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Article Archive: 2014 The Stingy News Weekly: December 28, 2014 12/28/14   SNW I'm pleased to present our free letter for the week ended December 28, 2014. This week we have popcorn, value, and more. The high cost of movie treats 12/27/14   Pricing "There is no question popcorn and soda pop prices at North American theatres far exceed what you'd pay to enjoy the same goods at home. So why do we pay? It turns out popcorn has a story to tell about economics and consumer preferences that goes far beyond the silver screen." Tobias Carlisle and Deep Value 12/27/14   Value Investing "The evidence reveals an axiomatic truth about investing: Investors aren't rewarded for picking winners; they're rewarded for uncovering mis-pricing." The Stingy News Weekly: December 21, 2014 12/21/14   SNW I'm pleased to present our free letter for the week ended December 21, 2014. This week we have bad behaviour, banks, Greece, and more. Harsh debt dynamics 12/21/14   World "Whether the next governmet is a revamped coalition led by the current prime minister's New Democracy, or one led by Syriza, it will face the same, harsh debt dynamics." Behavioral portfolio management 12/20/14   Behaviour "Do you know the names of the stocks you own? That may seem like a funny question, but simply knowing the names of your holdings puts you at risk of making behaviorally driven decisions, such as acting on emotionally fueled news stories, according to C. Thomas Howard" Give to charity and get back 12/20/14   Taxes "The First-Time Donor's Super Credit (FDSC) makes it possible to donate a lot of money to charity - with a much lower overall cost." Low oil prices could chill CWB 12/20/14   Stingy Investing "As winter descends on Canada, the good people of Alberta face bitter prospects. Matters are so frosty that provincial politicians are climbing into bed with one another in an effort to warm up before the party stops." The Stingy News Weekly: December 14, 2014 12/14/14   SNW I'm pleased to present our free letter for the week ended December 14, 2014. This week we have oil, graveyards, miracles, and more. Patient investing 12/13/14   Value Investing "First Eagle Global Fund's Matthew McLennan. First Eagle is known for its value-oriented, margin of safety approach and making preservation of capital its first investment goal. ... McLennan explains why he is currently finding markets around the world expensive, and why 'patience' is his best investment idea." [video] In praise of small miracles 12/12/14   Behaviour "Most of us don't save enough. When governments try to encourage saving, they usually enact big policies to increase the incentives. But, in Kenya, people were given a lockable metal box - a simple place to put their money. After one year, the people with metal boxes increased savings by so much that they had 66 percent more money available to pay for health emergencies. It would have taken a giant tax reform to produce a shift in behavior that large." Digging manager graveyards 12/12/14   Value Investing "Taking on tracking error is a great way to get fired as an asset manager. As an individual, it is a great way to break your confidence and sell your hated value stocks." The Stingy News Weekly: December 6, 2014 12/06/14   SNW I'm pleased to present our free letter for the week ended December 6, 2014. This week we have millennials, retirement, bad ideas, and more. Can't stay retired 12/06/14   Retirement "The AARP research found that 55 percent of retirees are employed voluntarily, including the 25 percent who reported working because they wanted to be physically or mentally active." Retail financial advice 12/06/14   Brokers "Using unique data on Canadian households, we assess the impact of financial advisors on their clients' portfolios. We find that advisors induce their clients to take more risk, thereby raising expected returns. On the other hand, we find limited evidence of customization: advisors direct clients into similar portfolios independent of their clients' risk preferences and stage in the life cycle. An advisor's own portfolio is a good predictor of the client's portfolio even after controlling for the client's characteristics. This one-size-fits-all advice does not come cheap. The average client pays more than 2.7% each year in fees and thus gives up all of the equity premium gained through increased risk-taking." The world's dumbest idea 12/06/14   Montier "When it comes to bad ideas, finance certainly offers up an embarrassment of riches - CAPM, Efficient Market Hypothesis, Beta, VaR, portfolio insurance, tail risk hedging, smart beta, leverage, structured finance products, benchmarks, hedge funds, risk premia, and risk parity to name but a few. Whilst I have expressed my ire at these concepts and poured scorn upon many of these ideas over the years, they aren't the topic of this paper. Rather in this essay I want to explore the problems that surround the concept of shareholder value and its maximization." The dangers of reacting to short-term volatility 12/06/14   Value Investing "It is true that the volatility of terminal wealth across all holding periods is found to be higher for stocks than bonds in every market examined and, thus, stocks are riskier when risk is measured by volatility. But interestingly, the higher volatility of terminal wealth from stocks is mostly on the upside. So, stocks have both higher upside and more limited downside than bonds." Lessons from Black Friday 12/06/14   Zweig "The ultimate lesson: When assets are priced for perfection in an imperfect world, investors who don't slash their expectations are apt to be disappointed at best and devastated at worst." Injecting enthusiasm into millennial investing 12/06/14   Stingy Investing "Getting a good education opens up many doors. But even after years of schooling, too many people know little about the financial markets and investing, which is a real shame. Money manager Patrick O'Shaughnessy hopes to bridge the gap with a new book called Millennial Money: How Young Investors Can Build a Fortune. In it, he encourages young adults to invest in the stock market to take full advantage of the magic of compounding." The Stingy News Weekly: November 30, 2014 11/30/14   SNW I'm pleased to present our free letter for the week ended November 30, 2014. This week we have stocks and the sausage factory, Dr. Bruce's value, extraordinary delusions, and more. Believing what you read 11/29/14   Books "Mackay's book is still enormously entertaining - and worth reading - 170 years after it was published. But Mackay is often quoted as though he were an objective authority on the history of notorious bubbles like the 17th century Dutch tulip mania and the South Sea stock bubble of 1720 in England. Readers should bear in mind that Mackay was a storyteller, and that modern researchers have been unable to confirm some of his best-known anecdotes - and have disproved others altogether." Prepare for the bear 11/29/14   Hallett "All year I've been wanting to write an article urging advisors and individual investors to prepare for the next bear market. When stock markets hit a pothole in late summer and early fall, it struck me as an opportune time to refresh this idea. While markets have since quickly moved past the decline, I was struck at the amount of attention given to what I thought were normal stock market fluctuations." Value Investing by Bruce 11/29/14   Value Investing "Bruce Greenwald's presentation from the Welcome Event for the 12th International Post Keynesian Conference." [video] Value and glamour returns 11/29/14   Markets "Did you know that the best performing glamour stocks outperform the best performing value stocks? Sounds exciting, right? Well it may be, but expensive stocks still stink. In this piece I visualize the performance of value and glamour stocks in a new way to make the point once more that value trumps everything." The Stingy News Weekly: November 23, 2014 11/23/14   SNW I'm pleased to present our free letter for the week ended November 23, 2014. This week we have a go-go value stock, doubling down, a tax loophole, a little magic, and more. High-flying Fairfax 11/23/14   Stingy Investing "Melding value investing with momentum investing tends to be particularly powerful. In this case, think of value investing as the meat and potatoes of portfolio construction. The idea is to stick to good companies at reasonable prices. Momentum investing represents the horseradish because it favours hot stocks that are expected to move even higher." Price-to-book value ratios 11/23/14   Value Investing "...analyzing the results for stocks based on their price-to-book value ratios underlines and highlights why we should always seek access to the longest datasets we can find, as they offer much better indications of what investors should expect from various types of investing." Doubling down 11/23/14   Funds "With a sample from 1/1990 to 12/2013, the paper finds that a portfolio formed of the positions that fund managers add to after recent stock-level underperformance generates significant annualized risk-adjusted outperformance of between 5% to 15% (Table below shows the monthly performances). Double down portfolios perform best with around a 6 to 9 month holding period." Joel Greenblatt on WealthTrack 11/23/14   Value Investing "Joel Greenblatt of the Gotham Funds will explain his big change in portfolio strategy, from a very concentrated approach to broad diversification." The Stingy News Weekly: November 16, 2014 11/16/14   SNW I'm pleased to present our free letter for the week ended November 16, 2014. This week we have the Top 200, lotteries, retirement, Net Nets, momentum, and more. The Top 200 11/15/14   Stingy Investing "Our annual All-Star stock picks, which combine the best growth and value characteristics, have climbed by an average of 17.3% a year since we started 10 years ago. That assumes an equal dollar amount was put into each All-Star stock in the first year and rolled into the new All-Stars each year thereafter. By way of comparison, the S&P/TSX Composite (as represented by the XIC ETF) advanced by just 5.3% annually over the same period. The All-Stars beat the market by an average of 12.0 percentage points per year over the last decade." John Oliver: The Lottery 11/15/14   Government "State lotteries claim to be good for education and the general wellbeing of citizens. But are they? (Spoiler alert: No.)" [video] Joe Rosenfield's remarkable story 11/15/14   Value Investing "By popular demand, I'm posting here the PDFs of an article I wrote years ago: 'The Best Investor You've Never Heard Of,' about Joe Rosenfield, the uncommonly courageous thinker who was for many years the chairman of the investment committee of Grinnell College - and a hero to many other great investors, including his friend and admirer Warren Buffett." 52-Week High and Momentum Investing 11/15/14   Momentum Investing "That is, the price level, relative to a reference point (the 52-week high), seems in this context to be an even more powerful price predictor than momentum in isolation. And while reversals do occur for momentum stocks, 52-week high stocks do not reverse." Net Nets in London 11/15/14   Graham "Firms with an NCAV/MV greater than 1.5 display significantly positive market-adjusted returns (annualized return up to 19.7% per year) over five holding years." The Stingy News Weekly: November 8, 2014 11/08/14   SNW I'm pleased to present our free letter for the week ended November 8, 2014. This week we have cloning, retirement, concentration, and more. Cloning value 11/08/14   Stingy Investing "Today I'll focus on cloning smart investors like Warren Buffett. I'm not talking about brewing up mini-Buffetts in some sort of nefarious genetic experiment, but simply copying the portfolios of the best investors in the world. The idea is to ride the coattails of their expertise - without having to pay for it." Concentrated value 11/08/14   Value Investing "To take advantage of value investing, you need a smaller portfolio than you may think. I was curious to see what different levels of portfolio concentration would have produced in a value-only portfolio over the past 50 years, and report the results here." Index-linked notes: buyer beware 11/08/14   Funds "I'm reminded of the knowledge gap every time I open the newspaper, or walk by a bank branch, and see an ad for an index-linked GIC. Despite intense industry criticism, these products remain in vogue and are heavily promoted by the banks." Watch for traps on high interest savings 11/08/14   Thrift "Banks lure you with high rates on savings. But the fine-print conditions and transfer fees can offset the benefits of such deals." The Stingy News Weekly: November 2, 2014 11/02/14   SNW I'm pleased to present our free letter for the week ended November 2, 2014. This week we have thoughts on the Top 200, 101 years on Wall St., and more. Graham and Doddsville: Fall 2014 11/01/14   Value Investing Featuring interviews with Wally Weitz and Guy Gottfried. The value convergence 11/01/14   Markets "The valuation difference between the market's cheapest stocks and its most expensive has always fascinated me. Here are the EBITDA yields at different break points since the early 1960s." 101 Years on Wall Street 11/01/14   Books "A great book for investors to read to get a long-term, historical perspective on the stock market's ups and downs is '101 Years on Wall Street' by John Dennis Brown. It chronicles each year from 1890 through 1990, and as you read about each year, several things will become obvious - investors have not changed at all" The Stingy News Weekly: October 26, 2014 10/26/14   SNW I'm pleased to present our free letter for the week ended October 26, 2014. This week we have Korean bargains, the dangers of copycat investing, and more. Bargains in the dark corners of the stock market 10/26/14   Stingy Investing "Warren Buffett bought a basket of cheap South Korean stocks about a decade ago. In doing so, he put the country on the map for North American value investors and a few of them have followed his lead." Shareholder value maximization 10/26/14   Montier "James Montier talks about shareholder value maximization (SVM) and its 'unintended' consequences." Pets allowed 10/26/14   Behaviour "What a wonderful time it is for the scammer, the conniver, and the cheat: the underage drinkers who flash fake I.D.s, the able-bodied adults who drive cars with handicapped license plates, the parents who use a phony address so that their child can attend a more desirable public school, the customers with eleven items who stand in the express lane. The latest group to bend the law is pet owners." Value investors see few bargains 10/26/14   Value Investing "Small-cap valuations are still quite asinine" O Beholden Canada 10/26/14   Government "Call it Canada's summer of pension discontent. Governments throughout the country are grappling with as much as $300 billion in unfunded government-worker retirement debt. In a country of just 38.5 million people, that's a pension problem roughly equivalent to the one that California faces. And it's widely shared." Curiosity killed the copycat 10/26/14   Funds "The funds that get copied, unsurprisingly, are typically those that have performed well in the past and are highly ranked by Morningstar. In the short term, the strategy appears to work; the copycats manage to improve their performance and the copied funds continue to do well. But over a longer period of four years or so, this effect disappears." The Stingy News Weekly: October 19, 2014 10/19/14   SNW I'm pleased to present our free letter for the week ended October 19, 2014. This week we have volatility, value, dividends, Buffett's stock pickers, and more. Buffett's stock pickers 10/19/14   Buffett "So how have the Oracle's disciples done? Quite impressively, according to our estimates. Both have outpaced the S&P 500 in their time at Berkshire (their compensation is determined by how much they beat that index over three years). Combs has done the better of the two, generating a cumulative return of 116% over the past nearly four years-more than double the S&P's 55% over the same period. Weschler's portfolio is up 81%, but he's had only three years to prove himself. Combs' picks increased an incredible 51% last year alone. And Weschler is well ahead of the market this year." Low volatility and value 10/19/14   Value Investing "A large part of the performance associated with low volatility stocks is clearly being driven by exposures to value; however, there does appear to be some marginal benefit to investing in low volatility stocks." Avoid high beta stocks 10/19/14   Markets "Low volatility investing--either expressed via BETA or IVOL--does show promise. The simulation results are not as dramatic as those for value and momentum based strategies, but the results are certainly interesting." The Stingy News Weekly: October 11, 2014 10/11/14   SNW I'm pleased to present our free letter for the week ended October 11, 2014. This week we have Deep Value, Warren Buffett, oil, and more. Managing money for retirement 10/11/14   Retirement "There are not enough resources to give all of the Baby Boomers a lush retirement, without unduly harming younger age cohorts, and this is true over most of the developed world, not just the US." Incentives matter 10/11/14   Behaviour "Did you know police can just take your stuff if they suspect it's involved in a crime? They can! It's a shady process called 'civil asset forfeiture,' and it would make for a weird episode of Law and Order." [video] Warren Buffet on investment strategy 10/11/14   Buffett "The annual Fortune MPW interview with the world's most successful investor - Warren Buffett, Chairman and CEO, Berkshire Hathaway." [video] Canada finds oil route around Obama 10/11/14   World "So you're the Canadian oil industry and you do what you think is a great thing by developing a mother lode of heavy crude beneath the forests and muskeg of northern Alberta. The plan is to send it clear to refineries on the U.S. Gulf Coast via a pipeline called Keystone XL. Just a few years back, America desperately wanted that oil. Then one day the politics get sticky. In Nebraska, farmers don't want the pipeline running through their fields or over their water source. U.S. environmentalists invoke global warming in protesting the project. President Barack Obama keeps siding with them, delaying and delaying approval. From the Canadian perspective, Keystone has become a tractor mired in an interminably muddy field." Vanguard makes its move 10/11/14   Indexing "You knew it was coming: Vanguard Canada has dramatically reduced the fees on 11 of its ETFs. The announcement came this week, and it affects some of the most popular funds in the Vanguard lineup" Cigar-butt stocks get last laugh 10/11/14   Stingy Investing "If you're a value investor or are simply interested the sort of thinking behind Mr. Icahn's latest round of activism, then you'd do well to pick up a copy of Deep Value. It'll help you become a better investor." The Stingy News Weekly: October 4, 2014 10/04/14   SNW I'm pleased to present our free letter for the week ended October 4, 2014. This week we have middleweight dividend stocks, thrifty entertainment ideas, shorting, plus much more. Is value investing a hoax? 10/04/14   Value Investing "It was a wide-ranging conversation canvassing some interesting ideas: Net nets, the Acquirer's Multiple, and the validity of value investing" Prudence penalised 10/03/14   Thrift "The reluctance of workers to save for their old age is usually put down to inertia or impatience - being unable to defer gratification to the distant future. In fact, it may be a rational decision in the face of high charges, confusing products and poor returns." Is Bernanke a bad credit risk? 10/03/14   Fun "Ben S. Bernanke said the mortgage market is so tight that even he is having a hard time refinancing his own home loan." Do valuation shorts work? 10/03/14   Markets "In conclusion, it seems the poor reputation valuation shorts have is at least partially deserved. Even when we look at some of the best-known and most-memorable short campaigns of the past decade, valuation shorts significantly under-perform fraud shorts." The Stingy News Weekly: September 28, 2014 09/28/14   SNW I'm pleased to present our free letter for the week ended September 28, 2014. This week we have deep value stocks inspired by Patrick O'Shaughnessy and Tobias Carlisle, plus much more. Back testing investment strategies 09/28/14   Markets "Investment advice bombards us from many directions with little to support it but anecdote. Many times, a manager will give a handful of stocks as examples, demonstrating how well they went on to perform. Unfortunately, these managers conveniently ignore the many other stocks that also possessed the preferred characteristics but failed." How much does it really cost to mine gold? 09/26/14   Stocks "A scan of major gold producers' earnings suggests the cost of mining gold has risen dramatically over the past few years. Part of that is a true increase, owing to inflation and the expense of digging out tough-to-reach grades. But most of it is due to a change in the cost metric that gold miners emphasize in their reports to the investing community." The Secret Goldman Sachs tapes 09/26/14   Government "The Fed failed to regulate the banks because it did not encourage its employees to ask questions, to speak their minds or to point out problems. Just the opposite: The Fed encourages its employees to keep their heads down, to obey their managers and to appease the banks. That is, bank regulators failed to do their jobs properly not because they lacked the tools but because they were discouraged from using them." The Secret Recordings of Carmen Segarra 09/26/14   Government "An unprecedented look inside one of the most powerful, secretive institutions in the country. The NY Federal Reserve is supposed to monitor big banks. But when Carmen Segarra was hired, what she witnessed inside the Fed was so alarming that she got a tiny recorder and started secretly taping." Deep value stocks are scarce 09/26/14   Stingy Investing "Deep value investing is a powerful way to beat the market, but deep value stocks are an endangered species in the U.S., according to money manager Patrick O'Shaughnessy. The situation north of the border is similar. But, thankfully, there are still some bargains to be found." The Stingy News Weekly: September 19, 2014 09/19/14   SNW I'm pleased to present our free letter for the week ended September 19, 2014. This week we have cursed dividend stocks, Warren's wrath, sneaky CEOs, and more. The wrath of Warren Buffett 09/19/14   Buffett "But this was one time where Buffett's laissez-faire management style would fail him. Some years later, a Benjamin Moore CEO began pursuing a strategy that chipped away at Buffett's pledge. By 2012 the CEO was nearing a deal-an agreement to sell through Lowe's-that would have shattered the promise. Buffett got wind of the plan, intervened, and scotched the arrangement. But the damage was done: Dealers revolted and today, two years later, the company is still recovering from the tumult, still searching for ways to expand its sales, and still working to regain the trust of its 4,200 dealers." The large-stock value premium 09/19/14   Value Investing "Recently, we have seen a rise in the level of discussion about whether there is a significant value premium in large-cap stocks. The value premium is the tendency of stocks with low prices relative to measures of their value to outperform stocks with high relative prices. Since large-cap stocks make up about 90 percent of the total global market capitalization, this is an important issue." Strategic news releases 09/19/14   Academia "We show that CEOs strategically time corporate news releases to coincide with months in which their equity vests. These vesting months are determined by equity grants made several years prior, and thus unlikely driven by the current information environment. CEOs reallocate news into vesting months, and away from prior and subsequent months. They release 5% more discretionary news in vesting months than prior months, but there is no difference for non-discretionary news. These news releases lead to favourable media coverage, suggesting they are positive in tone. They also generate a temporary run-up in stock prices and market liquidity, potentially resulting from increased investor attention or reduced information asymmetry. The CEO takes advantage of these effects by cashing out shortly after the news releases." Dreaming of a cheap tropical retirement? 09/19/14   Retirement "Moving to a low-cost, tropical paradise, where $30,000 a year can put a couple into the upper middle class, is fast becoming the dream du jour for fifty-somethings who find themselves short on retirement funds." The Stingy News Weekly: September 14, 2014 09/14/14   SNW I'm pleased to present our free letter for the week ended September 14, 2014. This week we have Charlie Munger, cheap stocks, and holding for the long term. The durable low volatility effect 09/13/14   Markets "One of the basic tenets of finance is that investors are compensated for taking risk. For equity markets, that means that high volatility stocks are expected to outperform low volatility stocks. But that hasn't happened. Low-risk stocks have historically outperformed high-risk stocks." A few cheap stocks 09/13/14   Value Investing "The reason that value works is that it is a proxy for expectations. Cheap valuations = lower expectations for the future--but these bleak forecasts often turn out to be too grim. This alternative way of looking at value can help investors identify stocks that are both cheap today, but also have had falling expectations over time. To paraphrase Templeton, the key isn't to find stocks for whom the outlook is good, but to find stocks for whom the outlook it is miserable." A fireside chat with Charlie Munger 09/13/14   Munger "You have to strike the right balance between competency or knowledge on the one hand and gumption on the other. Too much competency and no gumption is no good. And if you don't know your circle of competence, then too much gumption will get you killed. But the more you know the limits to your knowledge, the more valuable gumption is." A good case of amnesia 09/13/14   Behaviour "I am fascinated by an anecdote related recently by James O'Shaughnessy of O'Shaughnessy Asset Management. An employee who recently joined his firm told him that Fidelity had studied which customer investing accounts performed the best: They were the ones held by people who had forgotten they even had Fidelity accounts, and so did no buying or selling from them." Charles Munger: Secrets of Buffett's Success 09/13/14   Munger "Why did nearly 250 investors converge on Los Angeles this past week to listen to a 90-year-old man address the annual meeting of a tiny legal-publishing and software company? To hear Charles T. Munger - better known as Warren Buffett's right-hand man - expound on one of his least-known holdings and just about everything else." There's no shame in migrating to index funds 09/13/14   Stingy Investing "There is no shame in admitting that you're not the next Warren Buffett. The vast majority of investors aren't. Those who figure it out are likely to improve their returns dramatically by following simple low-cost mechanical methods such as investing in low-fee index funds." Retirement 100: Fall 2013 09/08/14   Stingy Investing It's getting close to that time of year again. Here's last year's article to whet your appetite. The Stingy News Weekly: September 6, 2014 09/06/14   SNW I'm pleased to present our free letter for the week ended September 6, 2014. This week we start with dividend stocks with pep and move on to hard money and the economics of restaurants. Financial savvy is not something schools can teach 09/06/14   Education "The right conclusion is not that there is nothing to be done. Far from it. We can and should divert the money that is about to be put into personal finance education into better mathematics education." Why don't restaurants charge for reservations? 09/06/14   Pricing "If economists owned popular restaurants like State Bird, they would take one look at the long lines and raise prices. After all, the overwhelming demand is pretty clear. Or at the very least, given how reservations disappear like Coachella tickets, they would start charging for them. In fact, since restaurants do not do this, a number of startups in San Francisco and New York City have started to sell reservations to users, often by reserving tables and scalping them." Hard money is not a mistake 09/06/14   Behaviour "Aggregate wealth is held by risk averse individuals who don't individually experience aggregate outcomes. Prospective outcomes have to be extremely good and nearly certain to offset the insecurity soft money policy induces among individuals at the top of the distribution, people who have much more to lose than they are likely to gain. It's not because they're bad people. Diminishing marginal utility, habit formation and reference group comparison, the zero-sum quality of insurance against systematic risk, and the tendency of regression towards the mean, all make soft money a bad bet for the wealthy even when it is a good bet for the broader public and the macroeconomy." Barry Ritholtz interviews James O'Shaugnessy 08/30/14   Value Investing "Barry Ritholtz interviews James O'Shaughnessy, the chief executive officer of O'Shaughnessy Asset Management. They discuss the strategies that work on Wall Street." [Audio] The Stingy News Weekly: August 29, 2014 08/29/14   SNW I'm pleased to present our free letter for the week ended August 29, 2014. This week we start with an interview and a presentation by value investor, and author, Tobias Carlisle. The Peculiar Passivity of Active Management 08/29/14   Funds "If active stock-pickers are going to prove their worth, they'd better start getting a lot more active - not by trading more, but by looking different from the indexes they are trying to beat." Tobias Carlisle at Deep Value Summit 2013 08/29/14   Value Investing "Tobias Carlisle talks about KLIC and why he bought it." [Video] Tobias Carlisle interview 08/29/14   Value Investing "Tobias Carlisle talks about his book Deep Value." [Audio] The criminalisation of business 08/29/14   Government "Companies must be punished when they do wrong, but the legal system has become an extortion racket." The Stingy News Weekly: August 24, 2014 08/24/14   SNW I'm pleased to present our free letter for the week ended August 24, 2014. This week we have articles on net-net stocks, dividend growth, 108 years of value, quality plus value, and more. 108-year-old investor 08/24/14   Value Investing "Three days a week, Irving Kahn takes a taxi from his flat in Manhattan for the short ride to the offices of his investment firm, Kahn Brothers. Nothing surprising about that, you might think. But Mr Kahn is 108 years old." The moneyball of quality investing 08/24/14   Value Investing "Factor investing has rightfully gained adherents among investors seeking superior risk-adjusted returns. Our research reveals that quality is not a factor that reliably commands a premium in its own right. Nonetheless, value investing conditioned upon certain indicators of company quality is a promising strategy." The great Chinese exodus 08/24/14   World "Today, China's borders are wide open. Almost anybody who wants a passport can get one. And Chinese nationals are leaving in vast waves: Last year, more than 100 million outbound travelers crossed the frontiers. Most are tourists who come home. But rapidly growing numbers are college students and the wealthy, and many of them stay away for good." Ways investors can avoid being duped 08/24/14   Crime "In the investment world, there is no way to avoid the occasional fraud. It is simply a numbers game. The more companies you evaluate, the more likely you are to encounter one. Moreover, it is usually difficult to detect which companies are fraudulent, as companies can have duplicitous management teams and aggressive financials without necessarily breaking the law." Net-net stocks 08/24/14   Stingy Investing "Near the depths of the Great Depression, Mr. Graham wrote a series of articles that highlighted businesses that could be snapped up for less than their liquidation value. The outlook was so bleak for these firms that the market believed they were better off dead than alive. Anyone who was brave enough to buy a basket of them, and hold on, did very well indeed." The Stingy News Weekly: August 16, 2014 08/16/14   SNW I'm pleased to present our free letter for the week ended August 16, 2014 The remarkable truth about 52-week highs 08/16/14   Momentum Investing "if one of your stocks hits a new 52-week high, you probably shouldn't be nervous. In fact, perhaps you should be excited." The internet's original sin 08/16/14   Media "Once we've assumed that advertising is the default model to support the Internet, the next step is obvious: We need more data so we can make our targeted ads appear to be more effective. Ceglowski explains, 'We're addicted to 'big data' not because it's effective now, but because we need it to tell better stories.' So we build businesses that promise investors that advertising will be more invasive, ubiquitous, and targeted and that we will collect more data about our users and their behavior." Print is down, and now out 08/16/14   Media "A year ago last week, it seemed as if print newspapers might be on the verge of a comeback, or at least on the brink of, well, survival." Are cash flows better return predictors? 08/16/14   Academia "Novy-Marx (2013) shows that profitability, measured by gross profits-to-assets, predicts the cross-section of average returns just as well as book-to-market ratios do. We find that, in our 1994-2013 sample of S&P 1500 stocks, cash flow measures are even better predictors of stock returns than various income statement-based measures. We present a procedure for transforming indirect cash flow method statements into disaggregated and more direct estimates of cash flows from operations and other sources. We then derive 'direct method' cash flow measures and form portfolio deciles based on these measures. Stocks in the highest cash flow decile outperform those in the lowest cash flow decile by over 10% annually after controlling for well-known risk factors. Our results are robust to the investment horizon, and controlling for sector differences. We also show that, in addition to operating cash flow information, cash taxes and capital expenditures provide incremental predictive power." The mystery of lofty stock market elevations 08/16/14   Shiller "I wrote with some concern about the high ratio in this space a little over a year ago, when it stood at around 23, far above its 20th-century average of 15.21. (CAPE stands for cyclically adjusted price-earnings.) Now it is above 25, a level that has been surpassed since 1881 in only three previous periods: the years clustered around 1929, 1999 and 2007. Major market drops followed those peaks." The Top 200 for 2014 08/13/14   Stingy Investing "We're thrilled to report our efforts have paid off handsomely since last time. Our All-Star stocks, which combine the best growth and value characteristics, gained an average of 55.0% since last year. By way of comparison the Canadian market, as represented by the S&P/TSX Composite ETF (XIC), gained 7.2% over the same period." Top 500 U.S. Stocks for 2014 08/13/14   Stingy Investing "Last year's All-Star stocks turned out to be great buys, gaining an average 38.7%. In comparison, the U.S. stock market, represented by the S&P 500 (SPY), climbed only 23.3% since last time. The U.S. All-Stars beat the market by 15.4 percentage points, not including dividends." The Stingy News Weekly: August 10, 2014 08/10/14   SNW I'm pleased to present our free letter for the week ended August 10, 2014 Y So Cheap? 08/10/14   Stocks "I think Y is a solid investment. It may not trade much above BPS in the near term; their stated goal is to increase BPS 7-10%/year over time, and I think it's great if they can achieve that and worth BPS if that is the case." Sell Oakville, buy Windsor 08/10/14   Real Estate "Investing strategist Dan Hallett has been saying this to friends of his lately: With an eye on retirement, sell your home in Oakville, about an hour's drive west of Toronto, and head another three hours west on Highway 401 to his own city of Windsor." Investors should take a pass 08/10/14   Hallett "Keep in mind that financial institutions have designed these products and have deemed them attractive enough to want to sell a lot of them. In other words, they will tend to offer products when they are confident that the odds will be tilted in their favour - which may be at odds with what's best for end investors." Timing the market is tempting 08/10/14   Stingy Investing "There are only a few things in this world that are as tempting as a good butter tart. When it comes to investing, the urge to time the stock market is one of them." A Different Look at Neglect 08/02/14   Stocks "It's good to look at stocks that not everyone else is looking at. A little neglect can be a good thing." The Stingy News Weekly: July 25, 2014 07/25/14   SNW I'm pleased to present our free letter for the week ended July 25, 2014 Dirt-cheap value ETFs 07/25/14   Stingy Investing "Index investors are partying like it's 1999. The bull market is giving them reason to cheer, and fund companies are slashing their fees. It's now easy to build a portfolio stuffed full of dirt-cheap exchange traded funds." Long-term returns boosted by illiquidity 07/25/14   Markets "The less liquid a stock is, the better it will perform in the long run, compared with more liquid stocks." Valuing community banks 07/25/14   Value Investing "There isn't one way to value a community bank, but multiple ways. Each way could yield a different value, but ultimate all methods of valuation should somewhat agree on a potential value." The voodoo of lobster economics 07/25/14   Pricing "There is a voodoo to lobster economics. What used to be poor man's fare, the fallback meal of people too impoverished to afford anything else, is now a billion dollar business and a universal mark of luxury - with the result that a lobster that sells for $3.50 on the wharf can cost $60 and more on a restaurant plate in New York or Toronto or Shanghai, regardless of how many lobsters are pulled from the sea. How this happens is the life story of Larry the Lobster." The Stingy News Weekly: July 19, 2014 07/19/14   SNW I'm pleased to present our free letter for the week ended July 19, 2014 Why the M-B test is meaningless 07/19/14   Behaviour "This isn't a test designed to accurately categorize people, but a test designed to make them feel happy after taking it. This is one of the reasons why it's persisted for so many years in the corporate world, despite being disregarded by psychologists." The importance of being solvent 07/19/14   Thrift "What is wealth? To me, it isn't a particular sum of money. Rather, it's the freedom to spend your days doing what you're passionate about and what you think is important." Technical market indicators 07/18/14   Markets "Current evidence on the predictability of technical analysis largely concentrates on price-based technical indicators such as moving averages rules and trading range breakout rules. In contrast, the predictability of widely used technical market indicators such as advance/decline lines, volatility indices, and short-term trading indices has drawn limited attention. Although some market indicators have also become popular sentiment proxies in the behavioral finance field to predict returns, the results generally rely on using just one or a few indicators at a time. This approach raises the risk of data snooping, since so many proxies are proposed. We review and examine the profitability of a wide range of 93 market indicators. We give these technical market indicators the benefit of the doubt, but even then we find little evidence that they predict stock market returns. This conclusion continuously holds even if we allow predictability to be state dependent on business cycles or sentiment regimes." Booming until it hurts? 07/18/14   Markets "Those who warn of grave dangers if speculative price increases are allowed to continue unimpeded are right to do so, even if they cannot prove that there is any cause for concern. The warnings might help prevent the booms that we are now seeing from continuing much longer and becoming more dangerous." The FBI pump-and-dump scam 07/18/14   Crime "So the main lesson here is, if you want to run a pump-and-dump scam, the FBI is not a great partner. That or "just don't run a pump-and-dump scam," I guess, take your pick. There are other lessons, though. One is how strangely close this all was to being legal." The Stingy News Weekly: July 12, 2014 07/12/14   SNW I'm pleased to present our letter for the week ended July 12, 2014 Cynk and short selling 07/12/14   Crime "If you spot what you think is a penny stock pump-and-dump scam, don't short it! It might be a trap!" U.S. stocks will be very disappointing 07/12/14   Markets "'I can say with high confidence that investors are going to get very disappointing returns from U.S. stocks over the coming 10 years,' says Rob Arnott, chairman of Research Affiliates" Why Canada isn't immune 07/12/14   Real Estate "History has shown, time and again, that 'this time' is not different. We believe the same is true for the future of Canadian residential real estate." Tiny houses for economic freedom 07/12/14   Thrift "The 57-year-old schoolteacher's tiny house near Providence, Rhode Island, cost $28,000 - a seventh of the median price of single-family residences in his state." Relative value in the TSX 07/12/14   Stingy Investing "Thirty-one of the 60 stocks passed Mr. Graham's test at the end of 2008 when the financial system was in acute distress. But that number has been getting smaller and smaller ever since. This week, only six stocks passed the test." The Stingy News Weekly: July 5, 2014 07/05/14   SNW I'm pleased to present our letter for the week ended July 5, 2014 Never buy expensive stocks. Period. 07/05/14   Markets "One can't even simulate a scenario where a diversified portfolio of 30 expensive stocks can beat the worst performing portfolio of 30 cheap stocks. Why investors allocate to expensive, or "growth," stocks is beyond me." The board game of the alpha nerds 07/05/14   Fun "If you've ever heard of Diplomacy, chances are you know it as 'the game that ruins friendships.' It's also likely you've never finished an entire game. That's because Diplomacy requires seven players and seven or eight hours to complete. Games played by postal mail, the way most played for the first 30 years of its existence, could take longer than a year to finish. Despite this, Diplomacy is one of the most popular strategic board games in history." Good businesses at good prices 07/05/14   Markets "Price-to-book is the least impressive value factor I've tested, and ROE is the least impressive measure of quality/profitability." Addicted to zero 07/05/14   Government "So tell me again why central bankers in North America feel they have to 'keep our economy going' by maintaining a zero-interest rate policy." The Stingy News Weekly: June 29, 2014 06/29/14   SNW I'm pleased to present our letter for the week ended June 29, 2014 Diversify with Warren Buffett 06/29/14   Stingy Investing "Berkshire Hathaway represents an interesting option for cost-conscious investors who want to pick up a diversified collection of businesses in one handy package." Value combo 06/29/14   Value Investing "The attraction of the combo is that it delivers returns comparable to the very best metric at any point in time." The power of share repurchases 06/29/14   Dividends "One of the most effective stock selection strategies in the U.S. over the past several decades has been to buy stocks that are in the midst of repurchasing significant quantities of their shares-but just blindly following buybacks isn't always the best strategy. While many companies that are repurchasing large quantities of their shares make for great investments, others are dangerous and should be avoided." Backtesting backfire 06/29/14   Zweig "Given long enough time and deep enough data, you can find a seemingly impressive linkage between almost any two factors. But correlation isn't causation." Perils of too much information 06/29/14   Stingy Investing "Investors routinely face information overload. It's easy to find hundreds, or even thousands, of data points on stocks with just a few clicks of the mouse. Only a small amount of which is actually useful." The Stingy News Weekly: June 20, 2014 06/20/14   SNW I'm pleased to present our letter for the week ended June 20, 2014 Do longer-term calculations enhance performance? 06/20/14   Academia "In theory, using long-term measures makes sense, but the evidence does not support this story. There may be other considerations such as turnover and taxes, but in the context of the study above, there is no benefit to using longer-term measures." Deflating profitability 06/20/14   Academia "Gross profit scaled by book value of total assets predicts the cross-section of average returns. Novy-Marx (2013) concludes that it outperforms other measures of profitability such as earnings, cash flows, and dividends. One potential explanation for the measure's predictive ability is that its numerator - gross profit - is a cleaner measure of economic profitability. An alternative explanation lies in the measure's deflator. We find that net income equals gross profit in predictive power when both measures are constructed using consistent deflators. We then construct an alternative measure of profitability, operating profitability, which better matches current expenses with current revenue. This measure exhibits a far stronger link with expected returns than either net income or gross profit." Congress reluctant to cut 06/20/14   Fun "Escalating recent budgetary disputes with the White House over military spending, members of Congress signaled their hesitance Thursday to curtail funding for the M114 Armored Combat Vehicle, a midsize tank whose sole capability is spinning 360 degrees in place and then exploding." GM Recalls 06/20/14   Management "Yet in one indirect way, Oakley tried to rouse concern. In a draft of a service bulletin to dealers, he included the term 'stall,' a 'hot' word known to attract attention. Had it actually gone out to car sellers, federal regulators would have most likely seen it. But as they had with Kelley three years before, GM's product investigators tamped down the response, striking the language. It was one of the many occasions in which GM engineers failed to link the ignition switch position and disabled airbags, Valukas concluded." The Stingy News Weekly 06/15/14   SNW I'm pleased to present our letter for the week ended June 15, 2014 How much can you safely withdraw? 06/14/14   Stingy Investing "Following the 4-per-cent rule is sure to lead to a happy retirement. That's how much an investor can extract from a balanced portfolio when they retire without having to worry about running out of cash before running out of time. At least, that's the theory." Moral behavior in animals 06/14/14   Behaviour "Empathy, cooperation, fairness and reciprocity - caring about the well-being of others seems like a very human trait. But Frans de Waal shares some surprising videos of behavioral tests, on primates and other mammals, that show how many of these moral traits all of us share." A critique of John Hussman's Ccart 06/14/14   Markets "Of all the arguments for a significantly bearish outlook, I find John Hussman's chart of estimated future equity returns, shown below, to be among the most compelling. I've spent a lot of time trying to figure out what is going on with this chart, trying to understand how it is able to accurately predict returns on a point-to-point basis. I'm pretty confident that I've found the answer, and it's quite interesting." Overdiversification 06/14/14   Markets "But diversification isn't all peaches and cream. There is such a thing as being overdiversified. Take an index fund. It owns tons of stocks that will stink over the next year. Apple last year is a great example. It was the biggest stock in the S&P 500 (and therefore most impactful on returns), and had a relatively weak year. Owning everything means you will always own certain types of stocks that tend to perform poorly." The Stingy News Weekly 06/08/14   SNW I'm pleased to present our letter for the week ended June 8, 2014 Portfolio tracking is for losers 06/07/14   Behaviour "If we can't stop ourselves being biased by market information then we have the alternative of avoiding it. The idea that we should cut ourselves off from our portfolios and limit our exposure to market news is anathema to the majority of us, but we'd probably end up wealthier as a result." Does Academic Research Kill Returns? 06/07/14   Markets "On average, long-short versions of the 82 investment strategies enjoyed risk-adjusted returns (alpha) of 9.5% per year within the data sample. In the second period, after the initial study was concluded but before the paper was published, the alpha dipped by 13%, to 8.5% annualized. After publication, alpha fell much by the much larger percentage of 44%, landing at 4.8%." Academic research and return predictability 06/07/14   Markets "We study the out-of-sample and post-publication return-predictability of 82 characteristics that are identified in published academic studies. The average out-of-sample decay due to statistical bias is about 10%, but not statistically different from zero. The average post-publication decay, which we attribute to both statistical bias and price pressure from aware investors, is about 35%, and statistically different from both 0% and 100%. Our findings point to mispricing as the source of predictability. Post-publication, stocks in characteristic portfolios experience higher volume, variance, and short interest, and higher correlations with portfolios that are based on published characteristics. Consistent with costly (limited) arbitrage, post-publication return declines are greater for characteristic portfolios that consist of stocks with low idiosyncratic risk." Price to sales ratio backtest 06/07/14   Value Investing "This backtest of the Price/Sales ratio reveals that the first quintile outperforms the S&P 500 Equal Weight Index benchmark. The second through fifth quintiles have lower average annual excess returns than each of the previous quintiles and the overall trend in excess returns is a linear decrease as the P/S ratio increases." Price to free cash flow ratio backtest 06/07/14   Value Investing "This backtest of the P/FCF ratio reveals that the first quintile outperforms the S&P 500 Equal Weight Index benchmark. The second through fifth quintiles have lower average annual excess returns than each of the previous quintiles and the overall trend in excess returns is a linear decrease as the P/FCF ratio increases." An astonishing record of complete failure 06/07/14   Economics "In the 2001 issue of the International Journal of Forecasting, an economist from the International Monetary Fund, Prakash Loungani, published a survey of the accuracy of economic forecasts throughout the 1990s. He reached two conclusions. The first was that forecasts are all much the same. There was little to choose between those produced by the IMF and the World Bank, and those from private sector forecasters. The second conclusion was that the predictive record of economists was terrible. Loungani wrote: 'The record of failure to predict recessions is virtually unblemished.'" The Stingy News Weekly 05/30/14   SNW I'm pleased to present our letter for the week ended May 30, 2014 Valuation and timing 05/30/14   Stingy Investing "It's relatively easy to figure out when the stock market is expensive. Profiting from that knowledge can be much harder." You'll love momentum investing 05/30/14   Stingy Investing "Our propensity to spot patterns in almost anything is one reason why I give short shrift to technical analysis. But the surprising universality and persistence of momentum investing is winning me over." 10 lessons from a Navy SEAL 05/30/14   Behaviour "U.S. Navy admiral and University of Texas, Austin, alumnus William H. McRaven returned to his alma mater last week to give seniors 10 lessons from basic SEAL training when he spoke at the school's commencement." The deliberate amateur 05/30/14   Academia "Compounding the honor of winning the Nobel is that Geim is the only scientist to date to win both a Nobel and an Ig Nobel, the award given to scientists for experiments so outlandish that they 'first make people laugh, and then make them think.'" The Stingy News Weekly 05/25/14   SNW I'm pleased to present our letter for the week ended May 25, 2014 Why was Canada exempt from the financial crisis? 05/25/14   Government "From its beginning, Canada's banking system was structured to be less vulnerable to shocks and thus did not give rise to the need for a central bank to achieve stability. By contrast, the Fed was created to offset vulnerabilities in the American banking system." Russian history is on our side 05/25/14   World "Now that we've failed to use Russia's corrupt and degenerating economy, subservience to the international banking system, and vulnerability to falling energy prices to pop Vladimir Putin like a zit, we're going to have sit on our NATO, E.U., and OSCE duffs and take the long view of Russian imperialism. Fortunately the long view, while a desolate prospect, is also comforting in its way, if you aren't a Russian." Value vs the market since 2008 05/25/14   Value Investing "Value investors are right. The period since 2008 has been more difficult for value strategies than it was in the early 2000s. But simple value strategies have still outperformed over the full period, and by a wide margin. This is despite the fact that, in many instances, the value decile often underperforms the market, and in some cases, more than half the time." The Stingy News Weekly 05/18/14   SNW I'm pleased to present our letter for the week ended May 18, 2014 Two ways to improve momentum 05/18/14   Momentum "Momentum investing worked very well in 2013, but it's been awful in 2014. The momentum reversal has been one of the major headlines in an otherwise flat and quiet market year because the high-flying stocks from 2013, especially popular tech names like Tesla, have been crushed in recent months. Momentum investing works great over the long term but can suffer from short term reversals that are painful to live through. Luckily, there are ways to significantly improve the momentum trading strategy - which would have side-stepped the momentum carnage of 2014 completely." Disbursing cash to shareholders 05/18/14   Dividends "Frequently asked questions about buybacks and dividends" Don't succumb to their charms 05/18/14   Stingy Investing "The tulips are in bloom in Toronto and the entire front yard of a house on my street is devoted to them. The flowers were originally planted by the owner's parents who passed away some time ago. But their memory lingers in the glorious blanket of red and yellow that appears each spring. As it happens, tulips and stocks have a sordid history that dates back to the 1600s, when the Dutch were afflicted by tulip mania." Enhancing yield-based strategies 05/18/14   Dividends "High dividend yield stocks do not reliably earn above-average risk-adjusted returns. More complete measures of shareholder yield, which account for net share repurchases, perform better. We explore the use of net-debt paydown as a way to further enhance shareholder yield. The addition of net-debt paydown enhances risk-adjusted returns and creates a shareholder yield metric that is more robust over time. We also explore the technique of separating yield metrics by payout percentage as a way to enhance return predictability. We find some evidence that using payout percentage within a yield category can systematically improve portfolio performance." The slaves of Eritrea 05/10/14   World "If conscripts really did help build Bisha, then every Canadian citizen profited a little from slavery in a far-off land." Fact, fiction and momentum investing 05/10/14   Momentum Investing "It's been over 20 years since the academic discovery of momentum investing, yet much confusion and debate remains regarding its efficacy and its use as a practical investment tool. In some cases 'confusion and debate' is us attempting to be polite, as it is near impossible for informed practitioners and academics to still believe some of the myths uttered about momentum - but that impossibility is often belied by real world statements. In this article, we aim to clear up much of the confusion by documenting what we know about momentum and disproving many of the often-repeated myths. We highlight ten myths about momentum and refute them, using results from widely circulated academic papers and analysis from the simplest and best publicly available data." Don't pay for liquidity you don't need 05/10/14   Stingy Investing "The lesson seems clear: Small investors can benefit by avoiding highly liquid stocks. It might not make them the next Warren Buffett, but it should help their returns over the long term." Meet Francis Chou 05/04/14   Stingy Investing "It's a pity more money managers don't follow Mr. Chou's example. But investors would be wise to follow him." The 5 year market metamorphosis 05/04/14   Markets "There is less of an edge today in cheap stocks than there was five years ago: there are far fewer U.S. stocks that are very cheap." Flinty-eyed fiscal conservatives 05/04/14   Government "Why yes: reading the budget, one was taken back to the last days of the Bob Rae government, two decades ago - that same feeling that those in charge had no real grasp on the size of the hole they had dug for themselves, nor any serious plan to get out of it. In retrospect, the comparison seems unfair. Rae was a flinty-eyed fiscal conservative compared to this bunch." 2014 Berkshire Hathaway meeting 05/04/14   Buffett "Morningstar's on-the-spot meeting coverage." Charlie Munger: CEO pay is insane 05/04/14   Munger "Instead of complaining, Munger said some corporate executives should willingly decide to work for less money." Popular stocks stink 04/27/14   Markets "This group of the most highly traded stocks has delivered an annual return of -3.1% since 1984. That is putrid compared to the equal weighted basket of all stocks, which has delivered an 11.4% return in the same period." Why I broke up with Warren Buffett 04/27/14   Buffett "Even you now seem to doubt that Berkshire can keep beating the market. In your most recent annual report, you revealed that 90% of the money that will be left to your widow will be invested in an S&P 500 index fund. As usual, you're being realistic. I'll always treasure that about you. But it's time to go." Keystone's frustrator-in-chief 04/27/14   World "By the time Harper hung up, according to people with knowledge of the episode, he had sized up the potential economic calamity for Canada and its oil ambitions. Western Canada's land-locked Alberta oil sands hold roughly 168 billion recoverable barrels of heavy crude known as bitumen. America gobbles up almost all of Canada's oil exports. An energy research group in Calgary had run the math: If Keystone died, it could cost Canada C$632 billion ($573 billion) in foregone growth over 25 years -- 94 percent of it from the economy of Alberta, the province Harper calls home." Liquor Stores NA is no bargain 04/27/14   Stingy Investing "Alcohol beverages represent one of the joys of university life. But three teams of savvy business students didn't show Liquor Stores NA Ltd. much love when they evaluated it this month." Munger on corporate governance 04/19/14   Munger "Good character is very efficient. If you can trust people, your system can be way simpler. There's enormous efficiency in good character and dis-efficiency in bad character." The stock market lottery 04/19/14   Markets "Since 1963, the most expensive 10% of the market has underperformed by 8.5% annually. If, since 1963, you bought every lotto stock in the market every year, 60% of those buys would have lost money in the next 12 months (and they'd have been down an average of -41%). Even though the remaining 40% made money, the entire group of lottery stocks has grown at a tiny 1.5% annual rate since 1963 - that's worse than inflation, and significantly worse than the S&P 500 which grew at roughly 10% per year over the same period. The historical record is clear: it doesn't pay to play the stock market lottery." Financial advice for the not so rich 04/19/14   Brokers "For a couple of years now, a number of entrepreneurs have been racing to solve the same problem: the financial services industry's persistent inability to provide personalized advice and appropriate investments at a reasonable price to customers who are not rich." Index funds trade too much 04/19/14   Stingy Investing "The problem is, most index funds are too active. Sure, specialty index funds must trade stocks frequently in an effort to track small segments of the market. But some of the biggest and most beloved indexes trade too often." When the messenger is worth shooting 04/12/14   Thrift "In addition to being ineffective and boring, the lessons of financial literacy curriculums often end up sounding patronizing and obvious. Check your credit report. Rebalance investments. Budget. The fact that most people don't bother to do these things is taken as a sign of their financial illiteracy." Global solar dominance in sight 04/12/14   World "Photovoltaic energy is already so cheap that it competes with oil, diesel and liquefied natural gas in much of Asia without subsidies." Will life ever get better for journalists? 04/12/14   Media "The Internet is to blame for all this, of course. Online has decimated the advertising revenue that media outlets have traditionally relied on, while a plethora of other sources and options from Twitter to Reddit have in some ways obviated the need for journalists. And let's not even get started on robot reporters." Financial advisor fees 04/12/14   Zweig "The Wall Street Journal's two top personal finance journalists, Jonathan Clements and Jason Zweig, both now at The Wall Street Journal tackle the three greatest financial challenges facing Americans. [video]" Buffett's tax plan 04/12/14   Taxes "Allowing companies to split into separate parts, tax-free, is a long-accepted practice. But now it seems that practice has been twisted into a very effective tax-dodge." China's steelmakers into shadow banking 04/12/14   World "What's happening in China's steel industry illustrates not only how painful the economy's inevitable slowdown will be, but also how the country's complicated tangle of debts are straining the connective tissue of supply chains, endangering the whole system." Fund risk rating reform 04/05/14   Hallett "More importantly, the rating doesn.t adequately inform investors about the risks that lie ahead during the next credit market freeze or when the PIMCO managers show their humanity and get some of their bets wrong. PIMCO is following the rules. But assessing this as a low risk fund simply shows the inadequacy of the status quo that so many fund companies have argued to maintain." Boost after-tax returns 04/05/14   Taxes "If you happen to be an investor, you're no doubt looking for ways to increase your returns. Look no further than your own tax return. If you can achieve tax savings related to your investments, this will increase your after-tax returns. So, consider the following ideas when filing your tax return this year." Evasive shareholder meetings 04/05/14   Academia "We study the location and timing of annual shareholder meetings. When companies move their annual meetings a great distance from headquarters, they tend to announce disappointing earnings results and experience pronounced stock market underperformance in the months after the meeting. Companies appear to schedule meetings in remote locations when the managers have private, adverse information about future performance and wish to discourage scrutiny by shareholders, activists, and the media. However, shareholders do not appear to decode this signal, since the disclosure of meeting locations leads to little immediate stock price reaction. We find that voter participation drops when meetings are held at unusual hours, even though most voting is done electronically during a period of weeks before the meeting convenes." Chou's 2013 letter 03/30/14   Value Investing "We believe that the market is currently fairly valued and we sincerely doubt the overall returns from equities in general over the next five to 10 years will be compelling. On the contrary, we believe the returns may be far more modest than those hoped for by investors. Not only are the P/E ratios and price-to-book values still high and dividend yields low relative to historic valuations, but the number of companies that are underpriced is at an all-time low. In light of this scenario, and with its obvious lack of bargains, we would not hesitate to sell our investments and be 100% or 50% cash -- or whatever the number may be." David Winters interview 03/30/14   Value Investing "Wintergreen Fund's David Winters, a value investor who describes himself as the opposite of an index hugger, has more than 60% of his portfolio invested in companies based overseas and has recently taken a stand against Coca Cola management and Warren Buffett" Newspaper stock, really? 03/28/14   Stingy Investing "Flint knapping was an important skill many years ago and then technological change made it obsolete. But, in a strange twist of fate, it has been making a bit of a comeback thanks to the Internet. It's now easy to learn how to knock out an arrow tip the old-fashioned way. While the Internet is a great boon to hobbies such as flint knapping, it's knocking the stuffing out of some businesses. Newspapers are a case in point." A big day for value investors 03/28/14   Stingy Investing "Value investors are set to descend upon Toronto for the Fairfax Financial annual meeting. They're making the trip from all over the world to hear Prem Watsa, the firm's CEO, talk about strategy and investing in early April." Buffett the market timer? 03/23/14   Buffett "So yes, Buffett did retire in 1969 due to the lack of investment opportunity so in that sense it does sort of smell like market timing; he got out at the top. But does his retirement really mean that he lost faith in stocks as good long term investments at the then prices? His expectations suggest not." What would you do? 03/22/14   Watsa "Every investor has held his hand out in the dark and blindly touched the fine line between being very early and very wrong" Equity markets are overvalued 03/22/14   Montier "James Montier, member of the asset allocation team at Boston-based GMO, has a hard time finding attractively valued assets these days. His advice to investors: Cash - and lots of patience." Stock promoters make inroads 03/22/14   Crime "Several finance websites have published articles by guest contributors who were allegedly paid to promote the stocks they were writing about, raising ethical concerns." How much did your house cost? 03/22/14   Real Estate "In the case of the Irish property market, it would appear that mortgaged households have considerable difficulty in accurately recalling the actual house price paid for their property." Slice of life 03/15/14   World "KCPT's Randy Mason takes US 36 to Chillicothe, Missouri, where in the summer of 1928, sliced bread was made available for the first time, anywhere. Otto Rohwedder invented that slicer, Frank Bench put it to work in his bakery, and from then on, the sandwich was never the same" When hedge funds lobby 03/15/14   Government "The worrying thing is that the Ackmans and Westhuses of this world have discovered what you might call the Buffett Arbitrage. Rather than investing in advertising or capital stock, they invest instead in lobbying, with the aim of getting very specific legislation passed which will make them very rich." Bill Gates interview 03/15/14   World "The majority of the foundation's money goes to a finite number of things that focus on health inequity - why a person from a poor country is so much worse off than somebody from a country that's well-off. It's mostly infectious diseases. There's about 15 of those we're focusing on - polio is the single thing I work on the most. And then, because of the importance of nutrition and because most poor people are farmers, we're in agriculture as well." Is Berkshire Hathaway too big? 03/15/14   Stingy Investing "My biggest worry is related to the firm's size. Berkshire Hathaway is the fifth-largest stock in the U.S. by market capitalization and the fourth-largest by revenue, according to S&P Capital IQ. Problem is, it is extraordinarily difficult for giant companies to grow at above average rates for a long time." Glidepath to oblivion 03/15/14   Stingy Investing "The stock market regularly makes a mockery of reasonable strategies and smashes them to pieces like a deranged bull rampaging through a china shop. Its latest victim is the idea that investors should invest heavily in stocks when they're young and then gradually move into bonds as they prepare for retirement." Prem's letter 03/08/14   Watsa "In this environment, with zero interest rates and high debt levels prevailing in most developed countries, giving them limited flexibility to react to unintended consequences, we think it is prudent to have a very strong balance sheet with a large cash position and to be protected on the downside. When problems hit, only those with cash and very liquid assets can take advantage of them. While it is very painful and costly waiting, we think your (and our!) patience will be rewarded." Benj likes gold 03/08/14   Stingy Investing "When you think about the sort of people who grow up and go into the investment business, you might imagine characters such as Alex Keaton from the 1980s TV series Family Ties. Michael J. Fox brought the role to life and played a straight-laced conservative kid who was a little too obsessed with money. But it's best to ignore such stereotypes, because more artistic souls can also become great investors, and Benj Gallander is a prime example." 3 Stingy Stocks for 2014 03/03/14   Stingy Investing "Over the last year the Stingy Stocks have climbed by an average of 37.8% while the S&P500 (as represented by the SPY exchange traded fund) advanced only 29.7%. Both fared well but the market trailed by 8.1 percentage points." 4 Graham Stocks for 2014 03/03/14   Stingy Investing "If you had bought equal dollar amounts of the Graham stocks and replaced them with the new batch each year, you would have gained 830% (or 19% annualized) over the full period." A CAPE Crusader 03/02/14   Montier "Having spent a large proportion of my career prior to joining GMO working at investment banks, I'm well aware of what Andrew Smithers describes as 'Stock Broker Economics,' the second tenet of which is 'The market is always cheap.' Over the years I've witnessed many attempts by the practitioners of this most dark art to justify why tried and tested measures of valuation are no longer meaningful, or occasionally create new measures of valuation that purport to show the market to be cheap." Stock picking skills of SEC employees 03/02/14   Academia "These results raise questions about potential rent seeking activities of the regulator's employees." Making sense of experts' picks 03/02/14   Hallett "Among the flurry of recommendations, it's important to keep a few things in mind in the spirit of sound portfolio construction." The Glidepath Illusion 03/02/14   Arnott "Rob Arnott explains why target-date funds fail to either maximize wealth or minimize uncertainty about future income." Take a vacation 03/02/14   Stingy Investing "The mood is glum in Valueville these days. Conditions are so depressed that its inhabitants can be spotted packing up their Bloomberg terminals and heading off on extended vacations." Berkshire Hathaway report for 2013 03/01/14   Buffett "Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn't afford. Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them. Unfortunately, pension mathematics today remain a mystery to most Americans." How to hold stocks: Buffett 02/24/14   Buffett "In an exclusive excerpt from his upcoming shareholder letter, Warren Buffett looks back at a pair of real estate purchases and the lessons they offer for equity investors." Now with less democracy 02/23/14   Government "Quebec is vowing to act fast and make changes that would give the corporate boards of locally-headquartered companies more power to reject hostile takeovers." Now with more democracy 02/23/14   Law "Ottawa should reform its key corporate legislation - the Canada Business Corporations Act - to entrench majority voting as a legal requirement for all companies with public shareholders. The CBCA is under review for potential amendments, so the time is right to push for change. A fundamental reform of shareholder democracy is long overdue. Annual board elections should be more than an empty gesture." The shorting premium 02/23/14   Academia "Short-rebate fees are a strong predictor of the cross-section of stock returns, both gross and net of fees. We document a large "shorting premium"; the cheap-minus-expensive-to-short (CME) portfolio of stocks has an average monthly gross return of 1.45%, a 0.92% net return, and a 1.55% four-factor alpha. We show that short fees also interact strongly with the returns to seven of the most well-known and large cross-sectional anomalies. These anomalies disappear among the 80% of stocks with low short fees, but are greatly amplified among those with high fees. We propose a joint explanation for these findings wherein the shorting premium is compensation for the short-side risk borne by the small minority of investors who do most shorting. It therefore raises prices rather than lowers them. We use the CME portfolio return as a proxy for this short risk and demonstrate that a Fama-French CME factor model largely captures the returns to all seven anomalies within both high- and low-fee stocks." The growing case against ETFs 02/23/14   Indexing "Whether you are racing, cruising, stopping or crashing, safe driving comes down to a mix of equipment and personnel. The same can be said for mutual funds and exchange-traded funds, and while there is growing consensus that ETFs are the better vehicle, there's growing evidence that the people using them may not be so skilled behind the wheel. That's a real issue because a number of studies seem to indicate that the 'better' investment vehicle isn't delivering better results" Investment principles and habits 02/16/14   Value Investing "David Kostin, Goldman Sachs' chief U.S. equity strategist, explained that investor demand for 'value' has been so pervasive that low-valuation stocks had outperformed higher valuation peers by 12 percent in 2013. As a result, the distribution of S&P 500 P/E multiples was now its tightest in at least 25 years, implying less differentiation of companies based on valuation." Glamour tech stocks not tempting 02/16/14   Stingy Investing "When it comes to the stock market, glamour stocks are much like marshmallows. They're exciting, fired with rosy growth prospects, and offer the dream of riches. While they might provide a speculative sugar rush, their long-term prospects tend to be quite poor." Survivorship bias 02/16/14   Stingy Investing "Focusing solely on the winners can lead to a dangerously skewed view of the world. It's a particularly acute problem in the markets, where luck often plays an important role. Problem is, the market tends to bury its failures, which slip out of both sight and mind. Investors who don't account for them may find their decisions swayed by survivorship bias. It's a factor that fund investors should be particularly wary of." Getting around the CAPE 02/16/14   Markets "Shiller's cyclically-adjusted price-earnings ratio is, as recent research has shown, one of the best ways of predicting long-term returns in the stockmarket. But it is not popular because it shows the US market as expensive in historical terms. There are various attacks upon it. One is that the inclusion of the 2008 downturn in profits distorts the ratio by pushing it higher; on the contrary, the 2008 experience shows the benefits of averaging profits over the long term and not relying on a single year's measure. Profits fell in 2008 because they had been overstated in preceding years. Another line of attack is that the measure is irrelevant because accounting standards have changed. But that argument applies to all profits-based measures for valuations, like the prospective p/e on which bulls rely." Disappointing balanced index funds 02/16/14   Stingy Investing "New investors should think seriously about opting for low-fee balanced funds like those offered by Mawer, Steadyhand, and PH&N. They represent good picks for active investors. Regrettably, there are relatively few balanced options that are worth recommending to index investors." Standing out from the crowd 02/08/14   Behaviour "Two approaches can be used to assess and monitor the level of 'crowding' in different quantitative strategies. The authors introduce these measures and present anecdotal evidence suggesting that many quantitative strategies were crowded in the period leading up to the global financial crisis." Smart beta needs to come out of the closet 02/08/14   Hallett "Some suggest that Smart Beta blurs the line between active and passive management. But it's clear to me that Smart Beta is simply active management in disguise." Is a smooth ride priced like a Cadillac? 02/08/14   Markets "Here's a sure-fire way to get gouged: Walk onto a car lot, ask a salesperson to point out the vehicle with the smoothest ride, then purchase that vehicle regardless of price. It sounds reckless, but this is not far from the logic individual investors are using when shopping for the smoothest ride in the stock market." Market timing by indexers 02/08/14   Stingy Investing "The investing world is awash in simple mechanical strategies that promise prosperity. But they all suffer from a fundamental problem: They're well suited to robots, but humans control the cash. Finding a sound strategy is less than half the challenge for most people. If they can't stick with it, then it's not very useful." Retiring on your own terms 02/01/14   Zweig "To be assured of having enough money to fund a comfortable retirement, you should save a total of 22 times the annual income you want to earn when you retire. That is higher than many previous estimates, but it offers near-certainty of hitting your target." A bargain from Tweedy 02/01/14   Stingy Investing "These days more than a few famous value investors are selling stocks and allowing cash to pile up in their portfolios." How indexing distorts investment reality 02/01/14   Markets "Is indexing the perfect investment solution for the majority of investors - or is it the most dangerous threat to free markets since Communism? Is the investment management business an intelligent way for an investor to access expertise - or is it a collection of greedy and incompetent thieves? Like most things in life, reality is somewhere between the extreme portrayals that tend to inhabit the media, and taking time to peel away the more nuanced layers is a valuable and productive exercise." Lose as little money as possible 01/26/14   Markets "LeBaron, 80 years old, spoke to Zweig from his home near Sarasota, Fla. He believes that the name of the game for investors has been to make as much money as possible, but from now on, the prime directive will be to 'lose as little money as possible.'" Volatility and mutual fund manager skill 01/26/14   Academia "Low volatility mutual funds outperform high volatility funds to a remarkable degree, and, in a standard four factor framework, past volatility is a reliable, persistent, and powerful predictor of future abnormal returns. Analyses patterned after Kosowski, Timmerman, Wermers, and White (2006) and Fama and French (2010) indicate that low volatility fund managers have significant skill. However, the addition of a factor contrasting returns on diversified portfolios of low and high volatility stocks eliminates differences in risk-adjusted performance. We conclude that either our volatility measure is associated with a pervasive, systematic pricing factor, or else the volatility effect is a market inefficiency of extraordinary size. Either way, failure to account for the volatility effect can lead to substantial mismeasurement of fund manager skill." The Big Mac index 01/26/14   World "For example, the average price of a Big Mac in America in January 2014 was $4.62; in China it was only $2.74 at market exchange rates. So the "raw" Big Mac index says that the yuan was undervalued by 41% at that time." TED talks are lying to you 01/26/14   Behaviour "This was not science, despite the technological gloss applied by writers like Jonah Lehrer. It was a literature of superstition, in which everything always worked out and the good guys always triumphed and the right inventions always came along in the nick of time." [Warning: The grumpiness is strong with this one] People really like free stuff 01/18/14   Pricing "Neoclassical economics assumes that we are rational and that buying is as straightforward as performing a cost-benefit analysis. But when given the option to get something for free and its cost is zero, some fairly wild consumer behavior takes place." Three easy ways to mimic the best 01/18/14   Stingy Investing "Thrift is a rare virtue in the investment world, and it tends to go unheralded. Instead, hordes of salespeople try to lure in investors with the possibility of big returns, while charging a pretty penny. But you don't have to pay up. I'll walk you through three ways to benefit from the wisdom of the best investors in the world without paying a fortune." Why do ridiculous portfolios outperform? 01/18/14   Indexing "Jason Hsu on why monkeys and upside-down portfolios produce better results than cap-weighting over time." [video] Should you follow your fund's star 01/18/14   Hallett "Mutual fund companies have a love-hate relationship with so-called 'star fund managers'. The love stems from such managers' typically strong performance and their ability to tell good stories about how they invest clients' money." Don't let envy ruin your returns 01/18/14   Stingy Investing "With the markets making new highs, I know the temptation to run headlong into stocks is strong. But it's far better to stick to a good long-term plan than it is to succumb to return envy." Our number-one tax shelter 01/18/14   Thrift "Investing in a Tax-Free Savings Account should be a priority for most Canadians" Professor Damodaran's updated stock data 01/12/14   Stocks "In 1992, I had just finished a spreadsheet that contained the average PE ratios for companies in different sectors in the United States. There was little of substance in it, but I decided that since I had it, I might as well share it. I posted that spreadsheet for students in my class to download and made it available to others who visited my website (more hopeful thinking than an actual plan, since there were relatively few people looking for data online). Each year since, I have added to the data collection, initially expanding my list of data items for US companies, and in the last decade, adding to the collection by looking at non-US companies. It is my first task each year and it takes up the first week of the year, and I just uploaded the data today for the 2014 update." How did Zimbabwe become so poor 01/12/14   World "Zimbabwe faces impossible challenges, unbearable choices. It has been a hard country to live in for the last ten years, and it is likely to remain one for the next ten. Every hyperinflation leaves a legacy that lasts for generations. In Zimbabwe, that legacy is just beginning." The law of demand is a bummer 01/12/14   Economics "The debate over the minimum wage, which, thanks to Barack Obama's state-of-the-union address, we appear to be having again, is a debate over the question of whether raising the price of something - low-skilled labour, in this case - will reduce demand for that thing. That is to say, it is a debate over the relevance of the law of demand, an enormously robust generalisation about human behaviour confirmed and re-confirmed each day by billions of individual decisions." Mohnish Pabrai's Boston College talk 01/12/14   Value Investing Set aside some time to watch Mr. Pabrai's presentation. Optimism and credibility of stock spam 01/12/14   Crime "This study examines attention-driven investment decisions using a sample of firms essentially unknown to investors prior to becoming the target of a stock spam campaign. We show that the market reaction to spam varies predictably with the content of the spam message. Spam date returns and volume are significantly higher for stocks targeted by spam emails containing optimistic target price projections bundled with ostensibly credible information quoted from a previously issued company press release. There is also some evidence that disclaimers in spam messages reduce, but do not eliminate, the market response. Attention effects also contribute to spammers. selection of stocks to target and to spam.related enforcement actions by the Securities and Exchange Commission." Check out your advisor 01/12/14   Hallett "Securities regulators, insurance regulators and organizations governing financial designations all have online searchable databases that allow you to check out an advisor." Asset Mixer Update 01/12/14   Stingy Investing We've updated our Asset Mixer to include nominal data for 2013. Periodic Table Update 01/12/14   Stingy Investing We've updated our periodic table of annual returns for Canadians to include nominal data for 2013. Casting a wide net for deep value 01/05/14   Value Investing "In 1651, Thomas Hobbes described the life of mankind as "nasty, brutish and short." He could also have been describing the list of Canadian stocks that typically pass the Ben Graham net-net working capital screen." Don't play the prediction game 01/05/14   Stingy Investing "With a spectacular 2013 in the record books, stock market forecasters have been busily looking forward to what 2014 might bring. You should avoid listening to them." Buffett smashed the EMH 01/05/14   Buffett "Warren Buffett's hero was Ben Graham and with good reason - the lessons of Graham and his writing partner Dodd made Buffett an extraordinarily good investor and a billionaire many times over. Although, to a believer in the Efficient Market Hypothesis, Buffett's not supposed to even exist - a fact which both Buffett and Charlie Munger derive quite a bit of humor from." 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