Friday, May 29, 2009

Super Rich Friends

Warren Buffett and his friend Bill Gates reportedly joined with David Rockefeller Sr. to invite a group of the world's richest people to gather in one room earlier this month.

The agenda wasn't world domination. It was making philanthropy more effective.

Among the other well-known, and very wealthy names, attending the meeting on May 5 in New York City: Michael Bloomberg, Peter Peterson, George Soros, Ted Turner, and Oprah Winfrey.

Former Gates Foundation Chief Executive Patty Stonesifer tells the Seattle News:

"It wasn't secret. It was meant to be a gathering among friends and colleagues. It was something folks have been discussing for a long time. Bill and Warren hoped to do this occasionally. They sent out an invite and people came... This was about philanthropy and this group sharing their passions their interests. They each learned from each other about what could really make a difference."

John Berman at ABC's Good Morning America light-heartedly compared the event to a gathering of cartoon super heroes, specifically the Saturday morning "Super Friends" of the 1970s and 80s.

[via brknews]

Saturday, May 23, 2009

The Zen of Investing

Once upon a time, there was a man. Like many men, he held some shares in a few companies. Every week, he would gather with his friends at a local diner.

Thursday, May 21, 2009

Grantham was buying in March

JG: We think a fair price for the S&P 500 index is 900. By sheer divine intervention we bought into the market on Mar. 6, the day it hit the recent low of 666. It’s likely, but far from certain, that we’ll go back and make a new low. You aren’t going to get to buy at the absolute low unless you have a time machine.

SM: Anything else besides U.S. stocks?

JG: U.S. stocks were nicely cheap, and frankly, the rest of the world was even cheaper. In early March, when we bought, we invested only in stocks we thought would have a 10 to 14 percent average annual return after inflation. That’s magnificent. We haven’t seen anything like that in 20 years. It was somewhat disappointing that prices moved up so fast in just a couple of weeks. The odds are a bit more than 50-50 that we will go back and test that low.

SM: So you’ve made a quick buck. Now what?

JG: You have a set of possibilities. First, if the market nosedives, it’s easy: You buy. The second is confusing, when the market just goes sideways, between 700 and 800. The market is irritatingly cheap then, but not supercheap. The longer that goes on, the less probability we will set a new low, so we’ll ultimately put money each month into the market.

SM: What if stocks keep rallying?

JG: If the market goes higher, above 950, and then starts moving sideways, between 950 and 1050, we probably do very little. Then the market is moderately overpriced.

[via twitter]

10 Who Will Be Missed

Memorial Day is a time of remembrance for those who gave their lives in the name of their country—often on battlefields thousands of miles away from the towns they called home. These observances can be traced back over 140 years to the Civil War. Over time, however, the holiday has evolved for many Americans into a chance not only to honor fallen heroes, but also to pay respect more broadly to family members, friends and colleagues who have passed away.

In that spirit, SmartMoney presents this look at some prominent figures in the financial world who died over the past year.

Sir John Templeton / Investor, Philanthropist

Betty James / President, James Industries

Bill Seidman / Former chairman, FDIC; Television commentator

Jack Nash / President, Oppenheimer & Co.; Founder, Odyssey Partners

Rocky Aoki / Founder, Benihana

Irvine Robbins / Co-Founder, Baskin-Robbins

Kenneth Macke / Former chairman, Dayton Hudson (forerunner of Target)

George Keller / Former CEO, Chevron

Helen Galland / Former president, Bonwit Teller

Jack Dreyfus / Founder, Dreyfus Fund

Monday, May 18, 2009

India up 17%

India's stock market surged an unprecedented 17 percent, forcing trade to close for the day, after the Congress Party's definitive victory in national elections set the scene for long-delayed economic reforms.

In just seconds of trading, the Bombay Stock Exchange's benchmark Sensex vaulted 2,110.79 points, or 17.3 percent, to 14,284.21, triggering the historic shutdown Monday.

[5/18/09, posted 6/6/09]

Sunday, May 17, 2009

The worst decade

investors have suffered through the second worst decade for stocks on record — a record that includes the Crash of 1929 as well as the Great Depression. In fact, even if the market produces satisfactory returns for 2009 (and it is certainly not off to a good start), it is highly likely that the 10 year period ending this coming December will prove to be the worst decade ever, as it will no longer include the 21% return of 1999. Given that the market has lost 3.6% per year for the last nine years versus the 1.7% annual loss suffered between 1928—1938, currently the worst decade on record, this is not a bold prediction.

Saturday, May 16, 2009

the pattern of recession

The economic events of 2008 were unusually severe, but they fit a historical pattern. Since 1945, the U.S. economy has experienced 12 recessions—about one every five and a half years1—and each recession has been followed by a period of expansion.

Painful as they may be, recessions help set the stage for the recoveries that follow. Economic contractions typically serve to correct issues that become problematic during periods of growth. For example, American companies took on huge amounts of debt during the 1990s as the U.S. economy enjoyed nearly a decade of strong growth. The economy slid into recession in 2001—and the Federal Reserve responded by cutting short-term interest rates to 40-year lows. Lower interest rates allowed companies to refinance debt, improve balance sheets, and position themselves for growth as the economy strengthened.

Similar forces are at work in the current recession. During the last economic expansion, burgeoning global growth led to enormous demand for energy and raw materials, causing prices to skyrocket. Oil prices, most notably, which had bottomed out at $10 a barrel in 1998, soared to $147 a barrel by early July 2008. Oil is an essential expense for most businesses, so higher prices squeezed profits for companies ranging from pizza delivery chains to airlines. But the current recession has acted as a pressure-release valve for oil and materials prices. Demand for oil has dropped, pushing prices down to $50 a barrel as of mid-March. While businesses face a host of challenges in this recession, high costs for energy and materials are not among them for the moment.

The current economic crisis also is forcing corporations to clean up their balance sheets, much as the 2001 recession did. Companies across the country are becoming more efficient and eliminating unprofitable lines of business. Those that can’t compete are being absorbed by competitors or simply going out of business—a Darwinian process known as “creative destruction” that eventually makes the economy more efficient.

Financial markets historically have responded to recessions in relatively consistent ways. Stocks typically have turned down before recessions, continued falling during recessions’ early stages, and rebounded strongly before the recessions ended.

When investors anticipate a recession, they tend to sell shares of economically sensitive companies while holding on to shares of firms that provide essentials such as food, electricity, household staples, and health care. This trend held true in the fourth quarter of 2008, when defensive sectors declined the least, as shown in the chart below. “When the going gets tough, people tend to eat, drink, smoke, and go to the doctor,” says Sam Stovall, chief investment strategist for Standard & Poor’s. “Industrials, technology, financials, and consumer discretionary shares generally take the biggest hit.”

Just as stocks usually start declining in advance of a recession, they typically rise well before the recession ends, as investors start anticipating a recovery. Indeed, in 10 of the last 11 complete recessions, the market rebounded before the recession’s end.6 (The exception: the bear market between 2000 and 2002, which had to work through extreme valuations and the bursting of the Internet bubble, in addition to economic weakness.) “The market trends up when things still feel really awful to a casual observer,” Hofschire says.

Recessionary rebounds tend to be dramatic. Stovall notes that the S&P 500 has gained 46%, on average, during the first 12 months of a bull market. As the economy turns around, investors typically gravitate back into economically sensitive equities, he says—in particular small cap stocks and cyclicals such as industrials, technology, financials, and consumer discretionary sectors. “Investors anticipate that things will improve, so they seek out the areas that are likely to improve the most,” says Stovall. Likewise, an improving economy typically draws investors away from bonds and toward the greater growth potential of equities.

Thursday, May 14, 2009

Value investing over the years

over what period of time should we evaluate a long-term approach like value investing in order to believe that it is a reliable guide for future behavior? There is good data for prices and earnings for the New York Stock Exchange going back to the 1870s. I looked at every month from 1881 to 1998 and identified it as a High-P/E (> 15 P/E) or Low P/E (<15 P/E) market. I then looked at the annual inflation-adjusted returns (without dividends) for an investor who purchased a representative basket of stocks in that month, held it for ten years and sold it. For each decade for the 1880s to the 1990s, I calculated the simple average returns for this investment strategy in Low-P/E markets and divided it by the simple average returns for this investment strategy in High-P/E markets. This, in essence, created a simple measure of the advantage created by investing in Low-P/E markets for that decade.

I looked at several variants of this analysis (20-year returns, different P/E cut-points, etc.), and the relative advantage of investing is low-P/E markets is always higher in the post-WWII period than in earlier periods.

[In other words, value investing didn't work very well from 1890 to 1919. But it has done well since, or only about the last 50 years.]

-- via gurufocus

We've Been Here Before

[Todd Sullivan writes] Looking at the data from the 1929-1934 market, there were plenty of times during that market it rallied for prolonged periods but one thing remained the same, the underlying fundamentals of the economy were lousy, just like they are today. The FDR government underwent a massive spending plan designed to "boost growth", just like today (it did not work, just like today). Markets will rise on the hope "things will be better soon" as folks want to be in on the bottom. As it rises others come rushing in, not wanting to be late for the party, and the market bursts higher.

Then, things do not get better and a market that looked cheap just a few months ago based on the hope people had now looks grossly overvalued based on today's reality. Then comes the slow selloff as reality sinks in. If you look at the time frames in the above chart you see the trend. Violent rallies up followed by slow painful selloffs.

Remember, this market decline started in October 2007 after it peaked. It gained speed in September 2008 and then again in February 2009. The recent near 30% rally has taken less than a month. We cannot sustain the rally and turn the corner until the economy does, period.

[via brknews]

Wednesday, May 06, 2009

One Page

Everything You Ever Really Needed to Know About Personal Finance On Just One Page (and 48 more).

-- via twitter