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The Stingy News Quarterly (Q1/2011)

New @ StingyInvestor

The Top 200 Canadian Stocks for 2011
"As it happens, this was about an average year for our top stocks. If you had bought equal amounts of the All-Stars and rolled your gains into the new players each year, you'd now be sitting on a 19.1% average annual return over the last six years, not including dividends. By way of comparison, that's more than 12 percentage points higher than the annual return of the S&P/TSX Composite (XIC), which climbed just 6.5% a year over the same period."

Your Roadmap to Investment Success
"I was pleased to talk at The Investment Show where I made the case that novice investors should opt for low-fee balanced funds. I then moved on to more advanced topics including dividend investing and value investing. Here are the slides that were used..."

The virtue of simplicity
"'Complexity isn't necessarily a good thing when it comes to picking stocks,' he says. 'The real challenge is sticking to the stocks you like and not getting scared out of them if they don't work out immediately.'"

5 Stingy Stocks for 2011
"Our Stingy Stocks climbed a phenomenal 69.4% this year and that marks the second year in a row that they've gained more than 60%."

The Top 500 U.S. Stocks for 2011
"Just like the Canadian team, the U.S. All-Stars combine the best value and growth attributes. It's a one-two punch that helped them advance 19.4% since last year, not including dividends. Meanwhile the S&P 500 (SPY) trailed the All-Stars by 6.5 percentage points but managed a gain of 12.9% over the same period."

Retirement 100
"Do you dream of breaking free from cubicleville and visiting far off lands, exploring castles of yore, or sipping your way through wine country? Wouldn't it be grand if your stocks paid for the experience? To help launch your retirement world tour, we've ranked the largest dividend stocks in Canada based on their ability to put cash in your pocketbook. Before we reveal this year's top picks for income investors, let's check out how last year's crop fared. Our stocks have paid big dividends since the spring of 2009, with our A-grade Retirement All-Stars shooting skyward with average gains of 58.3%. That includes non-reinvested dividends which we assumed were spent on pleasurable pursuits."

Asset Mixer Update
We've updated the Stingy Investor asset mixer to include data for 2010.

Periodic Table Update
We've updated our periodic table of annual returns for Canadians to include data for 2010.

New Beauty Contest
"We're holding another Keynesian beauty contest to give away a second copy of the new MoneySense Guide to Retiring Wealthy."

7 Graham Stocks for 2011
"Graham's time-tested strategy for defensive investors gained ground this year but, in a rare turn of events, it failed to beat the market. As a result, it has only bested the market in eight out of the last ten years which, as they say, ain't bad."

The Best of Stingy Links

Stingy Links: Academia

Reinvent education
"Salman Khan talks about how and why he created the remarkable Khan Academy, a carefully structured series of educational videos offering complete curricula in math and, now, other subjects. He shows the power of interactive exercises, and calls for teachers to consider flipping the traditional classroom script -- give students video lectures to watch at home, and do 'homework' in the classroom with the teacher available to help."

Expectation Errors in Value/Glamour Strategies
"This paper uses financial statement analysis to identify expectation errors regarding future firm performance embedded in the prices of value and glamour firms. We contrast performance expectations implied by firms. value/glamour classification against a simple, financial statement analysis-based metric that differentiates improving versus deteriorating financial performance. We find that the value/glamour effect is concentrated among firms whose financial performance conflicts with implied expectations. Corroborating evidence of predictable expectation errors exists for future analyst forecast errors, forecast revisions, earnings announcement-window returns, and momentum reversals. Together, the results suggest that the value/glamour effect is an artifact of erroneous performance expectations that are predictable from financial statement analysis."

Think twice
"Business schools have long sold the promise that, like an F1 driver zipping into the pits for fresh tyres, it just takes a short hiatus on an MBA programme and you will come roaring back into the career race primed to win. After all, it signals to companies that you were good enough to be accepted by a decent business school (so must be good enough for them) it plugs you into a network of fellow MBAs and, to a much lesser extent, there.s the actual classroom education. Why not just pay the bill, sign here and reap the rewards? The problem is that these days it doesn.t work like that. Rather, more and more students are finding the promise of business schools to be hollow. The return on investment on an MBA has gone the way of Greek public debt. If you have a decent job in your mid- to late- 20s, unless you have the backing of a corporate sponsor, leaving it to get an MBA is a higher risk than ever. If you are getting good business experience already, the best strategy is to ! keep on getting it, thereby making yourself ever more useful rather than groping for the evanescent brass rings of business school."

Value Averaging and Automated Bias
"Value averaging is a formula investment strategy which can be shown to achieve a lower average cost and higher IRR than alternative strategies. However, in contrast to previous studies, this paper shows that this does not lead to higher expected profits. Instead an .averaging down. effect systematically biases the IRR up and the average purchase cost down. The same bias applies to a wide class of investment strategies (including dollar cost averaging) where the amount invested in each period is negatively correlated with the return made to date."

Hindsight Bias in Dollar-Weighted Returns
"Dollar-weighted returns have been used as evidence that consistently bad timing drags investor returns significantly below the buy-and-hold market return, and that consequently the equity risk premium is overstated. In this paper we show that this approach is affected by hindsight bias in the dollar-weighted return. We present an alternative method which quantifies and removes this effect. The results show that bad timing has actually had little impact on investor returns from mainstream US equities. We conclude that previous estimates of the equity risk premium remain valid."

Stingy Links: Accounting

Forensic Finance, Benford's Way
"One of the more curious statistical anomalies of the universe has turned out to have a range of practical applications in the world of finance. It also turns out to be one of the stranger laws underpinning the stock market, although figuring out why is a painful process. Above all, Benford.s Law can be used to spot financial fraudsters because of a psychological quirk that means we humans are dead useless at pretending to be random. All of this comes from a law that was discovered by one man, explained by another and named after a third. Now that.s random."

Stingy Links: Behaviour

How Great Entrepreneurs Think
"Sarasvathy likes to compare expert entrepreneurs to Iron Chefs: at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest. Corporate leaders, by contrast, decide they are going to make Swedish meatballs. They then proceed to shop, measure, mix, and cook Swedish meatballs in the most efficient, cost-effective manner possible. That is not to say entrepreneurs don't have goals, only that those goals are broad luggage.may shift during flight. Rather than meticulously segment customers according to potential return, they itch to get to market as quickly and cheaply as possible, a principle Sarasvathy calls affordable loss. Repeatedly, the entrepreneurs in her study expressed impatience with anything that smacked of extensive planning, particularly traditional market research."

People play events into biases
"I'm a big believer in Jonathan Haidt's characterization of our brains as articulate confabulators, primarily engaged in rationalizing our prejudices. I have rarely witnessed someone change their mind on something important to them based on any one fact sure, disinterested people do, but not anyone who's invested several years on a subject. Last week's John Tierney's NYT article on academics highlights they are just as biased as the uneducated, even though they consider them paragons of rational, unbiased thought"

How Carrots Became the New Junk Food
"The company has been around for nearly a century now, but it boomed in the 1990s, with a breakthrough product. A local grower named Mike Yurosek had become frustrated with all the waste in the carrot business. Supermarkets expected carrots to be a particular size, shape, and color. Anything else had to be sold for juice or processing or animal feed, or just thrown away. Yurosek wondered what would happen if he peeled the skin off the gnarly carrots, cut them into pieces, and sold them in bags. He made up a few test batches to show his buyers. One batch, cut into 1-inch bites and peeled round, he called 'bunny balls.' Another batch, peeled and cut 2 inches long, looked like little baby carrots. Bunny balls never made it. But baby carrots were a hit. They transformed the whole industry. Soon, the big growers in Bakersfield were planting fields with baby carrots in mind, sowing three times more seeds per acre, so the carrots, packed densely together, would grow long and skinny! , for the maximum number of 2-inch cuts. Yields and profits climbed. The really big deal, the thing nobody expected, was that baby carrots seemed to make Americans eat more carrots. In the decade after they were introduced, carrot consumption in the United States doubled."

The Crowded Restaurant Conundrum
"These restaurants have perfected the art of creating Veblen goods . items where demand increases as the price goes up. In this rarefied world, high prices are a feature, not a bug they're status symbols that alert others to the fact that the patrons can pay $26 for something as basic as a spinach salad. They also serve to keep out the riff-raff."

Blaming the Rat
"Here.s the problem in a nutshell: our mix of jobs has changed profoundly while our approach to incentives has not. As a consequence, we have employees who have lost motivation and faulty incentive programs that have introduced a raft of unintended consequences."

Stingy Links: Bonds

Trouble Lurks in Junk Bonds
"Risky bonds have been on a tear since 2009. But as the events in Japan and elsewhere fuel demand for safer assets, investors would be wise to exercise caution."

Stingy Links: Books

Super Rich
"In both authors' works, it's difficult to find concrete business lessons. And perhaps that's the point. For example, writes Chopra: 'Your body is a constant projection of you in the world. Every cell eavesdrops on your thoughts.' The author views our metabolisms as chat rooms, with epidermal cells listening in to what's going on in the cranium. If you don't understand what he means, your foot can explain it to you."

Stingy Links: Brokers

Love the downgrade
"It would appear that as long as they spell your company.s name right,upgrades and downgrades are both good news for your stock."

Stingy Links: Buffett

Five Tips From Warren Buffett
"While the stock market overall has boomed, and it's a battle to find cheap stocks, one thing does stand out: Many of Warren Buffett's favorite stocks remain at, or around, the prices he paid for them. As Mr. Buffett only likes to buy stocks for a lot less than he thinks they are really worth, this suggests you can get a bargain or two"

Berkshire Hathaway 2010
"Don.t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential . a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War . remains alive and effective. We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America.s best days lie ahead."

Buffett on Berkshire, Succession and America
"Finally, he talked a little about why he was optimistic about the future of the United States: .We had four million people here in 1790,. he tells Vanity Fair. not more intelligent than people in China, which then had 290 million people, or Europe, which had 50 million. We didn.t work harder, we didn.t have a better climate, and we didn.t have better resources. But we definitely had a system that unleashes potential. This system works. Since then, been through at least 15 recessions, a civil war, a Great Depression. . All of these things happen. But this country has optimized human potential, and it.s not over yet."

Berkshire's $1.2 billion selling spree
"In the you can't-have-too-much department, Berkshire Hathaway raised cash last year as it prepared for a rare change of the investing guard."

Mr. Moneybags
"A flush Berkshire Hathaway is in its best shape ever and piling up cash so quickly that it could be sitting on close to $50 billion at its core insurance operation alone by year end, and might even begin paying a dividend. Berkshire's profit recovery, aided by some smart acquisitions and investments by CEO Warren Buffett -- notably its purchase of the Burlington Northern railroad -- has gone largely unrecognized on Wall Street, where Berkshire's Class A shares, now trading around $121,000, haven't budged in nearly a year."

Stingy Links: Debt

Financial Crisis Q and A
"The panic in 2007 was not observed by anyone other than those trading or otherwise involved in the capital markets because the repo market does not involve regular people, but firms and institutional investors. So, the panic in 2007 was not like the previous panics in American history (like the Panic of 1907, shown below, or that of 1837, 1857, 1873 and so on) in that it was not a mass run on banks by individual depositors, but instead was a run by firms and institutional investors on financial firms. The fact that the run was not observed by regulators, politicians, the media, or ordinary Americans has made the events particularly hard to understand. It has opened the door to spurious, superficial, and politically expedient .explanations. and demagoguery."

Stingy Links: Disaster

Creative Destruction?
"Modern economies, it turns out, are adept at rebuilding and are often startlingly resilient. The quintessential example comes from Japan itself: in 1995, an earthquake levelled the port city of Kobe, which at the time was a manufacturing hub and the world.s sixth-largest trading port. The quake killed sixty-four hundred people, left more than three hundred thousand homeless, and did more than a hundred billion dollars in damage (almost all of it uninsured). There were predictions that it would take years, if not decades, for Japan to recover. Yet twelve months after the disaster trade at the port had already returned almost to normal, and within fifteen months manufacturing was at ninety-eight per cent of where it would have been had the quake never happened."

Stingy Links: Dividends

Curb your enthusiasm
"If you want to drive today.s investors mad with desire, try this magic word: dividends. There.s something about the promise of a high yield that makes grey-haired stock buyers turn giddy as 17-year-olds. It.s not entirely clear what gives rise to this intoxicating effect. Stock market historians say dividend-paying stocks have generally done better than their non-dividend-paying peers, perhaps because being forced to disgorge cash on a regular basis pushes executives to focus on their core business rather than lavishing money on the CEO.s pet projects. But paying a dividend, by itself, doesn.t guarantee a company success."

Stingy Links: Economics

Have You Ever Tried to Sell a Diamond?
"The diamond invention is far more than a monopoly for fixing diamond prices it is a mechanism for converting tiny crystals of carbon into universally recognized tokens of wealth, power, and romance. To achieve this goal, De Beers had to control demand as well as supply. Both women and men had to be made to perceive diamonds not as marketable precious stones but as an inseparable part of courtship and married life. To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them. The illusion had to be created that diamonds were forever -- 'forever' in the sense that they should never be resold."

Cowen's Great Stagnation
"Cowen.s way of thinking is rather common, that growth emanates from some limited resource, and like .peak oil. goes through a natural cycle of growth and decline. The Physiocrats in the eighteenth century believed that the wealth of nations was derived solely from the value of things from soil like minerals and agriculture, all the rest.advertising, management, finance.just parasitic. Such thinking influenced Malthus.s idea that we are all doomed by a finite amount of land, which will ultimately constrain our population via starvation. Later the labor theory of value tried to make labor the source of all wealth, where capital was disembodied labor. This too is mistaken, and while no one promotes these theories anymore, their intuition lives on."

Stingy Links: Economy

The jobs crisis
"Why have new jobs been so hard to come by? One view blames cyclical economic factors: at times when everyone is cautious about spending, companies are slow to expand capacity and take on more workers. But another, more skeptical account has emerged, which argues that a big part of the problem is a mismatch between the jobs that are available and the skills that people have. According to this view, many of the jobs that existed before the recession (in home building, for example) are gone for good, and the people who held those jobs don.t have the skills needed to work in other fields. A big chunk of current unemployment, the argument goes, is therefore structural, not cyclical: resurgent demand won.t make it go away. Though this may sound like an academic argument, its consequences are all too real. If the problem is a lack of demand, policies that boost demand.fiscal stimulus, aggressive monetary policy.will help. But if unemployment is mainly structural there.s little we ! can do about it: we just need to wait for the market to sort things out, which is going to take a while."

Canada is 'a purely random success story': Shiller
"Robert Shiller, the Yale professor who correctly predicted the 1987 stock market collapse and the recent U.S. housing market meltdown, said Canada.s robust financial health compared to other nations is largely due to a random run-up in oil prices in the midst of the global financial crisis. .It.s a major export for Canada and it went to US$140 a barrel in 2008, right when Canada needed it,. Prof. Shiller said in an interview Tuesday. Canada.s economic output fell roughly 4.2% from its peak in 2007 to its trough in 2009 . even with the oil price surge, while the U.S. saw a near-identical decline. .It seems that if the country didn.t have that boost from oil, it would have done worse than the United States,. Prof. Shiller said."

Stingy Links: Fun

Lewis on the financial crisis
"Wall Street leaders now understand that they made a mistake, one born of their innocent and trusting nature. They trusted ordinary Americans to behave more responsibly than they themselves ever would, and these ordinary Americans betrayed their trust. Amazingly, these ordinary Americans don.t even appear to feel guilty for their actions. Like wild animals that have lost their fear of humans, they continue to wander down from the hills to rummage through our garbage cans for sustenance."

Goldman Pitch vs Nigerian Scam
"Of course, unlike Nigerian email scams, the solicitation came from a Goldman money manager rather than a random stranger. And Goldman isn.t offering a scam but an investment opportunity so hot that the investment bank had to stop taking orders, as our colleagues reported this afternoon. But we couldn.t help note some similar language used by Goldman and purported Nigerian princes. Read and compare"

How to Tax the Rich
"The president was too polite to mention it during his State of the Union speech on Tuesday, but here's a quick summary of the problem: The U.S. is broke. The hole is too big to plug with cost cutting or economic growth alone. Rich people have money. No one else does. Rich people have enough clout to block higher taxes on themselves, and they will. Likely outcome: Your next home will be the box that your laser printer came in. I hope that you kept it."

Disassembling, Reassembling Hoover Dam
"Systematically tearing down such a massive edifice will create at least 25,000 jobs over the next five years. And then reassembling it, using all the same pieces in the exact same configuration, will employ another 25,000 workers. America is back"

Tour De Gall
"Twenty minutes later, possibly under their own steam, the snails arrive. Vesuvian, they bubble and smoke in a magma of astringent garlic butter and parsley. We grasp them with the spring-loaded specula and gingerly unwind the dark gastropods, curling like dinosaur boogers. They go on and on, expanding onto the plate as if they were alien. We have to cut them in half, which is just wrong. The rule with snails is: Don.t eat one you couldn.t get up your nose."

Stingy Links: Funds

Putting monthly distributions to the test
"I don.t make many bold predictions. But nearly a decade ago I did just that. I challenged the most popular monthly income mutual fund of the day, now known as IA Clarington Canadian Income. I stated that this balanced fund.s 10% distribution rate at the time could not be sustained and would have to be cut. No recommendation has ever caused me such grief. I received angry phone calls and e-mails. But I turned out to be right. Fast forward to 2011. In today.s Global and Mail I take readers through a process for testing whether an investment.s monthly cash payout can continue longer-term. It.s the same process I used to make my Clarington prediction in 2001. While Clarington and some other firms have adopted more flexible distribution policies, several funds continue to sport unsustainable cash payouts. And I use a popular big bank fund to illustrate our distribution sustainability test in today.s article."

Economic Meltdown Looming
"Bob Rodriguez says the U.S. has seven months to implement significant budgetary reductions or face tipping point"

Negative fee fund
"Those performance fees have led to another distinguishing characteristic for two of Bridgeway.s funds: Bridgeway Micro-Cap Limited has an expense ratio of zero, while the recently reopened Bridgeway Aggressive Investors 1 has a negative 0.51 percent expense ratio . it pays investors $5.10 for every $1,000 they have invested in it."

Stingy Links: Government

The Cost of Clout
"People in Chicago tend to write off clout and political corruption in Chicago with a shrug, as a unique or even amusing local affectation, or just part of the character of purely political life of the city, but one that doesn.t fundamentally change its status as the .City That Works.. But nothing could be further from the truth. Chicago.s culture of clout is a key, perhaps the key, factor holding the city back economically."

Broke Town, U.S.A.
"In May 2008, Vallejo filed for bankruptcy. The filing drew little national attention most people were too busy watching banks fail to worry about cities. But while the banks have largely recovered, Vallejo is still in bankruptcy. The police force has shrunk from 153 officers to 92. Calls for any but the most serious crimes go unanswered. Residents who complain about prostitutes or vandals are told to fill out a form. Three of the city.s firehouses were closed. Last summer, a fire ravaged a house in one of the city.s better neighborhoods one of the firetrucks came from another town, 15 miles away. Is this America.s future?"

A path to escape debt
"Policymakers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers."

Flee the land of quota
"So, rightly or wrongly, unlike so many others, we didn.t base our family.s future on an industry spinning its wheels, plus having an investment-to-earnings ratio similar to where Nortel was when things went into the manure pit."

The expansion of regulators
"From an evolutionary perspective, a research regulator is a life form with three very interesting characteristics. First, its numbers explode in response to catastrophic events regardless of how rare that event is. Second, it has few natural predators, so its expansion goes unchecked. Third, regulators multiply like bacteria: they spawn more regulations which require more regulators, so there is a rapid increase in population over time. And these three characteristics derive, I submit, from a basic human tendency to focus on emotionally-engaging events while ignoring their probability."

Why Koch Industries Is Speaking Out
"Federal data indicate how urgently we need reform: The unfunded liabilities of Social Security, Medicare and Medicaid already exceed $106 trillion. That's well over $300,000 for every man, woman and child in America (and exceeds the combined value of every U.S. bank account, stock certificate, building and piece of personal or public property)."

Dire States
"'If something cannot go on forever, it will stop.' States with a permanent mismatch between taxes and spending will not be able to squeak by on budget gimmicks and backdoor borrowing forever either they'll find a way to bring their budgets into balance, or they'll run out of money and default on their obligations. The path they choose will make a big difference in the future of the states, and of their citizens - and in the life of the nation as a whole."

Government workers of the world unite!
"It would be a mistake to write off the public-sector unions. They are masters of diverting attention from strategic to tactical questions. Undoubtedly the unions will lose some of their privileges over the coming years the scale of the debt crisis makes this inevitable. But will governments have the courage to tackle the root causes of the problem (such as pensions) rather than dealing with secondary problems (such as wages)? And will they dare to tackle questions of power rather than just pay and perks? If they are to claim victory in the coming fight, they need not just to restore the public finances to health. They also need to breathe the spirit of innovation into Leviathan."

Ontario's search for a solar system
"In Germany, where the solar revolution began, critics are now questioning the huge size of the subsidies, estimated at $200,000 to $300,000 per job created."

A License to Shampoo
"Amid calls for shrinking government, lawmakers across the country are vowing to cut regulations that crimp economic growth. President Barack Obama recently said it's time to root out laws that 'are just plain dumb.' Tell that to the cat groomers, tattoo artists, tree trimmers and about a dozen other specialists across the country who are clamoring for more rules governing small businesses."

How state budgets are breaking
"In this fiery talk, Bill Gates says that state budgets are riddled with accounting tricks that disguise the true cost of health care and pensions and weighted with worsening deficits -- with the financing of education at the losing end."

State Budget Bunk
"When Arizona claimed to be selling its government buildings, it was engaging in a far more deceptive kind of borrowing.a gimmick known as .tax-exempt certificates of participation. and even more preposterous than the Daily Show correspondent realized. There was no new owner in this so-called sale. Rather, the state floated more than $1 billion of notes, promising to repay bondholders with the .rent. that it would pay to lease the buildings. Since rent, not tax revenues, technically would repay the certificates, Arizona could borrow the money, even though it exceeded the state.s constitutional debt limit. Yet Arizona will pay the rent on the buildings with tax revenues, so the impact on taxpayers is exactly the same as more borrowing would have been: in this case, $1.5 billion in future taxes."

When States Default
"Land values soared. States splurged on new programs. Then it all went bust, bringing down banks and state governments with them. This wasn't America in 2011, it was America in 1841, when a now-forgotten depression pushed eight states and a desolate territory called Florida into the unthinkable: They defaulted on debts."

The Lobster Underground
"Whether as a treat for the common man or an excuse to slum it for the well-to-do, the lobster roll was never terribly hip, edgy, or controversial. Until last year, when a Brooklyn artist and chef reinvented the lobster roll as delicious underground performance art. Using the moniker Dr. Claw, the thirtysomething chef began boiling batches of lobsters in his home kitchen and using the meat in rolls he sold.without the requisite licenses and Greenpoint, a Brooklyn neighborhood populated by Polish Americans and an ever-increasing numbers of hipsters. In order to skirt the law, Claw.whose real name is widely published but whom I chose not to identify here so that he could speak freely to me.devised a system that would be the envy of even the most enterprising drug dealers on The Wire. Claw.s customers first had to friend him on Facebook. Then, if they checked out, Claw would provide the potential customer with a phone number, exchange texts when the roll was ready, an! d hand off the goods in a plain brown bag."

The elephant in the room
"As can be seen, entitlements and interest will absorb all government spending by 2025. But when the CBO did the same sums a decade ago, says Ms Meeker, the critical point was reached in 2060. In short, the fiscal position is deteriorating rapidly. Where then is the appetite for cutting entitlements or increasing taxes sharply?"

In debt to Grandpa
"Sometimes the financial system can appear like one of those Escher drawings in which water flows simultaneously uphill and downhill. Governments rescued banks from the threat of failure in 2008, but banks are also big buyers of government much so that a sovereign default in Europe might cause a banking crisis. Who is supporting whom? The same question can be asked of pension funds."

Public Pension-Fund Squeeze
"Some public pension funds are finding themselves caught in a squeeze between actuaries worried about future benefit costs and local governments worried about immediate budgets strains. The tension was on display last week, when California pension fund Calpers decided to hold its expected annual return rate steady. The fund's actuary had recommended that the California Public Employees' Retirement System adopt a more-conservative long-term investment expectation nearly a dozen local officials attended a meeting last week to urge Calpers not to change the rate."

Illinois Plan for Pensions Questioned
"The Securities and Exchange Commission has said it has a special team devoted to investigating public pensions, and last year it brought its first case ever against a state, accusing New Jersey of securities fraud for claiming to have pension assets that did not really exist."

Stingy Links: Health

The Hot Spotters
"Brenner wasn.t all that interested in costs he was more interested in helping people who received bad health care. But in his experience the people with the highest medical costs.the people cycling in and out of the hospital.were usually the people receiving the worst care. .Emergency-room visits and hospital admissions should be considered failures of the health-care system until proven otherwise,. he told me.failures of prevention and of timely, effective care. If he could find the people whose use of medical care was highest, he figured, he could do something to help them. If he helped them, he would also be lowering their health-care costs. And, if the stats approach to crime was right, targeting those with the highest health-care costs would help lower the entire city.s health-care costs. His calculations revealed that just one per cent of the hundred thousand people who made use of Camden.s medical facilities accounted for thirty per cent of its costs. That.s only a t! housand people.about half the size of a typical family physician.s panel of patients."

Stingy Links: Indexing

Celebrating 75 Years Of Sloth
"Wharton professor Jeremy Siegel pointed out in his 2005 book, The Future for Investors, that the original S&P 500 stocks in 1950 outperformed the annually reconstituted index from 1950 through 2003. Interestingly, many of the largest stocks from the original S&P 500 Index are also in this fund's portfolio, including ATandT, ExxonMobil, and DuPont (DD). The fund's winning streak has continued since 2003, too, as it has beaten the S&P 500 Index by 2.5 and 1.5 percentage points annualized over the trailing five- and 10-year periods, respectively. The fund has benefited from the same dynamics that have powered the returns of the original S&P 500 constituents. In fact, the fund has returned an annualized 11.1% since 1970 (which is as far back as our database goes) versus 9% for the S&P 500. It has also beaten the 17 actively managed equity funds introduced in 1935 or earlier."

Stingy Links: Law

In Prison for Taking a Liar Loan
"It.s not just that Mr. Engle is the smallest of small fry that is bothersome about his prosecution. It is also the way the government went about building its case. Although Mr. Engle took out the two stated-income loans, as liar loans are more formally called, in late 2005 and early 2006, it wasn.t until three years later that his troubles began."

Is Law School a Losing Game?
"Based on the seething and regret you hear from some law school grads, more than a few wish that someone had been patronizing enough to say, .Oh no you don.t.. But it.s often hard to convince students about the potential downside of law school, says Kimber A. Russell, a 37-year-old graduate of DePaul, who writes the Shilling Me Softly blog. .This idea of exceptionalism . I don.t know if it.s a thing with millennials, or what,. she says, referring to the generation now in its 20s. .Even if you tell them the bottom has fallen out of the legal market, all convinced that none of the bad stuff will happen to them. It.s a serious, life-altering decision, going to law school, and dealing with a lot of nave students who have never had jobs, never paid real bills.."

Stingy Links: Management

The downfall
"Next time you go to an AGM, if you think there is cause for concern, ask the CEO during the QandA if management could leave the room for 15 minutes because you have a few questions to ask the independent directors concerning executive compensation, and point out that it would not be appropriate for management to be present for such a discussion. Don.t be afraid. The meeting is for you, the shareholder. If the CEO gets defensive, that might be taken as a bad sign. If the independent directors get defensive, that could be taken as a really bad sign, because it would suggest that, in their hearts, they don.t represent shareholders at all."

The president as micromanager
"While watching the speech, I tweeted that 'Obama sounds remarkably similar to the CEOs I used to listen to on earnings calls: the ones with mediocre EPS and a failing business model.' This wasn't a crack at Obama, or Democrats it was a reaction to the content. And after watching the responses, the impression lingers--indeed, maybe it's strengthened. The nation is facing some really difficult problems, particularly on the fiscal front. There's no longer any way to put it off pretty soon, the government is going to have to start making some very hard choices about taxes and spending. No matter what it chooses, that probably means lower economic growth, angry voters, and some real loss on the part of whoever's ox is gored."

Hedging Bankers Skirt Efforts to Overhaul Pay
"Intent on fixing a banking system that contributed heavily to the recent financial crisis, lawmakers and regulators pushed Wall Street to overhaul its pay practices. Big banks responded by shifting more compensation into stock, a move intended to align employees. interests more closely with those of investors and discourage excessive risk-taking. But it turns out that executives have a way to get around those best-laid plans. Using complex investment transactions, they can limit the downside on their holdings, or even profit, as other shareholders are suffering."

Stingy Links: Markets

Penny Stock Risk Premium Has Wrong Sign
"In case you didn't know, penny stocks are lousy investments high risk, negative return."

Land of the free lunch
"In short, America is the ultimate example of survivorship bias. Go back to 1900 and you might have picked Argentina or Russia as emerging nations with the ability to rival the US but each proved to be a huge disappointment."

Why Ten Million Dollar IPOs Matter
"Today only the largest of companies can go public, generally only those with over $500 million dollars of market capitalizations. In the 80s there were IPOs where the net proceeds were less than $900K."

Global Investment Returns 2011
"High dividend yield strategies are a focus of this year's report."

Rethinking Stocks for the Long Haul
"Put yourself in the shoes of an intrepid investor in 1900. Both the U.S. and Argentine equity markets looked extremely attractive. Yet the buy-and-hold investor would have pocketed a small fortune in U.S. equities and would have been essentially wiped out in Argentina over the course of the century. 'We don't know what the equity premium will be over the next 30 years,' says Pastor. 'And that uncertainty compounds with time.'"

A small hedge fund manager.s lament
"Running a small hedge fund, I would usually want to buy small caps on which I had done superior analysis. Alas, when I look at small caps - even medium caps I keep finding expensive, dodgy and well promoted stocks. Small caps are a land of shorts. The good stuff - and then the less good stuff left behind - has been picked over by numerous PE shops."

It.s When You Start And Finish
"But historical averages can vary widely depending on their starting and ending points. For example, averages that start before the 1929 crash are substantially different from those that start after it, and Mr. Easterling felt that choosing a single date was arbitrary. In response, he created the chart above, which shows annualized returns based on thousands of possible combinations of market entry and exit."

Stingy Links: Real Estate

A Red Flag On Reverse Mortgages
"It is the saddest of paradoxes: a government-backed financial maneuver intended to free up extra money for struggling older people turns out to have left some widows and widowers on the brink of foreclosure."

Home Prices Since 1890
"Are you one of those people who still thinks buying a home is a good investment? Perhaps some historical perspective will help. VisualizingEconomics provides a fascinating chart showing how nominal and real home prices have changed since 1890"

Stingy Links: Stocks

Worthless Stocks from China
"Bird's involvement would evolve from irritation that a company could get away with making a claim that so obviously defies basic business logic to the conviction that many pieces of the Chinese miracle that trade in the U.S. are, in his words, 'flat-ass' frauds. And what started as a retiree looking into a company has turned into a dispute that has drawn in other shorts, the Securities and Exchange Commission, auditors, and, according to recent reports, the U.S. House Committee on Financial Services. It has also revealed significant flaws in U.S. markets and how they are regulated. Although the stocks trade on U.S. exchanges, and thus project a sense of having to play by American rules, the assets and the principals of many of the companies reside in China. The companies operate on their terms, leaving injured parties and the SEC powerless. Bird says the carnage is just beginning. 'The whole thing has no place to go but to blow up,' he says. 'That's a rational position for ! an investor to start with, that every one of these Chinese reverse mergers is a fraud.'"

Don't enter the dragon
"Yet, because the railways offered.and sometimes delivered.the prospect of enormous wealth, the money kept flowing. Today, the same is true. China.s boom is real enough, and so it.s possible for investors in small Chinese stocks to believe that heeding Deng Xiaoping.s famous admonition .To get rich is glorious.. Unfortunately, many of them are just proving the truth of another famous adage: .There.s a sucker born every minute.. "

Sometimes a Great Notion
"One common thought in the equity world has been that a rotation of investor dollars toward shares of 'high-quality' companies should be imminent. This is a sane and sober idea, and one that generally hasn't worked in the past couple of years, when markets have been lifted by improving credit conditions, a snap-back in corporate profits and surging risk appetites. These drivers of market action almost always favor smaller, more volatile, more cyclical and less well-capitalized stocks, which have led this bull market."

The Groupon Bubble
"The paper reports that Groupon, which turned down $6 billion from Google last month, is in talks with Wall Street for an IPO that Wall Street is pitching to investors valuing the company at between $15 billion and $20 billion. The NYT says the two-year-old Groupon .is pushing ahead with plans for its initial public offering,. and I.m sure it is. I.d be pushing to cash in too before this bubble pops."

Groupon no bargain at even half the price
"Let.s look at a couple of pro-Groupon arguments designed to counter this whole barrier-to-entry argument. One is that Groupon has .first-mover advantage,. which is said to be exceptionally important in the tech space. I was going to use my Netscape browser to access the Excite search engine to research this concept more, then share what I found on Friendster, but decided to move on to the next point instead."

Stingy Links: Taxes

Why Investors Can't Get More Cash
"Earlier this month, Microsoft borrowed $2.25 billion in unsecured debt. What in the world possesses a company with $40 billion in cash and short-term securities to go out and borrow money? Rock-bottom interest rates are one reason. But the bizarre, byzantine U.S. tax code seems to be another."

A Brief Visual History of U.S. Taxes
"Tax reform might be The Issue of 2011. Or, like most years, it might linger on the sidelines of the national debate, but never press its way into the limelight. Either way, the Senate Finance Committee is hearing the case for tax reform today -- and who better to hear from first than the head of the Joint Committee on Taxation, Congress' official oracle and arbiter of tax policy. You can download the full testimony here, but I wanted to pass along four easy charts from the presentation that explain some major developments in the tax code over the last 40 years. I don't want to say too much, as these charts speak for themselves."

Stingy Links: Thrift

Why a Budget Is Like a Diet
"As a species, humans are notoriously poor at following through with their plans. Sticking to a budget . a dirty word even among many financial planners, who prefer the more euphemistic 'spending plan' . feels too much like dieting. And we often fail at both for the same reasons: too much focus on the restrictions, not enough on fun. So it's not surprising when people end up bingeing later, more than making up for dollars not spent or calories not consumed."

A continuing disgrace
"However, what is disgraceful is that savers cannot hedge this inflation risk. The government stopped the sale of index-linked national savings certificates last year. This was not because the government didn't need the money the budget deficit is still 150 billion. It can only be viewed as a deliberate attempt to punish savers by denying them the chance of a positive real return. And slamming savers is not in the country's long-term interest."

A madcap quest for .free.
"As soon as Kathy Spencer walked into the Rite Aid in Haverhill, early one recent Sunday morning, she knew something was up: All the carts were gone. At that hour, she was accustomed to having the store to herself, quietly piling hundreds of dollars worth of goods in her cart, quietly working the system, quietly walking out the door without having to pay for any of it. Instead, the store was .a madhouse full of crazy women fighting over toilet paper,.. she said. She knew exactly who was to blame: she was."

Stingy Links: Value Investing

Peter Cundill's last interview
"Reporter David Berman spoke with the legendary investor, who passed away this week, for the February issue of Report on Business magazine. Here is Mr. Cundill's last interview."

Why this value investor holds cash
"The Canadian stock market is more vulnerable to a major pullback than its U.S. counterpart, warns one of Canada.s more successful money managers of the past decade. .We think that valuations in Canada, in particular, are at a very dangerous level,. said Vito Maida, founder of Toronto-based investment firm Patient Capital Management Inc. .Equities in Canada have, I think, gone to levels that are not attractive today, and could be in for a serious correction.."

Follow the Cash
"'A company can transfer that free cash flow to shareholders even without sales growth. That's our theology!' jokes the former seminarian. Double-digit cash-flow yields look very attractive compared with 10-year Treasuries yielding roughly 3.5%."

Tim McElvaine talk
"A rare talk from one of the nicest value investors in Canada."

Hedge Fund Analyst Checklist
"Anyways, I was cleaning out some old files and came across these notes from the class and thought I would repost them as they are a wonderful guide for a young analyst on how to think about investing in stocks."

Stingy Links: World

Lies, flame-grilled lies and statistics
"Burgernomics does support claims that Argentina.s government is cooking the books. The gap between its average annual rate of burger inflation (19%) and its official rate (10%) is far bigger than in any other country. Its government deserves a good grilling."

When Irish Eyes Are Crying
"First Iceland. Then Greece. Now Ireland, which headed for bankruptcy with its own mysterious logic. In 2000, suddenly among the richest people in Europe, the Irish decided to buy their country.from one another. After which their banks and government really screwed them. So where.s the rage?"

China is a bubble close to bursting
"The Mayfair hedge fund manager said he started work when he saw some news reports on China.s .ghost towns.. Last year Al Jazeera, the Middle Eastern television channel, aired a short report from Ordos Shi, a city in inner Mongolia built for one million people that is almost entirely empty. The report reveals empty streets, housing estates, shops and restaurants. The locals prefer the old town of Ordos and tell the cameras there.s no need to move to the new city. According to Corriente, China has consumed just 65pc of the cement it has produced in five years, after exports. The country is outputting more steel than the world.s next seven largest producers combined. It has 200m tons of excess capacity. In property, Corriente said it had found an excess of 3.3bn square meters of floor space in China . yet 200m square meters of new space is being constructed each year. Despite the vast population, the property is generally out of the price range for most. House prices are aroun! d 22 times disposable income in Beijing."

Made in America
"For US firms, the decision to manufacture overseas has long seemed a no-brainer. Labor costs in China and other developing nations have been so cheap that as recently as two or three years ago, anyone who refused to offshore was viewed as a dinosaur, certain to go extinct as bolder companies built the future in Asia. But stamping out products in Guangdong Province is no longer the bargain it once was, and US manufacturing is no longer as expensive. As the labor equation has balanced out, companies.particularly the small to medium-size businesses that make up the innovative guts of America.s technology industry.are taking a long, hard look at the downsides of extending their supply chains to the other side of the planet."

The Canada bubble
"Eleven years into the bull market in commodities, it.s easy to forget just how much Canada has riding on strong resource prices. For one thing, the boom has boosted our paycheques. The rise in commodity prices was responsible for two-thirds of the 15 per cent gain in disposable income experienced in the last decade, Bank of Canada governor Mark Carney said in a 2008 speech. While Canada.s soaring loonie has hurt manufacturers, it.s also improved living standards by keeping inflation low. And rising commodity prices have also helped keep unemployment muted. As bad as Canadians think the recent recession was, in terms of the job market it was the mildest downturn of the last 30 years. In January, the Canadian economy added nearly double the number of jobs created in the entire U.S. economy, which is 10 times larger."

Is ethanol to blame for global unrest
"The U.S. produces more corn than any other country. The total value of its crop in 2009 was about $50 billion, and that was before the recent price surge. It was also more than double the combined value of all the crops produced in Canada. Until a few years ago, corn was used almost entirely for animal feed, booze, processed foods for humans.such as corn flakes and high-fructose corn syrup.and backyard corn roasts. Today, 40% of the U.S. crop is devoted to ethanol, up from 33% in 2008. A decade ago, the figure was just 7%."

The Myth of Japan's 'Lost Decades'
"There is clearly a contradiction here, and after studying the facts on the ground in Tokyo for decades I find it hard to avoid the conclusion that the story of Japan's stagnation is a media myth. Certainly anyone who visits Japan these days is struck by the obvious affluence even among average citizens. The cars on the roads, for instance, are generally much larger and better equipped than in the 1980s (indeed state of the art navigation devices, for instance, are more or less standard on many models). Overseas vacation travel has more than doubled since the 1980s. The Japanese boast the world's most advanced cell phones, and the biggest and best high-definition television screens. Japan's already long life expectancy has increased by nearly two years. Its Internet connections are some of the world's fastest -- something like ten times faster on average than American speeds. True, not all of Japan's indicators are equally impressive. The Tokyo stock market, for instance, ha! s never recovered from its 1990s slump. Neither has the real estate market. (In the latter case, however, there is a silver lining in a major boost to living standards, in that young home buyers now get far more space for their money. In any case the implosion since 1991 has merely restored some sanity to valuations that had previously become -- very temporarily -- outlandish)."

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