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The Stingy News Quarterly (Q4 2001)

A Stingy Contest

Figure out how much the XXY company is worth for a chance to win a copy of Jim Otar's new book "High Expectations and False Dreams: One Hundred Years of Stock Market History Applied to Retirement Planning."

The Best Of Stingy Links

Stingy Links: The Value View

A conversation with Benjamin Graham
"The Stock Exchanges appear to me chiefly as a John Bunyan type of Vanity Fair, or a Falstaffian joke, that frequently degenerates into a madhouse--"a tale full of sound and fury, signifying nothing." The stock market resembles a huge laundry in which institutions take in large blocks of each other's washing--nowadays to the tune of 30 million shares a day--without true rhyme or reason. But technologically it is remarkably well-organized."

It's dull, but value investing prevails
Scott Burns notes that value investing has outpaced growth investing by achieving higher returns with less risk.

Value vindicated
Tis strange how quickly value's long term record was cast aside.

Value investing guide
The Globe has posted its third annual value guide which contains all sorts of useful data for stingy investors.

The virtues of value investing
"A classic, according to Mark Twain, is a book that people praise and don't read. Let's be honest: For most of us, Security Analysis, the 1934 classic on value investing by Benjamin Graham and David Dodd, falls into that category." -- What!?!? Security Analysis is one of the best investment books that I've ever read. Ask Santa for a copy this Christmas and you won't be disappointed.

The allure of dividends
The Fool's chat about why high dividends are a good thing and make a couple picks.

Stingy Links: Buffett Bonanza

Mr. Buffett on the stock market
"But in the past few months, on four occasions, Buffett did step up to that subject, laying out his opinions, in ways both analytical and creative, about the long-term future for stocks." - Burgers and stocks, a fine combination.

Buffett: Stock market 'hamburgers' are cheaper today.
"The market value of all publicly traded securities as a percentage of the country's business--that is, as a percentage of GNP--has certain limitations in telling you what you need to know. Still, it is probably the best single measure of where valuations stand at any given moment. And as you can see, nearly two years ago [in 1999] the ratio rose to an unprecedented level. That should have been a very strong warning signal."

Buffett offers advice to Harvard students
Wow, Buffett reveals his internet handle and offers people picking tips.

Good managers key to Buffett's acquisitions
"How to identify good corporate management? Despite the rhetoric of mutual-fund managers on this score, it's clear from the subpar investment results of most funds that it's an easier game to talk than play."

Memo from Mr.Buffett
Warren estimates that Berkshire will lose about $2.2 billion due to the events in New York and states that the U.S. is probably in what will be a serious recession. A sobering message.

Berkshire: strong in times of trial
The Fools praise Buffett's conservative approach and try to transform a $2 billion loss into a good thing.

Buffett: An FDIC for insurers
"I'm in the insurance business -- an expensive place to be in the past couple of months. It was made costly for Berkshire Hathaway, the company I run, because I did something very dumb: allowed Berkshire to provide insurance coverage for a huge catastrophe loss without its getting a premium for doing so. The risk we unthinkingly assumed was a loss from terrorism."

Stingy Links: Mr. Market

Pricey bear market
"Disappointments lie ahead for investors who buy at current lofty multiples. The market is too expensive, and earnings won't be rejuvenated anytime soon. And factor in the potential for additional terrorist attacks, which will give the market another surprise wallop."

Blind seers
"Ignorance about tomorrow is a constant of human affairs. Submission to this truth is what's variable. In finance, submission entails a healthy fear of leverage and a decent respect for the relation of price to earnings."

What deflation?
"An iron law of government regulation holds that a would-be regulator can fix either the price or the quantity of a chosen commodity but not both at once. To enforce a very low funds rate, the Fed must supply an awful lot of funds"

The bubble has not popped
Clifford Asness takes on the bulls and shows that the market is still sky high. Good fun!

Cure for a burst bubble is... another bubble?
"Unless the Fed wants to buy chips and routers and bandwidth, the economy has to grow into and absorb the superfluous capital stock before investment can begin anew. The quicker asset prices are allowed to adjust without interference, the healthier the economy will be in the long run."

When glamour fades
"True, at the peak of the bubble growth stocks briefly shot into the lead but over the past 12 months growth, as defined by Independence, has underperformed by 34 per cent on a worldwide basis (and by 43 per cent in the US alone). Over the whole period since 1975 value has outperformed worldwide by 4.4 per cent annually on average."

Templeton paints a bearish picture Sir John paints a sobering view of where the markets are today and what is likely to happen tomorrow.

How America went for broke Faith in the stock market is soundly thrashed in this article that forecasts gloom and doom.

Bubbles, Human Judgment, and Expert Opinion "The widespread public disagreement about whether the stock market has been undergoing a speculative bubble in the past few years reflects an underlying disagreement about how to view human judgment and intellect." [PDF]

The stock market level in historical perspective
"By historical standards, the U.S. stock market has soared to ex-tremely high levels in recent years. These results have created a sense among the investing public that such high valuations, and even higher ones, will be maintained in the foreseeable future. Yet if the history of high market valuations is any guide, the public may be very disappointed with the performance of the stock market in coming years." [PDF File]

The price of stocks is still high Overvalued or ready for another bubble? This Financial Times article points to pricey stocks and negative real returns.

Killing the stock market
Freedom is under attack in the U.S. as government activity is stepped up after the terrorist horror in New York.

Today safety comes first
"It's not that you're turning tail. It doesn't mean you're a wimp. Let's just say your interest in supersafe investments shows a newfound respect for the market's mean streak." - Um, doesn't safety come first everyday?

Stingy Links: Fund Fun

The lifetime cost of money management
"An old rule of thumb in the brokerage business, for instance, is that YTB (yield-to-broker) should be about 2 percent a year on client money. The figure comes from the days of full commission brokerage."

Managers pull plug on lackluster funds
Shutting down poor performers is a classic pattern. Some fund companies simply start up ten funds and slowly knock off the losers. After a while they are left with a lucky winner and can start the whole process all over again.

No free lunch with funds
"Are you paying 10% or 60% in fees over the lifetime of your mutual funds? If you are like many consumers, only your advisor knows for sure."

Mutual fund wipeout!
Trend following explains why most investors don't succeed. If you've just flipped from growth to value investing then you might want to consider giving up on stocks altogether. Opting instead for an all bond portfolio may be a better psychological fit.

Redemption "iceberg" ahead
"There were relatively few funds in existence at the time of the 1973-75 bear market and their assets were very small compared to today's giants. Many equity funds dropped 60 or 70% or more in their NAV. Redemptions were handled by the managers without the problems we envision today. However, mutual fund investors were so disheartened by the "moderate" bear market that there were net fund redemptions for the next nine years."

Buy the managers first, then their funds
"Don't bother trying to ferret out winning mutual funds. Buy shares in a mutual fund management company and be done with it. You'll have no troublesome capital gains distributions and small dividends. As a result, you'll get a good return with great tax efficiency."

Are you overdiversified?
If you own more than ten funds you are probably better off switching to a few index funds.

Going extinct: an ETF roundtable
"Mutual Fund Review magazine organized a round-table discussion on passive investing, incorporating Index Funds and Exchange-Traded Funds (ETFs). We brought together some of Canada's leading minds in the field, to butt heads on the topic."

The road less travelled
"As they begin their journey, investors are faced with an immediate fork in the road-the choice between an active and a passive management strategy. Given the substantial body of evidence it seems clear that passive investing is the strategy most likely to deliver superior results."

Stingy Links: Acrobatic Accounting

Fantasy earnings
"Generally accepted accounting principles are left in the garbage when companies hype earnings by excluding all manner of costs as one-time events--ranging from payroll expenses to layoff costs to inventory writedowns."

The long search for honest earnings reports
Wild and crazy CFOs continue to shovel a load of B.S. into press releases and progress reports. Buyer beware.

Portfolio managers want employee options expensed
"More than 80 percent of financial analysts and portfolio managers around the world who responded to a survey believe any stock options granted to employees are compensation and should be recognized as an expense in the income statements of the companies that grant them."

SEC: Stick to bottom line--or else "the commission just issued a pointed reminder that "pro forma" earnings releases that mislead investors are subject to federal anti-fraud rules."

Stingy Links: Murky Management

Silent warning When management stops updating shareholders it may be time to do a bit of short selling...

Beware the buyback bonanza
Share buybacks are only good news if the stock trades at a deep discount to fair value. Regrettably many high flyers use buybacks for more manipulative reasons...

Stingy Links: Brokers & Banks

The dough
The story of one man's struggle as he attempts to cash a U.S. cheque at a Canadian bank. Great fun but you'll Flash to see it.

Greed and glory on Bay St.
"Holoday had swindled millions of dollars from clients, friends and relatives during a three-year romp. Police called it one of the biggest known frauds involving an individual broker in Canadian history."

Direct purchase plans allow you to bypass brokers
It is taking a bit of time but US style direct purchase plans should arrive in Canada shortly.

Stingy Links: Company Corner

Coke: Who's in charge here?
"Given Coke's place in corporate history and the investing world's psyche, people care about what happens to this company, and about who is entrusted to run it. Since the death in 1997 of legendary CEO Roberto Goizueta--and the ensuing failure of his successor, Doug Ivester--they have been sorely disappointed. The once powerful stock is now trading at $47, right where it was five years ago."

Intel unleashes its inner Attila
Intel takes the war to AMD with price cuts and strong arm tactics only Microsoft could love.

Yes, we have no profits
"The rise and fall of Chiquita Banana: How a great American brand lost its way. "

Restaurant stocks: not as tasty as they look
Growth gone bad is a common theme for restaurants.

Stingy Links: Debt & Retirement

Retirees caught short by stocks return to work
The real meaning of risk hits home as some retirees are forced back to work due to the evaporation of their stock portfolios.

Debt overload: 5 red flags Remove the shackles of monthly payments to achieve a happier and more productive life.

Don't bother investing outside RRSP not worth it
"The market provides many good investment opportunities, but taxes make each of these pointless; so the affected individuals are usually better off buying vacation properties in the U.S. than investing money and watching the government take it all."

Real return bonds for Canadian dummies
"RRBs can be difficult to understand, particularly because of the ongoing inflation-adjustments to their interest payments and market price, but also because of the way in which they are taxed."

Income bonds face collapse
The world of high finance hits some bond investors hard as derivative contracts devour capital.

Stingy Links: Risk, Return, Regret

Just how risky is your portfolio?
"Be honest: How much can you really stand to lose? 5%? 20%? Here are some tools to help assess the risk you can afford to take--and how much you're already taking."

Risk and expected return
"There is only one way to achieve spectacularly high returns like those achieved by US investors in the latter half of the last century-you must start out with the price of assets at very distressed levels, and end up with them at very elevated levels."

One Nobel laureate's view
"The problem is that the people with high-quality products are at risk of leaving the market because the price reflects the average product and the buyers can't distinguish."

Stingy Links: Taxing Questions

When is tax evasion unethical?
"A few years ago the Roman Catholic Church issued a revised catechism that categorizes tax evasion as a sin. Part I of this article explores the arguments that could be used to support the view that tax evasion is a sin, or is unethical. Part II presents arguments to support the position that there is nothing sinful or ethically wrong with tax evasion. The article concludes that the arguments offered to support the view that tax evasion is sinful or unethical do not hold up under analysis, and suggests that it is the tax collectors who might be guilty of sin, since they participate in the taking of property without the owner's consent."

The gift you give yourself
"2001 may be the best year in memory to save on taxes, especially for those who make the right financial moves before Dec. 31. Investors, entrepreneurs and simple taxpayers all have year-end strategies available to keep more cash in their pockets and put less in Ottawa's."

Stingy Links: Christmas Cheers

Scrooge defended
"It's Christmas again, time to celebrate the transformation of Ebenezer Scrooge. You know the ritual: boo the curmudgeon initially encountered in Charles Dickens's A Christmas Carol, then cheer the sweetie pie he becomes in the end. It's too bad no one notices that the curmudgeon had a point"

Is Christmas inefficient?
"Yale University's Joel Waldfogel, writing in the American Economic Review, condemns what he calls "The Deadweight Loss of Christmas." Once you cut through the calculus and graphs, his conclusion is clear: though Christmas generates a $50 billion gift-giving industry, a tenth to a third of that is sheer loss. Why? Because the recipient doesn't always get what he wants. Given the chance, the recipient would have purchased something else."

A capitalist Christmas
"It's the most pro-capitalist of all holidays because its temporal joys are based on private property, voluntary exchange, and mutual benefit."

The economics of Santa's workshop
"The physical impossibility of Santa got me thinking about the economics of the old boy's operations. After all, he is not paid for the goods he delivers, and it would be improper for him to send a bill the next morning. Nobody asked him to leave the stuff, or contracted with him to do so. But that means he gets no feedback from the consumer, much less a clear indication of profit or loss."

New @

Graham Revisited
Last December I reviewed the stock screener and found nine stocks that fit Benjamin Graham's guidelines for defensive investors. In this article I look at how these stocks have performed and provide this year's list of candidates.

Just Spent It
I was recently asked by Jonathan Chevreau to make a few suggestions on what, given the times, should be done with a $10,000 windfall. An interesting question that is difficult to answer. Nonetheless, in this article I offer a few suggestions and take a look at the vexing choice between spending today and saving for tomorrow.

Market Psychology: Profits and Predictions [PDF]
The slides to my recent Canadian MoneySaver talk. Lots of good value investing data is to be found on the last few pages.

Stingy News Weekly Archive


Bullishly Yours,
Norman Rothery
ISSN 1499-2787

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