George Morgan's Blog, page 7
February 22, 2014
Misc From WSJ
In his weekly column, Jason Zweig quotes several studies which indicate that many value investors are that way because of either DNA or early childhood experiences. To put it another way, some people become value investors because of emotional factors. If people become value investors for emotional reasons, it seems to imply that their investment decisions carry an emotional component. If this is true, it is another feather in the hat of behavioral finance.
Another article in the WSJ car...
February 21, 2014
The Man Steps In
Berkshire Hathaway owns a company called Business Wire who’s business is to provide market moving news releases to financial services companies. Business Wire’s customers include high frequency trading firms whose business is to use high speed computers to make trades split seconds before the rest of the market. High frequency trading is not illegal, however, in a move that is somewhat out of character, Warren Buffett has made the decision to no longer allow high frequency trading firms to li...
February 20, 2014
Kissing Cousins
Big cap mutual funds are basically expensive index funds. Depending upon their definition of big cap, these funds will own most or all of the one hundred largest companies in the S&P 500. The S&P 500 is the cap weighted index which means that the stocks with the largest market cap will have more influence over the movement of the index than will stocks with smaller market caps. The movement of the top 100 determines the movement of the index itself. And therefore, the big cap mutual f...
February 19, 2014
Finally Catching On!!
Hedge funds are the most sophisticated form of investing. They have the most resources and the most experienced portfolio managers. They have two other features that set them apart from the rest of the industry. First, they are off the chart when it comes to the fees they charge, normally 2% of the invested assets and 20% of the profits. Secondly, they have the worst performance record in the industry. Hedge funds are only available to affluent individuals and they usually have minimums in th...
February 18, 2014
Stock Picking In Today's Market
Investors who buy individual stocks and brokers who recommend individual stocks usually rely on the recommendation of an analyst who has studied the financial condition of the underlying company. Most stock analysts use a methodology called fundamental analysis. This method begins with a projection of the future earnings of the company. This future value of the company is then use to determine a reasonable price to pay for the stock in today’s market. Recently, two finance professors from Ohi...
February 17, 2014
Cheap Lunch
The fees associated with an actively managed fund are the result of that just that, active management. The buying and selling of stocks within the portfolio generates transactions cost and the financial services industry seems to feel that portfolio managers deserve large salaries and bonuses. In a passively managed index fund neither of those two elements are present. There is no decision to be made about which stocks to include in the portfolio and thus no need for an expensive portfo...
February 15, 2014
Where Did You Go To School?
This week’s Intelligent Investor raises an interesting point; most investors ask advisers how much they are getting paid for the products they sell but, seldom raise an equally important question which is how did you learn about this product? The financial services industry is well aware that between 2014 and 2018 an estimated $ 2 trillion dollars will roll out of 401(k) plans and into self-directed IRAs. The article proceeds with a story about a financial services company that offers free co...
February 14, 2014
Much Ado About Nothing
By law, every mutual fund must provide investors with a legal document, called a prospectus, which details the investment approach that the portfolio manager will take. The fund’s investment approach is called its style. This style can be conservative, aggressive, a mix of stocks and bonds or all international, to name a few. Two of the biggest style categories are growth investing and value investing. Value investors seek to buy stocks whose market price they feel is less that the value of t...
February 13, 2014
Mutual Funds In The Real World
There are times in the market cycle where the owners of the mutual fund become their own worst enemies and hinder the ability of the portfolio manager to act the way that they may feel is most prudent. If we look back to the subprime crisis we saw this activity in abundance. During times when the market is declining rapidly there is a tendency for mutual fund investors to be overcome by the emotions of the moment and want to get out of the market by selling their shares of the mutual fund. At...
February 12, 2014
How Many?
Six months ago there were 221 brands of toothpaste on the market and by today there is probably another half a dozen more. The American Dental Association will tell you that the reason for toothpaste is to prevent cavities; they will further tell you that all 221 brands of toothpaste accomplish this task. Why so many Brands? The answer is marketing. The American consumer is convinced that some of these brands improve their social life and health. An article in today’s Wall Street Journal repo...
