Kinabalu

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  • The Importance of Accounting (SEC Does Something Useful!)
    "At a high level, accounting conventions are artificial constructs designed to ensure some measure of uniformity in financial reporting. Whatever the rules are for calculating certain numbers, savvy investors know those rules, and can make adjustments as they feel appropriate."

    As a matter of fact there are many savvy investors that do not understand the intricacies of todays accounting requirements. Many have adopted short cut, heuristic, rules of thumb to avoid having to learn the accounting rules. Mark to market is a good example of acounting rules that have gotten far too complicated for even savvy investors to understand. That fact is clearly demonstrated by the many commentors above whose criticisms reflect a lack of understanding of what mark to market accounting involves, in a banking environment, (petyaczar, TBill, Stephen Kanitz, ajhough)
    Jan 05 16:04 pm |Rating: +1 0 |Link to Comment |View article
  • What Does GMAC's Bond Exchange Failure Mean for Detroit?
    Whether you can buy bonds on the open market depends what you negotiated when you sold the bonds. I always tried to negotiate the right to buy back the bonds but some bond buyers just won't allow that. A compromise that you see quite often if a sinking fund is involved is the right to buy back enough bonds on the open market to meet the next sinking fund payment.


    On Dec 31 12:30 PM prudentinvestor wrote:

    > Good. Now a question for you or others on this forum:
    >
    > Not being knowledgeable about bond covenants, I've always wondered
    > why a company can't simply buy back its bonds on the open market,
    > just like a stock buyback. When a company's bond is trading at $0.20
    > on the dollar, why don't they just buy it on the market?
    >
    > Thanks.
    Jan 02 18:25 pm |Rating: +1 0 |Link to Comment |View article
  • The Economic History of Interest
    I read an earlier version of this book when I was in graduate school in 1969. I thought it was fantastic then. It's probably time for another look at it.

    I'm not sure I agree with No. 6, interest rates dropping as technology advances.
    Dec 28 00:56 am |Rating: +1 0 |Link to Comment |View article
  • Great Depression Not Imminent, But Inevitable
    "But it is common knowledge that CDS price-makers have been using probability and option driven models which are increasingly proving to be divorced from reality....This writer’s view is that, though there is broad array of quotes available from CDS and CDO brokers on a daily basis, actual deals are extremely limited"

    This is the same author that was telling us a month ago that the CDS market was the best indicator of future equity prices (GE).

    I guess it all depends on what point you're trying to make.
    Dec 19 19:05 pm |Rating: +1 0 |Link to Comment |View article
  • The Ten Most Egregious Assumptions of 2008
    "Banks will be careful with their money"

    Of the 10 listed items this is the one that surprises me the most. I confess to being in Greenspans company of "shocked disbelief". I worked in a bank holding company for 10 years, including during the last real estate recession in the early '90s. I developed a healthy respect for the credit assessment abilities of bank officers. I still don't understand how they could have generated so much bad paper 15 years later.

    Part of the blame has to go to their regulators. Congressional Democrats have fawned over Sheila Bair, a Republican appointee as Chairman of the FDIC, but she has presided over a terrible breakdown in loan quality and should be taken to task for that.
    Dec 16 15:48 pm |Rating: +2 0 |Link to Comment |View article
  • Are Index Funds the Only Rational Choice?
    Geoff

    I understand and agree that you can get highly effective asset allocation with a small number of holdings. I don't believe that the statement you make: "the conventional wisdom [is] that investors must buy the entire market index (i.e. owning all 500 stocks in the S&P 500) or end up with disproportionate risk in their portfolios" is the conventional wisdom at all, nor is it the reason people buy index funds.

    However, that being said, the average investor cannot build a diversified stock portfolio with only 15 stocks. He doesn't have the statistical or market knowledge to do so. So he buys an index fund, gets better diversification than he would otherwise have in a self-constructed 15 stock portfolio, and gets probably better performance than a managed portfolio.


    On Dec 15 04:09 PM Geoff Considine wrote:

    > Kinabalu:
    >
    > The statistical 'straw man' that I set up has been proposed by a
    > range of experts and you can read this argument in many books and
    > articles. Bernstein is no pushover. I am not talking about active
    > management--I am talking about strategic asset allocation without
    > needing to have hundreds of holdings. If this is correct--and obviously
    > I believe it is--this has important implications for how people invest.
    >
    >
    > You can do Strategic Asset Allocation without investing in 500 stocks
    > in the S&P500 to get exposure to large cap domestic equities,
    > for example. This can be done as a passive investment strategy--not
    > active.
    Dec 16 01:34 am |Rating: 0 0 |Link to Comment |View article
  • Are Index Funds the Only Rational Choice?
    Mr Considine has constructed a straw man and than proceeded to demolish it with a lot of good, and irrelevant, research. The straw man is, of course, in his lead sentence: "There are many experts who believe that investors ought to invest in funds that track a broad index, and should not invest in smaller numbers of individual stocks.

    The reason to invest in index funds is not to get a large number of stocks. The reason is to avoid the management and transaction fees that characterize an actively managed portfolio. Many studies, not linked by Mr. Considine, have shown that active managers can, in fact, select stocks that perform better than indexes. However, once you take out the management fees and the higher turnover costs that active management generates, the active management underperforms. Those fees and costs, often averaging 150 to 200 basis points, are too big a bogey for active management to overcome in a environment where they constitute 15% to 20% of the long term stock market return of approximately 11% per year..

    A sample of "intelligently selected" portfolios of 15 stocks would probably beat an index, especially one based on a small number of stocks, until you factored in the management costs noted above. The diversification obtained by investing in an index with a large number of stocks is an ancillary benefit.
    Dec 15 15:42 pm |Rating: +4 -1 |Link to Comment |View article
  • Madoff Scandal: 'Biggest Story of the Year'
    With $17 billion in assets under management, there must be an auditing firm that they used. I wonder which one it is.
    Dec 12 17:17 pm |Rating: +2 0 |Link to Comment |View article
  • Is It Time to Buy? What History Shows
    Elly

    P/B is the ratio of the stock Price per share to the company's Book value per share. How can you agree if you don't know what it is? In this case accounting changes (mark to market) and inflation would suggest that you would have to adjust the past statistics to arrive at comparable numbers.


    On Dec 12 11:29 AM ellyr wrote:

    > I agree with your point in general. What is the B under the Price?
    >
    > Sorry new to investments.
    >
    > thanks
    >
    > Elly
    Dec 12 16:59 pm |Rating: +2 0 |Link to Comment |View article
  • How Some of the Smartest Investors Turned Dumb in 2008
    Someone has to be in the right tail of the market return probability distribution and someone has to be in the left tail. I've never been very sure that being smart/dumb, as opposed to being lucky/unlucky, had more to do with it.

    In Sam Zell's case he was definitely smart to have hedged his bet by limiting the commitment of his own funds.
    Dec 12 13:16 pm |Rating: 0 0 |Link to Comment |View article
  • Why Did Warren and Hank Invest in Goldman?
    On Dec 08 10:59 PM FETZ wrote:

    > I think you mean systematic risk cannot be diversified away. Go back
    > and check your Finance 101 textbooks. Systemic risk refers to the
    > collapse of the whole financial system.

    I know what SYSTEMATIC risk is. Your comment is a good example of the errors in Wikipedia. Fetz, your quote extracts from its definition of SYSTEMIC risk:

    "In finance, systemic risk is risk associated with the possibility of a collapse of the financial system. It can be defined as "financial system instability, potentially catastrophic, caused or exacerbated by idiosyncratic events or conditions in financial intermediaries."

    However, you don't read far enough, or don't understand systematic risk well enough, to see that the rest of the Wikipedia article, on SYSTEMIC risk, describes SYSTEMATIC risk exactly including the following:

    "Risks can be reduced in four main ways: Avoidance, Reduction, Retention and Transfer. Systemic risk is a risk of security that cannot be reduced through diversification. Also sometimes called market risk or un-diversifiable risk."

    The point is my comment related to the authors article. Your comment was a sophmoric attempt to prove you knew something about finance, which unfortunately you don't. You need to reread the authors article with both those definitions in mind.
    Dec 12 02:19 am |Rating: 0 0 |Link to Comment |View article
  • Why Did Warren and Hank Invest in Goldman?
    "More specifically, systemic risk emanates from Level 2 and Level 3 asset classes which cannot be marked to active markets.... So, if Hank Paulson and Neel Kashkari were intending to attack systemic risk, a comprehensive re-statement of Level 2 and Level 3 assets should have been undertaken"

    Systemic risk is the portion of risk that is related to the market and that can not be diversified away. Paulson was almost certainly intending to attack systemic risk. However, the concept that such risk emanates from specific categories of assets seems intuitively wrong. The author seems to be saying that because Level 2 and level 3 assets are hard to mark to market you can't reduce the risk in investing in them by diversification.

    I have significant questions about the attractiveness of GS as a banking entity but it's not because of systemic risk, which they have historically been very good at covering.
    Dec 08 19:00 pm |Rating: +1 0 |Link to Comment |View article
  • The Case for Making Bigger Cars
    On Dec 08 02:21 PM elcopone wrote:

    > Yes, the F-150 sells, but that is purely out of customer
    > loyalty, not because of superior product.>


    So, all Detroit needs is more stupid customers.
    Dec 08 18:17 pm |Rating: 0 0 |Link to Comment |View article
  • Big Stocks Under a Buck
    Bababooie:

    "The TMA shareholders took a chance with the financial community. Sub-prime loans were the cause of the down fall. The inability to provide loans (services) is why investors are running away from TMA."

    You obviously know nothing about TMA. This REIT is one of the best originators of PRIME mortgages in the world. They have the best delinquency ratios in the business and no subprime loans. They thought they were match funded because their loan portfolio was ARMs (not Option ARMs)and their leveraged financing was short-term LIBOR based repos. The interest rates were matched but the maturities were not. They were killed when the market repriced all real estate securities down and they suffered margin calls on their repo financing.

    Now they have a portfolio of great securities, that will eventually pay off at close to 100%, on their books at 80%. Their stock will take off IF they can 1) avoid bankruptcy, which would be a terrible option because these great securities would be liquidated in a terrible market, and 2) avoid too much stock dilution. (Their lenders are extracting stock and warrants at every turn). The return of the real estate market to normalcy would be nice but is not required for success.
    Dec 05 13:50 pm |Rating: +1 0 |Link to Comment |View article
  • Inflation? Don't Hold Your Breath
    Look at the airline industry in the early '80s. It's a roadmap for what Detroit should be doing right now.

    Western Airlines new CEO in 1981 cut 1/3 of the management staff in the first week after he arrived. The remaining management employees took 10% pay cuts and were asked to work 10 hours a day, six days a week. The work schedule lasted for about 4 months. The pay cuts were permanent. During that time the several unions that represented 90% of Westerns's workforce were asked to make extensive permanent pay and work rule changes to their contracts. The timing of management adjustment first then union contract adjustment was an essential part of the strategy, and probably a major reason it was successful..

    Western was probably the most successful airline in terms of adjusting to airline deregulation. It was acquired by Delta in 1987. The unsuccessful ones simply disappeared.


    On Dec 04 10:37 AM Herbert Hoover wrote:

    > "When was the last time you heard about a company cutting salaries
    > across the board, or a union agreeing to a pay cut?"
    >
    > During the Great Depresion. Looks like we're heading that way. <br/>
    Dec 04 16:08 pm |Rating: +1 0 |Link to Comment |View article

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