11 November 2013 - 10:45 am
Finance even has its own high priests in the form of the analysts and fund managers who promise their clients heavenly rewards if only they listen to their advice. They preach regular sermons in the form of brokers’ notes and quarterly reports, and they house themselves in vast cathedral-like buildings that dominate the skyline. Each day also has its canonical hours as traders pray for profitable opportunities at the European, American and Asian market openings. Finance has its annual calendar, too, marked with festivals known as results seasons in which the lucky participants receive their temporal (rather than spiritual) dividends.
And like any self-respecting religion, finance has its doctrinal schisms as well. Active fund managers are a bit like the medieval Catholic church, offering eternal salvation to those willing to pay the appropriate sum, which are known in modern parlance as performance fees rather than indulgences. The active-investment sect has its elaborate rituals and language, with a liturgy (“information ratios” and “alpha generation”) as baffling to the layman as the Latin mass was to the medieval peasant. Clients are supposed to listen to their presentations in a reverential hush, trusting that all the mumbo-jumbo will deliver superior results. The passive fund managers, or index-trackers, are akin to early Lutherans. Investors have no need for priestly intermediaries between them and the market, say the index-trackers. All they require is the full text of those companies that are included in the benchmark. >> Read More
31 October 2013 - 12:00 pm
The fortunes of two of East Asia’s largest steelmakers are diverging, with Japan’s Nippon Steel & Sumitomo Metal Corp. lifting its earnings sharply, while its South Korean rival Posco struggles.
Nippon Steel & Sumitomo Metal on Wednesday reported a big jump in consolidated earnings in the April to September period, after the company was created through the merger of Nippon Steel Corp. and Sumitomo Metal Industries Ltd. last October.
Nippon Steel & Sumitomo Metal, now Asia’s largest steelmaker by crude steel production, also raised its full-year pretax profit forecast for fiscal 2013.
In contrast, Posco, seen by its Japanese rival as a benchmark, with a production system seen by many as the world’s most efficient, faces to battle falling profits.
Industry watchers are puzzling over the sudden reversal. Posco logged an operating profit of 633 billion won (58 billion yen) in the July-September period, down 38% from a year earlier. >> Read More
30 October 2013 - 10:55 am
Today’s Smart Investor tip comes from billionaire investor Warren Buffett, who outlined the biggest mistakes amateur investors make for Adam Shell at USA Today.
The Oracle of Omaha warns investors against an incredibly common mistake: You shouldn’t try to time the market. He says it’s a mistake to predict or listen to others who predict the short-term movement of stocks. By the same token, he says you shouldn’t try to flip stocks like high-frequency traders do.
Instead, Buffett says the best thing the average investor can do is buy an index fund over time. That’s it. From USA Today: >> Read More
25 October 2013 - 11:00 am
WARREN BUFFETT: Well I came up with that a long, long time ago to describe the situation that – I was lucky. I was born in the United States. The odds were 30 or 40-to-1 against that. I had some lucky genes. I was born at the right time. If I’d been born thousands of years ago I’d be some animal’s lunch because I can’t run very fast or climb trees. So there’s so much chance in how we enter the world. And -
LIU: And you were always aware to make sure your children and their grandchildren, and your grandchildren would be grounded.
WARREN BUFFETT: Yes. And we’re not – how you came out of the womb has really nothing to do with what kind of person you are. You decide what kind of person you’re going to be. It does decide whether maybe you never have to do an item of work in your life and maybe determine whether you’re fighting uphill all of the time, but where in my life, in my eyes is we’re all created equal, and but we don’t all have an equal opportunity by a longshot. And my kids really work every day in trying to even up the scorecard.
Luck plays a big role in life. But you also get to choose how you’re going to use that luck and whether you want to try to make more of your own luck.
28 September 2013 - 12:40 pm
You are your own worst enemy.
Those are the six most important words in investing. Shady financial advisors and incompetent CEOs don’t harm your returns a fraction of the amount your own behavior does.
Here are 15 cognitive biases that cause people to do dumb things with their money.
1. Normalcy bias
Assuming that because something has never happened before, it won’t (or can’t) happen in the future. Everything that has ever happened in history was “unprecedented” at one time. The Great Depression. The crash of 1987. Enron. Wall Street bailouts. All of these events had never happened… until they did. When Warren Buffett announced he was looking for candidates to replace him at Berkshire Hathaway, he said he needed “someone genetically programmed to recognize and avoid serious risks, including those never before encountered.“ Someone who understands normalcy bias, in other words.
2. Dunning-Kruger effect
Being so bad at a task that you lack the capacity to realize how bad you are. Markus Glaser and Martin Weber of the University of Mannheim showed that investors who earn the lowest returns are the worst at judging their own returns. They had literally no idea how bad they were. “The correlation between self-ratings and actual performance is not distinguishable from zero” they wrote.
3. Attentional bias
Falsely thinking two events are correlated when they are random, but you just happen to be paying more attention to them. After stocks plunged 4% in November 1991, Investor’s Business Daily blamed a failed biotech bill in the House of Representatives, while The Financial Times blamed geopolitical tension in Russia. The “cause” of the crash was whatever the editor happened to be paying attention to that day.
4. Bandwagon effect
Believing something is true only because other people think it is. Whether politicians or stocks, people like being associated with things that are winning, so winners build momentum not because they deserve it, but because they’re winning. This is the foundation of all asset bubbles. >> Read More
15 August 2013 - 17:54 pm
It’s a Carl iCahn world, and 13-Fs are nothing more than 45 day old tweets. Also, with Ben Bernanke Chief Risk Manager of the developed world, there is absolutely no point to be invested in hedge funds (why – there is simply no risk, until Ben loses control, then no amount of hedging will help anyone), and as such what “hedge” funds are buying is irrelevant. But since the cottage industry of alphacloners still exists, here, via RanSquawk and Fly, is the full June 30 holding recap of the usual suspects.
- Exited Stakes in SNI, WFC, COF, REP, PNK
- Took Stakes in FDO, HES, IOC, MTG, VOD, TMO, CTB, SFD, KOG, RUE
- Cut Stakes in DLPH, HIG, MYL, HCA, RHP
- Boosted Stakes in PXD, AET, BPGP, RUN, CVC
- Reduced Stake in SPDR Gold Trust
- Exited Stakes in LCC, GDX, MOS, GLD, HAL
- Took Stakes in HLF, JCP, CA, OUTR, OXY
- Cut Stakes in PXD, ACTG, DAL, RHT, CTXS
- Boosted Stakes in GOCIG, UAL, DISH, NTAP, UAL
- Sold Entire SPDR Gold Trust Stake (which was $80MM in an $8.6bn fund) >> Read More
Berkshire Hathaway’s Q2 financial results are out.
Operating earnings came in at $2,384 per share. This is up 5.8% year-over-year.
This was also well ahead of the $2,166 per share forecasted by analysts surveyed by Bloomberg.
The stock closed at $176,500 per share today.
Berkshire Hathaway is the massive holding company of billionaire Warren Buffett. Its portfolio includes insurance companies, railroad operators, utilities, and various retailers.
Read the brief release at BerkshireHathaway.com.
India has long been viewed as a value investor’s dream: rapid growth, 1.2 billion people pining for a taste of globalization, and underdeveloped industries ripe for turnarounds. So it surprised few when the genre’s guru, Warren Buffett, placed a bet on the world’s ninth-biggest economy.
What did come as a surprise, though, was last week’s decision by the billionaire’s Berkshire Hathaway Inc. to give up on India’s insurance market after just two years. Adding to the drama, the withdrawal came the same week India unveiled plans to open the economy as never before to foreign direct investment (FDI).
Buffett isn’t alone in voting with his feet. Wal-Mart Stores Inc.,ArcelorMittal SA and Posco are pulling back on investments in India that they had announced with great fanfare. What’s scaring foreigners away? A rampant political dysfunction that has stopped India’s progress cold.
Headwinds from New Delhi are contributing to the slowest growth rates in a decade, a record current-account deficit and a 7.9% plunge in the rupee this year. Fiscal neglect has bond traders demanding higher yields for government debt than India wants to pay. But the most devastating no-confidence vote is coming from the big, long-term money India needs to boost its competitiveness. FDI slid about 21% last fiscal year, and this one doesn’t look promising. >> Read More
The global market-capitalization rankings for multinational corporations are being shaken up by recent economic trends, with U.S. firms showing renewed strength and Chinese companies taking a step backward.
The Nikkei compared the market values of major global companies at the end of June with those at the end of 2012, using data from U.S. market research firm FactSet Research Systems Inc. Nine of the firms in the top 10 were U.S., while many Chinese companies were bumped to lower positions.
U.S. energy giant Exxon Mobil Corp. topped the list at 401.7 billion dollars. Next was Apple Inc., which dropped to second after shedding some 25% of its market value over the six months to hit 372.2 billion dollars amid concerns about a slowdown in smartphone sales. >> Read More
Obviously with Buffett a major shareholder of Moody’s, the only place where a downgrade of Berkshire could come from was S&P. Moments ago, the rating agency that dared to downgrade the US for which it is being targeted by Eric Holder’s Department of “Justice”, did just that.
On New Criteria, Berkshire Hathaway Inc. Downgraded To ‘AA’, Core Ins. Subs Affirmed At ‘AA+’, Senior Debt Rated ‘AA’
- Under our revised group methodology criteria, we are lowering our counterparty credit rating on BRK to ‘AA’ from ‘AA+’. At the same time, we are affirming our ‘AA+’ counterparty credit and financial strength ratings on BRK’s core operating insurance companies.
- The ratings reflect our view of the group’s excellent business risk profile and very strong financial risk profile based on an extremely strong competitive position and very strong capital and earnings.
- The negative outlook reflects the U.S. sovereign ratings cap and our view that the group’s capital adequacy per our capital adequacy model could deteriorate relative to its risk profile.
On May 16, 2013, Standard & Poor’s Ratings Services lowered its counterparty credit rating on Berkshire Hathaway Inc. (NYSE:BRK; AA/Negative/A-1+) by one notch to ‘AA’ from ‘AA+’ and affirmed its ‘AA+’ insurance financial strength ratings on BRK’s core subsidiaries following release of our revised Insurers Rating and Group Rating Methodology, released on May 7, 2013. The outlook on all ratings is negative. At the same time, we assigned our ‘AA’ senior debt rating to Berkshire Hathaway Finance Corp.’s (BHFC) $1.0 billion senior
unsecured notes. BHFC has issued the notes in two tranches: $500 million 1.3% senior unsecured notes due May 15, 2018, and $500 million 4.3% senior unsecured notes due May 15, 2043. The company used the proceeds of this issue to repay $1.0 billion of senior notes maturing on May 15, 2013. >> Read More