Thursday, December 25, 2014

For investors, it’s a perfect time to go back to the basics - The Washington Post

Great stuff!! Way to go Barry!

For investors, it’s a perfect time to go back to the basics - The Washington Post: " I am going to suggest you take a different route: Focus on 10 basic, simple truths that many investors seemingly ignore. Some of you are unaware of these realities; others understand them intellectually but cannot act on your knowledge. These are the simple things that amateurs and pros alike get wrong.


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Friday, October 10, 2014

Dark pools in the news: looks at Wall Street's secret trading exchanges (Dark Pools)

A look at Dark Pools:

and from Bloomberg:

"The biggest banks created the venues partly to avoid paying stock exchanges for processing trades between their clients. They’ve attracted scorn this year for allegedly letting the speediest traders feast on slower investors. New York Attorney General Eric Schneiderman accused Barclays Plc of soliciting “predatory” high-frequency traders on its dark pool while hiding their presence from other customers.
The venues accounted for 16.5 percent of all U.S. stock trading in the first eight months of the year, according to data compiled by Rosenblatt Securities Inc." 

And more from Bloomberg:


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Tuesday, September 30, 2014

So what is the CEO to average worker ratio? 511 or 4? Depends on what you report.

CEO Pay Continues to Rise as Typical Workers Are Paid Less | Economic Policy Institute:

NOTE:  This not as an argument against high CEO pay (have made that before), but to show how a study is done influences the reported findings.

We've all seen the headlines of how CEO pay is rising so quickly.

First from the Economic Policy Institute's

Same article:
"The CEO-to-worker compensation ratio was 20-to-1 in 1965 and 29.9-to-1 in 1978, grew to 122.6-to-1 in 1995, peaked at 383.4-to-1 in 2000, and was 295.9-to-1 in 2013...."
"If Facebook, which we exclude from our data due to its outlier high compensation numbers, were included in the sample, average CEO pay was $24.8 million in 2013, and the CEO-to-worker compensation ratio was 510.7-to-1."

295.9 to 510.7 is a pretty big difference.  The authors were justified to not include the outliers, but in dropping outliers we often drop valuable information at best and can influence findings at worse.

But even this, as Mark Perry points out in his May 2014 piece is misleading as the AVERAGE CEO pay (the all important numerator in the ratio) needs an asterisk:  average of what? The average SP 500 firm?  Average largest 200 firms?  or average of all firms?

Why does it mater?  Because when all CEOs are including (think "I am CEO of my own small firm"), the CEO pay is MUCH Much lower.

"According to the US Census Bureau, there are more than 27 million private firms in the US, so the samples of 200-350 firms for CEO pay represent only one of about every 100,000 private firms in the US, or about 1/1000 of 1% of the total firms. And yet the AFL-CIO, AP and others compare the average annual wages of hundreds of millions of full-time employees working at the more than 27 million US companies to the CEO pay of executives at only several hundred companies, which is hardly a fair comparison. 
We can get a more accurate and complete picture of CEO compensation in the US by looking at wage data released recently by the Bureau of Labor Statistics in its annual report on Occupational Employment and Wages for 2013. The BLS report provides “employment and wage estimates by area and by industry for wage and salary workers in 22 major occupational groups, 94 minor occupational groups, 458 broad occupations, and 821 detailed occupations,” including the occupational category “chief executives.” In 2013, the BLS reports that the average pay for America’s 248,760 chief executives was only $178,400."

Perry updated his blog this week with the following:
"Based on those data, the average CEO earned $178,400 last year, the average worker earned $46,440, and the “CEO-to-worker pay ratio” was 3.84:1"

What is the takeaway?  Read carefully!  The details of how a study are more important than headlines reveal.
Related articles

Saturday, September 27, 2014

Active vs. Passive in Global Investing | Financial Planning

Active vs. Passive in Global Investing | Financial Planning:

"The S&P Report, called the SPIVA U.S. Scorecard, which also evaluated the performance of active vs. passive management for domestic funds and for bonds, found that in the international sphere over the past year 70% of global equity funds, 75% of international equity funds, 81% of international small-cap funds and 65% of emerging markets funds underperformed their benchmarks.
As a group, active managers fared even worse over a three- or five-year period, says Todd Rosenbluth, S&P’s director of ETF and mutual fund research."

and more from Bloomberg:

"...making a fund manager into a star is a big risk. If the headline act has a bad year, the media notices. And if the star leaves, they can take assets with them, as bond baron Jeffrey Gundlach did when he left TCW Group and co-founded DoubleLine Capital LP. Up to 30 percent of Pimco's assets could now leave the firm, Sanford Bernstein estimates. After this, "funds may think twice about building the brand around a single individual," adviser Harold Evensky says.The biggest firms, like Blackrock Inc. and Fidelity, now mostly do without big fund manager stars. That helps put the emphasis where it belongs -- on performance."

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Gross Loses Pimco Power Struggle With ‘Stunning’ Exit - Bloomberg

Gross Loses Pimco Power Struggle With ‘Stunning’ Exit - Bloomberg: "The surprise decision by 70-year-old Gross, whose personal wealth is estimated at $2 billion by the Bloomberg Billionaires Index, marks a turning point in one of the most remarkable careers in money management. Gross personally oversaw more money than any investor on the planet, and was synonymous with the firm he co-founded in 1971, until his main fund started to trail peers and his leadership style attracted scrutiny."

Business Insider has an interesting look at outflows at Pimco:

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Monday, September 22, 2014

Tesco Error Triggers New Profit Warning - WSJ

Investor beware. Accounting, despite all it does wonderfully, is never perfect and whether fraud or user error induced, there can be painful missteps for all of us who rely on the accounting system.

Tesco Error Triggers New Profit Warning - WSJ:

"Tesco's newly installed chief executive, Dave Lewis, said on Monday that the company has uncovered a "serious" accounting issue.

The issue involved the early booking of commercial income and delayed booking of costs, the company said, triggering a third profit warning in three months. Tesco, which has done a preliminary investigation into its U.K. food business, said it hasn't ruled out illegal activity but would wait until the results of the investigation are known.

"We have uncovered a serious issue and have responded accordingly," said Mr. Lewis,"

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Friday, September 19, 2014

Evidence of learning in the stock market

This is a bit of an old article, but the idea of stock market learning came up in class on Wednesday and ethics all of last week, so I will mention market learning in the context of governance.

Short version: it used to be that you could get a higher return by buying firms with good governance (Gompers, Ishii, and Metrick, 2003)  (as measured by the Gompers-Ishii index) and shorting poorly governed firms.  BUT then the market learned and now the index is seemingly priced (in other words higher Q values, but returns no longer predicted by index levels.

 Investing in Good Governance -
"There is evidence that good-governance features included in standard governance indexes do improve the performance of companies – but that their significance is already reflected in market prices."
Here is the paper showing the learning:

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Thursday, September 18, 2014

Alibaba's Governance Leaves Investors at a Disadvantage -

Alibaba's Governance Leaves Investors at a Disadvantage -

 "In Alibaba, control is going to be locked forever in the hands of a group of insiders known as the Alibaba Partnership. These are all managers in the Alibaba Group or related companies. The Partnership will have the exclusive right to nominate candidates for a majority of the board seats. Furthermore, if the Partnership fails to obtain shareholder approval for its candidates, it will be entitled “in its sole discretion and without the need for any additional shareholder approval” to appoint directors unilaterally"

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This will definitely make the class discussion!  Thanks Lucian!

Biggest pension shunning hedge funds a green light for liquid alts

Biggest pension shunning hedge funds a green light for liquid alts:

"The California Public Employees' Retirement System, commonly known as Calpers, announced Monday it is eliminating its $4 billion exposure to hedge funds for reasons largely related to high fees."

In a related article on Main St, Hal Bundrick writes:

"“We are always examining the portfolio to ensure that we are efficiently and cost-effectively achieving our risk-adjusted return goals," Ted Eliopoulos, interim chief investment officer for the nearly $300 billion pension fund, said in a statement. "Hedge funds are certainly a viable strategy for some, but at the end of the day, when judged against their complexity, cost, and the lack of ability to scale at Calpers’s size, the ARS program is no longer warranted."


Still on the hedge fund band wagon?  Let's go over to the where Morgan Housel wrote back in January: 

"'s become plainly clear in recent years that the biggest bull market was in inflated promises. As a group, hedge funds -- which now manage $2.5 trillion -- have consistently underperformed a basic S&P 500 index fund over the last five years. 

Anyone want to predict hedge fund fees will keep falling?