John Christy

Bogle: Investors 'Getting Killed' in ETFs

This is a thoroughly asinine argument. The average dollar calculation is interesting, but it's really just a slightly more robust proof of the obvious: most investors make bad decisions. Ok, we all get it.

Does that mean ETFs are a bad idea? I have nothing but respect for Bogle, but it's really, really hard to not see sour grapes at work here. He made a fortune peddling index funds and he's clearly upset that others have cottoned on to the idea.

CRE, CMBS Disaster Imminent? Not So Fast

Davidson is right on. People have been talking about commercial real estate as the "next shoe" for several years. It's already priced in. The next shoe is almost never telegraphed that far in advance...the thing that kills us will be something we're not talking about now and nobody sees coming. It's an "unknown unknown".

Recession Books and Theories - The Best of What's Around

It's hard to beat "The Great Crash of 1929" by John Kenneth Galbraith. The book has been in print 50+ years and remains a classic for good reason. All of the big themes are in there -- greed, hubris, bubbles, etc. Even Goldman Sachs makes an appearance. It's a great illustration of just how little things change in financial markets. We have made all of these mistakes before and we will make them all again. Galbraith packs more insight in those 200 pages than a lot of the stuff that gets published these days. Pound-for-pound it's the best beach reading you'll find... assuming you want to read about this stuff at the beach!

Emerging Market Toxic Assets: The IMF Questions Russia

If you're looking for perfect information, you won't get very far in any emerging market, not just Russia. And that's nothing new. Emerging market investing has always required the ability to judge known - and "unknown unknown" - risks. Btw, this is also true in any equity investment, not just emerging markets. Just ask shareholders of AIG, LEH, etc. You will NEVER have perfect information. Otherwise we'd all be billionaires.

The key is whether or not you get paid to take those risks. Russia has delivered almost 20% annualized returns over the past 10 years. You can argue whether or not it was driven by speculative forces, carry traders, or whatnot but the numbers don't lie. Russia was worth the risk.

More Evidence That 'Risky' Foreign ETFs Are Less of a Gamble than U.S. ETFs

A lot of investors routinely confuse "exotic" or "volatile" markets with "risky" markets. Asia, Latin America, etc. are all exotic, unfamiliar markets for many Americans. And they are certainly volatile. But that does NOT make them inherently more risky. In fact the biggest risk you could have taken over the past 10 years was to keep all of your equity exposure in the US. There's no reason to think this will change in the next 10 years.

The GM Bondholders' 'Legal Rights' Meme

It's amazing how many people -- many of whom would have trouble getting accepted to a 2nd-tier law school -- have suddenly become leading authorities on contract law. This is closely related to the "shareholders rights" meme that activist investors love to invoke in their campaigns. And the PR script is identical. It's great soap-box rhetoric, but no substance.

Geithner's Obeisance to Chinese Officials Reveals U.S. Weakness

Geithner's qualifications to run the Treasury are limited, at best. And his credentials as bare-knuckle negotiator or international diplomat of any sort are comical. I'd much rather be on the Chinese side of the table at this meeting.

Of course, I hope we can all agree, this meeting DOES NOT MATTER. After they shake hands and go home, China will do exactly whatever they want, and the US will have no choice but to follow. What's the alternative? Send Geithner back again.."Ok, guys this time I'm really, really serious." C'mon, man.

In investing, this is what's known as a sideshow.

Jeffrey Saut: International Exposure Critical, Especially Emerging and Frontier Markets

Great article. Jeff is right on the money with most these observations. Only 2 minor critiques:

1. There's nothing "aggressive" about putting 27-35% in international stocks. I'd call that moderate, if not conservative. The US market is only 40-odd % of the MSCI All Country World Index. If you have 65% in the US, the only "aggressive" bet your making is being excessively bullish on the US.

2. A fund that "checks ALL of the investing style boxes" is known as an index fund. If you pay MFS to manage it for you, it's a very expensive index fund. Why not go with ishares MSCI ACWI Index Fund (ticker: ACWI) instead?

Debating Taleb, And Advice-Givers in General

Taleb actually does lay out some very specific advice, but it's toward the end of The Black Swan. If you haven't read the whole book, you would almost certainly miss it. That may explain why most of his interviewers usually fail to ask about it.

Taleb's advice is more along the lines of portfolio strategy rather than any specific investment picks. In a nutshell, he recommends keeping the vast majority of your assets -- as much as 90% -- in something virtually risk-free (T-bills, cash, etc.), while making aggressive bets with the remainder.

Traditional portfolio theory and orthodox financial advice tells you to do the opposite: put ~90% at risk and ~10% in cash. In a world where stock prices rise every year in a smooth upward trajectory, this is exactly the right thing to do. But in a Black Swan world, it's not.

I'm not saying Taleb is right, but I think this part of his work definitely deserves a lot more attention and debate.

Are Magazines Doomed Too?

I completely agree with evroth on Portfolio. It was just an awkward fit from the beginning. It wanted to be a combination of Fortune and Vanity Fair. But the typical Fortune reader couldn't care less about most of the stuff in Vanity Fair. And the typical Vanity Fair reader wouldn't be caught dead reading Fortune. For the small subset who enjoy the content of both, they can simply subscribe to both magazines.

And don't forget the financial part. Conde Nast spent $100 million (!!) to launch the thing. That's not the Internet's fault. If you pulled the plug on the Internet tomorrow and went back to a 100% print world, a $100m magazine launch would still make very little sense.

Does Emerging Market Success Demonstrate a Return to the 'Decoupling' Theory?

Pure economic decoupling is a fantasy. It's clear that if the US economy completely falls apart, there is no way the rest of the world can carry on as if nothing has changed.

That said, emerging market stocks can and do have very different return patterns than in the US. And the valuations, growth prospects and technical factors can all be more/less attractive than the US at any given time. In this sense, they can certainly 'decouple' from time to time.

And it's not just a short-term effect. Over the past 10 years, MSCI data (mscibarra.com) shows emerging markets up +5.5 on an annualized basis. EAFE is down an annualized -2.4% over the same stretch and the US is down an annualized -4.8%.

That's not to say emerging markets are inherently better, but it shows that there will always be some benefit from diversification. And there will always be something out there that's beating the US. You just need to go out and find it.

Shared Perspective: Buy and Hold Is Changing

It's a shame that the meaning of "buy and hold" has become so distorted over the years. As William correctly points out, the real essence of the term has its roots in value investing and careful stock-picking.

A classic buy-and-hold investor does his homework and tries to buy great companies when they're temporarily out of favor. Timing the exact bottom, however, is impossible, so he must be prepared to hold until his thesis pays off. This kind of buy and hold investing will NEVER die.

But somehow investors came to believe that "buy and hold" meant "buy whatever you want and hang on, eventually it will pay off". That is hopefully gone for good -- and good riddance.

The No-News Market Move

Felix is dead-on. You should be incredibly wary of pre-market stories from Bloomberg in particular. I used to work there and the house policy is to grab whatever quote they can find. If 3 IBM shares traded over the counter in Bangkok and it's on their screen, the headline will be "IBM lower on ...[news]" They do this all the time.
They are fully aware that pre-market liquidity issue makes this pure and utter nonsense....and they do NOT care. They got a price and they got a headline -- they're done. Beware!

Japanese Brewers Playing Catch Up In China (KNBWY)

I'm not sure I agree with BW on this point:

"Chinese drinkers still prefer cheap, local brews to the more profitable, higher-priced foreign-branded beers."

This may be true for the Chinese equivalent of Joe Six Pack, but the upwardly mobile, emerging consumer class is going to gravitate toward more expensive foreign suds.