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Tech     04/12   History helps to make sense of small cap... Hallett     04/10   Why Canada can avoid banking crises World     03/20   Deposit insurance may increase bank risk Economy     03/06   Regulators should ban this leveraging... Hallett   Recent News   Investors earn handsome paychecks "Warren Buffett's decision to hire two investment lieutenants is paying off for Berkshire Hathaway, and it's paying off for the two younger money managers, too." from RobS, 8:23 PM EST, 04/30/13, Buffett   The underground recovery "Ordinary Americans have gone underground, and, as the recovery continues to limp along, they seem to be doing it more and more." from NormR, 10:09 PM EST, 04/27/13, Economy   Meet the man who retired at 30 "But I didn't start saving and investing particularly early, I just maintained this desire not to waste anything. So I got through my engineering degree debt-free - by working a lot and not owning a car - and worked pretty hard early on to move up a bit in the career, relocating from Canada to the United States, attracted by the higher salaries and lower cost of living. Then my future wife and I moved in together and DIY-renovated a junky house into a nice one, kept old cars while our friends drove fancy ones, biked to work instead of driving, cooked at home and went out to restaurants less, and it all just added up to saving more than half of what we earned. We invested this surplus as we went, never inflating our already-luxurious lives, and eventually the passive income from stock dividends and a rental house was more than enough to pay for our needs" from NormR, 10:07 PM EST, 04/27/13, Retirement   The retirement gamble "Retirement is big business in America, but is the system costing workers and retirees more than what they're getting in return?" from NormR, 8:11 PM EST, 04/27/13, Retirement   The lure of hedge funds "Investors often buy what they think is exciting, sophisticated, and complex with the embedded assumption that all of these attributes will lead to greater returns. We see this today where we witness the continued explosive growth of hedge funds. But, a careful examination of the data reveals that these fancy lures fail to hook as much in excess, after-fee returns as more time tested strategies." from NormR, 8:44 PM EST, 04/19/13, Funds   Meet the Student Who Shook Austerians "Herndon became instantly famous in nerdy economics circles this week as the lead author of a recent paper, 'Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,' that took aim at a massively influential study by two Harvard professors named Carmen Reinhart and Kenneth Rogoff. Herndon found some hidden errors in Reinhart and Rogoff's data set, then calmly took the entire study out back and slaughtered it." from DanH, 3:27 PM EST, 04/19/13, Economics   Why Did Baby Catalogs Arrive at Our House? "Marketing Genetics is a data company based in Nebraska. They gather up data that companies share with each other about purchasing behavior and sell it to other companies that are looking for certain types of customers. They've got a database of 100 million people and more than a billion transactions (most of those from the last couple of years). As they show in a sample report on their site, Marketing Genetics takes a company's data and creates a statistical profile of their best customers. Then they look for similar people within their own databases, so those companies can send these people catalogs or other direct mail. They call this Data Navigation Analysis (DNA)." from DanH, 3:23 PM EST, 04/18/13, Tech   History helps to make sense of small cap returns "Depending on the particular fund or product under examination, you could draw very different conclusions on otherwise similar portfolios and performance levels. When looking at retail mutual funds, for instance, old income trust funds are now in one of three categories - i.e. Canadian Dividend and Income Equity, Canadian Small/Mid Cap Equity or Canadian-Focused Small/Mid Cap Equity. (It's interesting to note that some institutional databases continue to track a Canadian Income Trust class of products.) For those looking at returns over the past five years, all of this background is relevant because two factors are skewing the performance comparison today." from DanH, 10:20 AM EST, 04/12/13, Hallett   Why Canada can avoid banking crises "Since 1790, the United States has suffered 16 banking crises. Canada has experienced zero - not even during the Great Depression." from NormR, 11:01 AM EST, 04/10/13, World   Deposit insurance may increase bank risk "The argument for deposit insurance is that banks are inherently unstable, by virtue of their economic function they borrow money in the form of deposits (which can be instantly withdrawn) and lend to businesses on a longer-term basis. They are thus vulnerable to destabilising and self-fulfilling bank runs. But the counter-argument is that of moral hazard depositors have no incentive to choose between banks on grounds of riskiness, and bank executives can take risks knowing that they are underwritten by the insurance scheme." from DanH, 10:24 PM EST, 03/20/13, Economy   Regulators should ban this leveraging strategy "A while ago, I was asked by a regulator to speak to its enforcement staff about T-series mutual funds, which pay investors generous monthly cash distributions. The regulator wanted an independent view on product mechanics, common uses and risks, and was particularly interested in my thoughts on leveraging. I happily obliged, ending my talk with a firm recommendation: If I were the chief compliance officer of a dealer, I would not allow any T-series fund sales that involved: borrowing to invest in funds that have a policy to pay distributions exceeding pure yield taking the mostly 'return of capital' (RoC) distribution in cash and using that cash to pay down the loan. Here's my reasoning" from DanH, 5:21 PM EST, 03/06/13, Hallett   How much does that indexed portfolio cost? "If you need advice on building your portfolio, indexing may not be your best option" from NormR, 9:19 PM EST, 01/31/13, Indexing   Big Med "Restaurant chains have managed to combine quality control, cost control, and innovation. Can health care?" from NormR, 11:14 AM EST, 01/27/13, Health   A new housing boom? "After the traumatic collapse of the last price bubble, Americans seem less sanguine about owning versus renting. According to the Census Bureau, the homeownership rate has been falling, from 69.0 percent in the third quarter of 2006 to 65.5 percent in the third quarter last year." from NormR, 11:07 AM EST, 01/27/13, Real Estate   We're number 1 "Canada has a new worthwhile initiative. After years of booming prices, that bastion of politeness north of the border is looking to avoid a catastrophic housing bust for something more, well, boring. Initiatives don't get more worthwhile, and perhaps not more difficult considering Canada just might have the biggest housing bubble in the world right now." from NormR, 11:13 AM EST, 01/26/13, Real Estate   World is right to worry about US debt "The world's overwhelming presumption is that Americans will find a path to budget sustainability. Nevertheless, it is hard for many in the US to escape the nagging feeling that just maybe this time we won't. With more than $5tn of US Treasury debt, and memories of the huge inflation of the 1970s and default on gold clauses in the 1930s, foreigners would be right to worry a little." from NormR, 11:02 AM EST, 01/26/13, Debt   National balance sheets "But Morgan Stanley reckons the shortfalls are so large (between 800% and 1,000% of GDP in the US and UK) that the situation is hopeless. In effect, the public sector must impose a burden on the private sector but the only question is how." from NormR, 2:37 PM EST, 01/19/13, World   Aswath Damodaran compiles global stock data "For the last two decades, I have dedicated the first two weeks of each new year to a ritual. I obtain/collect/download data on all publicly traded companies listed globally, using a variety of data sources, and then analyze and present the data, aggregated at a number of different levels: by country, by region (US, Europe, Emerging Markets, Japan, Australia and Canada) and by industry. I report on measures of operations (profit margins, turnover ratios, working capital), measures of leverage (debt ratios), measures of risk (beta, standard deviation, equity risk premiums, country risk premiums) and pricing measures (earnings multiples, book value multiples, revenue multiples). I just completed my 2013 update and you can find it by clicking here." from DanH, 9:27 AM EST, 01/16/13, Stocks   Howard Marks on Bonds "These are unhappy times for bond investors according to Howard Marks." from NormR, 5:08 PM EST, 01/12/13, Bonds   The future of shopping "How long can brick-and-mortar retailers afford to operate stores that serve as display cases for someone else? More importantly, will that be long enough to transform themselves into something less vulnerable to Internet competition?" from RobS, 10:27 AM EST, 01/12/13, Thrift   The uncertainty of market returns "The dawn of a new year gives birth to a plethora of predictions. Stock market prognostications are entertaining, but they should taken with a big grain of salt." from NormR, 3:13 PM EST, 01/09/13, Markets   Net-nets not for faint of heart "Strategy Lab contributor Norman Rothery recently tackled an issue that's important for those investors who rely on screens to identify attractive stocks. Should you buy all of the stocks that pass your screen, or simply view them as prospects, which require additional analysis before you sort out winners from losers?" from NormR, 3:05 PM EST, 01/09/13, Value Investing   The winners curse "For investors, Top Dog status - the #1 company, by market capitalization, in each sector or market - is dismayingly unattractive. We find a statistically significant tendency for top companies in each sector to underperform both the overall sector and the stock market as a whole. In an earlier U.S.-only study, we found that 59% of these Top Dogs underperformed their own sector in the next year, and two-thirds lagged their sector over the next decade. We found a daunting magnitude of average underperformance, averaging between 300 and 400 bps per year, over the next 1 to 10 years." from NormR, 2:44 PM EST, 01/05/13, Markets   Scary beats safe when it comes to Net Nets "Cheap and safe are two attributes I look for when picking stocks. But seeking safety doesn't always pay. History suggests that a cheap-and-scary approach may be the better way to go - if you have the stomach for it." from NormR, 12:52 PM EST, 12/31/12, Value Investing   Low bond yields reveal stark choices on risk "In the course of attending several client proposals and meetings over the past several weeks, a common thread has emerged. Since bonds are needed to limit total portfolio risk, they also limit potential total returns. And this is causing investors to have to choose whether risk or return is more important." from DanH, 12:03 PM EST, 12/28/12, Hallett   Gérard Depardieu, the heroic exile "Over 45 years, Depardieu said, he had paid 145 million euros in tax, and to this day employs 80 people. Last year he paid taxes amounting to 85 per cent of his income. 'I am neither worthy of pity nor admirable, but I shall not be called 'pathetic',' he concluded, saying that he was sending back his French passport." from NormR, 10:43 AM EST, 12/22/12, Taxes   Manitoba credit union depositors take note "An experienced accountant with more than two decades of experience in government, Mr. Dalgliesh said he had been relegated to the Manitoba Information Technology Branch after trying to blow the whistle on Crocus, a disastrous labour-sponsored investment fund." from NormR, 10:40 AM EST, 12/22/12, Government   How to burn $50 billion "Ottawa has increased by $50-billion the amount of residential mortgages that it is willing to guarantee. But this time the Canada Mortgage and Housing Corp., the biggest provider of mortgage default insurance, is not getting any. Instead, the additional backing is going only to private-sector players such as Genworth Canada, who will see their maximum raised to $300-billion from $250-billion." from NormR, 10:35 AM EST, 12/22/12, Government   Shaky foundations "When Dennis Gilmore gathered financial analysts and investors on a conference call last summer, the head of California-based First American Financial Corp. had some troubling news. It was what he referred to bluntly as 'the situation' up in Canada. The Los Angeles-area insurance company was losing tens of millions of dollars due to hidden problems in the Canadian housing market, and there were no assurances that the bleeding was going to stop." from NormR, 10:34 AM EST, 12/22/12, Real Estate   Ryan Morris, activist value investor "When an activist investor like Carl Icahn tries to take over a household brand, it plays out on CNBC. Most shareholder struggles occur when little-known investment funds try to take over little-known companies like InfuSystem. Of the more than two dozen activist battles in 2012, most involved companies with a market value under $50 million." from NormR, 2:04 PM EST, 12/21/12, Value Investing   Bond bears' growl is all noise "Without failure, for my entire 18+ year career the overriding expectation has been for interest rates and bond yields to rise from their 'historic lows'. My start was in 1994 - notable since that year stands alongside 1979-80 as the worst bond market in North American history. That year, however, was immediately followed by one the best calendar years on record for North American bonds - comfortably recouping 1994 losses and then some. After all this time, the same 'rates must rise' argument continues to proliferate. It's true that the lower that yields fall, the less they can continue falling. That's a mathematical fact. But that alone doesn't mean that yields are bound to rise. And save for one grim scenario, a rise in bond yields is no death sentence for bonds." from DanH, 9:50 AM EST, 12/18/12, Hallett   Apple's Problem? The Law of Large Numbers "Apple's brutal downdraft continues, down over $20 on the day as I write this (BR: closed 509.79 off -19.90 or -3.76%). What's the problem? Lack of lines for the iPhone5 in China? Maybe today's catalyst. We think, however, the market is coming to the conclusion the company has a scale problem. That is, it is just too darn large." from DanH, 11:35 PM EST, 12/16/12, Growth Investing   The Insourcing Boom "What has happened? Just five years ago, not to mention 10 or 20 years ago, the unchallenged logic of the global economy was that you couldn't manufacture much besides a fast-food hamburger in the United States. Now the CEO of America's leading industrial manufacturing company says it's not Appliance Park that's obsolete - it's offshoring that is. Why does it suddenly make irresistible business sense to build not just dishwashers in Appliance Park, but dishwasher racks as well?" from RobS, 10:12 AM EST, 12/16/12, Markets   Save more, work longer "AQR Capital co-founder on the fiscal cliff and why he sees challenging times ahead for the U.S. economy." from NormR, 9:10 PM EST, 12/14/12, Markets   Income malaise complicates tax talks "If the two parties fail to come to a deal by Jan. 1, taxes on the average middle-income family would rise about $2,000 over the next year. That would follow a 12-year period in which median inflation-adjusted income dropped 8.9 percent, from $54,932 in 1999 to $50,054 in 2011." from NormR, 10:49 PM EST, 12/13/12, Taxes   A compilation of Buffett articles "If you have an hour or so and are interested in reading some of Mr. Buffett's works check out the following articles available online. And prepare to be amazed by a guy who has made some astonishingly prescient market calls despite claiming to have no idea where the markets are headed short-term." from NormR, 11:26 PM EST, 12/08/12, Buffett   Deck the halls with macro follies "Each year, our attention turns to the holidays... and to holiday consumer spending! We're told repeatedly that, because consumer spending is 70 percent of measured GDP, such spending is vital to economic growth and job creation. This must mean that savings, the opposite of consumption, is bad for growth. This view of macroeconomics was first popularly asserted by Thomas Malthus in 1820, nearly 200 years ago." from NormR, 6:21 PM EST, 12/06/12, Economics   Private REITs require careful due diligence "In the early days of income trusts - the late 1990s - portfolio manager Rick Howson used to talk about whether a trust's 'brains' were inside or outside of the 'body'. (He managed Saxon High Income, now known as Saxon Dividend Income, one of Canada's first income trust mutual funds.) Howson preferred trusts where the management 'brains' resided inside of the trust 'body' - in large part for governance reasons. It's no wonder he preferred this structure. A group of companies provide services to the REIT that I reviewed ranging from property due diligence to day-to-day property management and sales (i.e. attracting investors into the fund). There are two problems with this structure. First, each of the companies are completely outside of the REIT structure. Second, each is owned by the REIT's co-founding general partners. While I didn't not delve into this issue further, this structure has potential conflicts all over it. I could not find a single word even mentioning that a conflict exists, let alone how the REIT deals with this conflict." from DanH, 2:00 PM EST, 12/06/12, Hallett   Why College May Be Totally Free Within 10 Years "......there will always be students able and willing to pay for a traditional college experience and for them it will be a worthwhile investment. But for the vast majority, from a financial standpoint that kind of education makes no sense and is fast becoming unnecessary. He believes the higher education revolution is coming soon and will happen fast - perhaps fast enough to keep the next generation from finishing school with debts they may never be able to pay." from RobS, 8:36 PM EST, 12/05/12, Academia   Acquisitions: Winners and Losers "The winner in public company acquisitions is easy to spot and it is the target company stockholders, who gain about 18% over the 41 days. On average, bidding company stockholders have little to show in terms of price gains - the stock price for acquiring firms drops about 2% during the announcement period and about 55% of all acquiring firms see their stock prices go down. Note that while the percentage price drop is small (relative to the price increase for the target firm), acquiring firms are typically much larger than target firms and the absolute value that is lost by acquiring firm stockholders from acquisitions can be staggering. A study of 12,023 acquisitions by large market cap firms from 1980 to 2001 estimated that their stockholders lost $218 billion in market value because of these acquisitions. While this number was inflated by some especially bad deals done between 1998 and 2000, they illustrate the potential for massive value losses from acquisitions and the reality that one big, bad deal can undo decades of careful value creation in a company." from DanH, 4:06 PM EST, 12/02/12, Stocks   The Bad Luck of Winning "From one point of view - the point of view of lottery officials - you couldn't ask for more ideal winners than the Hills. Mark works for a meatpacking plant. Cindy is a clerical worker who was laid off in June 2010. When they were introduced to the news media on Friday, their adopted daughter in tow, they talked about how the money might allow them to adopt another child. They said they were going to help various relatives pay for college. They insisted that the money wouldn't change them. The only extravagance they mentioned was a red Camaro that Mark wanted. They made winning the lottery seem downright heartwarming. But it's not. On the contrary, lotteries may well be the single most insidious way that state governments raise money." from DanH, 12:05 PM EST, 12/02/12, Behaviour   Capital preservation and financial repression "Essentially, Bernanke's first commandment to investors goes something like this: Go forth and speculate. I don't care what you do as long as you do something irresponsible." from NormR, 12:06 PM EST, 11/30/12, Montier   Taleb mishandles fragility "Another key to understanding Taleb is that he has a French post-modern tendency to write to impress rather than explain. He provides hundreds of loosely related anecdotes, reminding me of the Talmud quote that 'when a debater's point is not impressive, he brings forth many arguments.'" from NormR, 1:26 PM EST, 11/28/12, Books   Charlie talks to Warren and Carol "Warren Buffett and Carol Loomis on the book 'Tap Dancing to Work'" from NormR, 6:06 PM EST, 11/27/12, Buffett   How Apple Avoids Paying Billions in Taxes "Thanks to a complex network of offshore accounts and cleverly named subsidiaries, Apple, the world's most valuable company, paid just $713 million on its $36.8 billion in foreign earnings last quarter. That amounts to a rate of just 1.9 percent, a figure that makes Mitt Romney's 14.1 percent effective tax rate look downright generous. And believe it or not, Apple actually reduced its foreign tax rate by nearly 25 percent as the company's market cap soared to new heights this year. According to the Associated Press, it was 2.5 percent at this time in 2011. Did Apple get a tax cut? Nah, it just got better at avoiding the IRS." from DanH, 8:04 AM EST, 11/05/12, Taxes   The guide to trading candy "Everything you need to know to get ahead in candy trading." from NormR, 8:56 AM EST, 10/28/12, Fun   Taxes, inflation, default "Buffett is uncomfortable with the idea that the Fed can expand its balance sheet indefinitely. He doesn't know why it won't work, but he knows that there are no free lunches, and wonders what might happen as a result." from NormR, 12:25 PM EST, 10/25/12, Debt   Buffett on CNBC: Summary "Buffett was on CNBC this morning. Who has time to sit in front of the TV from 7:00 - 9:00 am? Only hardcore Buffett-heads would click through and watch all the videos or read the full transcript. So here are some notes." from NormR, 11:35 PM EST, 10/24/12, Buffett   Warren Buffett on CNBC "Warren talks about many topics over multiple segments. Topics include: cancer, housing, QE3, Europe, Asia, etc." from NormR, 10:55 PM EST, 10/24/12, Buffett   The real deal "Perhaps none of this would matter if the bad news was already reflected in share prices. The biggest bull markets have started when shares looked cheap. But on two crucial measures - the cyclically adjusted price-earnings ratio (as calculated by Robert Shiller of Yale University) and the dividend yield - the American stockmarket looks more expensive than the historic average. Some people may think that low real rates will ignite an equity bull market. But history does not suggest that will be the case." from NormR, 11:41 PM EST, 10/19/12, Markets   Should we worry about rising interest rates? "But the Fed has only limited power to control interest rates. And sharply higher yields would be far from unusual. For instance, 30-year Treasury bond yields are currently under 3 percent. As recently as last year, they topped 4.5 percent, and in early 2000 they briefly exceeded 6.5 percent. Because of the long maturity, a single percentage point rise in rates would translate into roughly a 20 percent decline in the value of long bonds." from RobS, 10:57 AM EST, 10/18/12, Economy   More Links ...
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