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Article Archive: 2006

Renters gloat over the housing slump
12/30/06   Real Estate
"For years, Americans who refused to buy real estate at what they considered excessive prices were ribbed for failing to profit from one of the greatest booms in history. "Are You Missing the Real Estate Boom?" needled the title of a 2005 book by David Lereah, chief economist of the National Association of Realtors. Now, with the housing market in a slump, renters who sat out the boom are finally getting some satisfaction."

Irrational optimism
12/30/06   Markets
"Elroy Dimson discusses: * Observations on investor expectations in relation to historical returns. * A long-term analysis of stock market returns around the globe. * A warning against expecting safety in equities, even over long holding periods."

Eight Graham Stocks for 2007
12/29/06   Stingy Investing
"Over the past six years I've used Benjamin Graham's time-tested strategy for defensive investors to uncover undervalued U.S. stocks. Overall the results have been stellar but last year the method hit a speed bump and posted a small loss."

I make $6.50 an hour. Am I poor?
12/28/06   Thrift
"As a single professional woman, for years I sat securely among the lower rungs of the middle class. Now I've fallen off the ladder. In a matter of months, I went from a comfortable life with decent pay and health insurance to a $6.50-an-hour job with no insurance, no furniture and just enough resources to keep the wolf from the door."

How Warren Buffet made his billions
12/26/06   Buffett
"Warren Buffett is a man who has made millions but he also started working at his father's brokerage when he was 11 years old, that's an age when most other kids were playing hide-n-seek and didn't know how to spell 'brokerage'. This financial wizard is by recent estimates, worth $46 billion but how he got there is the fascinating story."

The corporate Scrooge contest
12/24/06   Christmas
"Our appeal for corporate Scrooges - tales of office parties canceled, miserly bonuses, and pathetic gifts - generated a generous response. Nearly 200 Slate readers wrote in, providing enough fodder for several episodes of The Office. We heard from employees of car dealerships, doctors, and small law firms, but also from blue workers at blue chips, including Burberry, Dow Jones, Goldman Sachs, Disney, Wells Fargo, and Wal-Mart."

Short the exchanges
12/22/06   Dreman
"There's nothing better for piling up the cash to pay Wall Street bonuses than a hot stock offering. And since the market recovery began in late 2002, some of the hottest public offerings have been in securities exchanges themselves. Exchanges are the new Internet. That is, they are presumed to be capable of growing higher than the blue sky. That would make them good shorting candidates, if only you could get your hands on some borrowed shares."

Economics discovers its feelings
12/20/06   Behaviour
"The hedonimeter was never invented, and for a century or so economists fell silent about both weights on man's scales. They studied outward behaviour, not inward feelings; choices made, not pleasures taken. But in recent years, economists have become newly confident that they can measure utility as Bentham conceived it: as a quantum of pleasure or pain. How do they do it? Mostly they just ask people. Daniel Kahneman, a psychologist at Princeton University who won the Nobel prize for economics in 2002, reckons people are not as mysterious as less nosy economists supposed."

Free to choose?
12/20/06   Behaviour
"For millennia the question of free will was the province of philosophers and theologians, but it actually turns on how the brain works. Only in the past decade and a half, however, has it been possible to watch the living human brain in action in a way that begins to show in detail what happens while it is happening. This ability is doing more than merely adding to science's knowledge of the brain's mechanism. It is also emphasising to a wider public that the brain really is a just mechanism, rather than a magician's box that is somehow outside the normal laws of cause and effect. Science is not yet threatening free will's existence: for the moment there seems little prospect of anybody being able to answer definitively the question of whether it really exists or not. But science will shrink the space in which free will can operate by slowly exposing the mechanism of decision making."

10 mutt stocks that will shine in 2007
12/19/06   Value Investing
"My Dog Star list contains some of the market's most-reviled names. These beaten-down but sound stocks should rise in price in the new year."

Give me your tired, your poor, your big losers
12/19/06   Dorfman
"The dregs. That's what you might call the stocks I'm writing about this week. They are the 10 stocks down the most this year, among the stocks in the Standard & Poor's 500 Index. Why bother looking at such a bunch of losers? For a simple reason: This year's scurvy dog may be next year's best in show."

Southern stars: The Top 500 U.S. Stocks
12/18/06   Stingy Investing
"If you're intrigued by the results of our Top 200 listing of Canada's largest stocks, you may be interested in extending your search for good investments beyond Canada's borders. If so, we invite you to join us as we embark on a road trip through the largest 500 stocks in the U.S. Our goal? To find tomorrow's stars today."

Tax changes that may be in store for us
12/17/06   Taxes
"Today, let's peek at the potential tax changes coming in the federal budget expected in late February. You see, on Dec. 7, the finance committee released its prebudget report detailing, among other things, recommendations as to what tax changes should be considered. So, let's unwrap these recommendations."

Smashing the clock
12/14/06   Management
"Ressler and Thompson saw their opening in these two vanguard managers. Would they be willing to partake in a private management experiment? The two outlined their vision. They explained how in the world of ROWE, there would be no mandatory meetings. No times when you had to physically be at work. Performance would be based on output, not hours. Managers would base assessments on data and evidence, not feelings and anecdotes. The executives liked what they heard and agreed. The experiment quickly gained social networking heat. Waiting in line at Best Buy's on-site Caribou Coffee (CBOU ), in e-mails, and during drive-by's at friends' desks, employees in other parts of the company started hearing about this seeming antidote to megahour agita. A curious culture of haves and have-nots emerged on the Best Buy campus, with those in ROWE sporting special stickers on their laptops as though they were part of some cabal. Hance, the hunter, started taking conference calls in tree stands and exchanging e-mails from his fishing boat. When Wells wasn't following around Dave Matthews, chances were he was biking around Minneapolis' network of urban lakes, and digging into work only after night had fallen. Hourly workers were still putting in a full 40, but began doing so wherever and whenever they wanted. At first, participants were loath to share anything about ROWE with higher-ups for fear the perk would be taken away or reversed."

Bunny's picks
12/12/06   Dorfman
"What is this Bunny Portfolio? It is a simple computer-driven stock-selection program that I devised seven years ago. To qualify as a candidate, a stock must: * Have 25 percent compound average annual earnings growth for the past five years. * Sell for 12 times earnings or less. * Trade in the U.S. * Have a market value of $250 million or more. Usually, about three dozen stocks a year meet the entrance requirements. This year, 73 stocks did. To narrow the field to 10 stocks, I take the five with the fastest historical earnings growth rates, and the five with the lowest price relative to the previous four quarters' earnings."

Bet the house
12/12/06   Grant
"By a margin of almost 2-to-1, economists surveyed by last month judged that the worst of the residential real estate slump was history. House prices will soften in 2007, the sages predicted, but by only a little bit. In fact, 20 of the 49 respondents forecast a rise. Ebenezer Scrooge was a mortgage banker, and the arguments I am about to marshal for a hard landing in housing might sound un-Christmaslike. But during the just-pricked bubble, it wasn't the Scrooges and the Marleys who lent more than 100% of the purchase price of a house without bothering to verify the income or employment of the applicant, or even to insist that he or she pay down a little bit of the principal now and then. House prices soared on the wings of the modern, optimistic, growth-obsessed mortgage industry."

Dairy industry crushed innovator
12/11/06   Government
"In the summer of 2003, shoppers in Southern California began getting a break on the price of milk. A maverick dairyman named Hein Hettinga started bottling his own milk and selling it for as much as 20 cents a gallon less than the competition, exercising his right to work outside the rigid system that has controlled U.S. milk production for almost 70 years. Soon the effects were rippling through the state, helping to hold down retail prices at supermarkets and warehouse stores. That was when a coalition of giant milk companies and dairies, along with their congressional allies, decided to crush Hettinga's initiative."

Whitman profile
12/11/06   Whitman
""We're such cowards!" said Martin Whitman, the 82-year-old legendary superinvestor, at a seminar organized by New York Society of Security Analysts on February 16, 2006, "We only want to be the senior-most creditors in distressed situations. We only want to be the adequately secured lenders in Europe and overseas. We don't want to be subordinate to any of the asbestos or tobacco liabilities..." And he brilliantly calls himself the "safe and cheap" investor."

These dogs are barking
12/11/06   Dividends
"At the beginning of this year, you would have looked foolhardy if you had piled into General Motors Corp., Merck & Co. Inc. or Verizon Communications Inc. All three stocks were beaten up, and they looked likely to receive more poundings in the months ahead. Amazingly, though, each one has since exceeded all but the most eccentric expectations. So far this year, GM shareholders are basking in an 80% share-price gain, while Merck and Verizon are up 43% and 23%, respectively. Those kinds of numbers would bring a smile to the lips of any investor. The problem is, who could have guessed that stocks that looked so bad at the start of 2006 would make such gains? Well, if you had followed the Dogs of the Dow stock-picking strategy when making your investments back in January, you would have put a good-sized chunk of money on GM, Merck and Verizon. And you would now be feeling pretty good about making calls that seemed to defy all common sense only a few months ago."

Saving Mom from annuity pitches
12/08/06   Brokers
"Have you ever heard the expression "to a man with a hammer everything looks like a nail"? Well, some financial advisers who make a good part of their living selling annuities see variable annuities as the answer to virtually every client's financial needs. Looking for tax-sheltered returns? A variable annuity will do the trick! Retirement investment? Can't beat a variable annuity! Looking for safety and guarantees? I've got just what you need - a variable annuity!"

The New, Soft Paternalism
12/08/06   Government
"But what if it could be shown that even highly competent, well-informed people fail to make choices in their best interest? And what if the government could somehow step in and nudge them in the right direction without interfering with their liberty, or at least not very much? Welcome to the new world of 'soft paternalism'. The old 'hard' paternalism says, We know what's best for you, and we'll force you to do it. By contrast, soft paternalism says, You know what's best for you, and we'll help you to do it."

Rethinking your investment risk
12/07/06   Economics
"The Poor Should Invest in Riskier Assets than the Rich. This statement runs counter to conventional financial planning wisdom. But it.s in full accord with conventional economics. Like Joe, the poor, broadly speaking, are in a better position than the rich to invest in risky assets. Although the poor obviously have a much lower living standard than do the rich, it.s much closer to the level effectively guaranteed by the government through its various welfare programs, including Food Stamps, Medicaid, and Workfare. Hence, the government provides the poor much better downside protection against a major percentage drop in their economic resources than it provides the rich. That the poor should hold more stocks than the rich is just one of several financial mindbenders that emerge from a proper view of investment risk."

Insiders with a curious edge
12/07/06   Management
"Executives appear to be using their flexibility to the max. People selling shares in 10b5-1 plans generate returns substantially better than would be expected if the trading were truly automatic. As reported in BusinessWeek on Nov. 6, Alan D. Jagolinzer, an assistant professor at Stanford University Graduate School of Business, recently completed a study of roughly 117,000 trades in 10b5-1 plans by 3,426 executives at 1,241 companies. He found that trades inside the plans beat the market by 6% over six months.Those numbers imply that the rules allow execs to benefit from inside knowledge. "The SEC's intent was to shelter people who didn't have any [material] inside knowledge from liability," says Jesse Fried, co-director of the Center for Law, Business & the Economy at the University of California at Berkeley School of Law, and an expert on executive compensation who has reviewed Jagolinzer's study. "But that outperformance suggests instead that it's the people using what information they have who are most often entering into trading plans." Says Walter Riccardi, deputy director of the SEC's Enforcement Div.: "Setting up a 10b5-1 plan while in possession of material information...could be Securities fraud.""

A big lender's credit card trap
12/06/06   Debt
"Capital One Financial keeps the limits low and offers its most vulnerable borrowers additional cards instead -- helping them dig ever-deeper holes with penalties of hundreds of dollars a month."

12/06/06   Christmas
"The Christmas season is upon us, and that means invites to the office holiday party, open houses, and preschool-benefit auctions are starting to pile up on the table next to your front door. You're probably starting to get anxious - wear velvet headband or diamond clippie? bring potted plant or midrange merlot?.and yet you are likely ignoring the most important holiday question of all: Who are you going to sue this holiday season, and, more vitally, who is going to sue you?"

Appealing small stocks
12/05/06   Dorfman
"For this column, I used a Bloomberg stock-screening program to identify stocks with a market value of $250 million to $1 billion, selling for 15 times earnings or less, with debt less than equity. I also required good profits in the latest fiscal year, with a return on equity of at least 15 percent. Fifty-seven stocks passed the screen, and I am recommending seven of them here."

Invest like the masters
12/01/06   Stingy Investing
"Want to invest like a master? Then look to the works of Warren Buffett, Peter Lynch, David Dreman, and James O'Shaughnessy. These four gentlemen are all great investors, and all of them have either written books on how to invest or, in Buffett's case, produced years of informative shareholder letters. Remarkably, none are shy about sharing their market-beating techniques. In this feature, we examine how each of these wizards thinks and we spell out what each looks for in a stock. But that's just for starters. We've also scoured the markets for stocks that our famous investors might be interested in buying right now."

How did investors really do?
12/01/06   Funds
"There were a few bright spots. All of the fund categories that mix stocks and bonds posted 10-year investor returns that nearly matched or even outpaced their total returns. Investor returns for bond funds also tended to stay within close proximity of their total returns."

Steal this column
11/29/06   Value Investing
"In the investing world, talk is cheap. We're bombarded by a never-ending stream of chatter in the form of newspaper articles, marketing material, television interviews and, yes, even magazine columns. Buy oil, sell gold, get out of the house builders, get into biotech stocks - how can an investor (especially one who is just starting out) make sense of this babble of often contradictory advice? It's easy. Stop listening to what the investment experts are saying. Look instead at what they're doing. While legendary investors like Warren Buffett won't take your phone calls, they are obligated by law to regularly report their major portfolio holdings. These days, thanks to the Web, you can click a few links and see exactly what these geniuses are up to. It's like being at a giant poker game, where you can peer over the shoulders of many of the smartest money managers on earth and see precisely what cards they're holding."

A bullish bet on joe consumer
11/28/06   Value Investing
"Q: What's another stock you like right now? A: Allstate (ALL). The company has had problems, but new management has come along and fixed it. They are at about eight times 2006 earnings, generating a lot of cash, and buying their own stock. But that is a company-specific play; I'm not buying insurance companies across the board. Q: What is the future of property and casualty insurers like Allstate that sell primarily through traditional brokers, given the success of companies such as Geico, which sells direct to consumers? A: I have no opinion. Q: You don't have an opinion, even though you see enough merits to the company to recommend it? A: If Allstate were 12 or 15 times earnings, those things become relevant. At eight times earnings, I don't care. It's a better company than it was; they fixed their problems and they are still selling cheap."

Why Warren Buffett's a genius again
11/28/06   Buffett
"On Oct. 23, Warren Buffett's Berkshire Hathaway hit a price of $100,000 a share. As far as I can discover, that's the highest price ever for shares of a publicly traded company. The A shares are up about 5,555 times since May 1965, when Buffett took control of what was then a modest textile company. With that milestone behind the shares, of course, the question now is, will Berkshire Hathaway A become the first $200,000 stock? Yes. Not a doubt. Remember that you heard it here first: Berkshire Hathaway A will be the first $200,000-per-share stock."

January bounce candidates
11/28/06   Dorfman
"Every year, some stocks are unfairly kicked while they're down. Stocks that have had a tough year often get roughed up more in October and November as investors dump their losers for tax reasons. By selling stocks that are down, investors can offset gains elsewhere in their portfolios. As a side effect of this tax maneuvering, some decent stocks get undervalued near year-end, paving the way for a 'January bounce.'"

Procrastination will cost you
11/26/06   Retirement
"I'm inspired to write about something as basic as starting your retirement savings sooner rather than later. You see, I was reminded once again that each generation has to be educated on the fundamental truth that time is your biggest ally when it comes to financial security. Make sure your kids understand this."

I want it now!
11/25/06   Behaviour
"One of my daughter's favorite bedtime stories is A Birthday for Frances. I like it, too, for the charming illustrations, hilarious dialogue, and instruction in cutting-edge behavioral economics. Frances, the story's young heroine, secures an advance on her allowance in order to buy bubblegum and a Chompo bar as a birthday present for her little sister Gloria. Yet, as she returns with her father from the sweet shop, Chompo bar in hand, Frances begins to think of all kinds of reasons why she, not Gloria, should eat the chocolate."

Down on the street
11/23/06   Markets
"No longer can America take for granted its global superiority as a market for capital. Regulatory reform might let it keep up with the pack"

E*Trade raises the stakes with high-rate offering
11/22/06   Brokers
"E*Trade is fighting the dominant, bank-owned discount brokers for market share in Canada and it already slashed the cost of trading stocks to as low as $9.99, compared to as much as $29 elsewhere. Now, it's offering a solution to a quandary faced by virtually all investors: How do you squeeze a decent return from the cash in your brokerage account in a low interest rate environment? E*Trade will announce a new offering today called the Cash Optimizer Investment Account, which carries a rate of 4.15 per cent for Canadian-dollar balances and 4.75 for U.S. dollars. There are no fees of any kind or any minimum deposit."

The 400-square-foot dream home
11/20/06   Real Estate
"Teeny-tiny houses are the next big thing on the horizon. Those who've downsized say you can save a ton of money and time -- if you can handle the challenges of living small."

Pattison goes deeper into the woods
11/18/06   Value Investing
"But he has watched the sector for long enough from close up to know that when it seems beyond hope, that's probably the best time to put your money in. "We've been here [in B.C.] virtually all my life," he says. "Ever since I can remember, forest products has had its ups and downs and ups and downs . . . . Being up, you know it isn't going to last. And when it's down, hopefully it doesn't last." Some of the best value investors on the continent are thinking the same thing. Several have placed large bets that the red ink in the woods is bound to stop flowing, eventually, and that by investing now, they will reap huge gains in the recovery. Their theory, contrarian as it may seem, is that the industry's economics have been so bad for so long that it has no choice but to undergo massive change. Weak players will go bankrupt, scores of mills will close forever, and a wave of takeovers will knock out the smallest players."

New ETFs will whet your appetite
11/18/06   Indexing
"Let 2006 go down as the year that diversity finally came to the achingly bland Canadian ETF market. Not a lot of diversity, mind you. We now have 27 exchanged-traded funds listed on the Toronto Stock Exchange, compared with about 350 in the United States and dozens more to come. But with the introduction of nine new ETFs in the past couple of months, things are looking up for Canadian investors who like the low cost and flexibility of these index funds that trade like a stock."

Whiff of cash can be a sour note
11/16/06   Behaviour
"Merely the sight of money can change a person's behaviour, says a study done by an American marketing professor and financed by Canadian research institutions. Kathleen Vohs, an assistant professor at the University of Minnesota, and colleagues conducted a series of nine experiments in which people were asked to do puzzles or other tasks. The behaviour of people exposed to money was compared to others who were not prompted to think about it."

Browne searches for value: why don't you?
11/16/06   Value Investing
"Tweedy, Browne is money management's equivalent of the Republican cloth coat: nothing flashy, ever dependable, transcending style. It is an organization that was founded in 1920 to deal in thinly traded stocks, and which in the 1950s realized that more money was to be made in owning such typically undervalued shares than in trading them. The firm began to take in outside funds in 1968, and has grown to now managing over $13 billion. It did not hurt that one of the firm's earliest and best clients was Benjamin Graham, co-author in 1934 of the nearbiblical "Security Analysis." Indeed, the company's early association with Mr. Graham (and proximity they moved into office space down the hall from the revered investor) led also to a relationship with Walter Schloss, Warren Buffett, and Tom Knapp, who joined the firm in 1957 and spear-headed its entr e into the investment game. These are formidable value bloodlines."

The greatest money manager of our time
11/15/06   Miller
"It goes without saying that Miller is an iconoclast. You simply can't do what he's done in the supremely competitive, ultra-efficient world of stock picking by following the pack. On the outside Miller and his operation look like a standard-issue money management firm - it's a buttoned-down, conservative-looking crew - but spend some time with the man and his brain trust, and you realize that this is more like some sort of academic enclave or wonk house."

Alcan, BCE, Nortel cited for pension deficits
11/15/06   Accounting
"Alcan Inc., Nortel Networks Corp. and BCE Inc. top a list of 10 companies singled out yesterday by Moody's Investors Service Inc. for their underfunded pension plans. Moody's bond raters have been studying pension liabilities at the 300 or so Canadian entities it covers because the liabilities can have an impact on corporate credit ratings. Moody's hasn't cut any ratings because of underfunded pensions, said Waylon Iserhoff, senior accounting analyst and vice-president at Moody's, Toronto. But pension deficits bear watching because costs to top them up can reduce a company's flexibility to spend in other areas, Mr. Iserhoff said."

Short sellers want to crash the Tupperware party
11/14/06   Markets
"When the Federal Trade Commission proposed new rules this spring for multilevel marketers - businesses best known for commercials that promise riches selling herbal supplements and beauty supplies - it drew howls of protest. Tupperware party-givers, diet pill vendors and knife salesmen sent the agency more than 15,000 letters complaining that the proposed rules would undo a $30-billion-a-year industry. Now the regulator has gained an unusual ally: short sellers."

Are you on track to retire rich?
11/14/06   Thrift
"Yes, the typical household really can save $1 million to retire on, but most don't. Here's how your friends and neighbors are doing."

Sleazy CEOs have even more options tricks
11/14/06   Management
"To corporate America, the new rule was a minor hassle; to a first-year New York University finance professor named David Yermack, it was a new source of interesting data. Yermack began examining stock prices before and after options grants, and found the eerily consistent pattern displayed (in updated form) in the chart on this page: The average company's stock price dropped in the days before its CEO was given a bushel of options, and rose afterward. Executive options are usually granted "at the money" - i.e., if the stock is at $10, the CEO gets options to buy it for $10 a share - so getting options on a bad day for the stock is good news for the recipient. Yermack figured that this wasn't just luck, and theorized that companies were timing their grants to precede good-news announcements and follow negative ones. His findings began making the rounds in 1995, sparked a flurry of interest among finance and accounting scholars, and were published in The Journal of Finance in 1997."

The rally builds steam
11/14/06   Dreman
"First, it's impossible to get a good grip on how far the housing slump will go. The optimists state the decline in new home sales is almost over and home construction will bounce back vigorously both next year and in 2008. That's a hard story to buy because of the strong headwinds that await this important industry. Even if new construction is cut back fairly sharply, there is still a large inventory of new units to work off. With diving house sales, stocks of home builders look cheap today. However, proceed with caution. My fellow columnist Laszlo Birinyi finds several a buy, despite weakening earnings. I'd wait a bit. Many builders have bought call options on new land. They would argue that they are thus protected if land prices drop because they do not own the land. That's true only up to a point. Call options on land are not free. A 12- to 18-month option to buy land can cost as much as 15% of the property's value. Let that option lapse and you eventually have a hit to earnings for the premium paid."

The billionaire next door
11/13/06   Buffett
"Buffet takes Claman on a personal tour of his hometown of Omaha, Nebraska from his grandfather's store where he turned his first profit selling chewing gum and soda, to the $31,500 house he's owned for almost a half-century. The unassuming billionaire says, "I like the way I was living when I was in my 20's. I still like that way...I like to go home and put on a sweat suit." Buffett owned his first stock at the age of 11, but admits, "I don't know why I wasted time before that stock...I got started late." In the hour-long special, Claman gets Buffett to open up on a variety of topics such as his gut instincts about business, his feelings about Wall Street, how he feels when he makes a deal, his surprising view about his own tax rate and his $31 billion pledge to the only person in the world with more money, his good friend Bill Gates."

Boom and gloom
11/13/06   Behaviour
"A few years ago, the Nobel Prize-winning psychologist Daniel Kahneman conducted an odd experiment. He had a group of students eat a bowl of their favorite ice cream while listening to a particular piece of music eight days in a row. After the first day, Kahneman asked them to predict how they'd feel about the whole experience once it was over. Their predictions turned out to be way off base. Some students who thought that they'd hate having to eat the same flavor eight days in a row became addicted to it. Some who thought they'd enjoy the experience were eventually repulsed by it. The upshot: people may know when they're happy, but they often don't know what will make them happy. That poses a problem for the basic tenets of modern economics: that people act in their own self-interest most of the time, and that they usually know what that self-interest is."

Huge debts, paid off fast
11/13/06   Thrift
"A $150,000 mortgage erased in five years. About $49,000 in credit cards, almost gone in just a year. These debt-payoff champions share their secrets."

Hit reset: online calculators
11/12/06   Stingy Investing
"Replay history: We've mentioned this calculator before and we'll do so again it's a wonderful way to see how different investment strategies would have fared over the years. You select a portfolio composed of up to six major asset types, then pick start and end dates. The calculator tells you how much you would have made or lost. Our take: A great way to try out various approaches to investing without betting a dime of real money. You may be surprised at the volatility of even the best-balanced portfolio."

Dividend stars: How to make up for trust tax
11/11/06   Dividends
"It's a great time to look hard at dividend stocks, even if many aren't exactly bargain-priced right now. Interest rates are expected to fall in the year ahead, which is positive for all income-producing investments. With the income trust market struggling to come to grips with a federal government crackdown on the sector, dividend stocks stand out as an obvious alternative. And if the stock market were to weaken next year, not an unlikely prospect with a fourth successive great year just about in the books, dividend stocks stand a good chance of escaping the worst effects."

NYSSA honors Walter Schloss
11/10/06   Value Investing
""I worked for Benjamin Graham for 9 1/2 years, and Ben said he was going to retire and move to California," began Schloss. "I had to get another job, so one of the people who was a stockholder of Graham Newman came to me and said, 'Walter, if you start a fund, I will put some money in it.' We ended up with $100,000. The structure was that I would not get paid unless we realized gains. The kind of stocks I bought were not growth stocks. Graham was really value-oriented. In those days he would buy stocks that were selling below working capital. There were less of them, but they were still around." "Since I only liked to buy stocks that were undervalued from a statistical point of view, they were not necessarily great companies. There was no particular point in hanging on to them indefinitely. We were buying companies on the way down and selling them on the way up. Not every company worked out, but enough of them did, so we had a pretty good record.""

The defiant one
11/10/06   Brokers
"The ex-employee who tried to bring down Saskatoon financial advisor Brian Mallard died two years ago. But Mallard's fight for his reputation didn't."

Have a tightwad's Christmas
11/09/06   Christmas
"Try these ideas for keeping holiday spending under control, finding alternative gifts and making your hard-earned dollars go farther this year."

Rewriting history
11/07/06   Academia
"Comparing two snapshots of the entire I/B/E/S analyst stock recommendations database, taken in 2002 and 2004 but each covering the same time period 1993-2002, we identify nearly twenty thousand changes of an unusual nature: the selective removal of analyst names from historic recommendations ("anonymizations"). This practice turns out to be pervasive and non-random: Bolder recommendations are more likely to be anonymized, as are recommendations from more senior analysts, Institutional Investor "all-stars," and those who remain in the industry beyond 2002. Abnormal stock returns following subsequently anonymized buy recommendations are significantly lower (by up to 11.0% p.a.) than those following buy recommendations that remain untouched, suggesting that particularly embarrassing recommendations are most likely to be anonymized. Analysts whose track records appear brighter due to anonymizations experience more favorable career outcomes over the 2003-2005 period than their track records and abilities would otherwise warrant."

Buy? sell? hold? delete!
11/07/06   Markets
"This is breath-taking - but it also begs more questions than it answers. Nearly 20,000 analysts' recommendations sitting on the IBES research database, owned by Thomson Financial, were somehow doctored between September 2002 and May 2004, according to an academic paper due to be delivered in January to the American Finance Association's annual meeting in Chicago."

Where Were The Auditors?
11/06/06   Accounting
"It's pretty clear by now that the stock option backdating scandal is much more widespread than initially believed. More than 150 companies are either embroiled in internal probes or are now being investigated by the Securities and Exchange Commission for potential stock option backdating abuses. The deluge is growing daily, with a fresh batch of companies announcing stock option accounting problems with each passing day."

Why your 'lizard brain' makes you a bad investor
11/05/06   Thrift
"Investors often make foolish financial decisions, and lots of folks are trying to figure out why. Specialists in behavioral finance have sketched out some of our more persistent mental mistakes. Neuroeconomics is looking at how the brain functions. Happiness researchers are trying to understand why our rising standard of living hasn't made us happier. Now, some experts are turning to evolutionary psychology. Why do we make so many financial errors? Maybe, deep down, we're just cavemen and women."

The Dodge & Cox mystique
11/04/06   Value Investing
"In its 76-year history, Dodge & Cox has launched precisely four mutual funds. The firm doesn't advertise and has no marketing department. Yet investors are so taken with its funds that it has had to shut half of its tiny lineup to new customers to stanch the flood of money."

Repo men
11/04/06   Bonds
"Mr Clouse said there could now be a "strong sense of history repeating itself" - a reference to the scandal at Salomon Brothers in the early 1990s, in which the investment bank was caught dodging rules on treasury auctions in order to gain control over certain issues."

Gift to income-splitting pensioners
11/04/06   Taxes
"How much tax can this save you? Consider a senior couple. Assume the husband has $60,000 of income, $50,000 of which is eligible pension income that he will split with his wife. She has $10,000 of her own income before the allocation from him. If he allocates one half, or $25,000, of his pension income to her, the couple will save $4,196 in taxes (assuming 2006 Ontario tax rates, and assuming the allocation of income to her also qualifies her for the pension tax credit). This tax savings represents 6 per cent of their total income of $70,000. Not too shabby. This new change could affect retirement planning for some by making it more desirable to create eligible pension income that can be easily split than to earn other types of investment income in retirement."

It's too early to throw in the towel on trusts
11/04/06   Trusts
"The income trust market is incredibly vulnerable right now and any news development that suggests a bleak future is going to make things worse. Still, veteran money manager Rick Howson says there's an argument to be made that trusts have been wrung out as much as they deserve to be in light of the new trust tax. Mr. Howson, manager since 1997 of the Saxon High Income Fund, said the new tax essentially will treat trusts just like a corporation, whereas trusts now have an advantage in that they pay no corporate tax. Previously, trusts were considered more valuable because they had this tax benefit. Now that the benefit is on the way out, trusts and corporations deserve to be valued similarly. In Mr. Howson's estimation, this is exactly what the markets did to trusts this week -- pull them down in price to put them on par with corporations. "I would say that if we look at income trusts as a group, the bulk of the damage has been done in terms of price declines," he said. "Trusts are now reasonably priced compared with comparable companies, as a group." Does that mean trusts are a buy right now? Mr. Howson warned that there could be still more adjustment ahead for trusts as details emerge on what shape they'll take after 2011. Despite this uncertainty, it can be argued that some trusts will continue to be attractive investments."

The reluctant briber
11/03/06   World
"Meanwhile, although he no longer wants to do business in Russia, things are returning to normal in Ukraine. The team that ran the country before the revolution is back in power, and Ivan once again knows who, when and how much."

A simple way to get rich
11/03/06   Stingy Investing
"I suggest taking a tip from Benjamin Graham, the legendary Wall Street financier and Columbia University professor who taught Warren Buffett about investing. Graham devised many techniques for identifying undervalued companies, but particularly remarkable is the record of his Simple Way formula, which he outlined in a 1976 article called The Simplest Way to Select Bargain Stocks. Despite its utter lack of complexity, this recipe has been a smashing success. I highlighted the Simple Way to MoneySense readers in early 2004 and I provided an update in 2005. I'm pleased to report that both batches of Simple Way stocks have performed superbly, gaining an average of 45.2% in less than 32 months, not including dividends. Over the same period the S&P500 was up only 16.3%."

Trust tax plan
11/01/06   Trusts
"The measures in the Tax Fairness Plan include: * A Distribution Tax on distributions from publicly traded income trusts and limited partnerships. * A reduction in the general corporate income tax rate of one-half percentage point as of January 1, 2011. * An increase in the Age Credit Amount by $1000 from $4,066 to $5,066 effective January 1, 2006. This will benefit low and middle-income seniors. * A major positive change in tax policy for pensioners. The government will permit income splitting for pensioners beginning in 2007."

This is going to be ugly
11/01/06   Trusts
"Trusts are found in mutual funds, pension funds, individual investment accounts and registered retirement accounts. All kinds of investors are going to be hurt, and the pain will be unavoidable as the stock markets adjust to the uncertain new future for trusts. Better brace yourself."

Purloined portfolio
10/31/06   Dorfman
"Once a year, I devote this column to investment ideas stolen from other investment managers whom I respect. Call it homage, competition research, or just good dirty fun. This year my lineup of seven 'victims' to pilfer ideas from is the same as last year's: Scott Black, David Dreman, Randall Eley, Mason Hawkins, Ken Heebner, David Katz and Charles Royce."

Halloween is an economist's biggest nightmare
10/31/06   Halloween
"Economists haven't adopted the vainglorious practice of physicists and applied numbers to their laws, but if they did, the first law of economics would be that lump-sum transfers are more economically efficient than in-kind transfers. If you are going to give a gift to somebody, you should just give them the money. They will be a better judge of the best way to spend it. If instead, you give them a specific good, then you make them worse off, unless you somehow miraculously anticipate what the recipient would purchase if he received the money instead. Now if you know someone well, perhaps you can anticipate the type of gift they might like. But Halloween is no time for thoughtful, targeted gift-giving. At Halloween, each house on a typical American block picks out one type of candy, and they give that exact same candy willy-nilly to everyone who shows up at the door. It's an economic nightmare."

Top stocks with share purchase plans
10/30/06   Stingy Investing
"The long-term risk-averse investor should consider three factors when selecting stocks with Share Purchase Plans (SPPs). First, they should demand a low price. Second, they should require earnings stability. Finally, investors should look for modest, but not necessarily spectacular, earnings growth."

Hit with a loss? Your spouse can ease the pain
10/30/06   Taxes
"If you own investments that have lost value, it might make sense to trigger the capital loss so that you can apply the loss against capital gains this year, or in one of the three prior years (losses can be carried back up to three years if you can't use them this year). If you haven't got capital gains now or in the past, you can also carry forward your loss to use in any future year. But, if your spouse has capital gains this year, or in the three prior years, it may make sense to transfer the capital loss to your spouse so that he or she can use it instead. This way, the loss is used up sooner."

Patient Capital Management Q3
10/27/06   Value Investing
"In essence these two books instruct its readers on how to apply Mr. Graham's principles. His two primary methods were to calculate a firm's long-term 'earning power' and purchase the shares at a price to earnings multiple of less than 10x's or purchase shares at net-net working capital. Graham argued and proved through his investment partnership that a well diversified portfolio of securities that fit either of these two criteria would provide excellent long term results with substantially less risk than the market."

M.B.A.s: the biggest cheaters
10/27/06   Academia
"Many of these students reportedly believe cheating is an accepted practice in business. More than half (56%) of M.B.A. candidates say they cheated in the past year. For the study, cheating was defined as plagiarizing, copying other students' work and bringing prohibited materials into exams."

Are you an investor - or a gambler?
10/27/06   Health
"According to psychologists who study gambling behavior, it's all too easy for an innocent investing habit to swell into a gambling problem if a person is so disposed. Both investing and gambling let you wager big money and win or lose huge sums within minutes. Indeed, it can be difficult for even a professional to know at what point a sincere interest in investing edges over the line and becomes something darker and more compulsive. What ultimately distinguishes gamblers from investors, says Dr. Marvin Steinberg, executive director of the Connecticut Council on Problem Gambling, is a lack of control. Smart investors may decide to occasionally make big bets on a stock. But they can also go for months without buying a stock or even shuffling their portfolio. "With any kind of compulsive behavior, you wind up being out of control," says Steinberg. "So if you tell yourself that you're going to do one thing and you wind up doing more, you have a problem. An alcoholic says he'll just have one drink and winds up having 12, a problem gambler goes to the casino with $100 in his wallet and winds up spending $3,000 on his credit card. In the same way, if you put more money into risky investments than you can afford to lose, that's a sign you have a problem.""

Bill Miller's Q3 letter
10/26/06   Value Investing
"Behavioral advantages are the most interesting because they are the most durable. The field of behavioral finance is still in its infancy yet has already yielded results that can be incorporated profitably into a sound investment process. The best part is that such results are likely to be systematically exploitable and not able to be arbitraged away as they become more widely known. That is because they represent broad findings about how large groups of people are likely to behave under well-defined circumstances. Until large numbers of people are able to alter their psychology (don't hold your breath), there is money to be made from prospect theory, support theory, cognitive psychology, and neuroscience."

The simple way
10/26/06   Stingy Investing
"Benjamin Graham is often called the father of value investing and during his lifetime provided the world a variety of useful stock-selection techniques. Remarkably, some of his simplest methods have continued to outperform long after his passing. Although many of Graham's methods are easily described, their continued success relies on the fact that they can be psychologically hard to put into practice. Very few people truly have the temperament to be value investors and while it's relatively easy to find value stocks holding them is the real test. Value stocks usually become inexpensive for a variety of unappealing reasons. As a result, even when value stocks are identified, relatively few investors want to buy them. Even worse, a few value stocks inevitable do badly and decline as their business weakens which tends to scare off investors."

Death of the bond salesmen
10/25/06   Bonds
"Mr. Levitt said the corporate bond market used to work like an "Oriental bazaar." "Transparency was at the core of all of its problems," he said. "Our intent was to make the market fairer. The result was that it was also less expensive." Now that fixed-income prices are available on NASD's website, bond salesmen have lost their advantage. "You're lifting the veil of ignorance," said Peter Campfield, head of taxable fixed-income trading at San Francisco-based Charles Schwab Corp., which trades an average of 500 corporate bonds a day. "Pre-Trace? It wasn't pretty. Price discovery was a challenge. You had to hunt and peck and dial numerous dealers to ascertain what a real market looked like.""

New lows list
10/24/06   Dorfman
"In the past week, while the financial pages highlighted the news about the Dow Jones Industrial Average climbing past 12,000 for the first time, 15 stocks with market values of $500 million or more each touched 52-week lows. Bargain hunting among stocks on the New Lows list can be dangerous. But danger, better known as risk, is an inherent part of the stock market. Sometimes you can snatch real bargains from the New Lows list."

Just a little patience
10/24/06   Montier
"As is my want I am going to start from the value perspective. Is time arbitrage a profitable pursuit for value investors? Certainly a priori one would expect so. As Ben Graham said, "Undervaluations caused by neglect or prejudice may persist for an inconveniently long time". As I have written many times before, when a value position is established, one can never be sure which potential return pathway will be taken. Effectively, any value position falls into one of three categories: 1. those that enjoy a re-rating as the market more generally recognizes a mis-pricing has occurred (type I) 2. those that generate a higher return via dividend yield, but are not immediately re-rated (type II) 3. those that simply don't recover, the value traps. (type III) So patience really should be a virtue for value managers as long as we are dealing with a type I or type II value stock. The chart below confirms just how strongly this is true. It shows the cumulative returns to an incredibly simple value strategy (buying the lowest 20% of the MSCI Europe ranked by trailing PE). The chart provides very graphic evidence for the rewards to patience. The strategy tends to generate around 3% outperformance relative to the market in the first 12 months. But if you carry on holding for another year, this rises to 5.7% (a year two return of just over 2%). However, at three-year time horizons and beyond, the excess return pick-up is much sharper, running at the rate of 8-10% p.a. for years 3, 4, and 5! Also noteworthy, is that the value strategy appears to start working from day one. This surprised me as I expected to see a period of underperformance or non-performance, rather than an immediate return to the value approach."

Abitibi: A perennial loser
10/22/06   Whitman
"Marty Whitman, the octogenarian investor and Wall Street legend, was once prodded on the stock-picking style of his firm, Third Avenue Management. "We are offbeat," he said. That's one word for it. Canadian investors, seeing what he has been up to lately, might have a few others. "Barking mad" comes to mind. "Insane" works. "Masochistic" fits, too, because one of the stocks Third Avenue has been buying by the truckload is -- wait for it -- the pride of Montreal: Abitibi-Consolidated. Oh, please, try not to laugh. It's impolite. Try not to tell yourself the Americans have been suckered again, buying into a Canadian manufacturer because it "looks cheap" when it is, in fact, one of the best living examples of wealth destruction in modern capitalism." [or why people have a hard time being value investors]

10 hated stocks you'll love in 2007
10/20/06   Value Investing
"Buy 'em when they're hated. I don't mean "out of favor" or "disliked." I mean HATED. And buy 'em at the end of the year. Not in November. Not in January. But around the middle of December. That's the simple foundation of the Dog Stars strategy"

Gluttons at the gate
10/20/06   Markets
"Buyout firms have always been aggressive. But an ethos of instant gratification has started to spread through the business in ways that are only now coming into view. Firms are extracting record dividends within months of buying companies, often financed by loading them up with huge amounts of debt. Some are quietly going back to the till over and over to collect an array of dubious fees. Some are trying to flip their holdings back onto the public markets faster than they've ever dared before. A few are using financial engineering and bankruptcy proceedings to wrest control of companies. At the extremes, the quick-money mindset is manifesting itself in possibly illegal activity: Some private equity executives are being investigated for outright fraud. Taken together, these trends serve as a warning that the private-equity business has entered a historic period of excess. "It feels a lot like 1999 in venture capital," says Steven N. Kaplan, finance professor at the University of Chicago. Indeed, it shares elements of both the late-1990s VC craze, in which too much money flooded into investment managers' hands, as well as the 1980s buyout binge, in which swaggering dealmakers hunted bigger and bigger prey. But the fast money--and the increasingly creative ways of getting it--set this era apart."

Old growth as value?
10/20/06   Value Investing
"Investors looking to buy should look for four psychological states: apathy, disgust, fear, and anger. Of the four, anger is the most irrational--and offers a wonderful time to buy stocks."

Under-the-radar small-cap fund
10/19/06   Dreman
"Over the past two years, the fund has benefited from a sizable stake in energy stocks (now a bit more than 10% of the portfolio). A large position in financials -- specifically shares of small banks -- has also given the fund a boost. The portfolio, which contains 90 holdings, includes such companies as natural gas transporter Southern Union (SUG) and Foster Wheeler (FWLT), an engineering and construction firm."

Dividend appeal
10/17/06   Dorfman
"A company that pays an above-average dividend, and that has increased its dividend at an above-average rate, must be doing something right. Dividends are an indicator of financial health. They show a desire to treat shareholders well. Even better, a rising dividend indicates a board's confidence in a company's future in a way that mere words never can."

More sneaky options schemes
10/17/06   Management
"Just when backdating options seemed like the state-of-the-art method for executives to line their pockets, along comes a crafty yet legal tactic that involves stashing stock grants in the furthest corners of the footnotes: Call them backdoor options."

The rise of the income trust
10/14/06   Trusts
"Until this week, in fact, when Mr. Sabia announced the creation of Canada's largest income trust, the company had argued that the telecom business was changing too rapidly for management to adopt such an inflexible business structure. But the straitjacket, for many, explains much of the appeal of the almighty trust. What started as a way for small companies to cut their tax bills has become something else - a tool for shareholders to reclaim some of the discretion that once belonged almost exclusively to CEOs and directors, and at the same time address one of their deepest concerns: a lack of faith in corporate executives to spend their excess cash wisely."

The 5 most expensive addictions
10/13/06   Health
"Despite growing publicity about 'soft' addictions, drinking, smoking, drug abuse, overeating and gambling still are the most costly to society."

'Dilbert' deserves the economics Nobel
10/11/06   Thrift
"Quietly hidden in Adams' groundbreaking work is a financial formula so simple it rivals Einstein's E=mc2. In its original form Adams' formula was apparently so heretical and so explosive that no major house would touch it when he proposed publishing it as a one-page book. After initial rejections, he announced sadly that "if God materialized on earth and wrote the secret of the universe on one page, he wouldn't be able to find a publisher" either. Fortunately for America's 95 million investors, Adams' secret nine-point formula was finally revealed in "Dilbert and the Way of the Weasels." Notice its simple brilliance in the exact reproduction of his formula"

Billion-dollar portfolio
10/10/06   Dorfman
"Each October beginning in 2001 I have compiled a Billion- Dollar Portfolio, recommending 10 stocks with a market value very close to $1 billion. The average 12-month return for this portfolio in the past five years has been 28 percent, versus 9 percent for the Standard & Poor's 500 Index. So far, all five Billion-Dollar Portfolios have been profitable and outperformed the S&P 500."

Hedge funds are older than you think
10/09/06   Buffett
"In a letter to Financial History, the magazine of the Museum of American Finance, Buffett gently begs to differ with a statement in the magazine that the first known hedge fund was started in 1949 by Alfred Winslow Jones. This is, says Buffett, "an error that has often appeared elsewhere, including in a Federal Reserve report." While Jones was indeed an early practitioner of the hedge-fund art, says Buffett, he was not the first. The esteemed investor and writer Benjamin Graham managed a hedge fund as early as the mid-1920s."

The organic myth
10/06/06   Health
"Next time you're in the supermarket, stop and take a look at Stonyfield Farm yogurt. With its contented cow and green fields, the yellow container evokes a bucolic existence, telegraphing what we've come to expect from organic food: pure, pesticide-free, locally produced ingredients grown on a small family farm. So it may come as a surprise that Stonyfield's organic farm is long gone. Its main facility is a state-of-the-art industrial plant just off the airport strip in Londonderry, N.H., where it handles milk from other farms. And consider this: Sometime soon a portion of the milk used to make that organic yogurt may be taken from a chemical-free cow in New Zealand, powdered, and then shipped to the U.S."

Noise reduction
10/04/06   Value Investing
"Managing a $6 billion fund holding only 20 stocks requires strong conviction and an iron will - two traits Oakmark's Bill Nygren has in abundance."

Ouch! Your house payment just doubled
10/03/06   Real Estate
"Big, fat surprises are ahead for about 20% of homeowners: Their complicated, often-risky adjustable mortgages are going to soar as introductory interest rates expire."

Charity + tax-free dividends = win-win
10/03/06   Taxes
"Thanks to the changes in the last federal budget, a donation of flow-through shares to a registered charity will result in the taxable capital gain on those shares being eliminated. So, you won't face tax on the capital gain, and you'll be entitled to a donation tax credit for the value of the shares when you donate them. In the end, it's possible that your donation will cost you just 8 cents for each $1 donated (if the value of your flow-through shares remains unchanged, and you're in the top marginal tax bracket. Savings will vary by province)."

Dorfman's new casualty list
10/03/06   Dorfman
"Buying stocks of good companies when they are down is a time-tested investment method. In this column, I try to incorporate that approach into a quarterly Casualty List. It contains stocks that have been roughed up in the latest quarter, and that I think have strong potential for a comeback."

Interview Charles de Vaulx
09/28/06   Value Investing
"Our featured guest this morning is Charles de Vaulx. He is the Chief Investment Officer at the First Eagle Funds Value Group, where he helps to manage about $32 billion. Charles' funds have had virtually no down years; he focuses on absolute rather than on comparative returns. He says if they don't find the security at the correct price, they are happy to just hold cash."

Index changes and losses to index fund investors
09/28/06   Indexing
"We showed that index fund investors lose a significant amount because of the predictability and timing of index changes coupled with fund managers' objective of minimizing tracking error. The loss to an investor in the Russell 2000 may be about 130 bps a year and can be as high as 184 bps a year, and S&P 500 investors may lose as much as 12 bps a year. Consistent with this finding, we found that the Russell 2000 underperformed other small-cap indices by more than 3 percentage points a year in the 1995-2002 period, even though comparable indices did not entail greater risk. Moreover, the underperformance was concentrated in months surrounding the annual reconstitution of the index."

15-15 Screen
09/27/06   Dorfman
"Exxon Mobil Corp., Berkshire Hathaway Inc. and K-Swiss Inc. all pass a simple but important test. Their earnings have been growing at a pace of at least 15 percent annually the past five years. Even so, their shares are inexpensive, selling for less than 15 times the past four quarters' earnings. That's a combination I like."

Third Avenue Q3 2006
09/27/06   Whitman
"In NAV investing, scant attention is paid to top down factors such as predicting Gross Domestic Product, interest rates, the Dow-Jones Averages, federal deficits or balances of payments. Rather, the emphasis is on bottom-up "nitty gritty". It is assumed that the NAV investor ought to do okay long term as long as there exists political stability and an absence of violence in the streets. This has been the case for value investing since World War II. The Fund is betting that the environment of the last 60 years, where macro factors have been relatively unimportant for value investors, will continue."

Oil: Will the Malthusian View Carry the Day?
09/26/06   Markets
"In his article, "Oil: Will the Malthusian View Carry the Day?" Charles postulates that the price of oil could fall over the next several years. He defends his position with some teaching on the dynamics of energy, a review of historical cycles, and some thoughts on alternatives."

The economics of trust
09/26/06   Economics
"Imagine going to the corner store to buy a carton of milk, only to find that the refrigerator is locked. When you've persuaded the shopkeeper to retrieve the milk, you then end up arguing over whether you're going to hand the money over first, or whether he is going to hand over the milk. Finally you manage to arrange an elaborate simultaneous exchange. A little taste of life in a world without trust--now imagine trying to arrange a mortgage."

Partners in crime
09/26/06   Crime
"The SEC figured out that many of the stocks were involved in mergers or acquisitions -- and that Merrill Lynch had worked on each of the deals. "It was an aha moment," says Markowitz. "It looked like there was a constant leak out of one of the biggest banks in the country." About a week into the investigation, Melissa Coppola, an SEC forensic accountant, came into Markowitz's office. While the Merrill Lynch explanation worked for five of the stocks the group traded, it didn't for the 22 others. Then Markowitz remembered an old scam he'd heard about: "Were any of these stocks mentioned in Business Week?" he asked. When Coppola checked, she unlocked much of the rest of the case."

Derivative danger
09/26/06   Derivatives
"With the global numbers and values already enormous, adding U.S. pension funds, more institutions and a retail investment audience to the hundreds of trillions of capital the derivatives market attracts could further shift the scale in favor of them more than any other financial instrument or asset class. Yet, it wouldn't take all that much to create a domino effect of market mishap. And there is no net. The Securities Investor Protection Corporation, which insures brokerage accounts, recently announced its reserves. It has a little more than $1.2 trillion. That may sound like a lot. Compared with half a quadrillion, it's a pittance."

A history of neglect
09/26/06   Trusts
"If the Spanish philosopher George Santayana had been a Canadian, his oft-quoted aphorism about history might have read: Those who cannot remember the past are condemned to exceed it. Certainly, this is the case when it comes to investor protection. Unlike the U.S., Canada has actually managed to systematically erode the integrity of its capital markets."

Location is key to tax breaks on risky assets
09/25/06   Taxes
"The Amaranth debacle should remind us that there's a best place to hold risky investments -- and that is outside your registered retirement savings plan or registered retirement income fund. The reason is simple. If you hold an investment inside your RRSP or RRIF and it drops in value, you'll get no tax relief from the loss."

Short-selling contest
09/22/06   Dorfman
"Who likes wars, recessions, hurricanes, terrorist threats and corporate scandals? Short sellers do, if you listen to their detractors. Short sellers are investors who profit when a stock declines. Some folks view these renegade investors as antisocial. I have a more positive view."

America's 400 richest
09/22/06   Wealth
"A nine-figure fortune won't get you much mention these days, at least not on these pages. This year, for the first time, everyone in The Forbes 400 has at least $1 billion. The collective net worth of the nation's wealthiest climbed $120 billion, to $1.25 trillion."

Fat cat sleaze escapes our outrage
09/22/06   Crime
"We are in the midst of a slimy, sleazy, putrid scandal of corporate self-dealing and cronyism. It points up just how elitist and corrupt the power-suited set of the corporate boardroom can be. And it is widespread. Over 100 companies -- major corporations -- have been implicated so far. And yet ... where's the outrage? C'mon. Even a dead man was getting a piece of the pie."

Sticking to 'Dogs of Dow' strategy
09/21/06   Dividends
"Hennessy invests 75 percent of his fund's net assets in the 10 highest-yielding Dow stocks and 25 percent in U.S. Treasuries that mature in less than a year. He buys the dogs in equal dollar amounts each month and, in effect, runs 12 mini-portfolios that hold the stocks for a year. Then he sells shares to reallocate the proceeds among the Dow's 10 new dogs. The fund has a Sharpe ratio of 0.74, less than the 1.24 average for large-company value funds, according to Morningstar. While a higher Sharpe ratio indicates better risk-adjusted performance, the Hennessy fund's ratio is lower than its peers because of its Treasury market investments."

Rob's on-line brokerage rankings
09/20/06   Brokers
"Costs are the most important factor in this eighth edition of the Globe's broker ranking, and the reason is that they're uppermost in the mind of do-it-yourself investors. In a survey conducted recently on the website, a little more than one in three of the 1,641 participants ranked cheap commissions and fees as the top attribute of an on-line broker. No other attribute was even close."

Fortune's fools: why the rich go broke
09/18/06   Debt
"Mr. Foreman, who stared down financial collapse as an adult despite a troubled, impoverished childhood, said he knew real wealth when he saw it. "If you're confident, you're wealthy," he says. "I've seen guys who work on a ship channel and they get to a certain point and they're confident. You can look in their faces, they're longshoremen, and they have this confidence about them." He says he can spot a longshoreman who has enough equity in his home and enough money in the bank to feel secure, and that some people, no matter how much money they have, never get there. "I've seen a lot of guys with millions and they don't have any confidence," he says. "So they're not wealthy.""

Seminar in value investing
09/17/06   Value Investing
"In this archive you will find recordings of guest lectures delivered by accomplished and world renowned investors. These individuals have generously contributed their time to share their insights with Columbia Business School students and have kindly agreed to have their lectures shared on this website as a valuable resource to the value investing community."

A cowardly approach by Whitman?
09/14/06   Whitman
"Whitman, who describes himself as a "cowardly" investor, says he basically looks for four things in an investment: 1. A high quality balance sheet. 2. Competent and shareholder-orientated managers. 3. Understandable and honest disclosure documents. 4. Priced at 50c-60c on a dollar. The first three characteristics are related to safety and the fourth to how cheap the stock is. "And 'safe' is more important than 'cheap'", says Whitman."

A tale of two factories
09/14/06   World
"To get a sense of how China's rise is playing out, Fortune went to two factories -one in China and one in the U.S. - that make the same product for the same company. Our conclusion: China's progress is impressive, and it will continue. That said, America's factories have strengths of their own: U.S. manufacturers have improved productivity at least 4% a year for the past decade. Although wages in Shanghai are rising sharply, labor is still comparatively cheap. But that is an advantage that goes only so far."

Naked fines
09/13/06   Markets
"Brad Niswonger, a senior vice president for brokerage firm Robert W. Baird Co., complained in a July letter to the SEC, "It seems like every day the SEC fines someone for fraudulent stock transactions, but they walk away after collecting their fee without completing the transaction by making these players buy in the illegal short positions." A Canadian brokerage firm also complained to the SEC about its experience trying to settle its purchases of shares in The broker, Research Capital of Toronto, says it tried to buy shares of Overstock to satisfy customer orders but has never received the actual shares it bought, even after 39 attempts to force the brokers who sold it the stock to produce the shares. Research Capital says this has been going on since February 2006. "The failed deliver has simply been replaced with another delivery commitment which also fails," the brokerage says."

The battle of the billionaires
09/13/06   Buffett
"You don't become a billionaire by making a lot of bad bets. But two of the world's richest men are now on opposite sides of a wager that may see one of them lose a fair chunk of change. The two men: Warren Buffett, whose mastery of value investing has helped him accumulate more than $40 billion, and Carl Icahn, the corporate raider who has earned more than $8 billion with astute and aggressive stock plays. They are now taking sides over the fate of USG Corp., the leading gypsum wallboard maker, which just emerged from bankruptcy protection. Which investor turns out to be right will depend in large part on the ultimate health of the U.S. housing market."

Saxon finds value in oilpatch juniors
09/13/06   Funds
"What they "keep doing" is in fact bottom-up, value-oriented investing. Sector weightings are "serendipitous" as a result, explains Tattersall. They employ a variety of measures of value; price-to-book was the key measure at inception, he recalls, but they are relying much more these days on standard measures of cash flow. Their value style translates into overweight in industrials, underweight in technology - and no gold stocks. The key, he concludes, is not so much what they own as what they don't own."

U.S. diversifiers
09/13/06   Dorfman
"While Europeans often pepper their portfolios with stocks from several countries, Americans often stick with U.S. stocks. I like the American market very much, yet a portfolio exclusively based in the U.S. may be too plain vanilla. If you stick to only one country, you may miss some bargains. You certainly miss the chance to diversify."

Fear of flying
09/13/06   Fun
"Your life-jacket can be found under your seat, but please do not remove it now. In fact, do not bother to look for it at all. In the event of a landing on water, an unprecedented miracle will have occurred, because in the history of aviation the number of wide-bodied aircraft that have made successful landings on water is zero. This aircraft is equipped with inflatable slides that detach to form life rafts, not that it makes any difference. Please remove high-heeled shoes before using the slides. We might as well add that space helmets and anti-gravity belts should also be removed, since even to mention the use of the slides as rafts is to enter the realm of science fiction."

Suspicions and spies in Silicon Valley
09/11/06   Crime
"HP has now admitted to spying on its own directors' personal phone records in order to root out a leaker. It did so by using private investigators who engaged in "pretexting - calling up phone companies and impersonating directors seeking their own records. HP late last week additionally admitted to spying on the phone records of nine journalists, including at The New York Times and Wall Street Journal, some of which date to 2005. HP's Dunn stands accused of orchestrating the investigation. Perkins quit in a rage over the surveillance and wants Dunn out as chairman; HP is painting him as an angry traitor with a vendetta against Dunn. Lying, spying, name-calling, finger-pointing - all of it is a tragicomedy that Shakespeare might've penned had he gotten an M.B.A."

City forecasts are for suckers
09/10/06   Markets
"Errors in the way fund managers make decisions are caused by a number of behavioural traits, chiefly over-confidence and over-optimism (in a survey 75 per cent of fund managers said they were above-average at their jobs). The love of forecasting is also driven by a tendency known as 'anchoring' - fixating on irrelevant numbers for support. Montier suggests we anchor share values on something we can measure, like dividends. These errors are deeply ingrained, he says : 'It's hard to go to fund managers and say "you are wasting your time", but really analysts need to get back to analysing and forget about forecasting. And as for knowledge, it really is a case of less is more.'"

Self-employment can pay for your child's education
09/10/06   Taxes
"Here's the overall result: Mike claims a deduction for the $15,000 in wages paid to Rick, which will save Mike $6,900 in tax (assuming a marginal tax rate of 46 per cent). Rick has $15,000 in his bank account, pays no tax on the amount, and now uses the $15,000 to pay for school. In effect, Mike has claimed a deduction for the amount used to pay for his son's education. And it doesn't really matter what costs Rick uses the $15,000 to cover; the amount is still deductible to Mike regardless."

A 'layer cake' plan for your retirement
09/10/06   Retirement
"The "conservative" client wants to leave a legacy and assumes a longer than 30-year lifespan, reducing her withdrawal rate to 4 percent. The "aggressive" client assumes a shorter than 30-year lifespan, a performance-based withdrawal approach, and other factors that boost his withdrawal rate to 7.6 percent."

Dorfman's ratings on the 20 largest U.S. stocks
09/08/06   Dorfman
"The largest stocks rarely sizzle. Yet many people like them for their safety, stability and liquidity. Each September since 2001, I have offered ratings on the 20 largest U.S. stocks. My 'buy' rated big caps have provided an average annual return of about 10 percent, including dividends."

Extreme saver
09/08/06   Thrift
"When Jessica Nixon began her first job at Whataburger, her father gave her some pretty sage advice: start saving early for retirement. She was not even 16 years old at the time, but she took his recommendation to heart almost immediately, socking away 10 percent of every paycheck. Now 23, the Dallas-based electrical engineer has transformed herself into a financial wunderkind, having put aside $49,000 towards retirement, and an additional $20,000 that she has earmarked for a home and a new boat. "Saving to me is another bill you have to pay," says Nixon. "Saving comes before a lot of other things.""

Efficient markets can land you in jail
09/07/06   Law
"Because market prices reflect all available information, argued the court, misleading statements by a company will affect its share price. Investors rely on the integrity of the price as a guide to fundamental value. Thus, misleading statements defraud purchasers of the firm's shares even if they do not rely directly on those statements, or are not even aware of them. That ruling has proved a goldmine for America's trial lawyers, who have won fortunes by suing firms for damages when news (often, in practice, a restatement of their accounts) is followed by a sharp fall in their share prices. The fall is treated as proof of overvaluation due to the initial, wrong statement. Increasingly, a similar logic has been used in criminal cases"

09/05/06   Indexing
"They're red-hot these days because folks assume they are cheaper than funds. That's not always true. And some of the things ETFs track are getting a bit loopy. Here's what to watch out for."

Yield curve as a predictor of recessions
09/02/06   Markets
"The yield curve - specifically, the spread between the interest rates on the ten-year Treasury note and the three-month Treasury bill - is a valuable forecasting tool. It is simple to use and significantly outperforms other financial and macroeconomic indicators in predicting recessions two to six quarters ahead." [Currently, based on these findings, the probably of a U.S. recession in 4 quarters is almost 30%.]

Value veteran dances to his own tune
09/02/06   Value Investing
"If you want to ask Tim McElvaine where stock markets are going, he will tell you that you've come to the wrong person. "I'm pretty sure that I am the only investor who missed the entire metals, minerals and oil and gas boom completely," says McElvaine, 43, manager of the $89.8-million McElvaine Investment Trust and president of Vancouver-based McElvaine Investment Management Ltd. "I joke with people that I dance to my own tune, in a corner," adds McElvaine, in his characteristic self-deprecating style. "Sometimes, out of sheer luck you will be in beat with the music and sometimes you will look awfully stupid. But at least you're enjoying yourself. That's where I am, dancing the foxtrot while everyone else is doing the rumba.""

How students can ease the cost pain
09/02/06   Cestnick
"So, now that you're convinced your child needs an education, let's talk about 10 smart strategies for students."

Gold rush or fool's gold? Leith Wheeler's view
08/31/06   Markets
"Conventional wisdom suggests that the price of gold (denominated in US dollars) moves up when the US inflation rate increases. We tested this relationship over the past 25 years and found no meaningful correlation between the price of gold and the US inflation rate. Some would argue that the price of gold is a leading indicator of the future US inflation rate and that the recent rise in the price of gold is anticipating a future rise in the US inflation rate. This is possible, however we found no statistical evidence of such a relationship over the past 25 years."

An ode to quant
08/31/06   Montier
"So why not quant? The most likely answer is overconfidence. We all think that we know better than simple models. My own confession at the start of this note is a prime example of such hubris. The key to the quant model's performance is that it has a known error rate, whereas our error rates are unknown. The most common response to these findings is to argue that surely a fund manager should be able to use quant as an input, but still have the flexibility to override the model when appropriate. However, as mentioned above, the evidence suggests that quant models tend to act as a ceiling rather than a floor for our behaviour."

Read between all those for-sale signs
08/29/06   Real Estate
"Perhaps the biggest reason to be skeptical about a real estate crash is that the country has not really suffered through one before. Not since the Depression has the combined value of residential real estate fallen over the course of a full year. Homes seem to be much less vulnerable to crashes than other assets, because people rarely sell them in a panic. But earlier booms have been followed by modest price declines in some cities that turned into long periods in which increases trailed inflation. After peaking in much of California and the Northeast in the late 1980's, house values fell during the recession of 1990-91 and then drifted for years, often rising more slowly than the price of milk." [Note Shiller's interesting long-term graph at the end of the article]

Buying into crisis
08/29/06   Markets
"For anyone hunting a market opportunity in the terror madness, the episode was instructive. A lucky few may have bought and sold at exactly the right moments, earning themselves a bunch of cash and bragging rights at their next barbecue. But the more likely result for an investment in such a stock was a lot less glamorous. And that is the peril for those who seek opportunity in calamity. Crisis investing may seem savvy, but for most individual investors it's a slightly ghoulish version of stock market gambling."

When shareholders aren't valued
08/28/06   Management
"Anyone who says the American Midwest is dull and monochromatic obviously has not been to Omaha, Nebraska. The city of Warren Buffett, the investor who has generated huge gains for his shareholders over the years, is also home to Vinod Gupta, the colorful chief executive of infoUSA, who has destroyed enormous value for outside shareholders in recent years. Now that's diversity. Unfortunately for the shareholders of infoUSA, a database marketing company, much of its story is a throwback to the pre-Enron days of cozy boards and entitled executives."

Stolen lunches? Substitute cat food for tuna
08/28/06   Fun
"Someone stole my lunch from the office refrigerator the other day. It was a really good lunch - leftovers from dinner the night before accompanied by caramel flan, yogurt, a peach and delicate French cookies from a previous brown bag seminar. Now, it could have been nicked accidentally. Or maybe someone was really hungry and needed the food. Either way, I was annoyed, and after taking an informal survey, it turns out I'm hardly the only victim."

Who signed off on those options?
08/27/06   Management
"In theory, directors are supposed to help keep wayward practices like options backdating in check at most companies, but at Mercury it was the directors themselves - who received a final seal of approval from the company.s compensation committee - who kept the backdating ball rolling."

Getting real about the real estate bubble
08/27/06   Real Estate
"For the past five years, the housing bulls have been trotting out one rational-sounding argument after another to explain why the boom made perfect economic sense. Forget about a crash, they assured homeowners. Expect a "soft landing" where your three-bedroom colonial in Larchmont or Larkspur not only holds onto its huge price gains, but keeps appreciating at a "normal," "sustainable" rate of 6 percent or so into the sunset. Americans wanted to believe, and they did. Now, the giant popping noise you're hearing is the sound of yesterday's myths exploding like balloons pumped up with too much hot air."

Naked horror
08/25/06   Markets
"Suspicious trading last year in shares of Global Links, a small Nevada real estate holding company, was far more intense than previously thought. New data from the U.S. Securities and Exchange Commission reveals trade settlement fails in early February 2005 that were 27 times greater than the total number of shares Global Links had issued at the time. The data show suspicious trading in Global Links far earlier and to a far larger degree than any previously released by the SEC."

Be greedy when others are fearful
08/24/06   Real Estate
"So why are we pounding the table for homebuilding stocks? In short, some homebuilders are well positioned to survive this housing downturn, and current share prices reflect a doomsday scenario that's unlikely to happen."

The mystery of capital deepens
08/24/06   Economics
"But the victory of the Buenos Aires squatters was only partial. Eight of the former landowners accepted the government's compensation in 1986, one did not relent until 1998, and the remaining four are still contesting it in Argentina's Dickensian courts. As a result, several hundred families now own their land, but their neighbours still squat uneasily on theirs. This is unfortunate for the squatters, but a rare opportunity for economists to test the power of property rights. Sebastian Galiani of San Andres University and Ernesto Schargrodsky of Torcuato di Tella University believe the case provides a natural experiment. The families lucky enough to win title can be compared with a ready-made control group: the otherwise identical families that did not. This makes it possible for the study to distinguish cause and effect; to isolate the impact of title from all the other confounding factors."

Pump and dump
08/24/06   Markets
"Penny stocks are considered ideal for spammers because they trade in low volumes, allowing a small amount of investment activity to generate wild swings in value. This gives tipsters the greatest opportunity to make a profit. Generally, they create excitement about a stock that they also invest in, only to sell it after they successfully push up the price. That can set off a wave of selling which eventually depresses the share price."

When homeowners are desperate to sell
08/22/06   Real Estate
"In its report released Aug. 15, the National Association of Realtors reported that 26 of 151 metro areas experienced outright price declines in the March-June quarter. The biggest price drops in percentage terms were in Danville, Ill., where home prices fell by 11.2% in the spring compared with the spring of 2005, and the Detroit area, where home prices were down 8%. For condominiums, 1 in 4 metro areas reported a decline in prices."

Canada's best income trusts
08/22/06   Stingy Investing
"A year ago we decided to guide our readers through the murky world of income trusts. To shed some light on the subject, we ranked 100 of the largest income trusts in our first annual All-Canadian Trust Guide. We used entirely objective criteria and assigned each trust an A, B, C, D or F grade depending upon how its numbers stacked up. We figured that our top-rated trusts might provide you with a few good starting points for your own research. We're pleased to say that our humble efforts yielded solid returns. Our top-of-the-class trusts - those rated either A or B - gained an average of 29.7% (and that's without reinvesting distributions) since we did our ranking. We think most investors would be delighted with nearly a 30% annual return."

The 2006 sane portfolio
08/22/06   Dorfman
"The Sane Portfolio, which I compile each August, is designed as a middle-of-the-road, slightly conservative collection of a dozen stocks. To be eligible for inclusion, a stock doesn't have to be outstanding in a single respect; rather, it must be fairly good in most respects."

The housing bust is here
08/21/06   Real Estate
"It begins with the story of a Detroit accountant who was looking to lower her monthly payments. In 2004, she refinanced a $312,000 mortgage via an option-adjustable-rate mortgage that offered various payment choices, as do so many of these plans. Her (introductory) rate of 2.3% is now up to 8.75%, and her loan balance has grown to $324,000. She claims that the terms weren't clearly spelled out. But if she actually read the documentation, as accountants often do, and didn't get it, you can imagine how many people truly understand their mortgages. (Hint: The number rhymes with "hero.") Since she's unable to refinance (in part, due to a nasty prepayment penalty), she must sell her house. The problem: Because everyone else is pretty much in the same boat and Detroit's economy isn't so swell, she can't -- even with having reduced her original asking price of $470,000 to $270,000. (Note: That would leave her $54,000 in the hole.)"

Housing crash puts sellers in debt crisis
08/21/06   Real Estate
"Auction clearance rates are hovering around 48 per cent since the recent interest rate rise, but plummeting property prices have meant many vendors are confronting negative equity, where they owe more on the property than it is worth."

An annuity can brighten your golden years
08/19/06   Taxes
"As Canadians get older, two of the biggest challenges we face are memory loss, and how to generate income. I can't help much with the first problem. But let me share an idea that might just result in more income for you in retirement. This idea is a cousin to the idea I shared in my article on July 15 that applied to those with holding companies. This idea is called a "back-to-back prescribed annuity" because it involves buying an annuity and insurance "back-to-back.""

Car-sales indicator suggests a recession is near
08/19/06   Economy
"If things are miserable for America's new-car dealers, can a recession be averted? History says it cannot and suggests a downturn may have already begun."

The uses of adversity
08/18/06   Economy
"In 1871 America added about 6,000 miles of track to its railways, an endeavour that occupied a tenth of its industrial labour force. But by 1875 track-building had fallen by more than two-thirds, and employed less than 3% of America's workers. According to Brad DeLong, an economic historian at the University of California, Berkeley, the violent ups and downs of the railway industry help to explain the popularity, before the Great Depression and John Maynard Keynes, of a fatalistic view of the business cycle. Recessions, however unpleasant, were cathartic, and therefore necessary. They released capital and labour from profitless activities (such as laying the year's 6,000th mile of track) as an essential prelude to redeploying them elsewhere. "Depressions are not simply evils, which we might attempt to suppress," wrote Joseph Schumpeter. They represent "something which has to be done"."

Value trumps growth
08/18/06   Markets
"Internally, the stock market exhibits two disparate faces, as in tragedy and comedy. The performance difference between growth and value stocks widens sharply in favor of value--by some 12 percentage points year-to-date. Growth managers cry themselves to sleep, while value players smirk irrepressibly."

Value vs. glamour stock returns
08/18/06   Value Investing
"This paper sheds further light into the discussion of whether the value premium is driven by risk or behavioral factors by providing out of sample tests using Canadian data, a search process that involves both P/E and P/BV ratios and a research methodology that minimizes any potential data snooping problems. We document a consistently strong value premium over the 1985-2002 sample period, which persists in both bull and bear markets, as well as in recessions and recoveries."

CEO bought a yacht?
08/15/06   Management
"When someone who's supposed to be looking out for public shareholders is instead mulling over wallpaper samples for staterooms, it's time to sell. The yacht has long been the classic indicator of someone who has so much money that he doesn't need to make any more. Unlike a jet, which can speed busy executives to their offices efficiently, a yacht has no useful purpose. And who has time to play with such an over-the-top toy? Someone who doesn't work weekends figuring out how to make money for other people. A classic 1940 investment book, aimed at debunking the practices of Wall Street, was called Where Are the Customers' Yachts? Today, you should ask: Where are the shareholders' yachts? If you look at the recent record of CEOs who have become yachtsmen, it's clear that when they buy a boat, it's the shareholders who usually get soaked."

Stocks Benjamin Graham might like
08/15/06   Dorfman
"Ben Graham, the father of value investing, has been dead for 30 years. Hundreds of disciples, however, keep alive his bargain-hunting style. Most of us are less strict in our criteria than Graham was. His definition of 'cheap' was stringent, and his balance-sheet criteria were exacting."

Uncle Sam wants you ... to file
08/14/06   Taxes
"When it comes to U.S. citizens living in Canada, many have bad memories -- or simply don't want to remember -- about tax obligations south of the border. Since there are so many of you, let me remind you of some of the rules you should be aware of."

The bankruptcy boom is back
08/14/06   Debt
"A tough 2005 law initially slashed the number of filings, but the numbers are rising again because the root causes of unpaid debt were never addressed."

A great company can be a great investment
08/11/06   Academia
"A classic investment mistake is to confuse a great company with a great investment, since a company's well-known virtues are presumably already factored into the price of the company's stock. We test this "mistake" by looking at the stock performance of the companies identified each year by Fortune magazine as America's most admired companies. Surprisingly, a portfolio of these stocks outperformed the market by a substantial and statistically significant margin, contradicting the efficient market hypothesis."

Naked short sellers hurt companies
08/08/06   Markets
"In naked shorting, traders who hope to profit from falling prices sell shares without borrowing stock. Using that strategy, naked short sellers can drive down prices by flooding the market with orders to sell shares they don't have."

Good based on cash flow
08/08/06   Dorfman
"Most assets gradually lose their value over time. That's why accounting rules specify depreciation schedules for assets such as factories, equipment or oil in the ground. In the real world, the assets may be depreciating faster or slower than accounting rules assume. They may even be appreciating. That's why some analysts like to look at stocks through the lens of cash flow instead of earnings. Cash flow is a measure of actual cash flowing into and out of a business."

Companies still cling to big hits
08/07/06   Markets
"As companies watch the Web grow, and hear promises of greatly expanded niche sales, it's tempting for them to expand inventory to get in on the supposed land rush. But Matthew P. Reilly, with George Group Consulting of Dallas, says doing so could be a "recipe for disaster" at companies that make tangible, as opposed to purely digital, products -- if only because of the inevitable increase in execution risks they face in expanding their inventories. "The iTunes model doesn't work for most companies," he adds. While inventories should be expanded only with the greatest care, such prudence might be difficult these days, considering the current popularity of Web utopian fantasies about the way sales of niche products can rival those of hits."

Miller says fund 'clearly wrong'
08/06/06   Value Investing
"Still, Value Trust is hanging tough on its key holdings, Miller and assistant portfolio manager Mary Chris Gay wrote in their quarterly letter to shareholders. "It is our willingness to own securities which other people regard as wrong which historically has been part of the long-term success of the fund," Miller and Gay wrote, adding that "in order to do better than the market longer term, you must be doing something different.""

The $700 Used Book
08/05/06   Klarman
"Why does anyone care what Klarman wrote 15 years ago? The author, now 49, is one good investor. Klarman earned his MBA at Harvard Business School in 1982, graduating near the top of his class. A group of wealthy families took notice and gave Klarman $27 million to manage, which was the start of his firm, the Boston-based Baupost Group. Between its February, 1983, inception and the end of June, 2006, Baupost's largest and oldest partnership posted a cumulative return of 6,133% after fees. During the same period, the Standard & Poor's 500-stock index was up 1,517%, with dividends reinvested."

How we did it
08/05/06   Thrift
"We asked readers to tell us how they met major financial or life goals and the answers that poured in were extraordinary. Whether you want to get rich on a middle-class salary, turn your hobby into a business, escape the rat race, or pay off your house in three years, we found the tips you need to succeed - from people who've actually done it."

A worm in the Apple
08/05/06   Accounting
"Now the investigation into possible wrongdoing at the Silicon Valley stalwart is widening to include the past four years. Apple said in a release that it had uncovered "additional evidence of irregularities" and that it will likely have to restate financial statements and take "noncash charges" for employee compensation. The company said it could not yet determine the extent of the charges or the tax implications. It advised investors not to rely on financial statements and earnings-related press releases going back to Sept. 29, 2002."

Medical tourism
08/05/06   Health
"Erickson, 44, hopped a plane to New Delhi, where he toured hospitals and met U.S.-trained doctors. His first thought: "My God, this is the perfect arbitrage situation. Buy below market and sell below market.""

Perfect 10 Portfolio
08/05/06   Dorfman
"My Perfect 10 portfolio contains 10 stocks, each one selling for 10 times earnings, as of the time the portfolio was created (this year, July 21). That is cheap compared to the current multiple on the S&P 500 (about 17) and the long-term average (about 15). In the six years that I have compiled the Perfect 10 Portfolio, it has achieved an average one-year return of 17 percent, compared to 2.2 percent for the S&P 500. It has beaten the index four times out of six."

Value and Momentum
08/05/06   Dorfman
"Buying on bad news is a technique often used by value investors, people like me who scour the stock market for bargains. Of course, worse news can follow. That's why some folks prefer to buy stocks that are in rising, not falling, trends. Twice a year, for people who like their value leavened with a touch of momentum, I compile a list of stocks that I think offer both."

Clients deserve to know annual rate of return
08/05/06   Brokers
"A Toronto financial consultant is leading a campaign to have investment companies fix a ridiculous deficiency in the way they show clients how much money they're making or losing."

The time's come for full disclosure on return rates
08/05/06   Brokers
"Certainly, the vast majority of firms do not disclose to clients how much money their portfolios are making or losing each year. This is scandalous when you think about it and yet another example of how the investment world sometimes treats its clients like infants."

Seeking sanity amid a market of ETF mania
08/05/06   Indexing
"There's a slightly crazed, peak-of-the-market feeling to the gusher of new exchange-traded funds being issued these days."

Split share ownership can be a capital idea
08/05/06   Taxes
"Sharing can save you money, and particularly income taxes, if you're willing to share ownership. Let me explain."

Stay off the taxman's hit list
08/05/06   Taxes
"Last November, an Auditor-General report shed light on how the Canada Revenue Agency (CRA) chooses tax returns for verification, which can be helpful in assessing the likelihood that your return may be selected. Here's the highlights."

Your small business has woes? Here's how to protect yourself
08/05/06   Taxes
"It's the same feeling many Canadians have experienced when investing in a small private business, only to be disappointed that the business has failed. You get your hopes up, then you realize the dream has fallen apart. From a tax perspective, what next?"

Life insurance can be a saviour if you own a holding company
08/05/06   Taxes
"The truth is, life insurance can be an effective tool. Today, I want to look at a "corporate insured annuity," which can make sense for those with holding companies."

The story of Soros
07/24/06   Markets
"I try to avoid pure chance. I'd like to be, have a better understanding of the situation than the market and then I bet on my judgment that I know I can anticipate the future better. So that's not gambling. Now you can't avoid taking risk and very often, my judgment is wrong and then I take a loss. But I only take a risk when I think that I have a better perspective and a different perspective from the market."

Weitz Q2
07/23/06   Value Investing
" In this increasingly risky environment, we have focused on companies that can (1) survive financial market upheaval and (2) take advantage of distress sales of assets. Happily, in this increasingly speculative market, large growth companies with very strong balance sheets (e.g. Wal-Mart, AIG) have been out of favor and available at prices that value investors are willing to pay. Thus, as we have upgraded the overall financial strength of our portfolios, we think we have also increased the upside potential for our Funds. As for companies with the capacity to take advantage of capital markets weakness, we start with Berkshire Hathaway. Berkshire holds over $42,000 per share in cash and bonds that is available for investment and Warren Buffett is equally at home buying individual securities and whole businesses."

Tilson's top 5 value stocks
07/20/06   Tilson
"Tilson recommends BRKA, MCD, MSFT, WMT & WEN"

Tech CEO pay doesn't match performance
07/19/06   Management
"In the recent study, DolmatConnell & Partners, an executive compensation consulting firm based in Waltham, Mass., found there was an inverse correlation between tech CEO pay and shareholder returns over a one-year period. Companies analyzed in the study included Cisco Systems, Dell, EMC, Google, Hewlett-Packard, IBM, Microsoft and Oracle, as well as telecommunications providers, technology services companies and products distributors."

Good on price-to-sales ratio
07/18/06   Dorfman
"When people go hunting for cheap stocks, several ratios can serve as range finders. One is the price-to-sales (P/S) ratio, which is a stock's price divided by the company's per-share sales (or revenue). The P/S ratio is a cousin of the more familiar price-to- earnings (P/E) ratio, in which the denominator is per-share earnings, rather than sales. In an era when accounting tricks are rife, sales figures are somewhat more resistant to manipulation than earnings numbers. If a company isn't very profitable, it may not look cheap based on its P/E ratio. Yet it may have a low P/S. In that case, it may be a turnaround candidate, ripe for a shape-up campaign by new management."

The billionaire prince who owns Canada's treasures
07/17/06   World
"But even in today's polarized world, US$24 billion can buy a lot of goodwill, and Alwaleed remains in the market. And there is certainly no shortage of distractions to feed his obsessive pursuit of the next deal, while he waits for his investments in peace and understanding to take hold. For one thing, there is hotel real estate to sell, lots of it. Perhaps some worth buying, too. He's still planning to issue shares in his company on the Saudi stock exchange. He recently bought a US$390-million stake in the Bank of China, spreading the reach of his international empire even further. And there has been talk that his good friend Rupert Murdoch may be ready to buy a stake in Alwaleed's Arabic media giant Rotana. He has even mused about an English-language cable station aimed at better representing the Islamic world to Americans."

Warren Buffett Interviews
07/16/06   Buffett
"Warren Buffett stunned the world when he announced he was giving his fortune to the Bill and Melinda Gates Foundation. Charlie Rose is the only broadcast journalist with access to Buffett and Gates on their friendship which resulted in this historic announcement."

Surviving inflation
07/14/06   Dreman
"A classic example is the 1977--81 period, when the U.S. flirted with hyperinflation. Worriers evoked the Weimar Republic of the 1920s. During the unhappy 1977--81 span the Consumer Price Index rose 12.6% annually. Equities at the outset retreated 7.2% in 1977, but over the next four years stocks returned 12.3% annually, versus 10.8% for the CPI. Even though inflation remained sky-high, stockholders more than kept up with the cost of living."

Cheaper stock options
07/13/06   Management
"That, of course, depends on your perspective. At companies where volatility numbers have been notched down too far, the cost of options doled out in 2005 has effectively been lowballed. An honest mistake, perhaps. It's still early in the options-expensing era. But if volatility continues to rise, warns Zion, that fact will have to be reflected in next year's estimates, driving up options costs and weighing on earnings in the future."

Financial infidelity is rampant
07/13/06   Thrift
"Is it cheating if you lie about where the money went? Yep. And it's every bit as damaging to your relationship as the physical kind."

More than 100 firms probably backdated options
07/12/06   Management
"Some options-granting practices under fire could be considered ethically dodgy but not illegal, while others could prove to be illegal, despite what the companies issuing them at the time may have thought."

Would you like that $11 billion in twenties?
07/11/06   Buffett
"On July 3, Warren Buffett drove himself downtown, walked into the cavernous and nearly deserted central branch of U.S. Bank in Omaha, descended a flight of steps, and opened his large safe-deposit box. He took out a 1979-dated certificate for 121,737 shares of Berkshire Hathaway A stock, on that day worth about $11 billion - roughly one-quarter of his Berkshire fortune. Driving back to his office, he pondered the next step: getting that certificate and a few others (worth only tens of millions) to Wells Fargo in Minneapolis for conversion at a 30-to-1 ratio into around 3.75 million shares of Berkshire B stock. He considered FedEx and elected instead to turn one of the 16 people working at Berkshire headquarters into a courier."

Is seg fund security worth the high cost?
07/11/06   Funds
"In most cases a segregated fund will mimic a regular mutual fund. You name the asset class and it's likely there are several mutual fund companies with a corresponding segregated fund. When it comes to MERs, the difference between segregated funds and their twin non-segregated fund is often huge."

Flow-through shares produce charitable bonanza
07/11/06   Taxes
"You'll also be entitled to a donation tax credit for the $10,000 value of the shares, which will save approximately $4,600 in tax. So, you paid $10,000 for the shares, got $4,600 back in tax savings from the deduction, and $4,600 from the donation tax credit, leaving a net out-of-pocket cost of just $800. That is, a $10,000 donation to charity cost you just $800. That's what I call charitable arbitrage."

Protectednotes may leave you exposed
07/11/06   Funds
"Principal-protected notes (PPNs) have long been one of those "have your cake and eat it too" financial products that -- in my view anyway -- just didn't cut it for average investors."

Tearing up the Jack Welch playbook
07/11/06   Management
"Just try to find an executive who hasn't been influenced by his teachings. What came to be known as Jack's Rules are by now the business equivalent of holy writ, bedrock wisdom that has been open to interpretation, perhaps, but not dispute. But the time has come: Corporate America needs a new playbook. The challenge facing U.S. business leaders is greater than ever before, yet they have less control than ever - and less job security. The volatility of the markets is so unpredictable, the pressure from hedge funds and private-equity investors so relentless, the competition from China and India so intense, that the edicts of the past are starting to feel out of date."

The casualty list
07/11/06   Dorfman
"Parker Drilling Co. and Boston Scientific Corp. were banged hard in the second quarter. I think their chances for recovery are excellent, and have put them on my Casualty List -- a quarterly compilation of stocks that have been knocked around, and that I think will bounce back."

The Whitman system
07/11/06   Whitman
"The bible of value investing, Benjamin Graham and David Dodd's 'Security Analysis,' dates back to 1934. And yet 72 years later the distinction between market risk and investment risk seems more muddled than ever."

The case of the unpaid parking ticket
07/08/06   World
"On a humbler scale, we all face the same choice. We can try to earn money by doing something useful, or we can try to steal or extort it from other people. A society where most people are doing something useful has a good chance of being rich; a society full of corruption will be poor. That is a glib enough explanation of wealth and poverty, but it is surely just the start of the story. What causes corruption?"

CMHC's risky mortgage moves a bad bet for taxpayers
07/07/06   Real Estate
"The thing is, CMHC is out of control. Last week, CMHC announced that it was going to enter the sporty world of "sub-prime" mortgages by offering insurance on interest-only mortgages, waiving the application fees on such loans, and also insuring mortgages with 30- and 35-year amortizations. No money down, no principal payments for five years and 35 years to pay: That may work for The Brick, but it's a lousy business model for a taxpayer-funded entity."

Value plus growth
07/05/06   Dorfman
"Just as a person can have both beauty and brains, a stock can possess both growth and value characteristics."

The limits to learning
07/03/06   Montier
"Everybody thinks they are experts at learning. After all, most of us have gone through years of university education and emerged on the other side with a piece of paper 'proving' our ability to assimilate information. However, I'm not concerned with book learning; I am far more interested in learning from our own errors and mistakes or, somewhat more accurately, why we often fail to learn from our own past failures."

Bing's secrets to a happy retirement
07/02/06   Retirement
"The truth is, those who intend to have a happy retirement must deliver the goods on the human aspects of the issue as they do on the fiduciary ones. Unfortunately this takes the kind of cogitation that you, as a reader of this magazine, are no longer set up to do very well. You've been in business so long that your mind is accustomed to a fine blend of wishful thinking and can-do attitudinizing on subjective subjects. "It's gonna be great!" you tell yourself. "Wake up at noon every day like I did when I was a teenager! Have a bagel! Play 36 holes! Couple of drinks at the 19th green! Wake up and do it again the next day! That's what I call living!" Right. Have you thought about what 25 years of that will be like?"

What price college admission?
07/02/06   Education
"Even valedictorians are finding it hard to land spots at the nation's most-selective colleges, so "Ben" wasn't about to take chances. Over the past four years, the New Jersey father of two has spent about $30,000 for guidance from Michele Hernandez, a Lake Oswego, Ore. college counselor who charges up to $36,000 per student for advice on everything from what courses to take to how to spend summers."

Naming the kids' guardians is no child's play
07/02/06   Taxes
"If you're the parent or guardian of minor children, here are some thoughts to keep in mind about naming guardians for your children."

Big merger wins point to investor losses
07/02/06   Markets
"The backdrop for the mega-merger announced this week in the mining industry is a slagheap of similarly grandiose deal making that has often disappointed or, worse, crushed the small investor."

Options gone wild!
07/01/06   Management
"Options have long been used to attract and retain people from CEOs on down. Companies give employees the right to buy a set number of shares at a fixed price for several years. The price is generally where the stock trades when the options are granted. Simple, right? If only. As common as options have become, doling them out is something of a black art. Some companies have ultrastrict rules, and some give management wide latitude. Still others followed what they thought were acceptable practices, which now turn out to be potentially illegal."

Apple's irregular options
06/29/06   Management
"Apple Computer today joined the growing list of companies to announce problems with past stock options, saying that it had discovered "irregularities" with options granted employees including Chief Executive Steve Jobs between 1997 and 2001."

Lean and unseen
06/29/06   Economy
"But someone forgot to tell American manufacturers the bad news. Most of them have enjoyed roaring success of late. Net profits have risen by nearly 9% a year since the recession in 2001 and productivity has been growing even more rapidly than is usual during economic expansions (see chart). The country's various widget-makers, moreover, show no sign of losing their innovative edge."

'Big Brother' eyes make us act more honestly
06/28/06   Academia
"We all know the scene: the departmental coffee room, with the price list for tea and coffee on the wall and the 'honesty box' where you pay for your drinks - or not, because no one is watching. In a finding that will have office managers everywhere scurrying for the photocopier, researchers have discovered that merely a picture of watching eyes nearly trebled the amount of money put in the box."

Dorfman performance review
06/27/06   Dorfman
"Here is an update on five of my favorite special portfolios. The Robot Portfolio and the Bunny Portfolio are computer guided. The Sane Portfolio, the Perfect 10 Portfolio and the Billion- Dollar Portfolio are computer assisted."

Warren Buffett gives away his fortune
06/25/06   Buffett
"We were sitting in a Manhattan living room on a spring afternoon, and Warren Buffett had a Cherry Coke in his hand as usual. But this unremarkable scene was about to take a surprising turn. "Brace yourself," Buffett warned with a grin. He then described a momentous change in his thinking. Within months, he said, he would begin to give away his Berkshire Hathaway fortune, then and now worth well over $40 billion."

When writing your will, make sure your intentions are clear
06/25/06   Taxes
"Things can move from mere confusion to costly legal battles if you leave your heirs uncertain about your intentions when you're gone. And few things can cause greater problems than joint ownership."

The evolution Of Marty Whitman
06/24/06   Whitman
"Mutual fund grand master Marty Whitman has a well-deserved rep as an obstinate and cantankerous cuss. For the fidgety Whitman, sitting still in a chair while a subordinate delivers a subpar financial analysis is impossible. Failing to follow Whitman's value-investing dicta would earn the poor slob a humiliating dressing-down. No one dared to second-guess Marty. Whitman's ability to out-think anyone has long been a fearsome thing. No one to this day can keep up with his lickety-split ability to read and analyze a company's 10-K filing."

The study of the decade
06/23/06   Brokers
"Over the next few years, you will be hearing a great deal about a ground-breaking new study that is just now starting to receive nationwide attention. The only notice of it that I have seen in the public media just appeared in a popular money magazine: "A new study compares the cost and performance of more than 4,000 mutual funds--some sold by brokers, some selected by people on their own--from 1996 to 2002. The people won." In other words, do-it-yourselfers outperform financial advisors."

Assessing the costs and benefits of brokers
06/23/06   Brokers
"Exploring these dimensions, we do not find that brokers deliver substantial tangible benefits. In short, while brokerage customers are directed toward funds that are harder to find and evaluate, brokerage customers pay substantially higher fees and buy funds that have lower risk-adjusted returns than directly-placed funds. Further, brokered funds exhibit no better skill at aggregate-level asset allocation than funds sold through the direct channel. This analysis implies that any benefits that exist must be found along less tangible dimensions."

Short-term performance is a meaningless metric
06/23/06   Markets
"The market is chock-full of short-term performance chasers. These are investors who steer their capital toward investment managers who have generated recent hot performance. By the way, I consider anything less than five years to be short-term. Short-term performance chasers tend to be emotional and impulsive. When an investment strategy is not working investors get frustrated. Switching to a different strategy (or manager) is seen as a fix. The problem is that short-term performance-chasing leads to underperformance, not outperformance."

5-star stocks from the Markel portfolio
06/23/06   Value Investing
"In my view, Markel's success is largely due to its strict adherence to a timeless investment philosophy that seeks to invest only in profitable businesses with ample reinvestment opportunities that are also run by competent management teams. In addition, the executives at Markel have both the long-term orientation and patience to wait for these types of companies to become attractively priced. As a result, Markel rarely overpays, and its investments usually compound at least at the growth rate of the underlying business."

Who cares about fund categories?
06/22/06   Funds
"Investor advocates believe innovative fund marketeers have hijacked the fund business from the portfolio managers. The reason so many fund categories are required is that the marketing departments have created all manner of funds, many of little real value to retail investors. Whatever happened to basic bread and butter investing?"

Third Avenue Q2 2006
06/22/06   Whitman
"favorable odds alone should not trigger an investment if the consequences of a mistake might be draconian"

Bolton v Gore
06/22/06   World
"Two years ago, a Danish environmentalist called Bjorn Lomborg had an idea. We all want to make the world a better place but, given finite resources, we should look for the most cost-effective ways of doing so. He persuaded a bunch of economists, including three Nobel laureates, to draw up a list of priorities. They found that efforts to fight malnutrition and disease would save many lives at modest expense, whereas fighting global warming would cost a colossal amount and yield distant and uncertain rewards."

Upside/Downside Market View
06/21/06   Stingy Investing
"Select a portfolio composed of up to six major asset classes, as per your specification, and find out how it has done since 1970."

Deep value
06/21/06   Value Investing
"We based this screen on what Benjamin Graham recommends for the "defensive investor" in his 1949 classic, The Intelligent Investor. Among other things, we insisted that each stock's price be no more than 15 times its average earnings per share over the past three years, and that the overall portfolio have a P/E of no higher than 13."

CEO Paycheck: $42,000 a day
06/21/06   Management
"Last year, the average CEO of a company with at least $1 billion in annual revenue made $10,982,000, or 262 times what the average worker made, according to an analysis by the Economic Policy Institute (EPI) released Wednesday. Put another way, the average worker -- who earned $41,861 in 2005 -- made about $400 less last year than what the average large-company CEO made in one day. That assumes 260 days of pay (52 weeks x 5 days a week)."

The long view
06/20/06   Dreman
"There's a brass telescope set up in David Dreman's spacious Jersey City office, and it's trained on Manhattan's southernmost tip, just across the Hudson River. That's exactly how the 70-year-old veteran investor looks at Wall Street - with a long view, a high level of scrutiny and from a very different perspective than most money managers."

5 Nasdaq stocks that might rise
06/20/06   Dorfman
" Cincinnati Financial (CINF), based in Fairfield, Ohio, sells property & casualty insurance, engages in leasing and financing activities, and offers investment management services. Cincinnati Financial stock sells for 15 times earnings, 1.3 times book value and 1.8 times revenue, all reasonable multiples in my opinion. It yields 2.9 percent in dividends. Yet the picture is better than it appears. Cincinnati Financial owns almost 13 percent of Fifth Third Bancorp, a banking company with a market value of more than $20 billion. If you adjust for that holding, Cincinnati Financial sells for only 10 times earnings from operations."

Foreclosures may jump as ARMs reset
06/19/06   Real Estate
"Unfortunately, during a runaway market, many buyers, sellers and mortgage brokers were more excited about making deals than making smart deals, and the fallout has just begun. "We are on the front of this ARM problem. It will roll out over the next several years," Boas said. "Owning a home is the American dream, but losing one is the ultimate nightmare.""

The rich, the poor and the growing gap
06/18/06   World
"All in all, America's income distribution is likely to continue the trends of the recent past. While those at the top will go on drawing huge salaries, those in the broad middle of the middle class will see their incomes churned. The political consequences will depend on the pace of change and the economy's general health. With luck, the offshoring of services will happen gradually, allowing time for workers to adapt their skills while strong growth will keep employment high. But if the economy slows, Americans' scepticism of globalisation is sure to rise. And even their famous tolerance of inequality may reach a limit."

Real estate is risky business
06/18/06   Real Estate
"Though U.S home-price gains have slowed, prices still far outstrip fundamentals, according to Yale economist Robert Shiller. Speaking Friday at a press conference in New York, Shiller, the author of "Irrational Exhuberance" and co-producer of the Case-Shiller real estate indexes, pointed to several measures he tracks.In justifying his pessimism, he pointed out that price increases have far out paced rises in construction costs, rents and income. In addition, inventory levels are up, as are interest rates and real estate holdings as a percentage of the gross national product."

Estate planning for the wise
06/18/06   Taxes
"Another challenge of aging is deciding how to deal with your children in your will. Some of your kids may disappoint you, some may have special needs, and some may have no idea how to handle money. Today, I want to talk about dealing with your children in your will."

Today's graduates face a world that is seriously tougher
06/17/06   Thrift
"Many older people believe that young people are spoiled and self-indulgent. Worse, they are blissfully unappreciative of how difficult things were in days of yore. In lots of ways, if not most, the reality is just the reverse: Many older people are unaware that today's college graduates face a world that is seriously tougher."

Miller, Hodges bet on housing slump end
06/15/06   Value Investing
"The biggest slump in U.S. homebuilder stocks since 1994 has spurred investors with some of this decade's best records to snap up shares of Centex Corp., KB Home and Toll Brothers Inc. So far their confidence has been unrewarded."

Undiscovered bargains among the cheapies
06/13/06   Dorfman
"The average U.S. stock sells for about $26 a share. For some investors, that's too much. They prefer stocks selling for $5 to $10. Intuitively, these investors believe that a $5 to $10 stock has 'more room to grow.' You can call this irrational if you want. There's little difference between owning 10 shares of a $40 stock and 100 shares of a $4 stock. Yet there is some method to the madness of people who prefer cheap stocks in the sense of raw price. It comes down to the difference between institutional investors and individuals. Institutions such as mutual funds, insurance companies and pension funds typically pay commissions of 1 cent to 6 cents a share. And they deal in thousands, or tens of thousands, of shares at a time. For them, $5 to $10 stocks run up a higher commission tab because they need to purchase more shares to equal, say, 2 percent of their portfolio. Small investors, by contrast, often pay a flat fee to trade. To them, there is no harm to them in buying low-priced shares. Some institutional buyers also regard lower-priced stocks as less respectable than higher-priced ones. So $5 to $10 may be only scantily covered by Wall Street analysts. That's why individuals can sometimes find undiscovered bargains among the cheapies."

Weighing options with Robert Olstein
06/12/06   Value Investing
"Hey home-gamers, don't beat yourself up for missing the options-backdating scandal. Even renowned stock sleuth Robert Olstein says it was nearly impossible to spot."

Even the managers won't buy these funds
06/10/06   Funds
"Always be wary of a fund whose strategy sounds more like a marketing pitch. Get exposure to stocks without any of the downside. That's the pitch of principal-protection funds, and it sounds pretty compelling. If you just hold the funds for five years you'll get your principal back, as well as possibly some price appreciation to boot. Principal-protection funds buy stocks to give you market exposure, but they also guarantee your principal by buying bonds and possibly an insurance wrapper. At the risk of causing you to feel a little weltschmerz, I have to tell you the funds don't live up to their promise."

Understand the rights of your spouse upon your death
06/10/06   Taxes
"Fact or fiction, it kind of makes you want to have some fun in your own will, doesn't it? Just be careful. Your beneficiaries may have certain rights. Today, let's talk about your spouse."

The magic money machine
06/09/06   Value Investing
"Whatever you think of its Magic Formula strategy, The Little Book offers one of the most succinct and straightforward explanations of value investing that we've read. It's even funny at times. But can it make you rich? Frankly, we're not sure. But what we do like about Greenblatt's system is that it's logical and builds on the writings of Benjamin Graham and Warren Buffett, two of the most successful value investors in history. As we discovered in a recent interview with Greenblatt, he pulls no punches when it comes to defending his strategy."

Stocks for cannibals
06/09/06   Stingy Investing
"There's nothing like cashing your first dividend cheque to develop your taste for raw capitalism. That's when it hits you that simply by buying a share in a firm you can enjoy a perpetual stream of dividend income with no further sweat or toil. But dividends are only the most obvious way that companies reward shareholders. You can also reap big benefits when companies decide to buy back their own stock."

Muhlenkamp's methods
06/09/06   Value Investing
"Yes. I've been going to auctions since I was five years old. We sold calves and pigs at auctions when I was a kid. We'd do our Christmas shopping at auctions. I find myself telling people more and more, 'If you want to understand the stock market, go to auctions.' When I ask someone why he goes to auctions, he usually says something like, 'Every now and then you can get a good deal' Nonetheless, if one of something you own happens to sell for half price at an auction - and that auction is in the stock market - the headlines read, 'Stocks Cut In Half!' Bullshit. That day, there just happened to be no buyers. That happens at auctions all the time. But you can also get carried away at auctions. I've seen used bicycles sell for more than Sears charges for a new bike, just because two people happened to want that blue bicycle that day. That's just normal at auctions. A lot of people nowadays look at you sort of funny when you suggest going to auctions to understand the stock market, but back in the Midwest, where you and I come from, there didn't used to be much mystery about auctions. They were commonplace, anytime a farm was sold or a house broken up, there was an auction. And the bottom line is that people go to auctions for the volatility. If you want to avoidvolatility, you go to Wal-Mart. You literally go to auctions to take advantage of the volatility."

How accurate are your pet pundits?
06/07/06   World
"Imagine your job as a media executive depends on expanding your viewing audience. Whom would you pick: an expert who balances conflicting arguments and concludes that the likeliest outcome is more of the same, or an expert who gets viewers on the edge of their seats over radical Islamists seizing control and causing oil prices to soar?"

Life is less expensive for older couples
06/07/06   Retirement
"Imagine two couples. They live side by side in virtually identical houses. The Youngs have two children in their early teens. The Olds have lived there forever and are retired. Now guess the income the Olds would need to have the same standard of living as the Youngs"

When protecting jobs only destroys them
06/07/06   Economy
"I like France. The language is beautiful. The food is inspiring. And I appreciate topless beaches as much as the next guy. Still, I sometimes wonder if eating snails doesn't somehow dull one's ability to make sensible economic policy."

Debunking one of the worst ideas in economics
06/07/06   Economy
"Economist Arthur Laffer made a very interesting supposition: If tax rates are high enough, then cutting taxes might actually generate more revenue for the government, or at least pay for themselves. (In one of life's great coincidences, he first sketched a graph of this idea on Dick Cheney's cocktail napkin.) If the government cuts taxes, then Uncle Sam gets a smaller cut of all economic activity -- but reducing taxes also generates new economic activity. Laffer reasoned that, under some circumstances, a tax cut would stimulate so much new economic activity that the government would end up with more in its coffers -- by taking a smaller slice of a much larger pie. In fairness to Mr. Laffer, there's nothing wrong with this theory. It's almost certainly true at very high rates of taxation."

A study in CEO greed
06/07/06   Management
"The problem, in brief, is that executives at some companies were backdating their stock options to dates when the stock was at its low for the year or the quarter, tilting the odds of profiting on those options heavily in their favor. Backdating isn't necessarily illegal, but following the complicated rules would largely eliminate the advantages of doing it. As actually practiced, it was stealing, pure and simple. Executives looked back over several months and chose the date on which they wanted the right to buy shares of the company they were being paid to manage and - surprise! - they chose the date when the price was lowest. Wouldn't you like to decide in retrospect when to buy a stock?"

The merchants of red ink
06/07/06   Markets
"In recent years, with interest rates low and credit easy, U.S. companies have gorged on high-yield debt. There was more than $1 trillion worth of high-yield issues in the U.S. last year, up from $750 billion in 2002. That has attracted the attention of a flock of private-equity investors and hedge funds, who are looking for investment opportunities as these debt-laden companies run into trouble. They're looking for companies with distressed debt, typically companies that have either filed for bankruptcy or are headed in that direction. The hedge fund and private-equity investors are looking for fundamentally sound companies that have taken on too much debt, so they can restructure them and sell them to another buyer for a profit. But will these opportunities of ill fortune materialize?"

Book value bargains
06/06/06   Value Investing
"About 2 percent of all U.S. stocks sell for less than book value -- that is, less than the company's per-share assets minus liabilities. This might appear to be a paradox. After all, if a company were liquidated -- selling all assets and paying off all liabilities -- there would seem to be more cash than the market value of the stock. What's the catch? Liquidation may be unlikely. And it's always possible that the liabilities are understated or the assets overstated. Therefore, buying stocks below book value isn't a sure-fire strategy. Yet it is often a good one."

Is that a hole in your IPO?
06/03/06   Stingy Investing
"It also nicely illustrates why most main street investors should avoid IPOs entirely. Regular investors rarely get quality IPO shares before public trading begins. On the other hand, buying at sky-high prices when trading starts can set up long-term investors for a big fall."

The price of conformism
06/03/06   Academia
"As previous agency models have shown, fund managers with career concerns have an incentive to imitate the recent trading strategy of other managers. We embed this rational conformist tendency in a stylized financial market with limited arbitrage. Equilibrium prices incorporate a reputational premium or discount, which is a monotonic function of past trade between careerdrive traders and the rest of the market. Our prediction is tested with quarterly data on US institutional holdings from 1983 to 2004. We find evidence that stocks that have been persistently bought (sold) by insitutions in the past 3 to 5 quarters underperform (overperform) the rest of the market in the next 12 to 30 months. Our result is of a similar order of magnitude of - but cannot be reconduced to - other known price anomalies. Our findings challenge the mainstream view of the roles played by individuals and institutions in generating price anomalies."

Investors choose high-fee index funds
06/02/06   Indexing
"But the students "overwhelmingly fail to minimize index fund fees," the researchers write. "When we make fund fees salient and transparent, subjects' portfolios shift towards lower-fee index funds, but over 80% still do not invest everything in the lowest-fee fund." In fact, the mean fee paid by the students was 1.22 percentage points above the minimum they could have paid -- enough to dramatically reduce long-term gains." Warning: irrational investors at work.

A lesson on elementary, worldly wisdom
06/02/06   Munger
"Here's a model that we've had trouble with. Maybe you'll be able to figure it out better. Many markets get down to two or three big competitors-- or five or six. And in some of those markets, nobody makes any money to speak of. But in others, everybody does very well. Over the years, we've tried to figure out why the competition in some markets gets sort of rational from the investor's point of view so that the shareholders do well, and in other markets, there's destructive competition that destroys shareholder wealth."

Simple sounds make for sound investments
05/31/06   Markets
"For those of you struggling to pick a winner in the complex world of stocks and shares, help is at hand. A psychology study has found that, at least in the short-term, stocks with names that are easier to pronounce consistently outperform those with more confusing monikers."

After Enron, corporate wrongdoing still thrives
05/31/06   Crime
"Now, it would be nice if the Lay and Skilling convictions marked the end of this kind of fraud. The terrible part is that it's still going on in a huge way. Lately, investigative reporters at "The Wall Street Journal," aided by university professors, are discovering that top executives at some of the biggest companies in the nation are looting their companies in an almost unbelievably brazen way."

Curse of the cold hand strikes
05/30/06   Funds
"Nothing chills congenial feelings between a money manager and his investors faster than a cold streak. Years of admiration and satisfaction can fade in an amazingly short time when the manager's performance falters -- even if the reason is nothing more substantial than a temporary shift in market conditions."

Landscaping may be beheld in the deductibles
05/30/06   Taxes
"Tax deductions can be like chocolate. The more the better -- if we can get away with it. Sometimes Canadians misunderstand the rules around certain deductions. Landscaping comes to mind. Sometimes these costs are deductible, sometimes they're not."

Value vs Glamour
05/29/06   Value Investing
"During the 23, rolling five-year periods in our study, among large-cap stocks, the Russell 1000 Value Index ended ahead of the Russell 1000 Growth Index 15 times, representing 65% of the five-year periods. For small caps, the Russell 2000 Value Index outperformed the Russell 2000 Growth Index in 21 of the 23 five-year periods, or 91% of the time."

Investor is poised to buy C&A
05/29/06   Whitman
"Third Avenue Management LLC, a quiet yet influential investor in distressed companies, is buying a lot of debt and equity in North American auto companies."

Unpleasant surprises
05/28/06   Dreman
"How smart are analysts at forecasting earnings? I have a long-running debate with the analyst community on this point. The analysts (and the people who circulate their numbers) think they're pretty good. I think they all too often miss by a wide margin, especially on high-multiple growth stocks, where a disappointment can send a stock reeling."

05/27/06   World
"When our economics editor invented the Big Mac index in 1986 as a light-hearted introduction to exchange-rate theory, little did she think that 20 years later she would still be munching her way, a little less sylph-like, around the world. As burgernomics enters its third decade, the Big Mac index is widely used and abused around the globe. It is time to take stock of what burgers do and do not tell you about exchange rates."

FPA Annual
05/26/06   Value Investing
"We know we are at odds with most of the mutual-fund industry. As an example, the average liquidity of all equity mutual funds recently hit an all-time low of 3.7%, versus your Fund's record high of 43.6%. While we are being cautious, our competition seems to be very confident, and this is reflected in low stock-market volatility measures. Wherever we look, it appears that most investors are highly confident. Volatility in the bond market recently hit an all-time low as well. Yield spreads are quite narrow throughout all credit segments of the bond market. There seems to be very little worry about credit risk. Again, while others seem to be highly confident, we believe that it is prudent to exercise a higher degree of caution."

Buffett's alter ego
05/26/06   Munger
"Ask folks about Berkshire Hathaway, and most will tell you that it's Warren Buffett's company, which is true as far as it goes. But those in the know recognize that Berkshire's success is actually the product of a tag-team effort by Buffett and his long-standing partner, Charlie Munger."

The next big scandal
05/26/06   Management
"At issue is whether those options grants were backdated. For example, if a company grants options on May 22, when its stock price is $20, but records the date of issue as April 22, when the stock price was only $15, it would have given those who were granted options a "sure thing," or at least a leg up, on a very lucrative "gift" of corporate assets. Already, CEOs of several companies have resigned, been discharged or been placed on administrative leave pending the outcome of internal and governmental reviews."

Fundamental indexing and the three-factor model
05/25/06   Indexing
"Fundamental indexing is a promising technique, but its advantage over more conventional cap-weighted value-oriented schemes, to the extent that it exists at all, is relatively small."

See's, Buffett's candy shop, pushes across U.S. again
05/25/06   Buffett
"Berkshire Chairman Buffett bought See's in 1972 for $25 million at the urging of Vice Chairman Munger. With its first new chief executive officer in 34 years, See's is taking another run at becoming as familiar across the U.S. as International Dairy Queen Inc., also a Berkshire unit, and Coca-Cola Co., whose biggest shareholder is Berkshire. Brad Kinstler, CEO since January, is cultivating Internet sales and operating more gift shops during the Christmas season, when See's gets half its revenue. The drive follows a failed effort 30 years ago to put See's black-and-white-tiled stores in malls from St. Louis to Houston. After 85 years in business, See's still has more than three-quarters of its 200 stores in California."

38 stocks in the Buffett portfolio
05/24/06   Buffett
"We also understand that Berkshire recently acquired a stake in U.K.-based retailer Tesco PLC. These public investments coincide with Berkshire's proposed acquisition of Israel-based Iscar Metalworking Companies for $4 billion. Taken together, we estimate that Berkshire has added almost $6 billion of "nondollar" assets to its holdings over the last few months. We aren't overly surprised by this, given Buffett's continued belief that large U.S. trade deficits will eventually cause the dollar to weaken."

Global bargain hunter
05/23/06   Value Investing
"From his office in Boston, Horn scours the globe, from Scandinavia to Mexico, in search of dull stocks that happen to be cheap. The first thing he looks for in a company is not net earnings but free cash flow, which he defines as cash flow from operations minus maintenance-level cap-ex. "It's useless to use net profits to compare companies globally," he says, as the figures can be easily manipulated or affected by local accounting and tax rules. A software company, for instance, could capitalize or expense the cost of software development, while steel companies' tax rates could vary based on the country in which they operate. But, says Horn, "There's either cash, or there isn't.""

Doubled, still cheap
05/23/06   Dorfman
"Don't automatically sell big gainers, unless it's necessary to achieve adequate diversification in your holdings. Instead, make a judgment call in each case. Is the stock still cheap? Do its prospects still look good? If so, let your big winner ride, unless it exceeds 10 percent of your portfolio. "

I sold it through the grapevine
05/23/06   Marketing
"The method is also causing controversy. Last October consumer group Commercial Alert filed a complaint against Tremor with the FTC, criticizing P&G's policy of not requiring that connectors disclose their affiliation with the marketer. Without such disclosure, Commercial Alert Executive Director Gary Ruskin sees the danger of the basic "commercialization of human relations," where friends treat one another as advertising pawns, undercutting social trust."

Best off-season summer resorts
05/21/06   Travel
"Here are some getaway spots around the world where you can vacation like a millionaire without shelling out big bucks"

Donating securities isn't easy
05/21/06   Taxes
"Finally, the charity's broker needs to be well-rehearsed in how to hand-hold a donor and his or her broker through the donation process. This process will typically require the donor to provide his or her broker with a letter of direction and information related to the charity's brokerage account and the securities to be donated, in order to make the donation happen."

The spending question
05/21/06   Retirement
"What will you really shell out in retirement? Maybe not as much as financial planning calculators tell you."

The disappearing mid-market
05/19/06   Markets
"Each of these companies is trying to profit from what are arguably now the two most noteworthy trends among the swelling ranks of middle-class consumers around the world - trends that appear to be, at first glance, at odds with each other. These are the tendencies for consumers to be more cost-conscious; but simultaneously more willing to splurge money on luxury items."

Notes from Wesco
05/17/06   Munger
"Welcome to the annual meeting of Wesco, for the die-hard groupies." [Note: I can't verify the author, but the lengthy notes correspond to less detailed ones that I've seen]

Allstate and CBS have joined the do-nothing club
05/16/06   Dorfman
"Take a look at the last five stocks you bought. Before you took the plunge, were they moving up, down or sideways? Many people instinctively gravitate to stocks that have been moving up. Others, like me, are drawn to those that have just fallen. Not many investors are interested in the 'sideways' stocks. People see them as dull, directionless and boring."

Value investors speak out
05/15/06   Value Investing
"Last week concluded a nationwide tour for the disciples of famous value investors, such as Warren Buffett and Ed Lampert, that has become an annual tradition in finance circles."

One-stop dividend shopping
05/14/06   Dividends
"How should you choose among these options? If you're seeking foreign dividends, PowerShares International is for you. If you value transparency, avoid the Mergent/Vanguard offering. Among the others, choices involve trade-offs. Indexes weighted by yield generally provide higher income than those weighted by market capitalization, but after-tax net can be lowered if the index includes REITs."

Commodity wary? Try custom indexing
05/14/06   Indexing
"Just remember that with indexing, you're buying the market. Where the S&P/TSX composite index is concerned, you have an approximate 45-per-cent weighting in energy and materials, which includes metals and gold stocks. With the S&P/TSX 60 index of big blue chips, you have 41-per-cent exposure to commodities. For investors willing to sacrifice a bit of upside to limit downside, this is too much."

Zero taxes and help a favourite charity
05/14/06   Taxes
"This week, I want to share with you one idea that will: (1) allow you to eliminate all the tax on an investment you've decided to sell, (2) make a potentially generous gift to charity, (3) keep much of the sale proceeds for yourself, and (4) prove that I am more of a math geek than I thought."

Detroit sold for scrap
05/10/06   Fun
"The decision to demolish and cull Detroit for scrap was approved last month by a 6-3 City Council vote after a cost-benefit analysis revealed that, as a functioning urban area, it held a negative cash value."

Pay for failure should stick in investors' craws
05/10/06   Management
"Funny how a bull market puts us all in such a forgiving, mellow mood. Paycheques for the country's top CEOs went up 39 per cent last year, according to a Globe and Mail study, and does anyone raise a peep?"

The Warren & Charlie Show: 2006
05/10/06   Buffett
"I was in Omaha on Saturday to attend Berkshire Hathaway's annual shareholders' meeting at the Qwest Center there. As they do every year, CEO Warren Buffett and Vice Chairman Charlie Munger spent the bulk of the session answering questions from shareholders. Here are my notes from the gathering"

Don't hedge your bets after all
05/10/06   Markets
"Pinkernell and Bernstein analyzed rolling five-year correlation data and found that the only asset classes less in sync with the S&P 500 today than they were in 2000 are T-bills and Treasury bonds. Commodities like oil, grains, and metals have gone from being negatively correlated in 2000 - a good thing for diversification - to a modest "positive correlation" today. Real estate has gone from a correlation low of negative 60 percent in 2003 to a positive 77 percent today. But perhaps their most surprising findings involve investments most often recommended for sound diversification: small-cap stocks, foreign stocks, and hedge funds. Over the past five years, these one-time loners walked almost hand in hand with the S&P 500, with correlation rates of 94 percent, 96 percent, and 96 percent, respectively. Pinkernell's worry: They might not provide much of a buffer should large U.S. stocks tank."

Steady as she goes
05/09/06   World
"All this explains why, in the words of Exxon Mobil, the oil production peak is unlikely "for decades to come". Governments may decide to shift away from petroleum because of its nasty geopolitics or its contribution to global warming. But it is wrong to imagine the world's addiction to oil will end soon, as a result of genuine scarcity. As Western oil companies seek to cope with being locked out of the Middle East, the new era of manufactured fuel will further delay the onset of peak production. The irony would be if manufactured fuel also did something far more dramatic - if it served as a bridge to whatever comes beyond the nexus of petrol and the internal combustion engine that for a century has held the world in its grip."

Low-debt appeal
05/09/06   Dorfman
"In picking stocks, low debt may sound like an old-fashioned virtue from the time of crinoline skirts and hand-tied bow ties. It's not. The low-debt stock lists I've presented in this column annually for the past eight years have shown an average 12-month total return of 45 percent. By contrast, the average return for the Standard & Poor's 500 Index for the same eight periods has been 5.3 percent."

ETFs: 5 smart strategies
05/07/06   Indexing
"Exchange-traded funds can cut your investment costs, lower your tax bill and simplify your life. Just make sure you handle them with care."

Welcome to the dead zone
05/07/06   Real Estate
"Real estate survival guide: The great housing bubble has finally started to deflate, and the fall will be harder in some markets than others."

The budget's tax-saving measures
05/07/06   Taxes
"The federal budget this week was full of incentives. That is, measures to encourage certain behaviour. Some of these measures provide real opportunities if you know what to do with them. Today, I want to take a look at a few of the measures, and suggest how best to use them to save tax."

Buffett solves his cash crisis
05/07/06   Buffett
"With each passing year, they seem to become a little less interested in buying small stakes of companies that trade in the stock market - and more interested in buying majority holdings in private businesses. That, they believe, is how they can now get the biggest bang for their big bucks. Buffett and Munger are more thoughtful about what to do with cash than any other business leaders in America. That's because they know that cash is like most good things in life: It takes only a tiny bit too much to turn it from a blessing into a curse."

Wit and wisdom of Buffett and Munger
05/07/06   Buffett
"Selected comments from Warren Buffett and Charlie Munger from Saturday's annual meeting of Berkshire Hathaway shareholders in Omaha, Nebraska."

Omaha notebook
05/07/06   Buffett
"The annual shareholder gathering at Berkshire Hathaway's headquarters in Omaha on Saturday, often called "Woodstock for capitalists," included bling, a merger deal and appearances by the "Desperate Housewives" cast. Here are dispatches from the meeting."

Buffett: Real estate slowdown ahead
05/06/06   Buffett
"I don't think there's a bubble in agricultural commodities like wheat, corn and soybeans. But in metals and oil there's been a terrific [price] move. It's like most trends: At the beginning, it's driven by fundamentals, then speculation takes over. As the old saying goes, what the wise man does in the beginning, fools do in the end. With any asset class that has a big move, first the fundamentals attract speculation, then the speculation becomes dominant. Once a price history develops, and people hear that their neighbor made a lot of money on something, that impulse takes over, and we're seeing that in commodities and housing...Orgies tend to be wildest toward the end. It's like being Cinderella at the ball. You know that at midnight everything's going to turn back to pumpkins & mice. But you look around and say, 'one more dance,' and so does everyone else. The party does get to be more fun -- and besides, there are no clocks on the wall. And then suddenly the clock strikes 12, and everything turns back to pumpkins and mice."

A practical man
05/04/06   World
"Unlike their Republican neighbours to the south, Canada's Tories are determined to maintain their predecessors' record of balanced budgets, stretching back eight years. They promise to rein in government spending, which showed signs of running away under the Liberals. Last year's entire C$8 billion ($7 billion) surplus will go towards paying down the national debt. From now on, C$3 billion will be set aside each year for debt reduction. That would reduce the ratio of public debt to GDP, already the lowest of any of the G7 large industrial economies, to 25% by 2014."

Age and acquisitions top Berkshire agenda
05/04/06   Buffett
" But the shares have stagnated over the past two years, as Buffett has struggled to find big acquisitions that meet his strict value-investing criteria. In his 2004 shareholder letter, Buffett admitted that he'd "struck out" by not making any multi-billion dollar acquisitions that year. "Berkshire therefore ended the year with $43 billion of cash equivalents, not a happy position," he wrote, promising to try to "translate some of this hoard into more interesting assets during 2005." By the end of last year, Berkshire had made more than $10 billion in acquisitions, but its cash pile still stood at more than $40 billion because the company's current businesses generate so much profit."

Harley-Davidson, Mattel fit Buffett purchase criteria
05/04/06   Buffett
"Buffett repeats his acquisition criteria each year in Berkshire's annual report. Companies must have at least $75 million in pretax profit, consistent earnings, 'good' returns on equity and 'little or no debt' to be considered. Managers must stay with the company, which should be in a 'simple' business. The valuation of $5 billion to $20 billion has stood since 1998. The range was $5 billion to $10 billion before then. The Bloomberg News search looked at more than 5,000 publicly traded U.S. companies. To qualify, stocks needed a price-to- earnings ratio of 15 at most, less generous than the 17 times earnings Berkshire is paying for Russell. They also had total debt to common equity of less than 50 percent and five-year geometric earnings growth of 10 percent annually. "

Patient Capital Management Q1
05/03/06   Value Investing
"There is a famous story in investment lore about ambitious young men hoping to get rich. Several young men had just graduated from college in the mid forties. Having seen the hardships of the Great Depression they sought out advice. They wanted to know how to accumulate wealth. They wisely asked the most distinguished and successful investor of the time for a meeting. Surprisingly the gentleman agreed. Realizing their good fortune they diligently researched and prepared several questions expecting a long meeting filled with much advice and many "golden truths". On the day of the anointed meeting these young men presented themselves to the great man's assistant and were shown into the boardroom. They marveled at the oak paneled furniture and luxurious setting. They could barely contain their excitement; they were going to learn the secrets to becoming rich. After what seemed like a very long time a distinguished, grey haired man entered the room and sat at the end of the very long table. One member of the group could not contain his enthusiasm. Much to the embarrassment of his colleagues he blurted out that they were interested in amassing a great fortune just as he had. Without hesitation the investor simply stated . . ."

No defense for this insanity
05/01/06   Law
"Open societies flourish because they are driven by intelligence and information; the U.S. tort system creates an enclave of idiotic whimsy in the heart of the most open society in the world. But the Vioxx litigation does not merely celebrate dumb prejudice. It's extraordinarily expensive. For this year alone, Merck has set aside a legal war chest of $685 million. The Vioxx lawsuits could eventually cost it between $10 billion and $50 billion. Did those numbers sink in properly? The midpoint of those estimates -- $30 billion -- is six times more than the federal government spends annually on cancer research. Or, to put it another way, $30 billion is about five times Merck's annual earnings, meaning that one of the world's top pharmaceutical research establishments is fighting for survival. At a time when Americans fret over relative decline in science and business, it's insane to sink a flagship scientific company in order to line the pockets of unscrupulous lawyers."

New home sales soar
04/30/06   Real Estate
"But economist Bob Brusca of FAO Economics said last month's drop in new home prices is a sign that the market for new homes isn't nearly as strong as the jump in sales would suggest. He noted that the report showed an unusual drop in prices from both February and a year earlier, which could be a sign that home builders are cutting prices to move a large supply of new homes now on the market. "New homes sales sprang back to life like a zombie in a cheap horror flick," Brusca said. "And like that zombie, housing really is dead. Don't let all that twitching fool you.""

Zero to $1 billion
04/30/06   Growth Investing
"After interviewing dozens of executives at billion-dollar firms, Thomson boiled down their management practices to what he calls the Seven Essentials. Some of these principles are strategic: Create a killer value proposition. Some are operational: Manage for positive cash flow from the start. And some involve leadership: Hire a second-in-command who can take care of the day-to-day while you think big picture. It has long been a business school staple that successful companies sell emotional benefits, not just products. Yet few entrepreneurs can explain why their business proposition is any better than the competition's. Not so with our Blueprint companies."

Before you claim a deduction make sure it's legitimate
04/30/06   Taxes
"Now, the Canada Revenue Agency is not in the habit of telling folks what the government is looking for when it decides who should be audited. But it's not difficult to figure out the flags that could lead to the CRA taking a closer look at your tax return. This is a partial list of things that, based on an informal survey of tax professionals and a couple of friends at the CRA, you should be aware of."

Barclays announceschange from iUnits to iShares
04/30/06   Indexing
"Barclays Global Investors Canada Limited ("Barclays Canada") announced plans today to change the name of its Toronto Stock Exchange-listed family of exchange-traded funds (ETFs) from iUnits to iShares. Leveraging the strength of the iShares product line around the world, Barclays Canada will be aligning its ETF brand identity with its global counterparts."

Rising gasoline = trouble for retailers
04/29/06   Markets
"Some people can cope by skipping a cup of Starbucks coffee or a movie. But the recent increases have been so dramatic that they'll probably take an even bigger bite out of discretionary spending. "Last year consumers on average spent $500 more for the year on gas. This year it could go up to $1,000. This is what Lee Scott is worried about," Cohen said. "The average American has $2,400 in discretionary spending. A Wal-Mart shopper probably has $1,500. Now take out the $1,000 extra and what does that leave them?" If gas prices don't retreat, Cohen said, he'd be worried about retail sales for the rest of the year, and possibly even during the holiday shopping season, which typically accounts for as much as 50 percent of retailers' annual profits and sales."

Think twice before purchasing these stocks
04/28/06   Dorfman
"Last weekend I screened the Bloomberg database for stocks that sell for more than three times revenue, even though they posted a loss in their latest fiscal year and their revenue has been growing at less than a 3 percent annual pace in the past five years. I found 13 such stocks, and will discuss seven of them in this column. The seven are the largest, the most indebted, and those with the worst losses recently."

Power without responsibility
04/28/06   World
"Unions thus have a lot of power, but without being representative. Some suggest that this mis-match causes conflictual labour relations. In effect, the unions are defending the interests not of the many, but of the few."

1Q 2006 Bill Miller commentary
04/25/06   Markets
"The reason to own commodities may be that one believes they provide equity-like returns with little correlation with equities. The time to own commodities is (or at least has been) when they are down, when everybody has lost money in them, and when they trade below the cost of production. That time is not now. The data showing the returns of commodities will look very different if you start measuring just after prices have tripled. Every commodity we can get data on trades significantly above both the average and the marginal cost of production. Copper, for example, has an average cost of production of around 90 cents per pound, and a marginal cost of about $1.30 per pound. The marginal cost should approximate the equilibrium price over time. The current price is around $3.25 per pound. It is not a question of if copper prices are going down, it is a question of when."

We're just entering the silly time
04/24/06   Markets
"Trouble is, outside of mini-booms (such as we are now experiencing), the long-term trend for commodity prices is down. All commodities, without exception. Is the party nearly over for commodities? We have no way of knowing, but we are just entering the silly time. In the silly time, your friends and relatives will be telling you about this great gold or mining stock they own and how you have to own it, too. Don't bother asking them where the mine is located or its current level of production. They won't know or care and it probably doesn't have any production anyway. Sound like the technology bubble? It is difficult to predict when the good times will end. Remember, they always go further and last longer than anyone predicts. And they always end ugly."

The trial of Sarbanes-Oxley
04/23/06   Accounting
"The act was named after its two main sponsors, Senator Paul Sarbanes (pictured right above) and Congressman Mike Oxley (left). Sarbanes-Oxley, or SOX, as it has become known, was unpopular with business people from the start. In recent years it has been hard to find a chief executive of a public company who does not complain vehemently about the burdens imposed by the dreaded SOX. Indeed, rather than diminish as the initial shock wore off, the complaints have only got louder. The SOX-bashers have been joined by such luminaries as Alan Greenspan, the former head of the Federal Reserve and Bob Greifeld, the boss of the NASDAQ stockmarket."

Leucadia letter
04/23/06   Value Investing
"We have been unhappy with the GAAP reporting of tax assets mentioned above for some time. Early in the 1990's, the accountants adopted a rule, SFAS 109. Under this rule, which we disparaged back then, companies are required to recognize the non-present value of their NOLs and put them on the balance sheet as something called a Deferred Tax Asset. For up to the next twenty years, or as long as we have NOLs, we will report an income tax expense and the Deferred Tax Asset will be reduced by the same amount, but we will not pay cash taxes. This large asset may not become a reality until sometime in the future and we cannot begin to project when that will be. We long for the pre-SFAS 109 days when the NOLs rested peacefully in the footnotes until sometime in the future when they would be called upon to deflect taxation. Too much complexity robs simplicity and thus, understanding."

Stave off old-age poverty
04/23/06   Retirement
"Although few elderly Americans are officially poor, 75% live on less than $26,777 yearly. Even a tiny amount stashed in investments and savings make a difference in old age."

Active traders: On-line brokers want you
04/23/06   Brokers
"Hard-trading stock jocks are suddenly getting the VIP treatment from the big on-line brokerage firms. At least five major brokers have in the past few months introduced cut-rate commissions for active traders, a term that is commonly defined as placing at least 30 buy or sell orders per quarter. These discounts can take regular commissions of as much as $29 per trade and reduce them to as little as $9.95, which means they offer substantial savings."

These tips can help trim your tax bill
04/23/06   Taxes
"When it comes to saving tax, there's more than one way to skin a cat. Today, let me share a few last-minute tips that could still save you money as you file your 2005 return."

Spinning CEO pay
04/21/06   Management
"Strange, but true: One company actually receives positive press for its executive compensation. Media reports frequently tout Whole Foods' pay policy, which caps the chief executive's salary and bonus at 14 times the average worker's pay. The Wall Street Journal,, Harvard Business Review and BusinessWeek have all mentioned the pay cap, generally in favorable terms. But they all omitted one thing: stock options."

Junk-food jihad
04/19/06   Government
"So, we've found a new enemy: obesity. Two years ago, the government discovered that the targets of previous crusadesbooze, sex, guns, and cigaretteswere killing a smaller percentage of Americans than they used to. The one thing you're not allowed to do in a culture war is win it, so we searched the mortality data for the next big menace. The answer was as plain as the other chin on your face. Obesity, federal officials told us, would soon surpass tobacco as the chief cause of preventable death. They compared it to the Black Death and the Asian tsunami. They sent a team of "disease detectives" to West Virginia to investigate an obesity outbreak. Last month, the surgeon general called obesity "the terror within" and said it would "dwarf 9-11.""

China's reality is both boom and gloom
04/19/06   World
"A flight into Beijing these days begins the descent into a kind of hell. It's not just the smog, which is pervasive, gray and suffocating on an epic scale. It's not just the weather, which is unseasonably cold and windy. It's not just the sand, which is blowing in from inner Mongolia in thick, yellow sheets. It's not just the traffic, which is inert due to the stunning lack of major cross-town freeways. And it's not just the vibe of the city's residents and laborers, which is often foul and hostile amid the pollution and crowding. It's the sense of alienation and hopelessness that you get from so many of the kind and brilliant people who have grown up there, and who should have the greatest stake in its success."

The old faithful screen
04/19/06   Dorfman
"Seven times beginning in July 1999, I've compiled a list of stocks from the Old Faithful screen. The average one-year gain has been about 30 percent, compared to an average loss of 1.1 percent for the Standard & Poor's 500 Index. The average three-year gain (for the five lists that have three-year results) has been 115 percent, compared with a 5.6 percent loss for the S&P."

Monkey Business
04/17/06   Stingy Investing
"Can an active fund that charges ten times as much as an index fund be expected to outperform the index fund? The case could be made in extraordinary circumstances, but it might be more fruitful to see if index funds themselves could be made even better. Interestingly those clever monkeys might have had the answer all along."

Dreman and Davis interview
04/17/06   Dreman
"This week on WealthTrack rare in depth sessions with two of the most successful fund managers in the business ... David Dreman and Christopher Davis explain how they invest for the long term with such sterling results ... learn about the value of value investing."

ETFs: The cheap, the dear and the fairly valued
04/16/06   Indexing
"Looking for bargains in a fairly valued market? Look beyond Asian and real estate stocks and toward mega-cap equities. And though energy stocks don't seem as overvalued as they were at the end of 2005, they still aren't a great deal."

Final paycheck gets ever farther away
04/16/06   Retirement
"It's getting harder to quit. By some measures, Americans are richer than ever before. Yet it is proving increasingly difficult to amass enough money to retire in comfort. What's the problem? We face a fistful of them -- including these seven."

Got a bone to pick with the taxman?
04/16/06   Taxes
"Taxpayers aren't immune to making mistakes either. And the Canada Revenue Agency (CRA) makes mistakes on a regular basis as well. The result? Disagreements over how much tax you really owe. Taxpayers are now starting to receive their notices of assessment for filing their 2005 tax returns. If you happen to disagree with your assessment, what are your options to ensure that your opinion has been fully considered?"

Buffett shares wisdom with students
04/15/06   Buffett
"Warren Buffett is known for shrewd financial deals, but the world's second-richest man also invests some of his time to help guide business students. Buffett's Berkshire-Hathaway Inc. made an average of $23.4 million a day in 2005, yet he plans to spend the better part of 20 days this year answering questions and offering advice based on decades of stunningly successful experience. It's time the Oracle of Omaha thoroughly enjoys."

Cheapskate walks, quicksilver runs
04/12/06   Dorfman
"The Cheapskate Portfolio is entering its fifth year, and is on probation. Its record isn't bad -- just not as good as I had hoped. If results don't improve, I'll probably discontinue it after the fifth year. The Quicksilver Portfolio is just a sophomore. It is off to a terrific start, up 30 percent in its first year."

Bad for GM, bad for America
04/11/06   Stocks
"General Motors has launched a time bomb that could push the company into Chapter 11 -- and take down the financial markets with it."

Founder-CEOs and stock market performance
04/11/06   Academia
"Eleven percent of the largest public U.S. firms are headed by the CEO who founded them. Founder-CEO fims differ systematically from successor-CEO firms. They have a higher firm valuation. Founder-CEO firms invest more in R&D, have higher capital expenditures, and make more focused mergers and acquisitions. Moreover, an equal-weighted investment strategy that had invested in founder-CEO firms from 1993 - 2002 would have earned a benchmark-adjusted return of 8.3% annually. A value- weighted investment strategy would have earned an abnormal return of 10.7%. The excess return is robust; after controlling for a wide variety of firm characteristics, CEO characteristics, and industry aliation, the abnormal return is still 4.4% annually."

Do company founders make better CEOs?
04/11/06   Management
"Of course, 27 companies is a small sample, and we might have written this off as a statistical fluke had we not come across the research of an Ohio State University finance professor named Radiger Fahlenbrach. Fahlenbrach analyzed the performance of the 2,300 largest U.S. companies from 1993 through 2002, and he discovered that those run by founder-CEOs (11 percent of the total sample) outperformed the broader stock market by eight percentage points a year."

So sue me
04/10/06   Law
"Rather, I'm interested in the issue of litigation as part of an investment decision. Too few investors look at pending litigation when deciding what stocks to back. That's too bad, because lawsuits can have a big impact on stock prices over the longer term, positive and negative."

Old school stocks teach new lessons
04/09/06   Markets
"One of the most common pieces of advice stock investors hear is the importance of "updating" their equity portfolios to keep in step with the ever-changing economy. As older industries shrink, the conventional wisdom goes, one should weed out those stocks in declining industries like steel manufacturers, chemical firms, paper producers, and railroads and add new firms in industries that are expanding. Advocates of updating point out that all the popular stocks indices, from the Dow-Jones Industrials through the S&P 500 Index, routinely add new companies and delete old ones to keep their index representative of the changing economy. Despite the ubiquity of this advice, I had seen little empirical evidencing documenting this claim."

There's a sucker born every IPO
04/08/06   Markets
"It took me several years to fully understand the sagacity of this insight, which really restates the famous poker adage: When you play poker, look around the table and try to identify the sucker. If you can't, then you are it. Now, why am I mentioning this? Because the past two weeks provided two wonderful examples of suckers at the market table, when panicky buyers threw money at some stocks without regard to price."

Why so many grads 'fail to launch'
04/08/06   Thrift
"Many 20-somethings find themselves moving home to live with Mom and Dad, just like the movie 'Failure to Launch.' Blame it on the inertia -- and some very real challenges."

Are you really self-employed?
04/08/06   Taxes
"Each year, thousands of Canadians report self-employment income on their tax returns because of the tax deductions available. The real question is whether these people are really self-employed, or are they more akin to employees who are just trying to gain tax breaks?"

It's better to do it yourself with ETFs
04/08/06   Indexing
"A persuasive case can be made that indexing as carried out with ETFs is an ideal strategy for do-it-yourself investors. By tracking the major indexes and avoiding the advice costs folded into mutual funds, it's possible to make returns that compare favourably with most mutual funds. But the appeal of indexing is diminished, if not nullified, when the cost of advice is added in."

Last tango in Detroit?
04/07/06   Stocks
"The reason is that GM's cash mountain is not so much an asset, but something for the UAW to fight over. Selling the stake in GMAC adds to the available cash. That is likely only to postpone the day of reckoning and may thus prove a huge and costly mistake, says Dale Oesterle, a law professor at Ohio State University. Far better, he thinks, would be for GM to seize the day by handing its cash mountain back to shareholders in the form of a special dividend, and filing for Chapter 11 right away."

Soft paternalism
04/07/06   Government
"Its champions will say that soft paternalism should only be used for ends that are unarguably good: on the side of sobriety, prudence and restraint. But private virtues such as these are as likely to wither as to flourish when public bodies take charge of them. And life would be duller if every reckless spirit could outsource self-discipline to the state. Had the government deprived Coleridge of opium, he might have been happier. Then again, there might have been no 'Kubla Khan'."

Intel, Pilgrim's Pride have joined the casualty list
04/04/06   Dorfman
"Pilgrim's Pride Corp. and Westwood One Inc. were knocked around in the first quarter. I think they have substantial potential to bounce back. I also see rebound potential in Intel Corp. and Swift Energy Co. All four of these stocks declined significantly in the first quarter. I have put them on my Casualty List."

Buffett makes $14 Billion bet on global stocks
04/03/06   Buffett
"Berkshire sold a form of insurance to buyers who wanted protection from a drop in 'four major equity indexes' over the next 15 to 20 years, according to a U.S. Securities and Exchange Commission filing. Instead of buying the individual shares, Buffett is wagering the indexes, three of which are outside the U.S., won't tumble and force Omaha, Nebraska-based Berkshire to pay a claim."

Foreign ETF Fee-ver
04/03/06   Indexing
"EWW is not cheap; it's a stretch to call it "diversified;" and its two biggest holdings can be bought on the New York Stock Exchange. I even wonder how much it has to do with Mexico. Cemex, for example, is a wonderful cement company, but its operations are so global these days that I'm not sure I'd call it a "Mexican" company, except with respect to its history and domicile. EWW seems like an investment product desperate for an identity."

Drop by drop, DRIPs build your wealth
04/02/06   DRPs
"Companies offer DRIPs to help raise capital and broaden their shareholder base. Some companies are eager enough to pursue these goals that they build a discount into the price of shares that investors buy through dividend reinvestment or SPPs, or they provide a small bonus of extra units. Discounts run from 2 to 6 per cent of the market price at the time the shares are purchased, while the bonuses are usually in the 3-per-cent range and apply to the amount being reinvested. "It's a pretty sweet deal and well worth using," Mr. Rothery said."

Good news for those with shareholder loans
04/02/06   Taxes
"Since those decisions last October, there have been four other court decisions on the issue of GAAR. The score? Taxpayers 3, CRA 1. The most recent case provides an interesting planning opportunity for business owners. Let me explain."

Mild-mannered Francis Chou
04/02/06   Funds
"He has only a grade 12 education and used to labor as a Bell Canada repairman. He has never worked for a big bank or a mutual fund company. He largely shuns the Courvoisier-chugging Bay Street set. But if you're searching for the best mutual fund manager in Canada, you'll find it difficult to avoid quiet, shy Francis Chou."

RBC announces massive fund overhaul
03/31/06   Funds
"The RBC O'Shaughnessy U.S. Growth Fund will be capped effective June 30, 2006, to allow the fund's management to deploy the large amount of capital gathered recently. The move affects only new investment, and pre-authorized investment plans set up before the end of June will not be affected."

The Hermit Kings
03/31/06   World
"Whether they are worth $200 million or $2 billion, they all share one thing: They would rather we weren't talking about them. But curiosity got the better of us. How did these individuals amass so much wealth while drawing so little attention? Who hired a PR manager just to keep his name out of the paper? Which real estate scion had a taste for Ferrari Testarossas? Who had his identity stolen and who plans to have his body cryogenically frozen? Inside, everything you need to knowat least everything we could dig upabout the most reclusive figures in Canadian business."

Extreme savers: meet the parkers
03/31/06   Thrift
"The Parkers know all about scraping by, even though they make plenty of money. Michelle, 33, and Rob, 34, were high school sweethearts, they got married in college and managed on only $8,000 in income for the first year of their marriage. Fourteen years later the couple makes a combined $128,000 but their love, and thrifty lifestyle, has stayed with them."

Visiting Warren Buffett
03/30/06   Buffett
"It is Buffett's peculiar genius that he is able to make the game sound so straightforward. Want to make money investing in businesses? Remember three things: Mr. Market, Margin of Safety, and make sure the business has a moat. The moat either comes from a low-cost position or from pricing power, the latter of which usually results from a strong brand. If you're going in with a partner, make sure that they are a passionate and ambitious fanatic who has devoted their life to the business, and that they don't lie, cheat, or steal. That's about it. As Buffett puts it, you don't need an eleventh commandment; it's all spelled out in the first ten."

The little book's little flaw
03/29/06   Markets
"Bottling the formula isn't easy. Greenblatt's book gives some details on how he defined his screening factors and how he formed portfolios, but it stops short of offering a complete recipe. When he calculates return on capital, for example, Greenblatt counts only cash in excess of what's needed to run the business. ClariFI analyst David S. Whitaker says that the way Greenblatt determines what is "excess" remains a mystery."

Comparative analysis of ranking methodologies
03/29/06   Markets
"We find that Greenblatt's ranking procedure leads him into stocks that are, at the same time, relatively cheap and relatively profitable. In the investment business, this style of investing is known as Growth At a Reasonable Price or GARP. For reasons stated below in our concluding section, GARP investors usually out-perform the broad market indexes. However, there are many ranking procedures that will take you to GARP. Our results show that there is nothing special about the Greenblatt formula or his exclusion of finance and utility stocks from the investable population."

Is six years the long term?
03/29/06   Markets
"26% of the time over the last two centuries, stocks held for five years have produced returns that are lower than the risk-free rate of return. Assuming that the future is like the past - a big "if," as I will discuss in a minute - then that means that what has happened so far this decade happens about one out of four times. Using standard tests of statistical significance, therefore, one is not justified in betting that the stock market will beat a savings account even when investing for a five-year holding period."

Naked shorts seeking cover
03/29/06   Markets
"Case in point, says Byrne, is his own company. In a statement last week, he said DTCC reported 8,970,394 shares on deposit, while Nasdaq reported short interest in of 9,578,481 shares for the same week. That means the total number of shares sold short exceeded the actual number of shares available, suggesting that some shares have been sold "naked.""

The new lows list
03/28/06   Dorfman
"Buying a stock on bad news is a good tactic -- provided the unfavorable news proves temporary. One place to look for downtrodden stocks is the New Lows list, a roster of stocks that have hit 52-week nadirs."

OK, bash Buffett - but buy his stock
03/28/06   Buffett
"Insurance companies are amazing cash-flow machines. With a couple of flat years behind it, Berkshire Hathaway has cleared the decks for solid profits."

Is the market mad?
03/27/06   Markets
"We document market inefficiency in the in the days following the buy recommendations of Jim Cramer, host of the popular CNBC show Mad Money. The average cumulative abnormal overnight return for the smallest quartile of recommended stocks is 5.19%, and these returns completely disappear within 12 trading days. We also find that trading volume, buy-sell imbalance, and short sales volume are all significantly higher than normal on the day following Cramer's recommendations. These findings allow us to test hypotheses about the behavior of different types of traders. Finally, our GMM estimates of the components of the bid-ask spread suggest that market makers are aware of Cramer's recommendations and anticipate the order flow imbalance following Cramer's recommendations."

Corporate voting charade
03/27/06   Markets
"In a little-known quirk of Wall Street bookkeeping, when brokerages loan out a customer's stock to short sellers and those traders sell the stock to someone else, both investors are often able to vote in corporate elections. With the growth of short sales, which involve the resale of borrowed securities, stocks can be lent repeatedly, allowing three or four owners to cast votes based on holdings of the same shares."

Beware shares at 100 times sales
03/27/06   Dorfman
"Each of these companies sells for 100 times revenue or more. Over the past six years I have demonstrated in this column that investing in such stocks is usually a sucker's bet."

Balance-sheet powerhouses
03/27/06   Dorfman
"Remember Scrooge McDuck from comics of yore? He would sit on a pile of cash and diamonds, relishing the feel of his wealth. Few of us will ever know McDuck's smug feeling. As consolation, we can invest in companies that are cash rich and have few if any debts."

Ikea boss proud to be stingy
03/26/06   Management
"Ikea founder Ingvar Kamprad, ranked 4th richest man in the world, drives a 15-year-old car and always flies economy class, in part to inspire his 90 000 employees worldwide to see the virtue of frugality."

Card Money in New France
03/25/06   Government
"The French were constantly at war with the Iroquois. In 1684, new soldiers had arrived from France for another campaign against them. However, in the fall of that year, the annual appropriations failed to arrive. The intendant of the colony, Jacques de Meulles, had no funds to pay colonial officials and troops. (The intendant was what could be called the top bureaucrat in the colony, second only to the governor who represented the king.) In June 1685, he decided to issue his own credit notes. Because good paper was rare, he collected the playing cards in the colony and, with his seal and signature, issued them in various denominations as paper money. By an ordinance, the cards became legal tender and merchants had to accept them."

At long last, a new home sale slump
03/25/06   Real Estate
"Sales in February drop more than expected, as median price falls and supply grows. Is the real estate bubble bursting?"

Aggressive tax plans can fall foul of the law
03/25/06   Taxes
"I can recall one situation where a man had been accused by the Canada Revenue Agency of tax evasion. "I know the evidence is strongly against me, but I have $250,000 to fight the case," the man said to his lawyer. The lawyer replied: "As your attorney, I assure you that you'll never go to prison with that amount of money." And he didn't. He went to prison broke. Tax evasion and some legal fees will do that to you."

A focus on the exceptions that prove the rule
03/25/06   Markets
"Despite the shortcomings of the bell curve, reliance on it is accelerating, and widening the gap between reality and standard tools of measurement. The consensus seems to be that any number is better than no number - even if it is wrong."

Making the most of Vanguard's VIPERs
03/25/06   Indexing
Given its indexing expertise, Vanguard is a natural fit for the ETF market, which is a focus of growth for the firm. To attract more interest, Vanguard has broadened its slate of VIPERs to 23, and more are certainly on the way.""

5 mistakes investors just can't afford
03/25/06   Thrift
"Research shows that investors are generally irrational and overly impressed with their acumen. Here are 5 rules to help you head off your worst investing impulses."

Chicken Run: Value manager's dream?
03/22/06   Stocks
"On the surface, chicken stocks like Sanderson Farms, Gold Kist, and Pilgrim's Pride are a value manager's dream. Most of them are not very leveraged, they generate a decent return on capital, and best of all, they trade at single-digit P/E based on last year's earnings.So, are chicken stocks the value manager's dream, or are they a value trap in the making?"

The trouble with being a legend
03/22/06   Buffett
"Legendary investor Warren Buffett, the "Oracle of Omaha", has had an unusually lengthy period of underperformance and other troubles. Is he struggling under the weight of his own past achievements or is this just a blip in the legend of Warren Buffet?"

You want a piece of me? Pay
03/19/06   Taxes
"Soon your tax preparer, like other businesses, may start selling your financial information to the highest bidder. Why not demand a cut?"

Let's have some discipline
03/19/06   Taxes
"The fact is, filing a tax return beats life in prison. And it's not just filing a tax return that matters. Filing on time, claiming all the deductions and credits you're entitled to, and implementing tax strategies, will leave you wealthier in the long run. But too few of us take this to heart."

The marketplace of perceptions
03/19/06   Markets
"Like all revolutions in thought, this one began with anomalies, strange facts, odd observations that the prevailing wisdom could not explain. Casino gamblers, for instance, are willing to keep betting even while expecting to lose. People say they want to save for retirement, eat better, start exercising, quit smoking - and they mean it - but they do no such things. Victims who feel they've been treated poorly exact their revenge, though doing so hurts their own interests."

A sleeping giant
03/15/06   Stocks
"Want to buy a stock that trades at close to its five-year lows despite posting 13% annual earnings-per-share growth over that period? What if the stock also traded at a discount to the market on a price-to-earnings basis? Furthermore, what if Berkshire Hathaway (led by the legendary Warren Buffett) had initiated a sizable position during 2005? And lastly, what if the company stood to benefit greatly from a potential stabilization in energy prices?"

Was death of newspapers greatly exaggerated?
03/15/06   Stocks
"If Bruce S. Sherman wanted to persuade Wall Street that investors were undervaluing newspaper stocks, he failed."

PPN offerings are sorely lacking
03/14/06   Brokers
"What a sweet deal the financial industry has going in its star product of the moment, principal-protected notes (PPNs). There are estimates that as much as $7-billion are invested in PPNs, double the level of two years ago. And yet, these notes are as loosely supervised as any investing product out there. Securities regulators need to get on this, fast."

Traditions in value investing
03/14/06   Value Investing
"Value investing is partly a state of mind. It is characterized by habitually relating the price of a stock to the value of the underying business. Basic principles of fundamental analysis are the tools. They arise from three traditions"

The asset of choice for the long run
03/14/06   Markets
"Where should you invest your hard earned money? Using history as a guide, the answer overwhelmingly is in stocks."

Talking panic buying with Joe Feshbach
03/14/06   Value Investing
"Hedge fund manager Joe Feshbach looks for value in crisis. The manager of Joe Feshbach Partners seeks out companies that are in trouble, anything from accounting scandals to criminal investigations to management turmoil. In short, Feshbach likes to buy when everyone is selling."

Buffett's biz worth less than sum of its parts
03/13/06   Buffett
"The shares have been treading water for two years. And they no longer trade at a premium to the rest of the market. In fact, on 16 times earnings and just 1.7 times sales, they are cheaper than at almost any time since Bloomberg began tracking the data in 1990. And that ignores the fact that, in addition to all the businesses his company owns, Buffett is also sitting on an astonishing $92 billion in cash and stock market investments."

TERs tell you the exact cost of owning a fund
03/12/06   Funds
"I know, I know. MER means zzz to many of you readers. Consider this snooze factor noted as the brand new sibling of the management expense ratio, or MER, is introduced. It's called the trading expense ratio, or TER, and it finally gives us investors a way of telling exactly how much it costs to own our mutual funds."

More Americans are losing their homes
03/12/06   Real Estate
"Risky borrowing is catching up with a number of homeowners across the U.S. Foreclosures rose 45% in January compared to a year ago, and experts only expect the pace to accelerate."

Getting your adjusted cost base in order
03/11/06   Taxes
"I'd like to suggest another course: Saving tax by knowing your adjusted cost base. Okay, so it doesn't sound enthralling, but a lot of Canadians are losing out because they aren't calculating their adjusted cost base (ACB) correctly. The higher your ACB, the less tax you'll pay on the eventual sale of an asset. Before filing your 2005 tax return, make sure you've properly calculated your ACB on assets sold in 2005."

DIY investors can save BIG with discounters
03/11/06   Brokers
"Rule One if you're a do-it-yourself investor who uses mutual funds is to never pay a cent in purchase commissions."

Perils in online real estate
03/11/06   Real Estate
"Buffalo has been particularly hard hit by online flipping, as the city's persistent population decline and high foreclosure rates have created a glut of some 20,000 vacant houses. "Ninety-nine percent of these online ads have some kind of fraud or lies," said Tracy Krug, a building inspector in Buffalo. "They paint a nice rosy picture: 'on a bus line, near a nice market.' They don't tell you you're going to be across the street from a crack house.""

Searching for the invisible man
03/10/06   Economy
"The French, according to George Bush, have no word for them, economic theory has surprisingly little room for them, and it is a mystery why anyone would choose to be one of them. Entrepreneurs are the leading men of capitalism, the venturesome protagonists who move the plot forward. But economic theory gives them few if any lines to read."

What firms do vs. what they say
03/08/06   Markets
"a number of investors over the years have been troubled by the assumptions that must be made when investing in companies that have established buyback programs. One such assumption: The companies will actually follow through with their repurchase programs. This is a bigger and more crucial assumption than you might think. When companies announce a share buyback program, they almost always indicate that their boards have simply authorized the repurchase of up to a certain maximum number of shares over a several-year period. The decisions on when to buy their shares, how many shares to acquire, and even whether to repurchase any shares, are dependent on market conditions and any of a host of other factors that the company's management must take into account."

Third Avenue Q1 2006
03/07/06   Whitman
"The Fund's definition of Net-Nets is taken from Graham and Dodd's Security Analysis, but with a few twists. Graham and Dodd relied on a GAAP classified balance sheet to define current assets in order to ascertain if a common stock was a Net-Net. TAVF uses its own judgment rather than GAAP classification to define current assets in order to decide what is a liquid, i.e., current, asset."

Value and momentum
03/07/06   Dorfman
"To qualify this time, a stock had to be up at least 6.3 percent year-to-date through March 3 (double the S&P 500's gain), and up at least 10 percent in the past 12 months. It also had to sell for 15 times earnings or less. From 40 qualifiers I've selected five to recommend: ConocoPhillips, Valero Energy (again), Cummins Inc., American Financial Group Inc. and Jakks Pacific Inc."

Warren Buffett's billion dollar secrets
03/06/06   Buffett
"Buffett's time-tested belief: Investors don't always act rationally, the market isn't always efficient and bargains can be made. Competing with Efficient Market theorists, he says, is like playing bridge against opponents who were taught it does no good to look at the cards."

How dogs can be an investor's best friend
03/05/06   Dividends
"The so-called dogs strategy is to buy the stocks in various sectors or markets with the highest dividend yield. The background here is that as a stock falls in price, its dividend yield rises. Your goal in buying a stock like this would be to benefit both from the high yield and a rebound in the share price over time."

Berkshire Hathaway report for 2005
03/04/06   Buffett
"Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, "I can calculate the movement of the stars, but not the madness of men." If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases."

From Dutch history, an exuberant lesson
03/03/06   Real Estate
"What makes Pieter Fransz's neighborhood unique - and uniquely interesting to some economists who are studying today's global real-estate boom and wondering whether the bubble that has been expanding for the past decade and more is in the process of bursting - is what real-estate experts call a constant quality index."

5 key lessons from Bill Nygren
03/01/06   Value Investing
"Buy stocks only when they sell for at least a 40 percent discount from their fair market values. If things do not go as well as you expect with an investment, this provides downside protection. If things go well, this gives a slingshot effect on the upside as the market closes the gap between a firm's price and its value."

8 Stingy Stocks for 2006
03/01/06   Stingy Investing
"I look for two qualities when hunting for bargain stocks: they must be cheap and they must be safe. Not surprisingly, it is often difficult to find stocks that are both cheap and safe."

39 jobs where women make more than men
02/28/06   Economy
"In the 39 jobs listed below, women's median earnings exceeded men's by at least 5 percent and in some cases by as much as 43 percent."

Oracle of Omaha offers words of wisdom
02/28/06   Buffett
"The market is a psychotic, drunk, manic depressive selling 4,000 companies everyday. "If you buy a farm, you look to the farm to determine the value of your interest, not to some guy coming by giving you a quote everyday.""

When the blind see better
02/27/06   Management
"The combined compensation for the heads of America's 500 biggest companies increased by 54% in 2004. Harvard professor Lucian Bebchuk's calculations show that the top five executives now collect 10% of the average big firm's net income, double the percentage a decade ago. This is a problem that affects not just morale but competitiveness."

What's wrong with value investing?
02/27/06   Whitman
"Value investors never hesitate when they ask "What's the bad news?" and "What's wrong?" Last year, Seth Klarman talked about the bad news of value investing and complained that the field is getting too crowded. On February 16 th, 2006, Martin Whitman went further to make a list about what's wrong with value investing in his talk at NYSSA."

The best of the Internet calculators
02/25/06   Retirement
"There's a problem you should be aware of with some of those handy calculators available on the Internet to help ensure you're saving enough for retirement. They're kind of useless on the whole, especially the ones offered by companies selling financial products."

Kids: Bad investments, big returns
02/25/06   Thrift
"A potential mom does a detailed cost-benefit analysis of what having a child will mean and nearly scares herself to death."

Canadian snowbirds can build a messy tax nest
02/25/06   Taxes
"Snowbirds understand the desire to head south too. And many snowbirds spend in excess of four months each year in the United States, which can cause tax filing issues. Let me give you an overview of what to consider if you're one of these folks."

The price of victory
02/23/06   Value Investing
"Call him the bad-news bull. As chief investment officer of the $1.8 billion Olstein Financial Alert Fund (OFALX), Bob Olstein has made a career out of digging into the numbers and buying up the stocks everyone loves to hate."

10 stocks for long haul
02/21/06   Dorfman
" As an investment technique, I don't recommend buying shares and forgetting about them, even though the results are sometimes pleasant. Still, I get occasional requests from readers for a list of stocks you can buy and leave alone for 10 years. So, here is my collection of 10 Stocks for the Long Haul."

Whitman's "cowardly" safe-and-cheap way
02/21/06   Whitman
""It is absolutely crazy to pay more than 60 cents on a dollar for non-controlling interests in businesses. The outsiders always face agency problems," said Marty Whitman."

Graham Stock Gainers
02/20/06   Stingy Investing
"Over the past five years I've used Benjamin Graham's time-tested strategy for defensive investors to uncover undervalued U.S. stocks. So far, the results have been breathtaking."

Pyramid income trust
02/20/06   Trusts
"I'm offering you a guaranteed opportunity to make a fortune. You can get in on the ground floor of an investment idea that has been so thoroughly researched I'm tempted to use the words "sure thing." I need you to give me money so that I can buy a business. The type of company is irrelevant; I'll just grab the first thing that comes along. Profitable or unprofitable, it just doesn't matter. I'm going to cook the books anyway. We're just in for a quick flip. With a little magic, we can sell it for three times what we paid."

Divorce can scramble nest eggs
02/19/06   Retirement
"Once the emotional wounds from a divorce start healing, newly single people begin to grapple with the other big aspect of the damage -- the financial trauma. Nothing underscores the new reality as much as RRSP season."

You're not going to live forever
02/19/06   Taxes
"Naming a beneficiary for your Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) seems simple enough, doesn't it? Well, not so fast. Here are some tips and traps to consider when it comes to naming beneficiaries."

The depressing truth
02/18/06   Retirement
"Ask a wage slave what he'd like to accomplish. Chances are the response will be something like "I'd start every day at the gym and work out for two hours until I was as buff as Brad Pitt. Then I'd practice the piano for three hours. I'd become fluent in Mandarin so that I could be prepared to understand the largest transformation of our time. I'd really learn how to handle a polo pony. I'd learn to fly a helicopter. I'd finish the screenplay that I've been writing and direct a production of it in HDTV."..."

The happiness business
02/17/06   Fun
"What matters to your sense of well-being, happiometricians conclude, is not your absolute circumstances but how you stack up against the neighbors. Even a millionaire will feel miserable in the company of billionaires, poor sod. I field-tested all this by reading a slew of academic papers on the subject. I found myself feeling a lot happier when I imbibed a rather expensive bottle of wine along with the papers, suggesting one empirically proven instance where wealth did improve one's sense of well-being. Indeed, the longer I continued the experiment, the happier I felt."

More than a notional improvement
02/17/06   Government
"For much of the past 25 years, most discussion of state pensions has been about funding: getting today's workers to save now in order to pay for their own retirement later. Systems in many countries have moved from pay-as-you-go financing, in which today's workers pay for today's pensions, towards individual accounts in which workers accumulate their own cash."

The tip of the scandal iceberg?
02/17/06   Government
"An acquaintance who works for a welfare office in Ontario was recounting over dinner recently her experiences dealing with recipients who obtained benefits fraudulently. Pausing momentarily, she said: "But our internal auditor has found worse stuff." "He says some recipients were sending their welfare payments to designations in Iraq. He is so appalled that he is ready to go public." I contacted the auditor indirectly (through the acquaintance) to try to ascertain the details, but his ardor for whistle blowing is wavering as he reflects more seriously on the possible repercussions to career and family."

HD: Why he couldn't do it today
02/16/06   Law
"Going public and entrepreneurship were the keys to our success. If you're a public company today, you have to be surrounded with lawyers and you can't make a decision without a lawyer on one side of you and an accountant on the other side. Today, you just can't use your business judgment to take the risks that must be taken for a new company to succeed. And, one share value-killer lawsuit can kill a startup company. Back in 1978, those lawsuits were rare. Today, all you have to do is pick up a newspaper and read about one after another."

How is a hedge fund like a school?
02/16/06   Academia
"Hedge-fund guru Joel Greenblatt applied Wall Street principlesand $1,000 per studentto turn around a struggling Queens elementary school. And it worked, spectacularly."

The myth of the $1 million retirement
02/16/06   Retirement
"Ignore the experts who say you'll need a vast sum to ever quit working. How much you need to retire is really entirely up to you."

Foreclosures: Bargain hunters beware!
02/16/06   Real Estate
"You might think that a slowing real estate market would make foreclosure investing a snap. Don't bet on it."

A meeting with Mr. Greenblatt
02/15/06   Value Investing
"I have gravitated towards Buffett over the years. Good things happen to good businesses. I prefer good to cheap. But I do not categorize companies very often. I look at the spinoff area, for instance, but I am mainly looking for good businesses. I am an "equal opportunity money maker." It's all investing. Figure out what something is worth and pay a lot less."

The magic money machine
02/15/06   Value Investing
"In November, Joel Greenblatt, a hedge fund manager in Manhattan and now an adjunct professor at Columbia Business School, zoomed onstage with the fanciest money machine yet. Greenblatt, who is no fan of delicate understatement, calls his the Magic Formula and espouses it in his newly published treatise, modestly entitled The Little Book that Beats the Market. The Magic Formula consists of picking U.S. stocks that are both highly profitable (as measured by their return on capital) and also relatively cheap (as measured by their earnings yield)."

ETFs claiming superior stock selection draw fire
02/14/06   Indexing
"Call it the Battle of the Eggheads. The latest upstart in the evolving exchange-traded fund business is a set of ETFs linked to indexes that claim superiority over standard market benchmarks. Proponents of these new measures say their sophisticated, proprietary strategies can identify winning stocks. Not everyone agrees."

The stumblers list
02/14/06   Dorfman
"No one likes to falter at the start of a race. Yet a bad start doesn't rule out a victory. Every February I try to identify a few stocks that have stumbled out of the gate but that I think will regain their stride. Among the stocks I want to highlight this year are Pilgrim's Pride Corp. and Murphy Oil Corp."

The Valentine's Effect?
02/13/06   Law
"Ah, Valentine's Day. Some say it's the most romantic day of the year. Others dismiss it as merely a commercial boondoggle. Still others find themselves dateless and depressed. For those of you in the last category, it could always be worse. You could be retaining a divorce lawyer."

Seven sins of fund management
02/13/06   Montier
"How can behavioural finance inform the investment process? We have taken a hypothetical 'typical' large fund management house and analysed their process. This collection of notes tries to explore some of the areas in which understanding psychology could radically alter the way they structure their businesses."

The best investor of his generation
02/12/06   Value Investing
"He walked away from Goldman, racked up better returns than Buffett...and talked kidnappers into letting him go."

How Eddie Lampert picks his stocks
02/12/06   Value Investing
"Like Warren Buffett, Eddie Lampert calls himself a "value investor," meaning he buys into companies whose assets he calculates are worth more than the current trading price. "The idea is that I'm going to pay this price and great things may happen, but they don't have to happen for me to do okay," he says."

Nonsensical Nine
02/12/06   Dorfman
"For the Nonsensical Nine, I look at U.S. stocks with a market value of $1 billion or more, selling for at least three times book value (assets minus liabilities per share). Then I select the three stocks that sell for the highest multiple of earnings, the three that sell for the highest multiple of revenue, and the three that have the highest ratio of debt to equity."

The fantasy - and reality - of your own business
02/12/06   Thrift
"According to the latest figures from the Internal Revenue Service, the average sole proprietor (i.e., non-farm businesses that filed a Schedule C) reported net receipts of about $53,272 in 2003. The average net profit: About $11."

How to manage your retirement
02/12/06   Taxes
"When drawing on your investments for income in retirement, should you withdraw from your registered retirement savings plan or your non-registered investments first?"

Is marriage cost effective?
02/11/06   Thrift
"Ebenezer Scrooge should have reserved his scorn for St. Valentine's Day. The typical American is going to spend about $100.89, according to the National Retail Federation. That's up from $97.27 last year. A pricey holiday getting pricier thanks to the notion -- inspired by gobs of advertising -- that you will spend your life alone and unloved if you don't pony up lavish gifts and cheap sentiment on Feb. 14."

Good advice, or advice that sounds good?
02/10/06   Zweig
"In the short run, however, the best way to get ahead is to check your conscience at the door. Most readers, and all too many editors, want to hear about the newest, the hottest, the get-rich-quick schemes, the secret "keys to wealth" that have miraculously been overlooked or hidden by "the experts." Good advice easily gets drowned out by advice that just sounds good. In 1999, any journalist who peddled the sexy idea of putting all your money in tech stocks was hailed as a genius. At the same time, anyone who preached the sober gospel of caution was called a "moron," a "f--head" or an "ignorant a--hole." (That is a delicate selection from among the thousands of e-mails that criticized my online columns in 1999 and 2000.) When markets go mad, the responsible financial journalist has to stand as a voice of reason -- even though leaning against the wind isn't easy in a hurricane."

Deficient Market Theory
02/09/06   Dreman
"How nice life would be if all bad ideas went out of style, like the divine right of kings, medicinal bloodletting and leisure suits. Unfortunately, a muddled notion called the efficient market hypothesis refuses to go away. This absurd thesis holds that nobody can beat the market, stocks always are correctly priced according to what's publicly known about them and any mispricings are chimeras."

Patient Capital Management Q4
02/09/06   Value Investing
"The overvaluation is even more evident when trying to find specific undervalued securities. In a Canadian universe of approximately seven hundred publicly listed companies with a market capitalization of greater than one hundred million we could only find thirty eight candidates with a debt equity ratio of less than one and a price to book ratio of less than 1.2x. During more typical market conditions this group would yield approximately two hundred prospects. In depressed markets this screen would provide more than four hundred possible investment opportunities."

Blue-Chip Blues
02/09/06   Stingy Investing
"I like to look through lists of beaten down stocks for good bargains. Naturally, I don't expect to find a good value every time but there are often a few candidates that make the search worthwhile. During a recent search I was pleasantly surprised to spot several gleaming brand names languishing unloved in the bargain bin."

Car bites dogs
02/09/06   Stingy Investing
"I like to begin each year by hunting for dividend income with the Dogs of the Dow and the Dogs of the TSX. Both versions of the time-honored Dogs strategy start from the simple premise that blue-chip stocks are too big to fail. The theory goes that if you can buy these stocks when they're in the doghouse and temporarily cheap, you can benefit from their juicy dividend yields and maybe even cash in on some capital gains as their share price recovers."

Gloom in France
02/07/06   World
"This year, for the first time, almost the entire proceeds of French income tax will go to pay interest on public debt. In his report, Mr Pebereau said that, on present trends, France's public debt will jump from 66% of GDP to 100% by 2014."

The tragedy of General Motors
02/07/06   Stocks
"The Detroit giant is a weird, scarred combination: a carmaker doing poorly, and an insurance company engulfed by its obligations. It's heading for a wreck -- which is why CEO Rick Wagoner has the toughest job in business."

Templeton's Mobius outlasts critics
02/05/06   Value Investing
"Mobius says his "buy-and-hold" strategy helps him to avoid chasing gains that may not last and to develop the wherewithal to invest in markets that have underperformed. "I'd love to be a stock jockey, but that implies that you're able to anticipate events that happen from one day to the next, and that's really impossible," he said. "We tend to take a longer view and not go overboard in any one direction.""

An intriguing twist on stock indexing
02/05/06   Indexing
"Equal weighting is a strategy that gives the same importance to each and every stock in an index. In the case of the popular Standard & Poor's 500-stock index, that means equal weight for stocks from giants Exxon Mobil and General Electric all the way down to computer maker Gateway and auto-parts supplier Dana, lately 499th and 500th in terms of corporate stock-market value, or capitalization. For years, this approach has been quietly outperforming the well-known S&P 500 indexed offerings that dominate the mutual-fund industry -- the funds you probably own, where big companies affect returns more than small ones."

More nickel-and-dime fees to fly?
02/05/06   Thrift
"We've become accustomed to paying a buck or two for soda or a bag of nuts, but such charges are going to get much more common. And that may not be a bad thing."

3 rules for a happy retirement
02/05/06   Retirement
"Research reveals it's how you manage your time and money that counts, not just how much you've got."

Put gold in her purse for Valentine's Day
02/05/06   Taxes
"That's it. I decided that if I'm going to buy gold, I'm going to make it tax deductible. Forget the ring. I'm getting Carolyn gold bullion bars for Valentine's Day. Tax deductible? You bet -- as long as she allows me to buy it inside her registered retirement savings plan and doesn't try to wear them."

The land of leisure
02/03/06   Economy
"Over the past four decades, depending on which of their measures one uses, the amount of time that working-age Americans are devoting to leisure activities has risen by 4-8 hours a week. (For somebody working 40 hours a week, that is equivalent to 5-10 weeks of extra holiday a year.) Nearly every category of American has more spare time: single or married, with or without children, both men and women. The only twist is that less educated (and thus poorer) Americans have done relatively better than more educated ones (see chart). And that is not just because unemployed high-school drop-outs have more free time on their hands. Less educated Americans with jobsthe overstretched middle class of political lore - do very well."

Brain scans show link between lust for sex & money
02/01/06   Markets
"The pleasure of orgasm, the high from cocaine, the rush of buying Google Inc. at $450 a share --- the same neural network governs all three, Knutson, 38, concluded. What's more, our primal pleasure circuits can, and often do, override our seat of reason, the brain's frontal cortex, the professor says. In other words, stocks, like sex, sometimes drive us crazy."

Students pitch Oracle of Omaha
02/01/06   Buffett
"Lots of people get to study at the feet of a master, but not many get to pitch him on a billion-dollar deal."

False hope
01/31/06   Government
"Mind you, the soothing platitudes are undoubtedly met with exuberant joy by one group: the con artists. Placated and passive investors make great customers. When the investments fail, blame is placed on anything but lax financial reporting requirements."

January market moves suggest an up year in '06
01/31/06   Dorfman
"Stock-market investors love to take the market's pulse -- and never more so than in January. According to market lore, January has two special attributes. It tends to be a good month. And, good or bad, it tends to predict the rest of the year."

So many RRSP choices. What to do?
01/29/06   Indexing
"ETFs are beyond simple to use, but they're also a durable, sensible building block for RRSPs. Their ongoing ownership costs are a small fraction of what comparable mutual funds charge, and they deliver the returns of the indexes they track, minus fees. If you compare the returns of mutual funds to those indexes, you'll find that many underperform in the short or long term, and sometimes both."

101 dumbest moments in business
01/28/06   Fun
"From notorious former mental institutions being converted into high-end condos, to candy bars with curious names, see the top examples of shenanigans, skullduggery, and just plain stupidity of the year."

Pay attention to your RRSPs
01/28/06   Taxes
"if you're one of the thousands of Canadians who is separated, divorced, or thinking about it, take the opportunity to think about who you've named as beneficiary of your registered retirement savings plan. After all, it's RRSP season and your plan may be top of mind. And be mindful of the Gaudio court decision. Let me explain."

Numbers don't tell full story of a stock
01/28/06   Markets
"This theory (further elaborated by Bill Merton, Harry Markowitz, Eugene Fama, and others who won Nobel prizes) was described in math, and so was accepted by all business schools worldwide; and if you have an MBA or CFA, chances are you had to study it also. What I didn't know then was that EMT would soon be proven bunk, nor did I know that Warren Buffett had mocked EMT mercilessly, offering to endow chairs to teach it, so that more "investors" would sell what he buys and buy what he sells. Although I didn't know any of this, I knew math well enough (my first degree was in aeronautical engineering) to pick my way through EMT's Greek letters and see that the entire logical edifice hung on a few assumptions that were utterly and clearly foolish."

The middle class on the precipice
01/28/06   Economy
"During the past generation, the American middle-class family that once could count on hard work and fair play to keep itself financially secure has been transformed by economic risk and new realities. Now a pink slip, a bad diagnosis, or a disappearing spouse can reduce a family from solidly middle class to newly poor in a few months."

Earnings warnings start to disappear
01/27/06   Markets
"U.S. companies have also tried to rebel from Wall Street's focus on short-term profits this year, and some have stopped making quarterly forecasts altogether. That trend could eliminate the need for pre-announcements, and also throw market expectations off course, analysts said."

Marty Whitman's 'safe and cheap' approach
01/27/06   Whitman
"Whitman has also been deemed "one of the keener minds in the investment world" by Morningstar fund analyst Kerry O'Boyle, so when Whitman speaks, we listen. Whitman has authored The Aggressive Conservative Investor and Value Investing: A Balanced Approach. Both of these books shed light on his approach. Additionally, Whitman publishes thoughtful quarterly letters that outline recent transactions and provide commentary on timely topics."

ConocoPhillips and NBTY are on the casualty list
01/24/06   Dorfman
"The list comprises stocks that have been roughed up in the latest quarter, and that I think have sound underlying businesses. I predict they will rebound."

The antiquity of tax law
01/22/06   Taxes
"Apparently, Ottawa doesn't trust the judgment of doctors in this country very much. You see, Canadian tax law refuses to allow a medical expense tax credit in a growing number of situations, even in cases where a doctor has prescribed a medication or substance. This area of our tax law is in need an overhaul -- and quick."

Frugality: You get it from your kids
01/22/06   Thrift
"Having children can devastate your ability to save. But look at it another way: parents need less in retirement because parenting cleverly trains them to live on less."

Value investing and the business cycle
01/22/06   Value Investing
"Empirical evidence suggests that value investing based on high valuation ratios (that is, book-to-market ratio, earnings-to-price ratio, cash flow-to-price ratio, and dividend yield) tends to outperform growth investing based on low valuation ratios. This superior performance is robust for all economic conditions, meaning that investors will be better off investing in stocks with high valuation ratios versus stocks with low valuation ratios regardless of economic conditions. The benefits of value investing are even greater during periods of contraction than during periods of expansion."

Teachers calls for consistency in trust rights
01/19/06   Trusts
"In some cases, Ms. Jackson said, sections of trust declarations are copied verbatim from the CBCA, but key pieces are simply omitted. Some omissions relate to legal remedies available to disgruntled unitholders, while others relate to disclosure obligations of the trust."

Buffett warns of trouble
01/19/06   Buffett
"The U.S. trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to "political turmoil,"-billionaire investor Warren Buffett warned."

New dividend rules could change your strategy
01/19/06   Taxes
"The dividend tax credit has been increased under the new proposals so much that the credit will not only offset the tax owing on the dividend received, but will go further and will reduce other income you have as well. For example, a taxpayer in Ontario earning $60,000 annually will pay $13,703 on that income (2005 tax rates). Add $5,000 of eligible dividends to his income, and his total tax bill drops to $13,653. Did you catch that? The marginal tax rate on those dividends is actually a negative number. Now, once your income hits a certain level ($61,940 in Ontario at 2005 tax rates), your eligible dividends will increase your taxes -- albeit at a lower rate than other income."

If it sounds too good to be true . . .
01/19/06   Taxes
"Withdrawing money from an RRSP is not the big problem -- although there are definite drawbacks to dipping into your retirement savings early. The problem is that too many Canadians have tried to get money out of their RRSPs without paying any tax at all. And many of these people have fallen prey to elaborate RRSP schemes being promoted by unscrupulous individuals who are trying to make a fast buck."

Uncle Sam cracks the whip on students
01/19/06   Debt
"The stakes on student loans just got higher: Not only have rates soared, but the debt can haunt you all the way to the grave."

Marriage builds wealth and divorce destroys it
01/19/06   Economy
"A study by an Ohio State University researcher shows that a person who marries - and stays married - accumulates nearly twice as much personal wealth as a person who is single or divorced. And for those who divorce, it's a bit more expensive than giving up half of everything they own. They lose, on average, three-fourths of their personal net worth."

High drama on the TSE
01/18/06   Markets
"With Japanese stock price-earning ratios hovering around 29 based on forecasted 2006 earnings, vs. 18 or so for S&P 500-stock index shares, some brokerages started warning their clients the party wouldn't last much longer. In early December, Credit Suisse First Boston warned clients to cut their investment weighting in Japan. Another sign of nervousness: The popular iShares Japan Index Fund, a $10 billion exchange-traded fund run by Barclays Global Fund Advisors was heavily shorted on the American Stock Exchange in November."

Buffett Q&A
01/18/06   Buffett
"Graham didn't get excited about making money. I would come to him with a great investment idea, I'd say "we're going to get rich!". He didn't care (although Jerry Newman did). He wrote books because he had an academic nature. He wanted to explain investing in a way anyone could understand. Graham wanted to develop a method that a dentist in Iowa could follow, a system that someone with no special knowledge could use and make money. He wanted to provide a quantitative approach that anyone could follow. The three big ideas that came from Graham are all in The Intelligent Investor. 1) View stocks as pieces of businesses; 2) The market is a voting machine in the short term, but a weighing machine in the long term; 3) Margin of safety."

Caveat investor
01/14/06   Retirement
"Studies show that many people overestimate their knowledge of everything from inflation to risk diversification and compound interest. One survey in Australia found that 37% of people who owned investments did not know that they could fluctuate in value. In America 31% did not know that the finance charge on a credit-card statement is what they pay to use credit."

Value keeps steaming on
01/13/06   Dreman
"Last year was my 25th as a Forbes Columnist, but the market didn't give me much of an anniversary gift. The struggle between bulls and bears in 2005 was reminiscent of 2004, with the S&P 500 even by October. Both times the market went on to rally later in the fall and finished the year ahead. At year-end 2005 the S&P clocked a 3% appreciation, in 2004 9%. With dividends added, last year's S&P total return was 4.9%."

The dirty little secret about buybacks
01/13/06   Stocks
"The problem, says Thomas M. Doerflinger, an equity strategist at UBS, is that you can't easily tell how much of what companies say they're spending actually gets to investors. In a recent report on what he calls "vanishing buybacks," Doerflinger found that the number of shares in the S&P 500 has continued to increase despite the bigger share-repurchase outlays by companies. In 2004, when companies reported spending some $197 billion on buybacks -- nearly 2% of the market value of the index -- the number of shares outstanding increased by 1.8%. In the 12 months through June 2005, shares increased 0.7%, and only a third of the companies actually shrank their share counts by at least 1%."

Annuity anxiety
01/12/06   Government
"Will insurance companies be able to sell variable annuities to anyone over 60 anymore? With Sarbanes-Oxley and the Financial Accounting Oversight Board firmly in place, U.S. regulators are zeroing in ever more closely on other issues they see as the next big threat to investors' wallets. One is executive pay. The other, not yet garnering the same headlines, is the selling to retirees of variable annuities, the long-term, tax-deferred investment plans that have stirred controversy over alleged dubious sales practices across the insurance industry."

Dogs of the Dow
01/12/06   Dividends
"The Dogs of the Dow strategy has outperformed (total return) the broader index in three of the last five years. Why the success? It pays to be contrarian in stock investing, especially when dealing with pedigree companies like the Dow industrials. These blue chips may run into trouble, but they stand a decent chance of rebounding along with the value of their shares."

Bayes rules
01/10/06   Academia
"Recently, however, Bayes's ideas have made a comeback among computer scientists trying to design software with human-like intelligence. Bayesian reasoning now lies at the heart of leading internet search engines and automated "help wizards". That has prompted some psychologists to ask if the human brain itself might be a Bayesian-reasoning machine. They suggest that the Bayesian capacity to draw strong inferences from sparse data could be crucial to the way the mind perceives the world, plans actions, comprehends and learns language, reasons from correlation to causation, and even understands the goals and beliefs of other minds."

Index ETFs: watch your weight
01/10/06   Indexing
"Unlike most S&P index funds, which are market-cap weighted, the Rydex S&P Equal Weight Fund offers greater exposure to undervalued stocks"

Retirees: look out below
01/09/06   Retirement
"The number of private pension plans fell by 75% over the past two decades to 31,000 and now cover a mere 20% of workers. In 2004 alone, 11% of surviving plans were frozen to new contributions, according to Barclays Global Investors. All told, less than half of U.S. workers are now offered any pension plan at all"

Herding and contrarian behavior
01/09/06   Academia
"Our experiment complements a large empirical literature on herding. Our results confirm the finding of the bulk of this literature that herd behavior driven by informational externalities does not seem to be an important force in fnancial markets. To the contrary, one could even argue that the observed contrarian behavior, which we find sometimes to be profitable, has a stabilizing effect as it implies that agents tend to differentiate their investments from those of their predecessors."

Is Dividend Income Safe?
01/07/06   Stingy Investing
"After the collapse of the Internet bubble many investors turned to the relative safety of dividend income. At the risk of being labeled a "gloomy Gus", I have to point out that dividends aren't 100% safe. The intrepid dividend investor must be on the constant lookout for dividend cuts, inflation and high prices."

Third Avenue Q4
01/06/06   Whitman
"During the quarter, I reread three volumes authored by great economists: The General Theory of Employment, Interest and Money by John Maynard Keynes, The Road to Serfdom by F. A. Hayek, and Capitalism and Freedom by Milton Friedman. I came away with the impression that each was observing the earth with their naked eyes from 80,000 feet up. They missed a lot of details that are part and parcel of every value investor's daily life."

The wit and wisdom of Peter Lynch
01/05/06   Stocks
"Peter shared his rules/observations on investing (8 of them) and proceeded to share some thoughts on each point and then talked about 10 wrong-headed and dangerous things that people say (often to themselves) about investing. It never hurts to review the fundamentals and glean insights from superstars like Peter so we took the time to share the essense of his message below."

The footnote fanatic
01/05/06   Accounting
"By obsessing over data buried in corners of corporate financial reports, onetime auditor David Trainer has come up with some surprising calls on stock buys and sells."

Go for momentum or recovery?
01/04/06   Markets
"Should investor's stick with last year's star performers -- or bet that loser sectors will rally? Let's see what history tells us"

SEC slaps standards on corporate fines
01/04/06   Government
"Standards settle years of debate between those who want lighter fines and those who want mega ones."

Robot portfolio steams to 7th-straight victory
01/03/06   Dorfman
"For the seventh-consecutive year, the Robot Portfolio has vanquished the Standard & Poor's 500 Index, outperforming me and most other money managers I know. The Robot's return for 2005 was 29.2 percent, as against 4.9 percent for the index. Figures are total returns, including dividends. What is this Robot Portfolio? It is a simple computer- driven model that selects deeply out-of-favor stocks."

Bargain-hunting time
01/03/06   Stocks
"Lots of top-quality stocks are trading near 52-week lows, so investors have plenty of opportunities."

The States' tobacco addiction
01/03/06   Government
"Philip Morris is America's largest maker of cigarettes, a product legal to use but problematic to merchandise legally. Cigarettes are stigmatized by common sense and all state governments. But because those governments are increasingly addicted to cigarette tax revenue, the governments must be careful not to make cigarettes so expensive they do not sell well."

New law lets shareholders play hardball
01/02/06   Law
"There appears to be a wide expectation that shareholders will more easily be able to launch successful class-action lawsuits under the new rules. Under the old common law system, class actions rarely succeeded in Canada. But lawyers have very different opinions about how much shareholders should be celebrating the advent of the new system. Mr. Voorheis said he doesn't support the principle motivation behind Bill 198, which is structured to ensure that liability is capped, allowing lawsuits to send a message to companies to deter misrepresentations without necessarily ensuring investors recoup all their losses."

The yield curve
01/01/06   Markets
"The paper that they published used the spread between the 90 day T-bill and the ten year bond. For the record, the average ten year bond since 1982 has yielded 7.31%, the average 90 day T-bill was 5.49% and the average spread was 1.82%. For the record, today we have the 90 day at 4.08%, the ten year at 4.39% for a difference of 0.31%. They used the 90 day average of the spread rather than the actual one day spread. This is important. There are several times where the yield curve inverted for a few days but did not stay that way for long. Recessions did not follow. So, the fact that the two year and the ten year inverted this week does not mean we will see a recession next year. In fact, it may not mean anything other than it was a slow week in the bond pits. We saw the spread on the yield curve roughly where it is today in 1996. It was four years later that we had a recession. Hear is a graph of the 90 day-ten year yield curve spread."

Most overvalued housing markets
01/01/06   Real Estate
"Sixty-five of the nation's 299 biggest real estate markets are severely overpriced and subject to possible price corrections."

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