Friday, July 10, 2009
Now I can't Buy a G8...
This article discusses some of the details of the new General Motors, which finished restructuring in an astounding 39 days. US Taxpayers now own over 60% of the streamlined entity. The new company has rid itself of a substantial amount of debt and unfavorable labor contracts, potentially allowing itself to regain its position as the premier automaker in the US.
Monday, June 29, 2009
Emerging Markets
For those considering taking a position in Emerging markets, this article discusses how the global recession continues to affect capital flows and may delay the growth of these economies. The World Bank estimates that the developing world will only grow by 1.2% in the coming year.
Saturday, June 27, 2009
For Those Of You Who Want To Start A Hedge Fund...
The following article gives an interesting view of how at least one hedge fund is catering to what may be a more informed and less passive hedge fund investor:
http://dealbook.blogs.nytimes.com/2009/06/26/starting-a-hedge-fund-in-a-shell-shocked-age/
http://dealbook.blogs.nytimes.com/2009/06/26/starting-a-hedge-fund-in-a-shell-shocked-age/
Monday, June 22, 2009
Saturday, June 13, 2009
Monday, June 1, 2009
Why We Need a Bigger Real Estate Correction.
While we are still down HUGE from Dow 14,000, trailing P/Es in the REIT arena are beyond ridiculous. Most would explain this as the market switching from backward looking to forward looking valuations, but how do SO many people really believe these kind of P/Es are justified? For example, big name office REITs:
And people thought the CRE shoe had already dropped...
And people thought the CRE shoe had already dropped...
Thursday, May 21, 2009
Full-Circle Capitalism
Wait... really? Evil hedge funds aren't Chrysler's only secured lenders? Check out the juxtaposition of the articles in section B of the Journal today for a fresh reminder of the irony of Obama's involvement in Chrysler's bankruptcy (UAW Fades as Union Shrinks in Size, Power, Chrysler Plan Faces New Foes).
Simple probability dictates that at least one John Pipe-Fitter in Detroit has at least one sister, Jane Algebra-Teacher in Indiana, whose retirement age and/or retirement quality of life is negatively correlated with his own. In fact, he's probably at least once striked against his sister's well-being.
As I write this, I find this article, and also realize that this has probably been a popular blog topic lately. But to make a point, this is a perfect example of how interfering with capitalism--while often necessary--can, and usually does, go too far. For capital markets and free-market economies to function properly, courts must do their best to ensure that legal obligations to stakeholders of companies are honored--fairly and without political influence. And while this anecdote is an interesting demonstration, the long-term impact of this type of government action is disastrous.
Simple probability dictates that at least one John Pipe-Fitter in Detroit has at least one sister, Jane Algebra-Teacher in Indiana, whose retirement age and/or retirement quality of life is negatively correlated with his own. In fact, he's probably at least once striked against his sister's well-being.
As I write this, I find this article, and also realize that this has probably been a popular blog topic lately. But to make a point, this is a perfect example of how interfering with capitalism--while often necessary--can, and usually does, go too far. For capital markets and free-market economies to function properly, courts must do their best to ensure that legal obligations to stakeholders of companies are honored--fairly and without political influence. And while this anecdote is an interesting demonstration, the long-term impact of this type of government action is disastrous.
Sunday, May 17, 2009
Lessons to Learn
A few words from Tom Stanley, without question the top performing mutual fund manager in history:
The Resolute Way: Tom Stanley’s Investment Philosophy
There are many ways to be a successful investor. I have no claim that what has worked for me in the past will continue to work in the future, but I would like to share with you some of the principles I have learned over the past 25 years that have helped me become a better investor.
1. Be a Long Term Investor
Too much emphasis is placed on short-term fluctuations. It is easier to anticipate long-term trends.
2. Have a Flexible Approach
Change is the only certainty and as markets change, one should change as well.
3. Actively Look for Ideas
I find many of my best ideas; they don't find me.
4. Be Skeptical
Check facts directly. Strive to understand the bias and potential conflicts of interest among the sources that provide them.
5. I Eat my Own Cooking
My only stock market investment is the Resolute Performance Fund. This aligns my interests with the rest of the unitholders.
6. I Buy my Best Ideas
I prefer to buy only my best ideas.
7. Filter out the Noise
One of the greatest challenges is to filter out the noise and use only what is relevant.
8. Be Thrifty
Moderate costs facilitate moderate fees. Moderate fees facilitate performance.
9. Outperform by Being Different
To have a chance of outperforming the market, invest differently than the market.
10. Know Your Limits
It is just as important for me to know what I don't know as it is to know what I know.
11. Stay Humble
Stay humble or the market will make you humble.
12. Being Small is an Advantage
It is easier to outperform being small.
13. Apply Spiritual Principles
An important measure of one's success is how much he benefited his fellow man.
14. Investing is Not a Team Sport
The best decisions are rarely made by committee.
15. A Good Card Player Does Not Show His Hand
Confidentiality is essential for successful small cap investing.
16. Too Much Emphasis is Placed on Precision
I don't need exact numbers to make decisions.
17. Be a Contrarian
Being a contrarian is harder in practice than in theory.
18. Strive for Effective Rationality
Do the homework; know the facts; and make decisions based on the facts.
The Resolute Way: Tom Stanley’s Investment Philosophy
There are many ways to be a successful investor. I have no claim that what has worked for me in the past will continue to work in the future, but I would like to share with you some of the principles I have learned over the past 25 years that have helped me become a better investor.
1. Be a Long Term Investor
Too much emphasis is placed on short-term fluctuations. It is easier to anticipate long-term trends.
2. Have a Flexible Approach
Change is the only certainty and as markets change, one should change as well.
3. Actively Look for Ideas
I find many of my best ideas; they don't find me.
4. Be Skeptical
Check facts directly. Strive to understand the bias and potential conflicts of interest among the sources that provide them.
5. I Eat my Own Cooking
My only stock market investment is the Resolute Performance Fund. This aligns my interests with the rest of the unitholders.
6. I Buy my Best Ideas
I prefer to buy only my best ideas.
7. Filter out the Noise
One of the greatest challenges is to filter out the noise and use only what is relevant.
8. Be Thrifty
Moderate costs facilitate moderate fees. Moderate fees facilitate performance.
9. Outperform by Being Different
To have a chance of outperforming the market, invest differently than the market.
10. Know Your Limits
It is just as important for me to know what I don't know as it is to know what I know.
11. Stay Humble
Stay humble or the market will make you humble.
12. Being Small is an Advantage
It is easier to outperform being small.
13. Apply Spiritual Principles
An important measure of one's success is how much he benefited his fellow man.
14. Investing is Not a Team Sport
The best decisions are rarely made by committee.
15. A Good Card Player Does Not Show His Hand
Confidentiality is essential for successful small cap investing.
16. Too Much Emphasis is Placed on Precision
I don't need exact numbers to make decisions.
17. Be a Contrarian
Being a contrarian is harder in practice than in theory.
18. Strive for Effective Rationality
Do the homework; know the facts; and make decisions based on the facts.
Wednesday, May 6, 2009
AQR Capital Management
Read the following letter of valid points written by Clifford S. Asness, founder of AQR Capital Management:
http://dealbook.blogs.nytimes.com/2009/05/05/a-hedge-fund-manager-strikes-back-at-obama/
http://dealbook.blogs.nytimes.com/2009/05/05/a-hedge-fund-manager-strikes-back-at-obama/
Tuesday, May 5, 2009
Tax Havens
Yesterday President Obama called out the multinationals that are "shirking" taxes by using overseas tax havens. The NY Times article does a good job of covering the background of the argument but one thing it fails to mention is the reason businesses use tax havens or other methods of U.S. tax avoidance. Our corporate tax rates are too high!!
Companies want to be able to compete and it's hard to be competitive when someone in another country can do business cheaper than you can. In the past corporate tax rates didn't have much impact on business decisions because businesses couldn't just get up and move, but that is not the case today. Advances in technology have lowered costs of doing business. The world is flat and information moves quickly.
From the article...
"The top corporate tax rate is 35 percent, but the Treasury Department estimated that in 2004, the most recent year for which data is available, American multinationals paid $16 billion in taxes on $700 billion in foreign income — an effective rate of 2.3 percent. "
I agree this is pathetic but if the corporate tax rate was lower this number would be considerably higher. The only reason people use tax havens is because it is economically viable to do so. The costs of moving the money is still less than paying the ridiculous 35% top tax rate. Let's say the Obama administration lowered the top corporate tax rate to 20%. This would result in more truthful profit reporting and it might even create more jobs in the process. Another potential benefit from a lower corporate tax rate is higher revenues. Actually decreasing the tax rate might put us at a point on the Laffer curve that generates more revenues.
P.S. In the last paragraph of the article Professor Jim Hines from the University of Michigan is quoted on the topic. I had him for Government Revenues (Econ 483?) and I would recommend taking the class if he is teaching it. He is really brilliant and knows everything about the tax code and its revenue implications.
Companies want to be able to compete and it's hard to be competitive when someone in another country can do business cheaper than you can. In the past corporate tax rates didn't have much impact on business decisions because businesses couldn't just get up and move, but that is not the case today. Advances in technology have lowered costs of doing business. The world is flat and information moves quickly.
From the article...
"The top corporate tax rate is 35 percent, but the Treasury Department estimated that in 2004, the most recent year for which data is available, American multinationals paid $16 billion in taxes on $700 billion in foreign income — an effective rate of 2.3 percent. "
I agree this is pathetic but if the corporate tax rate was lower this number would be considerably higher. The only reason people use tax havens is because it is economically viable to do so. The costs of moving the money is still less than paying the ridiculous 35% top tax rate. Let's say the Obama administration lowered the top corporate tax rate to 20%. This would result in more truthful profit reporting and it might even create more jobs in the process. Another potential benefit from a lower corporate tax rate is higher revenues. Actually decreasing the tax rate might put us at a point on the Laffer curve that generates more revenues.
P.S. In the last paragraph of the article Professor Jim Hines from the University of Michigan is quoted on the topic. I had him for Government Revenues (Econ 483?) and I would recommend taking the class if he is teaching it. He is really brilliant and knows everything about the tax code and its revenue implications.
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