An Airline Shrugs at Oil Prices - New York Times:
"Southwest owns long-term contracts to buy most of its fuel through 2009 for what it would cost if oil were $51 a barrel. The value of those hedges soared as oil raced above $90 a barrel, and they are now worth more than $2 billion. Those gains will mostly be realized over the next two years. Other major airlines passed on buying all but the shortest-term insurance against high fuel prices..."
That other airlines were not hedging (or at least not hedging long-term) has been one of my pet peeves going back as far as the newsletter days. Sure it costs money to hedge, and sure is not without some risks (see for instance this story on what happened when oil prices fell), but hedging makes too much sense not to do.
How does hedging work? Why? The best explanation I have ever seen comes from an old Corporate text book I once used by Rao (do not think it is still in print and I can not find my copy). In it he described how hedging allows management to worry about what they do well and can control (service, pricing, safety etc) and not what they can not control (oil prices in this case).
An other view (the two views are definitely NOT mutually exclusive) is that hedgers have both better access to capital markets and less need to go when the asset (oil) moves in teh 'wrong' direction. My favorite paper in this area has long been Carter, Rogers, and Simkins.
Of course that said, all of the good I can say about hedging goes out the window if firms use the same derivatives to speculate.
Thanks to Felix over at Conde Nast's Porfolio.com for the heads-up on this one.
Friday, November 30, 2007
An Airline Shrugs at Oil Prices - New York Times
An Airline Shrugs at Oil Prices - New York Times:
"Southwest owns long-term contracts to buy most of its fuel through 2009 for what it would cost if oil were $51 a barrel. The value of those hedges soared as oil raced above $90 a barrel, and they are now worth more than $2 billion. Those gains will mostly be realized over the next two years. Other major airlines passed on buying all but the shortest-term insurance against high fuel prices..."
That other airlines were not hedging (or at least not hedging long-term) has been one of my pet peeves going back as far as the newsletter days. Sure it costs money to hedge, and sure is not without some risks (see for instance this story on what happened when oil prices fell), but hedging makes too much sense not to do.
How does hedging work? Why? The best explanation I have ever seen comes from an old Corporate text book I once used by Rao (do not think it is still in print and I can not find my copy). In it he described how hedging allows management to worry about what they do well and can control (service, pricing, safety etc) and not what they can not control (oil prices in this case).
An other view (the two views are definitely NOT mutually exclusive) is that hedgers have both better access to capital markets and less need to go when the asset (oil) moves in teh 'wrong' direction. My favorite paper in this area has long been Carter, Rogers, and Simkins.
Of course that said, all of the good I can say about hedging goes out the window if firms use the same derivatives to speculate.
Thanks to Felix over at Conde Nast's Porfolio.com for the heads-up on this one.
"Southwest owns long-term contracts to buy most of its fuel through 2009 for what it would cost if oil were $51 a barrel. The value of those hedges soared as oil raced above $90 a barrel, and they are now worth more than $2 billion. Those gains will mostly be realized over the next two years. Other major airlines passed on buying all but the shortest-term insurance against high fuel prices..."
That other airlines were not hedging (or at least not hedging long-term) has been one of my pet peeves going back as far as the newsletter days. Sure it costs money to hedge, and sure is not without some risks (see for instance this story on what happened when oil prices fell), but hedging makes too much sense not to do.
How does hedging work? Why? The best explanation I have ever seen comes from an old Corporate text book I once used by Rao (do not think it is still in print and I can not find my copy). In it he described how hedging allows management to worry about what they do well and can control (service, pricing, safety etc) and not what they can not control (oil prices in this case).
An other view (the two views are definitely NOT mutually exclusive) is that hedgers have both better access to capital markets and less need to go when the asset (oil) moves in teh 'wrong' direction. My favorite paper in this area has long been Carter, Rogers, and Simkins.
Of course that said, all of the good I can say about hedging goes out the window if firms use the same derivatives to speculate.
Thanks to Felix over at Conde Nast's Porfolio.com for the heads-up on this one.
Monday, October 29, 2007
The News-Gazette.com:Top salaries continue to rise as UI competes for talent
Well this was sent to me, it is not to as a means of saying so and so gets too much, merely to report that it really is a different world. This is from the University of Illinois.
The News-Gazette.com:Top salaries continue to rise as UI competes for talent :
"As of fall 2006, the average salary for a full-time professor at the UI was $95,700, up $13,400 or 16 percent since 2002. When comparing that average salary to those at the 21 institutions, the UI ranks third from the bottom, behind Michigan, Texas and North Carolina but ahead of Washington and Wisconsin....In recent years, as turnovers have occurred in high-level positions at the university, salaries for new employees have often risen well above the predecessor's pay. Four years ago, the UI's vice president for technology and economic development, David Chicoine, earned $262,500. UI College of Business Dean Avijit Ghosh will assume that post in January and earn $339,000....Of the more than 100 people who earn $200,000 or more at the UI, many are in the business and law schools. And many hold endowed chairs, meaning some of the salary is funded by a donor.Such top faculty earners include finance Professor Jeff Brown, who has the title of William Karnes Professor of Mergers and Acquisitions, and a salary of $245,000;"
This does show how much salaries can vary. At small schools (such as SBU) it may take the sum of four years to make that much. :( Oh well...having traveled to mid Ohio, Orlando, and NYC in the last three weeks, I can definitely say I would not want to trade places.
The News-Gazette.com:Top salaries continue to rise as UI competes for talent :
"As of fall 2006, the average salary for a full-time professor at the UI was $95,700, up $13,400 or 16 percent since 2002. When comparing that average salary to those at the 21 institutions, the UI ranks third from the bottom, behind Michigan, Texas and North Carolina but ahead of Washington and Wisconsin....In recent years, as turnovers have occurred in high-level positions at the university, salaries for new employees have often risen well above the predecessor's pay. Four years ago, the UI's vice president for technology and economic development, David Chicoine, earned $262,500. UI College of Business Dean Avijit Ghosh will assume that post in January and earn $339,000....Of the more than 100 people who earn $200,000 or more at the UI, many are in the business and law schools. And many hold endowed chairs, meaning some of the salary is funded by a donor.Such top faculty earners include finance Professor Jeff Brown, who has the title of William Karnes Professor of Mergers and Acquisitions, and a salary of $245,000;"
This does show how much salaries can vary. At small schools (such as SBU) it may take the sum of four years to make that much. :( Oh well...having traveled to mid Ohio, Orlando, and NYC in the last three weeks, I can definitely say I would not want to trade places.
Saturday, October 27, 2007
Do Finance Profs practice what they preach?
Sometimes the most important finding of an article is not played up while lesser items (especially those that appear to more exciting or controversial) are given more play. For instance from SmartMoney:
Finance Profs Reveal How They Invest Own Money (The Pro Shop) | SmartMoney.com:
"Colby Wright, assistant professor of finance at Central Michigan University and James Doran, finance professor at Florida State University, [survey] ... finance professors. After all, they're arguably the most educated and well-informed people when it comes to understanding the mysteries behind stock price movements. [I think the article somehow left out 'best looking", funniest, and "nicest" as well.] So Wright and Doran set out to survey all the professors of finance in the U.S. and ask what's most important to them when investing their own money. The survey resulted in 642 usable responses. They published their results earlier this year in a paper titled 'What Really Matters When Buying and Selling Stocks?"
The findings were not exactly what we would think. For instance the survey suggests that PE ratios, market multiples, and momentum investing are among the keys and not CAPM, efficient markets and the market risk factors.
"Out of 43 variables given, the most important were a company's price/earnings ratio and how close a stock is to its 52-week high to low. Considering the material most finance professors teach their students as a way of explaining stock price movements — like the capital asset pricing model and discounted cash flows — Wright calls the findings surprising"
Which is true to a degree, but virtually all finance classes also cover market multiples, such as PE ratios, in some format. For instance in my classes I harp on the fact that both Discounted CAsh Flow analysis and multiples are really doing something very similar just in a different way and there is a place for both. In fact, we generally say that the time to perform a DCF projection is often not worth it for small investments.
Had that been the entire story it MIGHT have been blog worthy. However, after reading the actual article it screamed "Blog me!"
It could be argued that the main finding of the paper was not the reported use of mutliples and momentum investing, but that "...over two-thirds of the sample are passive investors, and not because they don’t have the time to invest."
Thus, the headline grabbing headlines were not from the entire sample but only a small subsample of active investors.
Which to my biased reading suggests that the majority of finance professors do appear to practice what they preach!
Finance Profs Reveal How They Invest Own Money (The Pro Shop) | SmartMoney.com:
"Colby Wright, assistant professor of finance at Central Michigan University and James Doran, finance professor at Florida State University, [survey] ... finance professors. After all, they're arguably the most educated and well-informed people when it comes to understanding the mysteries behind stock price movements. [I think the article somehow left out 'best looking", funniest, and "nicest" as well.] So Wright and Doran set out to survey all the professors of finance in the U.S. and ask what's most important to them when investing their own money. The survey resulted in 642 usable responses. They published their results earlier this year in a paper titled 'What Really Matters When Buying and Selling Stocks?"
The findings were not exactly what we would think. For instance the survey suggests that PE ratios, market multiples, and momentum investing are among the keys and not CAPM, efficient markets and the market risk factors.
"Out of 43 variables given, the most important were a company's price/earnings ratio and how close a stock is to its 52-week high to low. Considering the material most finance professors teach their students as a way of explaining stock price movements — like the capital asset pricing model and discounted cash flows — Wright calls the findings surprising"
Which is true to a degree, but virtually all finance classes also cover market multiples, such as PE ratios, in some format. For instance in my classes I harp on the fact that both Discounted CAsh Flow analysis and multiples are really doing something very similar just in a different way and there is a place for both. In fact, we generally say that the time to perform a DCF projection is often not worth it for small investments.
Had that been the entire story it MIGHT have been blog worthy. However, after reading the actual article it screamed "Blog me!"
It could be argued that the main finding of the paper was not the reported use of mutliples and momentum investing, but that "...over two-thirds of the sample are passive investors, and not because they don’t have the time to invest."
Thus, the headline grabbing headlines were not from the entire sample but only a small subsample of active investors.
Which to my biased reading suggests that the majority of finance professors do appear to practice what they preach!
Thursday, September 13, 2007
Hedge funds lure business school profs
Hedge funds lure business school profs:
"The growing and lightly regulated hedge fund industry is attracting new players -- business school professors eager to test their theories in a field known for big risks and occasionally bigger rewards. Hedge funds are becoming a tempting tool for faculty members looking to sharpen research and giving a Wall Street perspective to their students, all while making some extra money."
"The growing and lightly regulated hedge fund industry is attracting new players -- business school professors eager to test their theories in a field known for big risks and occasionally bigger rewards. Hedge funds are becoming a tempting tool for faculty members looking to sharpen research and giving a Wall Street perspective to their students, all while making some extra money."
Sunday, September 2, 2007
Private lives of CEOs tied to profit, loss
For a news paper article, this one is great! It is a series of summaries that basically show that CEO's personal life impacts the firm.
Private lives of CEOs tied to profit, loss:
"Should shareholders in a company care if the chief executive's child dies? What if the mother-in-law passes away?.....slid by about one-fifth, on average, in the two years after the death of a CEO's child, and by about 15 percent after the death of a spouse. As for an executive's mother-in-law, the old jokes seem to hold: The researchers found that profitability, on average, rose slightly after her demise."
Private lives of CEOs tied to profit, loss:
"Should shareholders in a company care if the chief executive's child dies? What if the mother-in-law passes away?.....slid by about one-fifth, on average, in the two years after the death of a CEO's child, and by about 15 percent after the death of a spouse. As for an executive's mother-in-law, the old jokes seem to hold: The researchers found that profitability, on average, rose slightly after her demise."
Wednesday, June 27, 2007
More on Bear, Regulation, and transparency
Mark Gilbert writing for Bloomberg has a well done piece on the implications of the hedge fund problems at Bear Stearns.
Bloomberg.com: Opinion:
Two lookins:
"The most stunning aspect of the demise of two hedge funds belonging to Bear Stearns Cos. is the almost total absence of transparency surrounding the bailout.
The debacle may finally provoke regulators, who have long suspected that buying derivatives is akin to running through a fireworks factory with a lighted blowtorch in each hand."
And later:
"The unraveling of the Bear Stearns hedge funds has pulled back one corner of the curtain shielding the activities of hedge funds and their investments in derivatives, giving a glimpse of who is on the hook if the bets sour.
It seems that the skin in the game isn't from other hedge funds, Asian central banks, or widows and orphans. Instead, step forward the usual Wall Street suspects: Merrill Lynch & Co., Lehman Brothers Holdings Inc., Bank of America Corp. and their investment-banking peers."
Bloomberg.com: Opinion:
Two lookins:
"The most stunning aspect of the demise of two hedge funds belonging to Bear Stearns Cos. is the almost total absence of transparency surrounding the bailout.
The debacle may finally provoke regulators, who have long suspected that buying derivatives is akin to running through a fireworks factory with a lighted blowtorch in each hand."
And later:
"The unraveling of the Bear Stearns hedge funds has pulled back one corner of the curtain shielding the activities of hedge funds and their investments in derivatives, giving a glimpse of who is on the hook if the bets sour.
It seems that the skin in the game isn't from other hedge funds, Asian central banks, or widows and orphans. Instead, step forward the usual Wall Street suspects: Merrill Lynch & Co., Lehman Brothers Holdings Inc., Bank of America Corp. and their investment-banking peers."
Monday, June 25, 2007
Bear lends $3.2b to its troubled hedge fund
In what will no doubt be talked about in finance classes for years to come, the big news story today is that Bear Stearns has agreed to lend $3.2 Billion (about 25% (I did not verify this reported number) of its overall capital) to one of its troubled hedge funds.
First the reports:
Bear Stearns to Bail Out Troubled Fund - New York Times:
"Bear Stearns, the investment bank, said today that it would provide a secured loan of up to $3.2 billion to one of two troubled hedge funds operated by its asset-management business, in an effort to placate lenders and investors.
The move comes two weeks after banks that lent billions to the hedge fund, the Bear Stearns High-Grade Structured Credit Fund, demanded that it put up more money to make up for the losses in its portfolio of complex and hard-to-sell mortgage-related securities."
From Bloomberg:
"The funds speculated in highly-rated CDOs -- securities backed by bonds, loans, derivatives and other CDOs -- that were hurt in March and April as defaults on subprime mortgages to people with poor or limited credit histories increased. The fund also lost on opposite bets against home-loan bonds, which backed many of its CDOs.
As the funds faltered, Merrill [and others] sought to protect itself by seizing the assets that were used as collateral for its loans."
But had very limited success as there were few willing to buy at the prices being asked.
Keep it simple: So what happened? In as simple of terms possible, the hedge funds borrowed to buy "bonds" that subsequently went down in value. The collateral for this debt was the the bonds. Hence some borrowers demanded repayment and tried to sell the assets to raise cash. Fearing a fire sale Bear agreed to lend the fund $3.2 Billion to the fund in order to give it time to sell assets or for them to recover.
Is it catchy? The real question of course is whether this will lead to a contagion problem where other firms get in trouble and the possibly lead to a melt down. While it is impossible to say so soon, early guesses are that the problem is not very contagious and any major meltdown is highly unlikely. Why? For one thing almost everyone who has been paying any attention in the past few weeks(months?) has seen it coming.
If you think back to Long Term Capital Management, this was the big issue there as well and led to the Fed arranged bail out of that troubled fund. In many ways, the same thing will likely happen now. Assets will be sold in a more orderly fashion and in due time the fund will be closed.
Yes the risk does still exist (and always will), but it does not appear to be a catastrophic event this time. For one, there are many more hedge funds and private equity investments. thus, through diversification, the impact will be less. Moreover, while highly levered, first reports have leverage less than at LTCM.
What risk is Bear taking on in extending the loan? According to Bear CFO Sam Molinaro (who incidentally is an SBU grad) not much since the assets pledged against the loan are worth more than the loan. (Which of course is hard to say with certainty as evidenced by ML's difficulty in selling off the $850M in assets and getting bids as low as 30 cents on the dollar.
So what will happen? Most likely the funds will sell off their assets and eventually be shut down. But the loan from Bear will give the funds time to do so in an orderly fashion and not at 30 cents on the dollar the WSJ reported this morning that some universities were bidding for the debt.
First the reports:
Bear Stearns to Bail Out Troubled Fund - New York Times:
"Bear Stearns, the investment bank, said today that it would provide a secured loan of up to $3.2 billion to one of two troubled hedge funds operated by its asset-management business, in an effort to placate lenders and investors.
The move comes two weeks after banks that lent billions to the hedge fund, the Bear Stearns High-Grade Structured Credit Fund, demanded that it put up more money to make up for the losses in its portfolio of complex and hard-to-sell mortgage-related securities."
From Bloomberg:
"The funds speculated in highly-rated CDOs -- securities backed by bonds, loans, derivatives and other CDOs -- that were hurt in March and April as defaults on subprime mortgages to people with poor or limited credit histories increased. The fund also lost on opposite bets against home-loan bonds, which backed many of its CDOs.
As the funds faltered, Merrill [and others] sought to protect itself by seizing the assets that were used as collateral for its loans."
But had very limited success as there were few willing to buy at the prices being asked.
Keep it simple: So what happened? In as simple of terms possible, the hedge funds borrowed to buy "bonds" that subsequently went down in value. The collateral for this debt was the the bonds. Hence some borrowers demanded repayment and tried to sell the assets to raise cash. Fearing a fire sale Bear agreed to lend the fund $3.2 Billion to the fund in order to give it time to sell assets or for them to recover.
Is it catchy? The real question of course is whether this will lead to a contagion problem where other firms get in trouble and the possibly lead to a melt down. While it is impossible to say so soon, early guesses are that the problem is not very contagious and any major meltdown is highly unlikely. Why? For one thing almost everyone who has been paying any attention in the past few weeks(months?) has seen it coming.
If you think back to Long Term Capital Management, this was the big issue there as well and led to the Fed arranged bail out of that troubled fund. In many ways, the same thing will likely happen now. Assets will be sold in a more orderly fashion and in due time the fund will be closed.
Yes the risk does still exist (and always will), but it does not appear to be a catastrophic event this time. For one, there are many more hedge funds and private equity investments. thus, through diversification, the impact will be less. Moreover, while highly levered, first reports have leverage less than at LTCM.
What risk is Bear taking on in extending the loan? According to Bear CFO Sam Molinaro (who incidentally is an SBU grad) not much since the assets pledged against the loan are worth more than the loan. (Which of course is hard to say with certainty as evidenced by ML's difficulty in selling off the $850M in assets and getting bids as low as 30 cents on the dollar.
So what will happen? Most likely the funds will sell off their assets and eventually be shut down. But the loan from Bear will give the funds time to do so in an orderly fashion and not at 30 cents on the dollar the WSJ reported this morning that some universities were bidding for the debt.
Tuesday, April 24, 2007
Bloomberg.com: Worldwide
Bloomberg.com: Worldwide:
"The U.S. Securities and Exchange Commission filed a lawsuit against two former Apple Inc. top executives for their roles in backdating stock-option grants, including some made to Chief Executive Officer Steve Jobs.
Former Apple General Counsel Nancy Heinen's lawyers have said she'll fight the case. The SEC settled with former Chief Financial Officer Fred Anderson. He agreed to forfeit $3.5 million and pay a $150,000 fine to resolve claims he filed false financial reports and had inadequate accounting controls at the Cupertino, California-based company, the SEC said."
"The U.S. Securities and Exchange Commission filed a lawsuit against two former Apple Inc. top executives for their roles in backdating stock-option grants, including some made to Chief Executive Officer Steve Jobs.
Former Apple General Counsel Nancy Heinen's lawyers have said she'll fight the case. The SEC settled with former Chief Financial Officer Fred Anderson. He agreed to forfeit $3.5 million and pay a $150,000 fine to resolve claims he filed false financial reports and had inadequate accounting controls at the Cupertino, California-based company, the SEC said."
Monday, April 16, 2007
How good of hedge is gold?
Market.view | A fine and fickle friend | Economist.com:
"A recent paper...attempts to answer this question—or, rather, it attempts to answer two questions. Does gold usually move in the same direction as shares or government bonds? (In other words, is it a hedge in normal times?) And does gold move in the opposite direction when shares or bonds are falling sharply? (Is it a safe haven in extreme times?)
The academics looked at a period from end-November 1995 to end-November 2005. They found....[that] It does well in the short term when shares fall; but if shares fall for long enough, investors start to liquidate their portfolios and gold suffers with all the rest....So those investors who want to buy gold are really making a commodity bet or a currency bet. They are not protecting themselves against a prolonged bear market in shares and bonds.
The academic paper is by Baur and Lucey:
“Is Gold a Hedge or a Safe Haven? An analysis of Stocks, Bonds, and Gold"
"A recent paper...attempts to answer this question—or, rather, it attempts to answer two questions. Does gold usually move in the same direction as shares or government bonds? (In other words, is it a hedge in normal times?) And does gold move in the opposite direction when shares or bonds are falling sharply? (Is it a safe haven in extreme times?)
The academics looked at a period from end-November 1995 to end-November 2005. They found....[that] It does well in the short term when shares fall; but if shares fall for long enough, investors start to liquidate their portfolios and gold suffers with all the rest....So those investors who want to buy gold are really making a commodity bet or a currency bet. They are not protecting themselves against a prolonged bear market in shares and bonds.
The academic paper is by Baur and Lucey:
“Is Gold a Hedge or a Safe Haven? An analysis of Stocks, Bonds, and Gold"
Wednesday, April 11, 2007
CIBC analyst got death threats on Citigroup: report - Yahoo! News
It is well known that there have traditionally been many more buy recommendations than sell. This has been largely explained incentives both of the analyst (who does not want to lose the information that comes from better access to management) and from the brokerage firm (who does not want to lose potential investment banking business). Recent research (Kadan, Madureira, Wang, and Zach) suggests that these problems have been at least somewhat mitigated by regulations, but not completely.
Why? Well in what sounds like a plot from a novel or movie, we may have to add another explanation: Death threats!!!
CIBC analyst got death threats on Citigroup: report - Yahoo! News:
"The analyst whose downgrade of Citigroup Inc sparked a broad stock market sell-off on Thursday said she has received several death threats stemming from her research, the Times of London said. Meredith Whitney of CIBC World Markets Inc late Wednesday downgraded Citigroup to 'sector underperformer,' saying the largest U.S. bank by assets might need to raise more than $30 billion of capital and cut its dividend. Her downgrade triggered a 6.9 percent drop in Citigroup's shares.... 'People are scared to be negative, especially when a company has such a wide holding,' Whitney told the Times of London in an article published Saturday. 'Clients are not pleased with my call and I have had several death threats,' she continued. 'But it was the most straightforward call I've made in my career and I am surprised my peer analysts have been resistant. It's so straightforward, it's indisputable."
Why? Well in what sounds like a plot from a novel or movie, we may have to add another explanation: Death threats!!!
CIBC analyst got death threats on Citigroup: report - Yahoo! News:
"The analyst whose downgrade of Citigroup Inc sparked a broad stock market sell-off on Thursday said she has received several death threats stemming from her research, the Times of London said. Meredith Whitney of CIBC World Markets Inc late Wednesday downgraded Citigroup to 'sector underperformer,' saying the largest U.S. bank by assets might need to raise more than $30 billion of capital and cut its dividend. Her downgrade triggered a 6.9 percent drop in Citigroup's shares.... 'People are scared to be negative, especially when a company has such a wide holding,' Whitney told the Times of London in an article published Saturday. 'Clients are not pleased with my call and I have had several death threats,' she continued. 'But it was the most straightforward call I've made in my career and I am surprised my peer analysts have been resistant. It's so straightforward, it's indisputable."
Friday, January 12, 2007
Blaine Lourd Profile - Executive Articles - Portfolio.com
What a great article! Inherently readable, a great story, and even ends up with a happy ending. I usually hate to give away the story, but in this case I will. It is the story of a stereotypical stock broker who sees the light and realizes that indexing is generally a better idea.
Blaine Lourd Profile - Executive Articles - Portfolio.com:
"As a group, professional money managers control more than 90 percent of the U.S. stock market. By definition, the money they invest yields returns equal to those of the market as a whole, minus whatever fees investors pay them for their services. This simple math, you might think, would lead investors to pay professional money managers less and less. Instead, they pay them more and more...Nobody knows which stock is going to go up. Nobody knows what the market as a whole is going to do, not even Warren Buffett. A handful of people with amazing track records isn’t evidence that people can game the market. Nobody knows which company will prove a good long-term investment. Even Buffett’s genius lies more in running businesses than in picking stocks. But in the investing world, that is ignored. Wall Street, with its army of brokers, analysts, and advisers funneling trillions of dollars into mutual funds, hedge funds, and private equity funds, is an elaborate fraud."
And later on some so-called experts:
" There's a shelf of financial bestsellers whose titles now sound absurd: Ravi Batra's The Great Depression of 1990; James Glassman's Dow 36,000; Harry Figgie's Bankruptcy 1995: The Coming Collapse of America and How to Stop It. There’s BusinessWeek’s 1979 description of "the death of equities as a near permanent condition,"
and after he finds DFA (yeah Eugene Fama's firm) and comes to realize that indexing is probably the way to go.
"I think more and more brokers will move to an efficient-markets strategy, because all of their products go bad.
Blaine Lourd Profile - Executive Articles - Portfolio.com:
"As a group, professional money managers control more than 90 percent of the U.S. stock market. By definition, the money they invest yields returns equal to those of the market as a whole, minus whatever fees investors pay them for their services. This simple math, you might think, would lead investors to pay professional money managers less and less. Instead, they pay them more and more...Nobody knows which stock is going to go up. Nobody knows what the market as a whole is going to do, not even Warren Buffett. A handful of people with amazing track records isn’t evidence that people can game the market. Nobody knows which company will prove a good long-term investment. Even Buffett’s genius lies more in running businesses than in picking stocks. But in the investing world, that is ignored. Wall Street, with its army of brokers, analysts, and advisers funneling trillions of dollars into mutual funds, hedge funds, and private equity funds, is an elaborate fraud."
And later on some so-called experts:
" There's a shelf of financial bestsellers whose titles now sound absurd: Ravi Batra's The Great Depression of 1990; James Glassman's Dow 36,000; Harry Figgie's Bankruptcy 1995: The Coming Collapse of America and How to Stop It. There’s BusinessWeek’s 1979 description of "the death of equities as a near permanent condition,"
and after he finds DFA (yeah Eugene Fama's firm) and comes to realize that indexing is probably the way to go.
"I think more and more brokers will move to an efficient-markets strategy, because all of their products go bad.
Blaine Lourd Profile - Executive Articles - Portfolio.com
What a great article! Inherently readable, a great story, and even ends up with a happy ending. I usually hate to give away the story, but in this case I will. It is the story of a stereotypical stock broker who sees the light and realizes that indexing is generally a better idea.
Blaine Lourd Profile - Executive Articles - Portfolio.com:
"As a group, professional money managers control more than 90 percent of the U.S. stock market. By definition, the money they invest yields returns equal to those of the market as a whole, minus whatever fees investors pay them for their services. This simple math, you might think, would lead investors to pay professional money managers less and less. Instead, they pay them more and more...Nobody knows which stock is going to go up. Nobody knows what the market as a whole is going to do, not even Warren Buffett. A handful of people with amazing track records isn’t evidence that people can game the market. Nobody knows which company will prove a good long-term investment. Even Buffett’s genius lies more in running businesses than in picking stocks. But in the investing world, that is ignored. Wall Street, with its army of brokers, analysts, and advisers funneling trillions of dollars into mutual funds, hedge funds, and private equity funds, is an elaborate fraud."
And later on some so-called experts:
" There's a shelf of financial bestsellers whose titles now sound absurd: Ravi Batra's The Great Depression of 1990; James Glassman's Dow 36,000; Harry Figgie's Bankruptcy 1995: The Coming Collapse of America and How to Stop It. There’s BusinessWeek’s 1979 description of "the death of equities as a near permanent condition,"
and after he finds DFA (yeah Eugene Fama's firm) and comes to realize that indexing is probably the way to go.
"I think more and more brokers will move to an efficient-markets strategy, because all of their products go bad.
Blaine Lourd Profile - Executive Articles - Portfolio.com:
"As a group, professional money managers control more than 90 percent of the U.S. stock market. By definition, the money they invest yields returns equal to those of the market as a whole, minus whatever fees investors pay them for their services. This simple math, you might think, would lead investors to pay professional money managers less and less. Instead, they pay them more and more...Nobody knows which stock is going to go up. Nobody knows what the market as a whole is going to do, not even Warren Buffett. A handful of people with amazing track records isn’t evidence that people can game the market. Nobody knows which company will prove a good long-term investment. Even Buffett’s genius lies more in running businesses than in picking stocks. But in the investing world, that is ignored. Wall Street, with its army of brokers, analysts, and advisers funneling trillions of dollars into mutual funds, hedge funds, and private equity funds, is an elaborate fraud."
And later on some so-called experts:
" There's a shelf of financial bestsellers whose titles now sound absurd: Ravi Batra's The Great Depression of 1990; James Glassman's Dow 36,000; Harry Figgie's Bankruptcy 1995: The Coming Collapse of America and How to Stop It. There’s BusinessWeek’s 1979 description of "the death of equities as a near permanent condition,"
and after he finds DFA (yeah Eugene Fama's firm) and comes to realize that indexing is probably the way to go.
"I think more and more brokers will move to an efficient-markets strategy, because all of their products go bad.
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