The value of doing nothing

[3/6/07] Thanks to a study by Berkeley's Terrance Odean, who looked at thousands of real-life transactions and found that when investors sold a stock and buy another with better prospects, that new stock trailed the old stock by more than 3 percentage points over the following 12 months. That's right, trailed. As in worse.

[2/28/07] The performance of the Closed-End Country Fund Report newsletter just keeps getting curiouser and curiouser.

As I [Mark Hulbert] have several times mentioned over the past 18 months, this newsletter has not been published since mid 2004, more than two-and-one-half years ago. But since James Libera, the newsletter's editor, did not formally kill the service, instead indicating that he might someday resume regular publication, the Hulbert Financial Digest has continued to track the newsletter's performance by keeping watch over the last-known sighting of its model portfolio.

And what a performance it has been.

Since that last-known sighting, the newsletter's model portfolio has gained a total of 139.2%, according to the Hulbert Financial Digest. The newsletter was not only one of the top performers for calendar 2006 (coming in fifth out of the nearly 200 newsletters the HFD tracks), it has now emerged as the top performer for the past five years.

[story link from Chuck Brotherton at value_investment_thoughts, 1/20/07]

it's a scam

how can you tell if an investment pitch is a scam? Here are six telltale signs.

Dorfman's nine lessons

[John Dorfman writes] In 1997 I began writing a stock- market column for Bloomberg News.

Today I'm putting away my quill to devote fuller attention to Thunderstorm Capital, an investment firm I founded in 1999. For my last column, I'd like to highlight nine lessons that emerged from writing the column in the past nine years.

Eugenia Dodson

Eugenia Dodson came to Miami from Minnesota at age 20 in 1924, got work as a beautician at the Flagler Street Burdines, married well, invested wisely after her husband died, lived frugally to almost 101 and now has surprised her community by donating $35.6 million to local diabetes and cancer research.

10 Stocks to last the decade revisited

Back in the summer of 2000, Fortune, a highly respected publication and home to many fine pieces of journalism over the years, published an article titled "10 Stocks to Last the Decade."

An easy enough challenge, one might surmise -- simply picking 10 companies that would, umm ... not disappear. Actually, the article promised more than that. These stocks were specifically predicted to be winners.

Buy the worst or buy the best?

If you were given the choice of investing in one of two portfolios, which would you choose? Portfolio 1 consists of an equal dollar amount in the 10 S&P 500 subindustry indexes that posted the worst performance last year. Portfolio 2 contains the 10 best performers from 2006. Many investors would choose the worst-performers portfolio, on the expectation that such a beaten-down group is ripe for recovery. Those choosing the best performers might believe that momentum is on their side. Which does history say is the better choice?

During the past 37 years, the S&P 500 posted a 7.7% compound annual growth rate (CAGR) - price appreciation only, no dividends reinvested - and had a 16.3 standard deviation, which is a measure of volatility. Its risk-adjusted return (return divided by risk) during this period was 0.47. (The higher the number, the better.)

An investor who chose the "worst" portfolio saw a 7.8% CAGR but an increase in volatility. This portfolio beat the market only 49% of the time, as shown in the frequency of outperformance column, and its risk-adjusted return of 0.30 was dramatically lower than that of the S&P 500. Hence, the return was not worth the risk, in our opinion.

The investor who selected the "best" portfolio, however, received a 13.8% compound return, for an annual outperformance of about six percentage points. And despite an increase in volatility, we believe the risk was worth it because the risk-adjusted return was higher than that of the S&P 500. Finally, this portfolio beat the market seven times out of every 10.

price-to-book (p/b) ratio

The price-to-book ratio (P/B) is one metric that has long been held as the ultimate valuation measure. It's one of the foundational principles of Benjamin Graham's investing philosophy.

[The article is based on a chapter from Aswath Damodaran's book Investment Fables.]

Sell high?

What do you do when your stock is up 100% or more? Crazy question, I know. But in this situation, people can make costly mistakes in terms of opportunity. Many prefer to sell at least half their position in order to "lock in some gains," and others will sell it all, thinking there can't be much upside left in the stock after such a big run-up.

But oftentimes that thinking is wrong.

Annuities

Annuities--which are part insurance policy and part investment product--often seem like some of the most complicated and intimidating financial instruments around. Sometimes, they resemble IRAs or other savings accounts, and other times they resemble pensions that generate income streams. In this article, we'll try to reduce the intimidation factor by reviewing the basic kinds of annuities and discuss when they do--and don't--make sense as part of your investment plan.

IRAs

[2/16/07] IRA rollovers and inherited IRAs

[2/4/07] Do you know the difference between a traditional IRA, a Roth IRA, a rollover IRA, and an inherited IRA?