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The Rules, Part XXXII
Published on 2012-05-25 00:07:48
Dynamic hedging only has the potential of working on deep markets. Arbitrage pricing can reveal proper prices in smaller less liquid markets if there are larger, more liquid markets to compare against. The process cannot work in reverse, except by accident. The recent case of JP Morgan’s hedging activities bring to light an observation that [...] > read more
23,401 Auctions
Published on 2012-05-23 23:37:30
I’m fascinated at the degree of hatred for high frequency trading [HFT] among my fellow portfolio managers, particularly those that live in the Baltimore area. I have my own techniques for dealing with them: discretionary reserve orders, and not trading much. If you are a longer-term investor, the games that exist in buying and selling [...] > read more
High Profits
Published on 2012-05-23 02:00:42
Dr. Jeff Miller wrote an interesting question the other day: “Why does a Shiller disciple care about profit margins?“ Now, I am not a disciple of Dr. Shiller, I disagree with him on many issues, Trills for an example. When Shiller talks, odds are 50-50 that I agree, which makes him interesting to me, unlike [...] > read more
Little Things are Important
Published on 2012-05-22 08:34:37
One of the problems with many politicians, journalists, financial analysts, economists, etc., is that they don’t think systematically. Go back to late 2006, when I wrote my piece Wrecking Ball Looms for Big Housing Spec, which was regarding the coming subprime crisis. (Note: my editor often retitled my pieces; my original title was more circumspect.) [...] > read more
Book Review: The Alpha Masters
Published on 2012-05-21 00:01:52
Post 1800
Published on 2012-05-19 23:38:28
So, what do I write about at the Aleph Blog? I write about a lot of things. That’s a strength, and a weakness. A weakness, because not everyone cares about a lot of things and if I shift to cover an area that is unusual, readers may not care. It’s a strength, in the same [...] > read more
Sorted Weekly Tweets
Published on 2012-05-19 21:24:47
Eurozone > read more
In Defense of Nothing
Published on 2012-05-19 00:24:56
Two years ago, I was at a board meeting for a nonprofit that I serve, and during a break, one of the older gentlemen made a statement that the big problem with America is that we don’t make anything anymore. I suggested to him that many services enhance and replace the need for some goods. [...] > read more
Don’t Become the Market
Published on 2012-05-17 23:38:21
It was late 1993, and I knew that we could make a lot of money if I sold floating-rate Guaranteed Investment Contracts. Let me quote an earlier piece: My goal as an actuarial businessman was to make profits with modest risk for my ultimate owners, who were the mutual policyholders. Once I faced a situation [...] > read more
Elderly Poor?
Published on 2012-05-17 11:26:27
There will be elderly poor. Look at page 26 of this PDF. I interpret those that don’t know or declined as being well below $50K in assets. That means 60% of those reaching “retirement age” will have less than two years income stored up. That said I feel more sorry for younger workers who have [...] > read more
Skewed Incentives
Published on 2012-05-16 01:17:48
May is a tough month for me, because I have to submit reports for the nonprofits that I work with, and this year is worse, because I have a moderate injury that I need to see a doctor about, but can’t until next week, because of the schedule. But I do want to say a [...] > read more
Crossroads
Published on 2012-05-14 23:43:11
This is a confusing time: Lousy fiscal policy — way too much borrowing by the government Lousy monetary policy — way too much expansion of the monetary base, and for little good reason, and funding the deficits of the government as a result… Negative real interest rates on Treasuries 15 years out; that is financial [...] > read more
Simple Stock Valuation
Published on 2012-05-12 23:08:52
I appreciate Eddy Elfenbein. He comes up with ideas that make me say, “Huh. Interesting. Let’s test that.” His recent article, World’s Simplest Stock Valuation Measure, put forth the idea that: Growth Rate/2 + 8 = PE Ratio Cool, reminds me of my 1993 formula for value investing: Price per share < Tangible Book per [...] > read more
Sorted Weekly Tweets
Published on 2012-05-12 00:06:51
Eurozone > read more
Book Review: The Little Book of Emerging Markets
Published on 2012-05-11 23:24:48
This book is written by one of the foremost stock investors in emerging markets, Mark Mobius. This is a short book that has little to no math in it, and few graphs. It can be read in 2-3 hours. The edge that this book will give you is understanding the limitations of emerging market investing. [...] > read more
Yahoo Finance News
Published on 2012-05-10 23:05:28
I want to call attention to News at Yahoo Finance. I have used Yahoo Finance for 15 years and have found it valuable. As time has gone on, Yahoo has added low value news sources like Seeking Alpha, Motley Fool, and Zacks. These are websites that if I could eliminate them, it would be done [...] > read more
The Best of the Aleph Blog, Part 15
Published on 2012-05-10 09:28:28
This stretches from August 2010 to October 2010: The Education of a Corporate Bond Manager, Part VII On the value of credit analysts. The Education of a Corporate Bond Manager, Part VIII On price discovery in dealer markets, and auctions gone wrong. I never knew that I could haggle so well. The Education of a [...] > read more
Book Review: The Little Book of Bull’s Eye Investing
Published on 2012-05-09 18:29:56
Before I start this evening, if you like my reviews generally, please go to Amazon and tell them that my reviews are helpful. From this link, it does not take long to do so. Thanks. This was one of those books that grew on me. The author, the well-known John Mauldin, strings together a bunch [...] > read more
Buffett Musings
Published on 2012-05-07 23:37:57
Buffett made a few comments over the weekend that I thought were significant. Warren Buffett, who built Berkshire Hathaway Inc. (BRK/A) with stock picks before focusing on takeovers, said he recently opted against a $22 billion acquisition because he didn’t want to sell investments in marketable securities. (Article here) and Berkshire Hathaway Inc is adding [...] > read more
We Eat Dollar Weighted Returns — IV
Published on 2012-05-05 23:21:06
I think one of the largest areas for practical investigation in finance is reviewing dollar-weighted versus time weighted returns, especially for vehicles that are traded heavily. I am going to try to analyze one major ETF per month to see what the level of slippage is due to trading. But if my hypothesis is wrong, [...] > read more
Sorted Weekly Tweets
Published on 2012-05-05 17:26:37
Market Dynamics > read more
Correlating Risky Assets
Published on 2012-05-04 06:26:32
Asset allocation is tough, because the correlations are not stable. Here’s an example: in the 90s, at many conferences that I went to, I was told that one of the smartest moves you could make was to invest heavily in every new class of Asset Backed Security [ABS] created, because they all tighten in yield [...] > read more
On Distribution Formulas
Published on 2012-05-03 04:20:36
Before I get started this evening, I would like to offer an apology to those that read my recent piece, Simple Retirement Calculator. I didn’t define all of the terms in the piece, and so here are the definitions: DB plan — defined benefit plan, a pension plan that offers a certain benefit, and the [...] > read more
Book Review: Abnormal Returns
Published on 2012-05-02 00:10:03
I consider Tadas Viskanta to be a friend of mine. I write my eclectic blog, and Tadas occasionally features me on his daily curation of the economics/finance/investment blogosphere. But it is not friendship that leads me to write the following: this is a really good book. Why? Every day, Tadas curates the best thoughts in [...] > read more
More on Penny Stocks
Published on 2012-05-01 02:28:58
The main idea is this: if any unpaid third party recommends a stock to you, avoid it. I am not talking about the media here, but those who are paid to advertise stocks. My example tonight is Circle Star Energy [CRCL.OB]. This is another company with negative earnings, negative book value, and no revenue. It [...] > read more
Simple Retirement Calculator
Published on 2012-04-28 23:54:43
Sorry that I have not been posting much of late. April is always rough for me. Taxes play some role in April, because I get a certain amount of my tax data late, but the main reason stems from some charitable boards on which I serve, which meet in/near April. One of the questions that [...] > read more
Weekly Sorted Tweeets
Published on 2012-04-28 23:01:54
Federal Reserve > read more
A Visit from the Governor
Published on 2012-04-26 22:24:13
Since coming back to work in Baltimore in 2007, I’ve tried to be more active in the Baltimore CFA Society. That has taken on a number of different forms: Serving on the program committee, lining up speakers as I can — sometimes I find it hard to get well-known friends to do it… surprising to [...] > read more
Redacted Version of the April 2012 FOMC Statement
Published on 2012-04-25 11:53:01
March 2012 April 2012 Comments Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. No real change. Labor market conditions have improved further; the unemployment rate [...] > read more
Book Review: The Golden Revolution
Published on 2012-04-24 23:27:55
This book is highly optimistic that we will restore a gold standard to our world. Much as I would like it, because it restrains the power of governments that increasingly behave like thugs, I don’t think a gold standard is likely to replace the status quo. The book has many good areas to commend it, [...] > read more
Book Review: The Facebook IPO Primer
Published on 2012-04-24 03:22:05
There is more money to be lost than made in most controversial IPOs, on average. Don’t get me wrong, this is a good book, and the author knows what she is talking about, but whether one should buy Facebook in its IPO next month is a huge open question, and I would encourage you to [...] > read more
Sorted Weekly Tweets
Published on 2012-04-23 09:35:54
Busy week last week. Here’s the economic and other news: =-=-=-=-=-=–=-=-==-=-=-==-=-=-=-=–==-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- China > read more
Book Review: Then There Were None
Published on 2012-04-22 00:13:46
The topic of resources running out is perennial. Go back to the ‘60s and ‘70s, you have the Club of Rome and other doom-mongers. There are also the bets placed by Julian Simon on commodity prices in the ‘80s and ‘90s, betting the commodity prices would fall, and they did. Much of the effect stemmed [...] > read more
Misunderstanding the Tax Debate (II)
Published on 2012-04-19 03:26:48
I’m going to do something different to start this post. I’m going to highlight those that disagreed with the last post. Thanks for disagreeing, because it makes this post better. Response 1: It’s all well meaning but it’s likely to fail in practice, with unintended consequences and nasty corner cases where you have to reintroduce [...] > read more
Tickers for the Current Rebalancing
Published on 2012-04-14 23:20:11
When I look at what stocks to switch to as I manage my assets, and those of my clients, I look for assets that may be more valuable than the market currently believes. Most of that involves looking at industries and valuations, but that has led me to the following group of tickers: ABC ACCL [...] > read more
Sorted Recent Tweets
Published on 2012-04-14 22:24:20
Miscellaneous > read more
Book Review: The Most Important Thing Illuminated
Published on 2012-04-13 00:00:49
I previously reviewed The Most Important Thing. Great book, but can a great book be made better? Yes, but only by a little bit. The illumination of this book comes from comments from Christopher Davis, Joel Greenblatt, Paul Johnson and Seth Klarman, an estimable bunch of investors and investment thinkers. Howard Marks offers a few [...] > read more
Book Review: Strategic Intuition
Published on 2012-04-12 02:21:36
We all know how to be logical; at least most of us do. But logic only takes us so far. Real progress comes through those who are willing to take old ideas, combine them, and use them to solve an unrelated existing problem. Breakthroughs do not come from ordinary activity, but from those that are [...] > read more
A Brief Note on Earnings Yields (2)
Published on 2012-04-11 04:50:12
My last post on this focused on trailing earnings. Trailing earnings have the advantage of being objective, but analysts try to estimate the future. To some degree they succeed, and that becomes the bar by which we measure the progress of companies. Now fewer companies have analysts following them, and the database that I use [...] > read more
On Book Reviewing, Part 2 (What not to write if you want a good review from me)
Published on 2012-04-10 00:23:38
Most of the time, when a book is bad, I don’t write a review. Sometimes it will inspire me write a screed against a certain topic that the book was about, and occasionally a negative review. But most often I say nothing. What to avoid if writing a finance/investments/economics book? 1) Don’t claim you are [...] > read more
On Book Reviewing
Published on 2012-04-07 23:23:48
Piles of books. Many piles of books. If you begin to do a lot of book reviews, you get a lot of books. Let me describe the piles: One foot to the left of me is a pile of 13 unread books. After I finish reading a book, and put it into the “Write about,” [...] > read more
Book Review: Currency Wars
Published on 2012-04-07 03:34:26
Sorted Weekly Tweets
Published on 2012-04-06 23:21:10
Valuations > read more
Gold does Nothing
Published on 2012-04-06 10:14:51
Gold does nothing, and as Warren Buffett said in his recent annual report: Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – [...] > read more
Easy in, Hard out
Published on 2012-04-05 04:57:03
My view is that there is no such thing as a free lunch, not even for governments or central banks. Any action taken may have benefits, but also imposes costs, even if those costs are imposed upon others. So it is for the Fed. At the beginning of 2008, they had a small, clean, low [...] > read more
Book Review: The Indomitable Investor
Published on 2012-04-03 02:34:16
Most books that I don’t ask for are lousy. This one isn’t, and I love the title, because it indicates the long hard slog that it is to persevere in investing. IT IS A BUSINESS!! Without hard work it will not yield good results. Indomitable means persistence, and a lack of persistence will give a [...] > read more
A Brief Note on Earnings Yields
Published on 2012-03-31 23:57:35
I debated briefly (between my ears) how to present this data. I settled on this method, because if you want to play with it you can do so without too much trouble. Here are the earnings yields, dividend yields, and payout ratios (what percentage of trailing 12-month earnings have been paid out as dividends) by [...] > read more
Ways to Buy Cars
Published on 2012-03-31 23:32:02
To start, I will extensively quote a prior article that I wrote on the topic: When I buy a car, I analyze what car I would like to buy. I look at reliability, repair costs, overall costs, and style. I use Consumer Reports to help me analyze this. Then I go to the website(s) of [...] > read more
When Correlations Rhyme
Published on 2012-03-30 23:57:56
Before I start this piece let me give you a blast from the past, the columnist conversation comment that I most frequently reprint, from this post: David Merkel Make the Money Sweat, Man! We Got Retirements to Fund, and Little Time to do it! 3/28/2006 10:23 AM EST What prompts this post was a bit [...] > read more
Sorted Weekly Tweets
Published on 2012-03-30 23:01:26
The Rules, Part XXXI
Published on 2012-03-30 02:55:45
The offering of liquidity through limit orders is a real service to the market, and on average gets rewarded in lower overall execution costs. In choppy markets, it can really add value. I urge all investors to place limit orders as a normal practice. Better not to get filled on a few orders every now [...] > read more
Why Auditors Should be Rotated
Published on 2012-03-29 03:11:48
There is a proposal afoot to mandate auditor rotation every fiver years or so. Some don’t like it. I think it is a great idea, with large benefits relative to the costs. My insights, or lack thereof come from working in life insurance financial reporting in a number of different ways for around 15 years. [...] > read more
A Pox on Promoted Stocks (2)
Published on 2012-03-28 02:05:20
By this time, I would think that it would be worth the the time of penny stock promoters to put a big red X over my house, and not send me any more promotions. But alas, I got another one, Stevia First, Inc. This is a weird one, a really, really weird one, as I [...] > read more
Replacing Defined Contributions
Published on 2012-03-27 03:51:04
I think that it is pretty certain that defined contribution [DC] plans 401(k)s, 403(b)s, 457s, much as they have grown to be dominant, have been a failure. Many, though not all people like the illusion of control, and seeing their cash balance — makes the pension plan tangible, even if they don’t get what they [...] > read more
Sorted Weekly Tweets
Published on 2012-03-24 23:14:52
Central Banking > read more
Book Review: How Markets Really Work
Published on 2012-03-23 00:23:57
Do you want to make money in the short run? Beat the markets? This could be the book for you. I am a longer-term investor, but this book looks at a lot of strategies that are commonly understood by traders, and finds that the traders are wrong. What are we talking about? For the most [...] > read more
A Pox on Promoted Stocks
Published on 2012-03-22 23:24:45
Ugh. Penny Stocks. Ads for any stocks, much less penny stocks. Now the ad to your left showed up on my blog’s ads, and I said, “I have to respond to this.” Sadly, if I write about the evils of penny stocks, I get more penny stock ads. But if you clicked on the banner [...] > read more
Book Review: Accounting for Value
Published on 2012-03-22 01:15:04
Before I start this evening’s book review, I would like to ask a favor of my readers. If you like my reviews, maybe you can say that they are helpful at Amazon. I rank in the 2000s at present, which was a challenge to get to, because not many reviewers of finance, investing, and economics [...] > read more
Misunderstanding the Tax Debate
Published on 2012-03-22 00:13:09
This should be a short post, because my comprehensive view on tax reform is found here. The summary is that the problem is not tax rates. The problem is the definition of income. Just as in ancient times, people would make themselves look poor when the taxman came, so do the wealthy do today. “Income? [...] > read more
Book Review: Backstage Wall Street
Published on 2012-03-21 00:43:44
I have long wanted to see a book that would teach ordinary investors how to avoid being cheated by those that create/sell financial products. If this book isn’t it, the one that surpasses it will be astounding. If Wall Street is a show, this book gives you a peek behind the curtain. This book is [...] > read more
Industry Ranks March 2012
Published on 2012-03-20 00:03:23
I’m working on my quarterly reshaping — where I choose new companies to enter my portfolio. The first part of this is industry analysis. 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 [...] > read more
Seven Notes
Published on 2012-03-17 23:22:18
First, I have some blog news: my hosting provider made me delete 7000 spammers out of my user database. That left me with 200+ users. Inadvertently, in the process, around 70 bona fide users with surnames starting with the letters J-Z got deleted. So, if you got deleted, and have to re-register, my apologies. I [...] > read more
Dishonest Annuity Advertisement
Published on 2012-03-13 23:40:47
Those that have read me for a long time know that I am a proponent of immediate annuities. Though they pay a fixed stream of income, they are more useful than bonds, because they provide longevity insurance; they can be tailored to prove an income that you can’t outlive, for you and your spouse. But [...] > read more
Redacted Version of the March 2012 FOMC Statement
Published on 2012-03-13 13:41:53
January 2012 March 2012 Comments Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth. Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. No real change, deletes comment [...] > read more
The Best of the Aleph Blog, Part 14
Published on 2012-03-13 12:59:33
This period of the Aleph Blog covers May through July of 2010. The one big series that I started in that era was “The Education of a Corporate Bond Manager” series. The idea was to describe how a neophyte was thrust into an unusual position and thrived, after some difficulties. The Education of a Corporate [...] > read more
11.0010010000111111011010101000100010000101101000110000100011010011
Published on 2012-03-10 21:54:27
For fun, I decided to try running a test on the constant we call Pi in binary form [note headline]. Pi is the ratio of a circle’s circumference to its diameter. It is many more things as well. It is a unique number in mathematics. As Linus said to Charlie Brown after meeting the kid [...] > read more
Sorted Weekly Tweets
Published on 2012-03-10 03:44:19
Here’s the news of the past week: US Economy How the Government Lies About the Real Inflation Rate http://t.co/g6E4KxV5 I agree inf is understated, but by 1-2%, not 6-8%/yr $$ Mar 09, 2012 Tax Hunt Pushes Global Wealthy Into Offshore Trusts for Children in US http://t.co/l53hjFH1 Many clever ways 2cheat the taxman #thinkahead Mar [...] > read more
Peak Government Debt
Published on 2012-03-09 04:35:28
We’re in an interesting situation where most developed country governments are borrowing at a rapid rate, and their central banks are financing it. Public old age retirement and health plans are underfunded. Most major developed countries can’t grow rapidly, and there’s really nothing that can be done about it — competition from cheaper labor in [...] > read more
The Anti-Consultancy Consultancy
Published on 2012-03-08 03:46:08
I’ve had this idea for 15 years or so, but forgot about it until I sat down and talked with a friend who worked for a dysfunctional company that recently let him go. My experience working in corporate America is that the best and most effective firms listen to their employees, and set up some [...] > read more
Buy-and-Hold Can’t Die, Redux
Published on 2012-03-07 04:49:23
When I wrote my piece last night, I did not write it to say one ought to buy and never sell. In investing, I encourage the concept that one must look to relative valuations and trade assets that are worth less for those that are worth more. In doing so, one maintains exposure to the [...] > read more
Buy-and-Hold Can’t Die
Published on 2012-03-06 02:56:30
There’s this mistaken idea trotting around in the popular media, which usually only shows its face in bear or sideways markets: buy-and-hold investing is dead. This is wrong in several ways: 1) The average investor is horrible at market timing. They buy high and sell low. The more volatile the asset subclass the more pronounced [...] > read more
On News Sources
Published on 2012-03-03 22:38:50
A reader of mine asks: I’m interested in the range of stuff you are reading and thinking about. Would also be interested in a catalog of what, how, and why for “information sources you get pushed to” you and “information sources you pull/poll” on a daily or weekly basis. This is a struggle, and it [...] > read more
At the Local Investment Research Challenge
Published on 2012-03-03 06:25:06
Yesterday I was a judge (one of five) for the Washington/Baltimore Investment Research Challenge. Five teams from local colleges participated to analyze a prominent local company, Under Armour. (My kids love the stuff, I hate to pay the price.) I have to say that I admire all of the young men and women who presented [...] > read more
Sorted Weekly Tweets
Published on 2012-03-03 05:49:50
I am considering making this an end-of-the-week feature as a news recap. Comments? Financials BofA’s Clash With Fannie Intensifies as Insurers Reject More Loan Claims http://t.co/fKgxwcVO Originators need to bear UW error results $$ Mar 03, 2012 Life as Libor Traders Knew It Seen as Abusive http://t.co/H5o5cH3G An inside look at the problems [...] > read more
Difficult Decision
Published on 2012-03-02 03:33:07
We would all like our practical decisions to go easily, and bear quick positive results. That’s not reality. As for me, I needed to decide whether I would: borrow against my home at 3% for 15 years. liquidate a portion of my taxable brokerage account liquidate shares in best private manufacturer of commercial lawn mowers [...] > read more
Notes on the 2011 Berkshire Hathaway Annual Report, Part 4 (10K Issues)
Published on 2012-03-01 03:02:34
From the 10K: BHRG periodically assumes risks under retroactive reinsurance contracts. Retroactive reinsurance contracts afford protection to ceding companies against the adverse development of claims arising under policies issued in prior years. Coverage under such contracts is provided on an excess basis or immediately with respect to losses payable after the inception of the contract. [...] > read more
On Fourth Quarter 13Fs
Published on 2012-02-29 21:55:09
I often look through 13F filings to get investment ideas. The last time I did it, one of my readers asked a question like this: It’s nice to see how large the positions are of the investors that you track, but wouldn’t it be better to track the changes in positions? After all, new allocations [...] > read more
Notes on the 2011 Berkshire Hathaway Annual Report, Part 3 (On Acquisitions)
Published on 2012-02-29 05:37:38
Though part of a series, this post is different. I went back through the last 35 years of shareholder letters to analyze Buffett’s approach to acquisitions. As Charlie Munger has said, Buffett is scary smart. I say this because he adjusted through many different eras, while running a business that was part conglomerate, part closed-end [...] > read more
Notes on the 2011 Berkshire Hathaway Annual Report, Part 2
Published on 2012-02-28 05:13:55
Picking up where the last post left off: 13) So Buffett told us he has a successor lined up, but won’t tell us who, but will tell us that the successor doesn’t know that he is the successor. Really does not seem like much of an improvement over the past, except that the CIO function [...] > read more
Notes on the 2011 Berkshire Hathaway Annual Report, Part 1
Published on 2012-02-25 22:22:52
Start with the basics, this is on the Annual Report, not just the shareholder letter. I may have a second report out after the 10K is released. 1) One thing that was fascinating was the large number of low level acquisitions happening in the subsidiaries, and the desire for more of them. There is interest [...] > read more
Thinking about the Insurance Industry
Published on 2012-02-25 20:44:59
Recently I decided to spend some time analyzing the insurance industry. It’s a different place today than when I became a buy-side analyst nine years ago. Why? First, for practical purposes, all of the insurers of credit are gone. Yes, we have Assured Guaranty, and MBIA is limping along. Old Republic still exists. Radian and [...] > read more
Proposal to the SEC on Money Market Funds
Published on 2012-02-24 22:47:03
To readers at the blog, I have formally submitted this to the SEC. -=-=-=-==–=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-==-=–=-==-=–==-=-=-=-=-=-=-=- To those analyzing policy for money market funds at the SEC: Greetings. My name is David Merkel, and I run Aleph Investments, LLC, a Maryland RIA. I manage stock and bond portfolios for upper middle class people, and for small institutions. [...] > read more
Recent Sorted Tweets
Published on 2012-02-24 20:04:33
Finance Business Breaking Ranks: Former Broker Turns Bomb Thrower http://t.co/q1vpz9dh @reformedbroker interview previews his book: http://t.co/Yigg2sEE $$ Feb 24, 2012 Why CLO managers continue to struggle http://t.co/a13j8jVG Low issuance, warehousing is tough, need more subordination, fewer senior buyers Feb 24, 2012 My Favorite Quote from Baupost’s 2011 Annual Letter http://t.co/VOvbqab3 DIstressed bond mgrs get [...] > read more
Five Years at the Aleph Blog!
Published on 2012-02-23 05:04:48
When Jim Cramer asked me to write for RealMoney, it was a dream come true, and I didn’t ask for it. After year of writing him on bond issues, he told me I wrote better than most he knew. Trouble was, in 2003, I had a new job at a hedge fund, and was doing [...] > read more
Individual Investing Can Be Tough, Redux
Published on 2012-02-21 03:42:14
I have many software robots that scan for responses to what I write. Most come directly to me. Some do not like this one at Seeking Alpha: Merkel’s reasons are, to be blunt, stupid. 1: Its too crowded and there is too much competition: While his goals may be to outperform many of us just [...] > read more
Musings on the “400% Man”
Published on 2012-02-17 04:06:13
When I read the following article at SmartMoney, I said to myself. “I have done almost as well, I am more diversified, and I am willing to explain more of what I do.” Truth is, clever investors, or lucky investors can get an attitude, saying that they don’t have to explain themselves to outsiders. Not [...] > read more
Individual Investing Can Be Tough
Published on 2012-02-16 01:20:55
I am glad I began investing 20+ years ago. If I were considering starting now, I would likely not do it. Why? 1) Too much data. There are too many factors to consider in investing. That there is a wealth of data to consider is certain, but what are the right factors to look at? [...] > read more
Book Review: Acts of God and Man
Published on 2012-02-15 00:24:57
Do you want to read an entertaining book about risk and insurance? Right, I know that it is not likely that anyone could do that, but this book succeeds at the the task. How does it do that? 1) It approaches the topic without using a lot of math. 2) It introduces you to [...] > read more
Book Review: Encyclopedia of Municipal Bonds
Published on 2012-02-14 00:10:12
Joe Mysak is one of the true experts in the municipal bond markets, journalist or not. He has covered municipal bonds at Bloomberg since 1999, and has covered municipals since 1981. I have read his work for over 12 years, and I have been impressed. So when he writes an encyclopedia of Municipal Bonds, [...] > read more
Expensive High Yield
Published on 2012-02-11 22:31:30
I’ve seen a number of articles recently arguing that high yield bonds are still cheap. Today I began an investigation to analyze this claim. Here’s my bias: at the first investment shop I worked in, the high yield manager told me that there is a nominal yield for high yield bonds which reflects the risk. [...] > read more
Sorted Recent Tweets
Published on 2012-02-10 11:32:32
US Economy Two bright spots in the US Economy: Manufacturing http://t.co/ypyMuQ6D Oil & Gas http://t.co/kMqYETNa Is housing next? $$ #cyclicals Feb 09, 2012 @The_Analyst That’s one reason why I typically don’t comment on nonfarm payrolls; calculation of the number is complex; hard to analyze. $$ Feb 08, 2012 Farmers Plan Biggest Crops Since [...] > read more
On Multiple Asset Allocation Methods
Published on 2012-02-10 10:17:59
From a reader who is a dear friend of mine: There are obvious many disparate approaches to asset allocation. Similar to the disparate approaches of any style of investing, each asset allocation approach has its own particular pitfalls. Some of these you can plan for and perhaps hedge against or at least mitigate the potential [...] > read more
Stocks versus Gold and Bonds
Published on 2012-02-09 23:00:25
I have great admiration for Warren Buffett, even though I am critical of him at a number of points. When I read the piece in Fortune where he talks about asset allocation issues, I agree with him 75%. Where should money be invested? Stocks. And as for me, 75% of my net worth is there. [...] > read more
The Best of the Aleph Blog, Part 13
Published on 2012-02-09 09:21:42
This portion goes from February 2010 to April 2010. Probably the biggest new thing I did at the blog was start “The Rules” series. Personally, I think all of them are best articles, because they proceed from deeply held beliefs of mine. So I start with those: The Rules, Part I There is no net [...] > read more
A Proposal for Money Market Funds II
Published on 2012-02-08 02:29:15
I thought that I had a really good proposal for dealing with money market fund problems. And it is good, far better than what the SEC is proposing. My proposal is better because it treats money market funds like ETFs — they are pass-through vehicles, and as such, do not need capital buffers. And, my [...] > read more
Enduring Ponzi
Published on 2011-07-02 23:26:29
Why did Madoff’s Ponzi scheme last so long? He didn’t take that much from it. If the gross exposure was $60 billion, he took only 1/2% of it — $300 million. The growth rate was high enough to attract investors but slow enough to n > read more
Book Review: The Wizard of Lies
Published on 2011-07-02 00:31:43
This is the best book that I have read on the Madoff scandal so far. Why is it great? It is well written. There are few if any factual errors in the text. She talked with a wide number of people to try to get the full story. It’s neutral. i > read more
Got Cash?
Published on 2011-06-29 23:39:55
Ecclesiastes 10:19 (NKJV) A feast is made for laughter, And wine makes merry; But money answers everything. There has been a small flurry of posts off of James Montier’s piece on the virtues of cash. I wrote a piece like it recently (n > read more
Never Got Kodak
Published on 2011-06-29 04:49:08
I remember looking at Eastman Kodak a number of times over the last decade. Often a few metrics would look cheap, but when I would look at the bevy of factors in the financials and consider the effects of technology, I could never get myself to be > read more
Evaluating Six Investing Mistakes To Avoid
Published on 2011-06-25 00:55:45
I read this article today, and he invited comments. Here are my comments (his words are in italic): While no investment approach is successful all of the time, here are six common investing mistakes to avoid: Inability to take a loss and move on. T > read more
The War Against Savers
Published on 2011-06-24 14:14:55
Today, Charles Rotblut, CFA who is the AAII Journal Editor wrote: Federal Reserve Chairman Ben Bernanke continues to be the enemy of savers. Yesterday, the Boston Red Sox fan reiterated his belief that interest rates should be kept at rock-bottom lev > read more
On Insurance/Securities Company Lawyers
Published on 2011-06-23 00:32:51
This will be an odd piece that some will want to skip. My impression of lawyers has been shaped by the lawyers I came to interact with inside insurance companies. At company A, everything was thin and entrepreneurial. On one block of business tha > read more
Redacted Version of the June 2011 FOMC Statement
Published on 2011-06-22 12:18:22
April 2011 June 2011 Comments Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace Information received since the Federal Open Market Committee met in April in > read more
Book Review: The Misbehavior of Markets
Published on 2011-06-22 00:55:01
I met Benoit Mandelbrot at a conference at Columbia University back in early 2001. It was a conference on the use of fractals in a wide number of subject areas, very few of which dealt with economics. Mandelbrot was on of the few panelists > read more
What I Think Technical Analysis Is
Published on 2011-06-21 00:41:50
I have internally debated about writing this for years. I hold the following with weak conviction, and invite correction. If I want to describe fundamental investing, I will use a model of free cash flows. Now, few value investors invest that w > read more
What is Liquidity (V)
Published on 2011-06-18 23:40:33
I am sure that I will write more on this topic, should I live so long. My contentions are: Securitization does not create liquidity, it only redirects it. The Fed does not create liquidity, it only redirects it. The Treasury does not create liquidi > read more
Wait to Buy Berkshire Hathaway
Published on 2011-06-18 00:53:47
Catastrophes come in clumps. Part of that is the correlatedness of weather. When disasters are occurring, it may pay to wait until the season is near its end to buy reinsurers. Who can tell what additional losses will arise in a year where loss > read more
Chasing Your Tail Risk
Published on 2011-06-18 00:30:25
There are many people out there following aggressive investment strategies, but they want to be covered if things go wrong. Why not sell down the positions a little and buy some high quality short-to-intermediate-term bonds? What!?! Give up the ups > read more
Topple the King
Published on 2011-06-17 00:46:30
In Chess, it is good etiquette to topple your king when the position is hopeless. Why prolong the agony? Now, I am only a casual player of chess. I play maybe one to three games per year since I turned 25. I’ll tell you two quick storie > read more
Book Review: Reckless Endangerment
Published on 2011-06-16 23:56:34
This book on the crisis is different for two reasons: 1) It focuses on the causes of the financial failure, and the history behind them. It spends relatively little time on the failure in 2008. 2) It spends almost all of its time on the GSEs > read more
Correction: How to Make More Returns on REITs
Published on 2011-06-15 01:14:44
I want to thank Geoffrey Ching for spotting an error in my post How to Make More Returns on REITs. He even came up with what I did wrong; my signal was off by one month, producing returns way too good to be true. So is the strategy wrong? No. I > read more
Plan Your Giving
Published on 2011-06-15 00:37:48
During hard economic times, fundraisers for charities get desperate. Their endowment, if any, has shrunk, former less-well off patrons are less certain of their wage incomes, and are less prone to give; well-off patrons have fewer appreciated asset > read more
Learning to Like Lumpiness
Published on 2011-06-11 22:12:39
Simplistic financial plans assume a smooth return that the client will earn. Why? No nefarious reason, but planners don’t know the future, so they either: 1) Assume an average rate as a baseline for calculations, or 2) Display the average, > read more
On Redistricting
Published on 2011-06-11 01:24:17
Given all the brouhaha that exists over redistricting, I thought I would give one simple idea that would free our nation and states from tyranny. Turn the job over to a computer. Yes, take the blood and politics out of it, and let computers make > read more
Book Review: Enchantment
Published on 2011-06-11 01:01:47
How do you get people to like you? Love you? Be insanely passionate over you, and what you do, sell, etc? If the book “Enchantment” is correct, it means you have to become the person that inspires people in what ever you are pursuing. > read more
Industry Ranks June 2011
Published on 2011-06-10 11:18:57
I’m working on my quarterly reshaping — where I choose new companies to enter my portfolio. The first part of this is industry analysis. My main industry model is illustrated in the graphic. Green industries are cold. Red industries are hot > read more
Simplify Corporate Taxes
Published on 2011-06-08 23:34:20
Longtime readers know that I favor a simplification of the tax code, for both individuals and corporations. Working as an actuary inside life insurance companies, I saw the complexity of accounting with up to seven accounting bases running at the s > read more
Book Review: Never Eat Alone
Published on 2011-06-08 00:31:30
This is an unusual book for me. I’m not a natural marketer. I try to avoid tooting my own horn. But this book might help me in my weakness. I try to do it all on my own, when the aid of friends could accomplish so much more. The author ex > read more
The Rules, Part XXII
Published on 2011-06-07 03:49:49
Rapid money supply growth with no consumer price inflation can only really occur within the confines of an asset price bubble, or else, where does the money go? Interest rates are low at such a time because of the incredible liquidity, and complace > read more
How to Make More Returns on REITs
Published on 2011-06-04 23:32:41
Before I start this evening, I want to offer corrections to my last piece on REITs. Sorry, data glitch, and the results are a little different but the conclusions are unchanged. Here is the correct regression for Mortgage REITs: And the the correct > read more
Book Review: Miles Away… Worlds Apart
Published on 2011-06-04 00:17:27
This book is unusual. Let me give you my quick view: this is a book written by an Orthodox Jew regarding an unscrupulous Jew who used his abilities to communicate to swindle others in a Ponzi scheme. This is a surmise, because of all the ill-will > read more
Regulate Banks More Tightly, not Money Market Funds
Published on 2011-06-03 01:33:04
I think that the powers that be do not like a low-cost superior source of liquidity that is outside of the banking system. Why else would there be such regulatory pressure against money market funds, when their losses over their existence would be > read more
Odd Note on REIT Yields
Published on 2011-06-02 04:02:35
When I think about REITs, I think about their asset-liability structure. With equity REITs, they own buildings where rents adjust annually, within limits. They borrow using mortgages with 10-year terms. Most of their bond offerings have ten yea > read more
Book Review: Interest Rate Markets
Published on 2011-06-01 00:16:58
I was surprised by this book. There is very little math in this book, which would make it a popular book for giving someone an introduction the bond markets. It covers all of the non-credit, non-mortgage markets. It will not replace Handbook of F > read more
The Rules, Part XXI
Published on 2011-05-28 23:58:45
Before I start this evening, I have a request for readers, and a comment for new readers. (Note: if you are reading this anywhere but directly at my blog, please realize that you have to come to my blog for me to hear what you are saying. I do no > read more
How AIG Could Achieve Insurance Greatness
Published on 2011-05-26 05:17:58
It seems that I can’t escape AIG anymore. I asked my kids (who are still at home) today, “Of all the jobs I had, where did I get treated the worst?” The oldest answered “AIG.” He was born shortly after I left AIG i > read more
Post 1500, Post Launch
Published on 2011-05-25 01:20:53
Every 100 posts, I take a step back and try to think about where we have been over the last five months. The investment world has been bullish, favoring stocks and commodities, and not bonds. Money market rates have been driven to zero or so. (Ha > read more
Book Review: Debunkery
Published on 2011-05-23 23:53:34
Ken Fisher and Lara Hoffmans write well. This book is accurate (with a few quibbles), and succinct. I know these topics well; it took me less than three hours to read it. There are many half-truths that travel around Wall Street. There a > read more
Impossible Dream Project, Part 1
Published on 2011-05-21 23:03:41
When I start a hard project, I take out a blank piece of paper, and I write out the question, or desired goal, and start writing down what I know about the question. The question that has been posed to me by many investors (in many different ways) > read more
Segmenting to Make Better Decisions
Published on 2011-05-21 11:41:57
This post was stimulated by this academic research piece: When Smaller Menus Are Better: Variability in Menu-Setting Ability. The truth is, we do best in choosing between a limited menu of options. Let me give you an example. For a while, my wife > read more
On Harold Camping and the End of the World
Published on 2011-05-20 01:00:15
Longtime readers know that I am an Evangelical Christian, and worse yet, a Calvinist (or, Reformed). I am even one of the leaders in my congregation, and I serve my denomination. But if religion turns you off, or you hate Christianity for some re > read more
On Longevity Derivatives
Published on 2011-05-19 04:05:36
I am a firm believer in “you can’t get something for nothing.” So it is when a new derivative is proposed. Either there are natural counterparties to take up the exposure (reducing their risk), or speculators must be encouraged > read more
Learning Leadership
Published on 2011-05-17 01:41:19
It was 1992, and I had just been hired by a mutual life insurer, allowing me to escape the clutches of AIG. I settled into my new work and felt a lot more healthy and grateful. Within the first month, the best boss I ever had wandered into my off > read more
AAII Baltimore Meeting
Published on 2011-05-14 23:53:35
I was an amateur investor before I was a professional investor, and so long ago I joined AAII. My mom was a member, and eventually I bought a life membership. I still send them money once a year to keep my stock screener fresh. The last time that > read more
Impossible Dream, Part 2
Published on 2011-05-13 23:24:59
In this post, I want to talk about enhancing fixed income returns. Next week, I will talk about hedging, or Tactical Asset Allocation. My views on managing fixed income (bonds) are quirky. I don’t look to maximize yield, as many do, but my view > read more
Inflation Speculation
Published on 2011-05-13 11:57:15
When currencies do not serve as a long-term store of value, economic actors search for ways to preserve future purchasing power, which often mean purchasing commodities. But most commodities are not cheaply storable over long periods, so actors get f > read more
Book Review: How To Smell a Rat
Published on 2011-05-11 23:52:15
I have written reviews on two Madoff books, No one Would Listen, and The Club No One Wanted To Join. In the latter of those book reviews, I argued that the Madoff fraud was detectable in advance, which offended one who was defrauded by Madof > read more
Book Review: The Ivy Portfolio
Published on 2011-05-11 02:57:52
This is an unusual book, and a good book. Unlike the book, “Outperform,” which reviews lesser known endowments, and endowment investing generally, this book reviews the Harvard and Yale endowments, which up until 2008, the year before t > read more
When Things are Nuts
Published on 2011-05-07 23:50:51
When Everything is Strong When Everything is Strong, Redux It Would Have Happened Already It Would Have Happened Already, Redux Four recent posts of mine. They warn against assuming that trends will continue. This past week, we gained some eviden > read more
How to Shrink the Deficit
Published on 2011-05-07 01:08:24
It annoys me that Republicans argue against elimination of special tax benefits for anyone, calling it a tax increase. Let’s get things straight here: tax increases are things that affect everyone. The tax code needs to be cleaned up, as do s > read more
On Systemic Risk
Published on 2011-05-05 23:22:10
There are five factors for systemic risk. Here they are: Asset size of the institution, including synthetic exposures. Degree of leverage of the institution, including synthetic exposures. Asset-Liability mismatch, particularly financing long asset > read more
Why Amateurs Should Invest in Common Stocks
Published on 2011-05-05 00:53:02
There is a benefit to investing directly in common stocks as an individual. I’ll let Buffett help me explain this: “I am a better investor because I am a businessman and I am a better businessman because I am an investor.” My own life is > read more
Most People are not Better off Buying Common Stocks on their own
Published on 2011-05-04 00:22:57
Human nature is not changeable. If people do significantly less well managing defined contribution assets on average than a comparable index fund, then they should not be managing their own assets, much less concentrating into a small number of sto > read more
Regarding David Sokol, Part 4
Published on 2011-04-30 23:27:57
As I did last time, I would like to start this with the public counterarguments from Sokol’s attorney: “David Sokol is deeply saddened that Mr. Buffett, whom he considered a friend and mentor, would disparage him as he has done today. Neither Mr. > read more
The Jeans for the Scene — In, Out, or Ob?
Published on 2011-04-29 00:15:56
I was minding my own business, doing research when I saw an ad that showed a back view of a woman in very tight jeans, with the text: “If you think I’m hot you should see this stock! OBJE” Remember my rule, “Don’t buy what s > read more
Regarding David Sokol, Part 3
Published on 2011-04-28 00:03:21
I would like to start this with the public counterarguments from Sokol’s attorney: I am profoundly disappointed that the Audit Committee of Berkshire Hathaway would authorize the issuance of its report to the public without the care and decency > read more
Redacted Version of the April 2011 FOMC Statement
Published on 2011-04-27 12:04:19
March 2011 April 2011 Comments Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually. Inform > read more
It Would Have Happened Already, Redux
Published on 2011-04-26 23:53:30
I went to a set of presentations at Towson University this evening and heard two panels on the investment outlook — one domestic, one international. What fascinated me was the relative unanimity of opinion. All or almost all agreed that: Bo > read more
Book Review: The Financial Numbers Game
Published on 2011-04-25 23:44:00
I think that accounting quality is the single most neglected area of investing. There are few that spend time trying to analyze whether the financial statements are fairly presented. For value investors like me, that can be the difference between > read more
It Would Have Happened Already
Published on 2011-04-23 23:57:01
After we went and got the pizzas for the birthday celebration of my youngest son, my second-youngest daughter (younger still) said, “Elizabeth [oldest daughter] says that gas prices will reach $6/gallon this summer.” I said, “If i > read more
When Everything is Strong, Redux
Published on 2011-04-23 23:23:48
It has been a long day, but I want to add one note to Thursday night’s piece: I would not sell the market immediately. The summary of my recent research is that market moves from undervalued to overvalued, to more overvalued. At more overva > read more
When Everything is Strong
Published on 2011-04-22 04:06:07
For every buyer, there is a seller. For every debit, there is a credit. Net exports globally equal zero. Identities. They help bring rationality when some people think that the economy only goes one way, as if China could sell off its US Dollar hol > read more
Sixteen Questions for Dr. Bernanke’s Press Conference
Published on 2011-04-20 23:42:56
Mmmm… I live near DC, but what does it take to get an invite to the Fed’s press conference? One e-mail, four phone calls, four messages… and not even the courtesy of a reply? What, does the Fed think they run this place?! (Uh, > read more
Book Review: Dig This Gig
Published on 2011-04-20 00:07:55
I liked this book because I am doing this myself. I am trying to create my own gig. Let me put it this way: you can try to serve one boss who carefully directs you, or you can try to serve multiple bosses (clients) who may have varying goals for > read more
Book Review: Financial Origami
Published on 2011-04-18 23:10:37
When I was a little kid, I loved origami. My teachers gave me books on origami, and my parents reinforced it. I did it all before I was 9 years old. For a geeky little kid, it wasa lot of fun. But not all origami is fun. Brendan Moynihan, the > read more
When I was Young
Published on 2011-04-18 22:42:21
I can’t place it, but when I was 5 years old or so, sometime in 1966, my Mom showed me The Milwaukee Journal, and pointed me to an entry for Litton Industries preferred stock. She told me that I owned some shares of the stock, and that it was > read more
Valuation & Momentum — The Impossible Dream
Published on 2011-04-16 00:31:41
This piece is a brief and final update to the piece The Holy Grail Projects, which I have since renamed “The Impossible Dream” projects. I have solved both of them, and with far less effort than I would have anticipated. There is a wa > read more
Book Review: Best Practices for Equity Research Analysts
Published on 2011-04-15 23:55:04
My friend Tom Brakke, liked this book and said I would too. He was right, and soon afterward, I heard the author speak at the Baltimore CFA Society. Hearing James Valentine speak is an advantage here. He summarized what is most important, which > read more
A Conversation with Dr. X — Why the Tax Code is a Mess
Published on 2011-04-14 22:51:01
I have a friend who I will call Dr. X, or DX for short. He is a friend of mine who is involved in some but not all things that I am involved in. We talked recently about taxes, and this is my stylized version of the discussion, because I did not > read more
Vote Your Proxies
Published on 2011-04-12 00:33:13
Part of being a shareholder is corporate governance. It is incumbent on us to vote the proxies we receive. To my left, I have ten or so proxies I will vote tomorrow. If we don’t vote our proxies we have no right to complain about corporat > read more
The Holy Grail Projects
Published on 2011-04-09 23:46:19
When I started my asset management business, I did not know what I was doing. I probably still don’t, though finally I have a little more assets under management than I have of my own assets managed by my strategies. I learned that I needed > read more
Book Review: Surviving the Bond Bear Market
Published on 2011-04-08 00:50:36
This was an interesting book. It is well written, and I share some of the points of view of the authors. That said, there are a bunch of things that I take issue with in the book. The style of the book was engaging. I liked the way that the aut > read more
Book Review: Essentials of the Dodd-Frank Act
Published on 2011-04-06 23:00:27
Before I start this evening, I just want to say that as a day progresses, if I find a good topic, I prepare for it. If I don’t, I plan on doing a book review. As it is, I have 15 books that I have read and not reviewed. The majority of them are > read more
Everything Old is New Again in Bonds
Published on 2011-04-06 02:04:07
Unconstrained strategies for bonds are hot now with yields so low. But wait. Let’s take a step back. What do we mean by a constrained strategy? A constrained strategy is one that limits the investments one can engage in either through: Spec > read more
Book Review: Super Boom
Published on 2011-04-05 00:34:49
This is a modest book with an immodest title. Stocks will return 9%/year over the next 15 or so years. Dow 38,820? C’mon, round it to 39,000 or 40,000! Or, is the book so modest? The Lehman Aggregate yields 3.5%. Puny. Moody’s B > read more
Q&A with Roddy Boyd
Published on 2011-04-04 12:25:39
I don’t often do a Q&A with book authors, but I appreciated my dealings with Roddy Boyd, the author of Fatal Risk. It’s official publication date is tomorrow, but it is now available at Amazon. If you want to buy it, you can find > read more
On Con Men, Advanced Edition
Published on 2011-04-02 23:49:54
The core discipline of value investing is not buying it cheap, but margin of safety. Margin of safety means you aren’t going to lose too much if you are wrong, and face it, we make mistakes. I do, and you do. It goes back to the two rules > read more
Book Review: Boombustology
Published on 2011-04-01 23:49:36
For those that have read me for years at The Aleph Blog, this book will impart little that is new. But, you get a set of powerful arguments in one integrated slim package. I really liked this book. The author took a broad view of bubbles, and dev > read more
Regarding David Sokol, Redux
Published on 2011-03-31 23:51:10
I am republishing what I added to yesterday’s post, and adding onto it, because many readers would have missed it. -==-=-=-=-=-=-=–==–==-=-=-=-=-=-=-=-=-=-=-=- In the cold light of morning, I have thought of one more issue… why is > read more
Regarding David Sokol
Published on 2011-03-30 23:03:39
David Sokol knows how Buffett and Munger think. He knows what would be attractive to them. So, even if the initial comments from Buffett were negative on the purchase of Lubrizol, Sokol, having more data, could be confident, because once the full dat > read more
Longer TIPS and Shorter Nominal Notes
Published on 2011-03-30 22:17:14
This should be a short post. QE2 — for the most part, the Fed has bought shorter nominal (non-inflation protected) Treasury notes. Now, we knew from the beginning that the Federal Reserve would buy the grand majority (94%) of its nominal bo > read more
Avoid Investment Scams and Bad Advice, Web Edition
Published on 2011-03-29 23:45:46
I have had two prior posts on this topic, and I can tell you that Bonanza Goldfields and GTX Corp both cratered though they still live, sort of. Bioneutral has done poorly, but has not cratered. So today, while I was reading an article at Time.com, > read more
Limits: Models, Governments, and Central Banks
Published on 2011-03-29 10:24:59
Imagine for a moment that the US Government decided to end all taxation in order to “stimulate” the economy. “Wait,” you might say, “The deficit is bad enough today, how can we let it get any worse?” A US Treasur > read more
Things are not as good as they look
Published on 2011-03-27 02:33:23
Before I start this evening, anyone who can point me to people with little or no emotions, or Asperger’s disease, who are good investors, could you send me a link? I am not looking for Michael Burry stories. I am looking for articles that > read more
Book Review: Financial Jiu-Jitsu
Published on 2011-03-24 02:59:03
The genre of personal finance books is crowded. I have read my share of good and bad books in this area, and the book that I am reviewing this evening falls in the good column. It covers all of the main areas of personal finance adequately, and mak > read more
Book Reviews: Three Views of the Future
Published on 2011-03-23 02:01:48
When you have 17 books read and ready for review, you take a step back and say, “Are there any common themes here?” I have three books that attempt to predict the future, and I play them against themselves here. They give three differ > read more
Responding to a Bright Reader
Published on 2011-03-21 23:52:50
One of my readers made some good comments, and asked some good questions, so I am responding here. From the article, Dave, What Should I Do? (3): DM: Some of my friends want to invest with me, but I am not a total solution to anyone’s financial n > read more
Three Years from Now
Published on 2011-03-19 23:49:57
With my portfolio management rules, one implicit idea is that I am not managing for the near future. The near future is a crowded trade. How is it crowded? High frequency traders schnitzel away at the bid-ask. Day traders and swing-traders play w > read more
On Con Men
Published on 2011-03-17 00:09:16
Recently, I made a visit to the Cato Institute, and I bumped into a guy who indicated he was interested in investing with me. We exchanged cards, and around 10 days later he called me, telling me about his scheme for investing the money of (my and > read more
Redacted Version of the March 2011 FOMC Statement
Published on 2011-03-15 15:56:00
January 2011 March 2011 Comments Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in l > read more
Who Dares Oppose a Boom?
Published on 2011-03-14 23:40:34
I’m in Chicago today giving a talk on Who Dares Oppose a Boom? Here is a copy of my presentation. The main idea is this: enough people benefit from credit bubbles in the short run that it is impossible to oppose credit bubbles once they get sta > read more
Industry Ranks March 2011
Published on 2011-03-13 00:21:50
I’m working on my quarterly reshaping — where I choose new companies to enter my portfolio. The first part of this is industry analysis. My main industry model is illustrated in the graphic. Green industries are cold. Red industries are hot > read more
On the Reinsurers
Published on 2011-03-11 22:50:55
Insurance is a part of my life. I’ve spent more than half of my life working with insurers in one way or another, and when unusual events happen, my phone rings, or I get e-mails, with people seeking insight. Recently it has been regarding > read more
Book Review: Value: The Four Cornerstones of Corporate Finance
Published on 2011-03-11 00:04:11
I was pleasantly surprised by this book. Given the nature of the authors, for McKinsey & Company, I was predisposed to dislike it. But I liked it. What is the value of a corporation? It is the value of the free cash flows discounted at the > read more
Why it is Difficult to Improve Matters with Defined Benefit Plans
Published on 2011-03-09 23:24:24
A few notes before I begin for the evening. First, I have two piles of books sitting next to me — one pile of mediocre books, and one pile of lousy books. Should I review them, at least in summary form, or should I leave them unreviewed? > read more
Abandon All Hope All Ye Who Enter Here
Published on 2011-03-09 00:20:54
A few notes before I start. This last month was probably my sickest month in 30 years. I’m on the upswing, but not up to 100%. Makes me grateful for how healthy I have been most of my life, and also how healthy my large family has been &# > read more
A Messy World
Published on 2011-03-08 00:15:37
I ordinarily think of the world as messy, but it is unusual when the world validates my opinions. Civil war in Libya? Whouda thunk it? But that is why prior preparation is valuable. Not that I have a anti-mess portfolio trading as an ETF. Tha > read more
Four Years at the Aleph Blog!
Published on 2011-03-04 23:54:27
My but the time passes rapidly. When I was invited to write at RealMoney, because of compliance issues, it was several months before I wrote there. And i wrote there for about four years, never thinking that I might write anywhere else. But I had > read more
Book Review: Eat People
Published on 2011-03-03 23:47:44
You are either going to love this book or hate it. Why? The author’s style is in-your-face, something that I don’t prefer. I agree with him intellectually, but I develop it differently. Capitalism is morally good because creates a > read more
NO, Buffett is NOT going to buy that firm
Published on 2011-03-02 23:07:20
BERKSHIRE HATHAWAY INC. ACQUISITION CRITERIA We are eager to hear from principals or their representatives about businesses that meet all of the following criteria: (1) Large purchases (at least $75 million of pre-tax earnings unless the business wil > read more
On the Usefulness of Yield Spreads
Published on 2011-03-02 22:46:12
When I was a risk manager and bond manager for a life insurance company (at the same time, dangerous, but great if done right) I had to have models that drove yields on corporates from Treasury yields. Initially, I found that I had just eight years > read more
Musings on Yield
Published on 2011-03-01 22:55:58
When I closed my piece on Warren Buffett’s Annual Letter, I ended with an important statement tat when I read it in the morning, I thought many would find it cryptic. Here it is: And much as I like Buffett and Ray DeVoe, I would like my reade > read more
Critical Analysis of Buffett’s Annual Report
Published on 2011-03-01 00:22:10
After reviewing what I wrote Saturday night on Buffett’s Annual Letter to shareholders, I said to myself, “That wasn’t very critical.” Now perhaps I have less to criticize him over — he isn’t boasting about risk > read more
Critical Analysis of Buffett’s Annual Letter
Published on 2011-02-26 23:59:37
I’ve written a lot about Buffett over the years. I think this is the eighth shareholder letter that I have written about. I have the unique perspective of being both an actuary and a value investor. I get what Buffett is doing, though by > read more
Consider the Boom in the Bust; Consider the Bust in the Boom
Published on 2011-02-23 22:26:12
When you are in the bust phase of the credit cycle, there are no good solutions. Do you try to reflate? You can try to, and you will succeed (sort of), if the Fed Funds rate maintains a respectable positive value that does not kill savers. But > read more
Problems with Constant Compound Interest (5)
Published on 2011-02-23 02:35:15
This is a continuation of an irregular series which you can find here. Maybe if I were more scientific, I would have called it “All Exponential Growth Processes Run Into Constraints and Threats,” or if I were more poetic, “Nothing > read more
The Best of the Aleph Blog, Part 7
Published on 2011-02-19 00:08:04
August-October 2008 was a tough era to blog in as the crisis broke. It was the height of popularity for my blog, I haven’t had that level of readership since. Rather than go chronologically, this era lends itself to being topical. =-=-=-=-=-= > read more
Book Review: Fatal Risk
Published on 2011-02-17 23:41:40
When I came to work at Provident Mutual, I gained a friend who reported to me. Roy was a real character. He had his rules for life, and they all made sense to some degree. When he opined on why we did business the way we did in the pension divi > read more
Goes Down Double-Speed
Published on 2011-02-16 23:31:48
Eddy Elfenbein wrote an interesting post on the market doubling from its bottom. But given all of the odd things going on in the markets, and one of my mottoes is “Weird begets weird,” I asked how unusual the fall was before the rise. > read more
Managing Fixed Income for Equity Clients
Published on 2011-02-16 00:40:37
When you start a business, no matter how much research you do, you don’t know all of the issues that you will run into. What has struck me since I wrote the piece On Bonds in Retail Accounts is that I need to run a bond strategy. Now, I played > read more
On the Percentage of Market Cap held by Domestic Stock ETFs
Published on 2011-02-12 22:09:43
I don’t have all the resources that I would want in order to do complex analyses. Give me the database, and the right software, and I can do amazing things. Even with limited data, and cruddy software, I still have something interesting this > read more
Apologies
Published on 2011-02-11 23:39:06
To my readers: I have not been feeling well over the last week. Ordinarily, I feel quite healthy, and I am grateful to God for the general health I have had over the last 10 years. But this sickness has made it difficult for me to concentrate, he > read more
The Best of the Aleph Blog, Part 6
Published on 2011-02-08 05:40:28
This segment takes us through the period May-July of 2008, as the crisis slowly built to the peak of its cashflow deficit, with many saying that it was a liquidity crisis, not a solvency crisis. Anyway here is my best from that era: What is Liquidi > read more
The Best of the Aleph Blog, Part 5
Published on 2011-02-04 00:32:14
Rereading old articles is bittersweet. I get a variety of internal reactions: You wrote about that again?! Who cared about that? Boy, you really blew that one! Another news post?! How many links can you cram into a post? Anyone who reads all of t > read more
The Best of the Aleph Blog, Part 4
Published on 2011-02-03 04:00:48
The period from November 2007 through January 2008 was challenging, but I did say a lot of good things. Here’s a sample of the best: Contemplating Life Without the Guarantors Markets always beat governments, unless governments get so determin > read more
Book Review: Never Buy Another Stock Again
Published on 2011-02-02 02:29:35
With this book review, I put a knife to my throat. Alas, I have been investing in individual stocks for over 23 years, and have done well the whole way. Is it time to abandon my craft? No, and I think the author would agree. He is making a rela > read more
Book Review: Uprising
Published on 2011-02-01 00:06:43
It is really easy to compare growth rates of emerging and developed markets and the developed markets feel inferior. But imagine this practical example: a toddler could say to a teenager, “Percentagewise, I am growing faster than you.” > read more
The Best of the Aleph Blog, Part 3
Published on 2011-01-29 22:44:29
In hindsight, I’m not happy about what I wrote August-October 2007. As the bubble built I criticized it in fainter ways than it deserved. Given the implosion of money markets, I should have been more bearish. Part of that faintness stemme > read more
On Human Fertility
Published on 2011-01-29 21:54:31
When I gave a presentation to the Society of Actuaries three years ago, I was amazed that the Total Fertility Rate had fallen to 2.9 globally. I am now amazed that the CIA Factbook estimates that rate at 2.5 for the world on average. Background: re > read more
Mean Reverting Momentum, or, a Dead Cat Bounce?
Published on 2011-01-27 23:56:32
There have been debates between those who argue for momentum and mean-reversion. I say, “Why Choose? You can benefit from both.” Stock performance tends to persist after 12 months of outperformance, and tends to mean-revert after 48 m > read more
Redacted Version of the January 2011 FOMC Statement
Published on 2011-01-26 13:38:50
December 2010 January 2011 Comments Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment. Information re > read more
The Best of the Aleph Blog, Part 2
Published on 2011-01-26 00:03:42
This second period goes from May to July 2007. Here we go! A Modest Proposal to Raise Taxes on Mr. Buffett (and me) Points out how the problems with the tax code are really more about defining income rather than tax rates. It is easy for the rich > read more
On Bonds in Retail Accounts
Published on 2011-01-25 16:10:13
One small added benefit that I offer clients is extra advice. The following would be an example: By the by, I wonder if I can ask you for some bond advice. I currently use Fidelity for most of our investments, but have become quite dissatisfied w > read more
The Best of the Aleph Blog, Part 1
Published on 2011-01-21 22:25:52
We’re coming up on the fourth blogoversary for the Aleph Blog next month, so I wanted to do something a number of readers asked me to do — create a list of my best posts, with a little commentary. I’m going to do it in segments of > read more
The 54th
Published on 2011-01-20 23:01:50
This is a little different. Those who have read me for a long time know that I have a large family — eight children, with five adopted African-American children. We also homeschool in the great State of Maryland, which, for all of its liber > read more
Book Review: The Little Book of Sideways Markets
Published on 2011-01-20 00:21:26
I appreciate the cleverness and rigor that Vitaliy Katsenelson brings to value investing. Value investing needs its popularizers, and Katzeneson does a very good job in explaining how good investing is a search after quality, growth, and value. I d > read more
Why We Don’t Need the Fed
Published on 2011-01-19 01:45:39
I agree with Daniel Indiviglio about half of the time; I think he is a bright guy, but I disagree with him over certain principles. He recently wrote a piece called Why We Need the Fed. I am here this evening to take the opposite side of the argu > read more
Dave, What Should I Do? (3)
Published on 2011-01-18 00:12:23
Some of my friends want to invest with me, but I am not a total solution to anyone’s financial needs, because the only stuff I am managing is the risk capital. All of my clients have to go through a suitability check, where I tell some of the > read more
Mid-2005 FOMC
Published on 2011-01-15 22:42:13
In mid-2005 I wrote a piece that I knew would be controversial at RealMoney: Real Estate’s Top Looms. I had debated about writing it sooner, but delayed, because the momentum felt wrong. But by mid-2005, I concluded that the negative arb that i > read more
Book Review: Inflated
Published on 2011-01-15 00:25:52
This book was not what I expected. I expected a book on the current crisis, and got a book on monetary/credit policy over the whole of the existence of the US. What is more, unlike most books that cover a long sweep of history, this book is even, > read more
34 Basis Points
Published on 2011-01-14 00:22:34
Who cares what the Federal Reserve remits to the US Treasury? Some are amazed by the record $78.4 Billion remitted to the US Treasury, as if that were “found money.” It is all stolen out of the pockets of savers, who deserve a currenc > read more
Mary Miller at BCFAS
Published on 2011-01-13 00:47:35
Assistant Treasury Secretary Mary Miller Met with the Baltimore CFA Society [BCFAS] on Tuesday. Given her prior efforts at T. Rowe Price, it was a bit of a “welcome home” for a local woman who has excelled. And she said that it was gr > read more
Creating a Stable Financial System, Part I
Published on 2011-01-11 09:52:11
I’ve been thinking a lot about bank reform lately. Here’s the core of the problem: deposits are sticky in ordinary times, particularly once you have a guarantor of deposits like the FDIC. But for some banks, they look to other short t > read more
Eliminating the Rating Agencies
Published on 2011-01-06 23:21:10
Yes, I’m the same guy that wrote the series that culminated with In Defense of the Rating Agencies – V (summary, and hopefully final). But I’ve heard enough unintelligent kvetching about the rating agencies, post Dodd-Frank. You wou > read more
Incentives Matter, or, Why I Didn’t Set up as a Hedge Fund
Published on 2011-01-05 22:58:51
I didn’t set as a hedge fund for a reason. First, I changed my mind from prior plans, and wanted to serve people below the top 1% of society, as well as those above, and institutions. But there is another set of reasons that is more fundame > read more
Tickers for the Current Reshaping
Published on 2011-01-04 23:23:33
I am still trying to get my portfolios entirely transferred from Fidelity, and I am on try #4 now. I think it will work. Beyond that, I am registering in Texas, which is now my second state after Maryland. As for Maryland, when I registered, I go > read more
Roadblock
Published on 2010-12-31 22:47:23
I’m sure I will make it past this snag, but it is certainly annoying. I’m going to be delayed a few more days in setting up due to a takeover that happened over a decade ago, and snags in the Automated Customer Account Transfer [ACAT] s > read more