You might want to sell your silver now

Posted February 21, 2012 at 3:47 am

by Chris Kimble

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For more charts / commentary like this, go to Kimble Charting Solutions..

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Musings on the “400% Man”

Posted February 21, 2012 at 2:29 am

by David Merkel

When I read the following article at SmartMoney, I said to myself. “I have done almost as well, I am more diversified, and I am willing to explain more of what I do.”

Truth is, clever investors, or lucky investors can get an attitude, saying that they don’t have to explain themselves to outsiders.  Not a good place to be.  I am not saying that the performance is due to luck but there is a certain amount of respect due to investors for investing with you.

Before I write more, let me state that I respect Allan Mecham.  He manages more money than I do, and has a better track record.  If I were in the shoes of the investors who were analyzing him, I probably would have placed $5 million with him, and would have watched what he did carefully.

Why would I take the risk?  It’s tough to find non-consensus views that make significant money.  I wouldn’t want to make it a huge allocation initially, but I would put a toe in the water to see what he would actually do.  If it didn’t work over 5 years, I would pull the plug.

All that said, when you run a very concentrated portfolio, it is possible for a few decisions to [continue]…

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The beliefs that make a successful trader

Posted February 16, 2012 at 1:59 am

by Janice Dorn

“One bright day in the middle of night two dead boys rose to fight. Back to back they faced each other, drew their swords and shot one another. A deaf policeman heard the noise, and saved the lives of the two dead boys. If you don’t believe this lie is true, ask the blind man, he saw it too…” -Unknown

We are hard-wired to believe and hold to these beliefs, often in the face of contradictory evidence. In life outside the markets, this may achieve many purposes and actually be a source of strength. This does not, however, serve a trader well.

One of the most important questions for the trader to ask every day is “What do I believe that is not true?” And how do we know the truth? The markets tell us. It really is that simple, and yet so difficult for most to accept and practice on a daily basis.

It is important for a trader to assess beliefs regularly, because at any given market moment, the trader is [continue]…

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Stocks that deliver high returns on equity

Posted February 15, 2012 at 1:35 am

by David Parkinson

What are we looking for?

Forget the fuss over whether you should pursue a growth strategy or a value strategy in your investment portfolio.

In the aftermath of the Great Recession, says Brockhouse Cooper global macro strategist Pierre Lapointe, both strategies are being trumped by “quality” – stocks that deliver high return on equity, low volatility and clean balance sheets.

Mr. Lapointe says that the best returns over the past three years have had little correlation to stock price-to-earnings valuations (the value approach) or to earnings growth expectations (the growth approach). Rather, the top-quality stocks – regardless of whether they fit the growth or value mould – have substantially outperformed the MSCI U.S. Growth and MSCI U.S. Value indexes.

Today, with Mr. Lapointe’s help, we go in search of the highest-quality stocks on the S&P 500.

The quality screen

Mr. Lapointe devised a screen for stock quality that centres on return on equity (ROE) – annual net income expressed as a percentage of total shareholder equity. It essentially measures the [continue]…

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The top 15 pessimistic prognosticators

Posted February 14, 2012 at 3:40 am

by Ben Steverman

Only the gloomiest of Wall Street’s prognosticators got it right in 2008 and 2009. Since then, their pessimism has been infectious.

On almost any investing topic — from emerging markets to U.S. stocks, from commodities to sovereign debt — there are respected experts predicting the worst.

So far, apocalypse hasn’t arrived. The U.S. economy shows signs of life. Europe is muddling through its debt concerns. The economies of China and India have slowed but not stalled.

If these commentators, who range from short-seller Jim Chanos to GMO’s Jeremy Grantham, prove prescient — and Bloomberg.com will check in later this year to see if they are — the biggest surprise in 2012 would be some truly good news. [Continue to slideshow]…

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Editor’s Note: For the WV’s take on self-styled prophets-of-peril, read our posts about prognosticating, starting with:

“The Crowd Gravitates To End of America Bloggers“

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Stocks always kick ass over time…

Posted February 10, 2012 at 2:56 am

In an adaptation from his upcoming shareholder letter, the Oracle of Omaha explains why equities almost always beat the alternatives over time.

by Warren Buffett

Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway (BRKA) we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power — after taxes have been paid on nominal gains — in the future.

More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.

From our definition there flows an important corollary: The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability — the reasoned probability — of that investment causing its owner a loss of purchasing power over his contemplated holding period.

Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a nonfluctuating asset can be laden with risk.

Investment possibilities are both many and varied. There are three major categories, however, and it’s important to understand the characteristics of each.

So let’s survey the field [continue]…

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High returns via fine wine

Posted February 9, 2012 at 3:55 am

by Daniel Kiernan

Wine investing is seen as a diversifying element in a portfolio, with returns that are relatively uncorrelated to traditional investment markets.

But with volatility at unprecedented levels in the past five years it is no surprise wine markets have felt some of the upheaval.

This was clearly demonstrated in the second half of 2011 when the Liv-ex 100 Fine Wine index, which represents the price movement of 100 of the most sought-after fine wines for which there is a strong secondary market, fell by 21.5 per cent.

To take advantage of the asset class there is the option of direct investing, including through a managed portfolio of a basket of wines, or through specialist investment funds.

Mr Smith says:

“It remains possible to invest in wine by owning cases directly, but this usually involves suffering the margins (on both the buy and sell sides) charged by merchants, and makes diversification – and hence risk management – more difficult.

“Instead, investors – whether they are connoisseurs or simply like the risk/return profile of wine – are increasingly looking at funds, which are more likely to be incentivised to buy and sell at the best possible prices.

“Funds can also pool money across investors to provide diversification, and use their professional expertise to select the wines with the best prospects of future growth. While there are fees involved with funds, these are transparent and can often work out less than the more hidden transaction costs associated with direct investment.”

Mr Brierley agrees investing through a fund offers [continue]…

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How to buy cash-rich, patent-holding companies

Posted February 9, 2012 at 3:40 am

via The Dividend Monk

This is the third in a series of articles highlighting dividend companies that have large and durable economic advantages, or “moats”, that protect their business operations and allow years or decades of strong profitability.

When looking for long-term investments, one typically wants to find a business that is performing well not simply because management is on top of their game right now, but rather because the business itself has fundamental and difficult-to-replicate advantages over its competitors.

In the last two articles, examples of unrivaled economies of scale and particularly powerful brands were provided.

Some companies keep competitors away by patenting their products. This gives them a number of years where they can get all of their research and development to pay off with nice profit margins.

If a company is big enough, they can successfully layer or ladder dozens, hundreds, or thousands of patents so that at any given time, only a subset of their patents are expiring, and new ones are replacing them. That way, most of the product portfolio is continually refreshed with a strong set of patent shields.

When a company organizes hundreds or thousands of engineers and scientists, and then layers their products with patent shields, this creates a pretty formidable defense against competitors. Some of the largest patent-holding companies often buy companies just for their patents.

The following is a list of dividend-paying companies with good patent shields [continue]…

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This is one of the worst natural gas investments

Posted February 9, 2012 at 2:26 am

by Daniel Dicker

The worst investment in the world, the United States Natural Gas fund (UNG) has again revealed how cruddy it is by announcing a four-for-one reverse split as of Feb. 22.

Anyone who still holds this turkey expecting it to even approximate the price movement of natural gas should be convinced by this last move to get out of this horrible fund.

Futures-based ETFs start with a grave disadvantage in the ETF world: instead of using various groupings of stocks to replicate the movement in a sector, they must use futures contracts and over-the-counter swaps to try and capture the price movement of an underlying commodity.

While there may be a terrific appetite for investors afraid or unwilling to engage in the futures market to bet on prices of natural gas or crude oil, there is really no good way to represent these commodities like stocks. Most of these ETFs are programmed to fail.

UNG suffers from a further problem. With natural gas dropping for most of the last four years, an increasing skew of the price curve, called a [continue]…

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Lloyd’s wall of worry

Posted February 8, 2012 at 2:55 am

by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week  — a unique tool for traders and money managers.

Typically the term “wall of worry,” refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions.

As I like to say, “Buy fear, sell cheer.” Scroll over each “worry” for additional comments.

Go to this week’s wall here…

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