Jason Zweig had a writeup over the weekend about dividends that covered a lot of ground including an interesting point of view from the CEO of Diamond Offshore (DO) who talked about the extent to which dividends reward shareholders (we've all heard that one before) as opposed to stock buybacks which he said rewards the people selling which is a different way to articulate it. There is of course some benefit to existing shareholders from stock buybacks but this particular CEO seems to really care about how shareholders are treated.
Dividends of course play a huge role in the long term success of a portfolio. There are various statistics floating around about how much of the total return of equities comes from dividends, the numbers are big but I have seen several numbers that vary widely so you can do your own digging here and pick the number and time frame you think makes sense.
As we have gone over many times before, dividends are not the top priority here versus protecting the bottom line number of the portfolio but dividends are still very high on the list of things we care about.
My thinking here is that adding an extra 100-200 basis points in dividends versus the benchmark means the rest of the portfolio may not have to work as hard (meaning not take on as much risk or volatility) but there comes a point where too much yield means more risk is being taken. That line in the sand is not something that someone else can define for you although in my opinion above 7-8% for the entire portfolio would be past the point of more risk and really I would not want to be at 5-6% for the entire portfolio. I have hard time getting to 4% while still maintaining what I think of as being a properly diversified portfolio. These days there are a lot of stocks with yields in the threes but not the fours. We have some with 5-6% yields but we also have some with little to no yield. A 4% yielding portfolio can be built, it would just not be as diversified as I would like.
In 2012 dividend stocks as measured by dividend ETFs lagged regular market cap weighted indexes. The iShares Dividend ETF (DVY) is up 4.95% on a price basis so far this year versus 11.58% for SPY. DVY out yields SPY by 154 basis points (according to Google Finance) which of course doesn't come close making up the difference.
I don't cite that example to make the case that dividend investing is bad but it is an interesting development because of how popular dividend investing has become. Related, I've been leaning toward the current stock market and economic cycles ending in 2013 or early 2014 as a function of normal cycle longevity. One market behavior that would support this as a leading indicator would be quality doing better. This usually means large cap outperforming small cap although the difference between SPY and IWM in 2012 has been negligible. It will be interesting to see whether this general idea will have relevance between large cap and dividend indexes. All of this might be saying that the cycle will not end in 2013; 2014 would be well within the realm of normal.
Obviously the current events in Washington have the potential to be the most important determinant of what happens in 2013.
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Wikinvest Wire
Monday, December 31, 2012
Sunday, December 30, 2012
Sunday Morning Coffee
Yesterday CBS had a couple of shows targeted to the 75 Anniversary of the NCAA Mens Basketball Tournament. One of the two shows consisted of a roundtable with some very successful coaches including Rick Pitino and Billy Donovan.
Pitino is a true titan of college coaching, he's taken three different teams to the final four (a total of six final four appearances) and won the title as coach of Kentucky in 1996. Donovan was a star on the Pitino coached Providence team that went to the final four in 1987. After a cup of coffee in the NBA Donovan went to work for Pitino as an assistant for five years before getting a head job at Marshall before going on to University of Florida where he coached them to back to back national titles in 2006 and 2007.
As a side note, the vast majority assistant coaches make almost no money, they are doing it for love of the task and for the hope of getting a shot as a head coach. If you are a fan of college basketball then you've probably noticed how many assistant coaches each team has (seven or eight is not uncommon) and again maybe one of them makes something resembling a living. The reason there are so many is because someone gave each head coach a shot to start out and the move up and so the guys who do reach the pinnacle (a head coach job) are returning the favor.
Back to Donovan and this show yesterday; as successful as Donovan has become it was striking to see the profound effect (from Donovan's point of view) that Pitino not only had on his life but still has on his life.
I believe a huge factor in being successful (my thoughts here are not limited to financial success) comes from who we are fortunate enough to be influenced by at different points in our lives. It would be easy to point to a parent, teacher, coach or early boss but this can come from anywhere. In addition to above examples I personally have been influenced by people I've known through my involvement with the fire department.
There is a picture that I have seen posted a few times on Facebook that says be the person your dog thinks you are which I think is pretty clever.
As we go into a new year there is of course talk of resolutions and goals which can include the manner in which we can help others. There is a tie in to investing with all of this in a point I have made before. Many of you reading this and other blogs are the go to person in your family or social circles for investment advice and you have the opportunity to do a lot of good for other people the way that an influential coach might.
The picture is our haul of Cowboy Coffee Porter which is produced by Big Sky Brewing, the company that makes Moose Drool. The Cowboy Coffee Porter only comes out every couple of years and this is the year. If you like dark beer (all things in moderation) then give it a try, although it is difficult to find.
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Pitino is a true titan of college coaching, he's taken three different teams to the final four (a total of six final four appearances) and won the title as coach of Kentucky in 1996. Donovan was a star on the Pitino coached Providence team that went to the final four in 1987. After a cup of coffee in the NBA Donovan went to work for Pitino as an assistant for five years before getting a head job at Marshall before going on to University of Florida where he coached them to back to back national titles in 2006 and 2007.
As a side note, the vast majority assistant coaches make almost no money, they are doing it for love of the task and for the hope of getting a shot as a head coach. If you are a fan of college basketball then you've probably noticed how many assistant coaches each team has (seven or eight is not uncommon) and again maybe one of them makes something resembling a living. The reason there are so many is because someone gave each head coach a shot to start out and the move up and so the guys who do reach the pinnacle (a head coach job) are returning the favor.
Back to Donovan and this show yesterday; as successful as Donovan has become it was striking to see the profound effect (from Donovan's point of view) that Pitino not only had on his life but still has on his life.
I believe a huge factor in being successful (my thoughts here are not limited to financial success) comes from who we are fortunate enough to be influenced by at different points in our lives. It would be easy to point to a parent, teacher, coach or early boss but this can come from anywhere. In addition to above examples I personally have been influenced by people I've known through my involvement with the fire department.
There is a picture that I have seen posted a few times on Facebook that says be the person your dog thinks you are which I think is pretty clever.
As we go into a new year there is of course talk of resolutions and goals which can include the manner in which we can help others. There is a tie in to investing with all of this in a point I have made before. Many of you reading this and other blogs are the go to person in your family or social circles for investment advice and you have the opportunity to do a lot of good for other people the way that an influential coach might.
The picture is our haul of Cowboy Coffee Porter which is produced by Big Sky Brewing, the company that makes Moose Drool. The Cowboy Coffee Porter only comes out every couple of years and this is the year. If you like dark beer (all things in moderation) then give it a try, although it is difficult to find.
Read more!
Friday, December 28, 2012
The Right Tool vs The Wrong Tool
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We live in an area with steep, winding, unpaved roads which become very difficult to drive on in the snow. That difficulty doesn't prevent people from coming up here in their two wheel drive cars and other unsuitable vehicles and trying. The first picture was taken yesterday at the "100 Mail Boxes" and would be an example of the wrong tool. The Pinzgauer picture was not taken here, I just found it on the internet and think it is neat but that would be an example of the right tool. There are probably several investing metaphors that would work here.
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Thursday, December 27, 2012
Stay On Your Own Mat
Over the years I have posted a couple of tag lines or other little sayings related to the task of investing. Conceptually I don't think any of them are original but that doesn't make them any less useful. Barry Ritholtz found a short blog post at the NY Times that hit on a couple of these types of things I have been writing about over the years.
One of my tag lines has been stay on your own mat which is a yoga reference about not worrying about how the person next to you in the class does the poses. Ideally a yoga student is focusing on their breathing and trying to make progress at their own pace with the positions.
So it is with investing for both do it yourselfers and professionals. We all have our own skill sets, interest levels and only so much time available to spend on the task. You may know someone who routinely makes a killing on three and four legged option combos but that doesn't make the trades right for you. In this vein the linked article talked about Harvard Management Company buying a dairy farm in New Zealand.
Also related (and in the article too) is defining and sticking to your goals not someone else's. One example from the article was recent Standford MBA grad's who go 100% equities (not sure if this was a made up example) which might be right for a 25 year old making a lot of money right out of the chute but that is not going to be the right allocation for the typical 50 year old.
Another concept picked up in the article that is covered here regularly was "most of what we hear about investing isn’t right or wrong. It’s a matter of applying what we hear to our own situation" which is of course a different way of saying take little bits of process from various places to create your own process.
There are others we've talked about here about not panicking, about adequate savings rates but really this all boils down to the need to learn about ourselves first and then devise the right financial plan (either by yourself or by hiring someone) for our particular situation taking into account all of our quirks.
Speaking of long running themes of this blog, one of them is one off expenses that cannot be budgeted for and for us this month that is tires on the other car (we needed tires for one vehicle a few months ago).
Read more!
One of my tag lines has been stay on your own mat which is a yoga reference about not worrying about how the person next to you in the class does the poses. Ideally a yoga student is focusing on their breathing and trying to make progress at their own pace with the positions.
So it is with investing for both do it yourselfers and professionals. We all have our own skill sets, interest levels and only so much time available to spend on the task. You may know someone who routinely makes a killing on three and four legged option combos but that doesn't make the trades right for you. In this vein the linked article talked about Harvard Management Company buying a dairy farm in New Zealand.
Also related (and in the article too) is defining and sticking to your goals not someone else's. One example from the article was recent Standford MBA grad's who go 100% equities (not sure if this was a made up example) which might be right for a 25 year old making a lot of money right out of the chute but that is not going to be the right allocation for the typical 50 year old.
Another concept picked up in the article that is covered here regularly was "most of what we hear about investing isn’t right or wrong. It’s a matter of applying what we hear to our own situation" which is of course a different way of saying take little bits of process from various places to create your own process.
There are others we've talked about here about not panicking, about adequate savings rates but really this all boils down to the need to learn about ourselves first and then devise the right financial plan (either by yourself or by hiring someone) for our particular situation taking into account all of our quirks.
Speaking of long running themes of this blog, one of them is one off expenses that cannot be budgeted for and for us this month that is tires on the other car (we needed tires for one vehicle a few months ago).
Read more!
Tuesday, December 25, 2012
Christmas with Taleb!
Over the weekend Barry Ritholtz linked to this profile of Nassim Taleb at The Chronicle of Higher Education. I have mentioned Taleb many times over the years and he has contributed to how I think about certain things both related to the task of portfolio construction and more broadly to life in general.
As the linked profile above alludes, Taleb has become in some ways a caricature of himself. We all have our quirks and these quirks often become more pronounced as we get older and that is what I think is going on with Taleb. His latest book is called Antifragile: Things That Gain From Disorder but the writer for the profile said the book "feels like a compendium of people and things that Taleb doesn't like." I got a good laugh from that one.
The profile goes on to say he doesn't like academics, sociologists, doctors, Harvard B-school, bankers and economists among many others. He also has specific ideas for what fruit he will and won't eat and footwear. Assuming the article is correct about these things, it paints an eccentric picture.
The earlier posts on this blog about his ideas targeted things that I felt added value and I still think those ideas add value but as a function of his fame we are learning more about him and the value of his contribution might be diluting. As an example, most of what he said in the above article offered no critical value (just entertainment value) but there was something. He said "You cannot rely on external confirmation and have a happy life, I don't rely on external confirmation, and I have a happy life."
There was a comment or two questioning whether he really is happy. While that is a good question, I have no basis to doubt him but the idea is interesting from a self awareness point of view. Increased self awareness can help with portfolio management. Too many people are not self aware enough to know what is really important to them and they waste time on things that turn out to be unimportant.
There was also a funny bit in the article pointing out that Taleb might be a lot of the things he doesn't like; he's a part time professor who publishes articles in journals but he says he does not publish for advancement (personal gain) they are only "technical addenda" for his books. The funny part was that the article identified as the flipside to what Taleb does; blogging in cabin somewhere which is a remark that I resemble.
Here are a couple of other links (here and here) that really hit on how eccentric he either was all along or has become. There is still value in some of his commentary but it appears as though it will be more difficult to find.
Totally unrelated, I've tried a few times to find a list of Mr. Burns' (as in the Simpsons) stock portfolio. This was in one episode many years ago but I have never been able to find the list. I remember it was very funny but didn't remember the names. At some point along the way someone put up the site Simpsons Wikia which includes a page devoted to Mr. Burns and it mentions his portfolio which consists of Confederated Slaveholdings, Transatlantic Zeppelin, Amalgamated Spats, Congreve's Inflammable Powder, U.S. Hay and Baltimore Opera Hat Company. Hysterical.
Merry Christmas.
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As the linked profile above alludes, Taleb has become in some ways a caricature of himself. We all have our quirks and these quirks often become more pronounced as we get older and that is what I think is going on with Taleb. His latest book is called Antifragile: Things That Gain From Disorder but the writer for the profile said the book "feels like a compendium of people and things that Taleb doesn't like." I got a good laugh from that one.
The profile goes on to say he doesn't like academics, sociologists, doctors, Harvard B-school, bankers and economists among many others. He also has specific ideas for what fruit he will and won't eat and footwear. Assuming the article is correct about these things, it paints an eccentric picture.
The earlier posts on this blog about his ideas targeted things that I felt added value and I still think those ideas add value but as a function of his fame we are learning more about him and the value of his contribution might be diluting. As an example, most of what he said in the above article offered no critical value (just entertainment value) but there was something. He said "You cannot rely on external confirmation and have a happy life, I don't rely on external confirmation, and I have a happy life."
There was a comment or two questioning whether he really is happy. While that is a good question, I have no basis to doubt him but the idea is interesting from a self awareness point of view. Increased self awareness can help with portfolio management. Too many people are not self aware enough to know what is really important to them and they waste time on things that turn out to be unimportant.
There was also a funny bit in the article pointing out that Taleb might be a lot of the things he doesn't like; he's a part time professor who publishes articles in journals but he says he does not publish for advancement (personal gain) they are only "technical addenda" for his books. The funny part was that the article identified as the flipside to what Taleb does; blogging in cabin somewhere which is a remark that I resemble.
Here are a couple of other links (here and here) that really hit on how eccentric he either was all along or has become. There is still value in some of his commentary but it appears as though it will be more difficult to find.
Totally unrelated, I've tried a few times to find a list of Mr. Burns' (as in the Simpsons) stock portfolio. This was in one episode many years ago but I have never been able to find the list. I remember it was very funny but didn't remember the names. At some point along the way someone put up the site Simpsons Wikia which includes a page devoted to Mr. Burns and it mentions his portfolio which consists of Confederated Slaveholdings, Transatlantic Zeppelin, Amalgamated Spats, Congreve's Inflammable Powder, U.S. Hay and Baltimore Opera Hat Company. Hysterical.
Merry Christmas.
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Monday, December 24, 2012
MPT Takedown
Over the weekend I stumbled across a pretty good takedown of Modern Portfolio Theory aka MPT. It is a good read but there was one nugget that I wanted to explore a little further;
The MPT Nitiot assumes skill has no bearing on outcome… perhaps the most fool-headed assumption academia has ever put forth!
The word nitiot is a combo of nit and idiot.
Quite a few times over the years, mostly at Seeking Alpha, I've been called an MPT'er which is not correct. I have been influenced by a few MPT concepts though. The question of how much of a role skill plays is an interesting one to explore. Layered on top of what role skill plays is the question of when it is skill and when it is luck.
Another source of influence has been Nassim Taleb, more on him tomorrow, and one positive I've taken from him is to never discount when you have been lucky with something (in this context lucky with something portfolio related).
The cognitive deficit of over estimating our own skill is something many of us observed or maybe even participated in by daytrading internet stocks in 1998 and 1999 and making a lot of money. Unfortunately very few people kept that money. Most of the people caught up in that craze were simply lucky enough to be in the right place at the right time.
However the idea that skill plays no role is not right either. One of the great spokesman for never trying to time markets or pick stocks has been Jack Bogle. Reasonably speaking he created indexing (certainly brought more attention to it than anyone else), he gets a lot of face time and delivers the same advice about how to diversify with broad index funds and I believe he is sincere. However based on my casual observation he is better than most at doing what he says can't be done; calling major turns in the stock market. If an interviewer presses him he will give an opinion and he has been right quite a few times.
It is not terribly shocking he has been correct about this before; he has been around markets since the 1950s so he has seen a lot, he clearly loves his involvement with markets, and obviously he is brilliant. He might be wrong with the next of course but he would seem to be more likely to understand markets better than most.
The approach I write about and use to do my job hopefully is cognizant of the luck factor and so not 100% reliant on skill. More correctly clients are not subjected solely to whether or not I am right about something. In many posts I have talked about trying to catch tailwinds for the portfolio. For example looking to add industrial sector exposure early in the stock market cycle offers the potential for a tailwind. Or adding energy or materials exposure early in the economic cycle as demand for these resources is likely to increase, creating tailwind for the stocks.
These are bigger and broader things than the bottom up endeavor of picking between two companies offering similar but competing products.
This is not to say that there are no narrow bottom up decisions made because there are, just not exclusively. A big feature with top down, as I see it, is finding tailwinds, which is easier than bottom up stock picking, because even if you don't pick the best stock your portfolio will likely still benefit from the exposure.
By the same token this allows for find headwinds and avoiding the worst areas. Certainly there are Japanese stocks that have done well but in a market that has been down 35% in the last five years the path of least resistance has simply been to avoid that market. The odds of finding a stock that goes up in a down 35% world are low and the task very difficult.
There can be skill involved in portfolio management but there is also plenty of luck and hopefully we never lose sight of that.
Read more!
The MPT Nitiot assumes skill has no bearing on outcome… perhaps the most fool-headed assumption academia has ever put forth!
The word nitiot is a combo of nit and idiot.
Quite a few times over the years, mostly at Seeking Alpha, I've been called an MPT'er which is not correct. I have been influenced by a few MPT concepts though. The question of how much of a role skill plays is an interesting one to explore. Layered on top of what role skill plays is the question of when it is skill and when it is luck.
Another source of influence has been Nassim Taleb, more on him tomorrow, and one positive I've taken from him is to never discount when you have been lucky with something (in this context lucky with something portfolio related).
The cognitive deficit of over estimating our own skill is something many of us observed or maybe even participated in by daytrading internet stocks in 1998 and 1999 and making a lot of money. Unfortunately very few people kept that money. Most of the people caught up in that craze were simply lucky enough to be in the right place at the right time.
However the idea that skill plays no role is not right either. One of the great spokesman for never trying to time markets or pick stocks has been Jack Bogle. Reasonably speaking he created indexing (certainly brought more attention to it than anyone else), he gets a lot of face time and delivers the same advice about how to diversify with broad index funds and I believe he is sincere. However based on my casual observation he is better than most at doing what he says can't be done; calling major turns in the stock market. If an interviewer presses him he will give an opinion and he has been right quite a few times.
It is not terribly shocking he has been correct about this before; he has been around markets since the 1950s so he has seen a lot, he clearly loves his involvement with markets, and obviously he is brilliant. He might be wrong with the next of course but he would seem to be more likely to understand markets better than most.
The approach I write about and use to do my job hopefully is cognizant of the luck factor and so not 100% reliant on skill. More correctly clients are not subjected solely to whether or not I am right about something. In many posts I have talked about trying to catch tailwinds for the portfolio. For example looking to add industrial sector exposure early in the stock market cycle offers the potential for a tailwind. Or adding energy or materials exposure early in the economic cycle as demand for these resources is likely to increase, creating tailwind for the stocks.
These are bigger and broader things than the bottom up endeavor of picking between two companies offering similar but competing products.
This is not to say that there are no narrow bottom up decisions made because there are, just not exclusively. A big feature with top down, as I see it, is finding tailwinds, which is easier than bottom up stock picking, because even if you don't pick the best stock your portfolio will likely still benefit from the exposure.
By the same token this allows for find headwinds and avoiding the worst areas. Certainly there are Japanese stocks that have done well but in a market that has been down 35% in the last five years the path of least resistance has simply been to avoid that market. The odds of finding a stock that goes up in a down 35% world are low and the task very difficult.
There can be skill involved in portfolio management but there is also plenty of luck and hopefully we never lose sight of that.
Read more!
Sunday, December 23, 2012
Sunday Morning Coffee
From the Jim Chanos interview in Barron's;
These are ideas I have written about frequently here. Although not unique to Chanos I believe they are very important concepts.
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You can never get the timing exactly right, even if you are right on the fundamentals, ultimately. But on the other hand, you can be very, very right and still lose lots of money, so you have to construct your portfolio accordingly and never let one position ever be too large.
These are ideas I have written about frequently here. Although not unique to Chanos I believe they are very important concepts.
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Saturday, December 22, 2012
The Big Picture for the Week of December 23, 2012
Seeking Alpha ran a post titled How To Construct A Portfolio That Yields 100% which was about yield on cost dividend investing. Using the example of having bought "ExxonMobil" in 1971 the author notes that the price back then was $2.30 split adjusted and that the current dividend is $2.28 making the yield for anyone who bought in 1971 almost 100%.
As a quick note, and not mentioned by the author, 1971 was long before Exxon merged with Mobil and back then I think it was Esso not Exxon but please correct me if I have that wrong.
The 100% dividend idea is something I have mentioned before talking about what is now Altria (MO) for anyone who bought in the 1980s. Some clients own MO.
That a dividend eventually exceeds the cost basis is certainly a positive and makes a good argument for long term investing but the idea of XOM now yielding 100% for the person who bought in 1971 seems like incorrect mental accounting. Someone who bought 1000 shares in 1971 at $2.30 (remember that is split adjusted) obviously invested $2300. Assuming no dividend reinvestment (I don't think that was an option in 1971) this person now has 1000 shares worth $87,240. The dividend paid on this position is $2,280 which works out to 2.61%. The amount available for withdrawal, without selling any shares is the $2,280.
From the perspective of the investor, hopefully both the price and the dividend continue to go up but if two years from now the position is worth $100,000 and the dividends go up to $2700 then the yield will be 2.7% not 117%.
Obviously every investor who even thinks about this at all will apply whatever thought process they want to this but the 100% yield idea makes no sense to me.
There were only four comments on the article and the tone surprised me. This seemed like a good candidate for a dividend war to break out but that was not the case. A couple of the comments expressed doubt about being able to build an entire portfolio of names that can last more than 40 years and grow their dividends that long.
That is a valid question but I would come at trying to address it in a different manner than what I think I was reading. Many times in the past I have mentioned hoping to hold every name in the portfolio forever. It would be great to be so correct with each name that it could be held forever, it would mean less trading, less commission paid, fewer tax consequences and less work (work meaning time spent finding replacement holdings).
Long time readers will know that while I hope to hold every name forever, of course that is not how things work out and when something needs to be sold (or just reduced) I sell it. But it is possible to hold some names forever. We have 33 holdings under the hood of the RRGR fund that we subadvise and 11 of them have been client holdings since 2004 and a few more were added in 2005 and are still owned now. Eight years is not 40 but of the eleven it is not crazy to think that some of them are on their way to the dividend exceeding the cost and will be 40 year holds. But again if something changes I would not hesitate on selling any of them. RRGR is obviously a personal and client holding.
Read more!
As a quick note, and not mentioned by the author, 1971 was long before Exxon merged with Mobil and back then I think it was Esso not Exxon but please correct me if I have that wrong.
The 100% dividend idea is something I have mentioned before talking about what is now Altria (MO) for anyone who bought in the 1980s. Some clients own MO.
That a dividend eventually exceeds the cost basis is certainly a positive and makes a good argument for long term investing but the idea of XOM now yielding 100% for the person who bought in 1971 seems like incorrect mental accounting. Someone who bought 1000 shares in 1971 at $2.30 (remember that is split adjusted) obviously invested $2300. Assuming no dividend reinvestment (I don't think that was an option in 1971) this person now has 1000 shares worth $87,240. The dividend paid on this position is $2,280 which works out to 2.61%. The amount available for withdrawal, without selling any shares is the $2,280.
From the perspective of the investor, hopefully both the price and the dividend continue to go up but if two years from now the position is worth $100,000 and the dividends go up to $2700 then the yield will be 2.7% not 117%.
Obviously every investor who even thinks about this at all will apply whatever thought process they want to this but the 100% yield idea makes no sense to me.
There were only four comments on the article and the tone surprised me. This seemed like a good candidate for a dividend war to break out but that was not the case. A couple of the comments expressed doubt about being able to build an entire portfolio of names that can last more than 40 years and grow their dividends that long.
That is a valid question but I would come at trying to address it in a different manner than what I think I was reading. Many times in the past I have mentioned hoping to hold every name in the portfolio forever. It would be great to be so correct with each name that it could be held forever, it would mean less trading, less commission paid, fewer tax consequences and less work (work meaning time spent finding replacement holdings).
Long time readers will know that while I hope to hold every name forever, of course that is not how things work out and when something needs to be sold (or just reduced) I sell it. But it is possible to hold some names forever. We have 33 holdings under the hood of the RRGR fund that we subadvise and 11 of them have been client holdings since 2004 and a few more were added in 2005 and are still owned now. Eight years is not 40 but of the eleven it is not crazy to think that some of them are on their way to the dividend exceeding the cost and will be 40 year holds. But again if something changes I would not hesitate on selling any of them. RRGR is obviously a personal and client holding.
Read more!
Friday, December 21, 2012
Roger Nusbaum Positions For 2013: Think Long Term, Invest Globally
The above is the title to an interview I did with Seeking Alpha to kick off their annual positioning for the new year series. Below is an excerpt and you can read the entire post here. Thanks to the folks at Seeking Alpha for letting me participate.
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JL: As we approach 2013, are you bullish or bearish?
RN: The terms bullish and bearish don’t offer much real value. We try to sort out the various positives and negatives that exist to create a baseline scenario. Typically this means taking what we know about market history and combining it with what we think is going on now to try to make a forward looking analysis. The nature of stock market and economic cycles in the US is that they usually last four or five years. We are almost at four years from the bottom for stocks and the economy and so it makes sense to expect that we are near the end of both cycles. The nonsense going on in Washington could be a trigger for ending these cycles, or it could be coincidental but for now we are wary.
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Thursday, December 20, 2012
BOOM! Goes the Molycorp
The other day I heard or read a quick mention in passing of rare earth miner Molycorp (MCP). The chart tells us a lot about what type of stock it was, what expectations were and how those expectations ended up playing out, or not playing out in this case.
From its peak it is down 85%. While anything is possible in the future it looks like a meaningful, permanent impairment of capital for anyone who went heavy at the wrong time and did not sell.
The chart traces an arc that I've written about many times before where a great sounding story leads to massive price gains ahead of the fundamentals because "this is different," it goes on long enough to be convincing and eventually the mania/fad ends. The chart shows the recurring arc, it could just as easily be Comparator Systems (IDID) or Andrea Electronics (AND)--remember those?
This type of mania should be very familiar to long time readers and I think they are easily spotted as was the case a little over two years ago in a post titled Fad, Mania or Bubble that I wrote about... you guessed it; Molycorp. These will come up again and I will try to point them out.
Some people will trade fads and manias successfully of course but others will get blown up by them.
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From its peak it is down 85%. While anything is possible in the future it looks like a meaningful, permanent impairment of capital for anyone who went heavy at the wrong time and did not sell.
The chart traces an arc that I've written about many times before where a great sounding story leads to massive price gains ahead of the fundamentals because "this is different," it goes on long enough to be convincing and eventually the mania/fad ends. The chart shows the recurring arc, it could just as easily be Comparator Systems (IDID) or Andrea Electronics (AND)--remember those?
This type of mania should be very familiar to long time readers and I think they are easily spotted as was the case a little over two years ago in a post titled Fad, Mania or Bubble that I wrote about... you guessed it; Molycorp. These will come up again and I will try to point them out.
Some people will trade fads and manias successfully of course but others will get blown up by them.
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Wednesday, December 19, 2012
The Drag of Disaster Insurance
Eric Falkenstein wrote up a pretty epic takedown of Nassim Taleb in general and his recent book Antifragile: Things That Gain From Disorder in particular. It was a fun even if very dense read (Falkenstein's post).
Included in the post was a mention of the Universa hedge fund that Taleb is associated with and the strategy which from 30,000 feet is to always be positioned for the next financial apocalypse. Since financial apocalypses don't come along very often the fund endures a series of small losses repeatedly until hitting a monstrous home run when the next apocalypse comes. Hopefully for fund holders the monstrous home run more than offsets all the small losses along the way.
Presumably Universa investors realize this.
This gets to the point of this post which is about understanding the positives of your investment strategy and the drawbacks to it. A good example of understanding the drawbacks is the First Trust CBOE S&P 500 VIX Tail Hedge Fund (VIXH). It will generally track the S&P 500 with the objective of not going down a lot when the market goes down a lot because the VIX options it owns should go up when the market goes down a lot.
Similar to financial apocalypses, the market does not go down a lot very often which makes VIX call options unnecessary most of the time. Of course the fund incurs the expense of regularly spending money on VIX calls (every month in this case) that will be unnecessary most of the time creating about a 1% drag on the fund every month. The 1% can be more or less in any given month but that 1% give or take is a drag on returns. Very generically, it is possible that in a given year the S&P 500 could be up 12% in such a way that VIX never spikes so the calls persist as a monthly 1% drag causing VIXH to be flat, that is lagging the benchmark by 12% for the year.
You can click here for the CBOE micro site for the index underlying VIXH and there you will find a link to the monthly roll spreadsheet which details the history of what the actual monthly drag for the VIX calls has been.
VIXH is a relatively new fund so it remains to be seen whether it will deliver on the objective of sparing fund holders from the full brunt of a large decline. Owning the fund will require patience along the way and need to be held through the entire cycle to have a shot of paying off.
Obviously I think investing for a result over the course of the entire cycle is valid because that is what our firm does.
The picture is from our first snow storm which was over the weekend. The building is the workshop at the house we recently moved into.
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Included in the post was a mention of the Universa hedge fund that Taleb is associated with and the strategy which from 30,000 feet is to always be positioned for the next financial apocalypse. Since financial apocalypses don't come along very often the fund endures a series of small losses repeatedly until hitting a monstrous home run when the next apocalypse comes. Hopefully for fund holders the monstrous home run more than offsets all the small losses along the way.
Presumably Universa investors realize this.
This gets to the point of this post which is about understanding the positives of your investment strategy and the drawbacks to it. A good example of understanding the drawbacks is the First Trust CBOE S&P 500 VIX Tail Hedge Fund (VIXH). It will generally track the S&P 500 with the objective of not going down a lot when the market goes down a lot because the VIX options it owns should go up when the market goes down a lot.
Similar to financial apocalypses, the market does not go down a lot very often which makes VIX call options unnecessary most of the time. Of course the fund incurs the expense of regularly spending money on VIX calls (every month in this case) that will be unnecessary most of the time creating about a 1% drag on the fund every month. The 1% can be more or less in any given month but that 1% give or take is a drag on returns. Very generically, it is possible that in a given year the S&P 500 could be up 12% in such a way that VIX never spikes so the calls persist as a monthly 1% drag causing VIXH to be flat, that is lagging the benchmark by 12% for the year.
You can click here for the CBOE micro site for the index underlying VIXH and there you will find a link to the monthly roll spreadsheet which details the history of what the actual monthly drag for the VIX calls has been.
VIXH is a relatively new fund so it remains to be seen whether it will deliver on the objective of sparing fund holders from the full brunt of a large decline. Owning the fund will require patience along the way and need to be held through the entire cycle to have a shot of paying off.
Obviously I think investing for a result over the course of the entire cycle is valid because that is what our firm does.
The picture is from our first snow storm which was over the weekend. The building is the workshop at the house we recently moved into.
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Tuesday, December 18, 2012
Handy Tool
ETF Database posted a neat tool on its website. If you click on a particular year as pictured it will give you the largest ten holdings in the S&P 500 for that year. The screen shot shows 1981 when energy was 30% of the index and the top ten was dominated by stocks from that sector.
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Monday, December 17, 2012
NOT How to Create Your Own Hedge Fund
The WSJ had a peculiar article about how to use ETFs to "create your own hedge fund." The article isolated several hedge strategies, some recent performance data of these strategies at a broader index level and offered ETF combos to serve as proxies that would have delivered the same results for much less in the way of fees.
The suggested hedge fund replicating ETF combos came from research done by William Bernstein who concluded that hedge funds can be mimicked with "varying amounts of just two ETFs, plus cash."
The two ETFs that Bernstein used for this were the iShares Russell 3000 Growth Fund (IWZ) and the Vanguard Russell 3000 ETF (VTHR)--so a total market fund of sorts and the growth slice of the total market. So to capture equity, relative value, event driven or macro hedge fund performance (the four categories cited in the article) all that needs to be done is combine the two funds and cash in different percentages. The article was not clear on the amount of time that was analyzed to draw these conclusions but there was a reference to how one of the combos did over the last two years.
The last time I looked at the article there was only one comment and it called the portfolios ridiculous.
Since the March 2009 low, hedge funds have broadly lagged the S&P 500 which the article attributes to hedge fund managers being too bearish (or skeptical?) for the last three and a half years. So, stated another way the various hedge strategies have lagged for being too bearish. One flaw in the article is that they did not set out to lag the S&P 500.
So equity hedge funds were up 6.3% annualized for the last two years which Bernstein says could have been equaled by putting 38% into IWZ, 16% into VTHR and the remaining 46% in cash. If the article is about how to mimic hedge funds then there is a huge (and ridiculous) assumption that equity hedge funds will continue to track the same as the the two ETFs held in those percentages. What this article seems to offer is a backward looking coincidence and investing this way going forward is to assume the same coincidence will persist.
From a mimic the hedge funds standpoint, the article is worthless. Perhaps there is an argument to be made for the equity portion of a broad based portfolio to be split in some fashion between all cap and all cap growth (although I would not be the one to make it) but that is not what the article is about.
I do believe that the article is an attempt to teach newer investors something about portfolio construction but that it simply is a bad article. The reason to write about this at all is that the country has a problem with financial literacy and articles like this will not help to solve the problem. As I have mentioned before it is likely that you reading this blog (along with other blogs) are probably the person that close friends and family members go to when they have investing questions and you probably want to help them in some capacity. Steering them away from dreck like the above linked article can help solve the problem.
Unrelated, we watched The Bourne Legacy this weekend. Over the years we've had fun with the possible contents of Jason Bourne's safety deposit box in the Swiss bank from the first film in the series. The main character in Legacy was Aaron Cross played by Jeremy Renner. Cross' safety deposit box equivalent was inside a car door (couldn't find a picture so I included Bourne's safety deposit box instead) and contained cash and a new item that Bourne did not have; a bunch of license plates which would clearly come in handy in several different scenarios.
I thought it was clever that the story in Legacy occurred simultaneously as the story from the Bourne Ultimatum which was the last of the three Matt Damon movies. Other than the car door fun and the coincident timeline there was very little good to say about the movie. There were unanswered questions and loops that were never closed.
Read more!
The suggested hedge fund replicating ETF combos came from research done by William Bernstein who concluded that hedge funds can be mimicked with "varying amounts of just two ETFs, plus cash."
The two ETFs that Bernstein used for this were the iShares Russell 3000 Growth Fund (IWZ) and the Vanguard Russell 3000 ETF (VTHR)--so a total market fund of sorts and the growth slice of the total market. So to capture equity, relative value, event driven or macro hedge fund performance (the four categories cited in the article) all that needs to be done is combine the two funds and cash in different percentages. The article was not clear on the amount of time that was analyzed to draw these conclusions but there was a reference to how one of the combos did over the last two years.
The last time I looked at the article there was only one comment and it called the portfolios ridiculous.
Since the March 2009 low, hedge funds have broadly lagged the S&P 500 which the article attributes to hedge fund managers being too bearish (or skeptical?) for the last three and a half years. So, stated another way the various hedge strategies have lagged for being too bearish. One flaw in the article is that they did not set out to lag the S&P 500.
So equity hedge funds were up 6.3% annualized for the last two years which Bernstein says could have been equaled by putting 38% into IWZ, 16% into VTHR and the remaining 46% in cash. If the article is about how to mimic hedge funds then there is a huge (and ridiculous) assumption that equity hedge funds will continue to track the same as the the two ETFs held in those percentages. What this article seems to offer is a backward looking coincidence and investing this way going forward is to assume the same coincidence will persist.
From a mimic the hedge funds standpoint, the article is worthless. Perhaps there is an argument to be made for the equity portion of a broad based portfolio to be split in some fashion between all cap and all cap growth (although I would not be the one to make it) but that is not what the article is about.
I do believe that the article is an attempt to teach newer investors something about portfolio construction but that it simply is a bad article. The reason to write about this at all is that the country has a problem with financial literacy and articles like this will not help to solve the problem. As I have mentioned before it is likely that you reading this blog (along with other blogs) are probably the person that close friends and family members go to when they have investing questions and you probably want to help them in some capacity. Steering them away from dreck like the above linked article can help solve the problem.
Unrelated, we watched The Bourne Legacy this weekend. Over the years we've had fun with the possible contents of Jason Bourne's safety deposit box in the Swiss bank from the first film in the series. The main character in Legacy was Aaron Cross played by Jeremy Renner. Cross' safety deposit box equivalent was inside a car door (couldn't find a picture so I included Bourne's safety deposit box instead) and contained cash and a new item that Bourne did not have; a bunch of license plates which would clearly come in handy in several different scenarios.
I thought it was clever that the story in Legacy occurred simultaneously as the story from the Bourne Ultimatum which was the last of the three Matt Damon movies. Other than the car door fun and the coincident timeline there was very little good to say about the movie. There were unanswered questions and loops that were never closed.
Read more!
Sunday, December 16, 2012
Sunday Morning Coffee
The Barron's Electronic Investor took a fun detour from the normal column to feature a 67 year old retired do it yourselfer who appears to have had a lot of success with stock picking since he retired in 1999. The article was a little light on performance specifics which is understandable, he has no burden for performance data.
As I took it, his IRA was worth $250k in 1999, is worth about $1 million now and he has been taking some out for income. If that is an accurate, or anywhere close to accurate reporting of his results then it is an awesome outcome.
The reason I mention this, regardless of the accuracy, is there is a tie in to a long running theme here about investment success depending on time available and interest in the task--in most cases--and this guy is a living example of what I have had in mind.
Apparently he spends his afternoons studying stocks and other related work so it is not an 80 hour endeavor although the article said he "monitors his more than 100 stock holdings" so I am not sure how he does it. Making it a little more relatable for more do it yourselfers keeping tabs on maybe ten stocks, four or five narrower ETFs and one or two broad based funds (as a random not so unreasonable combo) would be easy to find time for if the do it yourselfer has the needed interest in the task.
As a follow up to yesterday's post, one outcome to the current mess the country is in could be a situation where more people must become more engaged with managing their portfolios (personally I don't think there will be a wave of millions of new customers of RIAs from this). As the article points out, there are plenty of resources to help people have success but first people have to be willing to help themselves.
We had our first meaningful snow storm this weekend, about a foot at our house, and the picture is of Roscoe romping in the snow.
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As I took it, his IRA was worth $250k in 1999, is worth about $1 million now and he has been taking some out for income. If that is an accurate, or anywhere close to accurate reporting of his results then it is an awesome outcome.
The reason I mention this, regardless of the accuracy, is there is a tie in to a long running theme here about investment success depending on time available and interest in the task--in most cases--and this guy is a living example of what I have had in mind.
Apparently he spends his afternoons studying stocks and other related work so it is not an 80 hour endeavor although the article said he "monitors his more than 100 stock holdings" so I am not sure how he does it. Making it a little more relatable for more do it yourselfers keeping tabs on maybe ten stocks, four or five narrower ETFs and one or two broad based funds (as a random not so unreasonable combo) would be easy to find time for if the do it yourselfer has the needed interest in the task.
As a follow up to yesterday's post, one outcome to the current mess the country is in could be a situation where more people must become more engaged with managing their portfolios (personally I don't think there will be a wave of millions of new customers of RIAs from this). As the article points out, there are plenty of resources to help people have success but first people have to be willing to help themselves.
We had our first meaningful snow storm this weekend, about a foot at our house, and the picture is of Roscoe romping in the snow.
Read more!
Saturday, December 15, 2012
The Big Picture for the Week of December 16, 2012
There was an article on Yahoo Finance about a soon to be published article by UC Santa Clara professor Meir Statman in which he calls for a mandatory savings plan for American workers along the lines of what already exists in the UK.
Factors that go into the plus column for the idea are that collectively we lack the discipline to put away what we need for retirement and the plan offers a proactive solution to the probability of social security not being able to fulfill all of its promises.
The first negative that comes to mind is what strikes me as an un-American heavy government hand in saying what people must do with some portion of their income. Some of the comments alluded to other more practical drawbacks like the unfortunate reality that there are people who won't need to plan on living to 90 (anything is possible of course but in some families people die very young).
Another drawback is perhaps not being able to save up an emergency fund which some people would say needs to be done before starting a retirement fund. A related example, I was laid off from a job in September 2001. I knew about a year and half ahead of time that there would be layoffs and that I was a candidate for a layoff. In the face of this I stopped contributing to my 401k to build up something of warchest. I would consider my action to be responsible but would have been hindered if there was some minimum amount of income that I had no say over.
Who knows whether the country would ever adopt a mandatory savings plan (no opt out) but the optimist in me believes that at some point the country will get serious about fixing things and in the past I have thought this to mean that everyone will have to sacrifice something (I still think this) but this article makes me wonder if the people who have been responsible will lose some say over their finances which obviously would not be anything to be optimistic about.
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Factors that go into the plus column for the idea are that collectively we lack the discipline to put away what we need for retirement and the plan offers a proactive solution to the probability of social security not being able to fulfill all of its promises.
The first negative that comes to mind is what strikes me as an un-American heavy government hand in saying what people must do with some portion of their income. Some of the comments alluded to other more practical drawbacks like the unfortunate reality that there are people who won't need to plan on living to 90 (anything is possible of course but in some families people die very young).
Another drawback is perhaps not being able to save up an emergency fund which some people would say needs to be done before starting a retirement fund. A related example, I was laid off from a job in September 2001. I knew about a year and half ahead of time that there would be layoffs and that I was a candidate for a layoff. In the face of this I stopped contributing to my 401k to build up something of warchest. I would consider my action to be responsible but would have been hindered if there was some minimum amount of income that I had no say over.
Who knows whether the country would ever adopt a mandatory savings plan (no opt out) but the optimist in me believes that at some point the country will get serious about fixing things and in the past I have thought this to mean that everyone will have to sacrifice something (I still think this) but this article makes me wonder if the people who have been responsible will lose some say over their finances which obviously would not be anything to be optimistic about.
Read more!
Friday, December 14, 2012
IndexUniverse had kind of an odd profile of a European investment manager who uses ETFs. I would sum it up as a former very successful hedge fund manager now manages separate accounts with ETF and ETC but does not like ETNs. The results have been very good. There was no mention of what they actually do beyond using "passive funds in an active strategy."
There was also an interview with Dennis Gartman and in that interview reference was made to a filing that Gartman is involved with where AdvisorShares will list funds that denominate gold in GBP, EUR and JPY and there will be a fourth fund that will own the other three in a fund of funds product. Our firm subadvises the Global Alpha Beta ETF (RRGR) for AdvisorShares.
The first article isolates what is presumably a sophisticated strategy (really odd that the strategy doesn't even get a vague mention) and the second article provides examples of what should offer very specialized exposure for anyone so inclined to spend time understanding the dynamics underlying the relationships captured.
This is an idea I have circled back to many times which is creating portfolios with very narrow exposures along the lines of an all individual stock portfolio without any individual stocks just narrow ETFs. The big idea here is democratization for investors who wish to pursue this sort of portfolio that might include hydroelectric, Malaysian plantations or Norwegian fisheries--to pick from some narrow segments we've looked over the years.
The ETF industry is nowhere near the breadth of choice available that I am talking about but there are some funds that are this specialized. There is of course no guarantee that anything like this must do well. In theory they could all turn out to be like the solar ETFs which are both down more than 90% since their respective inceptions. In this context I have mentioned the PowerShares Water Portfolio (PHO) which we have owned since its inception. I would say it is a very specialized fund and since inception it has outperformed the SPY, XLU and XLI (the fund is heavy in utilities and industrials which is why mention XLU and XLI).
A lot of progress toward specialization in equities, fixed income and other asset classes and that will continue. The above profiled former hedge fund manager is achieving excellent returns using ETPs in what are presumably sophisticated strategies, again using products that any retail investor can access. If he can, than you can too depending on time available and interest in the task.
Read more!
There was also an interview with Dennis Gartman and in that interview reference was made to a filing that Gartman is involved with where AdvisorShares will list funds that denominate gold in GBP, EUR and JPY and there will be a fourth fund that will own the other three in a fund of funds product. Our firm subadvises the Global Alpha Beta ETF (RRGR) for AdvisorShares.
The first article isolates what is presumably a sophisticated strategy (really odd that the strategy doesn't even get a vague mention) and the second article provides examples of what should offer very specialized exposure for anyone so inclined to spend time understanding the dynamics underlying the relationships captured.
This is an idea I have circled back to many times which is creating portfolios with very narrow exposures along the lines of an all individual stock portfolio without any individual stocks just narrow ETFs. The big idea here is democratization for investors who wish to pursue this sort of portfolio that might include hydroelectric, Malaysian plantations or Norwegian fisheries--to pick from some narrow segments we've looked over the years.
The ETF industry is nowhere near the breadth of choice available that I am talking about but there are some funds that are this specialized. There is of course no guarantee that anything like this must do well. In theory they could all turn out to be like the solar ETFs which are both down more than 90% since their respective inceptions. In this context I have mentioned the PowerShares Water Portfolio (PHO) which we have owned since its inception. I would say it is a very specialized fund and since inception it has outperformed the SPY, XLU and XLI (the fund is heavy in utilities and industrials which is why mention XLU and XLI).
A lot of progress toward specialization in equities, fixed income and other asset classes and that will continue. The above profiled former hedge fund manager is achieving excellent returns using ETPs in what are presumably sophisticated strategies, again using products that any retail investor can access. If he can, than you can too depending on time available and interest in the task.
Read more!
Wednesday, December 12, 2012
12/12/12
There was an interesting article at the WSJ about how one RIA's clients' sentiment toward stock (or equity mutual funds) has changed over the last few years presumably as a result of the second 50% decline in just eight years.
There were several fascinating behavioral lessons in the article that I think we can learn from. About one client who is a doctor the article said that "between surgeries, he said, he consults his iPad a dozen times a day to check the stock market. Any sign of a big downturn, he said, would drive him out."
I don't know whether any of our firm's clients check the market that frequently but the doctor, who is 59, seems like an own worst enemy situation waiting to happen. Assuming he meant it that there is a scenario where he could see something on his iPad in the middle of his work day that could cause him to be driven out, the client realizes the emotional nature of how he views the market but is apparently willing to let emotion drive the decision making process. From where I sit that is very likely to end badly for the client.
Zooming out, the article cited an undated but presumably current Gallup poll that counted 53% of Americans with equity exposure one way or another. That compares to 65% in 2007. That is a meaningful decline IMO and is consistent with what most of us probably know anecdotally. The advisor profiled in the article talked about how he stresses the need for equities in a financial plan in order to get the long term growth that most people need. I would tweak that a little by saying that equities don't ensure a successful financial plan they just give a better chance than other asset classes.
I would also add that anyone who for whatever reason does not want equities needs to realize that something will have to give. The person who forgoes the growth opportunity that equities provide needs to save more along the way, be prepared to stay in their career job longer, work in some sort of post retirement job when they leave their career job, live a more modest lifestyle or any combination of the above. Of course all of the above would be easier for someone who is able to live well below their means.
One last item of interest was the story about the advisor's wife who manages her own portfolio. how her purchase of Facebook (FB) didn't go well and that she has decided to swear off equities because of it.
This seems odd for several reasons. Presumably there is an expert in the family but she preferred to invest without him. She speculated on what was quite obviously going in a very binary event (the IPO was either going to be a home run or be a dog). Her husband, the advisor, can't bring her in off the ledge. It is possible that I am simply projecting the dynamic of my household because the profiled advisor is about my age and our household appears to be much different than his and so perhaps other people wouldn't think it strange at all.
One final note for RIAs is that based on the article it did not seem like the advisor spent time on the right kind of education for his clients. There were two references to his pointing to that Ibbotson's chart (or something like it) that we have all seen that shows stocks blowing away every asset class since the 1920s.
Obviously on this site we talk a lot about what is normal cyclical activity for markets, messages of the market (not a term I made up) and other things to try to prepare for the inevitable large declines and then how to manage the portfolio during the inevitable large declines. All of our clients know about the blog, that this information is easily available in what I hope are digestible doses and I hope they do visit the blog every so often (at crucial points we also send out emails to out client base).
The way I view the best way to keep clients is to prevent them from panicking or more correctly trying to prevent them from panicking. The best way I can think of to prevent them from panicking is proactive communication to remind them how markets work and to focus on avoiding succumbing to emotional responses.
Read more!
There were several fascinating behavioral lessons in the article that I think we can learn from. About one client who is a doctor the article said that "between surgeries, he said, he consults his iPad a dozen times a day to check the stock market. Any sign of a big downturn, he said, would drive him out."
I don't know whether any of our firm's clients check the market that frequently but the doctor, who is 59, seems like an own worst enemy situation waiting to happen. Assuming he meant it that there is a scenario where he could see something on his iPad in the middle of his work day that could cause him to be driven out, the client realizes the emotional nature of how he views the market but is apparently willing to let emotion drive the decision making process. From where I sit that is very likely to end badly for the client.
Zooming out, the article cited an undated but presumably current Gallup poll that counted 53% of Americans with equity exposure one way or another. That compares to 65% in 2007. That is a meaningful decline IMO and is consistent with what most of us probably know anecdotally. The advisor profiled in the article talked about how he stresses the need for equities in a financial plan in order to get the long term growth that most people need. I would tweak that a little by saying that equities don't ensure a successful financial plan they just give a better chance than other asset classes.
I would also add that anyone who for whatever reason does not want equities needs to realize that something will have to give. The person who forgoes the growth opportunity that equities provide needs to save more along the way, be prepared to stay in their career job longer, work in some sort of post retirement job when they leave their career job, live a more modest lifestyle or any combination of the above. Of course all of the above would be easier for someone who is able to live well below their means.
One last item of interest was the story about the advisor's wife who manages her own portfolio. how her purchase of Facebook (FB) didn't go well and that she has decided to swear off equities because of it.
This seems odd for several reasons. Presumably there is an expert in the family but she preferred to invest without him. She speculated on what was quite obviously going in a very binary event (the IPO was either going to be a home run or be a dog). Her husband, the advisor, can't bring her in off the ledge. It is possible that I am simply projecting the dynamic of my household because the profiled advisor is about my age and our household appears to be much different than his and so perhaps other people wouldn't think it strange at all.
One final note for RIAs is that based on the article it did not seem like the advisor spent time on the right kind of education for his clients. There were two references to his pointing to that Ibbotson's chart (or something like it) that we have all seen that shows stocks blowing away every asset class since the 1920s.
Obviously on this site we talk a lot about what is normal cyclical activity for markets, messages of the market (not a term I made up) and other things to try to prepare for the inevitable large declines and then how to manage the portfolio during the inevitable large declines. All of our clients know about the blog, that this information is easily available in what I hope are digestible doses and I hope they do visit the blog every so often (at crucial points we also send out emails to out client base).
The way I view the best way to keep clients is to prevent them from panicking or more correctly trying to prevent them from panicking. The best way I can think of to prevent them from panicking is proactive communication to remind them how markets work and to focus on avoiding succumbing to emotional responses.
Read more!
Monday, December 10, 2012
Probable versus Possible
In the context of participating in incidents with the fire department I tend to think of things as being probable or merely being possible. For example a week ago yesterday we had a small wildfire on a hill that was surrounded by houses. Based on the time of the year, the lack of wind, the footprint of the fire when we got there (which was pretty quickly) and that we had 17 people respond to the call it was not probable that the fire was going to explode into a catastrophic loss of six or seven houses. Of course it was possible that it could have gotten away, anything is possible with a wildfire and this same type of incident occurring in June would have been much more of a threat to turn into something horrible but as it turned out a bad outcome was not probable and the probabilities worked in our favor.
A reader left the following comment on a post of mine that was run at Seeking Alpha.
...That's why I'm waiting for return to 400-600 on the S&P to ride the coaster from the bottom up...
To me, this raises the exact same issue of probable versus possible. Of course it is possible for the S&P 500 to make a new low versus the March 2009 low but it is not probable. Getting to 666 on the SPX took a combination of the "worst financial crisis in 80 years" and an overall sentiment that was still favorably disposed to stock market participation and generally trusting of the system.
In other words most participants did not see that bear market/crisis coming. To believe the S&P 500 could go down that low again is to believe that whatever could be coming would be worse than the financial crisis of 2008 and somehow be even more of a blindside hit to the market (this last comment assumes that the public is less trusting of markets than it was five years ago).
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This is not a Jim Paulsen/Brian Wesbury argument that nothing is wrong or that the market can't go much lower because there are serious structural problems and large declines are always possible. We know that this cycle will end at some point and when it does there will be a large decline. But the idea that it could be worse and catch more people by surprise is not probable.
The federal government isn't functioning normally, we are not creating jobs at anything close to a normal pace, GDP growth has not recovered anywhere close to normal, debt is mushrooming, the US is not a AAA credit, housing is stumbling along a bottom and trust of the financial system has eroded. You can probably come up with several more current issues but none of them carry the surprise factor of a housing market that "can never go down" actually cutting in half (as it did in some markets).
New lows in the SPX are possible but they are not probable.
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Since this post is somewhat fire related the first picture is from the Rupert Fire here a couple of years ago (taken with my phone). The second picture is a look at the panel of Engine 86 via the side mirror. The final picture is my favorite old truck from the Hall of Flame museum in Phoenix. I've been to a few of these fire museums and the one in Phoenix blows the others away by a mile.
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Sunday, December 09, 2012
Sunday Morning Coffee
Barron's had multiple references this week to the fact that more than $100 billion has left equity funds in 2012. As I read it, that is a net number. That certainly seems like a very big number but if the context is traditional mutual funds and there is (was?) $10 trillion in mutual funds then this works out to a 1% reduction. Layer on top of that, that some of the $100 billion could be attributable to changing asset allocations of the older baby boomers then I am not sure this is significant enough to merit so many mentions this week.
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If the above is incorrect and this is significant then the question becomes whether this is a contrarian indicator for stronger hands to buy the sentiment of others washing their hands of equities or does the crowd have it right this time (the crowd is usually wrong but not always) and it is offering a warning before the next meaningful decline.
From 30,000 feet I tend to believe it is never different in terms of thinking that it makes sense for investors to permanently wash their hands of equities. We can look back on the last decade and see lousy returns for US equities but realize there were plenty of markets that had good or great returns even as the US did poorly. Technically speaking the current decade has started out pretty well, the SPX is up 27% from January 4, 2010. If a broad index can double or do a little better than doubling in a decade then it is doing pretty well and starting the meter on January 1st 2010 there has been nothing wrong with the results from this new decade.
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When you take in the bigger picture you see that we first hit current levels more than 12 years ago and that it is very plausible that we would be nowhere near 1400 without years of desperate and unprecedented action from the Fed. These are the things that contribute to the idea of people that do give up on stocks. Despite all of the problems we have and are likely to have for at least a few more years if the SPX is close to 2400 then that will have been a productive decade for people with adequate savings rates. And that is what investing for the long term is all about.
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The first picture is at the Auckland International Airport (ACKDY) waiting to go to Queenstown, the second one was some little town on the South Island that we drove through and the last one is our morning mocha at Mt. Cook National Park although that is not Mt. Cook, it was socked in while we were there.
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If the above is incorrect and this is significant then the question becomes whether this is a contrarian indicator for stronger hands to buy the sentiment of others washing their hands of equities or does the crowd have it right this time (the crowd is usually wrong but not always) and it is offering a warning before the next meaningful decline.
From 30,000 feet I tend to believe it is never different in terms of thinking that it makes sense for investors to permanently wash their hands of equities. We can look back on the last decade and see lousy returns for US equities but realize there were plenty of markets that had good or great returns even as the US did poorly. Technically speaking the current decade has started out pretty well, the SPX is up 27% from January 4, 2010. If a broad index can double or do a little better than doubling in a decade then it is doing pretty well and starting the meter on January 1st 2010 there has been nothing wrong with the results from this new decade.
.jpg)
When you take in the bigger picture you see that we first hit current levels more than 12 years ago and that it is very plausible that we would be nowhere near 1400 without years of desperate and unprecedented action from the Fed. These are the things that contribute to the idea of people that do give up on stocks. Despite all of the problems we have and are likely to have for at least a few more years if the SPX is close to 2400 then that will have been a productive decade for people with adequate savings rates. And that is what investing for the long term is all about.
.jpg)
The first picture is at the Auckland International Airport (ACKDY) waiting to go to Queenstown, the second one was some little town on the South Island that we drove through and the last one is our morning mocha at Mt. Cook National Park although that is not Mt. Cook, it was socked in while we were there.
Read more!
Saturday, December 08, 2012
The Big Picture for the Week of December 9, 2012
In its ongoing effort to instill fear promote awareness of the fiscal cliff CNBC is making a big deal whenever a company announces some form of special dividend to allow shareholders to benefit from a preferential tax rate with the assumption that we will go over the cliff thus causing tax rates on dividends to go up meaningfully.
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I am of the opinion that something will be pulled together such that the can gets kicked as opposed to actually solving anything which would buy the country a little time to try to figure something out. My expectation will either be right or not but if the cliff is averted or delayed then I wonder what the effect will be on these stocks that paid out those special dividends.
Yields on bonds will still stink in 2013, at least for most of the year. Given the desire for dividends, it would seem that the stocks that paid their 2013 dividends early, as some are doing, will get crushed. What is the point of holding a dividend stock that won't pay any dividends?
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Zooming out a little I would be wary of a company that put tax concerns ahead of cash flow needs for executing the business plan. Taxes are important but not more so than the running of the company. In a very similar vein companies issuing debt to pay dividends would make me wary as well. A company can only issue so much debt and using that opportunity for something other than improving the company's fortunes seems very misguided.
The first picture is from Milford Sound, the second one is from the Franz Josef Glacier and the last one is my favorite fire brigade station of the many we took pictures of when we were on the South Island.
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I am of the opinion that something will be pulled together such that the can gets kicked as opposed to actually solving anything which would buy the country a little time to try to figure something out. My expectation will either be right or not but if the cliff is averted or delayed then I wonder what the effect will be on these stocks that paid out those special dividends.
Yields on bonds will still stink in 2013, at least for most of the year. Given the desire for dividends, it would seem that the stocks that paid their 2013 dividends early, as some are doing, will get crushed. What is the point of holding a dividend stock that won't pay any dividends?
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Zooming out a little I would be wary of a company that put tax concerns ahead of cash flow needs for executing the business plan. Taxes are important but not more so than the running of the company. In a very similar vein companies issuing debt to pay dividends would make me wary as well. A company can only issue so much debt and using that opportunity for something other than improving the company's fortunes seems very misguided.
The first picture is from Milford Sound, the second one is from the Franz Josef Glacier and the last one is my favorite fire brigade station of the many we took pictures of when we were on the South Island.
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Friday, December 07, 2012
Alternative Retirement Income Streams
CNBC had a fun segment yesterday on the RV people recruited every year by Amazon to work in their distribution centers around the holidays. This particular segment was focused on Fernley, NV and one worker in particular named Jim Melvin who has a blog.
According to his blog he had been working four ten hour days but that was just ramped up to five 11 1/2 hour days. The hourly wage is $12 and the CNBC segment said there was "plenty of overtime." It looks like this is a ten week gig. It appears to be hard work, Jim said he put ten miles in one day (maybe he meant everyday?) so people who do it must be at least moderately fit. Jim seems to not love the work but if I heard correctly this is not his first season doing it and a lot of people want these jobs. As a nice little perk, Amazon pays the rent for the seasonal folks to park their RVs.
This is a tie in to past posts about seasonal work as a way to relieve some of the burden off of the portfolio during retirement--at least during the early years of retirement. Other things that have come up in this context include seasonal work for state and national parks and working for professional sports teams (or more likely the stadiums/arenas where they play). There are of course many more options for people who spend time seeking these options out. Our volunteer fire department has some paid shift work during the fire season which pays about $100 per shift.
It is possible that the question of cutting entitlement benefits for future retirees will soon be put on the table and if not soon then eventually. This will call more attention to various alternative ideas for income stream creation including seasonal work. If Jim averages 45 hours per week at $12 for ten weeks then he might be grossing $5400 but that does not include overtime. Generically speaking if this scenario means two months of not taking money from the portfolio then that is significant in terms of relieving some of the portfolio's burden.
For someone who lives a modest lifestyle this could be meaningful, especially if the social security benefit gets cut in half. If Jim, or someone in a similar situation, has a $600,000 portfolio and can live by the 4% rule then he might only need to take $20,000 out instead of $24,000 or will have some extra money for the one-off fund.
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The point is not that everyone should follow Jim's path but that it is important for each of us to find our own paths in case we cannot have a traditional retirement--a traditional retirement seems less likely for more and more of us.
Neither of the first two RVs pictured belong to Jim. The third one is the RV we rented on the South Island of New Zealand last February. We were waiting to go through the Homer Tunnel to get to Milford Sound.
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According to his blog he had been working four ten hour days but that was just ramped up to five 11 1/2 hour days. The hourly wage is $12 and the CNBC segment said there was "plenty of overtime." It looks like this is a ten week gig. It appears to be hard work, Jim said he put ten miles in one day (maybe he meant everyday?) so people who do it must be at least moderately fit. Jim seems to not love the work but if I heard correctly this is not his first season doing it and a lot of people want these jobs. As a nice little perk, Amazon pays the rent for the seasonal folks to park their RVs.
This is a tie in to past posts about seasonal work as a way to relieve some of the burden off of the portfolio during retirement--at least during the early years of retirement. Other things that have come up in this context include seasonal work for state and national parks and working for professional sports teams (or more likely the stadiums/arenas where they play). There are of course many more options for people who spend time seeking these options out. Our volunteer fire department has some paid shift work during the fire season which pays about $100 per shift.
It is possible that the question of cutting entitlement benefits for future retirees will soon be put on the table and if not soon then eventually. This will call more attention to various alternative ideas for income stream creation including seasonal work. If Jim averages 45 hours per week at $12 for ten weeks then he might be grossing $5400 but that does not include overtime. Generically speaking if this scenario means two months of not taking money from the portfolio then that is significant in terms of relieving some of the portfolio's burden.
For someone who lives a modest lifestyle this could be meaningful, especially if the social security benefit gets cut in half. If Jim, or someone in a similar situation, has a $600,000 portfolio and can live by the 4% rule then he might only need to take $20,000 out instead of $24,000 or will have some extra money for the one-off fund.
.jpg)
The point is not that everyone should follow Jim's path but that it is important for each of us to find our own paths in case we cannot have a traditional retirement--a traditional retirement seems less likely for more and more of us.
Neither of the first two RVs pictured belong to Jim. The third one is the RV we rented on the South Island of New Zealand last February. We were waiting to go through the Homer Tunnel to get to Milford Sound.
Read more!
Thursday, December 06, 2012
Update on Yield Chasing--Genghis Bond Edition
Last week I mentioned a bond offering for Mongolian sovereign debt (so called Genghis bonds) that was priced very low (yield-wise) but that was very much oversubscribed. In that post I mentioned that the long term prospects for Mongolia are good because of the vast resources in the ground but that the government has done a few things here and there that could impede progress to fruition.
The FT posted the above chart and an account of trouble brewing in the country's coalition government and the bonds got hit because of it.
This is an usual example of the consequence for chasing yield because of how quickly there was a problem but the arc is very common even if time compressed. The move in the bonds is obviously not a death blow but there was volume at the top of that chart and for now there is plenty of uncertainty, apparently more so than when these bonds were issued a few days ago.
The big point is not that no one should reach for yield but a lot of people reach for yield and don't realize they are doing so which often leads to a painful realization later. What I think causes this is not enough understanding among market participants that a 7% yield in a zero percent world takes on a lot of risk. On a more nuanced level realizing that 5% is not enough compensation for lending money to Mongolia would come next in the learning process.
In constructing your portfolio it is important to understand the risk and volatility profiles of each holding. Most client accounts own the TIP ETF and also own a preferred stock or two. The following chart has TIP in blue and a preferred stock (symbol erased) in red.
The preferred stock is obviously alive and well but it got crushed during the financial crisis. If capital markets ever stop functioning for a time like they did in 2008 then I would expect most preferred stocks to again get crushed. The case of this one stock was not a permanent impairment of capital but if too much of the portfolio is in things that can go down that much then the overall drawdown could be panic inducing which could lead to panic selling.
Unrelated, as Paul Sherwen would say; Tim Geithner really threw a cat among the pigeons with that interview yesterday. They'd "absolutely" let the economy go over the cliff? Is there anyway that is what he really meant to say?
Read more!
The FT posted the above chart and an account of trouble brewing in the country's coalition government and the bonds got hit because of it.
This is an usual example of the consequence for chasing yield because of how quickly there was a problem but the arc is very common even if time compressed. The move in the bonds is obviously not a death blow but there was volume at the top of that chart and for now there is plenty of uncertainty, apparently more so than when these bonds were issued a few days ago.
The big point is not that no one should reach for yield but a lot of people reach for yield and don't realize they are doing so which often leads to a painful realization later. What I think causes this is not enough understanding among market participants that a 7% yield in a zero percent world takes on a lot of risk. On a more nuanced level realizing that 5% is not enough compensation for lending money to Mongolia would come next in the learning process.
In constructing your portfolio it is important to understand the risk and volatility profiles of each holding. Most client accounts own the TIP ETF and also own a preferred stock or two. The following chart has TIP in blue and a preferred stock (symbol erased) in red.
The preferred stock is obviously alive and well but it got crushed during the financial crisis. If capital markets ever stop functioning for a time like they did in 2008 then I would expect most preferred stocks to again get crushed. The case of this one stock was not a permanent impairment of capital but if too much of the portfolio is in things that can go down that much then the overall drawdown could be panic inducing which could lead to panic selling.
Unrelated, as Paul Sherwen would say; Tim Geithner really threw a cat among the pigeons with that interview yesterday. They'd "absolutely" let the economy go over the cliff? Is there anyway that is what he really meant to say?
Read more!
Tuesday, December 04, 2012
Learning About Skill vs Luck
A Seeking Alpha reader left an interesting comment on the syndicated version of my recent post about Hugh Hendry;
This leads to a couple of interesting ideas.
A long time ago I heard the saying that the worst thing that can happen is to make money on your first option trade. The idea here is along the lines of confusing genius with a bull market or skill versus luck. Much has been made about the extent to which hedge funds are generally lagging the S&P 500 this year. The broad scope of what "hedge funds" target makes the point useless.
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Additionally I would submit that the true test of a hedge fund or other managed pool of capital is not whether it is up 20% when the market is up 15% but what it does when markets are relatively tougher to navigate. Also completely ignored is the concept of risk adjusted returns which we talk about quite regularly here. As the above new investor's process evolves he will probably become more aware of risk adjusted.
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Back to overconfidence. At times everyone gets cocky about their ability, most likely after a hot streak of some sort. Who knows how new of an investor the above commenter is but at some point we all learn a lesson about how good we are versus how lucky we are.
There is nothing wrong with being lucky, I attribute luck to a lot of things in my life. The key here is knowing the difference and knowing what your wheelhouse actually is. Long time readers will know I am all for expanding your wheelhouse but it is unlikely anyone will be an expert on biotech stocks after reading one article in Money Magazine while waiting at the airport.
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Most people can learn what it takes to be at least moderately successful (which along with an adequate savings rate can be enough to get the job done) at constructing a sophisticated portfolio but there are no shortcuts.
I've posted a lot of pictures from our trip to the Black Hills from this summer. I looked through the photos recently and found a lot that I think are neat that I had not posted before.
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As a new investor, I struggle with the following some of these Hedge Funds have when I see that I am outperforming almost all of them, and so is the market....why not buy an ETF and save the 2 and 20?
This leads to a couple of interesting ideas.
A long time ago I heard the saying that the worst thing that can happen is to make money on your first option trade. The idea here is along the lines of confusing genius with a bull market or skill versus luck. Much has been made about the extent to which hedge funds are generally lagging the S&P 500 this year. The broad scope of what "hedge funds" target makes the point useless.
.jpg)
Additionally I would submit that the true test of a hedge fund or other managed pool of capital is not whether it is up 20% when the market is up 15% but what it does when markets are relatively tougher to navigate. Also completely ignored is the concept of risk adjusted returns which we talk about quite regularly here. As the above new investor's process evolves he will probably become more aware of risk adjusted.
.jpg)
There is nothing wrong with being lucky, I attribute luck to a lot of things in my life. The key here is knowing the difference and knowing what your wheelhouse actually is. Long time readers will know I am all for expanding your wheelhouse but it is unlikely anyone will be an expert on biotech stocks after reading one article in Money Magazine while waiting at the airport.
.jpg)
I've posted a lot of pictures from our trip to the Black Hills from this summer. I looked through the photos recently and found a lot that I think are neat that I had not posted before.
Read more!
Monday, December 03, 2012
The Sheldon Fire
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We had an amazing response with 17 firefighters which allowed us to size up the fire from down below where it is safer, assess what we had so that we could confidently put our structure engine up top to protect where most of the threatened houses were located. Down below we had two Type 6 engines (brush trucks) and a water tender and up above we had the engine and another Type 6.
In all we put about 3500 gallons on what appeared to be a 1/3 acre fire that occurred in very steep terrain.
Amusingly (only after the fact), the fire was very close to our old house which we still own. It was across the street and a couple of properties around a corner.
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Sunday, December 02, 2012
Sunday Morning Coffee
Barry Ritholtz posted a commentary from Dylan Grice (via John Mauldin) that attempts to redefine the concept of safe havens. Grice's solution is simple and will make the dividend guys happy although I am not sure I agree. It is very much worth reading though.
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The picture is Devil's Tower.
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A similar picture emerges with the standard quality equity names in countries afflicted by the eurozone sovereign crisis. For example, Hellenic Bottling (Greece), Luxoticca (Italy) and Kerry Group (Ireland) all followed a similar pattern, outperforming their domestic equity indices and performing the safe haven role vacated by their government bonds
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The picture is Devil's Tower.
Read more!
Saturday, December 01, 2012
The Big Picture for the Week of December 2, 2012
A pseudonymous tweeter named Art Vandelay posted a link to Hugh Hendry's latest fund report. Hendry tends to be very opinionated and seems glad to share his opinions. I find him to be an interesting manager to keep tabs on.
The linked report included the fund's top ten positioning as of September 30 both in terms of percentage weightings but also value at risk weightings.
NAV top ten;
Australian Ten Year Bond Futures
Source Physical Gold ETC
ETFS Physical Gold ETF
MSCI Asia ex-Japan Staples ETF
VIX Futures
Long USD/Short Korean won
DB Physical Silver ETC
Long USD/Short Chinese yuan
ETFS Global Agribusiness ETF
Australian Three Year Bond Futures
VaR top ten
Source Physical Gold ETC
ETFS Physical Gold ETF
VIX Futures
ETFS Global Agribusiness ETF
Source Physical Silver ETC
Philip Morris (client holding)
Starbucks
AB Foods
Chevron
Exxon Mobil
If you are familiar with Hendry then you know he embeds many themes into his portfolio and as you can tell he is able create most of the themes in the portfolio with exchange traded products; futures, individual stocks and ETFs. And for anyone so inclined currency pairs and crosses are now easily accessed in retail sized accounts at forex firms.
The point is not abut copying Hendry or anyone else but to realize that just about any theme or concept you can devise can be implemented on a retail sized scale which is--repeat theme coming--very democratizing.
That is not to say that everyone should open a forex account to game the Hungarian forint against the euro but a large determinant of how people construct their portfolios is time available to spend on the task and interest in the task. Eight years of maintaining this site and it is obvious from the comments that there are plenty of do it yourselfers with the time and inclination to construct similarly sophisticated portfolio's as Hendry's. I doubt this applies to the majority of do it yourselfers but there is plenty of room between owning one equity fund and one bond fund and a portfolio like Hendry's.
Looking at the holdings above it is not yet possible to choose different maturities on the Aussie yield curve with ETPs but the WisdomTree Australia New Zealand Debt Fund (AUNZ) is reasonably close--we use AUNZ for some client accounts. There are of course a couple dozen VIX related ETPs but they mostly been crushed by the dynamics of the VIX futures curve--meaning contango.
There is one ETF in the list that I don't think has a precise US equivalent; the MSCI Asia ex-Japan Staples ETF. I think this fund is from Lyxor and trades in London under symbol COGS. EG Shares has its Emerging Markets Consumer Services ETF (VGEM) but that only has about 20% in Asia. If anyone knows whether foreign traded ETFs like COGS can be traded through these relatively new direct trading services offered by Schwab, Fidelity and a couple of others, please leave a comment.
Read more!
The linked report included the fund's top ten positioning as of September 30 both in terms of percentage weightings but also value at risk weightings.
NAV top ten;
Australian Ten Year Bond Futures
Source Physical Gold ETC
ETFS Physical Gold ETF
MSCI Asia ex-Japan Staples ETF
VIX Futures
Long USD/Short Korean won
DB Physical Silver ETC
Long USD/Short Chinese yuan
ETFS Global Agribusiness ETF
Australian Three Year Bond Futures
VaR top ten
Source Physical Gold ETC
ETFS Physical Gold ETF
VIX Futures
ETFS Global Agribusiness ETF
Source Physical Silver ETC
Philip Morris (client holding)
Starbucks
AB Foods
Chevron
Exxon Mobil
If you are familiar with Hendry then you know he embeds many themes into his portfolio and as you can tell he is able create most of the themes in the portfolio with exchange traded products; futures, individual stocks and ETFs. And for anyone so inclined currency pairs and crosses are now easily accessed in retail sized accounts at forex firms.
The point is not abut copying Hendry or anyone else but to realize that just about any theme or concept you can devise can be implemented on a retail sized scale which is--repeat theme coming--very democratizing.
That is not to say that everyone should open a forex account to game the Hungarian forint against the euro but a large determinant of how people construct their portfolios is time available to spend on the task and interest in the task. Eight years of maintaining this site and it is obvious from the comments that there are plenty of do it yourselfers with the time and inclination to construct similarly sophisticated portfolio's as Hendry's. I doubt this applies to the majority of do it yourselfers but there is plenty of room between owning one equity fund and one bond fund and a portfolio like Hendry's.
There is one ETF in the list that I don't think has a precise US equivalent; the MSCI Asia ex-Japan Staples ETF. I think this fund is from Lyxor and trades in London under symbol COGS. EG Shares has its Emerging Markets Consumer Services ETF (VGEM) but that only has about 20% in Asia. If anyone knows whether foreign traded ETFs like COGS can be traded through these relatively new direct trading services offered by Schwab, Fidelity and a couple of others, please leave a comment.
Read more!
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