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Article Archive: 2017 The Stingy News Weekly: December 24, 2017 12/24/17   SNW Merry Christmas! A Christmas Carol 12/24/17   Books "I have endeavoured in this Ghostly little book, to raise the Ghost of an Idea, which shall not put my readers out of humour with themselves, with each other, with the season, or with me. May it haunt their houses pleasantly, and no one wish to lay it." A conversation with Charlie 12/24/17   Munger "Charlie Munger, Vice Chairman of Berkshire Hathaway, joins Michigan Ross Dean Scott DeRue for a conversation about Mr. Munger's life, career journey, philanthropic legacy, and his thoughts on a few current global trends." Graham & Doddsville Winter 2017 12/24/17   Value Investing "There is no investment is without risk. But paying 4x earnings eliminates a lot risk." A Hogtown carol 12/23/17   Stingy Investing "You'll find freedom at the end of the line. Just take the train past the grey tenements of Toronto to the airport. Then you're only a ticket away from a tropical paradise where the slush-plagued streets of Hogtown are a distant memory. That is, if you can afford the trip. Get off the train a stop too early and you'll find yourself in one of the poorest parts of the city. There the landscape is littered with dollar stores and payday lenders wedged between vacant storefronts and soon-to-be demolished buildings. It's the home of the city's Cratchits who live among the fumes of the nearby railroads, highways and airplanes that usher the well-to-do to better places." The Stingy News Weekly: December 18, 2017 12/18/17   SNW This week we have the value in international and emerging market stocks, Bill Nygren, Wes Gray, and more. Putting your portfolio in a drawer 12/18/17   Behaviour "Long-term investors would do well to pull a page from the typical bond investor's playbook and put their entire portfolio in a drawer." Purgatory for pessimists 12/18/17   Markets "Also, notice the disparity in excess return between an equal-weighted versus a cap-weighted portfolio construction process. These are the exact same stocks! Yet, a cap-weighted approach underperforms by hundreds of basis points, even in large 300-stock portfolios." Career risk and Stalin's pension fund 12/18/17   Markets "To concentrate the mind, I fantasize about managing Stalin's pension fund where the penalty for failing to deliver 4.5% real per year over 10 years is death. I believe only a very large investment in EM equities will give an excellent chance of survival." Wes Gray on QVAL 12/18/17   Value Investing "Wes Gray, CEO of Alpha Architect, says he searches the 'trash bin' for companies in order to find 'deep value' in the QVAL ETF. He joins Bloomberg's Scarlet Fu and Eric Balchunas." [video] Shadow lending growing in Canada 12/18/17   Real Estate "They opted for a third route: adding a second mortgage with an interest rate of 10.5 percent to pay off their debt. Their salvation came from a private unregulated lender, a move many other Canadians are making as the government tries to rein in a home-price surge that's driven household debt to a record. But like a giant game of Whac-A-Mole, the risk to the financial system from tapped out borrowers is merely shifting -- this time to a market where there's no oversight from the country's national bank regulator and new stress-test rules don't apply." Bill Nygren Talks at Google 12/18/17   Value Investing Oakmark fund manager Bill Nygren talks about value investing at Google. [video] The Stingy News Weekly: December 11, 2017 12/11/17   SNW This week we have the Top Small Stocks, microcaps, banks, momentum, and more. You can have your momentum factor and eat it too 12/11/17   Momentum Investing "We don't address this in the paper, but I would argue that this finding - that momentum is implementable at low cost - holds even more strongly when it's part of a multi-factor portfolio, where factors that complement momentum, like value, will dampen turnover. All considered, we find that momentum is quite implementable in real life." Good advice, or advice that sounds good? 12/11/17   Zweig "I stumbled across an obscure academic article that shocked me. A psychologist had compared the investment results of people who received frequent news updates about their stocks against those who got no news at all. He found that no news is good news: Investors who were kept in the dark outperformed the news junkies by up to 56%." 1974 and 1999: history turned upside down 12/11/17   Markets "Many years later, a leading small-stock fund manager recalled to me, half-horrified and half-amused, that he was ranked in the top tenth of his peers in 1973 and 1974. After inflation, he reminisced, he had lost only 85% of his shareholders' money since the beginning of 1973." Passive income changes create big concerns 12/11/17   Taxes "The proposed measures around passive income will apply only to Canadian-controlled private corporations. What about public companies? Or foreign-controlled private companies? It hardly seems fair to put Canada's private business owners at a disadvantage here. If revisions are made to affect public and foreign private corporations, how will the changes impact foreign investment in Canada? The issue gets a lot more complicated - and political - than even the Liberals were expecting." Top U.S. small caps 12/11/17   Stingy Investing "We're pleased to present the fourth edition of the Small Cap 500. Join us as we dive into the U.S. market to find the most promising small stocks in the land. Each stock is scrutinized and ranked based on its value and growth characteristics. The firms that score highly on both tests make it into our All Star team." Microcap vertigo 12/11/17   Stingy Investing "If volatility makes you woozy or you're prone to panic during downturns, then microcaps should be avoided in much the same way as an acrophobe avoids sitting next to windows in tall buildings." [$] The Stingy News Weekly: December 4, 2017 12/04/17   SNW This week we have Buffett's encyclopedias, factor timing, factor trading costs, risky mortgage investments, and more. Countering the narrative about value 12/04/17   Value Investing "By using the price-to-book ratio (or "P/B") as a primary determinant of value, the Russell 1000 Value index has tended to favor stocks from sectors with generally low P/B ratios, such as financials and energy companies, while excluding stocks from sectors such as technology and consumer staples, which may look cheap relative to earnings or cash flows, but have lofty P/B ratios. This, combined with a lack of sector constraints, means that comparing Russell 1000 Value to Russell 1000 Growth is really more akin to comparing energy and banks to consumer and technology stocks" Factor investing and trading costs 12/04/17   Value Investing "Trading costs degrade performance. Factor investing strategies have capacity constraints. Higher turnover factors have lower capacity constraints than lower turnover factors." Risky mortgage investments 12/04/17   Government "The documents seen by Reuters, supported by interviews with 10 sources familiar with FSCO's activities, show that the agency didn't merely miss the problem; its senior investigators ignored or downplayed clear warnings from within their own ranks that retail investors were being sucked into a market to which they were ill-suited." Buffett's investments in encyclopedias 12/04/17   Buffett "Warren Buffett has eclectic taste in companies. Along with large, thriving businesses such as Geico and the BNSF Railway, he's accumulated a collection of head-scratchers. There's a bowling shoe brand, a maker of vacuum cleaner bags, almost three dozen newspapers, and the manufacturer of Ginsu knives. Then there's World Book." Going deep on contrarian factor timing 12/04/17   Value Investing "we study all the interesting things that happen when some stocks, or other assets, get deeply cheap while others get deeply expensive and, in the process, learn more about the economics of value investing, and how timing works when you sin a little but now in lots of places at once" Enron, 10 years after 12/04/17   Crime "I lost roughly 90% of my net worth in a week. I never recovered. My marriage of 22 years blew up, and my entire network was nuked. I realized almost immediately that [complete] financial recovery wasn't possible... Even today, I worry that I might not be able to find a financial road to provide adequately for my son [who is in second grade]." Frank Abagnale interview 12/04/17   Crime "His transformation from one of the world's most notorious con men to an international cybersecurity expert trusted by the FBI has been mythologized in film and literature - but the takeaways he shares are the real deal." [video] The Stingy News Weekly: November 27, 2017 11/27/17   SNW This week we have microcaps, private equity, taxes, and more. Microcap as an alternative to private equity 11/27/17   Value Investing "Private equity has become a central component of many institutional and high-net-worth investment portfolios over the past decade. While private equity offers potential advantages, it also requires taking distinct risks. This paper highlights an alternative to private equity - microcap equities - which mitigates several of these risks." World leaders in debt 11/27/17   Debt "A report from the Organization for Economic Co-operation and Development (OECD) shows that Canadian households are among the most indebted in the world. In fact, Canada tops the list of countries surveyed." CRA gives taxpayers wrong info 11/27/17   Taxes "The Canada Revenue Agency's call centres blocked more than half the calls they received and gave taxpayers the wrong answers to their questions nearly one third of the time, the federal Auditor-General says." Private-equity firms feud 11/27/17   Law "A former Ontario Superior Court judge was targeted in a sting designed to discredit him days before his decision in a controversial case with hundreds of millions of dollars at stake was scheduled to be heard at the Ontario Court of Appeal." The Stingy News Weekly: November 20, 2017 11/20/17   SNW This week we have a consensus on bs in the gap and more. We're all innocently out of touch 11/20/17   Behaviour "An American born in 1970 saw stocks rise more than eightfold in their teens and 20s. An American born in 1950 saw stocks go nowhere in their teens and 20s. In Japan, the difference between back-to-back generations was losing 100% of your money vs. making 11.5x on your money." Mind the gap 11/20/17   Government "On a walking tour of town officials and development consultants pointed to empty buildings and described all the things that could be done to bring them back to productive activity: open up the blank walls and re-install windows, incubate all kinds of new businesses, paint, outdoor seating. I rolled my eyes. None of those things make any economic sense given the regulatory hurdles involved and the likely negative return on the up front investment. I've seen this scenario play out many times before." Right math, wrong conclusion 11/20/17   Government "The answer is to confront the truth that the public plans are too generous and need rethinking. But wait, can't you hear the public-sector workers saying that it's unfair to reduce their DB promise because they have paid for it? Well they haven't. Government workers and their employers are still funding their pensions assuming the same 1990s returns that built the Factor of 9 (or maybe a factor of 12). They are ignoring the true cost of the pensions being earned and they hope that future investment gains will forever hide the fact that the guaranteed benefit they are receiving is being funded by risky investments that may or may not pay off. Government workers are paying about 12% of pay for a benefit that is worth about three times the amount even though the government is telling taxpayers its only worth twice as much." Fairfax vs. Berkshire Hathaway 11/20/17   Value Investing "We find that while value beats growth (that is, the value premium is confirmed) in the total sample (on average, by 430 basis points annually - a basis point is 1/100th of a percentage point), the value premium is actually driven by the firms with the poorest earnings quality. The average value premium for the best earnings quality firms (the top quartile) is 60 basis points, whereas the corresponding value premium for the poorest earnings quality firms (the bottom quartile) is 960 basis points. That is, an investment strategy that emphasizes lower-quality value stocks will improve the long-term performance of a value portfolio." Two heads might be worse than one 11/20/17   Stingy Investing "Money manager Lou Simpson recently talked about the negative correlation between the number of people making an investment decision and the results. He noted that if a lot of people are involved, the tendency is for the least competent person to effectively make the decision when a consensus is required." [$] The Stingy News Weekly: November 12, 2017 11/12/17   SNW This week we have a buffet of crime, ruin, and disaster that is offset by wisdom, valour, and more. Inside Trump's U.S.D.A. 11/12/17   Government "The folks at the Department of Agriculture laid on a friendly welcome for the Trump transition team, but they soon discovered that most of his appointees were stunningly unqualified. With key U.S.D.A. programs - from food stamps to meat inspection, to grants and loans for rural development, to school lunches - under siege, the agency's greatest problem is that even the people it helps most don't know what it does." Time to rethink the RRSP contribution limit 11/12/17   Retirement "If you diligently maximize your RRSP contributions each and every year but have this nagging feeling that you may end up worse off in retirement than your neighbour, who is fortunate enough to belong to a well-funded defined benefit pension plan, you're probably correct." The dead man fund 11/12/17   Funds "William Steadman's four funds regularly appeared on fund-watchers' lists of the worst investments. By extracting from investors such high expenses, he had conned them within the limits of the law." Lou Simpson interview 11/11/17   Value Investing "There's also a negative correlation between the number of people making the investment decisions and the results. If you have a lot of people involved, you tend to have the least competent person making the decision, because you need consensus." The dangerous world of tiny IPOs 11/11/17   Crime "One executive was convicted of filing false tax returns, another for obstructing justice and a third accused of selling unregistered stock. But three tiny companies with ties to the executives have now gone public in the U.S. in what may just be the zaniest little market on Wall Street: mini-IPOs." A restaurant ruined my life 11/11/17   Food "I was a foodie with a boring day job who figured he could run a restaurant. Then I encountered rats, endless red tape, crippling costs and debt-induced meltdowns, started popping sleeping pills, lost my house, and nearly sabotaged my marriage" Momentum and reversals can coexist 11/11/17   Momentum "The bottom line is that the research shows that short-term momentum and long-term reversals coexist in global equity markets." Time diversification redux 11/11/17   Markets "Return volatility rises as its calculated holding period nears 1 year and falls as it lengthens to 10 years. Lower volatility at longer holding periods implies that longer-term mean reversion exists." Inspired by valour 11/11/17   Stingy Investing "You'd have done well to have followed his advice in 2013 when he recommended General Communication Inc. (GNCMA). The Alaska-based integrated telecommunication company benefited from a recent takeover offer and is on track to be acquired by Liberty Interactive. The stock was recommended at $9.76 per share and it recently closed at $40.36. Those who held it over the period gained a whopping 314 per cent, which translates into an annualized return of 43 per cent. It was a big winner for Mr. Smith who recently sold his stake in the firm." [$] The gospel according to Michael Porter 11/11/17   Management "The old-school fundamental value investors who prize Porter's frameworks have come under fire from a familiar source: the Chicago school. Chicago's Fama has published studies showing that actively managed mutual funds underperform the market and that small value companies - not large market leaders, as Porter would have it - are the best-returning stocks. Fama's works suggests that Benjamin Graham's instincts were right: The real money is to be made betting on the Davids of the world, not the Goliaths." The Stingy News Weekly: November 6, 2017 11/06/17   SNW This week we have the Top 200 Canadian Stocks, Top 500 U.S. Stocks, and more. Top 200 Canadian Stocks 11/06/17   Stingy Investing "We're pleased to say that our track record has been highly profitable over the years. Our All Stars climbed by an average of 14.6% per year since we started in 2004, not including dividends. 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 iShares XIC exchange traded fund) climbed by 4.8% per year over the same period. The All-Star stocks beat the market by an average of 9.8 percentage points per year." Top 500 U.S. Stocks 11/06/17   Stingy Investing "The U.S. All Stars have been on a roll since the crash of 2008. They surged 16.6% per year, on average, over the last nine years while the market (as represented by the SPDR S&P 500 exchange traded fund) gained 10.9% annually. Over the last five years the All Stars advanced by an average of 16.3% per year and beat the market which climbed 12.6% per year." Joel Tillinghast interview 11/06/17   Value Investing "The fund's definition of low-priced is changing in November, from a price at time of purchase of under $35, to either a price under $35 or a higher-than-index earnings yield (that is, a low P/E). The original price test was meant to include small-cap stocks, but also larger companies that were temporarily depressed and turning around. The newer test is looking for low-priced relative to intrinsic value, which is how I have always run the fund." Strategy, patience, and prognostication 11/06/17   Fun "On East 83rd Street there's a squat brick walk-up that's a viable contender for the least fancy apartment building on Manhattan's Upper East Side. But for the past 25 years, Wall Street machers and captains of industry have marched up to its gray-carpeted third floor to learn the secrets of attack and defense from Lev Alburt, a three-time U.S. chess champion and one of the most prominent Soviet defectors of the 1970s. Alburt has long been giving atter-filled private lessons to New Yorkers from all walks of life, encouraging, cajoling, and reprimanding men and women as they attempt to learn the so-called game of kings." SEC insider-trading-like returns 11/06/17   Government "A portfolio mimicking trades made by SEC employees between 2009 and 2011 earned excess risk-adjusted returns of about 4 percent a year for all securities, with abnormal gains jumping to 8.5 percent when only stocks of firms based and registered in the U.S. were tracked" The Stingy News Weekly: October 30, 2017 10/30/17   SNW This week we have the mechanical monster momentum portfolio and more. The monster portfolio 10/30/17   Stingy Investing "But if investing in solid stocks bores you to tears and you're willing to take on more risk for the slim possibility of gigantic rewards then I might have the just thing for you." [$] Tobias Carlisle interview 10/30/17   Value Investing "Toby tells us that the book describes a simple way to find undervalued companies. In essence, you're trying to find a company trading below its intrinsic value. This is how to get a great price as a value investor. Of course, you get these prices because things don't look too rosy with the stock - there's usually a crisis or some hair on it" [audio] Avoid dividends 10/30/17   Dividends "Many investors, including retirees, value those quarterly dividend checks. But recognize the huge opportunity cost ones pays for them. The 'bird in the hand,' so to speak, is costing about three or four in the bush." Daily Journal Meeting 2015 10/30/17   Munger "Charlie Munger audio of Daily Journal Meeting in 2015." [video] Investors do not underperform their investments 10/30/17   Behaviour "There is no evidence that there is such a group of consistently good decision makers. As is well known, for example, institutional investors in aggregate beat the market no more frequently than individual investors in aggregate." The Stingy News Weekly: October 23, 2017 10/23/17   SNW This week we have direct indexes, risk factors, crashes, value investing, and more. Goodbye Gatekeepers 10/23/17   Media "Most importantly, though, the end of gatekeepers is inevitable: the Internet provides abundance, not scarcity, and power flows from discovery, not distribution. We can regret the change or relish it, but we cannot halt it: best to get on with making it work for far more people than gatekeepers ever helped - or harassed." Graham and Doddsville: Fall 2017 10/23/17   Value Investing "In this issue, we were fortunate to speak with five investors who provide a range of frameworks and investment styles. All of these investors focus on understanding downside risk, developing a differentiating view, and studying history." Risks building in the markets 10/23/17   Markets "On the 30th anniversary of the 1987 market crash, leading financial risk expert Richard Bookstaber identifies the biggest risks in today's markets." [video] How fiction becomes fact 10/23/17   Behaviour "For all the suspicions about social media companies' motives and ethics, it is the interaction of the technology with our common, often subconscious psychological biases that makes so many of us vulnerable to misinformation, and this has largely escaped notice." Direct indexes: cheaper than ETFs 10/23/17   Indexing "Direct Indexes, where investors directly own shares in a basket of stocks that track an index, outperform ETFs on an after-tax basis. Given that ETFs beat 80 - 90% of all active investments, that's a big plus for Direct Indexes. But Direct Indexes are better than an ETF in another important way: they have the potential to be much less expensive." The dangerous allure of designer risk factors 10/23/17   Markets "Some investors are falling into a perilous spiral of loving factor investment strategies too much, and understanding them not enough." The Stingy News Weekly: October 16, 2017 10/16/17   SNW This week we have soda, low vol, dystopia, death, and more. Low vol in perspective 10/16/17   Indexing "The superior performance of low-volatility stocks (as well as low-beta stocks, which are closely related) was initially documented in the academic literature in the 1970s, before even the size and value premiums were 'discovered.' The low-volatility anomaly has been found to exist in equity markets across the globe, and not only for stocks but for bonds. In other words, it has been pervasive." Atul Gawande on being mortal 10/16/17   Health "Surgeon, public health researcher, and MacArthur fellow Atul Gawande discusses his NY Times bestseller, 'Being Mortal: Medicine and What Matters in the End.'" A smartphone dystopia 10/16/17   Behaviour "Google, Twitter and Facebook workers who helped make technology so addictive are disconnecting themselves from the internet." CAPE ETFs 10/16/17   Indexing "Shiller's CAPE ratio looks at how current stock prices compared to the company's average inflation-adjusted earnings over 10 years. As described in the BMO prospectus, the indexing process for its ETF involves identifying the top 100 securities with the highest 10-year CAPE yield based on price and sector. A momentum filter is then applied to remove 20 securities with the lowest price momentum over the last 12 months. The remaining securities are equally weighted." The Stingy News Weekly: October 7, 2017 10/07/17   SNW This week we have Warren, cats, whales, value stocks, and more. Warren Buffett interview 10/07/17   Buffett "Warren Buffett, Berkshire Hathaway chairman and CEO, speaks with CNBC's Becky Quick about his outlook on markets, tax reform and his new investment in Pilot Flying J." [video] Safely withdraw funds in retirement 10/07/17   Retirement "If you're planning to quit work in your early fifties and think there's a good chance that you or your spouse may make it into your nineties, all bets are off. In such a case, it makes sense to begin your retirement by being even more cautious than the 4 per cent rule would dictate. Conversely, if you're 90 and still have a hefty portfolio, it's not clear why you should stick to a 4-per-cent annual cap on your spending." The cat ETF 10/07/17   Markets "I was rich. Right? I mean, that's what my Bloomberg said. I'd just entered in an index built from companies with 'cat' in their names -- yes, the furry felines -- hit a button and watched it back-test to an 849,751 percent return. Forget the internet, I thought. Cats are about to take over smart beta." Tax-avoiding whales swim free 10/07/17   Taxes "We know for certain, however, that when it comes to tax neutrality, owners of private corporations are mere tiny fish swimming among the tax-avoiding whales. Millions of Canadians use equivalent passive-investment vehicles to duck billions in taxes on personal and investment income every year. They're called pension plans." Value stock returns 10/07/17   Value Investing "Examining the 5-year and 10-year results, one finds similar (but much more pronounced) results as in the mid/large-cap stocks. At a 5-year level, there are more Growth stock losers (highly negative returns) and at the 10-year return level there are more big winners from the Value stocks." A succulent value strategy 10/07/17   Stingy Investing Summary: Picking low multiple stocks (book value, earnings, cash flow, sales) from the S&P/TSX Composite worked over the last 15 years. Book value provided marginal gains vs the market while the others fared much better. Low-P/CF fared the best. [$] The Stingy News Weekly: October 1, 2017 10/01/17   SNW This week we have the Dividend All-Stars, Warren's pension plan, and more. Forward returns 10/01/17   Markets "We are now in the 93rd percentile of valuations." The death of value 10/01/17   Value Investing "Clearly, value investing, as proxied by a portfolio that buys cheap stocks based on price-to-book ratios, ate crow over the past 10 years. Why?" Bubble territory 10/01/17   Markets "It's tough to get away from the idea that the market is getting a bit ripe." Warren's pension 10/01/17   Buffett "We're all equities....We don't have any bonds in our pension funds" Top dividend stocks 09/25/17   Stingy Investing "We're pleased to present you with the eleventh edition of the MoneySense Dividend All-Stars. It serves up a new crop of the best blue-chip dividend stocks in Canada while harvesting a decade's worth of gains." The Stingy News Weekly: September 23, 2017 09/23/17   SNW This week we have the end of Strategy Lab, a great trade, adaptation, and more. A great trade 09/23/17   Markets "It was the best wakeup call I could have received. I resolved to begin searching for empirically supported investment strategies that withstood the test of time. It got me to understand that if I were to succeed over the long-term, I had to match my investment strategy to my time horizon. If I had 30 or more years to go to achieve my goals, I thought I should find out which strategies performed the best over much longer periods of time and which had the highest base rates of success against their benchmarks." Strategy Lab ends 09/23/17   Stingy Investing "What our four successful investors shared was a dedication to not doing stupid things: They didn't bet everything on one or two stocks; they didn't chase hot performers; they didn't trade frequently." [$] Not a single loser 09/23/17   Stingy Investing "I'm pleased to say that my crop of value stocks has gained 95 per cent since the portfolio was planted five years ago. It raked in a 14.2-per-cent compound annual return over the period." [$] Tax bill higher than 90 per cent 09/23/17   Taxes "On $8-million of total income, this is a tax rate of just more than 93 per cent. You might believe that these proposed tax changes are fair because business owners should pay their fair share. But how high a tax rate is fair?" [$] I negotiated with Buffett 09/23/17   Buffett "I realized that he wasn't focused on how much I was paying. All he really cared about is that I love baseball. He wasn.t trying to squeeze out every last dollar, he just wanted the right custodian of his hometown team." Adaptive markets talk 09/23/17   Markets "Drawing on evolutionary biology, neuroscience, artificial intelligence, and other fields, Adaptive Markets shows that the theory of market efficiency isn't wrong, but merely incomplete. Taking several examples from his book, Prof. Lo will provide an overview of his new theory of financial markets and what it means for financial crises, how we invest, and the future of financial technology." [video] The Stingy News Weekly: September 17, 2017 09/17/17   SNW This week we have low P/E value, a data mine, value factors, and more. Value in the value factor 09/17/17   Value Investing "Value and Size are cheap while Low Volatility and Growth are expensive" Value investing is difficult 09/17/17   Value Investing "Whilst in its basic form a value approach may be considered elementary compared to other investment styles, it is the most exacting behaviourally; this is a key reason why a long-term premium exists for owning value stocks and why both active managers and fund investors struggle to embrace the discipline." The data mine 09/17/17   Markets "The authors take the Compustat universe of data points, and use every variable in the dataset to create over 2 million trading strategies" Low-P/E value 09/17/17   Stingy Investing "The low-P/E method sported an average annual gain of 18.59 per cent and outperformed the index by a stunning 11.1 percentage points on average annually." [$] Finding takeover candidates 09/17/17   Value Investing "There is no guarantee that stocks trading below net collateral value per share will be subject to a takeover offer or go private, but the numbers make it feasible to buy the company with no money down. That is why they are intriguing candidates for a patient investor." The Stingy News Weekly: September 11, 2017 09/11/17   SNW This week we have Seth, Tim, Meb, the cats and dogs, and more. Tim's letter 09/11/17   Value Investing "I realize the general market is relatively expensive and there are many uncertainties. This is reflected in our cash position which represents just under 25% of our net assets at June 30th. Additionally, in August we purchased a modest amount of portfolio insurance in the fashion of 'put options'. The recent sale of our position in Polaris will raise cash to over 35% of net assets giving us both downside protection and the ability to take advantage of investment opportunities." The front test 09/11/17   Markets "The biggest problem for investors is never finding a good backtest. That's the easy part. The hard part is passing the front test by understanding your parameters, filters, and guidelines enough to be able to implement it in the real world and stick with it when it's out of favor." Seth returns cash 09/11/17   Value Investing "Value investors seek stocks that they believe are undervalued by the market. A more than eight-year bull market has made stocks expense on a number of historical measures, leaving fewer bargains to be found." ILTB with Meb Faber 09/11/17   Markets "Meb is a quantitative researcher whose firm Cambria has been behind many interesting investment strategies that break the Wall Street mold. We talk investing factors, dividends, angel investing, podcasts and more." [audio] The Stingy News Weekly: September 4, 2017 09/04/17   SNW This week we have Buffett, Ritholtz, Russo, Chou, 300, demons, and more. You are the product 09/04/17   Media "The researchers found quite simply that the more people use Facebook, the more unhappy they are. A 1 per cent increase in 'likes' and clicks and status updates was correlated with a 5 to 8 per cent decrease in mental health. In addition, they found that the positive effect of real-world interactions, which enhance well-being, was accurately paralleled by the 'negative associations of Facebook use'. In effect people were swapping real relationships which made them feel good for time on Facebook which made them feel bad." A serf on Google's farm 09/03/17   Media "Over the last several months we've gotten a few notifications from Google telling us that certain pages of ours were penalized for 'violations' of their ban for hate speech. When we looked at the pages they were talking about they were articles about white supremacist incidents. Most were tied to Dylann Roof's mass murder in Charleston. Now in practice all this meant was that two or three old stories about Dylann Roof could no longer run ads purchased through Google. I'd say it's unlikely that loss to TPM amounted to even a cent a month. Totally meaningless. But here's the catch. The way these warnings work and the way these particular warnings were worded, you get penalized enough times and then you're blacklisted." Rule of 300 09/03/17   Retirement "Take your monthly expenditure. Multiply it by 300. The result is how much you'll need to have saved to keep living like you do today after you jack in your job." Overcoming your demons 09/03/17   Health "About 20% of kids stutter. Most outgrow it by age 5. About 1% still stutter by age 10. A lucky 0.1% stutter into adulthood, with some small fraction of that being chronic enough to affect their daily life. I'm one of them." Chou's letter 09/02/17   Chou "we believe pharmaceutical stocks as a group are selling at attractive valuations, in comparison to the free cash flow and earnings they generate. The recent price drops may present one or more attractive long-term investment opportunities" Warren Buffett on Harvey 09/02/17   Buffett "Warren Buffett, Berkshire Hathaway, speaks with CNBC's Becky Quick about Hurricane Harvey, the U.S. economy and his stock holdings." [video] Team Ritholtz 09/02/17   Markets "My guests this week don't need to be introduced. In celebration of the one year anniversary of invest like the best, I asked Josh Brown, Mike Batnick, and Barry Ritholtz to join me for an hour" [audio] Tom Russo on global investing 08/30/17   Value Investing "Tom looks for companies with strong cash-flow characteristics, where large amounts of 'free' cash flow are generated. Portfolio companies tend to have strong balance sheets and a history of producing high rates of return on their assets. The challenge comes in finding these obviously desirable situations at reasonable or bargain prices. Tom's investment approach is focused on a small number of industries in which companies have historically proven to be able to generate sustainable amounts of net free cash flow. (These industries typically have included food, beverage, tobacco, and advertising-supported media.)" [audio] The Stingy News Weekly: August 28, 2017 08/28/17   SNW This week we have moats, crumble, disks, and more. Buying moats 08/28/17   Value Investing "My guest this week is Pat Dorsey, who was the longtime director of equity research at Morningstar, where he specialized in economic moats: sources of sustained competitive advantage that allow a few companies to deliver huge returns over time." [audio] Investing in floppy disks 08/28/17   Value Investing "Two years ago, we were trading at 10 times revenue. ... At 10 times revenue, to give you a 10-year payback, I have to pay you 100 per cent of revenues for 10 straight years in dividends ... That assumes that I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes that I pay no taxes, which is very hard. ... And that assumes that with zero R&D for the next 10 years, I can maintain the current revenue rate. ... Do you realize how ridiculous those basic assumptions are? You don't need any transparency. You don't need any footnotes. What were you thinking?" Venezuela crumbles 08/28/17   World "In 2001 Venezuela was the richest country in South America; it is now among the poorest." The Stingy News Weekly: August 20, 2017 08/20/17   SNW This week we have housing, protection money, bad news, and more. Anomalies abroad 08/20/17   Academia "A pre-specified set of nine prominent U.S. equity return anomalies produce significant alphas in Canada, France, Germany, Japan, and the U.K. All of the anomalies are consistently significant across these five countries, whose developed stock markets afford the most extensive data. The anomalies remain significant even in a test that assumes their true alphas equal zero in the U.S. Consistent with the view that anomalies reflect mispricing, idiosyncratic volatility exhibits a strong negative relation to return among stocks that the anomalies collectively identify as overpriced, similar to results in the U.S." Protection money 08/20/17   Indexing "Vanguard Group is my favorite fund company - and the place where I now keep all my investment dollars. There's no mystery why: Among mutual fund companies, Vanguard has long been not only the biggest champion of index funds, but also the firm with the lowest annual fund expenses. Except that's no longer the case." Insane Canadian housing numbers 08/20/17   Real Estate "While leverage can help boost performance on the way up, it becomes very dangerous on the way down. Leverage can turn even the best investments into poor ones when things go wrong, as losses are amplified. Equity can get wiped out pretty quickly on an overleveraged asset." Auto parts retailers hit the skids 08/20/17   Stocks "Within a few years buying auto parts on the internet became capitalism incarnate with junkyards (car-part.com) and parts specialists (1-800-Radiator.com, LKQ Online) offering easy interfaces that let every consumer have same day service for a long list of parts. My waits became shorter, my parts bills became far cheaper, and my business with the auto parts retailers went down by nearly 80%." Mourning news 08/20/17   Behaviour "Because my background is in broadcasting, I've looked at the way the news shows us what the world could be like, for good and for bad, and then what that does to our brain. For instance, when you start your day with news, what does that do to you? We looked at the influence of three minutes of negative news on the brain, and what we found is if you start your day with those three minutes, it can increase your chances of having a bad day by 27%." (27% seems to be suspiciously precise.) The Stingy News Weekly: August 16, 2017 08/16/17   SNW This week we have an inverting, time travelling money manager, and more. Invert 08/16/17   Behaviour "Charlie borrowed this highly useful idea from the great 19th Century German mathematician Carl Jacobi, who created this helpful approach for improving your decision-making process. Invert, always invert" Business vs investing 08/16/17   Markets "My guests this week are both veterans of the podcast, Jason Zweig and Morgan Housel. They are two of the best in the world at making the complicated simple..." [audio] ETF ratios 08/16/17   Indexing "Depending on how you calculate the average, subtracting the large losses of a few companies from the combined profits of the others can leave a much smaller total of net earnings to go around. That can make the index look more expensive than it effectively is." The Stingy News Weekly: August 7, 2017 08/07/17   SNW This week we have a 93% tax rate, retirement misery, wieners, and more. 3G's wiener 08/07/17   Buffett "Why the hatchet men of 3G spent $10 Million on a better Oscar Mayer wiener" The August of our discontent 08/07/17   Value Investing "This month is the ten-year anniversary of the "quant crisis" or "quant quake" - that one week period in August 2007 when quantitative equity strategies like factor investing and statistical arbitrage suffered very large losses and then, in the next few weeks, made an almost full recovery. Given the current popularity of factor investing it seems a good time to review what happened that summer and discuss its relevance for today." Retirement makes you miserable 08/07/17   Retirement "Some people find that after trying retirement, it just doesn't agree with them. Here are three such stories of 'un-retirees' - people who crave returning to work after retiring or went back to work part-time, and not only for the money." A 93% tax rate 08/07/17   Taxes "Small business owners across the land are still reeling from last month's announcement by Finance Minister Bill Morneau targeting private corporations and fundamentally changing the way businesses and incorporated professionals are taxed." Addiction to real estate 08/07/17   Real Estate "Canada's addiction to real estate goes far beyond our obsession with talking about it. Our economy actually relies more on the fees associated with buying and selling houses than it does on agriculture, fishing, forestry and hunting combined." The Stingy News Weekly: July 30, 2017 07/30/17   SNW This week we have interviews with Robert Robotti & Wes Gray, small dogs, storms, and more. Robert Robotti Interview 07/30/17   Value Investing "Robert Robotti on the role of active management in the modern world" [audio] Tie me down and make me rich 07/30/17   Behaviour "Back in the 1980s, Twentieth Century Gifttrust, a fund specializing in small growth stocks with high potential returns and equally high risks, required investors to sign a legally binding contract that locked them into ownership for a minimum period - often 10 years and more. Investors loved the fund during the bull market of the 1980s and 1990s, often boasting about how satisfying it was to own a fund that would protect them from their own worst instincts to bail out every time there was a temporary downdraft in the Dow. Then came the bear market that began in 2000, in which Gifttrust generated huge losses. The same investors who had liked being bound to the fund suddenly hated it." Compound your face off 07/30/17   Value Investing "Lots of you will already be familiar with Wes Gray, and those of you who are not are in for a treat. Wes is the founder of Alpha Architect, a firm which manages quantitative equity strategies for clients using factors like value and momentum. He also advocates for a more concentrated, pure approach to factor investing, which listeners know is music to my ears." [audio] Perfect storm 07/30/17   Markets "We've seen this act before. If you didn't own the nifty 50 stocks in the early 1970s, you underperformed and, thus, money continued to go into them. If you were a growth stock manager in 1998-1999 and you were not buying 'net' stocks, you underperformed and were fired. More and more money went into fewer and fewer stocks. Today you have a similar case with the FANG stocks. More and more money is being deployed into a narrower and narrower area. In each case, this trend did not ended well." Press tactics 07/30/17   Media "As a reporter and editor covering Wall Street for 18 years, I studied the industry's aggressive approach toward the press: Financiers, and the multibillion-dollar companies they work for, are friendly and charming as long as you see things their way, and they do everything they can to win reporters over. But when reporters don't buy their line, the Wall Street answer is to get intransigent journalists removed from stories." The math behind futility 07/30/17   Markets "The underlying statistical issue is underappreciated. Even if there weren't fees and expenses, the odds are you'll underperform." The Stingy News Weekly: July 23, 2017 07/23/17   SNW This week we have delinquent, rhinos, retirement, and more. Valuation showdown 07/23/17   Value Investing "It appears more fruitful to look at companies in the context of their total enterprise values, as opposed to their market capitalizations. Again, this resonates. To understand whether a company's shares are mispriced from the perspective of a whole owner, it is crucial to understand first what it would take to own the company outright." Small value stocks 07/23/17   Stingy Investing "I recently cast my line into the pool of small company stocks in an effort to land a few generous dividend payers that trade at modest earnings multiples." [$] 3 retirement planning tips 07/23/17   Retirement "Based on what I know now, I have put an addendum on the retirement advice I give to people: 'And no matter how much money you think you are going to need, save another 15 percent, just in case.'" Low delinquency rates 07/23/17   Real Estate "The problem arises when house prices stop rising and creating new equity against which stretched homeowners can borrow. People who are tight for cash rob Peter to pay Paul. And shifting debt from one lender to another has just been far too easy to do lately. Even a slowdown in house price appreciation, let alone a correction, would bring an end to that." Gray Rhinos threaten China 07/23/17   World "Let the West worry about so-called black swans, rare and unexpected events that can upset financial markets. China is more concerned about 'gray rhinos' - large and visible problems in the economy that are ignored until they start moving fast." The Stingy News Weekly: July 16, 2017 07/16/17   SNW This week we highlight interviews of Thorp, Russo, Neumann, and more. Thomas Russo interview 07/16/17   Value Investing "In a rare interview, great value investor Tom Russo explains why the ability to say no and the capacity to suffer are key to investment success." [video] Canadian Net Net 07/16/17   Value Investing "With the S&P/TSX composite index close to its record high, it is difficult to argue that the overall stock market is beset with pessimism, but in my portfolio, one sector is deep under water and out of favour: oil-service stocks. Here, it is easy to find stocks trading at half of book value, which have proven that they can survive with oil at $30 (U.S.) a barrel and with a balance sheet strong enough that the bank has not called the loan. For a risk-tolerant investor, this is a fertile research universe." [$] Debt hangover 07/16/17   Debt "In his recent book The Rise and Fall of Nations, Ruchir Sharma, Morgan Stanley's chief global strategist, concludes that the single most reliable indicator of periods of economic weakness was 'the kiss of debt rule, which shows that a major economic slowdown has always materialized when a nation's debt has grown more than 40 percentage points faster than GDP over a five-year period.' If he's right, we've got a big problem: Canada's ratio of debt to GDP rose from 294.9 per cent in 2011 to 354.5 in 2016 - an increase of 59.6 percentage points in the last five years." Deep value 07/16/17   Stingy Investing "The portfolio of 30 low-multiple stocks sported a compound annual growth rate of 19.1 per cent from the start of 1999 through to June 16, 2017. By way of comparison the S&P/TSX composite total return index climbed by just 4.7 per cent annually over the same period." [$] Jerry Neumann interview 07/16/17   Markets "We start very broad, discussing where we may be in a large 70-year economic cycle. We then break down the so-called power law which seems to govern venture capital returns and business outcomes. Then we get even more specific, discussing Jerry's process for evaluating early stage companies, and the particulars of what might make a good venture capitalist." [audio] Ed Thorp interview 07/16/17   Markets "This week we sit down with Ed Thorp, the math professor who Beat the Dealer, and Beat the Market, and became the first true quant hedge fund manager. His new autobiography is A Man for All Markets." [audio] The Stingy News Weekly: July 9, 2017 07/09/17   SNW This week we overconfidently extend our lives for a nickle to get everything from a 367-year-old bond with minimum failure. Or something like that. Extend life for a nickel 07/09/17   Health "Barzilai's big plan isn't necessarily less quixotic than those being dreamed up at Silicon Valley biotechs. It's just quixotic in a completely different way. Rather than trying to develop a wildly expensive, highly speculative therapy that will likely only benefit the billionaire-demigod set, Barzilai wants to convince the FDA to put its seal of approval on an antiaging drug for the rest of us: A cheap, generic, demonstrably safe pharmaceutical that has already shown, in a host of preliminary studies, that it may be able to help stave off many of the worst parts of growing old. Not only that, it would also shorten the duration of those awful parts." Not as smart as you think 07/09/17   Behaviour "When it comes to learning, we are overconfident about what we know." A 367-year-old water bond 07/09/17   Bonds "A 1648 Dutch water bond housed at Yale's Beinecke Rare Book & Manuscript Library is unique among the tens of thousands of manuscripts that reside there. While most of the Beinecke's archival holdings are by their nature dead - their original purpose being fulfilled - the water bond lives on. It still pays annual interest more than 367 years after it was issued." Minimum wage backlash 07/09/17   Economics "As the Maine House voted on a bill to reduce the minimum wage for tipped restaurant workers, Jason Buckwalter and a dozen fellow servers huddled in a back room listening to the vote call at the Bangor steakhouse where they work. They all hoped to hear one thing: that state legislators had voted to lower their wages. Some cried with relief, Buckwalter said, when the final vote ended at 110 to 37 - overwhelmingly in their favor." Schmucks like us 07/09/17   Behaviour "Before you get too distracted mocking Tiger Woods and his problems, ask yourself: Would you pass the Iverson test? I don't think I would." The Stingy News Weekly: July 2, 2017 07/02/17   SNW This week we have the Top 1000, Buffett interviews, and more. How to motivate yourself 07/02/17   Retirement "Being rich is pointless if your mountain of cash has no purpose. Therefore, find a purpose bigger than yourself." Buffett PBS interview 1 07/02/17   Buffett "Dubbed the "Oracle of Omaha," Warren Buffett is an investment rock star. What's his take on the state of the economy? He recently sat down with Judy Woodruff for a wide-ranging, two-part interview on inequality, the Paris climate agreement, health care reform and much more." [video] Buffett PBS interview 2 07/02/17   Buffett "What does billionaire Warren Buffett think of Republican health care bills that would roll back taxes for wealthy Americans like him? Buffett discusses everything from how he's giving away billions in philanthropy to how much sleep he gets to what's on his personal income taxes in the second part of Judy Woodruff's exclusive interview." [video] Minimum wage hike hurt workers 07/02/17   Economics "I know that so many people just desperately want to believe that the minimum wage is a free lunch. It's not. These job losses will only get worse as the minimum wage climbs higher, and this team is working on linking to demographic data to examine who the losers from this policy are. I fully expect that these losses are borne most heavily by low-income and minority households." Top 1000 Preview 06/29/17   Stingy Investing "Think about how you'd go about ranking all of Canada's largest stocks for their investment appeal. It's a daunting task. I've been doing it, in various publications, for more than a decade. While there have been a few bumps along the way, the overall results have been more than satisfactory." Top 1000 06/29/17   Stingy Investing "This year, in addition to presenting all of the raw data, we're introducing a new stock rating system that does a lot of the number crunching for you, narrowing down the field to the stocks that offer the most promising opportunities." [$] Top 1000 list 06/29/17   Stingy Investing "The companies listed here are the 1,000 largest publicly traded Canadian corporations, as measured by assets. You can rank them by revenue, profit, assets or market cap using the drop down menu below. Tap a company name for more data, including a live stock price look-up." [$] The Stingy News Weekly: June 26, 2017 06/26/17   SNW This week we have the death of value, misjudgement, blind spots, ruin, and more. PB blind spot 06/26/17   Value Investing "A possible reason for the limited efficacy of price-to-book is because of the increase in shareholder transactions, primarily through the increase in share repurchases." The sharing economy 06/26/17   Economics "We found that 85% of side-gig workers make less than $500 a month. And of all the side-gig platforms we examined, Airbnb hosts earn the most by far." Not dead yet 06/26/17   Stingy Investing "Dead, or just pining for the fjords? That's the debate at the heart of Monty Python's parrot sketch. In it, hilarity ensues when a pet-shop keeper tries to convince a customer that the parrot they purchased was, in fact, not an 'ex-parrot'. A similar debate is currently being held among investors when it comes to value investing. After a decade of poor, relative returns, many people figure that value investing is pushing up the daisies while others cling to the belief that it's just resting." [$] The psychology of misjudgement 06/26/17   Munger "In 1995, Charlie Munger gave a speech about how the human mind tricks itself into making poor decisions. This is an abridged and animated version of that speech." The Myth of 1926 06/26/17   Markets "How much do we know about long-term returns on U.S. stocks?" Middle on brink of ruin 06/26/17   Economy "Why we'd rather binge on cheap credit than live within our means" The Canadian Acquirer's Multiple 06/26/17   Value Investing "Over the full eighteen-and-one-half year period, the screen generated a total return of 2,536 percent, or a compound growth rate (CAGR) of 19.1 percent per year. This compared favorably with the S&P/TSX Composite TR, which returned a cumulative total of 232 percent, or 4.7 percent compound." The Stingy News Weekly: June 18, 2017 06/18/17   SNW This week we have the Safer Dogs of the TSX, perfect foresight, poor timing and more. Institutional investors, just like us 06/18/17   Funds "But what if you picked the top allocation per decade for the next decade, how would that do? ... It would reduce your return by 1.5% per year" Great returns, gut-wrenching drawdowns 06/18/17   Markets "Our bottom line result is that perfect foresight has great returns, but gut-wrenching drawdowns. In other words, an active manager who was clairvoyant, and knew ahead of time exactly which stocks were going to be long-term winners and long-term losers, would likely get fired many times over if they were managing other people's money." Whiplash: Value vs. Growth 06/18/17   Value Investing "With mean reversion, investor behavior, and interest rates all lining up on the same side, things are indeed starting to look up for value." Quant vs traditional investors 06/18/17   Markets "Our conversation centers on the massive shift from what we call discretionary portfolio management - basically stock picking - to a landscape that is increasingly dominated by quantitative investors of various types. We talk about how any investor might hope to earn alpha, and how doing so is harder and harder." [audio] Still not crazy 06/18/17   Markets "Putting all of this together, it means that some of the FAANGs will be back in these stories (for positive or negative impact) soon enough over some ex post time period (3 months, 5 months, 1 year, we'll figure it out after it happens!). And it will likely be just as normal then as it is now and as it was after 2015 when Cliff first noted this." The Stingy News Weekly: June 11, 2017 06/11/17   SNW This week we have the dangerous retirement of morally bankrupt mattresses and more. Morally bankrupt 06/11/17   Management "Most Americans have assumed their bank accounts are sacrosanct. But with the major scandal unfolding at Wells Fargo, angry former employees illuminate the alarming pressure that allegedly led local bankers to defraud perhaps more than a million customers." Testing mattresses with Buffett 06/11/17   Buffett "This year, Warren took me on a tour of Nebraska Furniture Mart, a super-successful megastore owned by Berkshire. We tried out some lounge chairs, played with remote-controlled mattresses, and somehow managed to get lost. Take a look..." [video] The hardest problem in finance 06/11/17   Retirement "Challenging as those may appear, none compare to what Nobel laureate William Sharpe, 82, calls 'decumulation,' or the use of savings in retirement. It is, he says, 'the nastiest, hardest problem in finance.'" Safe vs. optimal 06/11/17   Retirement "In one case in the article we identify a 7 percent withdrawal rate as 'optimal.' That is not a 'safe' withdrawal rate. With the market assumptions in the article, the 7 percent withdrawal rate has a 57 percent chance of failure over a thirty-year retirement. Though it is not safe, it does maximize the overall expected lifetime satisfaction for a fairly flexible retired couple who has a secured income base of $20,000 from Social Security." Hannibal spirits 06/11/17   Markets "The Buffett Ratio is back near its record high of 1.81 during Q1-2000. It is simply the US equity market capitalization excluding foreign issues divided by nominal GDP. It rose to 1.69 during Q4-2016. It is highly correlated with the ratio of the S&P 500 market cap to the aggregate revenues of the composite. This alternative Buffett Ratio rose to 2.00 during Q1 of this year, matching the record high during Q4-1999. It is also highly correlated with the ratios of the S&P 500 to both forward revenues per share and forward earnings per share. All these valuation measures are flashing red." Testing DALBAR's claims 06/11/17   Behaviour "DALBAR suggests that equity mutual fund investors have underperformed the S&P 500 by over 600 basis points annually. In contrast, Russ Kinnel, my colleague at Morningstar Research Services, has noted a more muted impact in his annual Mind the Gap report, typically in the neighborhood of 100 basis points annually." The Stingy News Weekly: June 4, 2017 06/04/17   SNW This week we have guessing, bubbles, changing marshmallows, Chilton, and more. You can change 06/04/17   Behaviour "The marshmallow test became the poster child for the idea that there are specific personality traits that are stable and consistent. And this drives Walter Mischel crazy. 'That iconic story is upside-down wrong,' Mischel says. 'That your future is in a marshmallow. Because it isn't.'" Dave Chilton interview 06/04/17   Markets "We discuss business, investing, and writing." [audio] High yield becomes low yield 06/04/17   Bonds "Fast forward to today and we have reached the opposite extreme, with European junk bonds at an all-time low yield of 2.67%." The new normal 06/04/17   Real Estate "These days, the average home price is between seven and eight times income. To return to the ratio of the 1980s, the average household income has to jump to $160,000, or home prices have to fall back to $460,000." Marc Andreessen interview 06/04/17   Economy "The kicker to the whole thing, back to your question, is the sectors where prices are crashing by definition are shrinking as a percentage of the economy and the sectors where prices are rising are growing as a percentage of the economy, and so what's actually happening is the sectors where tech is not having a big impact are growing and will eventually be the entire economy. So TVs are going to cost $10 and healthcare is going to cost $1 million. This is where this is all headed. As a consequence, jobs, the answer is we are all going to employed in healthcare and education which is actually what's happening." The Stingy News Weekly: May 28, 2017 05/28/17   SNW This week we have happy retirees, active futility, bad behaviour, and more. The internet is broken 05/28/17   Media "The trouble with the internet, Mr. Williams says, is that it rewards extremes. Say you're driving down the road and see a car crash. Of course you look. Everyone looks. The internet interprets behavior like this to mean everyone is asking for car crashes, so it tries to supply them." Revenue per employee 05/28/17   Markets "We found that Energy companies have the highest average Revenue per Employee, while Industrials and Consumer Discretionaries perform worst on this metric." The math behind futility 05/28/17   Indexing "The distribution of returns in the stock market is bizarrely lopsided. Often, equity benchmarks are so reliant on gigantic gains in just a handful of stocks that missing them - as most managers do - consigns the majority to futility." Branching out in search of value 05/28/17   Stingy Investing "Investors should also look up from their portfolios, from time to time, to gauge the state of the market. To do so it is useful to break down the market by sector to see which ones are faring the best and where there are bargains to be found." [$] Retirement without trepidation 05/28/17   Retirement "The widespread contentment among Canada's seniors suggests that many of us are approaching retirement with needless trepidation" [$] The Stingy News Weekly: May 21, 2017 05/21/17   SNW This week we have Mauboussin, dividend growth, the hot potato, and more. Michael Mauboussin interview 05/21/17   Markets "He and his team have been prolific in the last six months, publishing several long research reports on the most interesting aspects of the investing landscape. In this conversation, we talk about business moats, industry analysis, and how to combine man and machine when building an investment strategy and portfolio." [audio] A monster ETF trade 05/21/17   Indexing "Until 11:49 a.m. EST, exactly one share had traded hands. Then, boom, 15 million shares. It's not often you see a tape like this" Vultures are circling 05/21/17   Media "A decade ago, most media companies were still slapping ideas against the wall, trying to see what would stick. A decade ago, it wasn't so clear that Google and Facebook were going to rule the internet ad business, leaving everyone else to beg for scraps. That's why the New York Times Co., Conde Nast Inc., Hearst Corp. and News Corp., among others, have all figured out that they can't rely on advertising alone, but need to be able to extract circulation revenue from their internet viewers." A terrible strategy 05/21/17   Momentum Investing "But historically waiting for the market to fall has been an abysmal strategy, far worse than buying and holding in both absolute and risk-adjusted terms." Chasing dividend growth 05/21/17   Stingy Investing "Income-oriented investors love stocks that have a habit of growing their dividends. I confess to being one of them because I've done extraordinarily well by buying such stocks when the market gets a little panicky." [$] The Stingy News Weekly: May 14, 2017 05/14/17   SNW This week we have Canadian real estate, Home Capital, Munger, Doddsville, and more. Mayday at Home Capital 05/14/17   Stocks "In the early hours of Monday, May 1, exhausted representatives for Home Capital and a group of lenders hung up the phone in frustration. A deal to give the company an emergency $2-billion loan appeared to be falling apart. Directors at the mortgage firm felt that without the money, they wouldn't be able to open for business a few hours later." [$] Too much housing 05/14/17   Real Estate "Don't let the mushrooming condos downtown fool you. There is no housing shortage in Toronto, says new planning research out of Ryerson University." Trading costs and factor investing 05/14/17   Academia "It seems that everywhere you look there is a promotion related to factor investing and/or smart beta. The incentives to develop strategies with strong backtests are strong, both in academia and in industry. This natural conflict of interest should raise concern for investors who are trying to ascertain the validity of a particular study or investment approach. One must always consider the possibility of data-snooping, overfitting, and transaction costs - do they make the strong results null and void?" Graham and Doddsville Spring 2017 05/14/17   Value Investing "In this issue, we were fortunate to speak with three investors who provide a range of perspectives and investment approaches. All three apply variations of value investing and fundamental research to find overlooked opportunities. These investments could be stable businesses in turbulent geographies, misunderstood businesses engrossed in controversy, or compounders that are hiding in plain sight." Charlie Munger interview 05/14/17   Munger "If you don't learn, you're going to be stuck in yesteryear and clobbered by fate." [video] The Stingy News Weekly: May 7, 2017 05/07/17   SNW This week we have the BRK AGM, betting with Buffett, costly ETFs, pension failures, and more. The bet with Buffett 05/07/17   Buffett "Ted and I discuss the origins of the bet, the nuances beneath the headlines, and whether he'd make the bet again for the next ten years. Along the way, we cover many hot topics like hedge funds, alternatives, fees, and indexing." [audio] Index fund contrarian 05/07/17   Funds "Global value investor David Winters takes on index funds, saying they are more expensive, less diversified and higher risk than commonly believed." [video] Hope triumphing over experience 05/07/17   Retirement "The return forecasts of US public pension plans offer another example of hope triumphing over experience. The average pension plan expects to generate 7.6 percent per year, even though the average plan only realized a 5.7 percent return per year from 2001-2015. The low levels of returns over this period reduced the funding status for many plans from 99 percent in 2001 to 74 percent in 2015. However, the plans with the largest shortfalls still tend to have the highest expected future returns and the lowest willingness to reduce those expectations." ETF labelling 05/07/17   Hallett "Accurate labelling has long been a problem in retail investing. This issue is about to bubble up for ETFs" Our world outsmarts us 05/07/17   Behaviour "Given the likely childhood educational advantages and familial and peer encouragement common to most Harvard medical students, house staff and faculty, their shaky performance on this test of predictive probabilities challenges traditional explanations for the dreadful mathematics and science performance endemic in the US. If those at the top of the educational heap can't do better (75 per cent fell for the so-called base rate neglect fallacy), what can be reasonably expected from the rest of us?" Idiosyncratic Momentum 05/07/17   Momentum Investing "They found that despite similar performances over the first year, these momentum portfolios perform dramatically differently beyond year one - relative-return momentum reverses strongly (producing returns of -0.40 percent per month in months 13 through 60), while abnormal-return momentum continues for years (producing returns of 0.20 percent per month in months 13 through 60)." Ben Graham MBA contest for 2017 05/07/17   Stingy Investing "In a narrow victory, the team from Saint Mary's - and my personal favourite - got the top prize of $10,000. A big congratulation goes to Bill MacGregor, Morris MacLeod and Dev Jyoty Nath who earned the first-place award. Unfortunately for the bulls, they rated Sabre as a strong 'no-buy.'" [$] Berkshire Hathaway AGM 05/07/17   Buffett "Video of the Berkshire Hathaway Annual Shareholders Meeting in Omaha, NE." [video] The Stingy News Weekly: April 30, 2017 04/30/17   SNW This week we have the big short, Todd and Ted, a dividend disaster, and more. The big short and beyond 04/30/17   Markets "My guest this week is Danny Moses, who was directly in the middle of the biggest trades in market history, chronicled by Michael Lewis in his book the Big Short. Danny was the head trader on the Frontpoint team led by Steve Eisman, which was one of a small group of firms that figured out, in real time, the dire situation with mortgage-backed securities during the financial crisis, and how to build a portfolio to bet against the U.S. housing market. We cover his part in the Big Short story, but also lots of other interesting ground, including the state of sell-side research and financial markets." [audio] You need a Shultz hour 04/30/17   Behaviour "Shultz, who's now 96, told me that his hour of solitude was the only way he could find time to think about the strategic aspects of his job. Otherwise, he would be constantly pulled into moment-to-moment tactical issues, never able to focus on larger questions of the national interest. And the only way to do great work, in any field, is to find time to consider the larger questions." Warren talks Todd and Ted 04/30/17   Buffett "I recently sat down with Buffett, Combs and Weschler in Omaha for a rare three-way interview. What emerges is that Combs and Weschler are actually a whole lot like Buffett and his partner Charlie Munger." [video] Online shopping suckers 04/30/17   Behaviour "Will you pay more for those shoes before 7 p.m.? Would the price tag be different if you lived in the suburbs? Standard prices and simple discounts are giving way to far more exotic strategies, designed to extract every last dollar from the consumer." The dividend growth myth 04/30/17   Dividends "Now, with its updated return calculations, Ned Davis shows dividend growers returning 12.89%, all dividend stocks 12.83%, and equal weight S&P 500 12.35%! (All beginning in 1973.) So, an entire generation of funds was sold on the premise of dividend growth outperformance. The problem is it's misleading because it doesn't tell the whole story." The Stingy News Weekly: April 23, 2017 04/23/17   SNW This week we have market timing, bloated ETFs, alt-facts about value investing, and more. The freemium business model 04/23/17   Economics "Freemium describes a business model in which a business gives one product away for free or at a subsidized price and then either sells another profitable product to this user base or sells access to that user base to third parties" The market timing myth 04/23/17   Stingy Investing "I found myself pondering bad behaviour after being drafted as a possible juror for a murder trial. To escape from the drudgery of waiting for the judge to make his way through the pool of prospective jurors, my mind turned to the accusation that investors are poor market timers." [$] An ETF gets too big 04/23/17   Indexing "Can an exchange-traded fund get too big for its index? That's the question investors in one popular gold miner ETF are grappling with after rapid asset growth pushed it to significantly deviate from its underlying index." Alt-facts about formulaic value investing 04/23/17   Value Investing "We believe that even the simplest systematic value strategy will likely earn higher expected returns than the broader market over the next 50 years, but it may not be 'healthy' and it will surely be volatile as heck. We also believe that more sophisticated systematic value strategies will likely earn a marginal premium over the simplest value strategies over the next 50 years. But let's not fool ourselves, the bulk of the excess expected returns that may be realized by these 'sophisticated' value strategies will be driven by the fact that these portfolios will own cheap companies the world hates, not from the 'sophistication.'" Cheap Chick-fil-A franchise 04/23/17   Management "The barrier to entry for being a franchisee is never going to be money" The Stingy News Weekly: April 16, 2017 04/16/17   SNW This week we have Arnott, Asness, retirement, interviews, and more. Work longer to retire earlier 04/16/17   Retirement "In our experience, many continue to put up with the grind of Intel (or any other employer) simply because they are married to hitting a target portfolio number, when in reality they could step away from the routine, and take a pay cut no doubt, but still earn enough income that allows them financial freedom sooner than they may have envisioned - and this may have the dual benefit of allowing them to pursue an area of work they've been putting off for years but are passionate about getting involved in." Shrinking factor return 04/16/17   Arnott "Our research shows that over the last quarter-century the real-world return for the value and market factors is halved or worse than theoretical factor returns imply, and the momentum factor has provided no benefit whatever to the end-investor." Lies and data mining 04/16/17   Asness "We are the whipping boy for a recent article on the dangers of data mining in our field. And the whipping is delivered largely based on an unsupported shot taken by my frequent foil and sparring partner, Rob Arnott." Bank counselling 04/16/17   Fun "Realistic expectations is the key to happiness." [video] Winner takes all 04/16/17   Markets "The reason these music companies were able to control the industry for so long is because they had the scale to release such a high number of albums and incur those costs to allow the few winners to more than make up for it. But they also had little competition from new technologies, that is, until the MP3s and streaming came along." The uselessness of job interviews 04/16/17   Management "Research that my colleagues and I have conducted shows that the problem with interviews is worse than irrelevance: They can be harmful, undercutting the impact of other, more valuable information about interviewees." The Stingy News Weekly: April 9, 2017 04/09/17   SNW This week we have Greenblatt, O'Shaughnessy, fair inequality, market valuation, and more. Diversification, adaptation, and valuation 04/09/17   Markets "To summarize: over time, markets have developed an improved understanding of the nature of long-term equity returns. They've evolved increasingly efficient mechanisms and methodologies through which to manage the inherent risks in equities. These improvements provide a basis for average equity valuations to increase, which is something that has clearly been happening." Joel Greenblatt talks at Google 04/09/17   Value Investing "Since 1996, he has been a professor on the adjunct faculty of Columbia Business School where he teaches Value and Special Situation Investing. He is the author of three books, You Can Be A Stock Market Genius (1997), The Little Book That Beats The Market (2005), and The Big Secret for the Small Investor (2011)." [video] ETFs are the new bond kings 04/09/17   Indexing "Exchange-traded funds are transforming debt markets as big investors use them in ways considered crazy a few short years ago." Jim O'Shaughnessy talks at Google 04/09/17   Value Investing "Investors who do not have the following traits and emotional quality should index their portfolios. I find they are the majority of investors today." [video] Why people prefer unequal societies 04/09/17   Behaviour "There is immense concern about economic inequality, both among the scholarly community and in the general public, and many insist that equality is an important social goal. However, when people are asked about the ideal distribution of wealth in their country, they actually prefer unequal societies. We suggest that these two phenomena can be reconciled by noticing that, despite appearances to the contrary, there is no evidence that people are bothered by economic inequality itself. Rather, they are bothered by something that is often confounded with inequality: economic unfairness. Drawing upon laboratory studies, cross-cultural research, and experiments with babies and young children, we argue that humans naturally favour fair distributions, not equal ones, and that when fairness and equality clash, people prefer fair inequality over unfair equality. Both psychological research and decisions by policymakers would benefit from more clearly distinguishing inequality from unfairness." The Stingy News Weekly: April 2, 2017 04/02/17   SNW This week we have undead ideas, bad math, the permanent portfolio, and more. Chou's Annual Letter 04/02/17   Chou "Based on the information we now have, the average price we paid of less than seven times free cash flow is on the high side, but at less than two times free cash flow it is a totally different story. If these numbers hold, we believe that the intrinsic value is much higher than the current price of Valeant." The permanent portfolio 04/02/17   Stingy Investing "Investors rushed to rediscover the permanent portfolio after suffering from painful losses caused by the crash of 2008. It promises a soothing combination of relative safety and reasonably good returns." [$] A slippery idea 04/02/17   Economics "Like many business ideas, short-termism fits the experience of some individual business people. But as a theory about how the economy works it is too nebulous to be much use." Undead theories 04/02/17   Science "Science is embattled in a raging replication crisis, in which researchers are unable to reproduce a number of key findings. On the front lines of this conflict is psychology. In a 2015 review of 98 original psychology papers, just 36 percent of attempted replications returned significant results, whereas 97 percent of the original studies did." Einhorn rediscovers preferred stock 04/02/17   Stocks "Every four years or so, David Einhorn, the founder of Greenlight Capital LLC, rediscovers the concept of preferred stock and publishes a big presentation about it. I think it is about the most moving and beautiful recurring event in finance, like the migration of the Demoiselle cranes over the Himalayas, but for preferred stock." Venezuela leaps towards dictatorship 04/02/17   World "The regime is in desperate need of the money that such ventures bring. Although Venezuela has the world's largest proven reserves of oil, the socialists have mismanaged the economy so badly that people struggle to buy food and hospitals are bare of medicines." The Stingy News Weekly: March 26, 2017 03/26/17   SNW This week we have O'Shaughnessy and O'Shaughnessy, bond ETFs, asset allocation, pensions, and more. The permanent portfolio 03/26/17   Indexing "The Permanent Portfolio strategy is about as promising as any that I have seen for preserving the value of assets through a wide number of macroeconomic scenarios. The volatility is low enough that almost anyone could maintain it. Finally, it's pretty simple. Makes me want to consider what sort of product could be made out of this." Simple asset allocation 03/26/17   Stingy Investing "Providing good advice to investors that have relatively little money has always been a tricky affair. After all, the price of a good adviser can be too high for those of modest means. In practice, small investors find themselves left to their own devices or paying through the nose for the little advice they can get." [$] Mean reversion via momentum 03/26/17   Momentum "For an investor the takeaway is good news... rather having to allocate to an underperforming asset class over the past x years, simply wait for that underperforming / cheap asset class to start performing well. While you may miss the exact turn, you may be able to capture the longer run success when the asset class starts working without having to deal with the pain that created the opportunity." Pension crisis 03/26/17   Government "The question is why haven't the headlines presaged pension implosions? As was the case with the subprime crisis, the writing appears to be on the wall. And yet calamity has yet to strike. How so? Call it the triumvirate of conspirators - the actuaries, accountants and their accomplices in office. Throw in the law of big numbers, very big numbers, and you get to a disaster in a seemingly permanent state of making. Unfunded pension obligations have risen to $1.9 trillion from $292 billion since 2007." O'Shaughnessy and O'Shaughnessy 03/26/17   Funds "My guest this week is my father, Jim O'Shaughnessy. He was a pioneer in quantitative equity research, part of an early group of explorers who combed through data to find factors which predicted future stock returns." [audio] The Stingy News Weekly: March 19, 2017 03/19/17   SNW This week we have climbing cats, life's headwinds and tailwinds, factor timing, taxes, and more. Valeant's rise and fall 03/19/17   Stingy Investing "Bill Ackman recently dumped his fund's stake in Valeant Pharmaceuticals International Inc., which ended a distressing period for his investors. While it might be tempting to use the opportunity to wallow in an ocean of schadenfreude, it's more useful to step back and to try to learn from his misfortune." [$] Why is my life so hard 03/19/17   Behaviour "Most of us feel we face more headwinds and obstacles than everyone else - which breeds resentment. We also undervalue the tailwinds that help us - which leaves us ungrateful and unhappy. How can we avoid this trap?" [audio] Best mutual fund disclosure 03/19/17   Zweig "While the long-term bias in stock prices is upward, stocks enter a bear market with amazing regularity, about every 3 - 4 years. It goes with the territory. Expect it. Live with it. If you can't do that, go bury your money in a jar or put it in the bank and don't bother us about why your investment goes south sometimes or why water runs downhill." Get serious about retirement ages 03/19/17   Retirement "The Liberal government has declined to listen to the advice of its own economic advisory council on retirement age. Perhaps the Liberals might be more willing to listen to one of its ideological soul mates, someone who shares its views on the use of deficits to boost economic growth. Someone like Christine Lagarde, the managing director of the IMF." Capital gains tax is already unjust 03/19/17   Taxes "the current Liberal government's rumoured plan to increase the capital gains tax can be expected to hammer another nail in the coffin for Canadian investments, particularly at a time when our economic outlook is already relatively weak." Factor timing is hard 03/19/17   Value Investing "Adding value from market timing is very hard even though the aggregate market price (e.g., the CAPE) matters and varies a lot over time. In our latest paper, we again show that factor timing is likely even harder than market timing." The Stingy News Weekly: March 12, 2017 03/12/17   SNW This week we have Akre on compounding, taxes, fees, bubbles, and more. Chuck Akre talks at Google 03/12/17   Value Investing "Chuck talks about compounders at Google." Selling pressure at TD 03/12/17   Management "A CBC report earlier this week about TD employees pressured to meet high sales revenue goals has touched off a firestorm of reaction from TD employees across the country - some of whom admit they have broken the law at their customers' expense in a desperate bid to meet sales targets and keep their jobs." Let your winners run 03/12/17   Markets "Modern capitalism is built on the idea that as companies get big, they become fat and happy, opening themselves up to lean and hungry competitors who can underprice and overtake them. That cycle of creative destruction may be changing in ways that help explain the seemingly unstoppable rise of the stock market." The most broadly overvalued moment 03/12/17   Markets "Recall that the 2000 market peak was dominated by breathtaking overvaluation among a subset of very large capitalization stocks, while the broader market was less extreme, particularly among smaller capitalization issues. That didn't prevent the S&P 500 Index from losing half of its value, or the Nasdaq 100 Index from losing 83% of its value, but it did create the basis for a long period of relative outperformance by small cap stocks. By contrast, we presently observe, by far, the most extreme median valuations in history." Tax court justice seen at KPMG-linked party 03/12/17   Taxes "The Canadian Judicial Council began the review following the documentaries that showed two judges attending evening social events during a KPMG-sponsored tax conference in Madrid last fall. A third judge, the chief justice of the Tax Court of Canada, was revealed making a speech in which he promoted drinking alcohol with the tax industry." DFA Funds and fees 03/12/17   Funds "DFA adviser fees in some cases all but erase their advantages" The Stingy News Weekly: March 5, 2017 03/05/17   SNW This week we have personalized returns, economic predictions, valuations, and more. Asset markets as banks 03/05/17   Markets "It's important to remember that as long as cash is yielding zero or something very low, there's no arbitrage to force asset prices lower, no dynamic to force them to conform to some historically observed level or average. They can go as high as they want to, and stay as high as they want to, provided investors are able to develop and retain the confidence to buy at those levels. Note that the same point doesn't hold as readily in the other direction, when considering how low prices can go. That's because financial assets have intrinsic value. Below that value, they're worth owning purely for their cash flow streams, regardless of the prices at which they can be sold. The market can take those prices all the way to down to zero, they'll still be worth owning as incoming cash flow streams." What do economists know? 03/05/17   Economics "I am arguing that the math and science of economic predictions and assessments are nothing like the math and science of space travel. Economics provides the illusion of science, the veneer of mathematical certainty." Buffett on valuation 03/05/17   Markets "The stock market has been overvalued in the eyes of many since the 1990's and hasn't reverted back to 'normal' levels in a long time. I think the error is that many look at raw P/E's and don't account for interest rates." The latest investment scam 03/05/17   Crime "Canadian securities regulators have started a task force to raise awareness and protect Canadians from the latest investment scam, so-called binary options that can cost investors everything they have." The Stingy News Weekly: February 26, 2017 02/26/17   SNW This week we have Buffett's letter, momentum, freedom, the global yearbook, and more. Q and A with Wes Gray 02/26/17   Momentum Investing "The article suggests that the world of investment ideas is almost like religion or politics - you're on one team or the other - but you can't be on both teams at the same time, and there's very little room for conceptual overlap across dissonant ideas. So if you are a value investor, the idea of momentum disgusts you. Similarly, if you are a momentum/technical investor, the idea of value investing is horrid." Rich or free 02/26/17   Retirement "The best combination is to probably be rich and free. But even that lifestyle is not much better than that of a regular income earning person who is living a purposeful lifestyle. Appreciate what you have right now. Being rich is not an amazing panacea. Being free with the consistent ability to help other people is." Credit Suisse Yearbook 2017 02/26/17   Markets "Over the period since 1900, the average annualized real bond return across the 21 countries was just 1.0% per year, with disappointing returns in many countries. Yet, by the end of 2015, world bonds were level-pegging with world equities over the previous 34 years, giving the same annualized real return of 6.9%." Why facts don't change our minds 02/26/17   Behaviour "Coming from a group of academics in the nineteen-seventies, the contention that people can't think straight was shocking. It isn't any longer. Thousands of subsequent experiments have confirmed (and elaborated on) this finding. As everyone who's followed the research - or even occasionally picked up a copy of Psychology Today - knows, any graduate student with a clipboard can demonstrate that reasonable-seeming people are often totally irrational." Factor zoo 02/26/17   Momentum Investing "Factor-based investors and advisors now think they have an advantage. They base this belief on the results of theoretical asset pricing models, many of which have failed empirically." Warren Buffett's letter 02/25/17   Buffett "I'm certain that in almost all cases the managers at both levels were honest and intelligent people. But the results for their investors were dismal - really dismal. And, alas, the huge fixed fees charged by all of the funds and funds-of-funds involved - fees that were totally unwarranted by performance - were such that their managers were showered with compensation over the nine years that have passed. As Gordon Gekko might have put it: 'Fees never sleep.'" The Stingy News Weekly: February 19, 2017 02/19/17   SNW This week we have taxes, mistakes, Munger, Buffett, Gates, and more. A hard pill for savers to swallow 02/19/17   Stingy Investing "There are no sure things in this world except death and taxes but, with a little luck, medical advances will allow death to take a long sabbatical. News on the tax front isn't as encouraging because rumours are rife that the upcoming federal budget will punch savers right in their portfolios." [$] How Warren taught us optimism 02/19/17   Buffett "Warren Buffett is one of the best loved people in the world -- and it's easy to see why. He's jovial and friendly. He's funny and wise. He makes people feel good about themselves. But he has one quality that fuels all the others: Warren is the most upbeat, optimistic person we know." Charlie Munger speaks 02/19/17   Munger "Charlie Munger speaks at the Daily Journal annual meeting" [video] How being wrong can help 02/19/17   Behaviour "The irony is that disconfirmatory feedback is the most useful kind of feedback imaginable. If I'm making serious mistakes while cruising along in a complacent bubble of self-satisfaction, I badly need someone to explain exactly what I'm doing wrong. But what I need and what I might enjoy are, of course, quite different." The Stingy News Weekly: February 12, 2017 02/12/17   SNW This week we have taxes, dividends, myths, and more. Gross margin for fun and profit 02/12/17   Accounting "Businesses come in all varieties and the gross margins generated by various businesses are no exception. Software businesses and pharmaceutical firms have high gross margins. Costco and Exxon have low gross margins." Virality is a myth 02/12/17   Markets "Raymond Loewy [is] the father of industrial design. He designed the modern locomotive, the modern car, the livery, Air Force One and the interior habitat of the first NASA space ship. He basically designed the middle of the 20th century in America, and he had a rule for why people like what they like, MAYA: Most Advanced, Yet Acceptable." Dividend policy 02/12/17   Dividends "The shift is remarkable. In 1988, almost 70% of all cash returned to stockholders took the form of dividends and by 2016, close to 60% of all cash returned took the form of buybacks." A taxing trend 02/12/17   Taxes "The odds of a federal budget that targets investors with higher taxes on capital gains or even dividends are rising." Klarman's letter 02/12/17   Value Investing "President Trump may be able to temporarily hold off the sweep of automation and globalization by cajoling companies to keep jobs at home, but bolstering inefficient and uncompetitive enterprises is likely to only temporarily stave off market forces" Betting against correlation 02/12/17   Behaviour "These findings are a strong indication that leverage aversion is indeed an important part of the low-risk effect though by no means does it rule out other contributing explanations." The Stingy News Weekly: February 5, 2017 02/05/17   SNW This week we have brain-bending and the impact of smiling dynamic dividends on a messy retirement. The brain-bending world 02/05/17   Stingy Investing "A new performance measurement is beginning to appear on brokerage statements in Canada. It's called a money-weighted return and it has the potential to cause a great deal of confusion." [$] Messiness is good for the soul 02/05/17   Books "he says, disorder can actually be good for our brains because when conditions around us aren't perfect, we are forced to use creativity to solve problems, and perhaps come up with solutions that are better than we could have imagined otherwise." Factor investing art and science 02/05/17   Value Investing "My conclusion is that we are still a long way away from understanding the so-called 'science' of investing. We're probably better off understanding the insanity of investors and the incentives of delegated asset managers if we want to understand the science of investing, but this is controversial among many financial economists." The retirement spending smile 02/05/17   Retirement "The following exhibit provides Blanchett's spending smile for a retiree that begins retirement with expenditures of $100,000. On average, this household can expect to experience declining real expenditures through age eighty-four, when real spending reaches a trough of $74,146. This reflects a nearly 26% drop in real expenditures. After this point, average real expenditures increase, though they do not necessarily exceed their initial retirement levels until retirees reach their mid-nineties." Do stocks outperform Treasury bills? 02/05/17   Markets "Most common stocks do not outperform Treasury Bills. Fifty eight percent of common stocks have holding period returns less than those on one-month Treasuries over their full lifetimes on CRSP. When stated in terms of lifetime dollar wealth creation, the entire gain in the U.S. stock market since 1926 is attributable to the best-performing four percent of listed stocks. These results highlight the important role of positive skewness in the cross-sectional distribution of stock returns. The skewness in long-horizon returns reflects both that monthly returns are positively skewed and the fact that compounding returns over multiple periods itself induces positive skewness. The results also help to explain why active strategies, which tend to be poorly diversified, most often underperform." Too much versus too little dynamism 02/05/17   Economy "Of course, the too much versus too little dynamism diagnoses aren't mutually exclusive; there are probably elements of truth in both. Maybe the economy really isn't working for many Americans because globalization, automation and changing labor practices have thrown them to the wolves. But maybe there are also deep-seated structural shifts preventing communities and individuals from tapping the great opportunities the modern economy offers." The Stingy News Weekly: January 29, 2017 01/29/17   SNW This week we have Buffett, Gates, Grant, Chou, Ellis, and more. Burst your filter bubble 01/29/17   Behaviour "See if you can make the best case for whatever you might find to be deplorable, or at least objectionable, in today's debate. If you're feeling really secure, show it to someone you disagree with, and ask them if they can recognize their own views in there, honestly stated." The momentum index 01/28/17   Indexing "Momentum investors cut their losers and let their winners run. In a roundabout way, that's exactly what the stock market has done over time." Francis Chou profile 01/28/17   Chou "At the moment, no sector stands out in terms of valuation - it's all expensive, he says - but he's being patient." Charley Ellis interview 01/28/17   Indexing "Ellis explains that the best approach for most individual investors is a simple asset allocation composed primarily of low cost index funds." Gates and Buffet town hall 01/28/17   Buffett "Bill Gates and Warren Buffet at Columbia University" [video] James Grant interview 01/28/17   Grant "A different investment world. Financial Thought Leader, James Grant, Editor of Grant's Interest Rate Observer declares the 35 year bull market over and sees few opportunities to replace it." [video] The Stingy News Weekly: January 22, 2017 01/22/17   SNW This week we have the 4%, value by sector, family firms, and more. Charles de Vaulx interview 01/22/17   Value Investing "Veteran value fund manager, IVA Advisers' Charles de Vaulx explains why he has nearly 40% of his portfolios in cash." [video] Value by sector 01/22/17   Stingy Investing "When it comes to fishing for stocks, value investors are skating on thin ice because the bargains they desire are disappearing as the markets warm. To find the few bargains that remain it is useful to take a step back, consider the market as a whole, and drill down into different sectors." [$] And that's OK 01/22/17   Value Investing "I don't know a lot of things when it comes to investing. I don't know exactly how or when the current market cycle ends. I don't know when valuations will matter again. I don't know when central banks lose control and free markets return. I don't know the next time I'll be fully invested. And I certainly don't know the near-term direction of stock prices. But I get asked about these things frequently. I wish I knew, but I don't." Fortress fails to silence critic 01/22/17   Real Estate "In 2011 the Ontario Securities Commission accused the pair, along with a third man, of engaging 'in conduct contrary to the public interest' by selling clients of their debt-management business shares of companies caught up in a B.C. stock scam. Petrozza and Rathore agreed to pay close to $3 million and were slapped with a 15-year ban on trading securities." The Stingy News Weekly: January 15, 2017 01/15/17   SNW This week we have cash cows, the 4%, Big Macs, risky ratings, and more. Cash cows of the Dow 01/15/17   Value Investing "The Cash Cows, despite having the lowest dividend yield, have by far the largest buyback yield resulting in a total shareholder yield that is nearly double that of the Dogs and about a third higher than the Dow." The global 4 per cent 01/15/17   Retirement "With a 50/50 asset allocation, the 4% rule did not survive in any country, though it came very close in the U.S. (3.94%) and Canada (3.96%). Even allowing for a 10% failure rate, 4% made the cut only in Canada, the U.S., New Zealand, and Denmark." Risky risk ratings 01/15/17   Funds "Over the past two years, I tracked risk rating changes for nearly 100 unique mutual funds and ETFs. 77% of those funds saw risk ratings reduced despite the fact that we're nearly 8 years into one of the longest bull markets in history for stocks and bonds." Be wary of junk bonds 01/15/17   Bonds "Junk bonds have defaulted historically at an average rate of 4.2% a year, according to data from Standard & Poor's. That is more than the current spread, meaning the extra yield investors hope to capture by owning junk could easily evaporate. Investors tend to forget this, especially during periods of low defaults. Defaults don't always wipe out investors - typically they will recover 40% (of the par value of the bond) from a default. Still, when one accounts for both defaults and recoveries, the loss rate on junk bonds has averaged about 2.5% a year." Big Mac index 01/15/17   World "In Big Mac terms, the Mexican peso is undervalued by a whacking 55.9% against the greenback. This week it also plumbed a record low as Mr Trump reiterated some of his campaign threats against Mexico. The peso has lost a tenth of its value against the dollar since November. Of big countries, only Russia offers a cheaper Big Mac, in dollar terms, even though the rouble has strengthened over the past year." Absolute vs. relative value 01/15/17   Value Investing "In keeping with Montier's absolute value philosophy, we investigated several dynamic allocation strategies based on reducing or eliminating exposure to markets as they get more or less expensive, using the real earnings yield as our yardstick. In every case we tested the absolute value based approach delivered a higher Sharpe ratio, and a much higher ratio of returns to our approximation of Montier's measure of risk - maximum drawdowns." Friedman's theory laid to rest 01/15/17   Economics "Milton Friedman was wrong about the permanent income hypothesis. But unlike with the first two examples, where scientists quickly realized the mistake, economists haven't yet come to grips with the reality." The Stingy News Weekly: January 7, 2017 01/07/17   SNW This week we have a contest, speculations, the asset mixer, moats, and more. Speculating on 2017 01/06/17   Stingy Investing "As we head into the new year, it.s only natural to speculate about what it has in store for us. 2017 is shaping up to be an interesting one on many fronts, but my task today is to focus on the markets from the value investing point of view." [$] Designing better decisions 01/06/17   Behaviour "In this conversation, we explore everything from science fiction, automation, investor behavior and how Betterment tries to solve problems that goes beyond the automated asset allocation that is their bread and butter." Looking for the next Amazon 01/06/17   Stocks "This massive outperformance has led to an explosion in hindsight bias, with investors fooling themselves into believing Amazon's ascent was somehow obvious or inevitable. But the truth is this 38,000% return was handed to nobody, it was earned through enormous dedication. Actually, lunacy might be a better way to describe it, being that you had to be some sort of sociopath - void of any human emotions, to earn these monstrous gains." Moats and podcasts 01/06/17   Media "Podcasts face the public good problem. Fortunately 'talking into a microphone' is similar to 'talking to a theater' and 'talking words onto a page,' two excludable services." Asset Mixer Update 01/06/17   Stingy Investing We've updated our Asset Mixer to include nominal data for 2016. Periodic Table Update 01/06/17   Stingy Investing We've updated our periodic table of annual returns for Canadians to include nominal data for 2016. The Stingy News Weekly: January 2, 2017 01/02/17   SNW Happy New Year! This week we have Zweig, Sinegal, Barry, short selling, and more. Dave Barry's 2016 01/02/17   Fun "Yes, we've seen some weird years. But we've never seen one as weird as 2016. This was the Al Yankovic of years. If years were movies, 2016 would be 'Plan 9 From Outer Space.' If years were relatives, 2016 would be the uncle who shows up at your Thanksgiving dinner wearing his underpants on the outside." Lessons from a short seller 01/02/17   Markets "Wilson managed a hedge fund - Wilson & Associates - that he launched in the late 1960s. During his career, his fund generated annualized returns of about 30%. His net worth peaked at $800 million, most of which he donated to charity." Learn from James Sinegal 01/01/17   Management "It has a frantic desire to serve customers a little better every year. When other companies find ways to save money, they turn it into profit. Sinegal passes it on to customers. It's almost a religious duty. He's sacrificing short-term profits for long-term success." The pension warning bell 01/01/17   Retirement "By the time Calpers gets that assumed rate of return down to 7 percent, as its CFO recommends, the fund may very well be thinking about lowering expectations even further." A portrait of Jason Zweig 01/01/17   Zweig "When an inmate in federal prison reminisces about what you were like as a child, you pay attention." 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