George Morgan's Blog, page 16

Investors Shoot Themselves In The Fund

Jason Zweig understands mutual funds, brokers don’t. This week’s edition of the Intelligent Investor begins with data on the Pimco Total Return Fund. In the 12 months ending September 30, 2013, the fund lost 0.7 4%, while it’s benchmark, Barclays U.S. aggregate index lost 1.89%. This performance measurement assumes that an investor in the fund neither added nor subtracted money from the fund. However, a further evaluation of the results shows that the real life investors incurred a loss of 1....

Ratings Misconception

I’ve spoken to several people who have invested in specific mutual funds because they had a five star Morningstar rating. A perfect five star rating may sound good, but you need to understand why a fund has been given that rating. Morningstar rates funds’ performance not against the entire universe of funds, but rather they break all funds into dozens of subcategories based on their investment style. Morningstar’s categories include such esoteric subgroups as small cap emerging markets funds...

Too Many Baskets

When you were a kid did your parents tell you, don’t put all your eggs in one basket. I am often asked to evaluate the investments in individual’s 401(k) accounts and what I’m seeing disturbs me. I see accounts with 20 or 30 mutual funds in them with net assets of less than $100,000. The average mutual fund has 350 stocks in it and when you do the math that means theses accounts own teeny tiny portions of 7,000 stocks. Currently there are only 7,200 stocks traded on the American exchanges. Th...

Revelations From Greenspan

I now have in my hot little hand a copy of Alan Greenspan’s new book “The Map and the Territory” and I feel like a little kid at Christmas about to open a box and not knowing what’s in it. Rather than paraphrasing some of his opening remarks I am going to quote them so that I will avoid the risk of putting any spin on them. “The point isn’t that I and other economy economic forecasters didn’t understand that markets are prone to wild and even deranging mood swings that are uncoupled from any...

More Conflict

Jason Zweig feels that the FINRA report on conflicts of interest in the securities industry is a reminder the industry is not focused on managing investments and delivering advice to clients, rather it is focused on generating sales by customers. He points out that the word customer appears in the report 126 times and the word client shows up only 44 times. Product appears 278 times and investment 45 times. Variations of the word sale are used 78 times, while the word advice only appears eigh...

Conflicts Of Interest

Last Saturday’s edition of the Intelligent Investor reported on a study just released by FINRA, the Financial Services industries governing body, on brokers conflicts of interest. Susan Axelrod, FINRA’s Executive Vice President for regulatory operations, states that “Conflicts have existed, they still exist and will exist in the future in this industry.” The report did not seek to identify and address all conflicts of interest nor does it make any pretense that all will be eliminated. Mr. Zwe...

Sound Bites

Here are several quotes that convey great wisdom in just a few words.

Ben Graham: “If I have noticed anything over my 60 years on Wall Street, it is that people do not succeed in forecasting was going to happen in the stock market.”

Warren Buffett: “I’ve long felt that the only value of stock forecasters is to make fortunetellers look good. I believe that short-term market forecasts are poison and should be kept locked up in a safe place away from children and also from grownups will behave i...

What's Going On?

With all the bad economic news, high unemployment, the squabbling in Washington and the Obama Care flap, how can the market keep hitting new highs? A major factor driving the market is that companies are profitable in spite of all the negatives news coming from the media. Logic and conventional wisdom tell us that the American profitability would drive down unemployment as companies hire in order to keep up with increased demand. We have seen minor evidence of that but, our labor force contin...

Information Overload

In his new book, Alan Greenspan reveals that he now appreciates the emotional elements that are a part of our individual and collective decision making process. Recently, I ran across some statistics that are staggering and are related to how we can swiftly switch from rational thinkers to lemmings; the average American takes in 34 GBs of data daily. This is an increase of 350% over the last of thirty years. This consists of 100,000 words from TV, radio, the web and print media. We watch 5 ho...

Rethinking QEIII

In 1977, Congress amended the Federal Reserve Act and charged the Fed’s Open Market Committee with the dual responsibility of achieving maximum unemployment while maintaining stable prices. I have not been a proponent of QEIII because I have not seen evidence that it is having much effect. Then I got to thinking back to my Money and Banking class many years ago and remember that monetary policy takes a significant amount of time in order to be effective.  Today’s announcement of the jobs...