"Concern is growing about risks to U.S.-based multinationals in a country where American audit regulators are locked out by the Chinese government and bribery and fraud are routine.....On January 18, Caterpillar disclosed "deliberate, multi-year, coordinated accounting misconduct" at the Siwei unit of ERA Mining Machinery. Caterpillar said it would write off most of the $654 million it had paid to acquire ERA only months earlier....Caterpillar has provided few details, but it has disclosed inventory discrepancies, inflated profits and improperly recorded costs and revenue at Siwei."
Sunday, February 10, 2013
Analysis: Accounting risk clouds big U.S. business bets in China - Yahoo! Finance
Analysis: Accounting risk clouds big U.S. business bets in China - Yahoo! Finance:
Friday, February 08, 2013
Don't Make Poison Pills More Deadly - NYTimes.com
Don't Make Poison Pills More Deadly - NYTimes.com:
UPDATE:
I was asked why this would be bad. My answer is actually from a previous NY Times article from Lucian as well:
"Poison pills were developed in the 1980s to enable insiders to block a hostile acquisition. Over time, however — and without sufficient attention by investors and public officials — companies have started to use poison pills to prevent acquisitions of stakes that fall substantially short of a controlling block.and later
Indeed, among the 637 companies with poison pills in the FactSet Systems database, 80 percent have plans with a threshold of 15 percent or less."
"...by entrenching insiders and insulating them from engagement by large outside shareholders, low-threshold poison pills could well impose costs on public investors who do not wish to sell their shares."Good stuff from Harvard's Lucian Bebchuk!
UPDATE:
I was asked why this would be bad. My answer is actually from a previous NY Times article from Lucian as well:
"...the presence of large outside shareholders, or the prospect of their emergence, provides an important source of discipline for management. Often, a company’s stock price is bolstered after S.E.C. records, known as 13D filings, disclose the emergence of a large outside shareholder. This is a reflection of investors’ belief that such a presence can be expected to benefit their fellow shareholders. The proposed 5 percent hard cap, however, would reduce the amount of stock that could be purchased before making a 13D filing. That would lower the potential returns to large outside shareholders produced by identifying an underperforming company and taking a significant stake in it."
Thursday, February 07, 2013
Sucker Alert? Insider Selling Surges After Dow 14,000 - Yahoo Finance
Sucker Alert? Insider Selling Surges After Dow 14,000 - Yahoo Finance:
While much evidence suggests insiders do beat the market, it appears less likely that we can by trading on the news of their trades. To wit:
On the profitability of their trades, here is a recent study from Spain:
and some from the US:
In the Journal of Finance Lisa Meulbroek(a real superstar) writes:
"Insiders are waving the cautionary flag in an increasingly aggressive manner."
There have been more than nine insider sales for every one buy over the past week among NYSE stocks, according to Vickers. The last time executives sold their company's stock this aggressively was in early 2012, just before the S&P 500 (^GSPC) went on to correct by 10 percent to its low for the year."
While much evidence suggests insiders do beat the market, it appears less likely that we can by trading on the news of their trades. To wit:
On the profitability of their trades, here is a recent study from Spain:
"This paper ....show[s] that insiders earn excess profits when investing on corporate nonpublic information, while outsiders mimicking them fail to obtain those excess returns...."
and some from the US:
"Trading by corporate insiders and their tippees is analyzed in Anheuser-Busch's 1982 tender offer for Campbell Taggart. Court records that identify insider transactions are used to disentangle the individual insider trades from liquidity trades. Consistent with previous studies, insider trading was found to have had a significant impact on the price' of Campbell Taggart."
In the Journal of Finance Lisa Meulbroek(a real superstar) writes:
"Using previously unexplored data on illegal insider trading from the Securities and Exchange Commission, this paper finds that the stock market detects the possibility of informed trading and impounds this information into the stock price. Specifically, the abnormal return on an insider trading day averages 3%, and almost half of the pre-announcement stock price run-up observed before takeovers occurs on insider trading days. Both the amount traded by the insider and additional trade-specific characteristics lead to the market's recognition of the informed trading."
Wednesday, February 06, 2013
Tuesday, February 05, 2013
U.S. Accuses S.&P. of Fraud in Suit on Loan Bundles - NYTimes.com
This took longer than expected.
U.S. Accuses S.&P. of Fraud in Suit on Loan Bundles - NYTimes.com:
U.S. Accuses S.&P. of Fraud in Suit on Loan Bundles - NYTimes.com:
From the AP (via Crains' New York Business)
"The Justice Department filed civil fraud charges late on Monday against the nation’s largest credit-ratings agency, Standard & Poor’s, accusing the firm of inflating the ratings of mortgage investments
From September 2004 through October 2007, S.&P. “knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors” in certain mortgage-related securities, according to the suit filed against the agency and its parent company, McGraw-Hill Companies. S.&P. also falsely represented that its ratings “were objective, independent, uninfluenced by any conflicts of interest,” the suit said."
The charges would mark the first enforcement action the government has taken against a major rating agency involving the financial crisis.
Monday, January 28, 2013
aiCIO - A Neurology Lesson for Money Managers
Chief Investment Officer-CIO - A Neurology Lesson for Money Managers:
Nice short list (8 points) on how neuroeconomics effects money managers from Paul Zak.
1. Anticipating rewards (you can get addicted to the "rush")
2. Balancing risks (you tend to take bigger chances after some success)
3. Wait for it (Delaying gratification can be difficult)
Great article. Definitely will appear on some tests this semester! :)
Nice short list (8 points) on how neuroeconomics effects money managers from Paul Zak.
"The crossover applications between neurology and economics don’t end there. In fact, an entire discipline has sprung up in their midst: neuroeconomics. Two leaders in this field have teamed up and crafted a list of the eight crucial takeaways from neuroeconomics for money managers.The first three points:
According to Paul Zak, the head of a center for neuroeconomics at Claremont Graduate University, and Steven Sapra, a finance professor the University of Southern California, these are the key points of neuroeconomics for money managers:"
1. Anticipating rewards (you can get addicted to the "rush")
2. Balancing risks (you tend to take bigger chances after some success)
3. Wait for it (Delaying gratification can be difficult)
Great article. Definitely will appear on some tests this semester! :)
Sunday, January 27, 2013
Why You Shouldn't Think Of The S&P 500 As A Diversified Basket Of 500 Companies - Seeking Alpha
Why You Shouldn't Think Of The S&P 500 As A Diversified Basket Of 500 Companies - Seeking Alpha:
The S&P, like most indexes, is a market-weighted index. So the larger the stock, the more the influence. This is demonstrated in this article from Seeking Alpha:
Two look-ins:
The S&P, like most indexes, is a market-weighted index. So the larger the stock, the more the influence. This is demonstrated in this article from Seeking Alpha:
Two look-ins:
"...the top five holdings of the Vanguard S&P 500 ETF (VOO). They are Apple (AAPL), Exxon (XOM), General Electric (GE), Chevron (CVX), and IBM (IBM)....for every $100 that you invest in the Vanguard S&P 500 ETF, $3.90 gets invested into Apple, $3.10 gets invested into Exxon, $1.70 gets invested into General Electric, $1.70 gets invested into Chevron, and $1.60 gets invested into IBM. In other words, when you are purchasing a basket of 500 companies, you are really putting 12% of your wealth into just five companies alone."and
"...the Vanguard S&P 500 ETF owns $5.7 billion worth of Apple stock. Let's compare that to the weighting of, say, the 400th weighted stock in the S&P 500. That would be Cincinnati Financial (CINF). The S&P 500 ETF only owns $50 million worth of the insurance firm."
Hedge funds disappoint -- again - CBS News
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| Logo of CBS News (Photo credit: Wikipedia) |
While this says nothing about the hedge aspects (may be a good low correlation investment), it does suggest that at Hedge funds are not the be all and end all that some suggest.
"Over the past five years, the S&P 500 returned 1.7 percent per year, producing a cumulative return of 8.6 percent, while the HFRX Index lost 2.9 percent per year, producing a cumulative loss of 13.6 percent."
Tuesday, January 22, 2013
Which Volatility Hedged ETF Should You Consider? - Zacks.com
Which Volatility Hedged ETF Should You Consider? - Zacks.com
A must for SIMM class where we just mentioned this in class:
A must for SIMM class where we just mentioned this in class:
"The tail risk hedge takes care of extreme market volatility which can potentially result in a crash. Therefore these events are considered to be outliers which normally do not fall within three standard deviations of the average of the implied volatility.
The Volatility Index and the S&P 500 basically have a very strong negative correlation. Therefore, to hedge against the S&P 500 volatility, the ETF takes a long position in VIX Call options"
Thursday, January 17, 2013
Are women better investors?
Female hedge fund managers outperformed male managers in 2012
"Meredith Jones, director at Rothstein Kass and the author of the report, believes there are two primary factors at play in the exceptional performance of women in alternative investments.
"Meredith Jones, director at Rothstein Kass and the author of the report, believes there are two primary factors at play in the exceptional performance of women in alternative investments.
- Women tend to be more risk-averse than men. “Women may be better equipped to position a portfolio to handle market volatility which we certainly have had no shortage of over the past five years,” Jones tells The Daily Ticker's Lauren Lyster.
- The size of women-run hedge funds. “Women-run funds tend to be smaller pools of capital than men-run funds and as a result of that they’re more nimble and better able to navigate the market,” says Jones."
Tuesday, December 18, 2012
Before Facebook Deal, Instagram's Talks With Twitter - NYTimes.com
Before Facebook Deal, Instagram's Talks With Twitter - NYTimes.com:
This one will be talked about for years:
Interestingly the deal closed for about $735m down from the $1billion that was based on pre-IPO valuations.
This one will be talked about for years:
"Facebook’s deal to buy Instagram for $1 billion stunned Wall Street and Silicon Valley when it was announced in April. But executives at Twitter had an additional reason to be surprised. Instagram’s founders “held several meetings as late as March with top Twitter executives,” The New York Times’s Nick Bilton reports. “The sides had verbally agreed weeks earlier on a price for Instagram of $525 million in cash and Twitter shares,”"
Interestingly the deal closed for about $735m down from the $1billion that was based on pre-IPO valuations.
Wednesday, December 12, 2012
Irving Fisher, the First Celebrity Finance Professor - Bloomberg
Irving Fisher, the First Celebrity Finance Professor - Bloomberg:
A history lesson on the man behind the "Fisher effect"
A history lesson on the man behind the "Fisher effect"
"Fisher developed revolutionary insights into financial theory that are still invoked today. He explained that the market interest rate coincides with the human tendency to discount an uncertain future when compared with the more pressing present. He argued that we distribute our present and expected future wealth over the consumption decisions we make now and in the future. In doing so, he anticipated the life-cycle hypothesis that would demonstrate, half a century later, why we save and how we consume."
Tuesday, December 04, 2012
Take the money: Why we make better financial decisions for strangers than family
Take the money: Why we make better financial decisions for strangers than family
This one should not really surprise anyone and is essentially the logic behind my recent test question of "what is the role of a financial planner in the face of investors prone to behavioral biases".
This one should not really surprise anyone and is essentially the logic behind my recent test question of "what is the role of a financial planner in the face of investors prone to behavioral biases".
"They found participants were more likely to select a smaller immediate reward than delay for a larger pay-off both for themselves and for beneficiaries they were more closely related to. The decisions got progressively less impulsive and steadily more rational as the family connection became more distant. The most rational economic choices were made on behalf of complete strangers.
The study, published in the online journal PLOS ONE, is the first to show that decisions taken on behalf of others are affected systematically by the closeness of the relationship...."
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