Clippings 2010

[kcowan]

Needless to say, that disclosure on my part became a conversation killer.

I just say I am with TD. Then I ask what their specialty is? Then I ask for their card.

[Norbert Schlenker]

The median Canadian "DIY investor" can be heard calling in to talk to Larry Berman on BNN every Monday morning. One need only listen to that show once to realize that "madman" is not far from correct.

[Bylo Selhi]

Is this a cause that FWF should embrace?

In theory, but they wouldn't want our advice - there are too many entrenched interests in the adviser path.

I posted (and bolded) that snippet as commentary on who the feds are putting behind this -- as usual. ISTM someone like Ellen Roseman, who deals daily with poster children for the need for improved financial literacy, would be a much better candidate. But I suppose that she's got at least three strikes against her in Flaherty's books, (a) works for the Red Star, (b) represents consumers rather than the industry, (c) likely to tell him stuff he doesn't want to hear and [maybe even] (d) female.

Eventually she asked who I was "with" and when I told her I was a DIYer, this expression came over her face as though she was looking at a mad man... Needless to say, that disclosure on my part became a conversation killer.

I usually respond by saying that I'm with a really good fee-only financial adviser. (The many good folks here at FWF whose "only fee" is zero.) That doesn't prevent the expression on their face or their patronizing condescension but probably dials it down a notch or two

[tidal]

This is worth the read... maybe someone can introduce it into an appropriate thread...

Get Ready for More Taxes

There are plenty of reasons to shudder at the idea of higher taxes. There are also plenty of reasons to expect them nonetheless.

It is understandable that everyone dislikes paying taxes, because they are a forced personal outlay for things one does not necessarily appreciate.

Economists, for their part, teach their students that in addition to this understandable opposition to taxes, taxes also tend to change economic behavior, mainly in undesirable directions....
.
.
...the most part, taxes tend to curtail some desirable economic behavior, be it working or investing in productive capital, or trading for mutual advantage. Taxes then entail what economists call a “deadweight loss.”...

So why then do we have taxes at all, given that they entail this undesirable “deadweight loss”?

The answer is that in their infinite wisdom, voters in a democracy demand that government spend money on them, and their elected representatives in Congress oblige. That spending must be financed.

In principle, government spending program should be financed with taxes. The exception would be spending by government on long-lived investment projects — for example, roads, airports, research and development, schools — that should be financed with long-term public debt, which in turn will then be paid off in good part by future taxpayers who also benefit from using the long-lived public asset.

A government’s current operations and transfer payments, however, should be fully tax-financed, at least over the business cycle. The most policy makers can do is to select the combination of taxes that minimizes the nation’s overall “deadweight loss” from taxation, albeit with due regard to what is considered “fair” at the moment.

It so happens that in recent history American voters have wanted the federal government to spend more on them than they are willing to finance with taxes....

Now, if it is politically impossible to cut spending — as it has been so far — then taxes will have to be raised sooner or later.

So, my friends, get ready for the inevitable: Before this decade is out, whether you like it or not, the United States will have a value-added tax, just as they have long had in most of the world. The VAT will not be a substitute for the income tax (which, ideally, I wish it would be), but a complement to it, to supplement what can be had through income taxes...

[kcowan]

SEC staff kept busy during financial meltdown

A regional office staff accountant tried to access pornographic websites nearly 1,800 times, using her SEC laptop during a two-week period. She also had about 600 pornographic images saved on her laptop hard drive.

Separately, a senior attorney at SEC headquarters admitted to downloading pornography up to eight hours a day, according to the investigation.

"In fact, this attorney downloaded so much pornography to his government computer that he exhausted the available space on the computer hard drive and downloaded pornography to CDs or DVDs that he accumulated in boxes in his office," the inspector general's report said.

Wow maybe we should give them more authority for "oversight".

[Doug]

For US investors, Schwab recommends that if you stock pick, you should have at least 40 stocks. Otherwise, consider mutual funds.

http://www.schwab.com/public/schwab/res ... folio.html

[Doug]

I didn't want to start a new thread, and I couldn't find an appropriate one in the taxation section. I believe that the prescribed rate of interest is still 1%; I may be wrong on that. If there is a significant difference in tax brackets between you and your spouse, the higher tax bracket spouse can lend money for investing to the lower tax bracket spouse at 1% for as long as you want.

http://www.renaissanceinvestments.ca/en ... ps_thebest

Edited to include the following:

Why you should name your spouse as a successor holder, rather than a beneficiary, of your TFSA

http://www.renaissanceinvestments.ca/en ... older_dies

How to set up your own minifoundation

http://www.renaissanceinvestments.ca/en ... ing_legacy

Tax and estate planning on your vacation property

http://www.renaissanceinvestments.ca/en ... erty_e.pdf

[kcowan]

Thanks for the links Doug - some good reading.

[CROCKD]

Just saw this item in the financial pages.

i4i clears hurdle against Microsoft

This story of how large corporations use their financial muscle and the depth of their corporate law departments against those they perceive as weaker reminds me of the way Imperial Oil spent 10 years of litigation in trying to reduce pension entitlements of laid off workers some with many years of service.

From a work force of 16,000 (peak) they laid off 6 - 7000 people in the early 90's and then tried to claim that it was not a substantial reduction (the terminology used by FSCO for pension regulations). Unfortunately IOL was hung by their own petard as they had used this very phrase in the press release about the work force reduction.

After the initial order for a partial windup of the pension plan was rejected , IOL escalated their appeals to ever higher appeal courts until they lost in the Federal Court of Appeal. Petersen the chairman at the time is reported to have threatened to take the case to the supreme court but IOL was not given leave to do so.

Therefore entitled former employees under the age of 50 after being forced to wait years were paid their pension entitlements along with a healthy amount of interest.

[FinEcon]

Some dude's notes from Warren and Charlie at BRK and Wesco 2010 meetings, a link from Norm's site

Annoying downside alert, it's published in Scribdb but the good news for Firefox users is there's an extension which anonymously cures the annoyance of dealing with Scribdb.

Reading through this....can't help but start to wonder if cantankerous old Munger is losing a bit of his respect for individual liberties on account of his like for Singapore's 'methods'.

http://www.ndir.com/SI/strategy/tipshee ... otes.shtml

[NormR]

Annoying downside alert, it's published in Scribdb but the good news for Firefox users is there's an extension which anonymously cures the annoyance of dealing with Scribdb.

What's the name of the extension?

[Bylo Selhi]

What's the name of the extension?

Chrome

[FinEcon]

Annoying downside alert, it's published in Scribdb but the good news for Firefox users is there's an extension which anonymously cures the annoyance of dealing with Scribdb.

What's the name of the extension?

Ah my bad, the extension was/is ScribSlurp and I hadn't used it in eons and it isn't compatible with recent FF versions. Now I use a print to PDF (Primo, maxxPDFMailer) for that sort of stuff.

Bylo, is there a Chrome extension that handles Scribdb? And who the hell invents these PITA technologies anyways?

[Doug]

Interesting article from Rob Carrick in the G&M http://www.theglobeandmail.com/globe-in ... le1569347/

You can get a measure of the risk of a security from a website called Riskgrades.com. "The appeal of RiskGrades is that it allows users to make comparisons of risk between investments of all kinds, all points of origin and all currencies. It does this through a two-step process that assesses the variation in the price of an individual security and then compares it to the volatility of a basket of global stocks. Cash has a RiskGrade of 0 – from there, a higher score means more risk. Note: The RiskGrades you’ll see here are snapshots in time that will inevitably change based on day-to-day stock market trading pattern."

iShares DEX Short Term Bond Index Fund XSB 17
Claymore 1-5 year government bond ladder CLF 21
Claymore 1-5 year corporate bond ladder 20

iShares DEX Universe Bond Index Fund XBB 24
iShares DEX Long Term Bond Index Fund XLB 33

iShares Government Bond Index XGB 20

iShares DEX All Corporate Bond Index Fund XCB 26
Claymore Preferred Share Index CPD 31
BMO High Yield US Corporate Bond Hedged to CAD Index ETF ZHY 62

iShares DEX Real Return Bond Index Fund XRB 35

iShares Canadian Stock Index XIC 67
iShares Canadian Large Cap Index XIU 68
iShares Completion Index (mid cap) XMD 70
iShares Canadian Small Cap Index XCS 77

iShares Dividend Index XDV 57
iShares REIT Index XRE 69

iShares Canadian Value Index XCV 65
iShares Canadian Growth Index XCG 73

[scomac]

Interesting article from Rob Carrick in the G&M http://www.theglobeandmail.com/globe-in ... le1569347/

You can get a measure of the risk of a security from a website called Riskgrades.com. "The appeal of RiskGrades is that it allows users to make comparisons of risk between investments of all kinds, all points of origin and all currencies. It does this through a two-step process that assesses the variation in the price of an individual security and then compares it to the volatility of a basket of global stocks. Cash has a RiskGrade of 0 – from there, a higher score means more risk. Note: The RiskGrades you’ll see here are snapshots in time that will inevitably change based on day-to-day stock market trading pattern."

I have used this tool from time-to-time and I'm not sold on how useful it is at predicting risk. All it really does is measure historic volatility over short time-frames, so I don't place much stock in the values assigned. It's easy to look at this tool in a flattering light when you have had your sales filled with the strong wind of a recovery in equity markets over the past 13 months plus, however, you might not have been so complementary a year ago when many indices had RiskGrades in excess of 200; the highest score at exactly the moment there was the least tangible risk to your capital.

Perhaps the most useful analysis that this tool can provide is in assessing how a portfolio fits together. Does security "A" or "B" add or subtract to the total portfolio risk? I've found this useful at times in discriminating between multiple stocks that I might be considering adding as some will provide more effective diversification than others due to the way in which they trade in relation to the other components of the portfolio. As an example, our portfolio currently has a RiskGrade of 27 with a diversification benefit of 64% -- IOW the total portfolio has a RiskGrade 64% lower than the sum of the parts on a 55:45 equity/income split with a mixture of domestic and foreign stocks on the equity side and preferred shares counted on the income side.

[Bylo Selhi]

The Intelligent Investor: Holding Brokers to a Higher Standard

According to a recent investigation by The Wall Street Journal, Congress may not be in a very good position to tell the difference between suitable and unsuitable financial advice.

Some members of Congress permit brokers to trade their accounts hundreds of times a year; others trade too much themselves. The accounts of 38 members of Congress or their spouses showed at least 100 trades apiece in 2008, according to public records; 15 had more than 300 trades each.

Such activity is just what long-term investors try to avoid. Regulations have long sought to protect small investors from "churning," or excessive trading.

In a recent interview with the Journal's Brody Mullins, Sen. Tom Coburn (R., Okla.) said that most of his money is managed by a professional adviser. The senator explained that his portfolio is heavy on oil and natural-gas stocks because energy is big business in his home state of Oklahoma.

Sen. Coburn added that he has his own account at TDAmeritrade, valued at about $70,000. He said he trades actively based on tips he gleans from Jim Cramer's "Mad Money" show on CNBC.

[Kelly]

http://theautomaticearth.blogspot.com/

[WishingWealth]

@ The NYTimes: http://www.nytimes.com/2010/05/16/magaz ... f=magazine

Questions for Alan C. Greenberg
The Bear Market
...
In your forthcoming book, “The Rise and Fall of Bear Stearns,” you depict him as a careless manager who was off playing in bridge tournaments when he should have been minding the store.
We were going through rough seas, and he should have been at home guiding the ship. He shouldn’t have been playing bridge or golf during the week.

Is it true that he had a private elevator in the Bear Stearns building?
I said: “Jimmy, you want to help your image around here? Cut out that private elevator. Everybody hates you for it.” He said he only had it from 8 to 9 in the morning. I said: “That’s when everybody wants the elevator. They’re all coming to work.”
...
You say in your book that a phone conversation that lasts longer than 30 seconds has reached a point of diminishing returns.
My wife made me get a cellphone, which I keep in my briefcase. I’ve never used it.

Do you e-mail your clients?
No. I never use e-mail. The girls use the e-mail.

Are you referring to your secretaries? You should call them women, not girls.
They don’t mind. They’ve been with me 25 years.
...

The man sounds like a lot of fun. Or from the interview, all the fun you can handle in 30 seconds.

WW

[randomwalker]

Nelson Financial investors learn risks of 12 per cent interestCar loan provider fending off bankruptcy, securities regulators
the star.com Sat Jun 5 2010

"About 500 investors placed more than $50 million with Nelson Financial Group Ltd. of Pickering expecting to earn 12 per cent from interest or 10 per cent from dividends...Simply borrowing from Peter to pay Paul is not sound business practice."

http://www.thestar.com/business/article ... t-interest

[Bylo Selhi]

Putting the Squeeze on Investors

With the markets serving up nothing but lemons, it is high time Wall Street started helping investors make lemonade.

Stocks have gone nowhere for a decade, bond yields are near record lows and you couldn't find the return on your money-market fund if you put it under an electron microscope. But the 10 major publicly traded fund-management companies had a combined $21 billion in revenue last year. Their net margins—the percentage of every dollar they take in that turns into pure profit—still are running at up to 25.5%, a rate most businesses could reach only in their dreams...

The investment industry is built on a single premise: "Our actions improve your returns." There is a simple way to see whether the premise is true. At year end, ask your broker or financial adviser to report not only how your portfolio actually did, but how it would have done if he had left it at a standstill, making no changes for the entire year. The idea is being floated by George Feiger, chief executive officer of San Francisco-based Contango Capital Advisors, which manages $1.7 billion.

The standstill comparison wouldn't only show you whether your investment adviser did add value. It would also force him to ask whether each of his actions is likely to add value. That, in itself, might lower your risk and raise your return.

[Taggart]

Analysis: SEC panel pits wider debate over automated trading

(Reuters) - Security regulators have billed a panel they host on Tuesday as a talk about liquidity, yet really at issue are the fading ideals of long-term investing and the brave new world of rapid, automated trading.

[Doug]

A one page summary of David Swensen's advice to retail investors:

http://iffs.blogspot.com/2007/08/david- ... es-vs.html

[Doug]

Larry Swedroe makes the case that dividend investing is a variant of value investing, and is not the best performing variant of value investing:

http://moneywatch.bnet.com/investing/bl ... newer-post

http://moneywatch.bnet.com/investing/bl ... older-post

[Doug]

In the USA, growth stocks may be a better investment than value stock now:

http://money.cnn.com/2010/06/22/magazin ... 2010062204

In the USA, small cap stocks may not give you the expected premium in the next 10 years:

http://online.wsj.com/article/SB1000142 ... 20818.html

In the USA, this may not be the time to tilt towards small cap and value.

[Doug]

David Swensen recommends that retail investors not have corporate bonds. It is interesting that Larry Swedroe appears to have some misgivings about corporate bonds:

"The historical evidence suggests you may be best served by excluding corporate bonds from your portfolio, using Treasuries and municipal bonds as appropriate — given their marginal tax rate" It should be mentioned that Treasuries and municipal bonds aren't subject to state and local taxes, whereas corporates are.

"If you need or desire more return from your portfolio, the evidence suggests that you should consider taking that risk with equities, not with corporate bonds or by adding credit risk. However, if you’re going to invest in corporates, the evidence suggests that you should stick with the highest investment grade bonds (as their risks mix better with the risks of equities) and avoid bonds that are callable."

http://moneywatch.bnet.com/investing/bl ... newer-post

http://moneywatch.bnet.com/investing/bl ... newer-post