Thursday, April 25, 2013 – Bad deeds can tarnish money’s value – Bad deeds can tarnish money’s value:

"Our work suggests morality is an important force shaping economic decision-making,” says Jennifer Stellar, a doctoral student in psychology at University of California, Berkeley, and lead author of the study. “Though we often think $50 is $50, these results demonstrate that when money takes on negative moral associations, its value is diminished.”

The findings help explain the psychology behind such economic trends as socially responsible investing and the boycotting of sweatshop-produced goods. They also shed some light on why companies go to great lengths to avoid the perception that they are accepting money from corrupt investors or are themselves profiting from illegal or unethical practices, researchers say."

 A more cynical author would suggest this is a possible explanation for high CEO pay?  I wouldn't of course ;)   
Enhanced by Zemanta

Sunday, April 21, 2013

Are hedge fund investors beginning to relaize returns are not that great?

In some recent papers, researchers argue that ...
In some recent papers, researchers argue that the return from an investment mainly results from exposure to systematic risk factors. Jaeger, L., Wagner, C., “Factor Modelling and Benchmarking of Hedge Funds: Can passive investments in hedge fund strategies deliver?”, Journal of Alternative Investments (Winter 2005) (Photo credit: Wikipedia)
First the "what": Investors are redeeming hedge funds, especially equity funds:

Hedge fund investor inflows turn negative in March - preference for credit strategies continues - Opalesque:

"After a seven month span of consistent positive flows ending November 2012, during which MBS focused funds took in an estimated $6.1 billion, the group has seen outflows in three of the last four months. Despite having net positive investor flow during this time frame, it is of interest that the group’s flows are no longer universally positive....Investors again were net redeemers of assets from directional equity strategies in March. Q1 marked the seventh consecutive quarter of redemptions from equity strategies, matching the duration of outflows the group endured during/after the financial crisis."

The "why" is unknown, but one possibility is that investors are starting to see that just because a fund has the word "hedge" in it, does not mean it is a great fund.  Indeed, it may be far from that great.

To wit:

Rob Arnott: Why I've had it with hedge funds - The Term Sheet: Fortune's deals blogTerm Sheet:

"Arnott's colleagues started with a portfolio with a basic mix -- 60% stocks and 40% bonds. They then took a look at what would happen if the portfolio was shifted gradually, 10% at a time, into hedge funds. The result: Returns went down, and risk went up as the exposure to hedge funds increased, which is the opposite of what you want.

"Portfolio efficiency didn't improve," says RA's John West, author of the firm's hedge fund study. "In fact, it deteriorates with each additional allocation to hedge funds."

Hedge funds did a little better over the past 15 years. But even over that period, West found that a pension fund would have done better by adding a passively managed mix of commodities, real estate, and other assets, rather than expensive hedge funds."

And yet money flows into hedge funds.  What is the allure?  Maybe Statman is right and it is just that people want to brag (appear rich) and investing in hedge funds does that!

Enhanced by Zemanta

Thursday, April 18, 2013

Mercury News interview: Meir Statman, Santa Clara University professor of finance - San Jose Mercury News

Finance (Photo credit: Tax Credits)
Mercury News interview: Meir Statman, Santa Clara University professor of finance - San Jose Mercury News:

"Santa Clara University finance professor Meir Statman believes that American employers should be forced to set up retirement plans for their workers for one simple reason: "People are stupid," he said.

Statman, an expert in behavioral finance, includes himself among people who sometimes make stupid financial decisions."

Statman's book What Investors Really Want: Know What Drives Investor Behavior and Make Smarter Financial Decisions is one of my all time favorites.

Here is an audio interview I did with him a few years ago:  podcast with Meir Statman.
Enhanced by Zemanta

Tuesday, April 09, 2013

Kill the 30-Year Mortgage - Bloomberg

Kill the 30-Year Mortgage - Bloomberg:

Bloomberg makes an interesting call for more adjustable mortgages that reduce the boom and bust cycles in real estate: 
"New homes are being built at the fastest rate in years and prices are increasing across the country....

What’s wrong with this picture? None of this would be possible without massive government support. Today, the government owns or guarantees about 90 percent of new mortgages, up from about 50 percent in the mid-1990s. It isn’t sustainable, let alone fiscally acceptable, for the U.S. to have such a domineering presence in what should be a private-sector function."

One more look in:

"The U.S. must figure out a way to better manage these risks if it is to turn housing back over to the private sector. Fortunately, economists have lots of ideas. The common theme is that mortgage principal should be keyed to economic conditions, and monthly payments should rise and fall proportionately. These features ensure that borrowers have a stake in repaying their loans, while also making it easier for them to do so when times get tough."

Insider trading at KPMG?

KPMG Fires a Senior Partner in an Insider Trading Episode -

"KPMG said late Monday night it had fired a senior partner in its Los Angeles office after learning that he had provided inside information to an unnamed individual “who then used that information in stock trades involving several West Coast companies.”"

It seems that the company involved was Herbalife:
Again from NY Times:

Herbalife is poised to disclose on Tuesday that KPMG will have to resign as the company’s auditor, after the accounting firm fired a senior partner, according to a person briefed on the matter.
Enhanced by Zemanta

Monday, April 01, 2013

Carl Icahn Unleashed: Wall Street's Richest Man Is On The Attack -- Just Ask Michael Dell - Forbes

Carl Icahn Unleashed: Wall Street's Richest Man Is On The Attack -- Just Ask Michael Dell - Forbes:

Forbes has a fascinating article on a fascinating man: Carl Icahn.

"He used to make runs at companies via junk bonds and other tools of leverage. Then he figured out how to use other people’s money via a hedge fund structure. Now, though, it’s all Carl–with a net worth that FORBES estimates at $20 billion (which makes him the richest Wall Streeter, edging out George Soros). He doesn’t need anyone’s help or approval anymore. And that now makes him very, very dangerous."

Want more on him?  Here is from Wikipedia:
 " Icahn was raised in Far Rockaway, Queens, New York City, where he attended Far Rockaway High School....began his career on Wall Street as a stockbroker in 1961. In 1968, he formed Icahn & Co., a securities firm that focused on risk arbitrage and options trading. In 1978, he began taking control of positions in individual companies.[2] He has taken substantial or controlling positions in various corporations including RJR Nabisco, TWA, Texaco, Phillips Petroleum, Western Union, Gulf & Western, Viacom, Uniroyal, Dan River, Marshall Field's, E-II (Culligan and Samsonite), American Can, USX, Marvel Comics, Revlon, Imclone, Federal-Mogul, Fairmont Hotels, Blockbuster, Kerr-McGee, Time Warner, Motorola, and Herbalife."

Someone should make a movie!  

Enhanced by Zemanta