• RIP: Benoit Mandelbrot
    Posted by on October 16th, 2010 at 12:52 am

    The father of fractals has passed away. “Clouds are not spheres, mountains are not cones, coastlines are not circles, and bark is not smooth.”

  • Up
    Posted by on October 15th, 2010 at 5:45 pm

    We had a great week.The Buy List has risen for six-straight days. We gained 1.7% for the week and the Buy List is now at a five-month high. Since August 31st, we’re up 14.9%.

    That’s enough market talk. Have a great weekend and enjoy this brilliant clip from Up.

  • The Past 12 Years in One Chart
    Posted by on October 15th, 2010 at 2:35 pm

    I apologize if you’re getting sick of these TIPs charts, but this one is fascinating. You can really see how the economic situation has changed over the past few years. This shows the real yield of the TIPs that comes due in April 2028.

    This started as a 30-year bond and now it’s a 17-1/2 year bond. The real yield was once as high as 4.4% right at the dawn of the new millennium. Today it’s 1.2%.

  • Today’s Always-Finding-the-Downside Award Goes to Reuters!
    Posted by on October 15th, 2010 at 12:10 pm

    For this headline:

    Low Inflation Rate Bites Millions of Retirees

    Dear Reuters, 1980 just called and they want to thank you for the laugh. Seriously, people. High inflation, for people new to earth, is terrible for retirees. The headline ought to read: “High Inflation No Longer Bites Millions of Retirees.” Inflation punishes savings. Our low inflation rate is a major victory for the economy over the past 30 years.

    The story says that inflation punishes seniors because Social Security benefits aren’t going to be increased:

    Social Security benefits will not automatically increase next year for 58 million Americans because of the low U.S. inflation rate, the Social Security Administration announced on Friday.

    This is the second year in a row that retirees and millions of disabled workers and survivors of deceased workers will not receive an automatic cost of living adjustment.

    It comes at a time when retirees’ savings — often their only other source of income — are earning poor returns because of low interest rates.

    The average Social Security benefit is around $14,000 and experts say about one-third of retirees rely on the payouts from the government-run program for more than 90 percent of their income.

    How exactly is anyone being punished?

  • From April: Deep Market Truths
    Posted by on October 15th, 2010 at 11:11 am

    I’ve had a lot of new visitors the past few days so I thought I’d repost one of the most popular (and controversial) posts that I originally ran in April.

    Here are some deep truths about the markets and investing that I’ve learned over the years:

    The Federal Reserve isn’t nearly as powerful as is commonly believed.

    There isn’t a person or group of people in charge of the market.

    There’s no such thing as a “healthy correction.”

    Good stocks can go down for no reason.

    Bad stocks can go up for no reason.

    A trend can last much longer than you thought possible.

    Stocks don’t know you own them.

    The market doesn’t care about politics.

    The most important variable to the stock market, by far, is the direction of long-term interest rates.

    Mega-mergers rarely work.

    Investment bubbles aren’t due to the moral failings of the market participants.

    Ignore anyone who tells you that the Federal Reserve is a private bank.

    Commodities are almost always terrible investments.

    The stock market hates inflation. The only thing it hates more is deflation. The best environment for stocks is a low stable inflation rate.

    As an investment tool, P/E Ratios work much better for individual stocks than for the market as a whole.

    The best three fundamental metrics are (in order) ROE, Debt Ratios and Cash Flow.

    Wherever possible, seek out stocks with expanding margins.

    Dividends are underrated by investors, especially companies that consistently raise them.

    Portfolio diversity is overrated.

    As a general rule, IPOs are a bad deal.

    Boring but profitable always beats exciting and unprofitable.

    CAPM and MPT are nonsense.

    No one can consistently time the market. No one.

    The Equity Risk Premium (over long-term debt) is probably much smaller than commonly believed.

    The data showing a return premium for small-cap stocks is probably wrong.

    The media never questions the bond market. Only stock investors are “greedy.”

    Perma-bears are never held to account for being wrong so if you want to sound smart, be very bearish and very vague.

    The market really does “climb a wall of worry.”

    Follow unfollowed stocks.

    The market is self-aware. Scary but true.

    It’s far easier to rationalize selling than buying.

    The market isn’t efficient—it can be beaten.

    But it’s very, very, very, very hard.

    Most technical analysis is complete garbage.

    A high P/E Ratio is much better sign of a stock to sell than a low P/E Ratio is a sign to buy.

    It’s pointless to measure the stock market relative to gold or in euros or pork bellies or whatever else people can come up with.

    Ignore any chart that has seemingly similar lines trying to show how this market is “just like’ the one in 1831.

    Except at very low levels, volatility is neutral.

    Many gold bugs are quite simply fanatics.

    Whatever the issue, your typical finance professor will blame the investing public and urge more self-denial as the solution. Bank on it.

    Never base an investment decision on demographics.

    The worst investor in the world is the guy holding on to a small loss waiting for the rally because “they don’t want to take the loss.” Again, the stock doesn’t know you own it.

    Very, very few serious companies are traded on the pink sheets.

    Never stress out about what a stock does after you sell it.

  • Reynolds American Raises Dividend and Splits Stock
    Posted by on October 15th, 2010 at 9:38 am

    Excellent news today from Reynolds American (RAI)! The company has announced that it will split its stock 2-for-1 in mid-November. This means that shareholders will own twice as many RAI shares and the stock’s price will drop in half.

    The other good news is that Reynolds is raising its quarterly dividend by 8.9%. The company will bump up the dividend from 45 cents per share to 49 cents per share (that’s adjusted for the split). Based on yesterday’s closing price, that translates to a forward yield of 6.5%.

    Finally, Susan Ivey, currently Chairman, President and CEO of RAI, will retire next February. RAI’s board has elected Daniel (Daan) M. Delen, currently chairman, president and CEO of R.J. Reynolds Tobacco, to be President- and CEO-elect of RAI, and a member of the Board of Directors, effective Jan. 1, 2011.

  • The Apocoholics Dictionary
    Posted by on October 15th, 2010 at 9:21 am

    Barry has the translation guide for newbies. Here’s a sample:

    Apple: A fictitious company that does not exist.

    BLS: A secret society of mathematicians and statistical wonks conspiring to falsify economic data, formerly known as the the sect of Opus Dei; See also Birth Death Adjustment.

    Bernanke, Ben: Beelzebub

    Bonds: An asset class that will eventually be worthless paper as its value is inflated away, but in the meantime, are a good alternative to equities.

    Bubble: A catchall phrase used to describe any market not in freefall.

    China: The centrally planned communist economy that is the model for Free Market Economies in the West. alt. An idealized form of Capitalism;

    Death Cross: The most reliable and certain technical formation known to man. See also Golden Cross: An old wives’ tale, not to paid attention to or taken seriously at all.

    Depression: The current state of economic affairs; See also Pornography.

    European Union (EU): A soon to be dissolved association of Socialist states, whose sole purpose is to mislead investors into believing the United States is (comparatively) fiscally responsible. See also EuroFASB: A criminal legal enterprise of accountants whose members help banks hide massive losses;

    Fiat Currency: The root of all evil

    FOMC: Fertilizer for the root of all evil

    Gold: A shiny yellow metal used primarily as an excuse for missing a generational rally in equities.

    It’s funny because it’s true. Check out the whole thing.

  • Morning News: October 15, 2010
    Posted by on October 15th, 2010 at 7:43 am

    7 U.S. Firms that Helped Save the Chilean Miners

    Can High Dividend Stocks Beat 10-Year Bonds Or the Stock Market?

    BEFORE THE BELL: US Stock Futures Mixed Ahead Of Bernanke Speech

    Currency Tensions Persist as Markets Await Fed

    HSBC Ends Talks to Acquire Nedbank, Old Mutual Says

    Mortgage Mess May Cost Big Banks Billions

    General Electric Tops Profit Expectations

    China’s Sinochem Abandons Potash Bid Plan

    GM on Track for Mid-November IPO

    Priced in Silver, Gold is Actually Down (and other nonsense)

  • Nicholas Financial Hits Three-Year High, Also Something about Google
    Posted by on October 14th, 2010 at 7:12 pm

    The stock market had a fairly quiet day today. At one point the S&P 500 was down about 1% but it rallied into the close. All told, the S&P 500 lost 4.29 points which is just -0.39%.

    Our Buy List, however, had a decent day. The portfolio gained 0.18% and we’re now up 8.44% for the year. AFLAC (AFL) got as high as $55.76 but couldn’t hold to its gains. We’ve had a pretty good run lately with AFL. Let’s remember that this stock was below $45 less than three months ago.

    How about Nicholas Financial (NICK)? Our little used-car financier got up to $9.75 today which is a three-year high. Woo-hoo!

    The big news after today’s close is Google’s (GOOG) earnings. They blew the doors off last quarter. The stock is currently up nearly $50 per share in the after-hours market which is about 9%. For Q3 Google earned $7.64 per share (after charges) which beat the Street by 96 cents per share. Online advertising, it seems, is back. Google’s revenues rose to $5.48 billion which was $220 million above the Street’s consensus.

    Google is sitting on a cash position of—are you ready for this?—$33.4 billion. That’s just crazy.

  • How Good Is Warren Buffett?
    Posted by on October 14th, 2010 at 2:00 pm

    According to Insider Monkey, Buffett hasn’t done so well over the past decade:

    Your source for free real-time insider trading data, Insider Monkey, analyzed the returns of Warren Buffett’s Berkshire Hathaway between 1977 and 2009. We ran hundreds of regressions to calculate Warren Buffett’s alpha(skill) for every single month, using both 5-year and 10-year historical performance data. The results based on 10-year data are smoother but paints the same picture as the results based on 5-year data. Contrary to the general perception, Buffett has not had any alpha for the past 10 years. Let us repeat that: Buffett, no alpha, for the past decade. You would have been better off if you had invested your money with David Einhorn.

    See here for the details.

    I would be interested to know how well Berkshire has done sans Geico. It could turn out that the great stock-picker really only chose one winner — a really, really big winner.