Good stock pickers are valuable!

Andrew Bolton has historically done well at stock pickking. That's why lots of investors are throwing money at him for his Chinese ventures.

The trust is attracting widespread interest from investors because of Mr Bolton's spectacular investment track record. More than 12,000 private investors have already registered to be sent the prospectus.

Fidelity is confident of raising $US1bn in what would be a record for a new conventional investment trust in Britain. It will take a 1.5 per cent annual management charge, which equates to $US15m.

Once again, it's hard to beat the market..

..even if you job is to do exactly that. We're talking about fund managers here; the 'league tables' are out.

James Dunn in The Australian:

According to Phillip Gray, editorial and communications manager at Morningstar Australasia, last year 325 of 609 (or 53.6 per cent) actively managed large-capitalisation Australian share funds outperformed the S&P/ASX 200 Accumulation Index (which counts capital gain plus dividends reinvested.)

Over three years, 262 of 502 funds (or 52.2 per cent) beat the index. Over five years, the winning proportion fell to 41.7 per cent (176 of 422 funds), while 45 per cent (64 of 142 funds) came out in front after 10 years. After 15 years, 33 of 55 funds (60 per cent) were ahead.

This is no great surprise.

What the day traders are up to...

Certainly an alternative investment strategy to trying to identify good businesses that are undervalued, then buying and holding!

From the Sydney Morning Herald.

They are the new breed of derivatives traders: they have no clients, they trade their firm's own money using high-powered computer programs like F1 - Formula One, so-called because it is so fast - based on secret algorithms.

US sharemarket officials and Congress are mulling bans on some of their tricks. And it is so profitable, the big banks are using it. The New York Times and The Wall Street Journal have devoted pages to the dark arts of ''high-intensity'' and ''low-latency'' trading and the world of ''dark pools''.

Security analysts & incentives

Not surprisingly, there still seems to be some pressure on (sell-side) security analysts to provide an optimistic outlook. Here's Andrew Main (City Beat) on analyst Brett Le Mesurier leaving the industry.

Le Mesurier's form includes being the first analyst to have put a sell on Babcock & Brown -- "not early enough" as he ruefully put it yesterday.

He's got a reputation for calling things as he sees them, which may not be an instant hit with the big corporate brokers. Take his view on NAB: "It's the worst-performing bank, and they've consistently delivered in that department."

He admitted such lines don't make him instant friends on the sell side.

"But the fund managers love it."

What to expect in the reporting season

ANALYSTS believe the August full-year profit reporting season will mark the low point of the earnings rout, suggesting now could be the right time to start looking at cyclical stocks again. As companies prepare for what is tipped to be the worst reporting season in 20 years, most equity strategist are forecasting that earnings will hold up in fiscal 2010. For the 1510 listed companies with a June 30 balance date -- 72 per cent of all the companies listed on the Australian Securities Exchange -- reporting season has already begun and will conclude on August 28. Almost all of the companies will post their full-year reports during August.

From The Australian

What they used to teach you at Stanford

Seven lessons learned by someone who received an MBA back in 1972.

Value investing - still appropriate?

Ben Steverman in Businessweek asks whether value investing is still the way to go.

Disciples of the value strategy, like Berkshire Hathaway's (BRKA) Warren Buffett, focus on the long-term intrinsic value of a company, hoping to buy shares in good companies at reasonable prices. By focusing on value, they avoid fast-growing firms with expensive stocks, and, by thinking long term, they try not to worry about the fickle gyrations of the market from month to month or day to day.

But amid a severe recession and financial crisis, true value has proven to be a slippery concept. "It's only a value if you can accurately assess today what the future profits will be," says Richard Sparks of Schaeffer's Investment Research. Particularly for financial stocks—some of which haven't or won't survive the crisis—it's nearly impossible to identify the long-term value, whether through profits, cash flow, or other measures.

Mums and dads and super

Mums and dads don't understand super, apparently.

Private equity and Pacific Brands

Looks like the PE guys did OK out of Pacific Brands.
Michael West in the Herald has the story.

Invest in index funds?

More evidence (reported in the New York Times) that it's hard to systematically beat the market.

Similar stuff from Australia - this time the Sydney Morning Herald.

Technical analysis

We're talking this week about technical and quantitative analysis. Barclays Global Investors has been doing it pretty well this decade. Here's a Businessweek article explaining why.

More on the Meltdown

There's a whole heap of information out there on the latest Wall St saga. Why not go to the Wall Street Journal as a start?!

Here's a 'local' story on how these thing happen. [H/T: Andrew Bolt's blog]

Wall st hits the wall

Guess you want at least some info on what on earth is happening over the ditch?! Here's a useful summary with plenty of links: at mediabistro
H/T: Instapundit

Oh, have a look at the ASX webpage to see the announcements by the Australian banks outlining their exposure to Lehman.

Value or momentum!

Turns out both.

Found this paper by Clifford S. Asness, Tobias J. Moskowitz, and Lasse H. Pedersen1 (note: pdf link) via an article in the New York Times.

Here's the abstract:

We study jointly the returns to value and momentum strategies for individual stocks within countries, stock indices across countries, government bonds across countries, currencies, and commodities. Value and momentum generate abnormal returns everywhere we look. Exploring their common factor structure across asset classes, we find that value (momentum) in one asset class is positively correlated with value (momentum) in other asset classes, and value and momentum are negatively correlated within and across asset classes. Long-run consumption risk is positively linked to both value and momentum, as is global recession risk to a lesser extent, while global liquidity risk is related positively to value and negatively to momentum. These patterns emerge from the power of examining value and momentum everywhere at once and are not easily detectable when examining each asset class in isolation.

LTCM

A reminder about what can go wrong, even when smart people are involved. A New York Times essay on Long Term Capital Management.

Ten Questions Every Investor Should Ask

Janice Revell in Fortune produced a really good summary for equity analysis. Read it here.

Again, what's the number one rule?

1 HOW DOES THE COMPANY MAKE MONEY?

If you don't know what you're buying, you're hardly in a position to know what you should be paying for it. So before you buy a stock, you need to get a handle on how the company earns its dough.

How to short sells and win!

Andrew Main in The Australian.

Pressure on security analysts

Do analysts ever wonder about the consequences of downgrading their recommendation on a firm? What if it's death threats? Yep. I think the analyst made the right call. As long as they're not, you know, actually killed.

Valuing mining companies can be tricky

Just ask shareholders in Ginadlbie Metals and Sundance Resources. An independent expert was unable to value the resources held by Sundance in Cameroon (see Oz article here). This is an example why I typically discourage students from choosing resource companies for the major assignment!

Value vs growth investing

Value investing (looking for low P/E, high dividend yield stocks) can be difficult in a bull market, with valuations on the rise. Anna French in The Australian explains what sorts of firms the fund managers are looking at. Note that the distinction between value and growth is not always clear:

Roger Montgomery, chairman of value manager Clime Asset Management, says value is hard to find but it is not the worst he has seen it. He also has a more flexible definition of value. "Value and growth are two sides of the same coin. You can't estimate the value of a business unless you can confidently assess its growth.