July 8, 2013
By Carl Richards via bucks.blog.nytimes.com Article
The Only Investing Pattern That Matters Is Behavioral
“… I stumbled on some research by David J. Leinweber at Caltech … he’s figured out how to predict the stock market using just three variables:
1) Butter production in the United States and Bangladesh
2) Sheep populations in the United States and Bangladesh
3) Cheese production in the United States
Statistically speaking, those three variables predicted 99 percent of the stock market’s movement. Imagine what you’ll be able to do with that information. …
In our very human pursuit of looking for patterns, we start seeing things that aren’t really there. … we will mine the data until we see what we think is a pattern. … We start to believe, we want to believe, that this pattern will have predictive value. …
In fact the S&P 500 is full of patterns if you’re looking for them. Pick your poison: sheep, the S&P 500, gross domestic product, or the latest unemployment numbers. If you look for some sort of theme to emerge, it’s highly likely you will see something. But the past is not prologue. …
Oddly enough, the only pattern that will influence your investing success is your behavior. Can you break the pattern of buying high and selling low? Can you break the pattern of chasing after the next “big” investment? And perhaps most importantly, can you buy low-cost investments in a diversified portfolio, and then ignore it? Now that’s a pattern I can endorse.”
July 1, 2013
By John Kirk via techopinion.com Article *Thanks to Daniel Smith for suggesting this article
Android’s Market Share Is Literally A Joke
“Have you heard this one?
Two farmers bought a truckload of watermelons, paying five dollars apiece for them. Then they drove to the market and sold all their watermelons for four dollars each. … ‘See!’ said the one farmer to the other. ‘I told you we shoulda got a bigger truck.’
Or how about this one?
Android is winning because they got a bigger truck.
… the joke is on us because this is exactly the kind of nonsensical analysis that is being doled out by tech pundits … [Examples:]
– Android is crushing Apple and Microsoft in the mobile device market …
– CHART OF THE DAY: The iPhone’s Market Share Is Dead In The Water …
… These headlines – or their underlying articles – all … point to market share as the … basis for their conclusion. … pundits think that Android has won because they ‘have a bigger truck’ (i.e. more market share) – regardless of how much – or how little – profit Android manufacturers make. …
Quiz #1: Market Share Alone
Question: Company A has 25% market share. Company Z has 75% market share. Which company is doing better?
Answer: With market share alone, there’s simply no way to know or tell. Company A might be bringing in all the profits and company Z might be going bankrupt.”
June 17, 2013
By Philip Elmer-DeWitt via tech.fortune.cnn.com Article
Apple’s shrinking diluted share count
“FORTUNE — By the time it decided in April to increase its stock buyback program five fold — from $10 billion to $60 billion — Apple (AAPL) already spent $1.95 billion of the original $10 billion fund and had bought and retired nearly 4.1 million shares of Apple common stock. …
That leaves … $58 billion to be spent over the next 11 quarters. …
As a result of the exercise…:
- The repurchase program represents a material boost to Apple’s bottom line. For example, even if September’s net income were to be flat, Apple would report nearly $.25 more in EPS (earnings per share) because there will be that many fewer shares in the denominator.
- By the end of the program, Apple will have repurchased just under 100 million shares, or approximately 10.55% of its current diluted share count.
- The company will save more than $2.230 billion in dividend payouts on the retired shares — even if it increases its dividends 10% each May. …
‘The dividends saved each year will go a long way to covering the interest costs on the funds borrowed to facilitate the share repurchases … while Apple continues to earn interest on the off-shore funds not repatriated and used for the share repurchases.’”
June 3, 2013
By Carmel Lobello via theweek.com Article
17 weird finance buzzwords, explained
“… like any industry, the finance world is … filled with lively slang words and phrases, coined over the years to describe practices and trends unique to that world. Here are a few of our favorites. …
2. Big uglies: Big, older companies, usually in ‘dirty’ industrial sectors like mining or steel. Though they can be solid investments with good, steady returns, many investors ignore them for ‘cleaner,’ trendier stocks. …
4. Cockroach theory: The theory that when a company reports bad news to the public, there’s usually a lot more bad news behind the scenes that may come out later. It can also refer to industry-wide suspicions — if one subprime lender is going bankrupt (like New Century Financial was in 2007), other subprime lenders might have similar problems behind the scenes.
5. Cookie jar accounting: An accounting practice in which a company stores up funds during good times to dip into during bad times. Because it effectively misleads investors — making them think goals are being met even when the company is losing footing — this practice is forbidden by the SEC. …
8. Jennifer Lopez: An informal term that describes what happens when a security reaches a low, then gradually starts to go up again. On a graph, it looks like a curve at the bottom, which is why investors named it after the admirably round-bottomed singer.
9. Puke point: Puking, in this case, is slang for selling an asset as the value is plummeting. The “puke point” is the point at which the investor can no longer stomach the losses, and decides to sell the asset, regardless of its steeply falling price.”
May 20, 2013
By Jeffrey Pfeffer via businessweek.com Article
Why Does Apple Care About Its Share Price?
“Beset by critics and bedeviled by a declining stock price, Tim Cook, the company’s beleaguered chief executive,announced a big stock buyback and a substantial dividend increase. … these actions do raise the question why Apple (APPL), which has too much cash on its books and … unlikely ever again to need to raise money in the public markets, should worry so much about its share price anyway? …
Although many people believe that total shareholder return (TSR), which consists of changes in stock price and dividend payouts, actually reflects something about the quality of the company’s management, I am far from convinced. …
As research (pdf) by Stanford accounting professors Ron Kasznik and Maureen McNichols has shown, stock price returns are related to whether companies either beat or fall short of expectations, and earnings surprises can be a more important determinant of a stock’s price than actual operating performance. …
Don’t get me wrong. I’m all for underpromising and overdelivering in jobs at all levels—it’s a nice way to build your managerial reputation. But we ought not to confuse image management with substantive performance. Some of the best-managed companies have share prices that don’t move much because their superior management and results are already reflected in their stock price. (Southwest Airlines (LUV) is one example.) That fact does not negate their outstanding results in the least.
Put simply, executives should spend more time on product development and customers and less time worrying about something (their stock price) that is more outside their control.”
April 15, 2013
Five Really Dumb Money Moves You’ve Got to Avoid
“1. Reaching for yield
What this country needs is a good 5% certificate of deposit. Instead the collapse in interest rates, and the Federal Reserve’s policy of keeping them down for as long as possible, is driving people crazy … In these circumstances, people start to do really foolish things… That includes taking on crazy amounts of risk … The Fed is producing a bull market in scams, Ponzi schemes and associated rackets. …
2. Going into the poor house to send Junior to a country-club college
Over the past 40 years, the cost of tuition and fees at a private university has tripled—after accounting for inflation. The cost of a public university has quadrupled. … the smart move for the budget-constrained is to get a bachelor’s degree at a public university. The tuition and fees average less than $9,000 a year instead of $30,000 at a private college.
3. Owning stock in your employer
This is one of the silliest and riskiest moves any investor can make. If the company hits trouble, you get whacked twice. You can lose your job and your savings—all in one fell swoop. Ask anyone who worked for Enron…or Lehman Brothers. …
4. Taking ….”
March 25, 2013
By Bill Waddell via Manufacturing Leadership Center Article
Maximization of Stakeholder Value in Practice
“I often wrote about the lean principles of focusing on all of the stakeholders, rather than abusing some of them for the sake of the shareholders – a la GM borrowing money to pay dividends while laying off employees. This is not some socialist principle that belittles the importance of capital. No, it is driven by the common sense point that the stockholders gain the most in the long term when everyone contributing to the business shares their long term objectives. The problem with the ‘maximize shareholder value’ principle is that it has no time frame perspective, which generally means maximize short term shareholder value because the investment community has a hard time seeing beyond three months into the future. …
More companies should look to the Progressive Insurance approach to this issue. They have a formula that is well publicized in advance for calculating the annual dividend stockholders will receive – if any. Then they use the exact same formula to calculate employee bonuses.
I don’t know anything about the insurance business but it’s a safe bet it is a lot like manufacturing in that there are likely to be plenty of accounting tricks available to dress monkeys in silk suits – they can make mediocre, or even lousy performance look good by playing games with the numbers. The cool thing about Progressive is that, if they choose to play such games, employees benefit to precisely the same degree as Wall Street. Everyone wins, or everyone loses.”
March 18, 2013
Note: Thanks to Eric Martens for bring this to our attention.
February 18, 2013
By Carl Richards via The New York Times Article
The Question You Should Be Asking About the Stock Market
“It seems we’re in danger of repeating the same old cycle of swearing off stocks forever during scary markets, missing a huge rally and then deciding it’s time to buy when stocks are high again. …
If we’re investing based on what the market has done, it’s a recipe for disaster. Recent market performance tells us almost nothing useful about what the market will do in the near future. Logically it seems like it should, but a quick review of the market’s performance during the last six years should be evidence enough to convince us that it doesn’t. …
Here’s the thing we need to remember: we have no idea if now is the time to be buying or selling. But the good news is that it’s not even the question we should be asking. Instead we should be asking, “How can we avoid making the big behavioral mistake of selling low and buying high (again!) in the future?”
Instead of worrying about getting in or out of the market at the right time, take that time to focus on crafting a portfolio based on your goals. Start by taking out a piece of paper and writing a personal investment policy statement that addresses the following: ….”
February 11, 2013
Via CNNMoney Article
Seven Fear & Greed Indicators
How we calculate the index More »“
December 10, 2012
Via American Accounting Association Article
“When Ligand Pharmaceuticals, a small California biotech, announced on November 5 that it was restating its financial statements for 2011 and the first two quarters of 2012, it caused scarcely a ripple on Wall Street. After all, not only is the company’s market capitalization a mere several hundred million dollars, but restatements are not all that uncommon in small, high-tech companies. But even those attending to the announcement probably missed another feature about the restating company that runs true to form: its board of directors is all male. What does the absence of women on the board have to do with the company’s financial probity? In Ligand’s case perhaps nothing at all — but as a general matter quite a bit, according to research to appear next month in a leading accounting journal.
The study in the December issue of the American Accounting Association journal Accounting Horizons finds that female presence on a company board reduces the chance of financial restatements by close to 40%. Restatements are necessitated by serious misrepresentations, whether through error or fraud, in corporate financial reports. …
In fact, a woman’s board presence, they find, does more on behalf of financial integrity than such tried-and-true measures as requiring the board’s audit committee to consist entirely of independent directors, one of them with financial expertise, and mandating that it meet at least four times annually. The study finds those measures in combination to reduce the likelihood of restatements by about 20%, about half the effect achieved by having a woman director.”
November 5, 2012
By Terry Starbucker in Terry Starbucker Blog Article
“In just about every business situation that involves more than a handful of people, there’s always going to be one big disconnect.
In one corner, there are the business owners and executives. They are focused primarily on one goal: profit. In the other corner are the rank and file employees who enable that profit through their work.
The disconnect is this – those employees are not focused on the profit of the business. Yes, they are concerned about it, but as long as they know there’s enough coming in to pay them into the foreseeable future, that’s all they want to know. Their focus is more diffused – more personal. It’s a livelihood. A means of support for themselves and their families. A pleasant place to work with friends and teammates.
Into this disconnect comes the leader who has to take these two “loose threads” – and in the end, tie them together into a cohesive whole. I’ve been in that role as a corporate executive, and what worked for me as the “knot” was to come up with a metric that could be tied much more closely to the actions of the rank and file, and yet, could also be closely correlated to profit. It would, in effect, be a proxy for profit.
We experimented for several years with metrics that could fit that bill but there never was that clear correlation to profit. That is, until we discovered the Net Promoter Score (or “NPS”). ….”
November 5, 2012
By Morgan Housel in The Motley Fool Article
Starting with an answer, and then searching for evidence to back it up. …
Letting recent events skew your perception of the future. …
When presented with information that goes against your viewpoints, you not only reject challengers, but double down on your original view. …
Letting one piece of irrelevant information govern your thought-process. …
Reacting differently to the same information depending on how it’s presented. Example:
“Google shares surge to highest level in five years.”
“Google shares haven’t gone anywhere in five years.”
Both statements are true. …
[and ten more] …”
October 22, 2012
By James O’Toole @CNNMoney Article
“The three men sentenced Thursday formerly worked at General Electric’s(GE, Fortune 500) GE Capital unit, where prosecutors say they colluded with counterparts at other firms to rip off bond issuers. Two men — Dominick Carollo and Peter Grimm — received three years in prison, while the third, Steven Goldberg, got four years. …
How the scheme worked: When states and local governments issue bonds, they usually don’t spend all the proceeds right away. To figure out how to invest the extra money, they hire brokers who manage a bidding process among financial institutions competing for their business.
Bids are solicited from firms like UBS and JPMorgan, which submit the interest rates they’re willing to offer on the extra bond proceeds. The winning institution, generally, is the one that offers the highest rate of return.
In cases like that of the former GE executives, prosecutors say the process was corrupted when executives from different firms conspired with one another, dividing up business in advance and devising their bids in cooperation, a practice known as bid-rigging. This allowed the winning bidders to offer issuers lower rates of return than they would have secured through an honest process.”
September 17, 2012
By Howard Rich in Investor’s Business Daily Article
Federal Debt: Urgent To Unsustainable To Insane
“We are no longer looking at an exercise in unsustainability — what we are witnessing is pure insanity. …
In the most recent fiscal year Medicare paid out $564 billion in benefits — but only took in $274 billion in taxes and premiums. That’s a shortfall of $290 billion. Social Security is also currently paying out more than it is taking in — with its annual deficit projected to reach $623 billion over the next two decades. Driving this escalation is the fact that the program’s ratio of workers-to-beneficiaries is set to drop from 2.8 to 1.9 by 2035 as the number of Americans collecting checks soars from 56 million to 91 million. …
Government’s entitlement programs don’t need to be “retooled,” they need to be either privatized (like Medicare and Social Security) or eliminated altogether (like ObamaCare and the 2003 prescription drug benefit). And these reforms don’t need to happen this year — our entitlement mess should have been addressed decades ago.
“Urgent doesn’t begin to describe it,” Social Security Trustee Chuck Blahous said recently. “We’re somewhere between critical and too late to deal with it.” Indeed. Which is why continuing to delay the inevitable — i.e. the “bipartisan solution” — only adds additional destructive force to the fiscal reckoning that’s coming.”
July 2, 2012
By James daSilva Article
Principles that form the foundation of profit
“The state of mind that ignores risk and favors short-term economic gain above all else is what Tomasdottir considers to be a financial world driven solely by masculine values. There’s no need to abandon such values, nor should “feminine” values act to dismantle the system. Instead, these five values are meant to offer a balanced mindset.
- Independent advice and solutions.
- Assurance that risk is known before decisions are made.
- Due diligence that includes an analysis of people factors along with financial concerns.
- Honesty and transparency in client communications.
- Profit that is principled and is measured in a broad way.
“We want to make profit as a company, we want to make profit on behalf of our customers, but we really care how profit is made,” Tomasdottir says.”
May 14, 2012
From The Week Article
“How much does Apple sidestep in taxes?
Corporations don’t publicly release tax returns, but The Times estimates that Apple avoided paying $2.4 billion in federal taxes last year, citing the work of former Treasury Department economist Martin A. Sullivan. Apple did report paying $3.3 billion in taxes globally on $34.2 billion in profits, giving it a 9.8 percent tax rate. …
How does it manage this accounting feat?
Essentially, Apple routes a sizable portion of its profits through countries and states that allow it to pay low tax rates. For example, the Cupertino, Calif.-based company has a tiny subsidiary in Reno called Braeburn Capital that manages and invests much of Apple’s enormous cash reserve — California has an 8.84 percent corporate tax rate; Nevada’s is zero, and the state has no capital gains tax.
That’s all it takes to save $2.4 billion?
Not quite. Apple is also a pioneer of a tasty-sounding accounting move called the “Double Irish With a Dutch Sandwich,” which involves routing profits through subsidiaries in Ireland and in the Netherlands, before sending it on to the British Virgin Islands or another Caribbean tax haven. In all, about 70 percent of Apple’s profits are housed overseas.
And this is all legal?
Yes. … Much of their revenue comes from sources like patents and digital downloads, intangible things you can easily “sell” from anywhere in the world, particularly places that offer good tax arrangements. When people in Africa, Europe, and the Middle East buy songs and movies from iTunes, for example, the sale is recorded in a nondescript office in Luxembourg, a notorious tax haven. …
Is this ethical? ….”
January 30, 2012
By John Kyle Article
“Have you ever taken a self-defense course before? Many people have. They learn to block, punch and kick their way out of a situation. I’ve studied and taught martial arts for more than 30 years; I’ve learned a lot and had the opportunity to use it as well (in competition, of course).
Yet in all that time, no one has ever taught me how to defend my finances. So, as a martial arts instructor and a licensed and professional financial advisor, I do what I can to educate my clients, as well as my community, about simple steps that anyone can take to help defend their wealth for the long haul and grow that wealth at the same time.
I’ve developed 6.5 simple steps that help accomplish just that.
1. Be an Investor, NOT a Saver.
Most of us know that the majority of savings accounts give less a 1percent return on your money and inflation is almost 3percent. If we do the math you realize that you’re actually taking more risk by not investing because you’re guaranteed a loss. Simply by understanding that simple truth, you’ll be more likely to get off the sidelines and back in the game and getting your money to work for you to help you reach your goals.
After the drop in the market in 2008, millions of Americans lost 30, 40percent or more of their wealth, and the biggest drop of all came in the way of investor confidence, we don’t trust the market anymore. “I took my money out and haven’t put it back.” “I hear there’s another recession coming, I think I should wait.” …
2. Create a safety net
Another thing that became very apparent to many investors, is that when the market dropped back 2008, they had nothing to safe guard their investments. There was no safety net in place. ….”
October 17, 2011
From Business Coaching Blog Article
My favourite finance saying is
“Turnover is vanity, profit is sanity but cash is reality”
In just a few words, the phrase, which is known as the “Banker’s Mantra”, sums up everything you need to understand about financial control.
Turnover, sales, revenue, fee income – whatever you care to call the top line – doesn’t matter in finance terms.
It’s what you get to keep after covering the costs that matters and most important of all, how much money is in the bank.
All business owners should memorise the saying and live by it.
All together now
“Turnover is vanity, profit is sanity but cash is reality.”
October 3, 2011
By NCPA Article
“… makes it sound as if there are millionaires all over America paying taxes at lower rates than their secretaries. The data tell a different story, says the Associated Press.
- On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data.
- They pay at a higher rate, and as a group they contribute a much larger share of the overall taxes collected by the federal government.
- This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a Washington think tank.
- Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes.
Lower-income households will pay less.
- For example, households making between $40,000 and $50,000 will pay an average of 12.5 percent of their income in federal taxes.
- Households making between $20,000 and $30,000 will pay 5.7 percent.”
Source: Steven Ohlemacher, “Fact Check: Are the Rich Taxed Less than Secretaries?” Associated Press, September 20, 2011.
September 26, 2011
By Nassim Nicholas Taleb and Mark Spitznagel Article
“For the American economy – and for many other developed economies – the elephant in the room is the amount of money paid to bankers over the last five years. In the United States, the sum stands at an astounding $2.2 trillion for banks that have filings with the US Securities and Exchange Commission. Extrapolating over the coming decade, the numbers would approach $5 trillion, an amount vastly larger than what both President Barack Obama’s administration and his Republican opponents seem willing to cut from further government deficits. That $5 trillion dollars is not money invested in building roads, schools, and other long-term projects, but is directly transferred from the American economy to the personal accounts of bank executives and employees. Such transfers represent as cunning a tax on everyone else as one can imagine. It feels quite iniquitous that bankers, having helped cause today’s financial and economic troubles, are the only class that is not suffering from them – and in many cases are actually benefiting. …
In other words, banks take risks, get paid for the upside, and then transfer the downside to shareholders, taxpayers, and even retirees. In order to rescue the banking system, the Federal Reserve, for example, put interest rates at artificially low levels; as was disclosed recently, it also has provided secret loans of $1.2 trillion to banks. The main effect so far has been to help bankers generate bonuses (rather than attract borrowers) by hiding exposures.
Taxpayers end up paying for these exposures, as do retirees and others who rely on returns from their savings. Moreover, low-interest-rate policies transfer inflation risk to all savers – and to future generations. Perhaps the greatest insult to taxpayers, then, is that bankers’ compensation last year was back at its pre-crisis level.”
August 1, 2011
By Jenna Goudreau Article
“How has Warren Buffett become the third richest person in the world with a net worth of $50 billion? It may be because he invests like a girl. Financial editor and writer LouAnn Lofton, author of recently released Warren Buffett Invests Like A Girl, studied the habits of the world’s most renowned investor and compared them to the latest research about men, womenand money. The conclusion: The Oracle of Omaha has a decidedly feminine investing style.
Like Buffett, women are more likely to have a calm temperament, a longer-term outlook, do more research, trade less and remain steady under pressure, says Lofton. And what does Buffett think about the claim? “I plead guilty,” he said.
I caught up with Lofton to learn more about her theory and uncover the secrets of the investing legend. ….”
July 18, 2011
Companies Push for Tax Break on Foreign Cash
“Some of the nation’s largest corporations have amassed vast profits outside the country and are pressing Congress and the Obama administration for a tax break to bring the money home. Apple has $12 billion waiting offshore, Google has $17 billion and Microsoft, $29 billion.
Under the proposal, known as a repatriation holiday, the federal income tax owed on such profits returned to the United States would fall to 5.25 percent for one year, from 35 percent. In the short term, the measure could generate tens of billions in tax revenues as companies transfer money that would otherwise remain abroad, and it could help ease the huge budget deficit.
Corporations and their lobbyists say the tax break could resuscitate the gasping recovery by inducing multinational corporations to inject $1 trillion or more into the economy, and they promoted the proposal as “the next stimulus” at a conference last Wednesday in Washington. “For every billion dollars that we invest, that creates 15,000 to 20,000 jobs either directly or indirectly,” Jim Rogers, the chief of Duke Energy, said at the conference. Duke has $1.3 billion in profits overseas.
But that’s not how it worked last time. Congress and the Bush administration offered companies a similar tax incentive, in 2005, in hopes of spurring domestic hiring and investment, and 800 took advantage. Though the tax break lured them into bringing $312 billion back to the United States, 92 percent of that money was returned to shareholders in the form of dividends and stock buybacks, according to a study by the nonpartisan National Bureau of Economic Research.”