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News Selected by Stingy Investors
Suggested reading from our community of intelligent investors

Headlines
 
  08/25   Buffett's 1976 GEICO analysisBuffett  
  06/12   Behold the Burrito BondBonds  
  04/30   Greece targets tax-EvadersEconomics  
  01/11   Check if a prospective financial adviser is...Hallett  
  01/09   Professor Damodaran's updated stock dataStocks  
  11/22   Computers have enhanced chess skillIdle  
  11/20   Showing returns a big advice industry...Hallett  
  11/20   The lesson from market extremesHallett  
  10/23   The MoneyBall EconomistEconomics  
  09/19   Floating rate note funds' risk understatedHallett  
  09/12   How a 26-year-old analyst rattled Wall...Stocks  


Recent News
 
Buffett's 1976 GEICO analysis
"Car insurer Geico Corp. has long been one of the jewels in Warren Buffett's crown, minting billions for his Berkshire Hathaway Inc. in the nearly two decades since Berkshire bought the entire company in 1996. But, as the Journal notes in a story on the front on the Money and Investing section Monday, Mr. Buffett's ties to Geico go back much, much further. He initially invested in the firm in 1951, and then had an opportunity to build a huge stake when the company was struggling in 1976. Mr. Buffett recently gave the Journal a letter he wrote back then to one of Berkshire's top insurance lieutenants. In the note, Mr. Buffett hinted at his attachment to Geico, explained why its business model was attractive, and evaluated why he thought it would ultimately survive."
from DanH, 4:58 PM EST, 08/25/14, Buffett
 
Behold the Burrito Bond
"Bond bubble? What bond bubble? These bonds give out free burritos! London high street fast food outlet Chilango, favored by City types with elastic waistbands, is offering an 8% coupon on a four-year corporate bond that gives some buyers a free burrito every week for the lifetime of the debt. All you have to do is cough up £10,000 pounds ($16,800) and trust that it is as good at servicing its debt as it is at serving bankers their lunch. (Chicken burritos cost £5.99. The WSJ's preferred pork option costs £6.99. So that's an extra £363-worth of free pork burritos a year.)"
from DanH, 9:44 PM EST, 06/12/14, Bonds
 
Greece targets tax-Evaders
"It's Saturday night going on Sunday morning at a club near the gated homes of the Greek elite in northern Athens as two men and a woman in business suits push through the crowd and demand to see the cash register. The manager sighs. It's the tax man. The inspectors are the new face of Greece's fight against an age-old problem of tax evasion. Their mission: to check whether the club has given customers automated receipts that allow officials to track sales. In Greece, clubs, bars and restaurants have often avoided that paper trail to understate their revenue and reduce income- and sales-tax payments."
from DanH, 12:24 PM EST, 04/30/14, Economics
 
Check if a prospective financial adviser is legit
"The story of Earl Jones, who was convicted serves as a useful example. Jones was neither licensed nor the holder of any recognized credential. Requiring one or both would have prompted discriminating investors to avoid him. While that's no guarantee to steer everyone clear of fraudsters, the following websites should make it easy for Canadians to do lots of important due diligence with just a few clicks."
from DanH, 1:04 PM EST, 01/11/14, Hallett
 
Professor Damodaran's updated stock data
"In 1992, I had just finished a spreadsheet that contained the average PE ratios for companies in different sectors in the United States. There was little of substance in it, but I decided that since I had it, I might as well share it. I posted that spreadsheet for students in my class to download and made it available to others who visited my website (more hopeful thinking than an actual plan, since there were relatively few people looking for data online). Each year since, I have added to the data collection, initially expanding my list of data items for US companies, and in the last decade, adding to the collection by looking at non-US companies. It is my first task each year and it takes up the first week of the year, and I just uploaded the data today for the 2014 update."
from DanH, 5:45 PM EST, 01/09/14, Stocks
 
Computers have enhanced chess skill
"In the world chess championship match that ended Friday in India, Norway's Magnus Carlsen, the cool, charismatic 22-year-old challenger and the highest-rated player in chess history, defeated local hero Viswanathan Anand, the 43-year-old champion. Mr. Carlsen's winning score of three wins and seven draws will cement his place among the game's all-time greats. But his success also illustrates a paradoxical development: Chess-playing computers, far from revealing the limits of human ability, have actually pushed it to new heights."
from DanH, 3:42 PM EST, 11/22/13, Idle
 
Showing returns a big advice industry challenge
"The financial advisory industry has long been challenged to report accurate, personalized performance to its clients. Investment management clients have always wanted good reporting but most retail clients didn't require it because returns seemed healthy. But having survived two bear markets, investors have grown disappointed with their portfolios' growth even without knowing percentage returns. Securities regulators have mandated the reporting of personalized rates of return starting in a couple of years. I believe that this will prove more challenging for the advice industry than any other regulatory initiative - including the much-discussed best interest standard."
from DanH, 3:40 PM EST, 11/20/13, Hallett
 
The lesson from market extremes
"On November 20, 2008 I spoke to a powerpoint presentation loaded with slides showing the then-current bear market in a historical context - while doing the same with a variety of valuation statistics for North American stocks. A summary of my conclusions: North American stocks were at 20-year lows relative to earnings and book value. On an interest-rate-adjusted basis, U.S. stock yields were at a four-decade high. High yield bonds were sporting the highest spreads and yields in several decades. Stocks and high yield bonds were very attractive and they should be purchased with a focus on their longer-term fundamentals. While it's now clear that it was a good idea to invest five years ago, it's helpful to add some numerical context."
from DanH, 3:37 PM EST, 11/20/13, Hallett
 
The MoneyBall Economist
"Mr. Zatlin, who started SouthBay in 2009, likens his approach to the one employed by Oakland A's General Manager Billy Beane, whose rigorous use of data mining made famous in 'Moneyball' created a new approach to building a baseball team. 'It's very much a 'Moneyball' kind of thing,' he said. Economics, just as baseball, is steeped in tradition. Economics, to hear Mr. Zatlin tell it, is just as buried in its own past, and missing the great changes taking place in the world. That leads most economists to use outdated methods to measure the wrong things, Mr Zatlin says."
from DanH, 11:44 AM EST, 10/23/13, Economics
 
Floating rate note funds' risk understated
"Floating rate note (FRN) funds are gaining in popularity because of their marketed 'promise' to protect capital during periods of rising interest rates. In Canada since the mid-2000s, FRN funds invest mainly in corporate loans bearing a fluctuating interest rate. They appeal to investors who fear rising interest rates - which is most - but offer competitive current yields. Investors seduced by this class of funds should be aware that hedging one risk often heightens exposure to other risks. And standard industry risk ratings fail to communicate this trade-off, which risks significantly understating these funds' true risk exposure."
from DanH, 11:05 AM EST, 09/19/13, Hallett
 
How a 26-year-old analyst rattled Wall Street
"On Sept. 9, Reuters reported that Kevin Kaiser of Hedgeye Risk Management had sent shares of Kinder Morgan, North America's third largest energy company, reeling 6%. Kaiser had emailed clients advising them to short the stock (i.e., bet it would fall). The following day, Kaiser published a full report on the company, arguing that it was overvalued. In the two days since, Kinder Morgan's share price has rallied and then fallen sharply. Analysts at big banks immediately took aim at Kaiser's note, suggesting the 26-year-old was out of his depth. The public spat continues unabated. So what's going on? Is Kaiser a jumped-up ignoramus, or a brilliant whiz-kid - or is it all just a symptom of Wall Street's tribal divisions?"
from DanH, 4:06 PM EST, 09/12/13, Stocks
 
The case for banning tips
"For over eight years, I was the owner and operator of San Diego's farm-to-table restaurant The Linkery, until we closed it this summer to move to San Francisco. At first, we ran the Linkery like every other restaurant in America, letting tips provide compensation and motivation for our team. In our second year, however, we tired of the tip system, and we eliminated tipping from our restaurant. We instead applied a straight 18% service charge to all dining-in checks, and refused to accept any further payment. We became the first and, for years, the only table-service restaurant in America where you couldn't pay more money than the amount we charged you. You can guess what happened. Our service improved, our revenue went up, and both our business and our employees made more money."
from DanH, 12:34 PM EST, 08/09/13, Management
 
Hedge Funder challenges Ackman's Herbalife bet
"You make a guess. You calculate the implications of the guess. If those implications do not square with observation then the guess is wrong. Ackman made a guess - the guess is that the 'so called discount buyers are in fact failed distributors'. The guess implies that there is a 50 thousand tonne per annum build up of Formula 1 on shelves and in garages of failed distributors. If that calculation does not conform to reality then Bill Ackman is wrong (and it does not matter who he is, how smart he is or how beautiful the thesis)."
from DanH, 2:42 PM EST, 07/22/13, Stocks
 
Banks make billions moving metals
"The story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman Sachs subsidiary stores customers' aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again. This industrial dance has been choreographed by Goldman to exploit pricing regulations set up by an overseas commodities exchange, an investigation by The New York Times has found. The back-and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal. It also increases prices paid by manufacturers and consumers across the country."
from DanH, 2:38 PM EST, 07/22/13, Brokers
 
Stock pickers' markets a retail investor myth
"Whenever the notion of a volatile sideways market bubbles up among portfolio managers, they claim indexing will fail in comparison to active stock selection. In other words, portfolio managers argue that trendless volatility is ripe for active management skill to shine. They call it a stock pickers' market. I call it a myth for retail investors."
from DanH, 1:57 PM EST, 07/21/13, Hallett
 
Last Leucadia letter
"Forty-three years ago, the two of us met at Harvard Business School and thirty-five years ago was the beginning of a remarkable partnership - the results of which are tabulated on the opposite page. The end of 2012 marks the end of this partnership and the last letter from the two of us."
from NormR, 11:59 AM EST, 06/25/13, Value Investing
 
NY cab licence better investment than gold
"Mr. Murstein is president of Medallion Financial Corp., a publicly listed taxi-lending specialist with $1.2-billion in assets under management. Its roots go back to the 1930s, when New York first began issuing taxi medallions - metal plates fastened to the hoods of cabs - to put an end to the chaotic free-for-all on the city's streets. Back then, they sold for $10 apiece. Today, they cost more than $1-million."
from DanH, 8:29 AM EST, 06/04/13, Economics
 
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
 
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