Clippings 2009

[zaman]

I'm not sure if this has been posted, but here is a PDF of Reminiscences of a Stock Operator

An interesting and classic read!

"It never was my thinking that
made the big money for me. It always was my sitting. Got that?
My sitting tight! It is no trick at all to be right on the
market. You always find lots of early bulls in bull markets and
early bears in bear markets. I've known many men who were right
at exactly the right time, and began buying or selling stocks
when prices were at the very level, which should show the
greatest profit. And their experience invariably matched mine --
that is, they made no real money out of it. Men who can both be
right and sit tight are uncommon."

[Bylo Selhi]

Can the [US] Supreme Court Undress High Fund Fees?

In August 2004, three investors in the Oakmark funds sued Harris Associates, the firm that created and manages the stock funds. The investors alleged that the funds' fees were excessive and that the board of directors, which is responsible for approving fees, wasn't sufficiently independent. The investors also pointed out that Harris charged separately managed accounts for pension funds as little as half what it charged retail mutual funds for similar services...

The Supreme Court is stuck with this case since nobody else has figured out how to make directors get tougher on expenses. In 1966, the Securities and Exchange Commission noted that fund fees remained stubbornly high "because of the absence of competition...and the difficulty of effective action by unaffiliated directors."...

Another former fund-industry chief executive told me this harrowing story: "I sat in on a management meeting where a senior guy said, 'This fund's performance is so bad, all the investors must either be dead or dumb. Nobody will object if we raise the fees.' It became: 'Let's raise the fees, just because we can.' "

[Doug]

http://www.multpl.com/inflation/

An interesting graph showing how much more successfully inflation/deflation has been managed in the USA in the last 50 years compared to the previous 50 years. If Canadian data is similar, we have little to complain about compared to those living from 1909-1959. The last 25 years have been very stable compared to the prior 75 years.

[ghariton]

The last 25 years have been very stable compared to the prior 75 years.

Also known as the Great Moderation

It remains to be seen what the impacts of the current financial crisis will be. (My belief is that the medium and long run effects will not be much.)

George

[Norbert Schlenker]

A free summer break edition of Grants.

[abose]

Found this interesting -from the Glib & Stale today...

"Which is the biggest red flag for a potential accounting fraud: Bad corporate governance, an overinflated share price or too many stock options? None of the above, according to a new study by researchers from three Canadian universities. They argue that the biggest risk factor for fraud is a CEO with a truly oversized ego."

http://www.theglobeandmail.com/report-on-business/ceo-ego-corporate-fraud-the-missing-warning-sign/article1264577/[/quote]

[kcowan]

Here is a related piece from Stanford:

Confidence vs arrogance

Confidence is required to get anywhere in business but it is crucial to not start believing your own press. Perhaps humble confidence just is not appreciated by the press.

[Norbert Schlenker]

Ramen Profitable

[Taggart]

Toronto Star

Most Canadian workers living close to the abyss

Sep 14, 2009 04:30 AM
Madhavi Acharya-Tom Yew
Business Reporter

The majority of Canadians are feeling strapped for cash and unable to save as much as they would like to, according to a recent survey.

[tidal]

Too "bigger than ever" to fail!

[Michael D]

(not seeing animated .gif, I'll try from home while not on a restricted machine).

But, I wonder what the Canadian situation would look like.

[WishingWealth]

The article: How Did Economists Get It So Wrong? was mentioned some days ago.

Now Paul Farrell (MarketWatch) arranged an interview between Dr. Krugman and Dr. Sigmund Freud.

[url=http://www.marketwatch.com/story/paul-krugman-meet-dr-sigmund-freud-2009-09-15?pagenumber=1]Paul Krugman, meet Dr Sigmund Freud
And discover why 'behavioral economics' loses to Keynes and Friedman[/url]

...
Freud: My friend, you cannot change their DNA. Surely, deep down, you know that those at the opposite end of your political ideology will likely remain forever locked in the conservative mindset of Adam Smith, Milton Friedman and Reaganomics ... so answer your own question: What is ahead for 'economists who were so wrong?'

Krugman: I believe economics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system. If the profession is to redeem itself, it will have to reconcile itself to a less alluring vision; that of a market economy that has many virtues but that is also shot through with flaws and frictions.

Freud: Let's set aside the academic hedging and get to the bottom line: What must economists do to avoid being 'so wrong' again and missing the next meltdown?

Krugman: Actually there's already a fairly well developed example of the kind of economics I have in mind: the school of thought known as behavioral finance. They emphasize two things. First, many real-world investors bear little resemblance to the cool calculators of efficient-market theory: they're all too subject to herd behavior, to bouts of irrational exuberance and unwarranted panic. Second, even those who try to base their decisions on cool calculation often find that they can't, that problems of trust, credibility and limited collateral force them to run with the herd.
...

WW

[WishingWealth]

Do not learn wrong lessons from Lehman’s fall
By Martin Wolf @ FT
http://www.ft.com/cms/s/0/b24477de-a226 ... abdc0.html
...
The question, however, remains whether enough will be done to eliminate the present incentives to game the system. It must be possible to wind up institutions without the damage we witnessed after Lehman’s collapse. This has come to be called a “living will”. A better term would be “assisted euthanasia”. Should that be impossible, these institutions must be under the sort of regulation that we normally apply to utilities.

The second big potential mistake is to return to the old doctrine that it is better to clean up after a crisis than to take any pre-emptive action. Yet, the more effective the present clean-up seems, the more likely is it that central bankers will draw that lesson. They can argue that, if we have been able to survive such a huge crisis, no changes in the policy orthodoxy are needed.

This would be a huge error, as William White, formerly chief economist of the Bank for International Settlements, argues in a thought-provoking paper.* Mr White, one of the few economists in the official sector to warn of a looming crisis, argues that the “macroprudential” approach, now increasingly accepted, cannot rely on regulation alone. It is almost impossible for such regulation to offset the powerful incentives for credit creation produced by expansionary monetary policies. Thus, argues Mr White, “pre-emptive tightening” should replace “pre-emptive easing”. If we look back at the past two decades of ever more desperate efforts to clean up after crises, the wisdom of this “belt and braces” approach will seem evident.
...

There are also a few good 'leads' in the article.
Ex:
Should Monetary Policy “Lean or Clean”?
http://www.dallasfed.org/institute/wpap ... 9/0034.pdf

WW

[parvus]

Assisted euthanasia vs. last-minute bankruptcy filings. Hmm.

[Taggart]

Toronto Star

Words on money from self-made Smart Cookie

Sep 22, 2009

James Daw

"Angela Self and her four fellow Smart Cookies found financial redemption, fame and another road to extra dough on The Oprah Winfrey Show.

The young Vancouverites quickly became a North American franchise after a single appearance at the end of Oprah's 2006 series of episodes called the Debt Diet.

They landed an international book deal with a major publisher and an American writer to turn their experiences into advice."

[Taggart]

TSX changes rule for shareholder votes in takeovers

Sep 26, 2009

The Toronto Stock Exchange has received approval for a rule change that would require securityholder approval in some takeover deals.

[WishingWealth]

Richard Posner @ TNR (The New Republic)
http://www.tnr.com/article/how-i-became-keynesian

[s][cherry_picking][/s]

How I Became a Keynesian
Second Thoughts in the Middle of a Crisis
...
Baffled by the profession's disarray, I decided I had better read The General Theory. Having done so, I have concluded that, despite its antiquity, it is the best guide we have to the crisis. And I am not alone in this judgment. Robert Skidelsky, the author of a superb three-volume biography of Keynes, is coming out with a book titled Keynes: The Return of the Master, in which he explains how Keynes differed from his predecessors, the "classical economists," and his successors, the "new classical economists" and the "new Keynesians"--and points out that the new Keynesians jettisoned the most important parts of Keynes's theory because they do not lend themselves to the mathematization beloved of modern economists. Skidelsky's summary of what is distinctive in Keynes's theory is excellent....

WW

[Bylo Selhi]

Can the [US] Supreme Court Undress High Fund Fees?

Now Bogle weighs in. High court to rule on mutual fund fees

The dispute has drawn a flurry of friend-of-the-court filings, including one by John "Jack'' Bogle, founder of the Vanguard Group. In an interview, the 80-year-old fund industry gadfly and pioneer of low-cost index investing said it's the first time in more than five decades in the investment business that he's filed an amicus brief.

"It's a fundamentally flawed economic system we have for setting fees in the industry,'' said Bogle, who served two decades as chairman and CEO of Vanguard, which hasn't filed a brief in the case. "We look at everybody else and say, in effect, 'They're overcharging, so why shouldn't we?' ''

The case, Bogle says, "is going to be a wakeup call for fund directors, and I think the Supreme Court is going to come down hard'' on the industry.

[WishingWealth]

Short bio of Larry Summers.

And a sh.. disturber quote.

Inside the Crisis
Larry Summers and the White House economic team.
...
Summers told me that, as a graduate student, he first studied claims, made famous by economists at the University of Chicago, that financial markets are always rational and self-correcting. He said, “I encountered a sentence that was much quoted: ‘The efficient-market hypothesis is the best established fact in social sciences.’ Any sentence like that is a red flag to an ambitious academic.” Summers produced a body of work that undermined the efficient-market hypothesis, or E.M.H. A memorable paper on the subject, which he wrote in the early eighties but never published, began, “THERE ARE IDIOTS. Look around.” According to Justin Fox’s recent book, “The Myth of the Rational Market,” that paper persuaded Fischer Black, one of the leading theorists of E.M.H., to essentially abandon his belief in the hypothesis.
...

@ The New Yorker 12+ pages
http://www.newyorker.com/reporting/2009 ... table=true

WW

[WishingWealth]

More good reading in the New Yorker.

On Brandeis, Taylor(ism) and Management Consulting.
(A bit hilarious)
http://www.newyorker.com/arts/critics/a ... table=true

Not So Fast
Scientific management started as a way to work. How did it become a way of life?
Ordering people around, which used to be just a way to get things done, was elevated to a science in October of 1910, when Louis Brandeis, a fifty-three-year-old lawyer from Boston, held a meeting at an apartment in New York with a bunch of experts who, at Brandeis’s urging, decided to call what they were experts at “scientific management.” Everyone there—including Frank and Lillian Gilbreth, best known today as the parents in “Cheaper by the Dozen”—had contracted “Tayloritis”: they were enthralled by an industrial engineer from Philadelphia named Frederick Winslow Taylor, who had been ordering people around, scientifically, for years. Speedy Taylor, as he was called, had invented a new way to make money. He would get himself hired by some business; spend a while watching people work, stopwatch and slide rule in hand; write a report telling them how to do their work faster; and then submit an astronomical bill for his services. He is the “Father of Scientific Management” (it says so on his tombstone), and, by any rational calculation, the grandfather of management consulting.

Whether he was also a shameless fraud is a matter of some debate, but not, it must be said, much: it’s difficult to stage a debate when the preponderance of evidence falls to one side. In “The Management Myth: Why the Experts Keep Getting It Wrong” (Norton; $27.95), Matthew Stewart points out what Taylor’s enemies and even some of his colleagues pointed out, nearly a century ago: Taylor fudged his data, lied to his clients, and inflated the record of his success. As it happens, Stewart did the same things during his seven years as a management consultant; fudging, lying, and inflating, he says, are the profession’s stock-in-trade.
...

WW ( I confess to going around, stopwatch and writing tablet in hand during some courses at school: No happy thoughts left of the experiment)

[Peculiar_Investor]

Rob Carrick, G&M, Latest horror flick: Attack of the Bond Market

I particularly like the table at the end, showing Government Bonds as "Poo". I suspect it will be corrected by Saturday morning, but I've got the screen shot from tonight.

[Norbert Schlenker]

Wanna know what your neighbour is worth? How much your brother-in-law makes? How much Mike Schimek really made while churning his account last year? If we were Norwegian, you could just look it up online.

[Peculiar_Investor]

From Financial Times, Soros calls Wall St profits ‘gifts’ from state

“Those earnings are not the achievement of risk-takers,” Mr Soros said. “These are gifts, hidden gifts, from the government, so I don’t think that those monies should be used to pay bonuses. There’s a resentment which I think is justified.”

[Peculiar_Investor]

For those fans of Squeeze Play, Michael Santoli of Barron's would appear quite regularly and give a pretty fair view from Wall Street. He's one of the regular commentators that I enjoy reading. From this weeks Barron's, Will This Week's GDP Validate the Rally?. There is much more to the article than the title conveys.

THE SUREST WAY TO CONVEY WISDOM and prudence in a quarterly fund manager's letter or elicit hums of assent at an investment conference is to lament the lack of old-fashioned patience among investors any more.

Yet when considered carefully, impatience is near the essence of the capital markets, especially the stock market. Those who are very patient don't transact, or do so much less often, than do the impatient. So the impatient do the most to set prices and determine short- and medium-term direction.

As one of those would tries very hard to be patient in my investing, I do look for the nuggets and opportunities that Mr. Market presents to me and try to ignore the noise most of the time. I've been following a company off and on for about a couple of years looking for an entry point and yet Mr. Market hasn't given me the opportunity yet. The company recently came back on my radar with some great results, but the price action was not favorable for me. Mr. Market got close the other day. If and when he does, I'll be glad to share the name of the company and my thesis about it.

There is more in the article,

READERS' E-MAIL RESPONSE to an item here last week suggesting that the vilification of Goldman Sachs ' (GS) pay practices was overdone seems to prove that it is, in fact, possible to type with one hand while holding a pitchfork in the other.

He then offers an interesting point of view on the government's role in setting pay. While most would agree that executive compensation has gotten way out of whack with reality, he does offer some good counter arguments.

[EmperorCoder]

Wanna know what your neighbour is worth? How much your brother-in-law makes? ... If we were Norwegian, you could just look it up online.

Disregarding the privacy issue, I think a public tax list would help iron out some inefficiencies in the labor market. Students would use it as a tool to orient their careers towards higher paying jobs and geographical areas, workers would compare their wage to other similar workers in their area, or plan career moves accordingly. Personally I wouldn't be against such a list.