Clippings

[Bylo Selhi]

I'm not sure if this belongs here or in "Advice and Consent." From the March 2007 issue of Playboy, Playboy Advisor column:

[Bylo Selhi]

This is a video "clipping." Economics for Rappers.

[adrian2]

I'm not sure if this belongs here or in "Advice and Consent." From the March 2007 issue of Playboy, Playboy Advisor column:

So it's true: men buy Playboy to read the articles !

[Bylo Selhi]

The Executioner of Excellence

For many years, I’ve been troubled by a conundrum: If mutual fund investors are not earning the market return, even adjusting for expenses, who is taking the winning side of their transactions? The yawning gap between dollar-weighted and time-weighted mutual fund data demonstrates just how far short John Q. Public falls. Amazingly, professionals, as represented by the managers of hedge funds, mutual funds, and pension funds, don’t do that much better. So, after Bogle’s Croupier collects his take, who is getting rich off the losers?...

The message for small investors is clear. Begin with the assumption that you value your independence, family, friends, and intellectual and physical development, and do not want to spend the rest of your life buying and managing small machine tool shops and insurance offices, or financing chip, software, and Internet startups. Even with their relatively lower returns, the public securities markets will allow most people to finance their children’s education and their own retirement goals.

If you want to pick your own stocks and bonds, be my guest. Just don’t imagine that making your decisions on the basis of publicly available information and analysis will lead you anywhere but to the poor house. You’re going to have to look at the primary data and analyze it entirely by yourself. And you’d better be good at it.

Most people will choose the mutual fund or ETF route, where it pays mightily to ask exactly what values underlie your investment company’s culture: raw financial incentive or pride of craft? In a poker game, the person who doesn’t know who the patsy is, is the patsy. In the same way, if you’re not absolutely clear about whether your fund family is a marketing company or an investment company, then you are the patsy.

[NormR]

The Executioner of Excellence

From the article

The second piece of the puzzle appeared in the April 5, 2007 Wall Street Journal in an unobtrusive article by Ilan Brat on Illinois Tool Works, an industrial conglomerate that has done rather well buying up small private firms. As every small business owner ruefully knows, tiny concerns do not sell at anywhere near the multiples that public companies do. In fact, until very recently, ITW has been able to purchase compatible small businesses for an astonishing average earnings multiple of 1.1. (You saw that right—one-point-one.) Of late, it has had trouble meeting this hurdle in the U.S., but is having better luck in China.

Note a correction to the WSJ reference

"ILLINOIS TOOL WORKS Inc. generally pays 1.1 or less times annual revenue for its acquisitions. A page-one article Friday incorrectly said the company pays 1.1 or less times annual earnings."

[Taggart]

I found the following a mixed bag, but interesting all the same, especially if you read what the author's saying, and then get ready for a complete u-turn with a famous economist/investor from the past, in the last paragraph.

-----------------------------------------------

Times (UK)

June 21, 2007

Portfolio protection

Magnus Grimond assesses whether shrewd asset allocation is the best strategy to emerge unscathed from stock market volatility

[Bylo Selhi]

Comin' Around Again?

Over the years, I’ve learned that disagreeing with Jack Bogle is not a good idea. I originally thought his view of ETFs was unduly alarmist: little speculative cherry bombs with which investors could blow up their savings. After all, the first Barclays products sported minuscule fees and mirrored most of Vanguard’s market-segment offerings—surely, they would be carefully assembled into efficient portfolios with a long view out to the horizon. And once again, the Sage of Valley Forge won the point: As the splinters get thinner, they grow sharper, and the odds of folks hurting themselves with these pointed objects now approach one hundred percent.

[Taggart]

Wall Street Journal

Private Equity's Netscape?

Blackstone Debut Recalls
Internet Browser's IPO:
Investors Still Ignore Risks

June 23, 2007

Blackstone Group's debut may not look like private equity's Netscape moment at first glance. After all, shares of Stephen Schwarzman's buyout shop popped just 13% on their debut. Shares of the Internet browser that kicked off the dot-com boom in 1995 doubled. Even Fortress Investment Group, Blackstone's smaller rival, surged 68% on its opening day.

But like the Netscape Communications IPO, Blackstone's $7.1 billion share sale, including the chunk sold to China, is the clearest sign yet that investors have suspended their disbelief when judging the private-equity boom. The $39 billion value they have put on Blackstone ignores significant head winds the firm, and the industry as a whole, face. Kohlberg Kravis Roberts & Co.'s willingness to follow Blackstone into the public markets suggests investors will be willing to look at the glass as half full for some time.

Sure, there are differences between a Netscape and a Blackstone. The former was a novelty at the time: the first large Internet company to go public. Shares were hard to value. The firm had no profit and $17 million in revenue. But not unlike the arguments in favor of buying Blackstone, an irresistible growth story was promised to investors. And Netscape's hugely successful IPO opened the flood gates for other dot-com listings. Investors sorely regretted many of those purchases.

Investors are valuing Blackstone at more than 30 times historic pro forma earnings because they believe those earnings aren't only sustainable, but beatable. They haven't factored in threats to the industry's exploitation of tax loopholes, which may account for 20% of profits; the fact that compensation costs at Blackstone will rise over time; nor macroeconomics, such as the effect of rising interest rates on leveraged buyouts. Investors in Netscape did the same thing. It worked for a while. And then it didn't.

[Taggart]

Gone fishing

Joe Castaldo
From the June 18, 2007 issue of Canadian Business magazine

George Armoyan describes his investing style as “bottom fishing,” although on further consideration he rephrases: it's “active value investing.” Whatever he calls it, his strategy has paid off. As president and CEO of Clarke Inc. (TSX: CKI), a transportation services and investment company based in Halifax, Armoyan has seen his company's stock double over the past year, to around $20. The 46-year-old invests in small, overlooked and often broken-down companies, and works with boards and management to whip them into shape.

[kcowan]

Gone fishing
Joe Castaldo
From the June 18, 2007 issue of Canadian Business magazine

I liked this paragraph:

Where are you investing now?

The oil and gas service sector. I think what happened was the cost of drilling and services in oil and gas went too high too quickly, and because of the income trust announcement back in October, they had a double whammy—the slowdown in exploration and drilling activity, and the income trust tax decision. So there really was a perfect storm that took them down. I can't speculate on prices, but I do believe there's always going to be demand. We need to heat our houses; we need to drive our cars. It's not a renewable resource and I believe these companies will come back.

Want an O&G index investment? Try CKI.TO

[Taggart]

Gone fishing
Joe Castaldo
From the June 18, 2007 issue of Canadian Business magazine

I liked this paragraph:

Where are you investing now?

The oil and gas service sector. I think what happened was the cost of drilling and services in oil and gas went too high too quickly, and because of the income trust announcement back in October, they had a double whammy—the slowdown in exploration and drilling activity, and the income trust tax decision. So there really was a perfect storm that took them down. I can't speculate on prices, but I do believe there's always going to be demand. We need to heat our houses; we need to drive our cars. It's not a renewable resource and I believe these companies will come back.

Want an O&G index investment? Try CKI.TO

Armoyan also said:

We only disclose things once we go over 10%...

Sounds like what a few other top investors would do. Keep it to their chest. I also found it interesting that his investment company is far away from the influence of the Bay Street crowd.

[kcowan]

Sounds like what a few other top investors would do. Keep it to their chest. I also found it interesting that his investment company is far away from the influence of the Bay Street crowd.

I have been digging into this (thanks for the lead) and it smells to me like Buffett in the old days. Also $2.50 to $10 in 4 years with low volatility. First there was Omaha and now Halifax.

Buy and hold with no dividends (ok just one). A solid tax shelter. For an income play there are the two convertible debentures as well (possibly for the tax sheltered plans). Choices!

[Taggart]

it smells to me like Buffett in the old days.

Now you get what I was trying to tell you. I'd never heard of Armoyan until yesterday. I couldn't, and wouldn't do what Armoyan does, but I still find his methods interesting. Keeps me focused on value.

Irving's son Alan, before he retired, used to do much the same, when Kahn Bros. bought shares in a broken down company. Only difference was, if the management didn't comply with recommended changes, and he felt it was in their own, and other investors best interests, he would litigate to unlock the value of the company.

[Norbert Schlenker]

Advisors can keep you out of trouble, Richard Croft, FP

Sound advice in that article, even if you don't need an advisor as crutch yourself.

[George$]

Wall Street Bonuses Hit Record $39 Billion for 2007 (Update3) -from Bloomberg
some text ...

Jan. 17 (Bloomberg) -- Wall Street's five biggest firms are paying a record $39 billion in bonuses for 2007, a year when three of the companies suffered the worst quarterly losses in their history and shareholders lost more than $80 billion.

Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos. together awarded $65.6 billion in compensation and benefits last year to their 186,000 employees. That means year-end bonuses, at 60 percent of the total, exceeded the $36 billion distributed in 2006 when the industry reported all-time high profits.

The New York-based firms, which shed 25 percent of their equity value during 2007, have said they're eliminating at least 6,200 jobs amid mounting losses from the collapse of the subprime mortgage market. The payouts come as the U.S. economy slows, with unemployment rising, retail sales declining and new home foreclosures surging to a record.

``To many people, it will be shocking and questionable,'' said Jeanne Branthover, managing director of Boyden Global Executive Search in New York. ``People in New York in the world of investment banking will understand it. It's critical that pay is still there or you're going to lose really good people.''

The industry's bonuses are larger than the gross domestic products of Sri Lanka, Lebanon or Bulgaria, and the average bonus of $219,198 is more than four times higher than the median U.S. household income in 2006, according to data compiled by the U.S. Census Bureau.

Does greed know any decency on Wall Street?

[WishingWealth]

Georges$: Does greed know any decency on Wall Street?

Not sure if you really want an answer? But however educated, here's mine.

No!

And there is no hidden meaning to it.

WW

[George$]

Not sure if you really want an answer? ...

Thanks. And yes I was being somewhat sarcastic in my question. I just can't believe how our captains of capitalism are abusing the system that sustains them.

[WishingWealth]

Since this general purpose thread is at the top.

There's a few articles by Michael Mauboussin from Legg Mason at: http://www.leggmason.com/IndividualInve ... mauboussin

He used to write the always interesting Consilient Observer when he was at CSFB.

Good/entertaining reading, similar to Bill Gross.

WW

[WishingWealth]

'Does greed know any decency on Wall Street?'
The NYT's take on this.
http://dealbook.blogs.nytimes.com/2008/ ... r-bonuses/

Should Banks Take Back Their Bonuses?
...
“Raghuran Rajan gets it absolutely right,” jck of Aleablog gushed. Naked Capitalism’s Yves Smith also applauded Professor Rajan’s proposal, but noted that current Wall Street compensation practices — whether right or wrong — will be all but impossible to change.

“What Rajan misses is that everyone in these firms is conspiring together to create the impression that they are all generating real, risk adjusted, excess return,” Mr. Smith wrote. “The Street is full of people … who will maintain the fiction that their units are generating real value when there are other factors at work.”
...

No wonder, they were educated in Lake Wobegon.

WW (Not hoping for the pigs to let go of the trough)

[Bylo Selhi]

Sit back and watch your money grow

PORTFOLIO DOCTORS | Eric Kirzner's Easy Chair strategy consistently outperforms the high-paid, high-profile financial experts, write David Cruise and Alison Griffiths

Jan. 29, 2006. 01:00 AM

Glancing at the batting averages of many of the world's most famous market gurus leads one to the conclusion that most of them should be sent to the minors.

Smart Money magazine surveyed some of the top pundits, including Goldman, Sachs & Co.'s Abby Joseph Cohen, a "visionary" according to her official bio...

[Finally] Goldman replaces bullish Cohen

Abby Joseph Cohen, the second-most-bullish Wall Street strategist at the start of the year, was replaced by Goldman Sachs Group Inc. as the chief forecaster for the U.S. stock market... Ms. Cohen, who was the top-ranked strategist in Institutional Investor's surveys in 1998 and 1999, stayed bullish on computer-related stocks for too long as the S&P 500 suffered a bear market from March, 2000, to October, 2002. She said in October, 2000, that technology shares would be a good investment in 2001. The S&P 500 information technology index lost 26 per cent that year.

[Scanman]

From the article

Abby Joseph Cohen, the second-most-bullish Wall Street strategist at the start of the year, was replaced by Goldman Sachs Group Inc. as the chief forecaster for the U.S. stock market. "People have been disappointed in her outlook over the years, and she's been pegged as overly bullish on the market."

If you are a contrarian that can only mean one thing. Markets will sure as hell go up now.

Back in the good ol days (pre 2002) when I was a very naive investor to say the least, I used to hang on every word her and guys like Joe Battapaglia had to say.

Fool me once shame on you. Fool me twice shame on me!!!!!

[BRIAN5000]

Do we deserve to be wealthy?

http://www.fool.com/investing/general/2 ... althy.aspx

[WishingWealth]

The iTulip site (Eric Janszen) was mentionned a couple of times.
An interesting graph at http://www.itulip.com/realdow.htm

WW

[adrian2]

An interesting graph at http://www.itulip.com/realdow.htm

WADR, l think something is fishy in that graph. For the 70 years from 1924 to 1994, Dow has appreciated at inflation plus 1.64% (love that precision)? One possible explanation, but not an excuse, is that the author has forgot about dividends, which were the major component of returns up to the late 50's or so. Actually the web site acknowledges the lack of dividends, but dismisses the problem by using the current 2.3% yield. Hello? Stocks were paying more than bonds for about half the period in question.

There are 3 types of truth distortions: lies, damned lies and statistics.

[Bylo Selhi]

There are 3 types of truth distortions: lies, damned lies and statistics.

Actually there are 4 types of truth distortions: lies, damned lies, statistics and business graphics. (Some would add PowerPoint presentations to the list.)