The Stingy News Weekly (02/14/2010)
Quadrophobia: strategic rounding of EPS data
"We hypothesize that earnings management causes quadrophobia, the under-representation of the number four in the first post-decimal digit of EPS data. We demonstrate that quadrophobia is pervasive, persistent, and follows economically rational patterns. Consistent with analyst coverage being a determinant of earnings management, quadrophobia increases (declines) when companies gain (lose) analyst coverage, and is more frequent when earnings are close to analyst forecasts. Persistent quadrophobes are more likely to restate financials and to be sued in SEC proceedings alleging accounting violations. Quadrophobia, even if itself legal, therefore appears to signal a propensity to engage in problematic accounting practices."
Charlie on the crisis
"Charles T. Munger, the Vice-Chairman of Berkshire Hathaway Corporation, discusses the current economic crisis with Professor Joseph A. Grundfest."
Derivatives should be banished
"The only firms that will be able to sell the insurance will be firms deemed too big to fail. That is, you wouldn't buy this kind of insurance from a firm you believed might also face a liquidity risk. You would only buy it from a firm you thought was protected from liquidity risk, and that kind of protection ultimately must come from the US government. So, ultimately, the sellers would be making private profits from the existence of public guarantees. They get all the upside, while the taxpayer gets all the risk."
Be a sceptical economist
"One of the biggest problems is one that psychology has faced since it began, to do with the authenticity of its experiments. If you take a bunch of people, shut them in a darkened room and make them do odd things, out of context, you might expect them to behave a bit peculiarly. Psychologists, on the other hand, tend to live in darkened rooms and regard doing odd things in them, often involving small, furry animals, as quite normal. So they see nothing wrong in this and are quite happy to write up the results of these experiments in order to help deepen our knowledge of human behaviour."
Buffett takes on Chicago chokepoint
"Chicago, whose railroads made it hog butcher for the world a century ago, is a tangle of bottlenecks where a quarter of the nation's rail freight stalls while trying to navigate the city. 'We can't keep running trains from Los Angeles to Chicago in 55 hours and then take 36 hours to get a rail car from one side of Chicago to the next,' said Matt Rose, chief executive officer of Burlington Northern Santa Fe Corp. 'We either need to fix Chicago or avoid it.'"
Maida, Rogers, Stein run new AlphaPro ETFs
"Mr. Maida, who will pick stocks for HAP North American Value ETF HAV-t , is the founder of investment counselling firm Patient Capital Management Inc. that caters to institutional and wealthy clients. In 1999, he left Trimark Financial Corp. where he ran the giant Canadian stock funds."
"Although I have mentioned the enormous property bubble in Canada on numerous occasions, I have also stated a belief that Canada as a whole was better off than the US. Not so fast ..."
Doing the math on coupons
"If motivation is an issue, the next time you find yourself facing a stack of coupon booklets and flyers don't ask yourself if you can be bothered. Try asking yourself if you'd like to earn more than $100 an hour for a job you can do, at home, while sitting on the sofa watching TV."
Japan fades into the future
"If Japan does not do it then aging and death is inevitable. The working population will be stuck looking after and funding the huge numbers of retired. Japan's industrial growth - now anemic - will collapse entirely with its population. The great Japanese industrialization experiment will walk slowly into the setting sun aided by a walking stick." [Warning: Some harsh language.]
The big lie about the 'life of the mind'
"Some professors tell students to go to graduate school "only if you can't imagine doing anything else." But they usually are saying that to students who have been inside an educational institution for their entire lives. They simply do not know what else is out there." [Which is a shame because there are a great many fun things to do in this world.]
Think again about commodities
"You've probably heard over and over again that commodities provide a great hedge against inflation. It sounds plausible - until you look at the evidence."
What drives long-term returns?
"The MSCI World Index annualized gross index return for the total 35-year time span was 11.0%. The biggest component of this return was inflation at 4.2%, contributing more than one third of the total return. Other important components were dividend income (2.9%), emphasizing the importance of dividend reinvestment in long-term investing, and real book value growth (2.0%). Price to book growth contributed the least (1.5%)."
"John Stossel's program on crony capitalism."
Global household leverage
"Household leverage in the United States and many industrial countries increased dramatically in the decade prior to 2007. Countries with the largest increases in household leverage tended to experience the fastest rises in house prices over the same period. These same countries tended to experience the biggest declines in household consumption once house prices started falling."
Underdogs have more motivation?
"Bosses and coaches who manage groups competing against lower-status rivals should use that fact to motivate the people at their company or team."
What happens in the amygdala
""As you get older, you get less loss-averse," De Martino says, explaining that even the older control subjects were less fearful of loss. "Your perspective on life changes because you have fewer years to live." This effect could stem from age-related reductions in the volume of the amygdala - as we age, our brains shrink. De Martino says in addition to age, other factors such as income and education are also at play."
ETFs may hide tax surprise
"Do your research. You really do need to read the fine print in an ETF's prospectus. Ary Rosenbaum, an associate attorney with the law firm of Meyer, Suozzi, English & Klein says there are three questions to ask yourself: "What is the capital gains treatment of the ETF? What is the tax implication of the ETF that may influence end of or beginning of the year tax strategy? And if the ETF is not plain vanilla, what are the tax rules for the underlying assets within the ETF?""
America's broken equity culture
"Why did investors respond to a nearly 70% rally by pulling money out of domestic-equity mutual funds? The picture that is now emerging, courtesy of the latest data, is positive for the stock market over the short-term, but worrisome for the longer-term."
Vito Maida Interview
"Jonathan Chevreau interviews Vito Maida of Patient Capital Management."
Seven states of energy debt
"I've identified seven large US states by four criteria that are sure to cause trouble for Washington's political class at least for the next 3 years, through the 2012 elections. These are states with big populations, very high rates of unemployment, and which have already had to borrow big to pay unemployment claims. In addition, as a kind of Gregor.us kicker, I've thrown in a fourth criteria to identify those states that are large net importers of energy. Because the step change to higher energy prices played, and continues to play, such a large role in the developed world's financial crisis it's instructive to identify those US states that will struggle for years against the rising tide of higher energy costs."
What is liquidity?
"The great Peter Lynch would buy small cap stocks for Magellan, with strict orders on price. Then he would let them sit, while they gained in value on average. Marty Whitman buys in 'safe and cheap' small cap stocks that are illiquid and holds them until their value is recognized. If you have a strong balance sheet or patient investors, take advantage of it, and buy investments that are less liquid, where value may take a while to obtain."
Europe risks another depression
"The entirely pointless G7 meeting this weekend only served to underline the fact that Europe is again entering a serious economic crisis."
Emergency in Nevada
"Nevada's budget is so far out of balance that by one account the state could lay off every worker paid from the general fund and still be $"68%" million in the red. The economic downturn has hit so hard that prisons may be closed, entire colleges shuttered and thousands left without jobs."
A new bubble
"As the U.S. struggles to get out of its housing slump, its neighbor to the north faces a different challenge: Canada's housing recovery has been so rapid that some here are worrying about a bubble."
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