Shouldn’t it only be about performance? Friday, July 20, 2007
Posted by ei-forum in Rants.add a comment
The weekend is just around the corner and we thought that it was time for one of our rants…..
Wouldn’t it be nice to have a professional money manager offering a solution whereby he would be paid according to how much money he would make for you? Why are they always charging commission and extra fees when most of them can’t even manage to beat the market?
If you stop and think about it, the whole industry is actually quite amazing…. seeing that there are numerous studies that prove than over 80% of the professionals fail to beat the market, it is really surprising that they get any business at all when an investor could simply invest in a total market ETF and pay under 0,50% commission!
Why is the industry thriving? Consumers lack the confidence to accept that they could do it themselves? People still believe that the ‘professionals’ offer better returns? From a psychological point of view, investors feel less responsible for bad performance if they can blame someone else? People always want to ‘hit a home run’ and don’t believe an ETF will alow them to do so?
We feel that it is high time for two things to happen:
- Private investors should ‘wake-up’ and start managing their own money through a balanced and diversified ETF portfolio. Depending on their profile, they can use ETFs for more aggressive sector plays or even to take ‘short’ positions. Furthermore, the Enterprising Investor can decide to allocate a percentage of his portfolio to individual stock plays.
- Professional money managers should stop using complex and obscure fee structures and commissions. If you think that you are good enough to manage money for someone else, then this would imply that you can deliver better return and therefore beat the market or benchmark index. Therefore, show us how confident you are in your money management capabilities and only charge when you have managed to beat the market. Assuming you can do this, you could even charge 50% of the profits!
We are well aware that even our great grandchildren will never see the latter point happen but it would be refreshing to see a bit more of the former starting. And who knows, if private investors start to change their ways, there might be some money managers out there that may start to move in the right direction too!
Carry Trade Explained Thursday, July 19, 2007
Posted by ei-forum in Miscellaneous.2 comments
What is all this talk about the “Carry Trade”? Everyone keeps on talking about it but what is it? What does it mean?
Well, it’s not as complicated as one could think. Basically, the concept revolves around a play on currency yields. It consists in borrowing a low-yielding currency and investing the amount in a currency that is offering a higher yield; the yield difference representing your gain (minus tax and commissions).
An example of this could be to borrow 1,000 Yen and convert them into USD and then use them to by a USD denominated bond. Assuming that the bond pay 5% and that the Japanese interest rate is at 0,35%; you would stand to make a profit of 4,65% (as long as the exchange rate stays the same). Furthermore, using a common leverage of 10:1, this would mean that you would stand to make a profit of 46,5%!
Easy money? Well, we should all know that potential returns are always related to the amount of risk you are taking on. If you decide to execute this kind of trade, then it means that you are makanig a bet on the exchange rate direction but please remember that depending on the amount of leverage you decide to use, gains AND losses can be very substantial.
Understanding Safety Insurance Group Wednesday, July 18, 2007
Posted by ei-forum in US Traded Stocks.1 comment so far
The stock is down over 12% since we started to write about it and we still can’t understand why it is being punished so badly.
We are talking about a company that has over 20% Return on Equity, generates over 15% Net Profit Margins, has a Book Value per share of over 32 USD, a Price to Earning Ratio of 5,7 and that is trading at 36USD???
We will wait and see for how long Mr. Market will refuse to acknowledge the real value of this company.
For a look at the numbers, please click here: link.
J&J: mixed feelings? Wednesday, July 18, 2007
Posted by ei-forum in US Traded Stocks.add a comment
Whilst our position on Johnson & Johnson hasn’t change since our initial post, analysts seem to be having trouble agreeing on what the future has in store for this company.
This is precisely the kind of situation we like, as it will offer the enterprising investor a chance to slowly build his/her position until the Street finally realizes that the stock is trading at a discounted price.
For an overview of differing analyst opinions click here: link.
Different kinds of Monopoly players Wednesday, July 18, 2007
Posted by ei-forum in Miscellaneous.add a comment
In his book ‘A random walk down Wall Street’ Burton G. Malkiel makes an interesting point on the fact that your psychological makeup will have a big influence on the risk you are willing to assume.
He mentions one investment advisor that explains how you could look at your strategy when playing Monopoly to help you understand what type of securities would fit your temperament. Do you prefer to try and quickly establish a position as the owner of the orange part of the board? Taking advantage of the steady but moderate income of St. James Place, Tennessee Avenue and New York Avenue or would you risk sacrificing all your net worth to try and build hotels on Boardwalk and Park Place; knowing that you would probably run out of cash but that you could really hit it big and win the whole game if luck turned your way?
Remember, before allocating hard earned money to securities, you need to understand what part of your total net worth you can afford to invest, what your expectations are and what your risk tolerance is.
As J. Kenfield Morley said: ‘In investing money, the amount of interest you want should depend on whether you want to eat well or sleep well…’.
J&J Posts 9.3% Rise in Net Tuesday, July 17, 2007
Posted by ei-forum in US Traded Stocks.add a comment
Here is the Wall Street Journal Online write-up: link.
It’s Earnings that Count, H. Heiserman, Jr. Tuesday, July 17, 2007
Posted by ei-forum in Book Reviews.add a comment
As the title states: It’s Earnings that Count. Heiserman gives the reader a step-by-step guide on how to find a stock that will make a difference by determining whether it has quality earnings and the potential to deliver real earnings power.
Heiserman argues that picking the right stock to invest in is really a process of elimination. He details his method to calculate ‘defensive’ and ‘enterprising’ earnings; which plotted graphically with reported earnings, allow us to determine if we are looking at a company with a potential to deliver significant gains or simply a company that has managed to dress-up financials …
- The Defensive income statement will show how much the company depends on outside capitals sources and ultimately, the risk of it going bankrupt.
- The Enterprising income statement will asses the return generated by all of the company’s sources of capital.
It’s Earnings that Count offers an interesting perspective not only for the value investor but for anyone involved in stock selection. Although the method of how to analyze earnings primarily serves to improve investment decisions, the book also shows the reader what went wrong in corporate America in the past decade (i.e. Enron and Worldcom).
Enjoy!
Market Expert: focus on fundamentals! Monday, July 16, 2007
Posted by ei-forum in Investing Humor.add a comment
Next Monday, we will take a look at Mutual Funds…..
Openwave Systems Inc. Upgrade Monday, July 16, 2007
Posted by ei-forum in US Traded Stocks.add a comment
OPWV has been upgraded by CIBC World Markets from Sector Underperform to Sector Perform.
Please click here for the Briefing.com page.
Thought of the Day Monday, July 16, 2007
Posted by ei-forum in Miscellaneous.add a comment
“Nothing is ever as clear in prospect as it is in retrospect … whatever mispricing there is usually is only recognizable after the fact, just as we always know Monday morning the correct play the quarterback should have called.” - Burton G. Malkiel
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