The Good ETF, Part 2 (sort of)

About 4.5 years ago, I wrote a short piece called The Good ETF.  I’ll quote the summary: Good ETFs are: Small compared to ..

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The Good ETF, Part 2 (sort of)

04/18/2014 00:18:35 AM

About 4.5 years ago, I wrote a short piece called The Good ETF.  I’ll quote the summary: Good ETFs are: Small compared to the pool that they fish in Follow broad themes Do not rely on irreplicable assets Storable, they do not require a “rol

On Approximate Valuation Methods

04/17/2014 00:25:15 AM

The growth of corporations is always constrained by something.  The trick is figuring out what the “something” is.  Tonight, I am here to simplify it for you. Financial businesses that are regulated We value these via book value or tang

Peterson’s Guide to Financial Blog Commenters

04/16/2014 01:26:36 AM

I’ve been blogging for over seven years… this is just an experiment, and unlikely to be repeated.  Here goes: Have you ever read through comment streams on major financial news and blogging websites?  Or the Message Boards at Yahoo?  I

On a Concentrated Bond Market

04/14/2014 23:55:40 PM

There have been a few articles recently on the underperformance of Pimco, and on the increasing concentration on the buy side of the bond market.  There is danger here for large active managers and their clients. Two years ago, I wrote a piece calle

Sorted Weekly Tweets

04/12/2014 22:36:46 PM

US Policy & Politics  Nearly Half of Dodd-Frank Rules Still Unwritten http://t.co/TwzSawT298 Experiment of regulation by study committees continues albeit slow $$ Apr 12, 2014 Banks Given Two Extra Years to Fully Comply With Volcker Rule http://t

On Rising Rate Funds, or, Who Remembers ARM Funds in the Early ’90s?

04/12/2014 13:20:27 PM

In the early 90s, there were not many investment actuaries.  One of the Holy Grail ideas of the early-to-mid ’90s was creating floating rate funds with yield so that floating rate Guaranteed Investment Contracts could be profitably written.  

I’m Not in This for Love

04/11/2014 00:19:40 AM

Much as I appreciate those who like what I write at this blog, I don’t write to be loved.  I don’t write to be hated, either.  I am sensitive to what people think of me, but not to the degree that it changes what I write. I may have non

To Live off of, and Die from, the Equity Premium and Alpha

04/10/2014 08:50:58 AM

I’m working on my taxes.  I’m not in a good mood.  Okay, writing that made me chuckle, because I am usually in a good mood. Let me divide my working life into four segments: 1986-1998: Actuary — reasonably well paid, and significa

Book Review: Letters to a Young Analyst

04/08/2014 23:55:33 PM

Tower Group Errata

04/07/2014 23:17:18 PM

I try to run an ethical blog here, so when I make mistakes, I admit them.  In this case, I don’t think the errors make a lot of difference to the investment decision, but I will confess to being wrong on  details in my last post.  I made the

Reaching For Yield

04/06/2014 00:18:11 AM

15 months ago I wrote a piece called Expensive High Yield – II.  High yield is still expensive.  I won’t post all of the regressions, but I have re-run them.  The results are largely the same as before.  Yields are low, and spreads are ov

Sorted Weekly Tweets

04/04/2014 22:23:30 PM

Rest of the World Putin’s Rejection of the West, in Writing http://t.co/X0SOPFH80d ”Russia must be viewed as a unique and original civilization…” $$ $MACRO Apr 05, 2014 Japan Working Women Face Tax Blow as Their Numbers Swe

Best of the Aleph Blog, Part 24

04/04/2014 03:21:09 AM

These articles appeared between November 2012 and January 2013: On Time Horizons Investment advice without a time horizon is not investment advice. This Election Will Solve Nothing So far that is true of the 2012 elections. NOTA Bene We need to add &

Best of the Aleph Blog, Part 23

04/03/2014 00:13:02 AM

Before I start this evening, I would like to explain some of the reasons for these “Best of the Aleph Blog” articles.  I write these no closer than one year after an article was written, so that I can have a more dispassionate assessment

The Stock Market Is Rigged! The Stock Market Is Not Rigged!

04/02/2014 03:28:32 AM

After the announcement of Michael Lewis new book (which I don’t have a copy of, and I am not asking for one), together with a variety of interviews, he declared that the stock market is rigged.  This is a convenient finding that will gladden t

Book Review: Treasure Islands

04/01/2014 01:31:08 AM

Tax havens exist to lower taxes and regulations on corporations and wealthy individuals.  But doing this involves significant complicated legal and accounting work.  The average person could not benefit because the fixed costs are high.  You need

Sorted Weekly Tweets

03/29/2014 23:50:33 PM

Rest of the World

Classic: Choosing an Insurance Company?

03/28/2014 22:47:29 PM

This was published in the “Ask Our Pros” column at RealMoney.  I don’t know when, and I don’t have the actual question, but looking at my answer, I think I know what was asked. I’ve been cheated in the past by insurance

Classic: Know Your Debt Crises: This Too Shall Pass

03/27/2014 22:15:09 PM

The following was published at RealMoney on August 6th, 2007: Editor’s Summary The illiquid debt instruments at the heart of the current crisis are subject to regime shifts.  We’re in a periodic repricing of illiquid debt instruments. Look for t

Return to Tower Group

03/26/2014 23:50:49 PM

A while ago, I wrote a piece on Tower Group after its stock price imploded, before it went down more, and attracted an acquisition offer from entities affiliated with the main owner of AmTrust Financial Services for $3/share.  Here’s another l

On National Western Life

03/25/2014 23:57:30 PM

From respected reader: Just did a quick calc based on NWLI earnings and thought I would pass onto you as I know you at least used to hold it as a double weight.  Let me know if you think there are major holes in this theory: From the Annual Report:

Managing Berkshire Hathaway by Committee?

03/25/2014 02:29:20 AM

While reading about portfolio companies today, I ended up reading this piece about Berkshire Hathaway.  Not that great of an article, and it got worse when I read this: Then there is the big question, “Who will replace Warren Buffett (Trades,

Classic: Ways to Cut Risk

03/23/2014 01:40:46 AM

This was published in late 2007 at RealMoney.  I don’t know exactly when. =-=-=-=-=-=-===-=-=-=-=-=-=-=-=-==-=-=-=-==-=-===-==-=-=-=====–==-=-=- I came into the investment business through the back door as an actuary and a risk manager.

Sorted Weekly Tweets

03/22/2014 04:27:41 AM

Federal Reserve

Limit Repo Financing

03/21/2014 00:56:38 AM

If you have a moment, read this Bloomberg article.  The brokers are utterly dishonest when they say: Brokers contend that their borrowing is generally less risky than bank lending. Repo borrowing, for instance, is backed by collateral that can be re

Tightening Starts When?

03/19/2014 23:24:35 PM

This will be short, because in this case, as picture is worth a thousand words.  What sent the market lower today? This: The likely time for FOMC tightening shrank today, despite the many words saying that nothing was different.  This is the first

Redacted Version of the March 2014 FOMC Statement

03/19/2014 14:09:01 PM

January 2014 March 2014 Comments Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters. Information received since the Federal Open Market Committee met in

As Light As Hydrogen

03/19/2014 03:48:35 AM

Okay let’s roll the promoted stocks scoreboard: Ticker Date of Article Price @ Article Price @ 3/18/13 Decline Annualized Splits GTXO 5/27/2008 2.45 0.040 -98.4% -50.8% BONZ 10/22/2009 0.35 0.001 -99.7% -73.0% BONU 10/22/2009 0.89 0.001 -99.9% -79.

The Idea of Contributory Defined Benefit Plans

03/18/2014 00:37:18 AM

In the good old days, there were Defined Benefit [DB] plans for pensions, and only those.  Why were those good? The sponsor took care of the investing Participants received a level, or inflation-adjusted payment. Payments offered longevity insurance

“Different from the Consensus”

03/16/2014 01:13:14 AM

At a recent investment competition that I attended, one of the judges asked the question to all teams, in a somewhat long-winded way, “How is your opinion different than the consensus?”  Perhaps because I have heard it for too many years

Sorted Weekly Tweets

03/14/2014 23:45:36 PM

Rest of the World China premier warns on economic slowdown as data fans stimulus talk http://t.co/B4uN1uP6OU Stimulus just leads 2more overcapacity & debt $$ Mar 14, 2014 Teslas in California Help Bring Dirty Rain to China http://t.co/YTBdiM77Pi

On the Structure of Berkshire Hathaway, Part 2, the Harney Investment Trust

03/14/2014 03:27:11 AM

In Omaha, there is Farnam Street.  Among value investors, it is well-known, because the small main office of Berkshire Hathaway [BRK] is located there.  Less well known is Harney Street, but from an insurance standpoint it is important, because Ber

On the Structure of Berkshire Hathaway

03/12/2014 23:53:37 PM

Berkshire Hathaway [BRK] is a unique company.  You have a property-casualty insurance giant owning many businesses directly through insurance subsidiaries, including huge businesses like a Class 1 Railroad — BNSF. Yes, National Indemnity owns

Why I Don’t Write a Newsletter

03/12/2014 00:51:00 AM

At various points over the last 20 years, various friends have encouraged me to write a newsletter.   I have resisted these requests, because in general, I don’t have respect for newsletter writers. If you’ve got great ideas, invest in t

The Rules, Part LXI (The End… of the Past)

03/11/2014 13:14:44 PM

Rule: every rule has exceptions, including this one In the long-run, and with hindsight, most actions of the market make sense.  Sadly, we live in the short run, and our lives may only see one to 1.5 full macro-cycles of the market in our lives.  W

The Rules, Part LX

03/08/2014 22:31:34 PM

Rapid upward moves in volatility almost always presage a bounce rally. Again, I am scraping the bottom of the barrel, but this is a common aspect of markets.  When things get tough, scaredy-cats buy put options.  That pushes up option implied volat

The Rules, Part LIX

03/08/2014 02:10:53 AM

Productivity increases are only so when they result in an increase of desired consumer goods purchasable at prior prices. As I commented in my last piece, I’m scraping the bottom of the barrel as I come to the end of this series.  I’ll k

Sorted Weekly Tweets

03/08/2014 01:52:04 AM

Rest of the World   Chinese Workers at IBM Factory on Strike Amid Company Sale http://t.co/TBE44EtSgI Chinese workers don’t want to work 4a Chinese company $$ Mar 07, 2014 China Tropical Island Lures Rich Homebuyers Fleeing Smog http://t.c

The Rules, Part LVIII

03/06/2014 23:36:29 PM

Can contingent claims theory for bond defaults be done on a cash flow/liquidity basis?  KMV-type models seem to fail on severely distressed bonds that have time to breathe and repair. We’re getting close to the end of this series, and I am scr

On the “770? Account

03/06/2014 00:58:40 AM

A letter from a reader: Dave, My Mom asked me about 770 accounts (apparently, she wants to open one). I’ve reserched [sic] them, but can’t quite figure out if it’s legit or not. So much, what I’ve found is that it is really so

On Finding Neglected Companies

03/05/2014 00:58:05 AM

While at RealMoney, I wrote a short series on data-mining.  Copies of the articles are here: (one, two). I enjoyed writing them, and the most pleasant surprise was the favorable email from readers and fellow columnists. As a follow up, on April 13th

On Intrinsic Value

03/04/2014 01:07:17 AM

In his annual report, though not his more well-known letter, Buffett talked about intrinsic value.  It was on pages 107-108, and here it is: Now let’s focus on a term that I mentioned earlier and that you will encounter in future annual reports. I

Thoughts on the Berkshire Hathaway Annual Letter & Report

03/01/2014 22:45:54 PM

I’m going to try to take this topically.  Here goes: On Acquisitions Buffett still has a strong desire for more acquisitions.  After $18B to buy 52.6% of Heinz (counting in the low strike warrants), and all of NV Energy through MidAmerican,

Sorted Weekly Tweets

03/01/2014 11:42:10 AM

Bitcoin

Post 2400 — Seven Years at the Aleph Blog!

02/28/2014 01:48:38 AM

Two million or so words ago, I started this blog.  I wanted to do something different; something that reflected my character, and would be an aid to many.  I wanted it to be a bit of a “brain dump,” so that I could impart what I have le

Letter from a Reader

02/27/2014 01:01:21 AM

Here’s a letter from a reader on insurance topics: Hi David. I’ve been following your blog. Just want to say thank you for willing to share your knowledge in the public domain. I have a question for you – as you know, “climate

Conservation of Liquidity, under most Conditions, Coda

02/24/2014 22:47:37 PM

I would like to add one more idea to my piece, Conservation of Liquidity, under most Conditions.  This is the concept of an asset-liability liquidity mismatch.  When absolute return managers like Buffett, Klarman, etc. start building up cash, the m

Conservation of Liquidity, under most Conditions

02/24/2014 11:53:24 AM

Have you ever seen the graphs showing “Look at all the money sitting on the sidelines!  This market has to go up!”  Those analyses are bogus.  Why? Several reasons, but the leading one is that much cash has to be held as part of portfo

Sorted Weekly Tweets

02/21/2014 23:54:48 PM

Facebook & WhatsApp

Seigniorage to the People

02/21/2014 00:26:30 AM

Who wants to make the Fed a hero?  And by the agency of the IRS? This would require a change in the law, because the Fed must remit its profits in excess of what it pays its stockholders to the US Treasury.  What if they remitted the profits to the

On Emergent Phenomena

02/19/2014 23:54:28 PM

How do you deal with a risk that has never been seen before?  I’m going to focus on financial risks here, but clever people can generalize to other classes of human risk, like war and terrorism. By “emergent phenomena” I mean what

If Investing Were Free, How Would It Change What You Do?

02/19/2014 00:06:24 AM

Sometimes I think people forget that they are people; they think that somehow technology will eliminate their foibles.  ETFs have lowered costs for investors, but the greater ability to trade has enabled investors to more easily be greedy or panic.

Why are Pensions so Messed Up

02/18/2014 00:26:04 AM

A few days ago, I was reading Felix Salmon’s piece Pension politics.  (Nice title, the type that Tadas likes — the shorter the better.)  I wrote a short response in the comments, largely agreeing with Felix.  Here it is: Here are the f

This May Be Gold, But It Is Not Golden

02/15/2014 23:41:28 PM

I’ve done a number of articles on dollar-weighted returns in mutual funds.  There are rare cases where the shareholder base is smart, usually in value funds, where the shareholders add more money on declines, and lighten up when things are goi

Sorted Weekly Tweets

02/15/2014 10:33:41 AM

Market Impact

Book Review: “The Up Side of Down”

02/13/2014 23:35:28 PM

Failure. We’ve all experienced it. Can we benefit from it?  The answer is maybe, depending on the costs of failure. If the costs of failure are high, e.g., repaying debts for the rest of life, people will avoid taking risks.  As a result, soc

What to do about Tax Havens?

02/13/2014 00:19:48 AM

I’m not crazy about the idea of wealthy people and corporations avoiding taxes by creating subsidiaries with no economic function in tax havens.  Sometimes I wonder if the budgets could be balanced if we were able to eliminate the tax havens.

Classic: The Fundamentals of Real Estate Market Tops

02/12/2014 08:59:57 AM

I’ve mentioned before how all of my old articles at RealMoney were lost.  This was the draft version of Real Estate’s Top Looms published on 05/20/05.  I followed it up with  Housing Bubblettes, Redux on 10/27/05 and  September 2005 &

Mimicking the 1980s Value Line Contest

02/11/2014 01:34:21 AM

A letter from a reader: Dear Mr. Merkel, I am organizing an investment contest in my university and I want to do it properly. Can you provide me with data of stock divided into 10 groups based on volatility? I searched for it in Yahoo Finance, but if

Industry Ranks February 2014

02/09/2014 01:01:26 AM

My main industry model is illustrated in the graphic. Green industries are cold. Red industries are hot. If you like to play momentum, look at the red zone, and ask the question, “Where are trends under-discounted?” Price momentum tends to persis

Sorted Weekly Tweets

02/08/2014 01:00:19 AM

 Note: this is the 100th weekly edition of sorted weekly tweets. Market Impact   Standing Out from the Crowd: Measuring Crowding in Quantitative Strategies http://t.co/MRjZ8d8GGL Overinvestment in strategy precedes losses Feb 08, 2014 Does Fair Val

An Expensive Kind of Insurance

02/06/2014 02:08:33 AM

Strategy One: “Consistent Losses, with Occasional Big Gains when the Market is Stressed” Strategy Two: “Consistent Gains, with Total Wipe-out Risk When Market is Highly Stressed” How do these two strategies sound to you?  Not

You Would Be Better Off Buying McDonalds

02/05/2014 01:06:18 AM

Okay let’s roll the promoted stocks scoreboard: Ticker Date of Article Price @ Article Price @ 2/4/14 Decline Annualized Splits GTXO 5/27/2008 2.45 0.014 -99.4% -59.9% BONZ 10/22/2009 0.35 0.001 -99.6% -72.4% BONU 10/22/2009 0.89 0.001 -99.9% -

Differences in US States’ Unemployment over the Last 36 Years

02/04/2014 00:11:15 AM

I would encourage you to have a read of the 2014 Baltimore Business Review.  Produced by the CFA Institute  — Baltimore, and Towson University, it  is a great example of how academics and practitioners can work together.  Here is my article

On Target Prices & Yields

02/01/2014 22:13:35 PM

I know that much of the money management business sets target prices for buying and selling, particularly value managers, and sell-side analysts.  I don’t set target prices.  Why? Think of what a target price means.  It says that at a certai

Fire and Ice

02/01/2014 01:20:59 AM

This is a hard time to be managing fixed income.  Yes, if you are at a big shop with access to deal flow, not so bad — but when you are small like me and have limited tools for a small client base (less than 10% of my assets are fixed income&#

Sorted Weekly Tweets

02/01/2014 00:41:02 AM

The Volatility Machine, or, Developed Markets Sneeze and Emerging Markets Catch a Cold

On HCI Group

01/31/2014 01:52:25 AM

It is not often that I get asked to opine on a domestic insurer that I have never heard of.  Thus tonight’s article on HCI Group.  Here’s the request: I am a longtime and frequent reader.  I appreciate your value-oriented approach and

Equality, and its After-Effects

01/30/2014 01:01:27 AM

There are many in the US troubled over a number of problems: Why are wages not rising faster, particularly on the low end? Why isn’t the middle class doing better? I may get a lot of flak over this post, similar to my post Rethinking Comparable

Redacted Version of the January 2014 FOMC Statement

01/29/2014 13:57:33 PM

December 2013 January 2014 Comments Information received since the Federal Open Market Committee met in October indicates that economic activity is expanding at a moderate pace. Information received since the Federal Open Market Committee met in Dece

Book Review: The Safe Investor

01/29/2014 02:57:13 AM

This is a special book.  It’s special because it explains investment concept in simple language, and tries to give average people an ability to understand how the markets work. The author shares from his life experiences, where not everything

On Position Sizing in Equity Long-Short Hedge Funds

01/28/2014 01:49:27 AM

This article is prompted by the following article by John Hempton of Bronte Capital.  This is not meant as a criticism of him; I have nothing but respect for him.  The article triggered memories of my own experiences with position sizing at a hedge

There are Limits to Valuations

01/25/2014 22:53:19 PM

Every now and then, some will argue that there are no limits on valuations.  This tends to happen in bull markets.  We are getting that now. This sentiment is sometimes due to ignorance, because bull markets encourage cheerleaders.  There are few

What Life Insurance to Buy?

01/25/2014 01:42:13 AM

Another letter from one of my readers: Hello I am reaching out to you because you are among the “Got To Guys” in your industry I am doing an “expert” and “common man” round up on my blog and I think a lot of people

Sorted Weekly Tweets

01/25/2014 01:13:36 AM

Emerging Markets Submerge

On Value Investing

01/24/2014 00:21:18 AM

In general, over the years, I have had respect for John Buckingham, who writes The Prudent Speculator.  I caught this because we own the  same stock Ensco plc.  As he said: For instance, Ensco PLC (ESV) is the world’s second largest offshore dri

Book Review: Financial Blogging

01/23/2014 23:57:43 PM

This is a practical book that is a very good book.  Do you want to write things that people want to read?  This book will help you do it. Coming out of US public schools, not everyone is prepared to write for a broad audience because: They arenR

Systemic Risk Stems from Asset-Liability Mismatches

01/22/2014 23:48:41 PM

What happens when a crisis hits?  There are demands for cash payment, and the payments can’t be made because the entities have short liabilities requiring immediate payment, and long illiquid assets that no longer can be sold for a price consi

Tough for Buffett to Lose this One

01/22/2014 00:45:43 AM

I have no idea what premium Buffett is receiving for insuring against one or more people having a perfect NCAA Tournament bracket, but it is unlikely that he will lose on this underwriting bet.  Those seeking insurance on unlikely events think the e

Sorted Weekly Tweets

01/21/2014 00:15:08 AM

Rest of the World

Good Over-the-Counter “Pink” Stocks

01/18/2014 00:53:12 AM

I really appreciate my readers.  Here’s an e-mail from one: David, Just read your recent blog post “E-mails on Insurance.” You made the comment that “aside from non-sponsored ADRs no good companies trade on the pink sheets.” Of course

E-mails on Insurance

01/17/2014 01:00:13 AM

Here we go.  E-mail #1: You truly have one of the great blogs out there! I was wondering, have you ever had to evaluate a company that had set up a captive insurance company to self insure? How did you get comfortable with it? As an example, ZCL com

A More Robust Career in Investment Banking

01/15/2014 23:56:32 PM

Another letter from a reader: Hey David, I am an avid follower of your blog and find your insights tremendously helpful in aiding my own decision-making framework. An opportunity was recently offered to me, and I hope you can provide some guidance, g

Avoid Selling Stocks When You Are Old, Maybe?

01/15/2014 23:40:03 PM

The Wall Street Journal recent had an article, What You Know About Retirement Investing Is Wrong, where it recommended that elderly people invest more in stocks as they get older.  I think the advice is wrong, unless you understand it this way: Stoc

Serve Client Needs, or Die

01/15/2014 00:02:07 AM

Another letter from a reader: Hi David: Happy new year! I’ve been reading the blog for about six months now and can’t thank you enough.  I have found so many of the post to be extremely thought provoking and helpful.  I also appreciate

Where to Find Data

01/11/2014 22:59:39 PM

Here’s another letter from a reader: Hi David, I have been a long time reader of your blog but writing for the first time. To me a key part of the investment process for a generalist investor has to be a way to efficiently screen stocks to gene

An Internship at a Hedge Fund

01/11/2014 22:54:12 PM

Here’s a letter from a reader: Hi David, Hope all is well. I will be starting an internship with a hedge fund soon and want to contribute;. Any advice?. Are there any skills that I should learn/ brush up on so I  can be productive.  Thanks a

Sorted Weekly Tweets

01/11/2014 22:36:30 PM

Rest of the World

A Preview of the Future in Local Government Financing

01/10/2014 00:20:20 AM

There are several bad examples in municipal finance — Illinois & Kentucky for example, but the worst is Puerto Rico.  What is one way that you can tell that things are bad?  People are leaving Puerto Rico, and generally they are those that ar

Why Great CEOs Look at their Stock Price Every Now and Then

01/09/2014 00:14:48 AM

I was doing my daily reading, when I bumped across the article, Why great CEOs ignore their stock price.  Yeah, I know it is the USA Today, so it has to be simplistic.  Most of the article is correct.  I am not in favor of short-termism, and much

Book Review: Banking and Financial Institutions

01/04/2014 02:46:06 AM

Many readers ask me for a good book on financial institutions, and this is a good one, if limited to depositary financials, not including insurance companies and asset managers. This is a comprehensive book for depositary financials, even covering Is

A Note on Commenting at Aleph Blog

01/04/2014 02:15:21 AM

In general, at Aleph Blog, if you keep your comments clean, even if I disagree with them, they will be published.   There is one exception to this, that if you accuse me of evil intent, I will ban you from posting comments. Look, Aleph Blog is free

Sorted Weekly Tweets

01/04/2014 01:29:24 AM

Rest of the World

Book Review: Rule Based Investing

01/03/2014 00:39:31 AM

Everyone would like a “money machine.”  Follow simple rules, and “Wow, this makes money.”  This is that kind of book but it has better foundations than most in its class. The book examines three types of investing, most of w

On Understanding and Valuing Financial Companies

01/02/2014 02:43:44 AM

I have readers all over the world.  Here is an example: Hi Dave I am a 25 year old from Pretoria, South Africa. I have been reading your blog for around 2 years and I thoroughly enjoy it (especially the book reviews). I might not agree with a few th

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