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The Stingy News Quarterly (Q2/2004)

New @ StingyInvestor

A brief history of high yield stocks
Stocks that sport a healthy dividend yield are often derisively called 'widow and orphan' stocks to reflect their stable nature. As it turns out, widows and orphans have been onto a good thing.

A Dynamic Duo
Two remarkable value gurus provide free advice in their regular reports. Naturally, these reports should be on every investor's reading list.

Stingy Links

Stingy Links: Academia

Surprise! Higher Dividends=Higher Earnings Growth
"We investigate whether dividend policy, as observed in the payout ratio of the U.S. equity market portfolio, forecasts future aggregate earnings growth. The historical evidence strongly suggests that expected future earnings growth is fastest when current payout ratios are high and slowest when payout ratios are low. This relationship is not subsumed by other factors, such as simple mean reversion in earnings. Our evidence thus contradicts the views of many who believe that substantial reinvestment of retained earnings will fuel faster future earnings growth. Rather, it is consistent with anecdotal tales about managers signaling their earnings expectations through dividends or engaging, at times, in inefficient empire building. Our findings offer a challenge to market observers who see the low dividend payouts of recent times as a sign of strong future earnings to come."

Canadian GIC RATs
"More precisely, any Canadian investor whose marginal tax rate exceeded 35.5% earned, on average, a negative RAT return from 1-year GICs which were continuously rolled over during the last 30 years. And, for longer maturity 3-year and 5-year GICs typically greater -- the breakeven tax rate was only slightly higher. We conclude by arguing that for many Canadians, the strategy of rolling over so-called riskfree GICs outside of a tax shelter is a sure way to destroy long-term wealth."

Stingy Links: Accounting

The true north strong and fleeced
"Canadian investors are easy to fleece. Many believe that securities commissions, auditors, corporate and securities laws, and stock exchange regulations provide a much higher level of protection than is actually the case."

Stingy Links: Bogle

Creating sound governance
"Yet corporate democracy is currently conspicuous by its absence from the governance scene. As the legendary Benjamin Graham put it, "in legal rights and machinery, the stockholders as a class are king . . . they can hire and fire managements and bend them completely to their will. But the assertion of their rights in practice is almost a complete washout. Unless prodded violently into action, they show neither intelligence nor alertness. They vote in sheep-like fashion for whatever management recommends, no matter how poor the record of accomplishment may be. . . The leading investment funds could contribute mightily to the improvement of corporate managements . . . but have shied away . . . missing a great opportunity for rendering service to the investing public." And so it remains today."

Stingy Links: Bonds

Bonds vs. psychics
"Bond transactions don't have to be reported publicly, ever. And the fact that the dealer's profit is embedded in the price makes it impossible to figure out if you got a good deal. So I've concluded that the market for psychic advice is more efficient than the one for savings products."

Hot for TIPS? Use caution
"Treasury inflation-protected securities are popular with investors. But rising interest rates could limit their returns."

Stingy Links: Buffett

Notes from the 2004 Berkshire Hathaway meeting
Whitney Tilson's lengthy notes [.DOC File]

Buffett's wit and wisdom
"Berkshire Hathaway's annual meeting is a great place to go for investing wit and wisdom from Warren Buffett and Charlie Munger. Whitney Tilson was there this year, and in this column he shares some of the duo's choice comments on how to become a better investor, the irrationality of financial markets, stock options, executive compensation, Google's owner's manual, and more."

What Warren Buffett wants you to know
"How do you learn from a master? Start by listening to what he has to say."

Warren Buffett dishes out advice
"To watch Warren Buffett and Charlie Munger perform on stage is like witnessing one of the great double acts."

Berkshire Hathaway millionaires gather
"This year, as in the past, several business school professors brought their entire classes to the meeting. The scene was strikingly different when Mr. Scargle attended his first meeting in 1979, held in the cafeteria of National Indemnity, Berkshire's first insurance company. About 25 people attended, Mr. Scargle said, most of them employees and relatives of Mr. Buffett."

Folksy fun at Buffett meeting
"The excitement ran high this morning as more than 16,000 Berkshire Hathaway shareholders converged on the Qwest Center in Omaha for Warren Buffett's annual meeting."

Warren Buffett, rock star
"Leave it to Warren Buffett to figure out how to combine America's two greatest passions about money: making it and spending it. Who but Buffett would have the nerve to kick off his annual shareholders' meeting in a jewelry store?"

Buffett on the block
"So if you can scrape together the minimum bid of $25,000, you might have a shot a dining with the Oracle of Omaha."

Latest Buffett book distills lessons
" The book is written by Robert P. Miles, an investment adviser and lecturer, and published by John Wiley & Sons Inc. I would rank it as tied for third among the Buffett books I've read. First is Roger Lowenstein's 'Buffett: The Making of an American Capitalist.' Second is Andy Kilpatrick's 'Of Permanent Value, The Story of Warren Buffett.' Tied for third is Janet Lowe's 'Warren Buffett Speaks.'"

Buffett continues to sell
"In addition, although Berkshire's cash position increased to a staggering $41 billion in the latest quarter, the company did not make any additions to its equity portfolio."

A few words to the wise
"Buffett's annual letter is a riot to read. He offers up the usual blend of self-deprecating humour and penetrating insights, and, like always, admits his failings with a candour that would make most of us blush. This year, Buffett pointed out that he made "a big mistake" in not selling several of his firm's larger stock investments four years ago, when their prices were far higher relative to their intrinsic value. That said, Buffett is rarely wrong when it comes to investing. Berkshire shares have returned 22.2% per annum since 1965, double the performance of the S&P 500."

Buffett's Coke role questioned
"The problem, according to ISS is that companies controlled by Mr Buffett's Berkshire Hathaway investment firm buys millions of dollars of products from Coca-Cola every year."

Warren and me
"Never did I imagine, when I was a little girl growing up in an Illinois village encircled by farms, that I would ever sit in the same space with America's second-richest man and his billionaire buddy. Yet, at the recent Berkshire Hathaway annual meeting in the Omaha Convention center, Chairman Warren Buffett and Vice Chairman Charlie Munger carried on what felt like a personal conversation with me -- amid 19,499 others."

Belly up to the Buffett buffet
"But if you're hoping to apply the Wizard of Omaha's strategies, Canada's markets provide slim pickings"

Warren Buffett and his 20 punches
"At the Berkshire Hathaway annual meeting this past week, Charlie Munger dismissed the idea that highly liquid capital markets have been a net benefit to capitalism. This assertion made Bill Mann think back to Warren Buffett's old challenge to investors: Make each transaction as if you only get to invest in 20 companies in your lifetime. Would your portfolio look different?"

Stingy Links: Crime

Suits on the lam
"Corporate chiefs wanted by the law can run, but can they hide?"

Thieves don't quit
"The G-men were all over Terry Dowdell. But their feverish efforts didn't stop him from running a $120 million Ponzi scheme."

Stingy Links: Derivatives

Derivatives explosion
"Warren Buffett, the American who has been one of the world's most successful investors for the past 40 years, warned shareholders in his Berkshire Hathaway company last year that derivatives were "time-bombs both for the parties that deal in them and for the economic system". "Large amounts of risk, particularly credit risk, have been concentrated in the hands of relatively few derivative dealers who, in addition, trade extensively with one another. The troubles of one could quickly affect the others," he wrote."

Stingy Links: Dreman

Why dividends matter
"Yes, anyone can quibble with these findings, but the bottom line is that both our study and S&P's show conclusively that the supposedly safe stocks delegated for widows and orphans outperform by a country mile more risky stocks bought for capital appreciation."

Inflation investing
"The stock market is a haven that can withstand serious surges in the CPI. Straight bonds cannot stand up to that force."

1973 Revisited?
"Now a number of prominent strategists say the sharp spike in oil prices makes today look eerily like 1973. Are they right?"

Why investors get it wrong
"Investors, even professionals, fall prey to important logical fallacies and psychological failings . . . the bottom line is that these powerful forces lead most people to make the same mistakes time and again"

Is there virtue in vice?
"For instance, David Dreman, the veteran value investor, says that "tobacco stocks have been a core holding of ours for several years." He added, in a letter to shareholders of his Heritage Value Equity fund (HSTVX), "We believe tobacco litigation will be significantly lower in the future, resulting in these stocks gaining much higher P/E ratios. . . . Our sum-of-the-parts valuation of Altria implies an expected return of 50 percent or more from current prices.""

Stingy Links: Economy

Our tortoise, their hare
"While the United States is enjoying a productivity miracle, Canada sits still"

Who says inflation is down?
"The U.S. is supposed to be in a low-inflation environment, but my experience doesn't reflect that. Gas prices are high, home prices are out of sight, medical expenses are rising...I just don't see that inflation is all that low. What gives?"

Profits do not cause high prices
"To put it another way, the current rise of profitability in the oil industry is temporary. At the same time, the U.S. Government, through environmental and tax policies, is doing all it can to make gasoline artificially scarce. As noted in a previous article, it has been about 30 years since an oil refinery was built in this country. Furthermore, environmental laws both encourage the importation of gasoline into the USA, but also discourage foreign producers from making the products that must comply with a crazy quilt of air quality regulations. That is nothing less than a prescription for very limited supplies of gas, with substantially higher prices becoming the norm."

Why Las Vegas is a geezer magnet
"Nevada is still young. Only 11.7% of the population is 65 and over. That's under the national average of 12.7%. Florida tops the list at 18.1%. Arizona clocks in at 13.2%. Are all the new arrivals here young? Some, yes. But Nevada is a geezer magnet. By definition, Las Vegas is as well, since it accounts for three-quarters of the state's population. How big a geezer magnet? The biggest. Nevada topped the list for states with net migration of people 65 and over from 1995 to 2000. Arizona placed second. Florida third."

CPI doesn't reflect the world we live in
"In science fiction, the device of the parallel universe is often used to explore fanciful ideas about alternative realities. Something similar seems to be going on these days with Statistics Canada's consumer price index, which is the definitive inflation measure in this country. The CPI is widely quoted by the media, an essential tool for economists, a key factor in establishing annual pay increases and an integral element of sensible financial planning. But these days, the CPI reflects a world that doesn't look much like the one many of us live in."

The economics of outsourcing
"For all of the popularity of their arguments at this time ssical fallacy of goods deriving their value from the costs of production. Should they succeed in forcing their views into law, we can be sure that the ultimate outcome will that which befalls any society that gives into protectionism: a lower standard of living and, in the end, even more joblessness."

Working . . . and poor
"Women, especially single ones, have the most difficulty. Often, their wages barely cover the cost of child care. Low-income women's pay is actually up since 1973, but they still average just $7.94 an hour, much less than their male counterparts. That's one reason the U.S. has the highest child-poverty rate in the industrialized world. "Our low-income mothers work twice as hard as those in any other industrial country -- but their kids are the worst off," says Syracuse University public policy professor Timothy M. Smeeding."

Oil: Still at its mercy
"The world economy remains vulnerable to the price of oil"

Arnold's big chance
"The result is a miracle of private enterprise. In 2002, some 35m Californians generated a gross state product of $1.4 trillion, making theirs the sixth-largest economy in the world. If Los Angeles County, home to 10m people, were a separate country, it would be the 16th-biggest economy in the world, just above Russia (see chart 1). And it is not just a question of size, but of influence."

Stingy Links: Fun

Buffett buys Krispy Kreme
"Asked by a passerby what prompted him to make the purchase, Buffett winked and smiled wryly. "A man cannot live on DQ Blizzards alone." Mmmmmm.... donuts."

Stingy Links: Government

In the shadows
"The informal economy is neither small nor benign"

Real debate during the campaign? Don't hold your breath
"The problem is that policy debate requires a willingness to engage in honest discussion. How exactly might different policies work? How they might interact? Would some reinforce others, or weaken them? What are their weaknesses as well as their strengths? Smart politicians know these are legitimate questions. When in power, they ask such questions of themselves and their officials. But once a campaign begins, politicians must always present themselves to the public as promoters of policies that are 100-per-cent workable, wise and wonderful for all, even though they know that all policies involve difficult tradeoffs. Hard choices are not to be shared with the public."

We've heard this song before
"As we enter a new century--correct that, let's make it a millennium, for hyperbole--politicians of all stripes are on the bandwagon that Canadians need to prepare themselves for the changing world. Certainly, the agenda of globalization and the aging society is shaping a new world order. Canada must be competitive and productive. Despite the rhetoric, governments haven't understood the message themselves yet."

Pension pain
"Convincing young workers to support a population of retirees steadily growing proportionally as well as numerically is a tough political sell. Labor Department data for defined-benefit pension plans show that the ratio of contributors to recipients, which had exceeded 3 to 1 in 1980, now stands even at 1 to 1, and will dip even lower over the next several years."

Snowdrifts of debt
"Debt is an institution in American government, long established and widespread. A cursory glance at debt statistics will quickly show that there has been a lull in the truth about debt, namely, that it cannot grow indefinitely at the rate at which it has been growingat least not without a serious revaluation of the dollar, something we are already in the midst of seeing."

Stingy Links: Grant

The used-car indicator
"An example of how badly the rate of inflation is gauged: When the government says car prices are weak, it is doing no more than reporting the effect of its own cheap money."

Market for speculators
"They may be right, and they may be wrong, but in either case they are guessing. Twenty years ago the bulls didn't have to dream up forecasts. They only had to compare the reward for being right (immense) with the cost of being wrong (affordable). Today it's the other way around. The reward for being right is modest; the cost of being wrong, potentially ruinous."

Stingy Links: Gross

Anything but rreasuries - and JGBs
"This month's discussion will center on the durational position of a "reflationary" bond portfolio that might be characterized as thrice damned damned if you shorten, damned if you lengthen, damned if you don't do a thing."

Gross exaggeration?
"When somebody as smart as Bill Gross warns of trouble in the economy, it's usually worth a listen."

Stingy Links: Growth Investing

The rewards of a long view
"Phil Fisher began managing money in 1931. He was teaching at Stanford University 70 years later. In between, Fisher formulated a clear and sensible investing strategy, wrote one of the best investment books of all time, "Common Stocks and Uncommon Profits," and made a good deal of money for himself and his clients."

Think quality over cost
"When Philip Fisher died recently at the age of 96, it suddenly struck me that being a wise and patient stock-market guru may be the best route to a long life."

Stingy Links: Law

Case expands type of lies prosecutors will pursue
"Until last month, lying to your own company's lawyers was not a crime. Now it is."

Stingy Links: Management

Readers rage over worst CEOs
"Fetch the tar and feathers! Nearly a thousand of you wrote with tales of abuse, greed and incompetence in the glass offices. See which execs fared worst."

Link found between candor, share prices
"Honesty is the best policy, if a company's leadership wants a better stock price. That's the conclusion of the Rittenhouse Rankings survey, which claims that there's a positive correlation between candid communication and superior share-price performance. Of the sample 100 Fortune 500 companies surveyed, the top-ranked ones boosted their share prices over a two-year period by 21.5 percent, while bottom-ranked companies saw only a 7.3 percent increase."

But can you teach it?
"But business schools face more competition, and more criticism of the quality of their work, than they have ever done before. In time, that may lead to fundamental changes in the structure of the business-school market, and perhaps in what schools teach and how they teach it."

Corporate America to shareholders: Butt out!
"At annual meeting after annual meeting, corporate boards and CEOs refuse to act on demands from the people they supposedly work for. But there are some signs the pressure is getting to them."

CEO pay up again
"The rebound in U.S. corporate profits and return of the stock-market bull last year stoked a 16 percent raise in 2003 cash pay for America's top executives, most of the gain coming from a 20 percent rise in CEO bonuses."

CEO pay rose 27% in 2003
"The rise in pay 'shows that calls for pay restraint are being ignored. The increase for S&P 500 CEOs in 2003, is nearly three times the rise seen for 2002, when total compensation rose by only 11.48%,' the Corporate Library said."

Altering of worker time cards
"Experts on compensation say that the illegal doctoring of hourly employees' time records is far more prevalent than most Americans believe. The practice, commonly called shaving time, is easily done and hard to detect a simple matter of computer keystrokes and has spurred a growing number of lawsuits and settlements against a wide range of businesses."

Coalition of the greedy
"Three cheers for the Financial Accounting Standards Board, which recently released its proposal to require companies to expense stock options, and three jeers for the companies -- I call them the Coalition of the Greedy -- that continue to fight this common-sense change."

The nation's worst CEOs
"Execs grab headlines for soaring profits or sordid crimes, but rarely for wretched performance. Here are three who've run great companies into the ground."

A tale of two CEOs
"Few things annoy shareholders more than seeing executives, in whose companies they have invested their hard-earned dollars, gorge themselves at the corporate dinner table as the stocks languish. While "pay for performance" is the mantra of most CEOs, for the most part the reality is that their pay continues to rise, despite performance. As investment guru Warren Buffett complained in last year's letter to his investors: "The acid test for reform will be CEO compensation...CEOs have often amassed riches while their shareholders have experienced disasters.""

AT&T Wireless self-destructs
"The story of a botched CRM upgrade that cost the telco thousands of new customers and an estimated $100 million in lost revenue. Hard lessons learned."

Big paydays for bad CEOs
"It's not that they make huge paychecks. It's that they make huge paychecks by chiseling their workers, their customers and their investors."

Stingy Links: Markets

Please give me a housing bubble
"Today, we begin a series on housing. I have found the research to be fascinating and often surprising and contradictory. I trust you will find it useful, and it is almost guaranteed to be debated, as I will depart from the Conventional Wisdom of both housing bull and bears."

Think you're a smart investor?
"In the late 1970s, academics researching the psychology of decision making often turned to finance types. After all, the record of their decision making--historical market data--was widely available and neatly sorted. Eventually, that early work came full circle as it got picked up by finance professors who created a new field of study, behavioural finance, which explores the impact of human psychology on financial decision making. Ostensibly, markets are rational creatures, where prices track the fundamentals of an asset. But behavioural finance soundly overturned that belief by documenting all the ways in which humans fail to follow a logical course."

Warnings to be ignored
"American banks continue to make vast profits. Will the good times end when the Fed raises interest rates?"

Empty mansions
"The Cromer family's mistakes are elementary. You don't finance a long term asset, like a house, with 5 year money. You don't finance an asset with a fixed money yield with floating rate debt. You don't enter into commitments that leave you substantially under water on an operating basis month by month, with the expectation that an ever rising real estate market will bail you out. Investors who make these mistakes on a single property, or on a portfolio of properties that is modest in terms of their overall assets, may survive the downturn by investing more cash, derived from other areas. Investors like the Cromers, who make these mistakes on such a large scale in relation to their finances are bound eventually to find out the hard way what sound financing means."

There goes the neighborhood
"Only in about 20 metro areas, mostly located in eight states, does the relationship of home price to income defy logic. The bad news is that those areas contain roughly half the housing wealth of the country. In California, the price of a home stands at 8.3 times the annual family income of its occupants; in Massachusetts, the ratio is 5.9:1; in Hawaii, a stunning, 10.1:1. To some extent, there are sound and basic economic reasons for this anomaly: supply and demand. Salaries in these areas have been going up faster than in the nation as a whole. The other is supply: These metro areas are "built out," with zoning ordinances that limit the ability of developers to add new homes. But at some point, incomes simply can't sustain the prices. That point has now been reached. In California, a middle-class family with two earners each making $50,000 a year now owns, on average, an $830,000 home. In the late 80s, the last time these eight states saw price-to-income ratios this high, the real estate market collapsed."

Dow Jones index gets new blood
"AIG, Pfizer and Verizon will replace AT&T, Eastman Kodak and International Paper in the famous Dow 30, investors learned today. Here's why."

Detour on easy street
"Random-walk theory is based on a highly sophisticated series of mathematical, statistical, and historical studies, all with a simple conclusion: "No one can consistently beat any investment market if the market is large and allows open entry." This conclusion comforts academic economists, who find in it solace for the fact that they, despite their Ph.D.'s, cannot beat the stock market or the bond market. The unstated corollary of random walk theory is this: "Warren Buffett is a myth.""

Rules still shield insiders who bail out
"Sales by higher-ups are a reliable indicator of trouble ahead. But many execs are pocketing profits without tipping off investors -- and the SEC doesn't care."

Investors finally may be waking up
"The harsh reality of how overvalued stocks really are -- and how the Fed's overvalued reputation has led them astray -- is setting in at last."

Waterloo, Waterloo
"Why is volatility so low in financial markets?"

The naked truth
"Few controversies produce as much bile as that surrounding manipulative short-selling. In angry (and sometimes exaggerated) rants to securities regulators, irate investors have labelled it "thievery" and even "the largest fraud ever perpetrated in world history." Its practitioners have been dubbed "slimeballs" and "rapists." Years of strenuous protest have encouraged U.S. regulators to introduce new rules curbing the practice--the first of which was introduced this month."

Be braced for a bust as the bubble bursts
"The least desirable asset in the world is US dollar cash. The investment community can take everything in stride - even a 70 per cent decline in Nasdaq stocks. But interest rates, as low as they are now, compel people to speculate on everything from commodities to homes and bonds to equities."

Curve balls
"A year ago, the Federal Reserve was worried about the spectre of deflation. Now it is concerned about the opposite"

The echoes of history
"As the Fed prepares to raise interest rates, the financial markets are bracing themselves for a reversal of fortune every bit as painful as the one they suffered ten years ago"

Why all market bubbles end with a bang
"Who'll pay the piper for three years of easy money? We're about to find out, because the debt bubble has grown ominously large."

A rite of spring
"In the spring of each leap year, we have a predictableif tiresomedog-and-pony show: the candidates for President of the United States denounce the newest gasoline price increases. We lived through this political purgatory four years ago, and it looks as though we will experience it again."

Stingy Links: Munger

Charlie Munger in rare form
"Charlie Munger, who runs Wesco Financial, is the famed right-hand man of Warren Buffett. He is also a master investor in his own right. At Wesco's annual meeting on Wednesday, he shared his wisdom on keys to investment success, the importance of moral behavior, the outlook for Berkshire, and more."

Notes from Wesco's 2004 annual meeting
"Whitney Tilson's lengthy notes [.DOC File]"

Munger goes mental
"Charlie Munger, the famed right-hand man of Warren Buffett, gave a brilliant speech last October at the University of California, Santa Barbara. With Munger's permission, Whitney Tilson is publishing a transcript for the first time -- a Motley Fool exclusive! -- and shares the highlights in this column."

Academic economics
"Mr. Munger's achievements are very great. They are too numerous for me to detail here. He attended Caltech and Harvard, and in addition to being Vice Chair at Berkshire Hathaway, he's the chair of a major legal newspaper corporation and also Wesco Financial Corporation. He's the President of the Alfred C. Munger Foundation, a philanthropic foundation named after his father. He's on the Forbes 400 list - and what makes that achievement remarkable is that he got there the old fashioned way: He earned it."

Stingy Links: Stocks

Dump dual-class share structures
"The SHARE report, called "Second-Class Investors," recommends that the TSX prohibit new dual-class share structures and introduce a "sunset" clause for companies with the structure, giving them three years to end the practice. The report also suggests limiting the voting strength of multiple shares to a maximum of 51% of total outstanding votes and no more than 10 votes per share."

"A big brewing merger prompts a rethinking of shareholders' rights"

Super-duper shares yield super-duper pay
"Or maybe I should be thinking of him as a consultant, a very valuable and highly paid consultant whose hourly rate deserves to surpass almost any other professional in Europe. Let's see -- at eight hours a day, seven days a week, 52 weeks a year, what would Mr. Stronach's hourly rate come to? Hmm, I get over $13,000 an hour. And I thought my lawyer was expensive!"

Presto stays its course
"Presto's an interesting story. In the 1960s and 1970s, both Benjamin Graham and Warren Buffett heaped praise on the company and its management, with Buffett calling Melvin Cohen one of his "home run hitters" at a time when Buffett's partnership held Presto stock."

Take lid off inside sales before IPOs
"But one loophole still remains, and it is being used by, a software company that will soon go public. One indicator that investors look at in initial public offerings is whether the insiders are cashing out. The fact they are selling their shares does not prove the offering is overpriced, but it is not a good sign."

How big can it grow?
"The world's biggest retailer is defying its critics by continuing to grow vigorously"

Analyzing the "Sins" of Wal-Mart
"At a California conference, a diverse crowd, from academics to union workers, explored the growing backlash against the giant"

Microsoft Starts to draw 'value investors'
"Microsoft Corp., whose earnings growth and surging share price in the 1990s made Chairman Bill Gates the richest man in the world, is attracting the attention of investors who favor bargain-priced stocks."

Stingy Links: Taxes

Most companies paid no taxes during the boom
"With corporate tax receipts at 20-year low, the GAO takes a look through the books and finds 94% of all U.S. companies paid less than 5% -- and 61% paid nothing at all."

Stingy Links: Tilson

Investors as pecking pigeons
"Whitney Tilson shares some lessons from his trip to Italy, plus two studies that provide insight into investor irrationality."

Stingy Links: Value Investing

Why legendary investors are drowning in cash
"By the same token, when several of the very best managers all say they are having an extremely difficult time finding anything to buy at prices that make sense -- not just in the U.S. stock market, but in the bond arena and foreign markets, too -- it's worth paying attention. In fact, it's remarkable how many top-flight managers currently have more than 20% of assets in cash and say they find compelling opportunities scarce to nonexistent."

In defence of dividends
"Share buybacks may be easily sold to analysts, but do shareholders really win when money is returned to them as BP is proposing to do?"

Insights from the monsters of stock
"Whenever value investors get together to talk about stocks, the usual topics come up: margins of safety, intrinsic value, price/book, and economic moats. While those subjects were raised here as well, there were some new insights I gleaned from listening to the masters speak. Here are a few of them."

Y'all in the family
"I'm always looking to buy a toonie for a loonie."

Russell gains are no small thing
"Towle, a deep-value investor who usually does most of his prospecting among small-caps, says he can't find anything to buy."

Stingy Links: Whitman

Whitman puts $63 Million in his Third Avenue Fund
"Whitman, who has written books including 'The Aggressive Conservative Investor' and has taught at Yale University's business school for the past 32 years, said he aims to buy stocks that he considers both safe and inexpensive. 'I can't think of anything more comfortable than buying common stocks of holding companies that are trading below readily ascertainable net asset values,' he said. 'It is a lot easier than predicting earnings.'"

Stingy Links: World

Food for thought
"The world economy looks very different once countries' output is adjusted for differences in prices"

The bonds from Brazil
"Though prices subsequently recovered a bit, emerging debt probably has further to fall. The Fed's drip-feed of low interest rates and investors' ravenous appetite for risk enabled many emerging countries and companies in them (notably, Russian firms) to borrow remarkably cheaply in the capital markets, despite a multitude of deep-seated problems."

"Australia's housing bubble could be the first to burst. It won't be the last"

Eastward ho!
"Japanese consumer demand is picking up, wholesale prices are rising and the stockmarket is buoyant. Is the world's second-largest economy finally coming out of its deflationary spiral?"

3 big threats to China's economic miracle
"China won't remain an export superpower forever. Food and energy shortages and the growing influence of multinationals like Wal-Mart could change everything."

The march on Moscow
"Caveat emptor is a phrase that might have been specifically invented for investors in Russia"

The fallacies of shrimp protectionism
"Why is the U.S. shrimping industry in decline when U.S. shrimp consumption is on the rise? The reason, contend domestic shrimpers, is that foreign shrimp farms are dumping shrimp on the U.S. market."

Citadels of dead capital
"The American experience is very much like what is going on today in the Third World and the formerly communist countries: The official law has not been able to keep up with popular initiative, and government has lost control. Third Worlders are organized in modern-day claim clubs, and their governments have begun to give them preemption rights."

Institutions as the cause of growth
"Economic institutions encouraging economic growth emerge when political institutions allocate power to groups with interests in broad-based property rights enforcement, when they create effective constraints on power-holders, and when there are relatively few rents to be captured by power-holders."

Frugally Yours,
Norman Rothery
ISSN 1499-2787

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