflation will be lower than these values just to get your money back, let alone make any real return. (The best I can do is to opine that these are not long-term investors, and they think they can get out before rates rise. I will admit that understanding such low rates is stretching my rational-investor efficient-market prejudices.) Well, no matter. When offered a screaming good deal, you should take it!"

Stingy Links: Graham

What was the very first hedge fund?
"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."

Stingy Links: Hallett

Desperately seeking income
"Many retail investors - and their advisors - are desperately seeking higher-income solutions in this ultra-low-rate environment. And institutional investment themes continually draw the retail sector to the trough - but usually only after the easy money has been made. Unlike institutions, however, retail investors must accept trade-offs. In an ideal world, retail exposure to institutional investment themes would boast abundant liquidity and reasonable fees to go along with their high income. But this has proven to be an elusive combination as high fees have squeezed returns and exposure is sacrificed for liquidity."

The unintended lifetime commitment
"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."

Stingy Links: Health

Exercise to a better brain
"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."

Stingy Links: History

'Fortune 500' of 1812
"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."

Origins of the indebted homeowner
"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."

No normal recovery
"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."

How to kill a currency
"As the world considers the possible death of the euro, it's worth considering a famous historical example. Ok, it's not that famous. But it's still worth looking at: The break-up of the Austro-Hungarian currency union in 1918."

Stingy Links: Indexing

New funds, old flaws
"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."

High-speed trading hurts ETFs
"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."

Stingy Links: Law

Corruption 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."

Stingy Links: Markets

Equity Q ratio
"Tobin's Q ratio is the ratio between the market value of the stock market and against the aggregate net worth of the constituent stocks measured at replacement cost. It can be defined to include or exclude debt. We exclude debt for ease of calculation, and refer to it in this form as 'Equity Q'."

The austrians and the swan
"Over the past century-plus there have clearly been sizeable annual losses (of let's say 20% or more) in the aggregate U.S. stock market, and they have occurred with exceedingly low frequency (in fact only a couple of times). So, by definition, we should be able to call such extreme stock market losses 'tail events.' But can we say this, just because of their visible depiction in an unconditional historical return distribution?"

Predictability of the simple trading rules
"In a true out of sample test we find no evidence that several well-known technical trading strategies predict stock markets over the period of 1987 to 2011. Our test is free of the sample selection bias, data mining, hindsight bias, or any of the other usual biases that may affect results in our field. We use the exact same technical trading rules that Brock, Lakonishok and LeBaron (1992) showed to work best in their historical sample. Further analysis shows that this poor out-of-sample performance most likely is not due to the market becoming more efficient - instantaneously or gradually over time - but probably a result of bias."

Michael J. Burry commencement address
"2012 UCLA Department of Economics Commencement featuring Dr. Michael J. Burry as keynote speaker"

Norway's day traders take on the algos
"Yet despite the prevalence of these supposedly smart machines, some traders are making a tidy profit getting the better of these systems, which can make costly mistakes if they are not set up correctly or if their trading patterns can be understood."

Equity cult still dying
"Since then, two 50% bear markets have taken their toll. On our measures, the equity cult is now dead in continental Europe and Japan. It is looking decidedly unhealthy elsewhere. A bond cult has risen in its place."

Q ratios and stock market crashes
"At current valuations - and if this 110-year relationship continues - there is an expected (median) drawdown of 20%, and a 20% chance of a larger than 40% correction in the S&P500 within the next few years these probabilities continually reset as valuations remain elevated, making an eventual deep drawdown from current levels highly likely."

When safe assets return
"Less debt, lower value, higher haircuts, and reduced collateral velocity: in our view, this is an ongoing and significant monetary shock."

Stingy Links: Montier

The flaws of finance
"James Montier discusses how bad models, bad behavior, bad incentives, and bad policies interact to create perfect storms for markets"

Stingy Links: Munger

Berkshire's Charlie Munger speaks
"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."

Stingy Links: Pricing

The price of nails
"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."

'Fair and square' pricing? That'll never work
"Sounds like a sales pitch aimed at consumer advocates and collectors of fine print frustration, like me. As it turned out, it was a sales pitch that only a consumer advocate could love. Shoppers hated it."

Information suppression in competitive markets
"Following Becker (1957) we ask whether competition eliminates the effects of behavioral biases. We study products with add-ons. In competitive markets with costless communication, Bayesian consumers infer that hidden prices are likely to be high prices. Hence, firms choose not to shroud information. However, information shrouding may occur in an economy with some myopic consumers. Such shrouding creates an inefficiency. Sometimes firms have an incentive to eliminate this inefficiency by educating their competitors' myopic consumers. However, if add-ons have close substitutes, a"

Stingy Links: Real Estate

Owning too much 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."

Real house prices
"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."

Mawer Q1
"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?"

Stingy Links: Retirement

How spending declines with age
"Most of us already have a hunch that consumption declines with advanced age. If you had a middle-class upbringing, you might have had a grandmother who regularly gave cash gifts to her grandchildren every so often because she no longer spent the money on herself. She probably hadn't bought a car nor had she travelled anywhere for years. Once people cross over into their 80s, they just seem to be less inclined to spend their money. But we can't rely on anecdotal evidence for something as important as this. Fortunately, some hard data exist."

Stingy Links: Stocks

Housing market jitters keep lid on Genworth
"Mortgage insurer Genworth MI Canada Inc has a perception problem and its bargain-basement valuation tells the tale."

Mauboussin on buybacks
"This report looks at buybacks from four distinct points of view: companies, shareholders, prospective shareholders, and the media. Naturally, the issues are intertwined."

Stingy Links: Taxes

McGuinty's high-income tax
"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."

Stingy Links: Thrift

Saving too much for retirement?
"So you're worried you haven't saved enough for your retirement? What if all the conventional wisdom is wrong and you are actually saving too much?"

Stingy Links: Value Investing

Buy Low, Sell High
""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."

Which price ratio outperforms the EM?
"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."

Leucadia Letter
"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."

Which price ratio best identifies value stocks?
"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"

Why value stocks lag
"Wherein it is observed that value stocks have performed poorly of late. If the pattern holds, value portfolio managers will start to be fired and people will chase after expensive stocks like Facebook. It should all set up some rather good times for patient value investors."

The devil in HML's details
"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."

Howard Marks at NYSSA
"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.""

Stingy Links: World

Exhausting the Earth's resources?
"But firms that make their money mining this planet say the Earth is one big, practically inexhaustible mine, with just as many unexplored corners as outer space. 'We think there are 10,000 more years of minerals left for civilization,' said Andrew McKenzie, a geologist and BHP Billiton PLC's chief executive for nonferrous metals. 'Civilization will change, of course, and there will be different minerals involved, but 10,000 more years.'"

A run they cannot stop
"It's been a week since shares in Bankia plummeted on reports, later denied, that customers were pulling deposits out of the Spanish lender. Fears of a full-scale bank run in Greece have not yet materialised. But the possibility of a deposit run in Europe's peripheral states is still very much alive. It is also the thing that policymakers are least prepared for."

Europe really is on the brink
"The European Union was created to avoid repeating the disasters of the 1930s, but Germany, of all countries, has failed to learn from history. As the euro crisis escalates, Berlin should remember how the banking crisis of 1931 contributed to the breakdown of democracy across Europe. Action is urgently needed to stop history from repeating itself."

A contrarian moment
"Ian Harnett of Absolute Strategy Research, a consultancy, says that European equities are trading on a cyclically adjusted price-earnings ratio - a measure that averages profits over seven years - of 11, towards the bottom of its range over the past 30 years. By contrast, the ratio for American shares is 18.1 (see chart). Wall Street generally trades at a premium to Europe but the premium today is more than three times the historical average."

Turning slumdogs into millionaires
"The idea behind Dakshana was to find some of India's most brilliant and poorest kids and prepare them for the rigorous entrance examination for the Indian Institutes of Technology. The IITs are a group of the nation's most prestigious engineering and technology universities. Its graduates are virtually guaranteed employment and success."

Leaving the Euro
"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."

A glimmer of hope?
"We've got a bank run. How to stop it? Ah, deposit insurance! But who is going to pay for that? 'Countries' are not credible. The whole problem is that 'countries' used their banks as piggy banks, stuffing them with sovereign debt. So, if the countries default on their sovereign debt, the banks go under, and the same 'countries' obviously don't have the money to guarantee deposits. A cross-national deposit insurance scheme, while banks are already stuffed with sovereign debt, is back to Plan A, run for the exit and stiff Germany with the bill."

Lessons of the recession
"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."

The crazy way Europe measures inflation
"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?
"Nomura has taken a shot at calculating just how significantly population changes can hit GDP ..."

Austerity and debt realism
"Aside from wringing their hands, what should governments be doing? One extreme is the simplistic Keynesian remedy that assumes that government deficits don't matter when the economy is in deep recession; indeed, the bigger the better. At the opposite extreme are the debt-ceiling absolutists who want governments to start balancing their budgets tomorrow (if not yesterday). Both are dangerously facile."

Price controls in action
"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.'"

Euro breakup precedent
"It was a currency union of 15 states in 1992. Two years later, as budget deficits spiraled out of control, hyperinflation reigned and economies shriveled, just two members of the Soviet Union's ruble zone were left. As Greek politicians threaten to break terms of the country's bailout with international lenders, Spain calls for financial help, and northern European nations balk at funding the south, historians are asking whether the euro region is about to face a similar exodus. They take a longer view of the European Union's crisis than economists, and it's much bleaker."

Richard Koo presentation
"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."

Euro explosion
"I read last week say that payments are simply stopping in Greece. If there's a chance to pay in Drachma next month, why pay in euros now? Shipments are stopping -- if your invoice might get paid in drachma, no point in sending goods today. This is simple implosion."



 
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