• The New York Times Falls for Dollar Cost Averaging
    Posted by on November 23rd, 2009 at 1:37 pm

    Jeff Somer recently wrote in the New York Times:

    Experts say amateur investors tend to make two basic mistakes: they are swayed by emotion, and assume that recent performance will predict the future. Yet it’s not hard to sidestep these pitfalls with help from classic strategies known as asset allocation, portfolio rebalancing and dollar cost averaging.
    Basically, these approaches work this way: After assessing your needs and risk tolerance, you set up and maintain a broadly diversified portfolio, adding regular contributions if you can. These practices mitigated investor losses over the last few years, and have an excellent long-term track record. But they are often ignored or discounted.

    Oh boy. Dollar cost averaging (DCA) is the myth that will never die. It’s sad to see even the New York Times passing this on as sound advice.
    The idea of DCA is that you put a set amount of money in the market each month. If you’re like many investors and have a set amount available to invest each month, that’s fine practical advice.
    The problem is when DCA is compared with the option of lump sum investing. If don’t have the option, fine, go with DCA. But if you do have the option, go lump sum all the way. The advantage of dollar-cost averaging was blown to smithereens 30 years ago in this article by George Constantinides.
    Somer goes on to write:

    Left to their own instincts, most people are “momentum investors,” setting themselves up for failure, said Louis S. Harvey, the president of Dalbar. “When the going gets tough, investors tend to panic, and that happened last year. They sold when the market went down. When it goes up and things get expensive, they tend to buy.”
    Sophisticated people often make these mistakes, perhaps because, on an intellectual level, investment decisions are different from those in many other parts of life, said Francis Kinniry, who heads the Investment Strategy Group at Vanguard.

    Wrong again. Strange that a person at an index fund is critical of active investing! In fact, momentum investing is one of the very few strategies that have been shown to beat the market consistently. The difficulty with momentum that investors have is they’re afraid to sell when a high momentum stock loses its momentum.
    Somer is correct that your emotions aren’t your friends when it comes to investing. Neither, however, is the Wall Street establishment.

  • Peter Schiff Contra Roubini
    Posted by on November 23rd, 2009 at 9:42 am

    Here’s a video of Peter Schiff explaining why he disagrees with Nouriel Roubini’s assessment that gold is in a bubble.

    I post this video because it highlights the concern I have about (some but not all) gold bulls. It’s that Schiff’s argument can used to favor gold at any price. I understand what he’s saying and I think it has merit, but there’s no numerical anchor to the argument: “They’re printing money, so buy gold.” Up to $5,000? Up to $10,000? I’m curious at what point would the price of gold outweigh the thesis.
    There are all sorts of formulae to calculate prices for stocks or bonds. They’re far from perfect, but at least they’re something. What is it for gold? Can anyone show me numbers that have historically tracked the price of gold?
    Also, is Schiff’s thesis that gold should always track inflation? This is another part I don’t get. The real price of gold has outrun inflation over the past several years, even if you don’t trust the CPI numbers gold is still a big winner. Gold has even rallied as we’ve had deflation.
    I would guess that, if anything, gold might have a weak relationship to the acceleration of inflation rather than its overall level. Still, this would be difficult to measure and this decade probably wouldn’t be a good example.
    A few folks, including Schiff, are predicting that gold will reach $5,000 an ounce. I wonder if any gold bugs would be willing to buy a gold option from me. Say, a strike price of $4,000 for one year from today. I’ll do you a favor and take as little as $200.
    No, I’m not serious but I am curious as to what gold bugs would be willing to pay for that trade.

  • The Humps Have Spoken
    Posted by on November 20th, 2009 at 12:50 pm

    The stock market is down for the third day in a row. I won’t say I told you, but I did in fact tell you so.

    If the current humpy thing doesn’t pass the last humpy thing, then that probably won’t be good*. Unless of course, there’s a new and higher humpy thing. Bottom line: It remains to be seen.

    image874.png
    I fully expect the present trend to continue up until the point it stops.

  • T-Bills Rates Turn Negative
    Posted by on November 20th, 2009 at 10:18 am

    Here, I’ll pay you to borrow my money:

    Some Treasury bills maturing at the start of next year traded at negative rates Thursday, a sign of investors’ strong demand for the safest securities at a time when T-bills are in scarce supply.
    When market participants buy Treasury bills at negative rates, they are essentially paying the government to keep their money safe.
    Rates on issues maturing in early January and February turned negative Thursday, to as low as -0.03%, traders said. Some issues maturing in the first two weeks of December also slipped, trading at flat to a bit negative Thursday.
    Bill yields last fell below zero in late 2008 amid the financial market panic that was triggered by the bankruptcy of Lehman Brothers Holdings Inc. (LEHMQ). The decline this time, though, isn’t driven by the same sorts of fears–it’s more about a scarce supply of T-bills amid strong demand for safe assets, given the hazy economic outlook.
    The amount of T-bills in the market has shrunk with the government letting the bills in its Supplementary Financing Program–which financed the ballooning deficit though the issuance of bills–mature rather than sell new bills to roll over the debt. At the same time, money-market investors face fewer options to park their cash.
    Rates on bills three months and out, though, were still trading positive Thursday (Barely! – Eddy). Strategists, however, said they wouldn’t be surprised to see those rates turn negative as well.
    George Goncalves, managing director and head of fixed-income rates strategy at Cantor Fitzgerald in New York, said this year the rate on the three-month T-bill could fall as low as -0.05%.

  • I’m Gonna Need Two Forms of ID With That
    Posted by on November 20th, 2009 at 8:49 am

    Ever see a check for $9 billion?
    Too Big to Fail: The $9 Billion Japanese Check to Morgan Stanley
    (Via: ARS)

  • Quote of the Day
    Posted by on November 19th, 2009 at 11:33 pm

    From Eric Falkenstein, whose book just arrived in the mail:

    Most pundits, professional and amateur, consider a genius as someone who can effectively articulate one’s platform more efficiently than themself. An idiot is someone who effectively articulates the other side.

  • Byrd’s Record Is Nothing to Celebrate
    Posted by on November 19th, 2009 at 2:21 pm

    Senator Robert Byrd is being celebrated this week for breaking the record for longest service in the United States Congress. Byrd served six years in the House and another 50 years in the Senate.
    For me, I’m going to take a pass on the celebrations. While I wish Senator Byrd well, I don’t think having a job as a legislator for 56 years is anything to celebrate. In fact, I think it’s scandalous.
    Being a member of Congress doesn’t make you a member of a special class. There’s no achievement involved. I wish they’d see it that way, and I think it would make for a healthier environment for the republic. You simply won an election. It’s a job that millions of Americans can do, and many can do it—and indeed have done it—better than Senator Byrd.
    I don’t see why anyone should make a career of ruling over others. When it’s to be done, it should be done for a modest period of time. There are many more important things to do with one’s life than tell other people what to do. You can start a business or become a teacher, or serve your community in countless ways that more valuable than being a member of Congress.
    I also think that any political career that’s worth having is one that will end in defeat. If you’re always on the popular side, then you’re probably not doing much good. Senator Byrd spoke about his regrets in his Congressional career—like voting against the 1964 Civil Right Act. These regrets underscore that Byrd merely followed the popular political winds in his home state. He wasn’t a leader at all, but a follower—and he’s been doing longer than many of his colleagues have been alive.
    Notice this clip of Byrd speaking about his regret over the Civil Rights Act vote. He speaks some nonsense over the loss of his grandson, and the epiphany that black people must love their grandchildren as well. Oh dear lord. So this thought never occurred to him? He lived a long life (until being a grandfather) without considering this most basic moral and legal concept. If the people of West Virginia keep sending him to DC, that’s their right, but I see no reason to celebrate 56 years of this garbage.

  • Donaldson Tops Estimates
    Posted by on November 19th, 2009 at 10:26 am

    I mentioned before that Donaldson (DCI) is a candidate to be cut from next year’s Buy List. This obviously terrified them as DCI reported first-quarter earnings of 45 cents a share, which was an amazing 11 cents better than expectations. That’s a huge beat and the stock is up nicely today. Donaldson now expects full-year earnings (excluding items) between $1.75 and $1.95 a share. I still think the shares are on the high side.

  • Sysco Raises Dividend
    Posted by on November 19th, 2009 at 9:51 am

    Sysco (SYY) already pays a fairly high dividend. Oftentimes, stocks with high dividend yields are traps because the lower share price merely reflects the market’s belief that the dividend will soon be cut. That isn’t the case with Sysco as they just raised their quarterly dividend, from 24 cents a share to 25 cents a share. That’s $1 for the whole year. Going by the current price, that’s a yield of 3.7% which is more than a 10-year Treasury bond.

  • More Problems with Yahoo Finance
    Posted by on November 19th, 2009 at 9:39 am

    I’ve written before about my concerns with the historical prices section under Yahoo Finance. The problems seem to continue.
    For Nicholas Financial (NICK), Yahoo Finance shows the 10% stock dividend happening yesterday. Note how the “Adjusted Close” column differs from the “Close” column. That’s not correct. The stock dividend won’t happen until December 7, and shareholders should expect to see the new shares in their accounts the next day. I hope Yahoo Finance works to find a better data vender for their historical stats.