Category: Value Investing

On Insurance Investing, Part 1

On Insurance Investing, Part 1

Posted on by David Merkel

Shrinking the Share Count

This post was prompted by this post from Avondale Asset Management on how the share count from The Travelers has shrunk since 2005 (two years after their merger with The St. Paul, a company that I once worked for).? Only 57% of the shares remain.? Way to go.

Now, buying back stock is not a panacea.? It is only good when the shares are trading below or not much above fair market value.? What’s fair market value, you ask?? Well, that’s not an easy question to answer in most places, but in insurance, it means around 1.3x book value, adjusting for intangibles that have no economic significance.

Now if a company has some proprietary products, technologies or methods that give it a sustainable competitive advantage, that multiple can rise — AFLAC might be an example of that.? But sustainable competitive advantages in a mature and competitive industry like insurance are rare.? Above the 1.3x book value hurdle, it would be better to do special dividends.

Avondale was spot-on to feature The Travelers.? They are in the upper end of those that bought back shares 2005-2012.? Here’s my list:

Company Ticker Industry % of shares remaining since 2005
WellPoint, Inc. WLP 0706 – Insurance (Accident & Health)

52%
Infinity Property and Casualty IPCC 0715 – Insurance (Property & Casualty)

56%
Travelers Companies, Inc., The TRV 0715 – Insurance (Property & Casualty)

57%
Aetna Inc. AET 0706 – Insurance (Accident & Health)

58%
Employers Holdings, Inc. EIG 0715 – Insurance (Property & Casualty)

59%
White Mountains Insurance Grou WTM 0715 – Insurance (Property & Casualty)

60%
Torchmark Corporation TMK 0709 – Insurance (Life)

61%
Assurant, Inc. AIZ 0709 – Insurance (Life)

61%
Chubb Corporation, The CB 0715 – Insurance (Property & Casualty)

67%
Erie Indemnity Company ERIE 0715 – Insurance (Property & Casualty)

68%
RenaissanceRe Holdings Ltd. RNR 0715 – Insurance (Property & Casualty)

69%
Endurance Specialty Holdings L ENH 0715 – Insurance (Property & Casualty)

69%
Loews Corporation L 0715 – Insurance (Property & Casualty)

71%
Allied World Assurance Co Hold AWH 0715 – Insurance (Property & Casualty)

71%
W.R. Berkley Corporation WRB 0715 – Insurance (Property & Casualty)

72%
Health Net, Inc. HNT 0706 – Insurance (Accident & Health)

72%
Platinum Underwriters Holdings PTP 0715 – Insurance (Property & Casualty)

72%
Allstate Corporation, The ALL 0715 – Insurance (Property & Casualty)

73%
CIGNA Corporation CI 0706 – Insurance (Accident & Health)

75%
UnitedHealth Group Inc. UNH 0706 – Insurance (Accident & Health)

77%
Progressive Corporation, The PGR 0715 – Insurance (Property & Casualty)

78%
Montpelier Re Holdings Ltd. MRH 0715 – Insurance (Property & Casualty)

78%
Verisk Analytics, Inc. VRSK 0712 – Insurance (Miscellaneous)

78%
American Financial Group AFG 0715 – Insurance (Property & Casualty)

80%
StanCorp Financial Group, Inc. SFG 0706 – Insurance (Accident & Health)

80%
Primerica, Inc. PRI 0709 – Insurance (Life)

80%
Investors Title Company ITIC 0715 – Insurance (Property & Casualty)

81%
Hanover Insurance Group, Inc., THG 0715 – Insurance (Property & Casualty)

83%
Coventry Health Care, Inc. CVH 0706 – Insurance (Accident & Health)

84%
RLI Corp. RLI 0715 – Insurance (Property & Casualty)

84%
Kemper Corp KMPR 0715 – Insurance (Property & Casualty)

84%
Axis Capital Holdings Limited AXS 0715 – Insurance (Property & Casualty)

85%
First Acceptance Corporation FAC 0715 – Insurance (Property & Casualty)

86%
Everest Re Group Ltd RE 0715 – Insurance (Property & Casualty)

89%
Eastern Insurance Holdings Inc EIHI 0709 – Insurance (Life)

90%
Prudential Financial Inc PRU 0709 – Insurance (Life)

91%
Horace Mann Educators Corporat HMN 0715 – Insurance (Property & Casualty)

92%
FBL Financial Group FFG 0709 – Insurance (Life)

92%
AFLAC Incorporated AFL 0706 – Insurance (Accident & Health)

93%
Cincinnati Financial Corporati CINF 0715 – Insurance (Property & Casualty)

93%
Kansas City Life Insurance Co KCLI 0709 – Insurance (Life)

93%
Kingsway Financial Services In KFS 0715 – Insurance (Property & Casualty)

93%
HCC Insurance Holdings, Inc. HCC 0715 – Insurance (Property & Casualty)

94%
Unum Group UNM 0709 – Insurance (Life)

94%
EMC Insurance Group Inc. EMCI 0715 – Insurance (Property & Casualty)

95%
eHealth, Inc. EHTH 0712 – Insurance (Miscellaneous)

95%
OneBeacon Insurance Group, Ltd OB 0715 – Insurance (Property & Casualty)

95%
Aspen Insurance Holdings Limit AHL 0715 – Insurance (Property & Casualty)

96%
Unico American Corporation UNAM 0715 – Insurance (Property & Casualty)

97%
Markel Corporation MKL 0715 – Insurance (Property & Casualty)

98%
Safety Insurance Group, Inc. SAFT 0715 – Insurance (Property & Casualty)

98%
Humana Inc. HUM 0706 – Insurance (Accident & Health)

99%
Atlantic American Corporation AAME 0709 – Insurance (Life)

100%
State Auto Financial STFC 0715 – Insurance (Property & Casualty)

100%
A.F.P Provida SA (ADR) PVD 0718 – Investment Services

100%
American National Insurance Co ANAT 0715 – Insurance (Property & Casualty)

101%
Baldwin & Lyons, Inc. BWINB 0715 – Insurance (Property & Casualty)

101%
Mercury General Corporation MCY 0715 – Insurance (Property & Casualty)

101%
Marsh & McLennan Companies, In MMC 0712 – Insurance (Miscellaneous)

101%
National Western Life Insuranc NWLI 0709 – Insurance (Life)

101%
Brown & Brown, Inc. BRO 0712 – Insurance (Miscellaneous)

101%
Selective Insurance Group SIGI 0715 – Insurance (Property & Casualty)

101%
Sun Life Financial Inc. (USA) SLF 0709 – Insurance (Life)

101%
Life Partners Holdings, Inc. LPHI 0712 – Insurance (Miscellaneous)

101%
Aon PLC AON 0712 – Insurance (Miscellaneous)

102%
ProAssurance Corporation PRA 0715 – Insurance (Property & Casualty)

102%
Principal Financial Group Inc PFG 0706 – Insurance (Accident & Health)

102%
First American Financial Corp FAF 0715 – Insurance (Property & Casualty)

102%
China Life Insurance Company L LFC 0709 – Insurance (Life)

103%
Genworth Financial? Inc GNW 0709 – Insurance (Life)

103%
Navigators Group, Inc, The NAVG 0715 – Insurance (Property & Casualty)

104%
National Interstate Corporatio NATL 0715 – Insurance (Property & Casualty)

104%
Amerisafe, Inc. AMSF 0715 – Insurance (Property & Casualty)

104%
Cna Financial Corp CNA 0715 – Insurance (Property & Casualty)

105%
Donegal Group Inc. DGICA 0715 – Insurance (Property & Casualty)

106%
Stewart Information Services C STC 0715 – Insurance (Property & Casualty)

106%
Berkshire Hathaway Inc. BRK.A 0715 – Insurance (Property & Casualty)

107%
Prudential Public Limited Comp PUK 0709 – Insurance (Life)

107%
Willis Group Holdings PLC WSH 0712 – Insurance (Miscellaneous)

107%
Crawford & Company CRD.B 0712 – Insurance (Miscellaneous)

111%
Old Republic International Cor ORI 0715 – Insurance (Property & Casualty)

112%
Molina Healthcare, Inc. MOH 0706 – Insurance (Accident & Health)

112%
United Fire Group, Inc. UFCS 0715 – Insurance (Property & Casualty)

113%
Partnerre Ltd PRE 0715 – Insurance (Property & Casualty)

113%
Protective Life Corp. PL 0709 – Insurance (Life)

114%
Manulife Financial Corporation MFC 0709 – Insurance (Life)

114%
Independence Holding Company IHC 0709 – Insurance (Life)

116%
ACE Limited ACE 0715 – Insurance (Property & Casualty)

116%
Reinsurance Group of America I RGA 0706 – Insurance (Accident & Health)

118%
Citizens, Inc. CIA 0709 – Insurance (Life)

119%
Universal Insurance Holdings, UVE 0715 – Insurance (Property & Casualty)

121%
Phoenix Companies, Inc., The PNX 0709 – Insurance (Life)

122%
AEGON N.V. (ADR) AEG 0709 – Insurance (Life)

124%
Symetra Financial Corporation SYA 0709 – Insurance (Life)

124%
Arch Capital Group Ltd. ACGL 0715 – Insurance (Property & Casualty)

127%
Fidelity National Financial In FNF 0715 – Insurance (Property & Casualty)

128%
Hilltop Holdings Inc. HTH 0715 – Insurance (Property & Casualty)

130%
Arthur J. Gallagher & Co. AJG 0712 – Insurance (Miscellaneous)

131%
ING Groep N.V. (ADR) ING 0709 – Insurance (Life)

135%
Argo Group International Holdi AGII 0715 – Insurance (Property & Casualty)

136%
Seabright Holdings Inc SBX 0715 – Insurance (Property & Casualty)

138%
Global Indemnity plc GBLI 0715 – Insurance (Property & Casualty)

141%
Metlife Inc MET 0709 – Insurance (Life)

143%
MBIA Inc. MBI 0715 – Insurance (Property & Casualty)

145%
Hartford Financial Services Gr HIG 0715 – Insurance (Property & Casualty)

146%
American Safety Insurance Hold ASI 0715 – Insurance (Property & Casualty)

150%
CNO Financial Group Inc CNO 0709 – Insurance (Life)

153%
Universal American Corporation UAM 0706 – Insurance (Accident & Health)

153%
Radian Group Inc. RDN 0715 – Insurance (Property & Casualty)

155%
American Equity Investment Lif AEL 0709 – Insurance (Life)

159%
Hallmark Financial Services, I HALL 0715 – Insurance (Property & Casualty)

160%
Validus Holdings, Ltd. VR 0709 – Insurance (Life)

160%
Lincoln National Corporation LNC 0709 – Insurance (Life)

161%
Enstar Group Ltd. ESGR 0715 – Insurance (Property & Casualty)

169%
Meadowbrook Insurance Group, I MIG 0715 – Insurance (Property & Casualty)

172%
Greenlight Capital Re, Ltd. GLRE 0715 – Insurance (Property & Casualty)

173%
Alleghany Corporation Y 0715 – Insurance (Property & Casualty)

191%
Tower Group Inc TWGP 0715 – Insurance (Property & Casualty)

196%
Alterra Capital Holdings Ltd ALTE 0715 – Insurance (Property & Casualty)

197%
CNinsure Inc. (ADR) CISG 0712 – Insurance (Miscellaneous)

208%
XL Group plc XL 0715 – Insurance (Property & Casualty)

215%
MGIC Investment Corp. MTG 0715 – Insurance (Property & Casualty)

220%
Amtrust Financial Services, In AFSI 0715 – Insurance (Property & Casualty)

259%
Assured Guaranty Ltd. AGO 0715 – Insurance (Property & Casualty)

262%
American International Group, AIG 0715 – Insurance (Property & Casualty)

1265%

On the top side, and I did not see any of these, be aware of reverse splits, which can reduce the share count, are a sign of a badly run company, but do nothing for the economics of a firm, aside from keeping them listed on a major exchange.

On the bottom side, factor in large mergers paid for with shares.? Most large-scale mergers don’t work out well, so I don’t mind those companies being near the bottom of the list.

On a closing note, there is a weak positive correlation in most mature industries between stock price performance and relative decreases in share count, assets, and sales.? This sounds counter-intuitive, but good management teams know when to grow and when not to grow.? They don’t do acquisitions for scale.? They don’t grow sales if the sales growth won’t justify the cost of capital.? Building the assets of the company bigger does nothing for the bottom line; selective asset sales can free up cash for more productive uses.? Good management teams do not build empires — they add when it makes sense (grow), subtract when it makes sense (shrink), divide when it makes sense (spinoffs), and multiply when it makes sense (IPOs, JVs, new projects).

PS –? What does the WSJ have today?? An article on buybacks.? Enjoy.

Book Review: Benjamin Graham: The Memoirs of the Dean of Wall Street

Book Review: Benjamin Graham: The Memoirs of the Dean of Wall Street

Posted on by David Merkel

I enjoyed this book, but it is not a book on investing.? Here is my rough breakdown of the book:

  • 40% Ben Graham’s childhood
  • 30% Early work experience up until the Great Depression
  • 10% His personal life with family and others.
  • 10% His late-Depression successes in investing up to 1940.
  • 10% His efforts as a playwright and as an amateur economist.

So, here’s my biggest gripe about the book: in many ways, Ben Graham’s biggest days as an investor — his greatest times of success in the 1940s & 1950s don’t get mentioned at all.? I learned more of what he was like in that era from reading Alice Schroeder’s The Snowball.

Should this surprise us?? No.? Ben Graham wanted to live the good life in modern terms.? From his time as a youth, he was hard-working, growing up amid poverty, and he never wanted to be poor as an adult.

He was a very bright guy on many topics.? He was not only studied in the humanities (which he loved more), he was exceptionally good at math.? The book does not describe him in these words, but he was the first hedge fund manager, and the first quantitative investor.

What made Graham a lot of money was realizing that convertible bonds and preferred stocks carried a valuable option that was often undervalued, and so he would buy the convertible security and short common against it.? Strategies like this, plus activist investing, where he uncovered information advantages on undervalued stocks allowed him to become wealthy.

And that was enough for him.? Unlike his more focused protege, Warren Buffett, once the game got too tough, and a pleasant retirement was attractive, he trotted into the sunset, with modest contact with his former friends in investing.

The book does not describe his time teaching at Columbia, nor any of the great investors that he influenced.? Ben Graham was interested in investing, but he was more interested in the humanities, and generally having a happy time.? Thus, if you read this book, realize that it is about a slice of the life of Ben Graham.? The first half of his life comes in great detail.? The last half of his life comes almost not at all.

But this is not an autobiography, it is a memoir.? As such, Graham tells us what he wants to tell us, and leaves the rest unsaid.? He tells us a little about his thoughts on marital infidelity, but does not tell us how his ending companion ended up being his deceased son’s wife.

All that said, we get what Graham wanted to reveal to us.? Janet Lowe’s book on his life is more comprehensive on his later days… even Alice Schroeder gives us more on his later life by accident of covering Buffett.

In summary: this isn’t primarily a book on investing.? It is a book on the thinking of one very bright man who invested and did well, and used the freedom that money brought for his own ends, both for good and for bad.

Quibbles

Already expressed.

Who would benefit from this book:? If you want to know the early life of Ben Graham, this is a great book.? Beyond that, you will be disappointed.? If you want to, you can buy it here: Benjamin Graham: The Memoirs of the Dean of Wall Street.

Full disclosure: I borrowed it from the local library.

If you enter Amazon through my site, and you buy anything, I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.? Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.? Whether you buy at Amazon directly or enter via my site, your prices don?t change.

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Central Banking

 

  • Records Show Fed Wavering in 2007 http://on.wsj.com/SgLPoG 4 all of their vaunted intelligence, the Fed was worried, but clueless in 2007 $$
  • Three Stages of Fed Grief: Key Quotes From 2007 http://t.co/X4ygwdqU Slowly realized the economy they overlevered was getting worse $$ Jan 18, 2013
  • Fed Concerned About Overheated Markets Amid Record Bond-Buying http://t.co/wDckfD77 The sourcerer’s apprentices note there is a problem $$ Jan 17, 2013
  • Paul Moreno: Gold, Greenbacks and Inflation: A History and a Warning http://t.co/75M1jNRo Ppl forget the degree the Fed has debased $$ Jan 17, 2013
  • Once you turn base money into short-term debt, can you go back? http://t.co/pG3gxBwA @interfluidity ideas getting deserved attention $$ Jan 16, 2013
  • First Shots Are Fired in Global ‘Currency War’ http://t.co/y6GJi0V5 Japan leads “race 2 the bottom.” Who will b first 2 stop sterilizing? $$ Jan 16, 2013
  • Currency Moves? & Central Bank Bravado http://t.co/zt7BI1As Posit that the yen is falling due to war risks & Japan biz risks in China $$ Jan 16, 2013
  • Abe Rocket-Start Lowers Sony Risk With Market Fuel http://t.co/J4cLgQKJ Loose monetary has spillover benefits 2 indebted corporations $$ Jan 16, 2013
  • I’ll grant this: the government always has some role in money, even commodity money like a gold standard… http://t.co/QtVI3oeC Jan 12, 2013

 

Rest of the World

 

  • Pressure Rises on China to Scrap One-Child Policy http://t.co/iDfZ0Ssl No better way 2 have a demographic crisis; change long overdue $$ Jan 18, 2013
  • Default Alarm Rings as Trust Loans Jump Sevenfold http://t.co/2tr1vFnq China is so messed up that it makes the Eurozone look good $$ Jan 17, 2013
  • Singapore Curbs Industrial Property Sales to Avert Bubble http://t.co/vZQhsdya Increases bid-ask spread; can’t fight fundamentals $$ Jan 17, 2013
  • Mongolia?s Erdenes TT Halts Coal Exports to Biggest Buyer China http://t.co/hoTHAxxZ Probably either gross malfeasance or bribery $$ Jan 17, 2013
  • European Dividends Tumble to Four-Year Low as CEOs Hoard http://t.co/D6YdzVqD Favor European Exporters over their Domestic companies $$ Jan 17, 2013
  • Euro at 10-Month High Poses Economic Threat, Juncker Says http://t.co/bk0FsVEE The #currencywars continue. Rule: Beggar thy neighbor $$ Jan 17, 2013
  • Russia Says World Is Nearing Currency War as Europe Joins http://t.co/OvVu0ZMH Accept export slowdown? Monetize debt? Stupid QE-like stuf? Jan 17, 2013
  • Rio Tinto CEO Steps Down http://t.co/lqWyRPES Every CEO should have etched on his wall: “Paying up 4 scale acquisitions is dumb” $$ $RIO Jan 17, 2013
  • China Capital Flow: Foreign Direct Dis-Investment http://t.co/V8erkuxL Foreign inv’t inflows falling, domestic inv’t outflows rising $$ Jan 17, 2013
  • China Starts Losing Edge as World’s Factory Floor http://t.co/pG7uOFqX SE Asia benefits as China becomes more expensive 2 operate in $$ Jan 16, 2013
  • Norway Sees Deeper European Job Pain as Default Fears Recede http://t.co/ztbfvp0H Rising NOK makes exports less competitive &fewer jobs $$ Jan 16, 2013
  • Often when FX vols spike it means something might break, like the SNB not able continue its EUR peg. But if… http://t.co/fydAlRSX Jan 16, 2013
  • HSBC needs 2 end its Ping An silence with simple answers http://t.co/8xVAWiHD much alleged insider deal information has been circulating $$ Jan 14, 2013
  • Mainland alchemists turn damaged zinc into solid gold http://t.co/W4zu69k7 An example of how Chinese banking system papers over bad debts $$ Jan 14, 2013
  • Rumor: large backlog of Chinese companies want to IPO, but having hard time slowing the required 2 years of rising earnings $$ Jan 14, 2013
  • Neighbors Grow More Wary of China http://t.co/aYMUvLs2 Ex-pat Chinese moving in, looking a little graspy w/respect to resources, etc $$ Jan 14, 2013
  • Mineworker Debt Mounts as South African Lending Booms http://t.co/hTkXyCTc There are few places in the world without debt overages $$ Jan 14, 2013

 

Market Impact

 

  • Deutsche Bank Derivative Helped Monte Paschi Mask Losses http://t.co/PeqTdPBT Bad investing led to losses 2 hide. Enter Deutsche Bank $$ Jan 17, 2013
  • reaching for yield http://t.co/zFaWCA7h @researchpuzzler notes tight junk spreads, but + Ed Meigs & Dan Fuss r ?naysayers on junk credit $$ Jan 17, 2013
  • Short-term Debt and Financial Crises: What we can learn from US Treasury Supply http://t.co/UG1RvuHm Qty issue ST fin’l sector debt->crisis Jan 17, 2013
  • 22 Insights From The Most Successful Investors In History http://t.co/4u3QVRJL Very nice assemblage of quotes from the best investors $$ Jan 16, 2013
  • [Will] the Bond Bubble Finally Burst? http://t.co/1c7hOX4W Synthesis of a variety of views: Yes, but not in the short-run… $$ Jan 16, 2013
  • FINRA to brokers: know your high-yield securities http://t.co/DJHC5NvT Intelligent words from FINRA; b able2show clients all possibilities Jan 16, 2013
  • The High Yield Market is “Completely Out of Control.” http://t.co/GBUfGOa9 Watch risky debt buyers; c if they need things 2go right2survive Jan 16, 2013
  • Gold Forecasters Splitting on Peak for Bull Market http://t.co/EIEgk2Al Most-accurate gold forecasters>price will probably peak in 2013 $$ Jan 16, 2013
  • Whatever Happened 2 Good, Old-Fashioned Accountants? http://t.co/aFofQ4Mv @retheauditors explains y basic blocking&tackling go a long way $$ Jan 17, 2013
  • Yale May Buy More Hedge Fund Assets After Favoring Cash http://t.co/D0cP9LDV Timing feels wrong here w/credit spreads tight & vol low $$ Jan 16, 2013
  • Baupost Group Sitting On 116% Return From Madoff Claims http://t.co/u4MYuhJI Bankruptcy judge said ?seller?s remorse,? denied his effort $$ Jan 16, 2013
  • Leeway on Repo Rules Is Cut Back http://t.co/B16EXZfR “…we’re basically saying all repos should be accounted for as borrowings,” $$ Jan 16, 2013
  • Inside the Self-Driving Index Funds That Finish First http://t.co/XPEfHyE4 @jasonzweigwsj $BLK low fees, shares sec lending revenue $$ Jan 15, 2013
  • How2use Twitter & Facebook 2 make $$ from shares http://t.co/lXXw321E Just watch: this causes the next ‘flash crash’ h/t: @abnormalreturns Jan 14, 2013
  • KRS Spin Machine Is Smearing The Truth Again http://t.co/VGGSkxHX Kentucky Retirement Systems does not use RFPs -> “pay to play” @ KRS $$ Jan 14, 2013
  • US Not So High Yield Bonds : “It’s Starting To Feel A Lot Like 2007” http://t.co/QUGhAMqC Will supply grow, or will misfinancing start? $$ Jan 14, 2013
  • SP500 Revisited – Testing 1484/1500 zone and reversal after? http://t.co/8TMktTjD Argues for a correction in stocks in the near term $$ Jan 14, 2013
  • Hedge-Fund Leverage Rises to Most Since 2004 in New Year http://t.co/rwFVhRmz H0: flexible $$ overallocated to stocks now> correction due Jan 14, 2013
  • 39% of Fund Managers Beat the S&P in 2012 http://t.co/xRx3Juik It was a growth year & not a value year. 48% would b the 10-yr average $$ Jan 13, 2013

 

Billionaires

 

  • I suppose Bloomberg could write a book about hidden billionaires, and call it “The Billionaire Next Door.” http://bloom.bg/WN9Jo8 ?#yeah $$
  • Erie Billionaire Hagen Revealed as Car Premiums Surge http://t.co/BsMEp8gu $ERIE interesting company w/a unique asset-lite biz model $$ Jan 17, 2013
  • Hidden Billionaire Milking Saudi Dairy Fortune in Desert http://t.co/XAoRKBRp Bloomberg likes ‘outing’ obscure billionaires like this $$ Jan 14, 2013

 

Personal Finance

 

  • Why you can?t avoid dumb 401(k) mistakes http://t.co/fffPsn0k Plan sponsors chase hot managers & avoid passive options $$ Jan 16, 2013
  • Behind the indexed annuity curtain http://t.co/Qo7RdSX9 Avoid. Surrender charges r long & high 2pay commission; opaque int crediting $$ Jan 16, 2013
  • One in four savers has 401(k) ?leakage? http://t.co/TRBsFfwx Retirement seems far away, but $$ needs r near, so ppl tap their 401(k)s Jan 16, 2013
  • Seven Resolutions to Get Your Nest Egg in Shape http://t.co/cqNqpxJF Good basic advice 4 ordinary people taking care of the nest egg $$ Jan 16, 2013
  • E-Filing and the Explosion in Tax-Return Fraud http://t.co/9SAE6oPL Identity theft; 1 reason y I do it myself & file on paper $$ Jan 14, 2013
  • Housing Problems: Where To Get Help http://t.co/3hrCyQFy @retheauditors gives advice to those having issues with foreclosures $$ #goodstuff Jan 13, 2013

 

Banks and Investment Banks

 

  • More Ideological Excuse Making for Bad Banks http://t.co/0wjkQq3n It takes two to tango; it takes two to make a loan. Both deserve blame $$ Jan 17, 2013
  • A tempest in a spreadsheet http://t.co/W2mwYeHO A reason y having robust “smell tests” r needed when mathematical models get complex $$ Jan 17, 2013
  • Mortgage Nanny Added to Lender Job Description http://t.co/nRRonPBL Caveat Emptor:May make probs worse by creating illusion of safety $$ Jan 17, 2013
  • Wells Fargo to Start Jet-Leasing Venture http://t.co/a0FwgcNn FD: + $WFC | I like the fact that theyr starting small #organicgrowth $$ Jan 17, 2013
  • Jefferies Sets Table in Pay Clash http://t.co/s6utAuEy Or, they could jump 2 $JEF soon 2b $LUK. $$ motivates better, but conflicts occur Jan 16, 2013
  • Bankers Get IOUs Instead of Bonus Cash http://t.co/fKrpWXZL Will tie employees more tightly, unless they jump to related industries $$ Jan 16, 2013
  • Report of $JPM Management Task Force Regarding 2012 CIO Losses http://t.co/i7x0Ifi4 [132pp PDF] If interested in $JPM, summary in 17 pgs $$ Jan 16, 2013
  • Municipalities Should Ditch Wall Street Derivatives Deals http://t.co/Jqmgjllk If Wall St is on other side of table, watch your wallet $$ Jan 16, 2013
  • Banks say new agency’s oversight is slow, costly http://t.co/aHIGFRUh Banks pine away over the regulatory laxity they had 6-10 years ago $$ Jan 16, 2013
  • Goldman?s ?Secret? Team Shows Volcker?s Folly http://t.co/fovIyDRf Difficult to stop prop trading, better 2 remake I-banks partnerships $$ Jan 14, 2013
  • Bank Deal Ends Flawed Reviews of Foreclosures http://t.co/7DoTN8yA absurd, $$ will b distributed w/little regard 2 who was actually harmed Jan 13, 2013

 

Economic Policy

 

  • Portfolio Manager Creates Dazzlingly Deep Presentation On What’s Really Going On With The US Economy http://t.co/vcRHWwEe Long but good $$ Jan 17, 2013
  • Obama Finds Path to Congress Deals Goes Through McConnell http://t.co/B763HV1u Give him his due; has a nose that can sniff out deals $$ Jan 16, 2013
  • The Next Tax Increase http://t.co/7beI2QUO What the US Govt has belongs 2 the US Govt. What belongs 2u is subject 2 negotiation $$ Jan 16, 2013
  • Swap the Debt Ceiling for a Rule That Makes Sense http://t.co/NVYjvTD8 Maybe limit total liabilities of US Gov’t to 2x GDP? Way past that Jan 16, 2013
  • Why U.S. might be ?a nation of deadbeats? http://t.co/UuOHrKlt Consumers have been paying down debt, but walking away from more $$ Jan 16, 2013
  • A Credit Downgrade Warning Both Sides Should Listen To http://t.co/TbB3Gbdn Rating agencies r more honest than US Govt. Fitch may d/g US $$ Jan 16, 2013
  • Treasury Bill Rate Curve Inverts Amid Debt-Ceiling Showdown http://t.co/0KOQqC7A Bill curve showing some inversion due 2 debt ceiling $$ Jan 16, 2013
  • Money-Printing Will Lead to an Inflation in Another Guise http://t.co/erqP71P7 Debt overload & slack capacity short circuit credit growth $$ Jan 16, 2013
  • Two Warning Signs for Treasuries http://t.co/BdAcNkHE “yield curve btw 2&10 years is starting to steepen” Resistance 2 neg real rates up $$ Jan 16, 2013
  • TIPS Implied Inflation 4 2018-22 rose over 2012; flat now http://t.co/R28O77bX 2014 Inflation rising http://t.co/VCfupYLT $$ Fed target 2.5% Jan 16, 2013
  • US states flirt with major tax changes http://t.co/EnZmtggx Red states moving toward sales & away from personal/corporate income taxes $$ Jan 14, 2013

 

States & Municipalities

 

  • California, Unsaved, Speeds Toward a Wall of Debt http://t.co/pyrObgbr Constants in life that r not comforting: gimmicks in CA budget $$ Jan 17, 2013
  • California Could Be the Next Shale Boom State http://t.co/r0QChYDh Energy could flow from the Land of Squandered Advantages $$ Jan 16, 2013
  • Pension Funding Gap Widens for Big Cities http://t.co/a76JAJT0 Expect 2c many fights where bens cut 4 new, active & retired employees $$ Jan 16, 2013

 

Companies

 

  • Suitors Interested in H-P’s Autonomy, EDS Units http://t.co/AXdvxjei Wouldn’t put 2 much into this; $HPQ won’t get good prices $$ Jan 16, 2013
  • Genworth Shares Soar Amid Plan for Mortgage Insurer http://t.co/Jqmgjllk $GNW moves deck chairs on the Titanic; rewarded for now $$ Jan 16, 2013
  • Chevron Signs Deal for More Oil Exploration Acres Off China http://t.co/Yqb7yY7g FD: + $CVX smiles as it rides the tiger $$ #risks Jan 16, 2013
  • My Favorite Tobacco Stock Is Intel? http://t.co/Wupvh1qk @CharlesSizemore explains y it should deliver returns, amid hatred $$ FD: + $INTC Jan 16, 2013
  • TNT Left at Altar Gets No Immediate FedEx Deal http://t.co/QSdDHarC “FedEx in a good position to wait this out & let TNT come to them.” $$ Jan 16, 2013
  • Latest IPOs Arrive In The Form of New MLPs http://t.co/cq7XuIKv All of the new MLPs r energy-related $$ Jan 14, 2013
  • ARM CEO East Says Phooey to the ?Transistor Cliff? http://t.co/wfiIeQau Cost, speed, & power use r the key factors 4 logic chips $$ Jan 14, 2013

 

Miscellaneous

 

  • Davos Pitch for Dynamism Rams Into End-of-Growth Debate http://t.co/1bNvkwD7 I don’t think growth is ended, but bad finances interfere $$ Jan 17, 2013
  • Global Piracy @ 5-Yr Low http://t.co/YgJlRQSh 2012: Pirates boarded 174 ships globally v 439 in 2011, people taken hostage 585<-802 $$ Jan 16, 2013
  • NRA Labels Obama Hypocrite on Guns for Child Protection http://t.co/DqIsubsA Administration doesn’t like the argument; hits close 2home $$ Jan 16, 2013
  • Kidnap insurers eye sales as euro crisis bites http://t.co/w5CfiwOe Stable rates: More competition, & armed guards 4 sea transport $$ Jan 16, 2013
  • Mathematicians coming of age to become the most sought after professionals http://t.co/thXJdgsS Nerds of the world unite! Big data 2analyze! Jan 16, 2013
  • The Margin Debate http://t.co/zE6p5oO1 Labor share of US GDP has fallen because growth in the global capitalist labor force, wages fall $$ Jan 13, 2013

 

Financial Blogging

 

  • Your guide 2the financial blogosphere http://t.co/9mkoln2n Comprehensive list of finance bloggers. I’m listed under “Trading & Investing” $$ Jan 14, 2013
  • What are the 100 Top (Anglo-Saxon) Finance Blogs? A Pseudo-Scientific Study http://t.co/I9UU32zP I ranked higher than I expected 🙂 $$ Jan 14, 2013
  • The purpose of this site http://t.co/Bp4sqw5o @reformedbroker ‘s excellent piece on how his blogging helps him think & invest better $$ Jan 14, 2013

?

Painting Kate Middleton

 

  • @judehere Perhaps this then? http://t.co/hstcUqPq Jan 16, 2013
  • @judehere That’s okay. You say he painted the Queen? That’s interesting. Is there an image of that out on the web? Jan 16, 2013
  • ‘ @judehere She seems to be a nice lady, so I wouldn’t be a fan of that. But Freud died in 2011, so the possibility is not there. Jan 16, 2013
  • But this portrait of Kate Middleton is worse in my opinion http://t.co/LBMKplpo No wonder only 19% like it. (2/2) $$ Jan 16, 2013
  • Learning to draw, I copied a photo of a friend w/pencil. Another friend said “You took a very pretty girl, & turned her in2 pretty girl” 1/2 Jan 16, 2013

 

 

Michael Pettis

 

  • Pettis: What I will watch in 2013: 10 things: hard commodity prices, trade numbers, Spanish Bonds, Target 2, & Japan (2/2) $$ Jan 14, 2013
  • Pettis: What I will watch in 2013: 10 things: China growth, Debt trajectory, financial scandals, bank activities, inflation (1/2) $$ Jan 14, 2013
  • Pettis: Imbalances can continue for many years, I argue, but at some point they become unsustainable & the world must adjust by reversing $$ Jan 14, 2013
  • Pettis: Policymakers do this by shortening their time horizons &managing from crisis2crisis, rather than sorting out the underlying problems Jan 14, 2013
  • Pettis: policymakers… taking steps that protect them from the consequences of the crisis but that also make the crisis worse. $$ Jan 14, 2013
  • Pettis: It is interesting that policymakers are so pleased by an end (temporarily, I assume) to the financing crisis. $$ Jan 14, 2013
  • Pettis:We ended 2012 in a burst of optimism for Europe, w/everyone cheering Mario Draghi 4having ?saved? the euro, but I am deeply skeptical Jan 14, 2013

 

Wrong

?

  • Wrong: How to Find a Fund Manager Who Can Beat the Market http://t.co/2Nq1Z9b2 Doesn’t understand difference btw correlation & beta $$ Jan 15, 2013
  • Wrong: US Budget : Federal finances continue to improve http://t.co/HKzv6pLK It is a *spending* problem that started w/Bush 43, not revenue Jan 15, 2013
  • Wrong: Municipal Bonds May Not Be Safe From Income Taxes http://t.co/MnIQIdor Would be a big shift, hit blue states hard. Won’t happen $$ Jan 14, 2013
  • Wrong: Chris Hayes’ Brilliant Explanation Of Money Is One Of The Best Things We’ve Ever Seen On TV http://t.co/e0kxN5oZ #goldstandard $$ Jan 13, 2013

 

Comments and Retweets

?

  • Good night. Blessings to all. Jan 18, 2013
  • @cogent_rambling Think of judges in a court. No one will forgive a man for doing wrong in one area, because he has done good in others Jan 18, 2013
  • @cogent_rambling It’s not a question of weakness but wrong. Divorce your wife for no good reason, cheat at your craft, all amounts 2 wrong Jan 18, 2013
  • @cogent_rambling Good question. God created Lance with a weakness. If Lance had trusted God, he could have overcome it, but he didn’t. Jan 18, 2013
  • @cogent_rambling Not those that are God-given. Mt 5:48: “Therefore you shall be perfect, just as your Father in heaven is perfect.” Jan 18, 2013
  • @cogent_rambling One last point: in the view of Jesus is there is no balancing. The least amount of evil poisons any good. Jan 18, 2013
  • @cogent_rambling Read some of the writings of Kahneman & Tversky. Bad things have 3 times the force of good things. Good doesn’t erase bad Jan 18, 2013
  • @cogent_rambling Okay, I get it. But doing good things does not erase bad things. Doing things that are notably bad tarnishes anything good. Jan 18, 2013
  • @cogent_rambling I have heard the word as a part of popular culture, but have no idea what it is beyond a phrase. Jan 18, 2013
  • @cogent_rambling Okay, I’ll bite. His charitable endeavors, but what else? Jan 18, 2013
  • @sallyeastman1 Well said Jan 18, 2013
  • My view: Lance Armstrong is best ignored. Close the browser window, change the channel on the TV, he will go away. I don’t care about him $$ Jan 18, 2013
  • @AboveAvgOdds Off to meet w/u & Chris Mayer in downtown Baltimore Jan 17, 2013
  • Endorse. I have read over half of these $$ RT @TheStalwart: The 22 books that Dylan Grice says you must read. http://t.co/QSOWvuBc Jan 17, 2013
  • @graemehein good point, but most simple models have obv intuition. Complex models have more potential 4 error b/c of 2nd+ order effects $$ Jan 17, 2013
  • @cate_long Others that did the same in 1994: Piper Jaffray’s Institutional Gov’t Income & FPA’s Fundamental US Gov’t Strategic Income funds Jan 17, 2013
  • @cate_long Combined w/levering them, and not having the mathematical savvy to price them right http://t.co/5vkUxgO6 Story near the bottom Jan 17, 2013
  • @cate_long Cate, you’re right, I’m wrong. At the time, David Askin & those like him were notable. W/Citron it was mostly structured notes Jan 17, 2013
  • @kirstensalyer Sorry, that honor belongs to the first quantitative hedge fund manager, Ben Graham, who was doing that in the 1920s Jan 17, 2013
  • @cate_long Also used complex RMBS. There was kind of a contest 2c how much negative convexity one could absorb in exchange 4 yield Jan 17, 2013
  • RT @maxrudolph: #unintendedconsequences when pension regs set up EA designation cut off practitioners from ALM development. Still catchi … Jan 17, 2013
  • Well done $$ RT @LaurenLaCapra: Jim Chanos talks to @Reuters about Herbalife & whether Ackman or Loeb will win out: http://t.co/sV7B604o Jan 17, 2013
  • @finsovet @prieur @vitaliyk Honored 2b included in such a group Jan 17, 2013
  • Think this analysis is correct, but uncertain $$ RT @mickwe: 3D printing is a lot of hype and it’ll never go mainstream http://t.co/8wkr5oxp Jan 17, 2013
  • I just left a comment in “7 gut checks before the stock market?s opening bell” http://t.co/MrSqVXZF Jan 17, 2013
  • @niubi If so, good for him. He revolutionized my economic thinking with his last book. Looking forward to the next one. Review copy coming Jan 17, 2013
  • +1 RT @dpinsen: Paging @TomFriedman: comment on How a ‘model’ employee got away with outsourcing his work to China http://t.co/wukYAV8T $$ Jan 17, 2013
  • +2, scrap IFRS RT @Alea_: +1 Britain should scrap IFRS accounting standards, MPs told http://t.co/woWmyC2v Jan 16, 2013
  • @oddballstocks very different mindsets; marketing and operations r different from finance, which is still different from investing Jan 16, 2013
  • @oddballstocks I did that as well from 1992-1998. Tried very hard to select non-name-brand mgrs w/durable competitive advantages Jan 16, 2013
  • ‘ @ClayNickel It depends on how equitylike the bonds r, & the financing composition of the holders. If the bonds r financed w/sig debt.. $$ Jan 16, 2013
  • RT @Matthew_C_Klein: The big deal about the German gold story isn’t that they’re taking some of it out of NY but that they’re moving *al … Jan 16, 2013
  • RT @Matthew_C_Klein: @izakaminska has a thoughtful take on the base money debate between @interfluidity and @NYTimeskrugman http://t.co/ … Jan 16, 2013
  • ‘ @joshuademasi Good point. After all, most nations would love to swap for Norway’s economic situation. $$ Jan 16, 2013
  • @earwulf Good insights both. We live in “interesting times” in the full meaning of the Chinese curse Jan 16, 2013
  • @ReformedBroker Rieder is a bright guy, as is my friend Ed Meigs at First Eagle; HY is okay for the short run, but 2 years out… $$ #Boom! Jan 16, 2013
  • @earwulf Yes Jan 16, 2013
  • @earwulf No, I don’t really find them persuasive. I do think that some Central Bank will stop sterilizing asset purchases, start new phase Jan 16, 2013
  • @JacPatterson I thought about that too, & think he really meant “English Language” Finance Blogs Jan 15, 2013
  • “But that also means you have to keep more $$ around if the puts get exercised, which Buffett had & many don’t.” http://t.co/uEIRn5i3 Jan 15, 2013
  • @joelight @spbaines the paragraph that starts ‘To screen out such “closet indexers,”‘ is factually wrong, does not understand statistics Jan 15, 2013
  • @joelight @spbaines I’m not arguing w/R2 as a proxy for active share, though there r better measures; article says correlation, means beta Jan 15, 2013
  • +10 Mmmmm… RT @dpinsen: Bresaola, lemon, olive oil, Parmesan, and basil joining forces for a great sandwich. http://t.co/pMMVmoI5 Jan 14, 2013
  • @abnormalreturns I’ve run into a *lot* of people trying to do this. Some are cleverer; not sure how it will work out… Jan 14, 2013
  • @JayLeonard but gold does control inflation and limits the government’s ability to use monetary policy for its own ends Jan 13, 2013
  • @JayLeonard Much of the difficulty is not gold vs not gold, but how banks were regulated — short liabs carrying long assets Jan 13, 2013
  • @GuldbergPeter Thanks, though I have heard that Canada *may* have issues. Jan 12, 2013
  • RT @GuldbergPeter: “@AlephBlog: Is there anyplace in the world that hasn’t overlent on real estate? Sweden, Canada and actually to some … Jan 12, 2013

?

FWIW

?

  • My week on twitter: 40 retweets received, 1 new listings, 67 new followers, 65 mentions. Via: http://t.co/SPrAWil0 Jan 17, 2013
Sorting Through the News

Sorting Through the News

Posted on by David Merkel

I’ve used Yahoo Finance for over 15 years.? I think it is the best single free news source for companies on the web.? If you know a better source, please mention it in the comments.

But there is a lot of low value data in their news feeds, so I created a utility to eliminate the bad stuff.? The link to it is in step 11 below.? I’m sharing one of my tools with you.? I hope it works well for you if you try it.

Procedure

  1. Using your browser, go to Yahoo Finance, and choose one of your portfolios.
  2. Hit the ?End? key to go to the bottom of the screen, and hit ?Page up.?? You will see a little link on the left labeled ?more News? with a caret pointing downward.? If you to go further back in time, click the link.? If you want still more news, just keep repeating ?End, Page Up, Click? until you cover the whole time you want news for.
  3. Hit Ctrl-A, Ctrl-C to copy the whole browser window
  4. Ctrl-V to paste into Excel
  5. Ctrl-F, search for ?day and time?
  6. Using Shift, press Page Down to highlight all of the stories, Ctrl-C to copy
  7. Paste into a new sheet
  8. Widen Column B a lot, such that the only columns you see are A through D
  9. Click “Merge and Center” to demerge all cells
  10. Click on the Sort A-to-Z button
  11. Open the news screener, hit Ctrl-C to copy
  12. Flip back to the sheet you had open in step 10, and hit Ctrl-V to paste in Spreadsheet at cell D1
  13. Make sure to copy down new paste to cover all of your rows, or delete rows for which there is no news.
  14. Sort on the rightmost column
  15. Delete all the rows labeled “Here” in the rightmost column
  16. Delete all of the columns from ?C? to the right.
  17. Enjoy
  18. Optional ? With your cursor in cell A1, click the button to create a pivot-table.? Take defaults, hit OK.
  19. Click and Drag ?day and time? into the row labels, and values
  20. Then click down arrow next to Row Labels on the pivot table, and choose ?More Sort Options?
  21. Click Descending (Z to A) and choose ?Count of day and time.?? Click OK, and you are done.
  22. Really enjoy.

After step 17, you would have something that looks like this:

day and time

symbols
AIZ AIZ Crosses Above Key Moving Average Level at Forbes04:15pm EST
AIZ Daily Dividend Report: WAG, AIZ, CPNO, RRD, FSP at Forbes12:57pm EST
AIZ Assurant Board of Directors Declares Quarterly Dividend of $.21 per Common Share Business Wire11:52am EST
BP BP seeks judge’s ruling on size of Gulf oil spill AP05:53pm EST
BP Medical-benefits portion of BP Gulf settlement gets approval, Bloomberg says at theflyonthewall.com05:24pm EST
BP BP: Government overestimated size of spill AP04:32pm EST
BP Court revives call for oil spill pollutant list AP01:24pm EST
BP Second Acts in Finance and Business: The 5 Most Astonishing Comeback Stories at Minyanville12:00pm EST
BRK-B Lessons From The Aborted Fiscal Cliff Drop And Seven Stocks For The Next Doomsday Debt-Ceiling Scenario at Forbes03:36pm EST
BRK-B Wells Fargo: Q4 Record Profit, But Rock-Bottom Low Interest Rates Both Helped And Hurt at Forbes08:27am EST
CSCO Most active Nasdaq-traded stocks AP06:02pm EST
CSCO Cisco “Surprised” at Trademark Lawsuit From University at AllThingsD05:04pm EST
CSCO U.S. warns on Java software as security concerns escalate Reuters04:53pm EST
CSCO No End to Set-Top Boxes in Sight at The Wall Street Journal03:42pm EST
CSCO East Carolina University sues Cisco over slogan Reuters02:43pm EST
CSCO Get Ready to Profit From the “Dot-Com Boom 2.0” at Investopedia02:31pm EST
CSCO UPDATE 1-U.S. warns on Java software as security concerns escalate at Reuters11:21am EST
CSCO U.S. government warns on Java as security concerns escalate at Reuters11:03am EST
CSCO ECU sues Cisco over ?Tomorrow Starts Here? at bizjournals.com11:02am EST
CSCO Cisco sued by Eastern Carolina University for trademark infringement at bizjournals.com10:35am EST
CSCO UPDATE 1-East Carolina University sues Cisco over slogan at Reuters10:01am EST
CSCO Cisco Sued for Trademark Infringement Over Marketing Slogan at AllThingsD09:54am EST
CSCO Why Silicon Valley needs its new ANA route to work at bizjournals.com03:01am EST
CSCO Tim Cook: China will be Apple’s top market at CNNMoney.com02:40am EST
CSCO Sales Moves Beyond Face-to-Face Deals, Onto the Web at BusinessWeek09:30pm EST
CSCO Forbes: Raleigh-Cary ranked 5th among new tech hot spots in the U.S. at bizjournals.com07:20pm EST
CVX Australian Heat Wave Adds to Fire Risk in New South Wales at Bloomberg09:38pm EST
CVX Chevron leads energy sector to slim gain at MarketWatch04:57pm EST
CVX Yen Extends Weekly Slump While U.S. Stocks Little Changed at Bloomberg04:51pm EST
CVX Chevron Strikes Optimistic Note for Quarterly Earnings at Bloomberg04:10pm EST
CVX Stocks End Flat but Post 2nd Weekly Gain; BBY Soars 16% at CNBC04:00pm EST
CVX Dow Now: Merck to Pull Ineffective Cholesterol Drug at Minyanville01:38pm EST
CVX Stocks Struggle For Direction; On Assignment Jumps at Investor’s Business Daily01:35pm EST
CVX Bernstein predicts return of oil M&A bonanza at Reuters12:21pm EST
CVX Stocks Slip Near Midday; Watson Slumps On Downgrade at Investor’s Business Daily12:09pm EST
CVX Friday, Jan. 11: Global Markets Preview at MarketWatch09:55am EST
CVX Friday, January 11: Keep Your Eye on These at MarketWatch09:53am EST
CVX Cramer’s Six in 60: CMI Gets Ahead of Itself CNBC09:53am EST
CVX Cramer’s Six in 60: CMI Gets Ahead of Itself at CNBC09:53am EST
CVX Stock futures flat; Wells Fargo profit rises at MarketWatch09:20am EST
CVX Iraq threatens to seize oil shipments, sue dealers AP08:08am EST
CVX Analyst nudges up Chevron earnings view at MarketWatch07:57am EST
CVX Australia Faces Soaring Temperatures as Fire Bans Enforced at Bloomberg01:14am EST
CVX Indonesia – Market factors to watch on Jan 11 at Reuters09:42pm EST
CVX Chevron shares gain, Amex turns lower after hours at MarketWatch07:28pm EST
CVX Chevron expects 4Q profit to beat 3Q AP06:50pm EST
CVX [$$] Chevron Sees Asset Gains, Higher Output Boosting Profit at The Wall Street Journal06:29pm EST
CVX Tesoro, Valero lead energy stocks higher at MarketWatch06:18pm EST
CVX After-Hours Buzz: AXP, BA & More at CNBC05:51pm EST
CVX Chevron sees higher fourth-quarter earnings at MarketWatch05:42pm EST
CVX UPDATE 1-Chevron sees higher 4th-qtr profit as output rises at Reuters05:29pm EST
CVX Chevron says Q4 profit will be ‘notably higher’ than Q3 at bizjournals.com05:24pm EST
CVX Chevron sees “notably higher” Q4 profit as output grows at Reuters05:09pm EST
CVX Chevron Says It Expects Q4 Earnings to Be ‘Notably Higher’ Than Q3 at CNBC05:08pm EST
CVX CHEVRON CORP Files SEC form 8-K, Results of Operations and Financial Condition EDGAR Online05:02pm EST
CVX Chevron Issues Interim Update for Fourth Quarter 2012 Business Wire05:00pm EST
CVX Stocks Rally, S&P 500 Closes at 5-Year High; Facebook Gains 2% at CNBC04:32pm EST
ESV Ensco Achieves #31 Analyst Rank, Surpassing Teradyne at Forbes11:47am EST
INTC ARM CEO East Says Phooey to the ‘Transistor Cliff’ at Barrons.com09:26pm EST
INTC Will CEOs Give the Bulls What They Want This Earnings Season? at CNBC08:40pm EST
INTC Intel planning larger move into mobile at bizjournals.com04:38pm EST
INTC Wall Street Week Ahead: Attention turns to financial earnings at Reuters04:37pm EST
INTC Microsoft may have exited gadget show prematurely AP04:36pm EST
INTC Kidder Mathews: Industrial market slowed in late 2012 at bizjournals.com01:18pm EST
INTC Where are the hot spots for STEM jobs? (Hint: Don’t think Silicon Valley or Alley) at bizjournals.com01:06pm EST
INTC MarketWatch Week Ahead: Earnings Season Kicks Off at MarketWatch12:40pm EST
INTC Worldwide PC Shipments Fell 6.4% In Q4; 2012 Down 3.2% at Forbes11:59am EST
INTC Largest option buying in equities so far optionMONSTER11:29am EST
INTC Slim Gains in Markets Ahead of Earnings Reports at New York Times10:34am EST
INTC Which Stocks Look Ready to Pop and Drop with Earnings Next Week? Indie Research09:20am EST
INTC 10 Things You Need To Know This Morning Business Insider07:08am EST
INTC Holiday PC sales dip for first time in five years Reuters09:28pm EST
INTC UPDATE 2-Holiday PC sales dip for first time in 5 years at Reuters09:20pm EST
INTC Instant View: Holiday PC sales slide for first time in over five years Reuters07:05pm EST
INTC Instant View: Holiday PC sales slide for first time in over five years Reuters06:42pm EST
INTC Holiday sales of PCs slide for first time in five years: IDC Reuters06:40pm EST
INTC Holiday sales of PCs slide for first time in 5 years -IDC at Reuters06:29pm EST
INTC PC sales fall 6.4% in Q4, worse than expected at MarketWatch06:28pm EST
INTC CES: ARM Holdings To Expand Push To TVs, Servers, Networks at Forbes06:16pm EST
INTC Apple rises, but Microsoft, Yahoo slide at MarketWatch04:36pm EST
L Loews Adds RG Advisors?s Gendelman as Head of Equity Investments at Bloomberg09:36am EST
L Robert Gendelman Joins Loews Corporation as Senior Portfolio Manager and Head of Equity Investments Business Wire09:29am EST
ORCL US government tells computer users to disable Java AP09:52pm EST
ORCL Impact of Island Air sale on Hawaii will depend on who the buyer is at bizjournals.com08:00pm EST
ORCL Splunk Gains on Speculation IBM May Consider Takeover at Bloomberg04:44pm EST
ORCL Top 5: Bay Area Software Companies at bizjournals.com03:59pm EST
ORCL Oracle: Davenport Ups to Buy on Cash Flow, Hardware Promise at Barrons.com02:02pm EST
ORCL Malibu Makes Bid to Be World’s Mega-Mansion Capital at CNBC12:11pm EST
ORCL Top 10 Most-read Web stories of the week: 01/04 to 01/11 at bizjournals.com09:39am EST
ORCL Silicon Valley Exec of the Year for 2013 is… at bizjournals.com09:32am EST
ORCL Oracle Announces StorageTek LTO 6 Tape Drives Marketwire08:00am EST
ORCL SAP Challenges Oracle by Boosting Flagship Software Speed at Bloomberg03:18am EST
ORCL German stocks – Factors to watch on January 11 at Reuters02:43am EST
ORCL SAP Challenges Oracle by Boosting Flagship Software Speed at Bloomberg07:32pm EST
ORCL SAP Steps on the Gas at New York Times07:11pm EST
ORCL Cramer Navigates Treacherous Tech-Scape at CNBC06:12pm EST
ORCL SAP’s Move to Reinvent Real-Time Enterprise at CNBC05:13pm EST
ORCL Experts urge PC users to disable Java, cite security flaw Reuters05:06pm EST
ORCL Experts urge PC users to disable Java, cite security flaw at Reuters05:04pm EST
PSX Cramer: This New Trend Multi-Year Game Changer at CNBC06:05pm EST
RGA Reinsurance Group of America Larger Than S&P 500 Component SAIC at Forbes04:47pm EST
TEL TE Connectivity to Report Fiscal 2013 First Quarter Results on January 23, 2013 PR Newswire04:30pm EST
TEL TE CONNECTIVITY LTD. Files SEC form 8-K, Amendments to Articles of Inc. or Bylaws; Change in Fiscal Year, Other Event EDGAR Online07:33am EST
TRV Hate the Company, Love the Stock at CNBC02:30pm EST
VLO Valero refineries closed for repairs, maintenance at bizjournals.com08:55am EST
VOD [$$] Save a Bundle on Your Tech Bills at The Wall Street Journal09:28pm EST
VOD Verizon Wireless 4G LTE Network Expands In Albany Area PR Newswire02:33pm EST
VOD RIM sees BlackBerry Internet Services affected by Vodafone outages, TNW says theflyonthewall.com07:54am EST

After step 22, you would have something that looked like this:

Row Labels Count of day and time
WFC

153
CVX

32
INTC

22
XRX

20
ORCL

17
CSCO

16
BP

5
VOD

4
AIZ

3
TEL

2
BRK-B

2
L

2
VLO

1
TRV

1
PSX

1
ESV

1
RGA

1
Grand Total

283

The purpose of creating the pivot table is to highlight stocks with a lot of news.? Stocks with lots of news, you typically know what happened.? I set my limit at 10 stories.? If there are more, I do a quick scan of the companies with a lot of articles and see if it is just one story written many times.? In this case, I deleted the stories from WFC and XRX — there was basically one story for each.? WFC earnings, and XRX’s CFO leaving to go to Apple.

That left me with only 110 articles to look at out of 467 at the start of this exercise.? As it was, I chose to read 10 of the articles.? It takes me 3 minutes to use the news screener (once you get used to it, it is fast), and it saves me tons of time, and helps me be more focused in what I read.

This is my way of wading through too many articles, eliminating robotic, and lower quality content.? Note: if you don’t agree with what I think is low value, you can change the headers in my spreadsheet in columns D through N.

I hope you enjoy this.

Full disclosure: long AIZ, BP, BRK-B, CSCO, CVX, ESV, INTC, L, ORCL, PSX, RGA, TEL, TRV, VLO, VOD, WFC, XRX

The Evaluation of Common Stocks

The Evaluation of Common Stocks

Posted on by David Merkel

Today, Tom Brakke of the Research Puzzle wrote:

?Go to it then. The field is wide open. The old masters have confessed their inability to determine value objectively. More investors than ever before are committing their capital to stocks. Very little has as yet been done in the field of stock evaluation by statistical organizations ? and I say this with full awareness of our own efforts in the past 21 years. Here in the field of stock evaluation you will find a worthy challenge to your intelligence, and exciting adventure too.? ? Arnold Bernhard, founder and editor of the Value Line Investment Survey.

The above excerpt is the last paragraph of Bernhard?s 1959 book, The Evaluation of Common Stocks. It is interesting to consider the changes since that time and to ponder the opportunities (or lack thereof) that exist now as a result of those changes.

Is the field still ?wide open? for the enterprising investor?

When I was writing my Master’s Thesis at Johns Hopkins at the tender age of 21, I did a significant study on what did and didn’t work in stock investing.? My unpublished Master’s thesis anticipated momentum investing, but I did not get it at the time.? It also showed that value effects could make money, as well as tracking insider trading.

My life might have been quite different if I had started a hedge fund in my 20s off of my thesis… might have been richer, but my knowledge of of business was enriched by being an actuary for so many years… admittedly, I was not your normal actuary, but having to solve practical business problems does shape your views of many other things.

But Value Line, as created by Samuel Eisenstadt, discovered quantitative growth investing — price momentum, earnings momentum, and earnings surprise long before the rest of Wall Street caught on.? Once Wall Street caught on in the 90s, a lot of the excess profits got squeezed out, and Value Line lost its mojo.

As an aside, when I was running a set of multiple manager funds that did pretty well in the 90s, one manager had its methods and they were price momentum, earnings momentum, and earnings surprise.? I said to them, “Oh, you do what Value Line does.”? They were as offended as they could be without poisoning the possibility of being hired by us.

In another situation, I ended up hiring a value plus momentum manager in the mid-90s.? Very reliable outperformance.

But let’s go back a little further.? After the Great Depression, a lot of companies sold for considerably less than their net assets.? This diminished but held true until the 60s.? Ben Graham earned his living from arbitrage and net-net value investing.? Buffett, getting started later, did much the same, but being younger, reached a point where the easy opportunities were largely gone, but he had a lot of his investing life in front of him, unlike Graham, who picked that time to retire.

Value investing I do not think is tapped-out, though beating value indexes is difficult.

In the 80s, quantitative value came into existence, along with momentum and size as factors.? But throughout the 90s insider trading, net operating assets, distress and other factors began to be modeled. Now there are many quantitative factors, and it is hard to tell which are redundant.

With Graham, and Buffett and Eisenstadt in their early years, financial data did not flow easily… those who put in the hard work of gathering scarce data earned exceptional returns.? Today, with the internet, mere quantitative investing yields less of an advantage.? In order to do anything worthwhile some qualitative knowledge must be mixed in, or, proprietary data that few have.

Tom asks if the field is wide open.? I don’t know.? We’ve had a lot of discoveries over the past 50+ years, but discoveries are sometimes “forgotten” when they lose their punch.? There may be future discoveries, whether from technical or accounting measures.? I am reluctant to say everything that can be discovered is discovered, but I don’t want to say that there will be some earthshattering theory in the future… that may not happen.

What might happen is an economic disaster like the Great Depression that makes many flee stocks.? Then some of the older theories will work again for a time.? So I would answer Tom — is the field wide open?? No, but it is open somewhat, and with a lot of application and intelligence, it’s possible but not likely that you will do something amazing.

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Greetings

 

  • To all of my readers: Happy New Year. Here is to a blessed and fulfilling 2013, amid troubles and joys – no year is w/o them, glory 2 God $$ Jan 01, 2013
  • To all of my readers: 2012 had its joys and sorrows, but I appreciate that you read me. I will always try to bring you my best on twitter $$ Jan 01, 2013

?

?

US Fiscal Policy

 

  • Why the fights over disaster relief in Congress keep getting worse http://t.co/NZCEwU7N Local disasters increasing funded by Feds $$ Jan 04, 2013
  • Sorry Folks, The $1 Trillion Coin Is Unconstitutional http://t.co/RXav6MlY h/t: @carney | Congress controls $$ policy, can’t delegate 2exec Jan 04, 2013
  • Why were there so many special interest provisions in the fiscal bill? Why didn’t the president veto it & ask 4a clean bill? #fiscalcliff411 Jan 04, 2013
  • Fresh Budget Fights Brewing http://t.co/lOdAltk7 Markets Breathe Sigh of Relief After Fiscal Clash, but Tax-and-Cut Battles Loom $$ Jan 03, 2013
  • Infighting in GOP Follows Scuttling of Storm-Aid Vote http://t.co/cUQxnnu5 “Tin ear” When something big hits smaller principles must bow Jan 03, 2013
  • How Deal Was Made, Unmade, Then Saved http://t.co/xhHj15fs Surprising deal between Biden & McConnell did an end-around on other tries $$ Jan 03, 2013
  • A trifecta of articles on pork in the fiscal cliff bill: http://t.co/0ymE51HH & http://t.co/iEvwLdxE & http://t.co/CCuMAXnS Shame $$ Jan 03, 2013
  • Senate-Passed Deal Means Higher Tax on 77% of Households http://t.co/WvIyEkJT What! You thought your taxes would not increase?! Hahaha! $$ Jan 03, 2013
  • Deductions Limits Will Affect Many http://t.co/D0rteMMC Taxes are going up more than you think due to the phasing-out of deductions $$ Jan 03, 2013
  • Ron Paul Rips Government in Last House Speech http://t.co/UuwfSI9o He was 2good 2b in DC; now he can be a rock star on college campuses $$ Jan 02, 2013
  • Sequestration Threat To Defense Sector Begins To Recede http://t.co/QYACs66b Grateful that I did not sell my defense stocks $$ Jan 02, 2013
  • Bipartisan House Backs Tax Deal Vote as Next Fight Looms http://t.co/Ns4SgHKX Both sides claim victory & decry dishonesty of the other $$ Jan 02, 2013
  • As an aside, when I had the chance to ask Ron Paul whether the Fed’s policies favored rich over poor, he immediately said, “Of course.” $$ Jan 02, 2013
  • House Balks at Cliff Deal; Down2Wire as Republicans Object2Lack of Spending Cuts in Senate Bill http://t.co/FkS6o1Ms Fall off cliff $$ Jan 02, 2013
  • Lawmakers push one-year extension of farm bill in bid to avert spike in milk prices http://t.co/bRroFoo4 Please, just free milk prices $$ Dec 31, 2012
  • US loses if we go over the Fiscal cliff = US wins if we go over the Fiscal cliff | Some will be b affected 4 better/worse; US will b ok $$ Dec 31, 2012

 

Energy

 

  • US petroleum rail shipments up nearly 50% in 2012 http://t.co/kQnGw63v Only way to get additional crude to the coasts in the short-run $$ Jan 04, 2013
  • Buffett Like Icahn Reaping Tank Car Boom From Shale Oil http://t.co/ekehRs3Y Buffett keeps all tank cars he produces-> BN can ship oil $$ Jan 03, 2013
  • A Novel Ship Extends Shell’s Reach http://t.co/RAEtM1fH High technology at work in offshore oil drilling. Impressive! $$ Jan 03, 2013
  • Shale-Gas Revolution Spurs Wave of New US Steel Plants http://t.co/XEuaDiKY Ask this: what other impacts exist from cheap natgas? $$ Dec 31, 2012

 

Financials

 

  • “Did the authors look at the “Call Reports” filed with the FDIC? More public data there. Kinda sloppy to miss that.” http://t.co/vCtQkZmu $$ Jan 04, 2013
  • Why Bank Disclosure Is So Awful and How to Fix It http://t.co/RwW45LG5 Did they try reading the call reports? http://t.co/vAYMh7wE @carney Jan 04, 2013
  • BofA Joins JPMorgan in Having Units Ripe for Sale, Mayo Says http://t.co/4DtCCVdR Is there enough slack $$ around 2 absorb all of these? Jan 03, 2013
  • US Money Fund Exposure and European Banks: Eurozone Rises for Fifth-Straight Month http://t.co/nfWYO4jv “Risk on” MMF trade returning $$ Jan 03, 2013
  • Insurer Sues Paulson Firm http://t.co/XFGKNGWB Does not seem like an easy win. ACA should have done more due diligence; they r pros $$ Jan 03, 2013
  • Basel Becomes Babel as Conflicting Rules Undermine Safety http://t.co/1QIyVdR5 Rules, not principles. External models, not internal $$ Jan 03, 2013
  • Big RIA Firm Uses Bible to Advise Clients http://t.co/9mtmySTo Almost every Evangelical w/$$ knows of Ron Blue; never knew he was so big $$ Jan 02, 2013
  • Buffett Combines BofA With Buybacks to Beat S&P 500 http://t.co/zo8kLdNz FD: + $BRK.B | BRK is a conglomerate fueled by insurance prems $$ Jan 02, 2013
  • Carlyle Agrees to Buy Duff & Phelps for $665.5 Million http://t.co/VoFVh6Oi Cheap price 2 become part of the ratings triopoly $$ Dec 31, 2012

 

Fixed Income, Gold & Monetary Policy

 

  • Gold Heads 4 Longest Run of Weekly Losses Since 2004 http://t.co/xBRfbJ8P Key Q: What happens to real interest rates; will Fed tighten? $$ Jan 04, 2013
  • Gold Set for Worst Run Since ?04 as Fed Signals End of Purchases http://t.co/xBRfbJ8P I would b skeptical here; no idea what the Fed does Jan 04, 2013
  • Risk Seen in Some Mortgage Bonds http://t.co/c7rROhEE Many CMBS bonds seem 2b priced 2 perfection, while some fundamental weakness $$ Jan 03, 2013
  • Does the Fed need a new mandate? http://t.co/NkfjhSeG Fed should have one mandate: tighten policy when goods or asset markets go crazy $$ Jan 03, 2013
  • Fed Officials Divided on Bond Buys http://t.co/7Gh6y8tn & increasingly worried about stimulus side effects http://t.co/SomUi1uK $$ Jan 03, 2013
  • While still holding $TLT, my bond strategy did well today b/c of all the emerging market bonds.TLT is a deflation hedge http://t.co/TiTMg6So Jan 02, 2013
  • TCW to Pimco Bet on Housing Bond Rally After 41% Gain http://t.co/DcXmVEj9 Feels like squeezing last drop of juice out of the lemon $$ 😉 Jan 02, 2013
  • Credit Has Best Rally in Europe Since 2009 With Central Bank Aid http://t.co/csZD3K8n At a cost of socializing future losses $$ Jan 02, 2013
  • Why Bernanke?s policies could hurt the economy more than going over the ?fiscal cliff? http://t.co/EZDkZ6Sv Favors rich over poor $$ Jan 02, 2013

 

Market Dynamics

 

  • TV is Next: Why Investors Are Getting the Media Industry Wrong http://t.co/yLoZRU55 52 pp PDF | $AMCX $CBS $DIS $NWSA $VIAB $TWC $TWX $$ Jan 03, 2013
  • U.S. Electricity Use on Wane http://t.co/dEiZBCDe A good time to avoid overpriced electrical utility stocks, and alternative energy $$ Jan 03, 2013
  • Of $30.9B Special Dividends in Q4, 28.6% Went To Insiders http://t.co/QTalSmva Interesting skew on who decided to do special divs $$ Jan 02, 2013
  • A Really Good Year?Wins and Losses of 2012 http://t.co/zS69udit Fridson: “Rather than being reassured, investors should be worried,” $$ Jan 02, 2013
  • Avis?s smart Zipcar buy http://t.co/SEgD8JPJ Too early. Depends on refinancing, expenses saves, & uncertain synergies & mgmt attention $$ Jan 02, 2013
  • Tribune Co. Emerges From Bankruptcy http://t.co/mUGITwmt So who owns the equity interests in Tribune now? Dec 31, 2012
  • Risk defined. http://t.co/eC3U00Lb @microfundy gives us three common definitions of risk & explains the virtues & deficiencies of each $$ Dec 30, 2012
  • The Six Biggest Investing Lessons of 2012 http://t.co/XWHRu0nG @reformedbroker takes us through mean reversion, momentum, & optimism $$ Dec 30, 2012

 

Rest of the World

 

  • China Poised for 2013 Rebound as Debt Risks Rise for Xi http://t.co/0P9o0HzX Investment will not work, but will the Govt free the economy? Jan 04, 2013
  • El Al?s Shamir Parachutes Into Israeli Vote as Liberman Fades http://t.co/Yyi2iGAv Would heighten tension level if Shamir is elected $$ Jan 03, 2013
  • Chavez Cancer Imperils $7 Billion Caribbean Oil Funding http://t.co/j5MLSeYx Lot of “
  • Why 49 Is a Magic Number http://t.co/F2DPpmtV France has a lot of firms that have only 49 workers b/c onerous regulations kick in at 50 $$ Jan 03, 2013
  • Great Canadian Maple Syrup Heist http://t.co/mCMokL6T Cartel reminds of De Beers. Competitive supply makes it impossible 2 fix prices $$ Jan 03, 2013
  • Used to Hardship, Latvia Accepts Austerity, and Its Pain Eases http://t.co/9v7Sf1AH If u haven’t let debt get too large, austerity works $$ Jan 03, 2013
  • Chinese Fly Cash West, by the Suitcase http://t.co/L0NCTpo7 Kind of fitting that they come to Canada & US 2gain freedom after wealth $$ Jan 02, 2013
  • At Europe’s Doorstep, Fierce War Against TB http://t.co/2Z41atWb Makes good case4 quarantine when diseases r highly infectious/deadly $$ Jan 02, 2013
  • Japan?s Population Falls by Record in 2012 as Births Decrease http://t.co/OTHuGOY1 Economies don’t work well when population falls $$ Jan 02, 2013
  • Chavez Suffers New Complications After Fourth Cancer Operation http://t.co/fqIwxz8R If he dies by 1/10, there will b a new election $$ Dec 31, 2012

 

Other

 

  • Then I Watch ‘Em Roll Away Again http://t.co/2uF2LKhf The fascinating story of Otis Redding’s final hit. cc: @reformedbroker $$ Jan 04, 2013
  • Threatening Asteroid Will Narrowly Miss Earth in 2040 http://t.co/buih448d That means it will come within twice the distance of the Moon $$ Jan 02, 2013
  • Outmaneuvered at Their Own Game, Antivirus Makers Struggle to Adapt http://t.co/wD6LAA7l Whitelisting, Petri Dishes, Cleanup programs $$ Jan 02, 2013
  • Disease Rips Through Florida Citrus http://t.co/zXlZEXX0 Bacteria Deal Slow Deaths to Trees; diversify to Brazil & California $$ Jan 02, 2013
  • Pattern time: 1-1-13 11:13 PM $$ Jan 02, 2013
  • For-Profit Nursing Homes Lead in Overcharging While Care Suffers http://t.co/6RTKMhdq Choose nursing homes 4 your loved ones w/care $$ Jan 02, 2013
  • “Minds work best when they r castles, w/a moat, drawbridge raised, defenders ready 2destroy thoughts of deceivers w/arrows & boiling oil” $$ Jan 01, 2013

 

Wrong

  • Wrong: In a Diverse New Congress, Several ‘Firsts’ http://t.co/Xy3HVjlo Congress not genuinely diverse; 2 types of thought @ most $$ Jan 03, 2013
  • Wrong: This Dow Component Has A 4.5% Yield And Sells For Less Than Book http://t.co/f9AFrt4t My comment: http://t.co/5T9XMJZW $$ Jan 01, 2013
  • Wrong: Benevolent Billionaires Should Buy Out Bushmaster http://t.co/iicdOxOd Monstrously dumb column asks liberal billionaires 2 lose $$ Dec 31, 2012
  • Wrong: Gauging the Guidance That Models Give the Fed http://t.co/J63vKEWM Neoclassical macro models r not capable of getting turning pts Dec 31, 2012

 

Replies, Comments & Retweets

  • @finemrespice @merrillmatter DB plans could have been managed better. Funding rules were too loose @ creation, & IRS discouraged overfunding Jan 05, 2013
  • @finemrespice It would then send out notices to the oldest people not yet retired, bringing the retiree pop up to 1/3 size of workers $$ 😉 Jan 05, 2013
  • @finemrespice At ~3 workers : 1 retiree. Yearly the government would measure the number of workers & announce the # that can retire (2/3) $$ Jan 05, 2013
  • @finemrespice It’s a good idea. It would stabilize %age of people retired vs working. Another way would b2 set the ratio directly (1/2) $$ Jan 05, 2013
  • @finemrespice Good idea – Make it a %age (~80%) of the life expectancy of a 20-yr old. %age goes up if pop proj 2 shrink & vice-versa $$ Jan 05, 2013
  • @carney Thanks, appreciated. Jan 04, 2013
  • .@Carney delegate so much of its rulemaking to study committees. Most of the Dodd-Frank law is getting designed by bureaucrats. $$ Jan 04, 2013
  • .@Carney Having a hard time commenting at @CNBC on yr articles. If Congress can’t delegate significant lawmaking, how does Dodd-Frank 1/2 $$ Jan 04, 2013
  • “I think you are right. Why is it that bad monetary ideas get more “currency” than good ones? 😉 ” ? David_Merkel http://t.co/VbCZpinR $$ Jan 04, 2013
  • You can read my comment $$ RT @BloombergView: It’s time for Japanese women to honor their Gloria Steinem | http://t.co/8brsJJ1v Jan 04, 2013
  • ‘ @TheEconomist Cover preview: America turns European. January 5th ? 11th 2013 http://t.co/JuBYRyZW Europe is in far worse shape $$ Jan 04, 2013
  • Bigtime $$ RT @NorthmanTrader: @AlephBlog speaking fees in 4 years….. Jan 04, 2013
  • @insidermonkey Bigger firms chain together a bunch of 49-person subsidiaries. The French allow it to happen. $$ Jan 04, 2013
  • @Dirty_Alfred @TFMkts Key Question: Do financial institutions have enough capital & liquidity to absorb losses,turning debt into equity? $$ Jan 03, 2013
  • @groditi I like the added duration so I don’t have to hold so much of it. More room 4 other diversifying bonds w/more potential Jan 02, 2013
  • Bigtime $$ RT @mcgilcoli: @AlephBlog a pox on both their houses! Jan 02, 2013
  • RT @AsifSuria: Agreed but they should have replaced Black Swan with Fooled by Randomness. MT @AlephBlog: This is a great list. http://t. … Jan 02, 2013
  • This is a great list. I have read almost all of them. Here are my disagreements. Aswath Damoradan… http://t.co/ATKQ6wkG Jan 02, 2013
  • If he can stop that weird grin, I can stop $$ RT @BloombergView: Can we all please stop laughing at Joe Biden? | http://t.co/xJlpt8wI Jan 02, 2013
  • @ritholtz I have a Tex-Mex Lasagne recipe near me. There r a lot of unusual/fusion recipes that borrow the layering idea from Lasagne $$ Jan 02, 2013
  • “This is why I use momentum positively in most of my investing, even though I buy a lot of undervalued companies” http://t.co/WlFQV6Py $$ Jan 02, 2013
  • “This applies to wealthy people anywhere; at times of crisis, give up 5-20% to preserve 80-95%.” ? David_Merkel http://t.co/XFa6akOC $$ Jan 02, 2013
  • @carney Great, I respect you, Carney. We don’t always agree, but I respect those that say what they think, contra politicians. $$ Jan 02, 2013
  • @McCainBlogette I am sorry, but every generation from the Baby Boomers & prior deserves progressively more blame. You don’t deserve blame $$ Jan 02, 2013
  • @carney Am I MSM, or am I just a blogger? I support the debt ceiling. Jan 02, 2013
  • Sad but true $$ RT @The_Analyst: making early call that’s your best/most accurate tweet of the year. Somehow she’s worth like $200mm. Ugh. Jan 02, 2013
  • Does she realize the she herself is a natural disaster? $$ RT @MicroFundy: Pelosi explaining how natural disasters happen. #nightisyoung Jan 02, 2013
  • Bigtime $$ RT @volatilitysmile: @TheStalwart best motivation to close a negotiation: being tired, wanting to just go home. cc @HarvardBiz Jan 02, 2013
  • U do it well RT @TheStalwart: Not to get sappy, but had a great 2012. Awesome year. Thanks everyone following and reading and all that stuff Jan 01, 2013
  • Yes, default is often the major form of deleveraging $$ RT @ZH_Crown: @AlephBlog @cate_long http://t.co/1nZlMA36 Dec 31, 2012
  • @mark_dow @cate_long & the other point is during a financial bust, enough debt has 2b liquidated/compromised/paid 4 things 2 become “normal” Dec 31, 2012
  • @fbaseggio @interfluidity @rfraserTX That could work; only difficulty is getting the data; oh, &getting the politicians 2 give up control $$ Dec 31, 2012
  • @mark_dow @cate_long Yeh, saw that at the time; one reason we were short so many financials at the hedge fund I worked at — too early Dec 31, 2012
  • @mark_dow @cate_long Good bond mgrs know that when as class of debt is plentiful, you have to avoid it. Hard 2do amid benchmarking though $$ Dec 31, 2012
  • @mark_dow @cate_long Bad institutional incentives like the CDO mkt had 1998-2007, fed by fin’l institutions reaching for yield even in AAAs Dec 31, 2012
  • @cate_long Consumers may not be as leveraged as they were in 2008, but they r still highly levered relative to history amid high unemp $$ Dec 31, 2012
  • @GonzoEcon @cate_long Businessmen do not take risks when their own leverage is high &

they know their customers r in the same boat $$ Dec 31, 2012

  • ‘ @cate_long No such thing as “animal spirits.” If leverage high, caution is warranted. Low leverage allows 4 borrowing 4 new projects $$ Dec 31, 2012
  • RT @TheStalwart: RT @tylercowen: So many say Obama is bad negotiator, but isn’t he actually rolling “the left” and secretly in league wi … Dec 31, 2012
  • @dpinsen That *is* cheap. Pity I can’t use them 4 clients — self-imposed simplicity Dec 30, 2012
  • Fingernails, def RT @ReformedBroker: Should I take the kids to the Les Miz movie? Or just stay home and pull my fingernails out one by one? Dec 30, 2012
  • “If you didn’t mention #4, I was going to. I am still long $TLT for clients, but toward the end of?” ? David_Merkel http://t.co/9CGLXgiT $$ Dec 29, 2012

FWIW

  • My week on twitter: 36 retweets received, 3 new listings, 57 new followers, 69 mentions. Via: http://t.co/SPrAWil0 Jan 03, 2013

 

Evaluating Regulated Financials

Evaluating Regulated Financials

Posted on by David Merkel

Dear readers, I repost here an edited version of what I shared with a Linked-in group:

=–=-==-=-=–=-=-==-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-==-=-=-=-=-=-

I took Benefit-Cost Analysis from Dr. Hanke of Johns Hopkins in 1980, and so I never gained the benefit of his current proprietary tweaks to the Discounted Cash Flows model for stock valuation.? That said, application of DCF to any regulated financial company is difficult, because not all of the capital is free to be deployed into investment in new business, stock buybacks, or dividends.

The level of required capital at a regulated financial varies with the risks of the blocks of business (liabilities) that it underwrites, the assets they buy with the proceeds from the liabilities, and the cash flow, currency and other mismatches between the assets and the liabilities.

The marginal amount of capital for new business and investments may be significantly different than what is required for old business.? So here is my question to the group, especially the students, to think about: how would you apply your DCF model to a situation like this?

Notes, Mostly on Financials

Three final notes: 1) If you want to experiment with this, here are five very different insurers that are my current favorites: RGA (life reinsurance), ENH (P&C insurance & reinsurance), AIZ (Life, P&C, Warranties, Pensions & Individual Health), SFG (disability), & NWLI (Life insurance and annuities sold to foreigners for flight capital).? Try applying the model to one, and see what you get.

2) Most real risk in large financials does not come from inadequacy of capital, but from borrowing short and investing/lending long.? The key measure is whether an institution has enough high-quality short-term assets to meet a run on the institution, where those that supply funds to the institution demand them back at the same time.

With life insurance companies, failures occasionally happen from a run on the company (General American and ARM financial in 1999), but more often, because regulators think the capital base has shrunk too much because of bad credit risks, and take the company into conservation. (Pacific Standard, Confederation, Kentucky Central, near-miss w/The Equitable, etc.)

With P&C insurers and reinsurers, failure happens because bad underwriting leads to a shrinkage of capital, and the regulators take them into conservation. (Think of Reliance and Saul Steinberg, though a lot of reinsurers were de facto bankrupt in the mid-1980s, but the regulators didn’t catch them.)

With small banks and thrifts, it?s credit problems versus capital.? Liquidity does not usually play a role because of deposit guarantees.

With large banks, it is illiquid and longer assets versus short financing.? In the recent crisis, much of that came from financing mortgage inventories in the repurchase market, where financing had to be renewed daily, and margin requirements in derivative financing that had to be adjusted daily.? In the latter case, a credit downgrade would trigger a need for more capital to be put up as margin, just at the time when liquidity was scarce.? In the former case, deteriorating prices for the assets financed in the repurchase market led to an increase in the capital haircut, requiring more liquidity out of the borrowers at the time they could least afford it. (AIG, Wachovia, Countrywide, etc.)

Finally, remember that the financial markets are talkative.? No one wants to hold unsecured credit from a bank they think will go broke, so if there is a reasonable doubt on failure, liquidity dries up because other banks stop dealing with you (Bear Stearns, Lehman Brothers, Merrill Lynch, etc.)

As an example in my own life, back when I managed and traded corporate bonds back in 2002, when the market was feeling a lot of stress, I joked with my broker, ?Hey, is XYZ Corp trading flat yet??? (With most corporate bonds, when you settle a trade, the pro-rata portion of the next interest payment is added to the price.? A bond like XYZ Corp, when its solvency is doubtful, the dealers start settling bond trades assuming it will not make another payment.)? He told me that it was not trading flat.? The high yield manager, Ed, sitting next to me, after the call ended said, ?Just a matter of time.?

Half an hour later, my broker that talked with before called me back, and in an edgy voice said ?XYZ Corp is now trading flat!? and quickly ended the call.? Ed looked at me and said, ?Dave, don?t do that again.?

Liquidity is plenteous when you don?t need it, and scarce when really needed.? Remember that when investing in financials.

3) The Baltimore CFA Society gives significant discounts for students that want to attend our meetings.? $10 gets you a $30 meal and an interesting speaker or two, so consider yourselves invited.? Next meeting on January 11th is one of our bigger ones.? You even get to meet the aforementioned ?Ed.?

Full disclosure: long RGA, AIZ, NWLI, ENH, SFG

Why do Value Investors Like to Index?

Why do Value Investors Like to Index?

Posted on by David Merkel

I think I had some good things to say in the last post, but one commenter disagreed, and he had some good things to say:

Unfortunately, the premise of this article is completely flawed, as it assumes all ?indexes? are simply S&P 500 or Total Stock portfolios. You are no doubt aware that Vanguard has Large/Mid/Small VALUE indexes as well, right?

Further, for someone wanting more pure, targeted, and consistent exposure to the lowest priced value stocks, the ?enhanced? index funds from DFA are close to unbeatable. Sorting on a simple metric of price/book and holding approximately the cheapest 25% (as opposed to 50% for Vanguard and most Value ETFs) of stocks in the respective asset class (while trading patiently, using fund cash-flows to rebalance, lending securities to earn additional revenue), DFA?s large/small value funds in the US, Int?l, and EM markets have trounced their active manager competition. Here are the stats on the % of active value funds in each asset class over the last 10 years (through November) that have been OUTperformed by DFAs simple ?structured? approach, which for all intents and purposes are index funds:

US Large Value (DFLVX) = 90%
US Small Value (DFSVX) = 83%
Int?l Large Value (DFIVX) = 91%
Int?l Small Value (DISVX) = 100%
Emerging Mkts Value (DFEVX) = 97%

And not that it matters much, as these percentages are so high to begin with, but these #s don?t include survivorship bias ? something on the order of 40% of value managers that existed 10 years ago have gone out of business, so this outperformance is only measured as a % of those professional value managers that survived!

Somewhere, over some periods, I am sure we can find some value managers who have outperformed an intelligently structured value index portfolio, but the numbers are so small as to be almost irrelevant, and there is no persistence going forward in the # who have been able to pull off the feat.

No, the case is actually quite clear, ?active? value investing is dead. All investors would be much better off simply holding broadly diversified, structured/indexed VALUE portfolios. And stop confusing ?indexing? with ?cap weighted total market index portfolios?. There are a lot of index funds beyond the Russell 3000 and S&P 500.

His main point is well taken.? Active long-only value managers have not done well versus the indexers.? I’ve stated that at other times.? This is also true for hedge fund managers, where survivorship bias is even worse.

That said, I have a few objections.

1) Index investing by its nature follows the return factors incorporated into their index (if cap-weighted) or enhanced index (if not).? Factors go in and out of favor.? Some factors are seemingly permanently in favor, like value, small size, low Net Operating Assets, and price momentum.

Occasionally, those factors can be overinvested, like in August 2007.? That doesn’t mean the factors should be abandoned — weak holders are getting shaken out.

2) Every investment strategy has a “carrying capacity.”? Indexed strategies are larger, as are value strategies.? But there is some point where value as a whole can be overinvested.? Value can become “too cool” for a time, and can get relatively overvalued.? Some market participants look at the range of P/E, P/B, or P/S ratios.? When they are thin, value is overpriced.? It’s like being a bond manager, and doing an up-in-credit trade, except that this is an up-in-growth trade: buy higher growth stocks when the difference in P/Es? and other valuation factors is relatively small.

3) Yes, I know about the many subindexes that underlie the whole of indexing.? That wasn’t my point in the prior article.? Indexers need some amount of valuation oriented? investors, whether they are portfolio managers, or that they investors willing to take the whole company private, or a public company that acquires it.? If everyone indexed to the market as a whole, there would be no price signals.? Yes, with subindexes, that is not so, but the more money you pour into a subindex, the greater the likelihood of overvaluation.

4) There is the possibility of an indexing bubble.? An indexing bubble would have a situation where stocks in major indexes are overvalued relative to companies that are not in indexes.? now, it’s hard to imagine an indexing bubble, because there is no leverage involved, and little speculation.? Now for subindexes, relative over- and undervaluation is normal.

Just as in commodity markets, you have commodities that trade on futures markets, and end up in indexes, and those that don’t, because they are less liquid, fungible, deliverable, etc.? Often the relative price difference between what is easily tradable can be an indicator of whether excess liquidity has warped prices beyond their fair value.? This can happen with stocks as well, where stocks less held by indexes those more held by indexes.

There will probably come a time when those that have invested in index funds have to liquidate to meet their long term goals, and there will not be enough new money to absorb the selling.? Unless this is disproportionately true of index investors (unlikely, but possible), this would be a whole market phenomenon.

The broader question is related to the markets as a whole.? Since most stock investing is done on an unlevered basis, the overall ability to hold a diversified stock portfolio comes down to time preference.? There is what stock investors as a group should have as their time-preference, which is largely based off of demographics.? The there is how they behave when markets get hot (optimism -> time preference lengthens) or cold (pessimism -> time preference shortens).? Note that this is the opposite of the way that absolute value investors behave.

Now, here is one problem with my thesis: DFA and Vanguard are clever traders.? In really small stocks, DFA is virtually a market maker and picks up some alpha doing it.? In my investing, I actually like it when Vanguard or DFA is a large holder, because it is an indicator of neglect.

Here’s the second problem with my thesis: the fees of active managers are too high.? Even if active managers can pick up on some inefficiencies, will it be enough to overcome their fees?? On average, impossible.? So I appreciate what the commenter said, even as I ply my trade as an active manager.? You need some degree of active management in the markets to keep prices in rough line with valuations.

And, maybe, just maybe this means that indexing will have to get to be a much larger proportion of the markets before active managers would have alpha after fees as a whole.? Until then, passive investing is a great way to go for most investors.

Follow-up from “On Watchlists”

Follow-up from “On Watchlists”

Posted on by David Merkel

Before I start this evening, I wanted to point out something that the Googlebots dragged in.? It’s a list of all the RSS feeds currently created for Aleph Blog.? Note: I only created two of those, the main feed, and the comments feed.? The others were created by readers.? To that end, if you want a specialized Aleph Blog feed, there is probably a way to create it.? Suppose you want all my articles on insurance or personal finance, but not my icky macroeconomics posts.? There is a way to do it.? So if you only want a *part* of the Aleph Blog, set up a customized RSS feed.

One more unrelated trivia question: as of the end of 2011, how many states does Berkshire Hathaway have an insurer domiciled in?? The answer did not surprise me, but it was interesting learning the answer.

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Here’s a comment from a reader on yesterday’s post:

Love the blog, and really appreciate each new submission you create.

I?d love to hear more about ?valuation metrics, sentiment variables, and other factors.? Are these quantitative formulas that I could adopt for myself? I like the idea of ranking your current and prospective holdings. What method do you use to assign a value to each company for grouping?

First you need to read this article of mine.? As for valuation metrics, I use past earnings, forward earnings, book value, Free cash flow, and sales — I give higher weights to free cash flow, book value, and sales.? Earnings are more commonly manipulated.

Other variables: one year price momentum, four-year price momentum, insider buying/selling, yield, neglect ($ volume traded versus market cap), realized stock price volatility, net operating accruals, asset growth and sales growth.

I adjust the weightings period by period.? The changes usually aren’t big, but I adjust the weights to reflect what is out of favor.

For values that are infinite, I input 999.? One more note: I use the ranks of each variable against the stocks owned and contenders, not the actual value to do my rankings.

Here’s a comment from another reader on yesterday’s post:

A bit off topic, David, but something I?ve been thinking about:

Given your comments about incremental improvements, what do you think about the idea that investment manager performance should be judged not by the returns of the portfolio, but by the returns of the new ideas and sold ideas versus the static portfolio? i.e. measure the value of the decisions made recently versus those made in the past?

Given the wide availability of 13-Ds and our ability to copycat others with low-turnover strategies, might this not be a better measure of the value investors are getting for the fees they?re paying?

I do one unusual thing with my stocks.? I list them by order of purchase.? Why? It gives me a feel for whether old or new ideas are working.? But my experience has been that stocks I sell tend to do badly, with some exceptions.? Please don’t talk to me about the sale of NTE, which I sold because the management became more aggressive, and I did not like that.? I really failed there.

But here is the problem: investment managers choose the overall bias that they invest toward.? They should bear some responsibility for their choices, unless they have a fleet of funds that cover almost all relevant areas.

In my own investing, I have not seen any difference over the long haul regarding my new investments versus older investments.? There are times when new or old do better, and times where they are pretty similar.? Since I score my investments quarterly, older investments have to show promise regularly.? Those that show less promise get tossed.? Those with more promise get kept.

The important thing in investing (leaving aside tax implications) is focusing forward.? If something is cheap relative to prospects, don’t sell it.? It is far better to simply understand which of your existing investments are the most marginal in expected returns, so that you can use those as a source of cash when you find promising opportunities.

Full disclosure: long BRK/B

On Watchlists

On Watchlists

Posted on by David Merkel

Before I start this evening, a quick story:

One day in March, I got an e-mail from an older gentleman, and he said, “Hi, my name is XXXXXX.? Please call me.”? The name sounded familiar but I couldn’t place it.? So I called him, and he asked, “I own a decent amount of Berkshire Hathaway.? Can you explain to me why the value of the put options Buffett sold have risen from 3Q11 to 4Q11?”? After talking to him for a little bit, he said, “So you really don’t know.”? I replied, “Yes, I don’t really know, but give me a couple of hours, and I can give you a decent answer.”? So I told him I would give him an answer via e-mail, and follow with hardcopy.? As it was, we were both wrong, the value of the put options had fallen.

But then it hit me why the name was familiar — he was one of the Superinvestors of Graham-and-Doddsville.? You never know where you might go, or who you might meet just because you write some obscure blog.? Oh, yeah, you might just get to go to the US Treasury, and meet you-know-who. 😉

And now a question from a reader:

I?ve learned a lot from your blog. Thanks for the effort you put in to maintain it. (Today?s post was great? was just listening to my Intelligent Investor CD while driving last night and was thinking about how Graham talks about the need to be businesslike when investing).

I had a question about your investing process, specifically how you track stocks that look interesting to you.

For instance, I use value line and I flip through the pages on a daily basis, jotting down interesting tickers in a notebook. I then go to a few scans and watchlists, again jotting down tickers I?d like to research further. After that, I take my list of tickers and do some brief research to determine if they should go on my watchlist. This is where I need to change a few things. I use Morningstar to track my watchlists, which is great because it keeps track of all of the financial data automatically, but the problem is that as my watchlist grows, I find certain cheap stocks on the list but I can?t recall why I put them there. There is no spot for notes on Morningstar?s watchlist, so I thought about using a google spreadsheet, but I really don?t want two different things to track.

Walter Schloss was famous for not owning a computer and simply flipping through value line. There must be a simpler way to track stocks that look interesting!

Just wondering if you could share any thoughts on how you track potential stocks and how you refine your watchlist if it starts to get too large. Thanks David.

I don’t have a permanent watchlist.? I generate ideas three ways:

1) I read a lot of articles.? When an idea sounds clever, I write it on a small piece of paper and set it in a pile to age.

2) I study industries more than companies, and look for strong companies in weak industries, and levered companies in industries that are likely to remain strong for awhile.? I use Value Line here, and screen for companies that might yield a 15%/year return, while being above average in terms of balance sheet strength.

3) I read through the 13Ds of a group of ~75 investors that I respect, and look at the companies that are large holdings relative to market cap that are still being acquired.

Then I take all of my ideas once per quarter, shortly after the 13Ds are filed, and compare them against existing portfolio holdings against a variety of valuation metrics, sentiment variables, and other factors.

I then rank all of the companies as a group, looking at where the middle company in my existing portfolio is.? Companies I don’t own that are above it are candidates for purchase.? Companies I own that are below the middle portfolio company are candidates for sale.

I then sit down and analyze, and pair off stocks to sell versus stocks to buy, unless there is some reason to increase or decrease the number of stocks in the portfolio, which is usually around 35.? Presently it is 34.? I? buy/sell 2-3 stocks per quarter.? That keeps things fresh, but allows me to hold companies for longer periods of time.? (My turnover is 25% of the open end mutual fund industry.)

After I make my series of buys and sells, I throw all my work away, and start accumulating data for the next quarter.

My sense is that it pays more to think of your portfolio versus candidates than to track candidates.

The main idea here is that we should always be improving the character/quality of the portfolio.? Trade things that are worse for things that are better.? Human beings can do that trade.? What is hard is for people to assemble the best stocks.? Getting a bunch of “pretty good” stocks can be done, and it does not mean they will outperform all the time.? Getting a portfolio of all of the best stocks is impossible.

So think economically — try to improve your portfolio regularly, regular incremental improvements yield a large economic improvement over a market cycle.? At least, that has been my experience. 🙂

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