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The Stingy News Weekly (05/29/2011)
Stingy Links Unlocking cash hoards "There is a cash crisis in corporate America—although it comes not from a shortage of the stuff, but from a surplus." Lessons for the irrational investor "In recent years interest in behavioral finance has steadily grown: It's equally valuable to retirees deciding whether to stick with their dividends or risk their savings in the currency markets, to a fund manager putting a good spin on a bad year, and to a brokerage redesigning its retirement accounts. And recently, of course, the stock market has given behavioral economists all the more to think about, as Main Street and Wall Street investors have pushed stock prices up and down in reaction to crises in Japan and the Middle East." All revenue is not created equal "With the IPO market now blown wide-open, and the media completely infatuated with frothy trades in the bubbly late stage private market, it is common to see articles that reference both “valuation” and “revenue” and suggest that there is a correlation between the two. Calculating or qualifying potential valuation using the simplistic and crude tool of a revenue multiple (also known as the price/revenue or price/sales ratio) was quite trendy back during the Internet bubble of the late 1990s. Perhaps it is not peculiar that our good friend the price/revenue ratio is back in vogue. But investors and analysts beware this is a remarkably dangerous technique, because all revenues are not created equal." Your so-called education "While some colleges are starved for resources, for many others it’s not for lack of money. Even at those colleges where for the past several decades tuition has far outpaced the rate of inflation, students are taught by fewer full-time tenured faculty members while being looked after by a greatly expanded number of counselors who serve an array of social and personal needs. At the same time, many schools are investing in deluxe dormitory rooms, elaborate student centers and expensive gyms. Simply put: academic investments are a lower priority. The situation reflects a larger cultural change in the relationship between students and colleges. The authority of educators has diminished, and students are increasingly thought of, by themselves and their colleges, as “clients” or “consumers.” When 18-year-olds are emboldened to see themselves in this manner, many look for ways to attain an educational credential effortlessly and comfortably. And they are catered to accordingly. The customer is always right." Shale boom in oil "The technique, also called fracking, has been widely used in the last decade to unlock vast new fields of natural gas, but drillers only recently figured out how to release large quantities of oil, which flows less easily through rock than gas." Economic stagnation explained, at 30,000 feet "The man in the aisle seat is trying to tell me why he refuses to hire anybody. His business is successful, he says, as the 737 cruises smoothly eastward. Demand for his product is up. But he still won’t hire. “Why not?” “Because I don’t know how much it will cost,” he explains. “How can I hire new workers today, when I don’t know how much they will cost me tomorrow?” He’s referring not to wages, but to regulation: He has no way of telling what new rules will go into effect when. His business, although it covers several states, operates on low margins. He can’t afford to take the chance of losing what little profit there is to the next round of regulatory changes. And so he’s hiring nobody until he has some certainty about cost." The audacity of Chinese frauds "Frauds and audit failures can, and do, happen in many countries, including in the United States. But the audacity of these frauds, as well as the efforts to intimidate auditors, stand out. If investors such as Goldman Sachs and Hank Greenberg cannot fend for themselves, something more needs to be done if Chinese companies are to continue to trade in American markets." Scraping by on $250k a year? "As educated professionals, they buy books, newspapers and magazines they own computers and pay for Internet access. But the Joneses don’t take lavish vacations, don’t belong to a country club, don’t play golf, don’t drive luxury cars, don’t have a swimming pool, don’t buy designer clothes, don’t own or rent a second home, and don’t send their kids to private school. They don’t even shop for groceries at high-end markets. (They spend what the United States Department of Agriculture defines as a “moderate” amount on food for the average family of four.) In short, they’re not “wealthy,” even if they’re in the top 5 percent of earners. ..." Seven takeover targets "Picking takeover candidates for fun and profit is a perennial investment sport. How can it not be? When one company takes over another, it typically pays a 20 percent to 70 percent premium over the target’s prevailing stock price. Takeovers can enrich investors instantly." Rebalance to control risk not boost returns "The question of portfolio rebalancing presents a significant challenge. A momentum effect has persisted in many financial markets for decades. In other words, when a financial asset rises in price in the short-term, that asset has tended to continue rising for a period of time. (The same effect has persisted on the downside.) This is called the momentum effect and it has persisted for generations. Since stock and bond markets tend to spend more time going up than falling, this momentum effect can be a significant benefit over time. Rebalance too frequently and you risk cutting off the benefits of this momentum effect. Failing to rebalance enough could result in overexposure to certain asset classes or sub-classes. The challenge, then, when faced with developing a rebalancing method is to capture as much of this momentum effect while keeping risk within a range that is suitable and reasonable." Beware of the yogurt "Ms Dashtaki is pondering whether to move to another state, one whose rules allow for artisanal products. She would not be the first entrepreneur to flee the Golden State. Or she might just give up. After all, one has to make a living. It looks like California’s regulators have triumphantly saved their population from the threat of mass poisoning once again." DOW 30 Value Screens
S&P/TSX60 Value Screens
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