Blog Feed: Aleph Blog

The Rules, Part XXXVII

Published on 2013-05-21 08:41:47

The foolish do the best in a strong market “The trend is your friend, until the bend at the end.”  So the saying goes for those that blindly follow momentum.  The same is true for some amateur investors that run concentrated portfolios,

What to Do When Things are Nuts?

Published on 2013-05-18 23:45:22

I have not been a fan of this rally, and I have been selling into it.  I do have a rule for equity clients — cash never goes above 20%.  I have been close to that recently, and after rebalancing some companies that have hit the top of the wei

Sorted Weekly Tweets

Published on 2013-05-18 02:04:23

US Economics

On News

Published on 2013-05-16 03:09:52

I have a saying that when there is no news, the market reveals its true direction.  That applies to individual securities as well as the market as a whole.  Why? Think of institutional traders, who drive much of the market.  They are so big that t

On Insurance Investing, Part 7 [Final]

Published on 2013-05-15 10:02:56

I wrote this piece once, and lost it, 1000 words.  Going to try again. 1) The first thing to realize is that diversification across insurance subindustries usually does not work. Do not mix: Life & P&C Financial & Anything Health & Anything Maybe yo

The Knot at the Bottom of the Rope

Published on 2013-05-11 23:41:57

From a reader who I appreciate: David, I am curious if you have thoughts about insurance companies (especially P&C) hedging political risk … the answer to this question obviously will carry over to healthcare quickly. Recently, my state (Corrupticu

On Insurance Investing, Part 6

Published on 2013-05-11 01:09:11

This piece is the sixth out of seven in a series that I have been writing at Aleph Blog.  Here are links to the first five pieces: On Insurance Investing, Part 1 (reducing share count) On Insurance Investing, Part 2 (growing fully convertible book v

Sorted Weekly Tweets

Published on 2013-05-11 00:29:59

China

Easy In, Hard Out (Updated)

Published on 2013-05-10 13:45:10

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 o

Best of the Aleph Blog, Part 21

Published on 2013-05-09 05:04:20

These articles appeared between February 2012 and April 2012: We Eat Dollar Weighted Returns — III What did a buy-and-hold investor get owning SPY?  7%/year.  What did the average holder get? 0%.  A warning against over-trading. Against Risk Par

Best of the Aleph Blog, Part 20

Published on 2013-05-08 03:28:20

These articles appeared between November 2011 and January 2012: The Foul Deed of the SEC in 2004 Why the SEC is to blame, and not to blame, regarding the net capital rule.  They changed little in 2004, but should have been more aggressive than that.

Best of the Aleph Blog, Part 19

Published on 2013-05-07 01:26:53

These articles appeared between August and October 2011: Take Prudent Risk One of the great secrets of investing is taking moderate risk.  High risk fails on average, because those swinging for homers make a lot of strikeouts.  Low risk fails becau

Industry Ranks May 2013

Published on 2013-05-05 00:24:42

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

On Questions to Buffett

Published on 2013-05-04 04:54:10

I’m going to comment on three articles written before Buffett’s party.  I am not picking on these because they are dumb.  I am picking on them because they are brighter than most, but still don’t get Buffett. Copying Warren Buffet

Sorted Weekly Tweets

Published on 2013-05-04 03:42:22

Market Dynamics

On the Laffer Curve Regarding Marginal Corporate Tax Rates

Published on 2013-05-03 03:19:16

Twitter is serendipitous to me.  I don’t track it all day long, or I would never get anything done.  Usually, I keep it off, unless I am sending off tweets.  But I accidentally saw a tweet from Cardiff Garcia of FT Alphaville. regarding a pr

At the Bloomberg Washington Summit, Part 5

Published on 2013-05-02 02:48:29

Alan Krueger (Chairman of President Barack Obama’s Council of Economic Advisers) Tweets: Krueger implies Stockman’s opinions r not worthy of consideration “…not a serious scholar of the economy.” Krueger suggests that fi

At the Bloomberg Washington Summit, Part 4

Published on 2013-05-02 02:36:12

Economics CFO of UPS talked about two scenarios for rises in interest rates: good: improvement in productivity, bad: stagflation. Senator Ben Cardin said “We know that if interest rates go up it would make it very difficult for the Federal Gove

At the Bloomberg Washington Summit, Part 3

Published on 2013-05-02 02:16:38

Infrastructure This was a shibboleth muttered by many, that fixing infrastructure was a no-brainer of an idea, and I partially agree.  I would say, “Fine, what programs are you going to cut in order to fix infrastructure?” Government dec

At the Bloomberg Washington Summit, Part 2

Published on 2013-05-02 02:06:05

Unemployment A few in the first panel suggested the new normal for unemployment was 6.5%-7.0%.  I think it should be higher.  To Alan Krueger, Chairman of the White House Council of Economic Advisers, my question was asked, Given global competitio

At the Bloomberg Washington Summit, Part 1

Published on 2013-05-02 01:50:21

I was at the Bloomberg Washington Summit on April 30th; I arrived late, despite leaving with a half hour to spare, and the Internet was down, so I puzzled over how to cover the event.  What kicked me over the edge was that Bloomberg jams its progra

Redacted Version of the May 2013 FOMC Statement

Published on 2013-05-01 13:30:27

March 2013 May 2013 Comments Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year. Information received since the Federal Open Market Committee met

Using Life Insurance Products to Fund Long-Term Needs

Published on 2013-04-30 01:50:16

I have noted recently a number of advertisements offering risk-free investing.  When I dig into them, they are selling life insurance and annuities.  They claim high rates of return with virtually no risk.  Here are the problems: Life insurers hav

The Gold Medal Gold Model, Tarnished?

Published on 2013-04-27 23:04:16

From one of my longtime readers: I just wanted to toss this suggestion your way and the motivation is partly selfish, but given the decline in gold the last 3-4 days (I actually exited all my long positions around 1500-1505 last Friday based on the b

Sorted Weekly Tweets

Published on 2013-04-26 23:13:25

Market Impact Gold Buyers Throng Indian Stores for Second Week on Rally http://t.co/ilkuosl43D Physical gold is receiving much attention, futures not $$ Apr 26, 2013 Renaissance Funds Take a Tumble http://t.co/U3x0uboqPA Hedge Funds in aggregate r2 l

A Letter from a Reader

Published on 2013-04-26 00:26:39

Hello,  My name is XXX and I am a senior at Trinity Christian School. A couple weeks ago my teacher and senior project adviser, Dr. YYY, suggested that I contact you for professional insight and opinion. I am reaching the end of my paper but I ha

Classic: The Long and Short of Trend Investing

Published on 2013-04-25 22:23:29

The following was published by RealMoney on 4/26/2006.  As with all of these “classic” articles, I republish them because they aren’t available at RealMoney any more.  They changed their system for links, and so articles and comme

Classic: Get to Know the Holders’ Hands, Part 2

Published on 2013-04-24 22:08:15

Note: this was published at RealMoney on 7/2/2004.  This was part four of a  four part series. Part One is lost but was given the lousy title: Managing Liability Affects Stocks, Pt. 1.  If you have a copy, send it to me. Fortunately, these were th

On High Short Interest Ratios

Published on 2013-04-23 23:20:27

Two of my 35 stocks have short interest ratios over 10 days.  [Short interest ratio = amount of shares shorted / average daily volume] I look at this statistic, and force myself to re-examine companies where the ratio is over 10.  Maybe there is so

Classic: Get to Know the Holders’ Hands, Part 1

Published on 2013-04-23 22:40:30

Note: this was published at RealMoney on 7/1/2004.  This was part three of a  four part series. Part One is lost but was given the lousy title: Managing Liability Affects Stocks, Pt. 1.  If you have a copy, send it to me. Fortunately, these were t

Classic: Separating Weak Holders From the Strong

Published on 2013-04-23 00:44:56

Note: this was published at RealMoney on 3/23/2004.  This was part two of a  four part series. Part One is lost but was given the lousy title: Managing Liability Affects Stocks, Pt. 1.  If you have a copy, send it to me. Fortunately, these were th

At the Towson University Investment Group’s International Market Summit, Part 5

Published on 2013-04-21 01:16:11

I left one small question for last; I gave a partial answer to this one at the conference.  I think I was the only one that said much on it.  Here it is: Where does academic theory fail in finance and in economics? Little questions, big answers. 

At the Towson University Investment Group’s International Market Summit, Part 4

Published on 2013-04-20 00:11:03

1        Any specific stock, bond, industry, country, or asset picks that you feel strongly about? I like: The P&C insurance & reinsurance industries — they are very good at compounding earnings, especially the ones that are good underwr

Sorted Weekly Tweets

Published on 2013-04-19 22:38:37

Market Dynamics

At the Towson University Investment Group’s International Market Summit, Part 3

Published on 2013-04-18 23:18:01

More questions not asked: 1        Give us your thoughts on which emerging markets are stars and which are dogs? Will developed outperform developing? I like emerging markets debt but not the equity.  Governance standards are not up to snuff,

At the Towson University Investment Group’s International Market Summit, Part 2

Published on 2013-04-18 02:48:56

Here are some questions submitted in writing that did not get asked.  Here are some questions & answers: 1        What do you make of the move towards energy independence in America and what are some benefits that accommodate it? Any innovati

At the Towson University Investment Group’s International Market Summit, Part 1

Published on 2013-04-17 00:34:08

Hello.  My busy time is over, and I am back to live blogging.  On Tuesday evening, I was one of five speakers at the Towson University Investment Group’s International Market Summit.  It was a fun time.  Before I came, there was a list of

Classic: The Fundamentals of Market Tops

Published on 2013-04-15 22:07:16

I wrote the following at RealMoney on 1/13/2004:

Classic: Avoid the Dangers of Data-Mining, Part 2

Published on 2013-04-15 08:01:42

The following was published on 6/1/2004 at RealMoney.com   =-=-=-=-=-=-=-=-=-=-=-=–=-=-=-=-=-=-=-=-=–==-=-=-=-=-=-=-=-=-=-=-=-=-=-   Investing Strategies   Models that work well on data about the past may not work in the future. Check

Sorted Weekly Tweets

Published on 2013-04-15 07:52:35

Market Dynamics

Classic: Avoid the Dangers of Data-Mining, Part 1

Published on 2013-04-13 01:41:26

The following was published at RealMoney on 5/28/2004: -=-=–=-==-=-=-=-=–=-=-==-=-=-=-=-=-=-=-=-=-=-=–=-=-=-==-=-=-=–=-=–=-=-=-=-=-=-==-=-=-=-=-=-=-=-=- Investing Strategies   Data-mining attempts to get data to give a

Classic: Using Investment Advice, Part 4 [Tread Warily on Media Stock Tips]

Published on 2013-04-11 22:57:38

The following was published at RealMoney on 9/26/05.  I have augmented it at the bottom, so if you’ve read it before, at the bottom, there is more. -=-===-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

Classic: Using Investment Advice, Part 3

Published on 2013-04-11 00:27:18

The following was published on 3/29/2004: -==-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- Investment Advice Time horizon usually correlates with return size. It’s good to have signposts as the

Classic: Using Investment Advice, Part 2

Published on 2013-04-09 23:52:37

The following was published on 3/26/2004: =–==-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-   Investment Advice You have to understand the advice to use it. Can you implement or monitor the idea?

Classic: Using Investment Advice, Part 1

Published on 2013-04-08 22:46:04

Dear Friends, I am republishing some old pieces from my days at RealMoney during this busy time that I am in.  If there are significant changes in my opinion since it was first published, I will spell out the changes.  As for this series, there are

Stable Value Versus Rising Rates

Published on 2013-04-07 02:43:33

If you own a short-to-intermediate term bond portfolio, and you did not need to tap the cash for a few years, would you prefer rising short interest rates, or falling rates?  The correct answer is rising rates, because you will be able to reinvest i

Sorted Weekly Tweets

Published on 2013-04-06 03:13:59

US Fiscal & Monetary Policy

Why should REITs and MLPs have an Advantage?

Published on 2013-04-05 04:58:03

Some companies need to reinvest a lot and some don’t.  Thus the creation of tax-favored vehicles like REITs and MLPs.  A high percentage of taxable income must be paid out, but it is not taxed at the corporate level. With REITs and MLPs, they

Value Investing Flavors

Published on 2013-04-04 00:31:35

I ran across this article, Value Investor or Value Pretender: Which Are You?, by John Mihaljevic who puts out The Manual of Ideas, along with Oliver Mihaljevic.  I appreciate what they do — you can learn a lot from their organization. I told h

The Education of an Investment Risk Manager, Part V

Published on 2013-04-03 01:45:28

One thing that came out of our “employee empowerment project” was a need to improve our equity and bond fund offerings.  At the same time, a fund manager manager [FMM] came out of the woodwork and suggested to us that we could do multipl

The Education of an Investment Risk Manager, Part IV

Published on 2013-04-02 03:09:32

One day, when I was least expecting it, the Spanish Inquisition arrived, otherwise known as internal audit. IA: You run the GIC business. Me: Yes. IA: What functions do you control here? Me: I market, price, cashflow test, and reserve the GICs.  I a

The Education of an Investment Risk Manager, Part III

Published on 2013-03-30 23:26:25

There’s kind of a rule of thumb in Asset-Liability management, that you match liquidity over the next 12 months, and match interest rate sensitivity overall.  I would do more than that, creating my own randomized interest rate models, as well

The Education of an Investment Risk Manager, Part II

Published on 2013-03-30 10:53:55

When I worked for Pacific Standard, which had the dubious distinction of being the largest life insurance insolvency of the 1980s, I had few investment-related tasks.  Investments were handled by the overly aggressive parent company Southmark, which

Sorted Weekly Tweets

Published on 2013-03-30 00:58:08

Cyprus & The Eurozone

The Education of an Investment Risk Manager, Part I

Published on 2013-03-29 00:24:40

This is likely to be the last series describing how I learned my skills that I still apply today.  I hope you enjoy it. -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- It was mid-1988, and I had just earned my Associate in the Society of Actuari

Stock Buybacks vs Dividends vs Reinvestment

Published on 2013-03-28 01:34:57

This should be short.  Let me start with some facts. Buybacks are preferred on a taxation basis to dividends. But buybacks are especially good when the stock is trading below its franchise value, and especially bad the further above franchise value

Buffett’s Career in Less Than 1000 Words

Published on 2013-03-27 00:48:55

This post is at the behest of my friend Tom Brakke of The Research Puzzle.  It is meant to briefly describe how Warren Buffett’s investing changed over the years. Compounding Capital The basic idea of Warren Buffett’s investing is simple

On Stock versus Flow Measures in Valuation

Published on 2013-03-26 01:31:29

In valuing companies or indexes, one must look at the earnings or cash flow statements, and the balance sheet.  The former are flow measures, measuring performance over a period, versus the balance sheet which attempts to measure the value of the co

A Letter to Warren

Published on 2013-03-26 00:20:14

[Address] [Phone] 1 March 2013 Dear Mr. Buffett, Four years ago, I contacted the IR department at AIG to ask for copies of all the 2008 statutory books for all the insurance subsidiaries.  To my surprise, they sent them, 60 pounds worth, and I wrote

Most Large Acquisitions Are Errors

Published on 2013-03-23 22:46:47

Hubris:  “We can do it better than [the target company].  With additional scale, we will be able to gain operating efficiencies and marketing opportunities. We will be a big company in our industry, and we will control our own destiny.”

A Bond Deal Requiring Caution, Completed

Published on 2013-03-23 01:39:19

A friend of mine told me the price talk for the Fidelity & Guaranty Life Holdings, Inc. bonds was 6.5%, but yield lust must have prevailed, because the coupon was 6.375% when the deal closed.  Almost all corporate bonds are priced at a slight disco

Sorted Weekly Tweets

Published on 2013-03-23 00:37:31

Pettis / China

On Time Horizons

Published on 2013-03-22 01:28:26

I wrote a piece with the same title four months ago, but this one will be different, because I want to focus on individuals, and less on institutions.  During the bull phase of market moves, people are willing to take chances.  That can take severa

A Bond Deal Requiring Caution

Published on 2013-03-21 12:51:49

Recently, a company for which I once managed bond money announced a bond offering.  An odd bond offering that I would not buy regardless of pricing.You might say, “No such thing as bad assets, only bad prices.”  Mostly I believe that, b

Redacted Version of the March 2013 FOMC Statement

Published on 2013-03-20 13:33:01

January 2013 March 2013 Comments Information received since the Federal Open Market Committee met in December suggests that growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory

Post 2100

Published on 2013-03-20 01:30:26

Every 100 or so posts, I take a step back, and think about blogging itself.  Tonight I want to talk about advertising in blogging. I now get about 75 requests per month asking: Can I do a guest post at your blog? (There have never been guest posts,

On the CFA Institute’s “Future of Finance”

Published on 2013-03-19 00:27:51

All hail the CFA Institute.  They are trying to inject more ethics into the market through their “Future of Finance” initiative.  I largely agree, but think they are overly optimistic in some areas. Here are their basic ideas: http://ww

Regarding RealMoney

Published on 2013-03-16 23:52:20

I have some happy news regarding my writings at RealMoney.  Between readers who kept copies of what I wrote, and TheStreet.com republishing at the free site some of my best  pieces, I have regained one-third of the writings that are lost. Now, if t

Trust & Growth

Published on 2013-03-16 22:55:42

I read John Mauldin’s newsletters.  In the most recent one, he published what Dylan Grice said about trust in economics.  It reflects my own views, so I want to quote the the piece a little bit, and add my own thoughts. Of the many elemental

Linear Thinking in a Chaotic World

Published on 2013-03-15 23:19:33

If some is good, then more is better.  That’s the way simpleminded people think. Think of alcohol.  A little is good, but past a certain point, more is bad. I think about central banking the same way.  Until recently, quantitative easing see

Sorted Weekly Tweets

Published on 2013-03-15 20:22:52

US Politics & Economic Policy

On Insurance Investing, Part 5

Published on 2013-03-14 23:34:45

The Squishy Stuff I think I have just one more post left after this one, and this series ends.  This post deals with qualitative factors, which are harder to ascertain than the quantitative factors, and require more experience in order to learn.  B

Neglected Stocks Are Typically in Strong Hands

Published on 2013-03-13 23:51:33

Neglected stocks — I measure it by the ratio of market cap to average dollar volume.  15% of my portfolio is allocated to such stocks, but I would be happy for it to be 50%, if not more. Many of my companies have a single large holder or group

Should Brokers Be Fiduciaries?

Published on 2013-03-13 23:27:07

From a reader: As a reader of yours, I find your views always interesting and well thought-out, even when I disagree. Thank you for sharing your thoughts, wisdom, and experience, as I truly believe you raise up the areas of thought you touch. I have

On Annuities, Particularly Variable Annuities

Published on 2013-03-12 23:36:09

From a Reader: I read your blog quite frequently and really enjoy the work you put into it.  It helps me to think about other opinions/concepts and always look at things in a different light.   I’m a financial advisor in St. Louis for a smal

On Merger Arbitrage

Published on 2013-03-12 23:13:39

From a Reader: I’ve mentioned this before but I’m an avid reader of the blog. I’m currently going through your old posts one by one and learning a lot. Yours is one of 2 or 3 other blogs that I am reading the archives… thanks for spending so

On Floating Rate Funds

Published on 2013-03-12 22:49:40

From a Reader: Floating Rate Funds — Do you have any thoughts on these investments. I don’t want to be involved in something that is going to blow up. In general, I like bank loans because: Default rates are low. They are senior in the capita

Shrinking Economies Deserve Gridlock

Published on 2013-03-11 23:54:44

This will be very short.  Growth solves a multitude of economic sins.  So what prevents countries from encouraging growth? Cronyism A shrinking population, or something near that. Too much regulation that affects production or hiring. Cultural deca

Sorted Weekly Tweets

Published on 2013-03-09 08:48:36

Rest of the World

An Inflated View of the Dow Jones Industrial Average

Published on 2013-03-06 22:49:33

So the DJIA has hit a new nominal high?  Big deal.  It has not yet eclipsed its inflation adjusted high, as is noted by this article at Bloomberg, where they said: None of this is to say don’t invest in stocks. Nor is it to say a bubble has forme

Cookie Jars

Published on 2013-03-06 00:34:12

When I was a little kid, there was a cookie jar in my house, and Mom who baked excellent cookies.  I was a scrawny runt, and at that time a picky eater.  But when I got home from school I could have a snack, so long as it was not within an hour of

A Few Notes from the Berkshire Hathaway 10K

Published on 2013-03-05 00:28:45

Letting the document speak, here are a few notes, starting with with the most significant part of the risk factors: Investments are unusually concentrated and fair values are subject to loss in value. We concentrate a high percentage of our investmen

Sorted Weekly Tweets

Published on 2013-03-04 10:34:27

Berkshire Hathaway

Comments on the Berkshire Hathaway Annual Letter

Published on 2013-03-01 23:58:26

I’ll let Buffett speak, and I will add a few comments. When the partnership I ran took control of Berkshire in 1965, I could never have dreamed that a year in which we had a gain of $24.1 billion would be subpar, in terms of the comparison we p

Six Years at the Aleph Blog!

Published on 2013-02-28 22:27:21

Thanks to all of my readers, whether you read me via RSS, e-mail, twitter, or natively at the website.  But I have a favor to ask… if you read me elsewhere, drop by the site every now and then, because not all of my commentary gets republished

Two Insurance Questions

Published on 2013-02-26 23:09:33

First question: Good afternoon.  I’m an avid reader of your blog and want to thank you for the work that you’ve done. I’m reading through the 10-Ks of insurers to try and educate myself and wanted to see if you can provide some adv

On Equity Valuations

Published on 2013-02-26 04:27:35

From a reader: I only recently stumbled upon your blog, but I’m hooked.  I can’t thank you enough for taking the time to share your financial insight, experience and wisdom. I’m a new entrant to the financial services industry (3 w

On Insurance Investing, Part 4

Published on 2013-02-26 01:39:52

This will be a short but important part in this series on insurance investing.  It deals with the accounting, and applies to all areas of insurance.  Insurance accounting is complex. When an insurance policy is written, the insurer does not know th

My Theory of Asset Pricing

Published on 2013-02-23 22:32:33

From a reader on last night’s piece: David, can you expand on this – ” I would revise the concept of the cost of capital to make it credit-centric.  All the efforts to calculate the cost of equity capital from equity market correla

What I Would & Would Not Teach College Students About Finance

Published on 2013-02-23 03:34:13

Most of Friday I spent as judge at the Global Investment Research Challenge for Washington, DC and Baltimore.  I really like working with students.  They are so earnest, and they work so hard. Last year, the company was Under Armour, which was toug

Sorted Weekly Tweets

Published on 2013-02-23 00:36:44

Companies   Cargill joins Wall Street banks as swap dealer http://t.co/vvamqbSPM0 Could b a good idea 4 any firm that does much commodities hedging $$ Feb 22, 2013 Office Depot To Buy OfficeMax? And Then There Were Two. http://t.co/VzkCs2aDWl 0 + 0

Book Review: The Great Rebalancing

Published on 2013-02-21 23:38:30

I’ve been waiting for this book for over 10 years.  When Michael Pettis wrote The Volatility Machine, he explained how emerging market countries imported the monetary policies of the developed countries. Now, in the present mess of economic po

Heinz Follow-up

Published on 2013-02-21 00:38:53

I’ll keep trying until I get it right.  Aside from the terms of the warrants, most of the deal terms are known in terms of quantities, if not prices.  What I present benefits considerably from a comment I received.  Here it is: Good analysis, th

Another Note on the Purchase of Heinz

Published on 2013-02-20 02:38:33

I need to correct one thing that I wrote yesterday: 3G and Berkshire Hathaway each own 50% of Heinz, once the transaction is done.  I mistakenly thought that both sides were putting up equal amounts of capital, when they are only putting up equal am

A Note on the Purchase of Heinz

Published on 2013-02-19 08:41:58

I participate in an online group of Johns Hopkins students and Alumni, mainly discussing company analysis and valuation.  This is what I posted on the Heinz acquisition by 3G and Buffett: There are two ways to look at this: like Buffett or like 3G.

Book Review: Time Out For Happiness

Published on 2013-02-19 00:39:06

This is a different book for me to review, but as my wife once said to me, “Only you could see the economic angles of ‘Little House on the Prairie.’”  Guilty as charged. Many people have read “Cheaper by the Dozen,̶

Advice to Two Readers

Published on 2013-02-16 22:59:07

I have great readers.  Two questions tonight on very different topics: I’ve really enjoyed reading your blog ever since I came across it (via Simoleon Sense, I think?). I think your perspective as a bond manager is especially neat. When I was

Sorted Weekly Tweets

Published on 2013-02-16 00:19:42

Rest of the World

Questions from Readers

Published on 2013-02-15 02:49:44

From a reader: I have enjoyed reading your blog for the past few years. I started researching some insurance companies and went to some of your posts to help me get a better understanding of their financials. In one of your posts you talk about RGA t

The Education of a Mortgage Bond Manager, Part X (The End)

Published on 2013-02-14 03:46:56

Personally, I did not have an outline when I began this series.  If I had decided to create a “story arc” it would ended with part six, which led to my becoming the corporate bond manager, but I will end this series on a different note,

Berkshire Hathaway & Variable Annuities

Published on 2013-02-14 02:29:18

Sometimes I miss stuff in the news… last week Berkshire Hathaway reinsured the remainder of the variable annuity business that Cigna reinsured in the 1990s.  Four articles: Cigna and Berkshire sign $2.2 billion reinsurance deal Buffett Gets $1

Reply to a Reader

Published on 2013-02-13 00:31:24

From a Reader: I really enjoy your blog.  I have two questions for you.  First, given your experience, how do you factor the price an asset into your risk assessment of an asset and the sizing of that position in a portfolio?  I have recently re-r

The Education of a Mortgage Bond Manager, Part IX

Published on 2013-02-13 00:05:54

The Negative Convexity Project Me: We can’t buy the majority of Residential Mortgage Backed Securities [RMBS] anymore. Boss: What! That is a staple asset class of ours.  There’s nothing illegal about life companies owning RMBS. Me: nothi

The Education of a Mortgage Bond Manager, Part VIII

Published on 2013-02-11 23:02:39

I sat down this evening, thinking that I would finish the series this evening, and realized that I had left out some significant things.  As such, I expect this series to have two more parts after this one. Traveling to Annapolis When you are an act

The Education of a Mortgage Bond Manager, Part VII

Published on 2013-02-10 02:00:17

1) One place where being an actuary and being a financial analyst melded well was with Affordable Housing and Historic Tax Credits.  In all of these investments, it made a great difference as to what the Statutory, Tax, and GAAP accounting bases. 

Letters from Two Readers

Published on 2013-02-09 22:32:00

I wanted to drop you a line to commend you on your blog which I read with interest and almost universal agreement. Your investment ideology and style is very similar to my own, and I enjoy the snippets of personal insight and glimpses of your life th

The Education of a Mortgage Bond Manager, Part VI

Published on 2013-02-09 01:08:52

1) One thing that impressed me about working in a life insurance investment department is how many ideas we kicked around and abandoned.  I did not experience that to the same degree working at a hedge fund.  I think that is true for two reasons: 1

How do Promoted Stock Scams Work?

Published on 2013-02-09 00:00:09

From a reader: I’ve been following your blog for a little while and appreciate your analysis. I’ve been particularly interested in your coverage on the penny stock phenomenon and started doing some of my own digging. I’ve found a fe

Sorted Weekly Tweets

Published on 2013-02-08 20:49:53

Currency Wars

The Education of a Mortgage Bond Manager, Part V

Published on 2013-02-08 00:39:36

Sometimes you have to do odd stuff for your client.  My boss and I were asked to come to a client meeting where there would be games (and a dopey speaker, I will leave that out).  As it was I found myself in a game where the one who moves his feet

Is High Yield Expensive?

Published on 2013-02-07 23:46:33

Event Date AAA AA A BBB BB B CCC CDO Trough 6/5/2007 5.62 5.68 5.90 6.21 6.74 7.34 9.12 Recent Trough 1/25/2013 2.09 2.09 2.47 3.34 4.51 5.64 9.57 Now 2/6/2013 2.10 2.12 2.50 3.42 4.73 6.10 9.80 Yes, I think high yield is expensive, and stocks as wel

On Operating Company Defaults

Published on 2013-02-07 23:06:15

From an e-mail from a reader: Hi, David. I hope this e-mail finds you well. I am a long-time reader of your blog and have learned an immense amount about markets from your writings. I am a stock analyst and am just starting to learn the nuances in th

The Education of a Mortgage Bond Manager, Part IV

Published on 2013-02-07 00:22:14

I sat down this evening with my trading notebooks.  It was a reminiscence of 11-14 years in the past.  I may produce another chapter of “education of a corporate bond manager” from the books.  But it gave me a flavor of what I learned

The Education of a Mortgage Bond Manager, Part III

Published on 2013-02-06 00:26:58

In this irregular series, you can see that I wrestled with the concept of credit quality.  I built my own models.  I did not trust the rating agencies. Why did I not trust the rating agencies in 1998-2001?  What great errors had they committed? 

Seven Notes on Blogging and the Markets

Published on 2013-02-05 00:04:31

I need to catch up on a few things, so bear with me.  This might ramble. 1) Should I live and continue to write until mid-October of 2013, I will reach 10 years of investment writing.  I started writing for RealMoney in October 2003, and that chang

Wall Street Hates You

Published on 2013-02-02 23:56:50

I have a saying, “Don’t buy what someone wants to sell you. Buy what you have researched.” And so I would tell everyone: don’t give brokers discretion over you accounts, and don’t let them convince you to buy unusual bon

Four Sources of Buy Ideas

Published on 2013-02-02 23:03:01

Presently, I have four ways of sourcing buy ideas in the stock market.  Here they are: 1) I read widely, and when I see something interesting, I either jot it down, or hit the “print” button.  I put it in the pile for the quarterly port

On Investing Games & Contests

Published on 2013-02-02 01:07:08

I am not a fan of investing games and contests.  Here are my reasons: They are too fast.  Investing is a slow process; games make money far more quickly than markets do. They are biased toward winning.  Many games have a positive bias built into t

Sorted Weekly Tweets

Published on 2013-02-01 23:49:28

God gave proverbs to the Jews; Epigrams were of the Romans. Now we do the same through tweets, why do I sense bad omens? #badpoetry Feb 02, 2013

Industry Ranks February 2013

Published on 2013-01-31 23:51:04

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

The Product that Never saw the Light of Day, Redux

Published on 2013-01-31 23:05:29

I love my readers.  How many Variable Annuity [VA] products got mentioned to me as a result of yesterday’s article? Four, out of 2 emails, 3 comments, and one clever guy who figured out my phone number (no, I don’t keep it secret). Vangu

The Product that Never saw the Light of Day

Published on 2013-01-30 23:42:43

I have never particularly liked individual variable life and annuity products.  But one day, I came up with an individual variable annuity product idea.  I don’t think it has ever been done.  If it has been done, please note it in the commen

Redacted Version of the January 2013 Version of the FOMC Statement

Published on 2013-01-30 14:08:09

December 2012 January 2013 Comments Information received since the Federal Open Market Committee met in October suggests that economic activity and employment have continued to expand at a moderate pace in recent months, apart from weather-related di

How to Become Super-Rich?

Published on 2013-01-30 00:48:51

My main goal this evening is to discredit those who tell you that you can get rich quick by investing in the secondary markets. That won’t work.  It sort of worked for Buffett, but a lot of his success came from creating a holding company, and

On Insurance Investing, Part 3

Published on 2013-01-26 22:09:33

Subtitle: The Value of Momentum and Mean-Reversion In the extreme short-run, mean-reversion dominates.  Over a year, momentum dominates.  Over a four year period mean-reversion returns. The same applies to insurance stocks.  This is perhaps more t

Sorted Weekly Tweets

Published on 2013-01-26 07:43:59

Rest of the World

An Echo, but not Sound

Published on 2013-01-25 07:53:30

Time for my penny stock scoreboard: Ticker Date of Article Price @ Article Price @ 1/24/13 Decline Annualized Splits GTXO 5/27/2008 2.45 0.040 -98.4% -58.6% BONZ 10/22/2009 0.35 0.019 -94.6% -59.2% BONU 10/22/2009 0.89 0.074 -91.7% -53.4% UTOG 3/30/2

On Insurance Investing, Part 2

Published on 2013-01-24 22:45:53

If you grow book value, particularly if your liabilities are short, you will grow market value.  Many reinsurance and insurance companies aim at growing fully convertible book value per share. Fully convertible book value per share assumes that you

On Insurance Investing, Part 1

Published on 2013-01-23 08:06:12

Shrinking the Share Count This post was prompted by this post from Avondale Asset Management on how the share count from The Travelers has shrunk since 2005 (two years after their merger with The St. Paul, a company that I once worked for).  Only 57

2012 Financial Report of the US Government

Published on 2013-01-22 04:06:40

I have written about this overlooked report for about ten years now.  I feel like a lonely warrior defending a tough location, with little assistance. If I could give a subtitle here, I would call it “Lies of the Past, Present, and Future.R

Book Review: Benjamin Graham: The Memoirs of the Dean of Wall Street

Published on 2013-01-19 22:55:53

I enjoyed this book, but it is not a book on investing.  Here is my rough breakdown of the book: 40% Ben Graham’s childhood 30% Early work experience up until the Great Depression 10% His personal life with family and others. 10% His late-Depr

Expensive High Yield – II

Published on 2013-01-19 22:37:43

Near this time in 2012, I wrote a piece called “Expensive High Yield.”  In it I argued that higher quality high yield bonds were overvalued, but that CCCs might still have some play. Here was my conclusion: Whether I look at the Merrill

Sorted Weekly Tweets

Published on 2013-01-19 08:38:43

Central Banking

Penny Wise, Pound Foolish

Published on 2013-01-18 04:37:06

Some of the dumbest things I have seen in my life inside corporations revolve around incompetent managers, who don’t have the foggiest idea how to grow value organically, and use a variety of shortcuts or cheats to give an illusion of creating

Hit the “Defer” Button, Thanks…

Published on 2013-01-18 02:36:58

Long-time readers know that I am a fan of Michael Pettis.  I learned a ton from his book, “The Volatility Machine.”  (I have the top review of his first book at Amazon.) I am quoting from his recent email, “What I will watch in 20

Matching Assets and Liabilities Personally

Published on 2013-01-15 01:56:09

An email from a reader: I saw some of your articles on Seeking Alpha, then read through a bit of Aleph Blog.  Thanks for writing the articles, they are quite interesting.  I have seen the advice “Match Assets and Liabilities” more times

On Financial Blogging

Published on 2013-01-12 22:07:10

Why do financial bloggers do what they do?  (I include in this economists and investors as well…) Is it for fame?  Maybe for some, particularly at the top, for the most popular finance bloggers.  One nice thing about the financial blogospher

Sorting Through the News

Published on 2013-01-11 22:53:43

I’ve used Yahoo Finance for over 15 years.  I think it is the best single free news source for companies on the web.  If you know a better source, please mention it in the comments. But there is a lot of low value data in their news feeds, so

Sorted Weekly Tweets

Published on 2013-01-11 20:54:06

Basel III   Betrayed by Basel http://t.co/dzH7crDt Additional Liquidity & Capital will always lower the bank’s ROE; banks always protest over safety $$ Jan 12, 2013 International rules & regs r also easier to co-opt, b/c the normal political o

The Order of Battle in Financial Planning for Ordinary Folks

Published on 2013-01-11 00:12:55

I sat down to talk with a young couple with three kids about personal finance.  This taxes me, because I’m not a financial planner.  I can remember most but not all of the rules on the taxation of various investments. But this is the way that

“This is Only Entertainment”

Published on 2013-01-09 23:11:00

This is not meant to be a rant, but it may end up as one.  Yes, I have a disclaimer at my blog.  We all need disclaimers.  My disclaimer focuses on the idea that even bright people may make severe mistakes, and that the best of us only hand out ed

The Evaluation of Common Stocks

Published on 2013-01-09 22:35:46

Today, Tom Brakke of the Research Puzzle wrote: “Go to it then. The field is wide open. The old masters have confessed their inability to determine value objectively. More investors than ever before are committing their capital to stocks. Very litt

On the Platinum Coin

Published on 2013-01-09 01:10:30

Okay, so the Treasury mints a Platinum coin, and deems it to be worth One Trillion Dollars.  We have a fiat currency, so what is the problem? There are fiat currencies, and there are fiat currencies.  Depositing something as collateral into the cen

Why I Sold the Long End

Published on 2013-01-07 23:45:39

My bond strategy has always had a position in TLT until last week.  TLT, composed of long Treasuries. is a hedge against deflation, and has made money for my clients. I changed last week because of significant disagreements at the Fed regarding the

Sorted Weekly Tweets

Published on 2013-01-05 08:04:03

Greetings

Locking in a Smaller Loss

Published on 2013-01-03 23:44:20

Why are TIPS yields negative out to 20+ years?  People are willing to lock in a loss versus CPI inflation in order to avoid a possibly larger loss. Why do some people continue to invest in money market funds, bank deposits, savings accounts, when in

Funding What Should Not Be Funded

Published on 2013-01-01 00:53:34

With the Fed engaging in financial repression (maybe that should be oppression, the only role of the Fed is to steal from savers…) there are many corporate bonds being issued at low yields, some of which  are at lower yields than losses that w

Evaluating Regulated Financials

Published on 2012-12-29 16:04:35

Dear readers, I repost here an edited version of what I shared with a Linked-in group: =–=-==-=-=–=-=-==-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-==-=-=-=-=-=- I took Benefit-Cost Analysis from Dr. Hanke of Johns Hopkins in 1980, a

Sorted Weekly Tweets

Published on 2012-12-28 23:32:52

Before I give you the Tweets, I just want to tell you that I will be blogging  this fine accounting conference on IFRS/ US GAAP.  Those that want to attend at a discount can use this code Aleph10 to save 10%.  CFAs get a code that saves 20%.  I t

Why do Value Investors Like to Index?

Published on 2012-12-28 11:48:23

I think I had some good things to say in the last post, but one commenter disagreed, and he had some good things to say: Unfortunately, the premise of this article is completely flawed, as it assumes all “indexes” are simply S&P 500 or Total Stoc

Follow-up from “On Watchlists”

Published on 2012-12-27 08:36:44

Before I start this evening, I wanted to point out something that the Googlebots dragged in.  It’s a list of all the RSS feeds currently created for Aleph Blog.  Note: I only created two of those, the main feed, and the comments feed.  The o

On Watchlists

Published on 2012-12-26 03:16:17

Before I start this evening, a quick story: One day in March, I got an e-mail from an older gentleman, and he said, “Hi, my name is XXXXXX.  Please call me.”  The name sounded familiar but I couldn’t place it.  So I called him, a

Why do Value Investors Like Indexing?

Published on 2012-12-25 03:54:32

In general, most value investors like indexing.  Buffett and many others agree on this.  But why? 1) Most value investors that I have known want ordinary people to have an option of doing pretty well, without investing with them, because the minimu

Book Review: The Snowball, Epilogue

Published on 2012-12-25 00:45:51

After I finished last night, I realized I had a few more things to say.  First I need to correct what I wrote in part two regarding the separation of Buffett and Susie.  Here’s some help from one of my readers: I do have a bone to pick with y

Book Review: The Snowball, Part Four

Published on 2012-12-22 22:24:45

One thing I did not leave clear from my prior writing: Buffett does not think in terms of market value. He thinks in terms of book value, and how to compound it. That is how I think the markets as well. I think of the markets like a businessman does,

On Game Theory and Politics

Published on 2012-12-22 01:32:23

Game theory has always been relevant to American politics, and politics generally.  The basic rule in a multiple player game is “create a coalition that has a majority of the voting interest,” and you win.  Because of division of powers

Sorted Weekly Tweets

Published on 2012-12-21 23:43:43

Macroeconomics

Book Review: The Snowball, Part Three

Published on 2012-12-21 21:04:34

Compounding If you have to make it simple, Warren Buffett is in the compounding business. That is what he has done since he was a young boy. He started with selling gum. He moved on to working inside the family firm. Once his father moved onto DC as

Blog Notes

Published on 2012-12-20 00:35:51

Once again, I have an article the Baltimore Business Review.  You can download it here.  My article is on page 40 of the PDF. The Baltimore Business Review is unique, a collaboration between Towson University, and the Baltimore CFA Society.  The C

Book Review: The Snowball, Part Two

Published on 2012-12-19 23:55:57

According to the book, his wife Susie approached Astrid Menks to care for Warren with food, and other aspects of personal care.  But for a man to have his wife abandon him, with no prospect of return, a pretty 30-year old woman with few requirements

Book Review: The Snowball, Part One

Published on 2012-12-18 00:54:34

I had wanted to read this book for a long time, and I asked the publisher for a copy of the book.  No copy came, and I asked years ago. Recently, Alice Schroeder came to speak to the Baltimore CFA Society, and after hearing her good talk, I decided

Selling Options Cheaply (Did You Know?)

Published on 2012-12-15 22:04:01

Tom Brakke, the Research Puzzler, has started up yet another site to display bits of interesting information that he has run across — Research Puzzle Pieces.  His first piece was an interesting one, and I would like to give you my spin on it.

Sorted Weekly Tweets

Published on 2012-12-15 02:35:45

Who to Follow

Book Review: Think, Act, and Invest Like Warren Buffett

Published on 2012-12-13 23:15:20

This is a tough book to review, because I generally respect the author, but there are many things I don’t like about the book.  Let’s start with the main one: My friend Alice Schroeder came to speak to the Baltimore CFA Society early in

Considering Selling the Long End

Published on 2012-12-13 00:10:12

This will not be a long post.  My bond strategy has always included longer bonds from LQD, and very long bonds from TLT.  They have made money for me & my bond clients.  But now I am thinking of selling them.  Why? Let’s consider the histor

Redacted Version of the December 2012 FOMC Statement

Published on 2012-12-12 12:49:19

October 2012 December 2012 Comments Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to expand at a moderate pace in recent months. Information received since the Federal Open

Post 2000

Published on 2012-12-12 00:29:54

This has been a lot of fun.  This has been a lot of work.  This has been a “labor of love.” When I wrote for RealMoney, I would sometimes say to my editor Gretchen, “Here’s another labor of love piece,” to which she wo

Of Servants and Robots

Published on 2012-12-11 00:11:35

When I read about some of the arguments regarding robots replacing people, and creating more unemployment, I shake my head and say to myself, “Nobody studies history.” Most of human history has had a surfeit of people versus those that co

The Beginning of the End of Money Market Funds

Published on 2012-12-08 22:58:40

Say goodbye to money market funds, and hello to more volatility, whether in money market funds, or their substitutes.  As with all of the financial crisis, it would have been better if the Fed and Treasury had not intervened.  Most money market fun

Focus on what you can Control

Published on 2012-12-08 22:47:05

In investing, focus is important.  We have to divide the world into what we can and can’t control. Will North Korea (snicker) or Iran (no snicker) get nuclear arms?  I can’t control that, an I am not sure what I would do if I knew what

Sorted Weekly Tweets

Published on 2012-12-07 23:11:58

Eurozone

Behind the Curve

Published on 2012-12-06 00:20:33

If you were an actuary working for a Defined Benefit pension plan, or Social Security, you would develop an estimate of the stream of cash flows that you expect the plan to pay.  The expected cash flows are ultimately what matters.   Estimates of

Investing In P&C Insurers

Published on 2012-12-05 23:44:58

When I was half my current age, an actuary in my life insurance firm said to me, “Property-Casualty insurance is not real insurance.  When they lose money, they just raise rates, and they make the money back.”  Today, with greater knowl

Another Penny Stock to Avoid

Published on 2012-12-05 01:03:51

I received a “newsletter” today from Legendary Stocks.  Now with a name like “Legendary Stocks,” you would think the companies would have a long prior existence.  But the stock mentioned I can’t even find on EDGAR, whi

Problems in Life Insurance

Published on 2012-12-04 03:20:23

I am not an FSA, but I am an actuary.  That said, I am not presently practicing inside a life insurance company, so as I write this, there may be some things that I get wrong. There are two areas that concern me in life insurance accounting at prese

Not a Diamond, it is Only Graphite

Published on 2012-12-01 22:20:16

It’s been two months since I have written about promoted penny stocks.  Let’s start with how the penny stocks I have written about have done. Ticker Date of Article Price @ Article Price @ 11/30/12 Decline Annualized Splits GTXO 5/27/200

Young People Should Favor Low Discount Rates

Published on 2012-12-01 22:17:57

Where should the discount rate for liabilities on a defined benefit pension plan be set?  This sounds like a boring issue that should be solved by bureaucrats or actuaries.  And yes it *is* boring, though nerds like me have a keen interest in the t

Sorted Weekly Tweets

Published on 2012-12-01 00:43:38

Credit Markets

If you Want to be Well-off in Life

Published on 2012-11-30 04:41:51

I write this because it should be obvious but is not.  I grew up in a house where my Dad earned an average income from his business, but my Mom took around 10% of the income and invested it half in utilities and half in growth stocks.  As my Mom sa

On Human Fertility, Part 2

Published on 2012-11-29 04:33:56

I write about this every now and then, because human fertility is falling faster then most demographers expect.  Using the CIA Factbook for data, the present total fertility rate for the world is 2.47 births per woman that survives childbearing.  L

On Math Education

Published on 2012-11-28 04:32:21

When I was a kid, my life was mathematics.  When I was little, my mom would hand me sheets of addition and subtraction problems that did not involve carrying or borrowing, and I would fill them out for her, and she would give me more.  That’s

Recent 13F filings

Published on 2012-11-24 22:01:53

I make changes to my portfolio and those of my clients once a quarter, where I trade out of 2-4 of my ~35 companies, and buy a similar number of new companies.  I have detailed that in this article. But one thing that I do differently now is where I

Bombing Baby BDC Bonds

Published on 2012-11-24 02:02:17

After reading Jason Zweig’s good piece, “Should You Bottle Up Your Money in ‘Baby Bonds’?” I said to myself, “But what does the prospectus look like?”  So I went to EDGAR, and pulled up the prospectus for Fi

Sorted Weekly Tweets

Published on 2012-11-23 23:58:24

Politics & Policy

Stuffing & Thanksgiving

Published on 2012-11-22 22:55:02

Some of my readers might know that one of my hobbies is cooking.  Today I cooked a 24-pound Turkey, 4-pounds of Roast Beef, made gravies for both, mashed potatoes, mulled apple cider, toffee and stuffing, for a gathering of 25 at my house, who broug

On Hedge Funds

Published on 2012-11-22 00:22:38

I don’t think hedge funds are an optimal way to manage assets.  Here are some of my reasons: The fees are too high.  Why pay 2% of assets, and give up 20% of the profits? Hedge funds, aside from Commodity Trading Advisers and Global Macro fun

On Hucksters

Published on 2012-11-21 00:42:09

I get my share of requests for help.  Some are from naive friends (but not so naive that they don’t ask me) are solicited on Nigerian scams.  A few quick analyses, and I can tell them: don’t do it.  This is a scam. Then there are peopl

Charlie Brown the Retail Investor

Published on 2012-11-17 22:05:36

Sorted Weekly Tweets

Published on 2012-11-17 01:03:05

Cato Institute Monetary Policy Conference

Cato Institute 30th Annual Monetary Conference, Epilogue

Published on 2012-11-15 23:23:26

I’m back home, and now I can give my opinions on the presenters at the Cato Monetary Conference. Vernon Smith was relatively realistic.  He understands that this is a debt crisis, and that reducing debt is the main priority.  Overindebted eco

Cato Institute 30th Annual Monetary Conference, Part 7

Published on 2012-11-15 16:01:20

Charles I. Plosser President, Federal Reserve Bank of Philadelphia Plosser’s speech: “Good Intentions in the Short Term with Risky Consequences for the Long Term.” Since Plosser is reading his speech almost verbatim, for me to take notes would

Cato Institute 30th Annual Monetary Conference, Part 6

Published on 2012-11-15 15:29:18

Moderator: Tao Zhang U.S. Bureau Chief, Caixin Media Capital Freedom for China

Cato Institute 30th Annual Monetary Conference, Part 5

Published on 2012-11-15 14:20:55

Moderator: Mary Anastasia O’Grady Member, Editorial Board, Wall Street Journal Lessons from the Euro Crisis Opens by saying that the Euro was started with good intentions.  (DM: low praise that it was not designed to fail.) George S. Tavlas Di

Cato Institute 30th Annual Monetary Conference, Part 4

Published on 2012-11-15 13:06:36

John B. Taylor Professor of Economics, Stanford University Money, Markets & Governments: The Next 30 Years Last 30 years — 1982-2002 good monetary policy, in his opinion. 2002-2012 bad monetary policy. Economic performance deteriorated during t

Cato Institute 30th Annual Monetary Conference, Part 3

Published on 2012-11-15 11:41:45

Moderator: William Poole Senior Fellow, Cato Institute The Fed has practically given up its independence.  It is independent with the confines in the government. QE2 was a mistake — there were already excess reserves at the banks. Current econ

Cato Institute 30th Annual Monetary Conference, Part 2

Published on 2012-11-15 10:09:05

Moderator: Zanny Minton Beddoes Economics Editor, The Economist Thomas Hoenig Vice Chairman, Federal Deposit Insurance Corporation Tells us to be skeptical of changes in financial regulation.  Incentives have not changed to favor increased leverage

Cato Institute 30th Annual Monetary Conference, Part 1

Published on 2012-11-15 08:53:52

Note to readers: these are my notes from the conference, as such, they will be rough. Keynote: Vernon L. Smith, Professor of Economics, Chapman University, and Nobel Laureate in Economics Main points: 1) we get bubbles because we misfinance long-term

The Rules, Part XXXVI

Published on 2012-11-15 00:00:43

It almost never makes sense to play for the last 5% of something; it costs too much. Getting 90-95% is relatively easy; grasping for the last 5-10% usually results in losing some of the 90-95%. When I was a corporate bond manager, and doing my own tr

Don’t be a Fool

Published on 2012-11-13 23:50:08

When I wrote for RealMoney, I would often write things critical of others, but not identify my target.  Why? I didn’t want to get kicked out, or have a fight that would discredit RealMoney. But I did want to teach general principles. I maintai

The Rules, Part XXXV

Published on 2012-11-10 22:56:23

Stability only comes to markets in a self-reinforcing mode, from buy and hold (and sell and sit on cash) investors who act at the turning points. Beyond the vicissitudes of the markets, there are businessmen.  They have a sense of what their capital

Sorted Weekly Tweets

Published on 2012-11-10 22:54:46

Eliminating the Rating Agencies, Part 3

Published on 2012-11-08 23:26:11

There’s one thing that is a little odd about me: occasionally as I am waking in the morning, something that I have been thinking about comes crashing in on me, and I get a moment of clarity where everything seems obvious for a complex question.

Eliminating the Rating Agencies, Part 2

Published on 2012-11-08 03:37:42

After writing Eliminating the Rating Agencies, I felt there was room for improvement.  Part of that stems from reading critiques of the rating agencies that really don’t understand why ratings exist.  Ratings don’t exist to help average

Industry Ranks November 2012

Published on 2012-11-07 00:41:28

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 t

An Actuarial Question

Published on 2012-11-06 01:26:28

Here is a question from a reader: Hi Mr. Merkel,  My name is XXXXXXX and I rcently started my ASA modules. I am considering pursuing a Chartered Enterprise Risk Analyst designation from the SOA. I was curious if, based on your experience in both the

NOTA Bene

Published on 2012-11-05 23:49:32

Like my friend Cody Willard, I believe that one of the most important things that could happen politically would be to break the stranglehold that the Republican/Democrat duopoly has on the political process.  This evening, I am here to offer a simp

This Election Will Solve Nothing

Published on 2012-11-04 01:32:44

When I look at the present choice between the two main parties, I am struck with how we are forced to choose between two fantasy worlds.  Romney thinks he can cut taxes further while we have record deficits.  I would be in favor of radically simpli

On Time Horizons

Published on 2012-11-03 23:48:09

Why are time horizons important?  Because people have future goals that they want to meet.  We typically invest money today because we have some need that we are trying to meet in the future, whether that is college expenses, retirement, or some ot

Sorted Weekly Tweets

Published on 2012-11-02 23:40:29

Yield is the Last Refuge of Scoundrels

Published on 2012-10-31 23:18:42

Governments involved in financial repression (keeping savings rates below the inflation rate) encourage their citizens to do stupid things by reaching for yield.  Remember, most people think of yield as a magic chicken that lays eggs on schedule, an

Dealing in Fractions of Sense

Published on 2012-10-27 23:55:59

So the SEC wants to take on some of the market distortions caused by decimal (and sub-decimal) pricing.  Well, there are the things that can’t be argued about and the things that can. Starting with what can’t be argued about: liquidity is not a free good.  In a trading market, it exists because market makers [...]

Sorted Weekly Tweets

Published on 2012-10-26 23:01:02

Insurance

On the Virtue of Hard Questions for Young Analysts

Published on 2012-10-26 05:22:55

Yesterday I represented the Baltimore CFA Society at the kickoff meeting for the 2013 Global Investment Research Challenge.  As is the norm, the Washington, DC CFA Society (which is 2.5x larger than us) and Baltimore choose a local company for the students to analyze.  Last year, it was Under Armour [UA].  This year, it is [...]

Higher Taxes, Inflation, Default (Choose One)

Published on 2012-10-25 05:54:58

I am a mix of analysis and intuition. Few argue with my analysis, a decent number argue with my intuition.  But I am not the only one concerned about monetary policy.  Listen to Warren Buffett (pages 12-16, but he comments elsewhere on the cost of capital and the inability to compete on an unlevered basis [...]

Redacted Version of the October 2012 FOMC Statement

Published on 2012-10-24 13:43:46

September 2012 October 2012 Comments Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to expand at a moderate pace in [...]

Why I LOVE Blogging

Published on 2012-10-24 01:07:58

Abnormal Returns (one, two), The Reformed Broker, and Felix Salmon all opined on the health of the Financial Blogosphere today.  It’s dying.  It’s not dying. As an actuary, I don’t have to be so strident.  Death is a normal thing for fallen men and their creations.  The only question is how rapidly they die.  A [...]

The Rules, Part XXXIV

Published on 2012-10-22 23:46:07

“Once something is used for hedging purposes, it becomes useless for predictive purposes.” I know this is kind of a trivial insight now, but when I originally wrote it, it was more cutting-edge.  That said, it is still not fundamentally understood by most.  Most still look at a fragment of the puzzle.  Few look at [...]

On PB-ROE

Published on 2012-10-20 23:45:40

Here is an e-mail from a reader: I’m curious about the intercept of the PB-ROE line. In your examples (http://alephblog.com/2012/02/25/thinking-about-the-insurance-industry/), only life had a negative intercept; the others were all positive. Here’s the implication:  PB = a + b ROE (where a and b are the intercept and slope). If I divide both sides by [...]

Book Review: Investing in the High Yield Municipal Market

Published on 2012-10-19 23:24:20

This is a very good book.  It is also a hard book, so I don’t think many of my readers will benefit from it. Score yourself: How well you do understand bonds? How well do you understand muni bonds? How much do you understand about credit analysis? Do you understand how municipal credit is different [...]

Sorted Weekly Tweets

Published on 2012-10-19 22:45:50

Sorry I missed last week.  Thanks to those who like this.

Match Assets and Liabilities

Published on 2012-10-19 01:31:13

“Good investing stems from matching assets to the eventual need to pay cash at a future date.  True for individuals and institutions.” So I said yesterday.  A few people said to me that I needed to expand on that, and so now I expand. The most common error in mismatching investment horizons is borrowing short [...]

Total Return Versus Long Liabilities

Published on 2012-10-17 23:11:08

Very briefly in my career, I was Chief Investment Officer of a significant life insurer.  Sadly, that was my dream job, and to have it and lose it was a blow that I accepted, because I did what was right. At my first meeting with the new CEO, he expressed that investment returns had been [...]

With Preston Athey at the Baltimore CFA Society

Published on 2012-10-16 23:28:01

I don’t think I have mentioned this publicly, but I am on the board of the the Baltimore CFA Society.  My main task is to be co-chair for Programs, though I also like working with college students via the CFA Institute’s Global investment Research Challenge. In general, I help where I am asked to help.  [...]

Book Review: The Financial Domino Effect

Published on 2012-10-16 01:38:39

This is a good book.  It has one significant problem, though.  It is very good at describing the problems that exist, but does not follow through on the subtitle: How to Profit Now in the Volatile Global Economy.  That might be a publisher error.  They want to sell books, and a book that describes the [...]

Book Review: How To Really Ruin Your Financial Life and Portfolio

Published on 2012-10-13 23:34:10

Before I start, a thanks to all of my readers who have voted on my reviews. Note: if you have voted on many of my reviews favorably, further votes won’t help.  Amazon limits the effects of fans.  Onto the book: For those unfamiliar with Ben Stein, he has done a series of books on “How [...]

Forest Fires and Central Banking

Published on 2012-10-13 00:40:47

We can create a force that eliminates forest fires, but there will be a cost.  A certain amount of forest fires are normal, and if we don’t have small forest fires, we will have big ones that happen infrequently, and cause a lot of damage. Central banking is similar. Good central banking allows for the [...]

Sorted Weekly Tweets

Published on 2012-10-12 23:50:53

Hoisington Capital Management

On Dividends

Published on 2012-10-10 00:26:05

Set it and Forget it

Published on 2012-10-09 00:52:04

This post is directed at people who don’t get the markets.  People who think they they are experts can stop reading now. I’m the Chairman of the Pension Board of the Reformed Presbyterian Church of North America.  Yes, that long-lived but small denomination that never went through the controversies of modernism, still teaching that Jesus [...]

Got Cash? (Part 2)

Published on 2012-10-07 00:05:15

In the first part of this irregular series, I tried to point out the value of having some slack assets should attractive opportunities present themselves. I try to raise cash in my equity strategy as valuations rise.  I try to reduce cash as valuations fall.  It doesn’t work perfectly, but I do think it reduces [...]

Broken Ruler

Published on 2012-10-06 23:27:00

Sorry for the lack of publishing recently.  I have not been feeling well.  Not sure what it is, but I am feeling a little better now. Under normal circumstances, where a few defaults don’t threaten the whole economic system, and the government is running close to a balanced budget, and the Fed isn’t in a [...]

Sorted Weekly Tweets

Published on 2012-10-05 23:08:43

Rest of the World

Sorted Weekly Tweets

Published on 2012-09-28 23:38:25

My week on twitter: 34 retweets received, 1 new listings, 33 new followers, 40 mentions. Via: http://t.co/SPrAWil0 Sep 27, 2012

Book Review: The Value Investors

Published on 2012-09-27 22:17:15

Value investing shares several attributes which are mentioned in the final chapter of this fine book: Humility in portfolio construction. Valuation, though difficult, is important. Good value investors read widely. It’s not just math, but understanding competitive advantage. Having a good sell discipline. Having the right attitude in investing This book examines 12 men in [...]

Too Much Investment

Published on 2012-09-24 23:04:49

Investment is usually a good thing, but it can be overdone.  How?  Let me list some of the examples: China has overinvested in export industries, infrastructure, and housing, among other things at present. The US and most of the developed world overinvested in housing, or at least, borrowed too much against it.  The same applies [...]

Industry Ranks September 2012

Published on 2012-09-22 22:36:40

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 persist, but look for areas where it might be even better in the near term. [...]

Sorted Weekly Tweets

Published on 2012-09-22 05:13:04

Federal Reserve Policy / Treasury Yields

The Dilemma of Adding Yield, Redux

Published on 2012-09-22 01:25:12

After my post last night, I was asked how I make corrections in analyzing premium versus discount bonds.  (Note: if a bond trades at a higher price than the final amount of principal to be paid at maturity, it is called a premium bond.  If lower, it is called a discount bond.)  Happily, there is [...]

The Dilemma of Adding Yield

Published on 2012-09-21 02:42:21

Back when I was exclusively a bond manager, 2001-2003, which I chronicled in my series “The Education of a Corporate Bond Manager,” I successfully struggled with one concept: when do you try to add more yield to your portfolio, and when don’t you? This is a tough question, because in the short run, it almost [...]

Neoclassical vs Austrian Economics

Published on 2012-09-20 04:40:01

Before I start, I want to say that I have not read Mises, Hayek or Rothbard.  I arrived at these conclusions on my own.  I also want to quote Buffett: “It is better to be approximately right, than precisely wrong.” Applying math to economics has been a loser.  Who has a consistently good macroeconomic model?  [...]

On Low Volatility Investing

Published on 2012-09-19 02:36:03

Recently a friend of mine sent me an e-mail after my review of Eric Falkenstein’s latest book.  Here it is: David, I’ve been reading a decent amount of the academic literature on low vol investing and it’s certainly got my attention.  I’ll definitely be purchasing his book to read thru it, but I think he [...]

We Eat Dollar Weighted Returns — V

Published on 2012-09-18 00:30:59

This is the first episode of “We Eat Dollar Weighted Returns” where the fare is yummy.  Here’s the twist: investors in some bond ETFs have done better than one who bought at the beginning and held. Now, all of this is history-dependent.  The particular bond funds I chose were among the largest and most well-known [...]

Complexity in International Relations

Published on 2012-09-15 23:59:42

One of my sons came to me today, commenting on how stupid it was for there to be deaths that occurred as a result of a lousy movie trashing the so-called “prophet Muhammad.” My comment to him was, “You have to understand that the world is a complex system, with a lot of parties hating [...]

Book Review: The Missing Risk Premium

Published on 2012-09-15 23:50:47

In order to get more return, you have to take more risk, right?  Those of us who are value investors, or bond investors, have disagreed with this idea for years.  We get the best returns by avoiding risk. A great part of of making money in investing is not losing money.  In order to avoid [...]

Sorted Weekly Tweets

Published on 2012-09-14 23:59:57

Financial Markets

Actuaries Versus Quants

Published on 2012-09-14 02:02:22

I’m an Actuary and a Quant.  I’m not and Actuary, and I’m not a Quant. I suppose I could do the other two permutations.  I won’t, but I will explain. I passed all of the exams from the Society of Actuaries to become a Fellow in the Society of Actuaries.  I maintained that credential for [...]

Redacted Version of the September 2012 FOMC Statement

Published on 2012-09-13 12:31:20

August 2012 September 2012 Comments Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. [...]

Carrying Capacity

Published on 2012-09-12 23:56:42

I am usually dubious about the government trying to encourage certain behaviors.  Examples: Buy a house Go to college Manufacture goods Any number of special interest earmarks “Saving” through IRAs and other tax-deferred vehicles I like to think that most people know well enough to look out for themselves.  They know well enough whether they [...]

Reforming Public School Testing

Published on 2012-09-12 00:59:41

My wife was a high school teacher in math and science in West Sacramento when we married.  (West Sacramento is in Yolo, not Sacramento County, and is considerably poorer than Sacramento.)  She is forever grateful that I took her away from “all that,” and allowed her to have a life where she homeschools our three [...]

On Tech Company Dividends

Published on 2012-09-11 00:20:56

There’s a lousy idea floating out there, that it is a bad thing for a tech company to pay dividends (also here).  Not true!  Companies that pay dividends treat their capital more carefully, because now their equity has an explicit cost.  Studies that I have read indicate that dividend-paying stocks do better then those that [...]

Best of the Aleph Blog, Part 18

Published on 2012-09-08 23:36:57

These articles appeared between May and July 2011: Most People are not Better off Buying Common Stocks on their own versus Why Amateurs Should Invest in Common Stocks Yes, I wrote them both, but they complement each other.  Yes, most average people get skinned investing in common stocks, but if you apply yourself assiduously to [...]

Sorted Weekly Tweets

Published on 2012-09-08 21:52:36

Eurozone

Book Review: The New Tycoons

Published on 2012-09-08 00:02:29

Private equity is ill-understood by the general public because it is private.  They don’t have to file statements with the SEC, all they have to do is inform their limited partners on how they are doing. Jason Kelly gives us a neutral view of what is going on in private equity.  I think he is [...]

Breaking the Buck from Interest Rate Movements

Published on 2012-09-07 00:17:13

I was talking with two new friends of mine today regarding money market funds.  Surprising me, on asked whether the proposal that I made to the SEC covered only credit events, or whether it covered interest rate risk as well. I all too easily commented that movements of short rates don’t happen fast enough to [...]

Do You Feel Better Off?

Published on 2012-09-06 00:15:39

Ugh.  I have learned over the years that posts that verge onto politics give me the most negative mail.  My politics are more complex than most, and I can tell you I am not voting for Romney or Obama.  So please, do not take what I say as advocacy for either party. As this article [...]

How Warren Buffett is Different from Most Investors, Part 2

Published on 2012-09-04 23:27:20

Before I begin this evening, let me simply say that where I find intelligence, I appreciate it, whether I agree with all the ethics of the situation or not.  Buffett is a bright guy, brighter than most.  I have *not* been shy to criticize Buffett when I thought there were ethical lapses — whether it [...]

Book Review: The Payoff

Published on 2012-09-03 23:41:56

How cynical are you? How close have you been to politics in DC? I know a lot of people who work for the US Government directly or indirectly, and they are astounded at the waste and fraud.  They are honest people, and it weighs on them. The more I watch it, the more I think [...]

Spot the Gerrymander

Published on 2012-09-01 23:36:18

One of the following maps is the current gerrymander of Maryland’s Congressional District, and the other is my attempt at fair districts for Maryland. Map 1 Map 2 I’ve written before on how to create fair districts.  Let a computer do it, minimizing the lengths of internal borders, subject to the districts being roughly the [...]

Sorted Weekly Tweets

Published on 2012-08-31 23:33:22

Innovations

Volatility Analogy

Published on 2012-08-30 23:26:34

Today Heidi Moore interviewed me for NPR Marketplace.  I won’t give away what it is about, but I will tell you two things: If I am on Marketplace, it will be on Friday or Tuesday. There was a point in the interview where she stumped me.  I’m usually pretty able to think on my feet, [...]

Book Review: A Decade of Debt

Published on 2012-08-30 10:39:51

This is a short book that in some ways is a summary of Reinhart and Rogoff’s greater work This Time Is Different: Eight Centuries of Financial Folly. Think of it as an executive summary in book form.  How short is it?  Less than 160 pages, but in terms of text there’s less than 40 pages [...]

Book Review: The Nature of Risk

Published on 2012-08-28 23:27:06

I’m here this evening to review another excellent book on risk control by David X Martin. This is a difficult book to review, because if I describe what happens, I end up spoiling the book.  This is a small book, and I read it in less than an hour. This book came into existence because [...]

Book Review: The Crisis of Crowding

Published on 2012-08-28 03:26:51

How Warren Buffett is Different from Most Investors, Part 1

Published on 2012-08-25 23:57:16

There was an academic article published recently on the investing of Warren Buffett.  Afterward, I thought I saw a few articles reflecting on it, but here is the only one I see now: There’s Warren Buffett — and then there’s the rest of us. Buffett is different, because he grew as an investor and as a [...]

Book Review: Bailout

Published on 2012-08-25 23:36:45

What does Washington, DC care about more — people or corporations?  Do you have to ask? DC favors corporations, and all three branches of the government support this.  Both parties favor this.  Why is this so? The corporations, and those that own them are a more effective means of raising funds to maintain their hold [...]

Sorted Weekly Tweets

Published on 2012-08-25 03:03:13

Politics

The Future Belongs to Those with Patience, Part 2

Published on 2012-08-24 04:13:43

This occurred to me today, and so I want to toss it out as an idea, even if I never get to work with it.  What percentage of stocks are covered by 13F filings?  I bet it is pretty high. Here’s my idea: using the 13F filings, we segment holders into traders (“weak hands”) and [...]

On the International Business Machines Industrial Average

Published on 2012-08-23 22:54:53

On the Specialness of Long Treasuries

Published on 2012-08-23 00:57:20

When Gary Schilling presented to the Baltimore CFA Society, he made the comment about how much bonds beat stocks by.  His proxy for bonds was 25-year zero coupon bonds.  Invest in those from 1980 to the present, rolling to the new 25-year regularly, and yeah you can beat stocks handily when interest rates fall and [...]

What Caused the Crisis?

Published on 2012-08-22 02:51:14

I have wanted to write this article for some time, but decided to sit on it in order to consider the matter more closely. What caused the financial crisis of 2008? In my writings at RealMoney, I anticipated much of the crisis, though not all of it, and certainly not the severity of it. The [...]

The Future Belongs to Those with Patience

Published on 2012-08-18 23:29:49

I’ve finished the book “Bailout” and will review it next week.  I am in the midst of the book “The Crisis of Crowding,” and will likely review it next week.  What I write this evening is a bit of an experiment, and preparatory to what I write on “The Crisis of Crowding.” Here’s the issue: [...]

Using Investment Advice, Part IV

Published on 2012-08-18 00:21:20

My last point on investment advice is to think long-term and treat it as a business.  You are trying to buy underpriced cash flow streams. Because it is a business, you must focus on the long term, and downplay short cycle information.  Don’t let the media scare you or make you greedy.  There are bumps [...]

Sorted Weekly Tweets

Published on 2012-08-17 23:09:00

Note: Tomorrow (Saturday) I will be on WBAL Radio at 8:30 AM Eastern with local radio host Jimmy Mathis, talking about the markets.  If you are up, they do stream the broadcast.

Using Investment Advice, Part III

Published on 2012-08-16 22:39:30

The next aspect of using investment advice is understanding your own capabilities.  It comes down to what you understand, and what you have time for. Some investment advice requires constant attention, even assuming that it is right.  Does your job afford you that flexibility?  If it doesn’t, you need to look to longer-term strategies. There [...]

Using Investment Advice, Part II

Published on 2012-08-15 00:58:57

Part two is understanding the advice.  A large part of the problem is that many aspects of the advice are unsaid.  For example, with a “buy” recommendation: What time horizon does this recommendation require? How likely is it that this investment will succeed? What risk factors could cause the investment to fail? How will this [...]

What Insurance do Actuaries Buy?

Published on 2012-08-14 00:01:35

A reader asked me the following:  When I know that you are trained as an actuary it got me curious. They say that actuary assess the risks of insurance products to find value for consumers, at the same time evaluate the probable risks of the product.  What kind of insurance does an actuary actually buy [...]

Using Investment Advice, Part I

Published on 2012-08-13 23:35:09

If you have a subscription at RealMoney, you should read these articles: Using Investment Advice, Part 1 Using Investment Advice, Part 2 Using Investment Advice, Part 3 Tread Warily on Media Stock Tips I didn’t say it at the time, but I wrote those with Cramer in mind.  This was not that I did not [...]

Industry Ranks August 2012

Published on 2012-08-11 23:41:36

Book Review: Moods and Markets

Published on 2012-08-11 23:02:36

Sorted Weekly Tweets

Published on 2012-08-10 23:26:46

Life Insurance Secondary Guarantees

On the Poway School District

Published on 2012-08-10 01:50:02

I am not an expert on Municipal Bonds, so if an expert reads this, and has corrections for me, please leave corrections in the comments. In general, I am a conservative guy who avoids situations with a lot of debt.  I am also an actuary and a financial analyst who has a lot of experience [...]

On Complexity in Financials, and Insurers Specifically

Published on 2012-08-09 01:11:23

I’m not a fan of complexity in financial companies.  Complexity is a sign of trying to be” too clever by half,” as the British might say.  If an economic idea is good it can be executed simply.  Complex financial business stems from a desire to do accounting, regulatory, and other arbitrage. Like my piece on [...]

Retail Investors and the Stock Market

Published on 2012-08-07 23:39:40

I’ve seen a spate of articles lately on retail investors abandoning the stock market. Here’s a sampling: Cult Figures — Bill Gross Stock bulls have a beef with Bill Gross — Jonathan Burton Why Are Investors Fleeing Equities? Hint: It’s Not the Computers — Andrew Ross Sorkin Small investors vs high-speed traders — Felix Salmon [...]

On Credit Scores

Published on 2012-08-05 00:24:09

To give credit where credit is due, this post was triggered by an article at SmartMoney, 10 Things Credit Scores Won’t Say. In 1996, I got a call from a recruiter suggesting there was a real opportunity with the Philadelphia-based corporation Advanta.  They were looking for an actuary with investment knowledge that could help them [...]

Sorted Weekly Tweets

Published on 2012-08-04 20:40:36

Monetary Policy

Limitations of Credit Default Swap Spreads

Published on 2012-08-02 04:34:16

Once I was talking to my boss at Provident Mutual about exotic options, like barrier, knock-out, and knock-in options.  As I described them to him his reactions were: Why would I want to take that risk? But when describing the other side of the trade, he would say “That’s an attractive proposition.” And vice-versa.  He [...]

Redacted Version of the August 2012 FOMC Statement

Published on 2012-08-01 13:57:10

June 2012 August 2012 Comments Information received since the Federal Open Market Committee met in April suggests that the economy has been expanding moderately this year. Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Shades the GDP view down. [...]

PIMCO in Theory and Practice, Part II

Published on 2012-08-01 00:20:18

Things are weird when you write the second part of an article five years later.  I don’t have a strong opinion on some of the arguments between Felix Salmon and “Dutch_Book,” or maybe I have too many opinions, and they conflict. But I wanted to offer some data on PIMCO that I have gathered, as [...]

Forget Your Cost Basis

Published on 2012-07-31 04:48:10

All good investment decision-making is forward looking.  Whether you are buying or selling, it doesn’t matter where prices have been in the past. Now, that said, price and volume charts may occasionally indicate where there is support or resistance.  That might be worthy of consideration in the short-run.  When I was an institutional bond manager, [...]

On Life Insurance and Life Reinsurance

Published on 2012-07-30 22:56:40

I get good questions from readers.  Here’s one from this post: Is there a reason why life reinsurance companies are better positioned then life insurers? Don’t they face the same problems that they won’t be able to generate as they roll their portfolios into lower yielding bonds going forward (since rates have come down so [...]

Missing Earnings Estimates

Published on 2012-07-28 23:01:22

Missing earnings estimates hurts in the short run, but it doesn’t mean much if there is no indication that the overall earnings trend has changed.  If the overall trend in earnings has turned down watch out.  Prices can fall as for Zynga and Facebook. Then you have something like Reinsurance Group of America [RGA].  It [...]

Book Review: Visual Guide to Financial Markets

Published on 2012-07-28 03:55:09

This is a good book and I recommend it to certain people.  Thus when you see the number of stars I give it at Amazon, know that for those whom the book is good, it is really good.  But there are some who will get less out of the book. The author, David Wilson, is [...]

Sorted Weekly Tweets

Published on 2012-07-28 02:51:50

On Investment Speakers

Published on 2012-07-27 00:56:47

I’m on the program committee for the Baltimore CFA Society.  We hold around 10-12 programs per year, meeting for lunch at the Centre Club in Downtown Baltimore.  It’s probably the most visible aspect of the society.  Even when I wasn’t on the program committee, I still brought in some speakers: John Neff, Richard Bernstein, and [...]

On Bond Investing

Published on 2012-07-26 04:30:45

When it comes to bonds I have four main ideas. Invest in areas where you are more than adequately compensated for the risks. Try to be as unconstrained as possible. After a credit crash, wait for the momentum to return to credit, and pile on. During a time of debt deflation, be willing to hold [...]

Lonely Puppies, or Abandoned Mutts

Published on 2012-07-25 23:56:58

I have often owned companies with little to no sell-side analyst coverage.  Ask yourself this, how many companies trading on US exchanges are there: That have no analyst coverage That are US-based That have a Market Cap over $250 million That aren’t passthrough vehicles And have pitiful liquidity at least I made the following list [...]

Concentrated Interest

Published on 2012-07-24 23:07:32

I used to think that Barack Obama was one of the more intelligent Presidents of the United States, but I no longer do.  Consider his recent statements, which show his socialistic attitude:      There are a lot of wealthy, successful Americans who agree with me — because they want to give something back.  They know [...]

Book Review: Prisoner of the State

Published on 2012-07-24 01:17:00

Before I start this evening, a note to readers: if you like my reviews, vote them up at Amazon.com. This book is very different than most I review.  First, it should not have existed.  While the author was under house arrest, he found time to dictate the book, recording over music tapes of his children [...]

Packages! Packages!

Published on 2012-07-21 23:13:06

When I started doing stock investing, I began sending off information requests to 70-120 companies at a time via mail.  In those days, I would print off the letters at my computer, and mailing labels as well.  I would generate the addresses from the AAII Stock Investor program that I still use. But I got [...]

Sorted Weekly Tweets

Published on 2012-07-21 00:20:53

The Education of a Mortgage Bond Manager, Part II

Published on 2012-07-20 09:37:39

In much of my life, I have been thrust into situations for which I was not ready, and ended up rebuilding the wheel, or came up with an unorthodox approach that worked.  But a lot of the problem came down to the question of time horizon.  How long can you buy and hold, even if [...]

The SEC Should Make Illegal the Advertising of Stocks

Published on 2012-07-19 01:15:08

First, the promoted penny stock scorecard: Ticker Date of Article Price @ Article Price @ 7/18/12 Decline Annualized GTXO 5/27/2008 2.45 0.03 -99.0% -66.9% BONZ 10/22/2009 0.35 0.02 -94.0% -64.2% BONU 10/22/2009 0.89 0.12 -86.5% -51.9% UTOG 3/30/2011 1.55 0.07 -95.5% -90.7% OBJE 4/29/2011 2.90 0.03 -98.9% -97.5% LSTG 10/5/2011 1.12 0.13 -88.2% -93.4% AERN [...]

Three Notes on the Present Deflation

Published on 2012-07-18 09:42:11

Today I received in my e-mail missives from: Hoisington Investment Management Michael Pettis and John Mauldin I have come to value each of their opinions.  Hoisington has been one of the leading deflationists for the last 20 years, racking up a 10%+ return annually in T-bonds.  I don’t know of anyone that can beat that [...]

Book Review: The Malign Hand of the Markets

Published on 2012-07-17 00:56:59

When I first saw the book, and read the introduction, my heart sank and I said to myself, “I doubt I will like this one.” I was wrong, very wrong, and liked the book more and more as I read it.  The author is a professor of Psychology, Biology and Neurobiology, and is writing about [...]

The Education of a Mortgage Bond Manager, Part I

Published on 2012-07-14 23:57:14

You might remember my “Education of a Corporate Bond Manager” 12-part series.  That was fun to write, and a labor of love, but before I was a corporate bond manager, I was a Mortgage Bond Manager.  There is one main similarity between the two series — I started out as a novice, with people willing [...]

Sorted Weekly Tweets

Published on 2012-07-13 23:50:19

Bond Markets

What to do on Bonds?

Published on 2012-07-13 12:57:21

I’ve had good returns on bonds over the last year, largely because I invested in long deflation investment grade bonds.  I took on a lot of duration risk by investing long, and it paid off.  I’ve reduced the size of my duration bet, but it is still large relative to the consensus.  That said, momentum [...]

On Floating Rates

Published on 2012-07-12 01:32:42

I have to admit I don’t have much sympathy for those who lent or borrowed at floating rates like LIBOR.  Personally, I have always preferred fixed-rate deals where everything is locked in from the beginning.  It means the terms are fixed, and either you can meet them or you can’t. There are two problems with [...]

New Highs, New Lows, Yield Greed

Published on 2012-07-12 00:54:34

When I read this post by Ivan Hoff, I decided to look at the new high and new lows lists, which I never do now, but used to do regularly back in the days when I read a paper Wall Street Journal every day.  Now our philosophies for doing so differ.  He is looking for [...]

Finding Meaningful Work in a Complex World

Published on 2012-07-10 23:25:18

This post isn’t for everyone.  My target is mostly college students, and parents with children who are getting close to adulthood.  Others may benefit from it, because we all have younger friends that we want to help. What to study in college?  Do I even need college? What sort of job should I work for, [...]

My Two Cents on Two Promoted Penny Stocks

Published on 2012-07-10 00:12:21

Via Tadas Viskanta of Abnormal Returns, Zestinvest.com approached me regarding and intriguing promoted stock, Implant Sciences [IMSC].  Read his article, he will say more about it than I will. From my angle, this is another low revenue, negative net worth, negative earnings stock, which I think every sane investor should avoid.  But there are a [...]

Grow Embedded Value

Published on 2012-07-07 23:41:15

One of my rules of thumb in equity investing is that if I buy companies trading below tangible book value,  with earnings yields over 10%, it is difficult to lose value, and the odds favor gaining value. But there are some caveats: Analyze the balance sheet, highly indebted companies are not to be trusted, but [...]

The Failure of Government-Provided Prosperity

Published on 2012-07-07 00:39:42

If I had one bit of advice to reach the ears of Barack Obama, Mitt Romney, and Ben Bernanke, it would be this: stop the illusion that you have any significant control over the US economy.  Government is designed for justice, and does not do well when trying to promote prosperity.  At most, economically, the [...]

Sorted Weekly Tweets

Published on 2012-07-06 23:36:21

LIBOR

An Analysis of Three-Month LIBOR 2005-2008

Published on 2012-07-06 10:18:48

I downloaded the data for LIBOR over the period 2005-2008, and decided to run regressions of the 3-month rates submitted from each bank versus 3-month LIBOR, since I think it is the most commonly used.  Here are the results: Note the inverse relationship between the willingness to be above the consensus, and the willingness to [...]

On Aviva, Six Years Later

Published on 2012-07-05 00:47:36

I note this article about Aviva plc.  I took grief from Amerus Group’s IR department during the merger six years ago for my commentary at RealMoney.  Here is an example of my writing that theStreet,com made public.  Thanks, TSCM. Like many foreign acquirers of US life insurers, the bids were too aggressive, and Aviva paid [...]

On Internal Indexes, like LIBOR

Published on 2012-07-05 00:20:27

When I was a life actuary, following the deferred annuity market, the concept of market-value-adjusted annuities arose.  Annuity values could react like bonds to: An external index rate, or, An internal index, driven off of the new money rate for annuities Now, the internal index sounds soft, but it is not so.  Yes, you can [...]

On Power Outages

Published on 2012-07-03 04:41:17

I want to toss out an idea for comment regarding power outages.  In the present storm, my power was restored within two days.  The  last time in August/September 2o11, it took almost seven days. When large disasters occur, utilities bid for the services of power crews that are out of the area.  There should be [...]

The Rules, Part XXXIII

Published on 2012-07-03 00:18:06

When politicians don’t have answers, they blame speculators, financiers (Wall Street), or foreigners.  They do anything to take the spotlight off their culpability or ineptitude. The above saying is similar to the idea that when a company blames short sellers, it is usually a sign that the short sellers are right, and the company is [...]

Sorted Weekly Tweets

Published on 2012-06-30 05:11:00

Eurozone

Book Review: The Little Book of Hedge Funds

Published on 2012-06-30 04:29:45

On Bond Ladders

Published on 2012-06-28 05:06:59

I received the following from a reader: My primary motivation for writing to you is this post by Jeff Miller: http://oldprof.typepad.com/a_dash_of_insight/2012/06/the-quest-for-yield-part-7-what-about-bonds.html In my mind, you are the foremost expert blogger when it comes to bonds so I wanted to get your take.  It’s been a long time since my bond class getting my MBA and [...]

Do Insurance Stocks Do Better than Average Over the Long-Run?

Published on 2012-06-27 01:54:03

Why should insurance companies be such a good place to invest?  That’s a great question, and I will try to outline an answer.  Before I do, let me draw a few distinctions: I’m not talking about life companies, they are far more capital encumbered then P&C companies. I am also not talking about title, mortgage, [...]

Don’t Blame Money Market Funds

Published on 2012-06-23 23:43:04

So SEC Chairman Mary Shapiro wants money market funds to use mark-to-market accounting, and publish a daily NAV.  Well, why not impose mark-to-market accounting on banks, and force them to report the fair market value of their surplus every day? Large depositors over the guaranty limit and the repo market might be interested in this [...]

Sorted Weekly Tweets

Published on 2012-06-23 09:55:40

A note to all of the actuaries in the audience, all three of you : an old friend from my GIC days is seeking a multi-talented actuary to work in the stable value business.  Must understand how wraps work, etc.  If interested, drop me a note, and I’ll send you the contact info. On with [...]

Book Review: The Decline and Fall of Europe

Published on 2012-06-21 01:02:47

This book is written by a man who wants to see the European experiment succeed, but is not confident that it will succeed.  I think this is a fair book on the topic; it does not absorb all of my biases on why I think the Eurozone is hopeless: a) Currency unions have never worked; [...]

Redacted Version of the June 2012 FOMC Statement

Published on 2012-06-20 12:05:54

April 2012 June 2012 Comments Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Information received since the Federal Open Market Committee met in April suggests that the economy has been expanding moderately this year. “This year” makes it more of a historical statement, and [...]

Interview with Howard Marks

Published on 2012-06-20 01:55:07

As you might know, I reviewed Howard Marks’ excellent book The Most Important Thing, and its enhanced version, The Most Important Thing Illuminated.  Some PR flacks are more tenacious, and some less so.  Some come to me prior to publication, and some after.  Some represent an amazing author and book, others less so. Even though [...]

Best of the Aleph Blog, Part 17

Published on 2012-06-19 00:03:54

These articles appeared between February and April 2011: On the Percentage of Market Cap held by Domestic Stock ETFs Implications Domestic stock ETFs tend to pick more volatile stocks. Domestic stock ETFs tend to pick stocks held by major institutions. Domestic stock ETFs tend to pick stocks less held by insiders.  (They tend to be [...]

Modified Glass-Steagall

Published on 2012-06-16 23:22:08

If you’ve read me for more than two months, you probably know that I am an actuary, though not a practicing actuary at present.  I grew up in the life insurance industry.  It’s an unusual place for an investor to start, but there are some advantages: You learn some of the most complex accounting rules [...]

Industry Ranks June 2012

Published on 2012-06-16 01:51:08

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 persist, but look for areas where it might be even better in the near term. [...]

Sorted Weekly Tweets

Published on 2012-06-16 01:08:24

Eurozone

Might not be so Bad

Published on 2012-06-15 00:33:29

Here’s one thing I am not worried about: suppose the Bush tax cuts go away, and the budget is cut pro-rata.  That would be a good thing.  I have always believed in balanced budgets.  Yes, restoring balance may be painful for a little while, but the results are usually good after a “big bang,” whether [...]

Winding Down the Eurozone

Published on 2012-06-14 00:50:17

I write this realizing that the dominant reaction might be, “That won’t work.”  Well, I toss out ideas on things like this because they *might* work, amid a situation where things are ugly, and real solutions aren’t appearing.  If you explain to me why it won’t work, that will help me do better in the [...]

Little Revenues, Large Losses, Negative Net Worth

Published on 2012-06-12 23:02:26

You can guess that I am talking about promoted penny stocks.  From now on, whenever I write about this, I will update this table: Ticker Date of Article Price @ Article Price @ 6/12/12 Decline GTXO 5/27/2008 2.45 0.0395 -98.4% BONZ 10/22/2009 0.35 0.018 -94.9% BONU 10/22/2009 0.89 0.0799 -91.0% UTOG 3/30/2011 1.55 0.07 -95.5% [...]

Logical Links

Published on 2012-06-12 01:29:46

This should be a short post this evening, because I am tired.  Always be skeptical of analyses that reason like this: A will lead to B, B will lead to C, C will lead to D, D will lead to E, E will lead to F, which is a (horrible disaster / incredible success). Causality [...]

The Best of the Aleph Blog, Part 16

Published on 2012-06-09 23:50:37

I try to do “The Best of the  Aleph Blog” pieces between 1-2 years after original publication.  Why?  It gives time for reflection, time for series to complete, time for me to be proven wrong/right, etc.  I would have preferred that readers do this job for me, so that I could be neutral, but I [...]

Sorted Weekly Tweets

Published on 2012-06-09 10:41:06

US State Economics

Getting Crowded

Published on 2012-06-09 00:25:29

Note: there is a vote going on at http://list.ly/list/1HO-top-100-investment-blogs  regarding the best investment blogs.  Whether you vote for me or not, I encourage you to vote up blogs you like.  I voted for 12 or so blogs, I didn’t just vote for myself.  Recommend other blogs if you see fit. PS — If anyone wants [...]

Strong Hands

Published on 2012-06-08 09:59:46

When I started writing this blog, my Major Article List was a big thing to me.  I wrote some pretty good things at RealMoney.com, and I wanted to have a record of the best of that.  I only wish I had done the same thing for my Columnist Conversation comments, because many of them were [...]

On the Facebook IPO

Published on 2012-06-07 02:58:38

If you are a manager of corporate bonds, you get to learn the speculation cycle.  New IPOs may close in weeks if things are cold, and close in minutes if things are hot. When things are hot in bonds, eventually the syndicate (“Wall Street”) decides that it is time to test the bullishness of buyers.  [...]

Book Review: The Big Win

Published on 2012-06-05 23:26:33

I enjoyed reading this book, but I have some issues with it.  First, let me say what I liked: 1) The author chose  a number of different investors to make his point.  They weren’t all outside passive minority investors like most of us are.  There were many that invested in whole companies, or, they were [...]

Book Review: The Kelly Capital Growth Investment Criterion

Published on 2012-06-04 23:51:54

I have not read this book.  I read almost all books that I review, so I disclose when I have merely scanned a book such as this. Why scan?  First, I didn’t ask for the book.  Second, it is 800+ pages long.  Third, it is a series of academic articles defending and attacking the Kelly [...]

Works if Small, Fails if Large

Published on 2012-06-03 00:03:28

The Wall Street Journal had an article on risk control that had the attitude of “here are some silver bullets.”  Ugh.  When will journalists learn that there are no simple solutions to portfolio management? “Risk-allocation turns 50 years of portfolio theory on its head.” Ain’t true.  Modern Portfolio Theory is garbage, but so is this.  [...]

Sorted Weekly Tweets

Published on 2012-06-01 23:18:13

Aim for the Middle

Published on 2012-06-01 16:47:11

“Ya gotta take more risk to get more return.”  That’s the street language version of what is commonly trotted out, but it is only half true. The truth is that moderate risk taking outperforms taking no risk or taking high risks.  This is true in bonds.  BBB bonds return best of all — they are [...]

Pennies from Hell

Published on 2012-05-31 09:29:54

I had lunch with Eddy Elfenbein today, and we had a great time together.  After all of the time that we have e-mailed, linked, etc., it was great to make the acquaintance. Before I start tonight’s post, that makes me want to say this: if you are a blogger that likes me, and you are [...]

Book Review: The Billion Dollar Mistake

Published on 2012-05-29 01:03:46

Note to readers: I appreciate votes at Amazon.com if you like my reviews, and you can vote here. We learn more from failures than successes.  With failures, it is easy to observe the cause in hindsight and realize that we neglected a key principle in investing.  With successes, the reasons vary, and it is much [...]

391 Auctions

Published on 2012-05-26 23:55:34

Jason Zweig of the Wall Street Journal has an interesting piece up called Could Computers Protect the Market From Computers?  I appreciate Jason, he writes a lot of intelligent stuff, and had the guts to revise one of my favorite books, “The Intelligent Investor.” We are talking about positive feedback loops, where computers amplify the [...]

Sorted Weekly Tweets

Published on 2012-05-26 07:46:57

Market Dynamics

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 [...]

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 [...]

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 [...]

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.)  [...]

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 [...]

Sorted Weekly Tweets

Published on 2012-05-19 21:24:47

Eurozone

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. [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

Sorted Weekly Tweets

Published on 2012-05-12 00:06:51

Eurozone

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.  [...]

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 [...]

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 [...]

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 [...]

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 [...]

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, [...]

Sorted Weekly Tweets

Published on 2012-05-05 17:26:37

Market Dynamics

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

Weekly Sorted Tweeets

Published on 2012-04-28 23:01:54

Federal Reserve

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 [...]

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 [...]

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, [...]

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 [...]

Sorted Weekly Tweets

Published on 2012-04-23 09:35:54

Busy week last week.  Here’s the economic and other news: =-=-=-=-=-=–=-=-==-=-=-==-=-=-=-=–==-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- China

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 [...]

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 [...]

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 [...]

Sorted Recent Tweets

Published on 2012-04-14 22:24:20

Miscellaneous

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 [...]

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 [...]

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 [...]

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 [...]

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,” [...]

Book Review: Currency Wars

Published on 2012-04-07 03:34:26

Sorted Weekly Tweets

Published on 2012-04-06 23:21:10

Valuations

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 – [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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.  [...]

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 [...]

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 [...]

Sorted Weekly Tweets

Published on 2012-03-24 23:14:52

Central Banking

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 [...]

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 [...]

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 [...]

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? [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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. [...]

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 [...]

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 [...]

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 [...]

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 [...]

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 [...]

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.  [...]

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 [...]

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 [...]

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 [...]

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 [...]

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? [...]

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 [...]

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, [...]

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.  [...]

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 [...]

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 [...]

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.  [...]

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 [...]

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 [...]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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,

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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

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

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,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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,

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

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

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

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

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

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

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

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

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

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

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

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

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? 

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 &#

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

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

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

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

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

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

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

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

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

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

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. =-=-=-=-=-=

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

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.

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

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

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

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

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

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

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

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.”

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

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

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

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

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

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

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

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

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

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

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

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

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,

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

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

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

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

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

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

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