Tuesday, June 27, 2006

mutual funds are lousy (says Robert Kiyosaki)

[9/26/06] A negative view of Kiyosaki

[8/20/06] TMF Selena takes a look at Robert Kiyosaki

[6/27/06] A vast number of people think that investing for the long term in a diversified portfolio of mutual funds is the smart thing to do. In [Robert Kiyosaki's] opinion, this ranks among the worst possible investments.

The problem with funds is fees. The longer you invest in a mutual fund, the more you pay in fees. I've pointed out before that when I buy a piece of real estate or a stock, I pay the sales commission once, but when I purchase a mutual fund, I pay a sales commission for as long as I own the fund (see "So Long Pensions, Hello Fees" ).

That's why the return on investment is much lower on mutual funds -- and why gains get lower the longer you own them. The reason most financial planners recommend you invest for the long term is simply because the longer you hold on to the fund, the more money they make.

Monday, June 19, 2006

Fundamentally Weighted Indexes

[10/9/06] Jeremy Siegel writes about fundamentally weighted indexes, "we are on the verge of a revolution: New research demonstrates that it is possible to construct broad-based indexes offering investors better returns and lower volatility than capitalization-weighted indexes. These indexes are weighted by fundamental measures of firm value, such as sales or dividends, instead of allowing the market price alone to dictate how much of each firm should be included in the index."

* * *

[from John Mauldin's Thoughts From The Frontline]

* * *

if every asset is trading above or below its true fair value, then any index that is capitalization-weighted (price-weighted or valuation-weighted) is automatically going to have us overexposed to every single asset that's trading above its true fair value and underexposed to every single asset that's trading below its true fair value.

[Read that again. This is one of the reasons why value investing beats indexing over the long term.]

* * *

In addition to PowerShares mentioned in the article. Jeremy Siegel was talking about these new fundamentally weighted ETFs on CNBC which served practically as a free commercial for Wisdom Tree a firm with which he has signed on as an advisor.

Disclaimer: I (currently) own no investments in either PowerShares or Wisdom Tree.

Friday, June 16, 2006

Investing World Cup

Developed Asia vs. India and Southeast Asia

South America vs. Western Europe

Wednesday, June 14, 2006

The Current Pullback

[6/14/06] Like a youngster unable to sleep because he thinks there are horrible monsters hiding in his closet, financial markets have been spooked by irrational fears of surging inflation. The result: an imagined need for endless interest rate increases to bring prices under control.

Every time a Federal Reserve official says that U.S. inflation in recent months is outside the "comfort zone," investors sell assets on the grounds rates are headed higher, perhaps much higher.

The investors ignore the fact that the officials also say pointedly that they expect economic growth to slow and inflation to subside later this year. None of the officials, from Fed Chairman Ben S. Bernanke on down, have indicated they believe a new inflationary spiral has begun. The 0.3 percent increase in the consumer price index that was reported today by the Labor Department won't change that view.

To the contrary, many of them have explicitly said the opposite.

[6/13/06] "I think the average person out there in the market is winging it," said Daniel Kiley, chief executive officer of The Retirement Corporation of America, an investment advisory firm in Cincinnati, Ohio. "It's not that they don't want to succeed, they don't have a systematic approach to the way they're investing or diversifying. Individual investors often buy high, at the tail end of a market bubble, and sell low, just before a bull market is about to start again. From an emotional perspective, for individual investors it is a lot easier to buy high and sell low, but the exact opposite is required."

[6/13/06] What are the odds that what has so far been an almost classical correction could turn into something worse -- a prolonged downturn that puts an end to the long-term rally that now stretches back to March 2003?

[6/13/06] In another move reflecting Schwab’s continued cautious outlook on the equity markets, the Investment Strategy Council now recommends an underweight to U.S. and international equities while continuing to avoid emerging markets. We also added to our defensive posture by bumping both cash and bonds up a notch—the former to maximum overweight and the latter to neutral. Within bonds, we also made two recommendation changes—moving investment grade corporates to an underweight and mortgage-backed securities to an overweight. For details behind these specific moves within the bond allocation, please see our regular weekly write-up. We remain neutral to style and cap within the U.S. equity recommendation. We do think the market will stage a sentiment/technical-driven rebound before too long, but we’d be biased toward selling into any strength versus buying on weakness.

[6/12/06] [from Goldman Sachs] It has been exactly one month since the current market correction began on May 9th.

The S&P 500 dropped 2.8% last week and has returned -5.3% during the last month. However, the S&P 500 has experienced seven pull-backs of between 5% and 7% since the current expansion began in 2003 (see Exhibit 1). Most market participants seem to have overlooked this fact. Is this time different? The heightened scrutiny on the recent equity market decline may simply reflect an increased sensitivity regarding all things financial at a time when the Fed is closer to the end of its tightening cycle.

Our current sector recommendations have a strong growth tilt with overweight positions in Information Technology, Industrials, Energy and Materials and corresponding underweights in Financials, Health Care and Consumer Discretionary.

Monday, June 12, 2006

The world is down

John Mauldin took a look at 64 markets around the world. All of them were down, with two-thirds down 10% or more from their high.

In comparison to some markets, the U.S. market has actually held up relatively well.

And just wait til the price goes up!

When you look at Forbes billionaire list and compare it to Morningstar's stock ratings, something will immediately jump out at you. A high proportion of the top 20 richest people in the world owe their wealth to companies that are rated as undervalued by Morningstar.

Sunday, June 11, 2006

more companies being investigated for backdated options

[8/11/06] Morningstar's take of options backdating and what to do if a company you own is caught up in the scandal.

[6/11/06] WASHINGTON - Alarmed by the possible manipulation of stock options to enrich top executives at a growing number of companies, federal regulators are looking at refining their plan to expand public disclosure of compensation.

The list of public companies under investigation by the Securities and Exchange Commission or federal prosecutors regarding the suspicious timing of options grants has grown to at least 30, and executives at several companies have been fired in recent weeks.

[InvestorGuide Daily]

Wednesday, June 07, 2006

The Six Rules for Lazy Investors

Paul Farrell writes (8/17/14 - this link works).

Investors need a way to sift through the useless chatter about the 8,000 or more funds out there. So years ago I started tracking the best unexciting, dull, boring, simple, lazy portfolios I could find that were being used by Nobel winners, money managers, advisers, behavioral finance experts, millionaires and average investors.

Most of their portfolios are very simple, with 10 or less funds. I wrote a book about them, "The Lazy Person's Guide to Investing." Here's what they told me: The six basic strategies used by America's laziest investors, guaranteed to help you diversify, lower risk, level out bull/bear cycles, and generate returns close to or better than market benchmarks.

-- from investwise

When Bernanke speaks

When Ben Bernanke was tapped to become the new chairman of the U.S. Federal Reserve, Wall Street hailed his fine communication skills, saying the plainspoken economics professor would improve the transparency of the Fed.

But now that blunt talk from the new Fed chief has thrown the markets into a two-day tailspin, many observers seem wistful for Bernanke's predecessor, the famously abstruse Alan Greenspan.

Tuesday, June 06, 2006

is the market high or low?

In his journal, Richard Band relates an article by Ed Elfenbein which points out that the p/e ratio of the S&P 500 is currently at a 10-year low.

However, if you go back like 125 years, the p/e looks pretty much in the middle to me.

Where are the hot hedge funds?

Contrary to common wisdom, a new study says that many hedge funds can outperform their benchmarks consistently, according to published reports.

Studies that found that hedge funds performed strongly in a sprint but not for the long haul were flawed, says this study, because they failed to correct fully for statistical problems in databases of hedge fund returns.

According to "Do Hot Hands Persist Among Hedge Fund Managers? An Empirical Evaluation," the misconception comes from a "self-selection bias" whereby good performers close to new investors, stop reporting their performance and therefore vanish from the databases.

The study found funds closed to new investors as a result of good performance were more likely to be above-average performers in the period after they closed.

-- from investmentnews.com

Nassim Taleb meets Victor Niederhoffer

Malcolm Gladwell writes this tale of two traders.

-- from chucks_angels

Saturday, June 03, 2006

The magazine cover indicator

[Mike Norman writes] Perhaps you've heard of one of my favorite media indicators. It's called the "Magazine Cover Indicator." I kid you not. The premise is simple: When a major investment theme or trend shows up as the cover story of a well-known publication, then that theme is near an end or at least ready to take a pause.