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Marc Gerstein

 
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  • How Many Holdings Makes Sense in Your Portfolio? [View article]
    "As Warren Buffett said 'Wide diversification is only required when investors do not understand what they are doing'!"

    Be careful about nuggets of wisdom from Warren Buffett. In truth, he diversifies more widely than many realize. The holding disclosed in the BRK annual reports are only those above a certain $ threshhold. In truth, there are plenty of others that don't make it into the annual report.
    Nov 4 11:20 AM | 1 Like Like |Link to Comment
  • Around the World: ETF Pullback Choices [View article]
    I addressed this in the article I submitted on 11/4.
    Nov 4 10:20 AM | Likes Like |Link to Comment
  • Barnes & Noble's Nook: New Niche? [View article]
    After agonizing for a long time trying to decide on a dedicated e-reader or iPad (which lets me have apps for both B&N and Kindle), I decided to go with Kindle. That turned out to be a GREAT decision.

    I never truly understood the difference between back-lighting and e-ink, but now that I'm in the e-reader world, I say with confidence e-ink wins, hands down. (When I read in bed, I hook a little lamp onto the Kindle and it works perfectly; it focuses the light very directly so my wife has never complained) So, too, does the lighter weight. It may not seem like a big difference when you look at numbers in a comparison chart, but when you hold one of these things and actually read for more than few minutes, you realize the differences are huge. And you gotta love the long battery life!

    Color is cute. So, too, is video. But I think we need to guard against the internet generation getting a bit uppity, as it often does when it tries to get us to believe that if something can be done then it must be done. I actually canceled print subscriptions to The New Yorker and The Economist and stopped looking at their web sites and now use Kindle only. It actually turned out that the magazines and web sites were too distracting with too many pretty things to look at. I've found that with Kindle, I wind up reading far more of each issue than I ever did with hard copy or on the web. (The Economist charts aren't as pretty but Kindle zooms them to the point of adequacy.) If you like to read, never underestimate the benefit of pure text.

    That's why I find it hard to see Nook Color as a serious entrant in the e-reader marketplace. Not being an iPad user, I'll defer to others to evaluate Nook Color as a tablet-lite.

    But Nook Color does strike me as a product that was born in corporate conference rooms in response to a mandate from higher ups to "Do something" or "Make a splash."

    This wouldn't be unique to B&N. One of the things that swayed me away from Nook and toward Kindle was a plea in the Nook discussion forums for B&N to forget chess, soduku and web browsing and "just give us an e-reader that works." Good point. Why the heck would anyone care about playing chess or soduku on an e-reader? Again, it's the conference-room mentality: "Look at these comparison charts. Now we have stuff that Kindle doesn't."
    Nov 1 04:55 PM | Likes Like |Link to Comment
  • Triple Play Income Investing [View article]
    There are a couple of ways to respond here.

    The most basic answer is that the ranking system I used to narrow the lists down to 15 stocks had 15 that were higher rated than MO and RAI. With RAI, the growth portion of the model had a lackluster score, and looking at the company, it seems that this was, indeed, the case. Dividends grew nicely in the past, but that was accomplished through an escalating payout ratio. As to MO, it looks like dividend growth had been good in the past, but turned negative in recent years.

    But there’s a bigger-picture issue here.

    For most investing strategies (income, growth, momentum, etc. etc. etc.), the market is likely to offer up far more appealing ideas than one can fit into a portfolio. That’s definitely so for income. My suggestion is that you pick an approach you like and if you’re satisfied with the results you’re getting, then all is well. Don’t worry about situations where someone else using a different approach to, say, income, has different stocks.

    When I used to give presentations on stock screening at the Money Show, I always included a PowerPoint slide wherein I added an 11th commandment: “Thou shalt not covet thy neighbor’s stocks.”

    If you feel there’s room to improve on what you’re doing, then by all means do what you can to improve. But if your results are good, that’s that. If you succeed with Stock A, there’s no reason to be concerned that your neighbor is succeeding with Stock B. Nobody should get caught up in the notion that there is one correct income list (or value list, etc.) and that all other lists are wrong. That will produce lots of stress and no benefit to a brokerage account, and possibly damage if one gets too carried away with short-term performance comparisons and winds up getting into a data mining trap (where strategies are designed, not based on sound ideas, but instead, to try to replicate certain past performance numbers).

    As to JNK, depending on when I run my model, sometimes JNK is the one that’s there. As I said, my conviction on which ETF (or even whether to spread assets among them all) is not strong and probably won’t strengthen until we get more junk-bond ETFs and more histories.
    Oct 31 12:19 PM | 3 Likes Like |Link to Comment
  • Triple Play Income Investing [View article]
    "Any ETF, CEF or fund comes with an expense that has be factored in, so there's an automatic shaving of the yield"

    Actually, that depends of the source you use. The data I work with reflects what the shareholder receives (expenses are already subtracted). Glossaries or footnotes can be boring, but they are important since different sources will take different approaches.
    Oct 29 04:20 PM | 1 Like Like |Link to Comment
  • Triple Play Income Investing [View article]
    And to me, open-end junk bond funds are like salami or hot dogs. I love the latter, but my late grandfather, an old-time butcher, refused to eat them because he "saw how they were made."
    :-)

    So I guess we agree to disagree.
    Oct 29 04:17 PM | 3 Likes Like |Link to Comment
  • Triple Play Income Investing [View article]
    This is a fascinating area, and I wish I knew more about it. Unless we're about to allow an important element of municipal finance to collapse, permanently or at least for a generation or so, I have to believe some sort of bailout or restructuring effort will occur in response to defaults. I'm not invested in munis now because, as noted, I don't know enough about the area. But do intend to study up on it, especially if we do see some disasters and price collapses.
    Oct 29 12:06 PM | Likes Like |Link to Comment
  • Triple Play Income Investing [View article]
    Closed end funds are similar to ETFs from the fund manager's point of view; a portfolio of hard-to-trade securities can be managed without having to worry about fund inflows and outflows.

    But lacking the like-kind exchange mechanism built into ETFs, CEF asset values can stray far, sometimes very far, from even the most precise NAV calculations

    That can be good or bad depending on your point of view. If you buy CEF stock at a premium, there's a danger that your stock will eventually move down toward NAV. This doesn't always happen. For unique asset classes, premiums can persist for a very long time. But nowadays, with ETFs available in such incredible variety, I'm not sure it's as easy to identify a unique CEF asset class as was the case 20 years ago.

    The flip side -- the good side -- of all this is that some CEFs can be purchased at a discount to NAV. There, you have the potential for the stock to move up to match NAV. Again, this won't always happen, but the possibility exists. Also, CEF shareholders can take an activist stance and force the CEF to convert to an open-end fund, which would cause their holdings to automatically appreciate to NAV.

    If you just want to invest in the portfolio and not be distracted to side issues like this, ETFs are the better choice. In fact, it almost looks as if ETFs were created in such a way as to correct the flaws in CEFs. I don't know if that's strictly accurate, but the facts looks as they would if this were so. But many investors enjoy and do well with the modest CEF arbitrage opportunities, so there is definitely a case for CEFs.
    Oct 29 08:49 AM | Likes Like |Link to Comment
  • Triple Play Income Investing [View article]
    That's certainly a valid way to generate income, but I'm not an expert on options and would rather leave that sort of thing to other who know more about this than I do. But I know enough to agree that for those who are comfortable with this sort of thing, it can be fruitful.
    Oct 28 10:54 PM | 1 Like Like |Link to Comment
  • Triple Play Income Investing [View article]
    I stated in the article that open end funds, or some diversified collection of funds, would be fine. But let's discuss the numbers you produce relating to HGY.To put is succinctly, I have to reject them.

    For starters, I vehemently object to any analysis that looks solely at 2009, an oddball year (an initial surge from a deep crisis) the likes of which is not likely to be seen for a long time (we hope, because it would take another financial disaster to set the stage for another '09-like year).

    Actually, to the extent you want to look at '09 at all, you really have to pair it with '08, the downside. Moreover, data from both years must be taken with a huge grain of salt because of the nature of junk bond pricing. These aren't like stocks. They don't trade every day. Many can go weeks or months without trading. Much of the pricing that goes into NAV calculations come from what is known as "matrix pricing" where a pricing service (all the funds hire one) estimates a daily price for each bond based on its proprietary mathematical algorithm. Interestingly, Merrill Lynch, the proprietor of the bogey you propose, was one of the leaders in this area. Back when I managed an open end junk bond fund, I had actually terminated a contract with a trader-based pricing service (which was just that, prices set by the firm's trading desk based on where they thought the bond might trade if a transaction were to occur) and hired Merrill Lynch. I wasn't necessarily convinced that matrix pricing was best, but as you undoubtedly know, the mutual fund business is brutally competitive and I felt a need to, for better or worse, get on the same pricing basis as my largest competitors. Back to today's discussion: Needless to say, I'm not inclined to place to much stock in the Merrill Lynch High Yield Master II, especially that 57.4% 2009 number; the S&P 500, it ain't!

    There's another issue you miss. Open end funds are much much much riskier on the downside. That's because they're open ended, which means the fund manager must buy or sell based on shareholder inflows and redemptions. And you can bet your bottom dollar that when the market is tanking and bids are evaporating, mutual fund shareholders are NOT bottom fishing. They're redeeming, forcing fund managers to sell low; very low, very very very low; to hit any ridiculous bids he/she can find simply because of the need to meet redemptions. (In years like 2008, none of them have cash cushions that come anywhere close; if they did, the fund directors would take them to the woodshed for letting yield fall). ETFs need not do this.

    You may not have seen this fully reflected in the NAV research you've done. (From what I can see on Morningstar, it's partially reflected.) That's becasue, as noted, the NAVs don't refect actual prices achieved in the marketplace. They are mathematical assumptions. But to the extent of the NAV trends that were published, we see some big drops on the way down in '08 (with '09 being mainly a readjustment), and I can pretty much assure you a lot of open-end junk fund managers did some serious Prevacid or Pepto Bismol intake as their stomachs churned wondering, each day, if their fund would still exist at day's end becasue they knew they couldn't sell holdings at anywhere near the prices assumed inthe NAV calculations. (I actually did get an ulcer during such a crisis. Heck, just thinking back to it now, recalling how I went down to accounting every day when it came time to calculate NAV and standing over the shoulder of the guy who did my fund and literally shaking as I watched the process . . . I still feel a shudder.)

    You can see some impact of this on HYG's pricing. Compare its NAV and market prices for '08 and '09. Notice how the market price didn't go down nearly as much as NAV in '08, but didn't bounce nearly as high in '09. Such exceptional "tracking errors" were not unique to HYG. They happened often in fixed income in gneral (matrix pricing extends beyond junk) prompting the folks at IndexUnverse.com -- the most intelligent Indexation/ETF site I've seen anywhere -- to suggest, given the oddities of NAV numbers, that the market prices might actually have been more reasonable; i.e. based on some sort of price discovery process. Fortunately, the crisis didn't last long enough for that hypothesis to fully examined, but knowng what I know about NAV numbers, I suspect they were on to something.

    So in sum, regardless of what you think you're seeing from open-end fund numbers, I would continue to prefer ETFs becasue for better or worse, we know (i) that fund managers don;t have to blow out their holdings by hitting scavanger bids, and (ii) shareholders can buy and sell at the prices they're seeing on the stock exchange. It's not a big deal in a normal economy so in most year, open end can be fine. But if things are looking bad out there, I wouldn;t be caught dead in an open end junk bond fund regardless of what sort of NAV numbers get bandied about.
    Oct 28 10:47 PM | 6 Likes Like |Link to Comment
  • Some Outstanding Picks for Value Investors [View article]
    ROI is return on capital, more specifically, net income divided by long-term liabilities plus equity.
    Oct 27 07:19 AM | Likes Like |Link to Comment
  • Taking Cover: ETF Pullback Choices [View article]
    Good point. I did that in the new 10/21 article.
    Oct 21 01:54 PM | Likes Like |Link to Comment
  • Apple: More Revenue in One Quarter Than Google Earns in a Year [View article]
    Cool. If you can do a couple of leg splits and back flips while reading this article aloud, you'd have a shot for at least a silver, and possibly gold, medal at cheer-leading competition. If you enter, let us know so we can watch on ESPN.

    Seriously, though, where is the Seeking Alpha disclaimer? Do you own AAPL shares?
    Oct 18 05:36 PM | 2 Likes Like |Link to Comment
  • Some Outstanding Picks for Value Investors [View article]
    Great question.

    I borrowed the $50 million market cap minimum from Greenblatt, but I was not at all tempted to alter it. I think a strong case could be made that smaller stocks are more likely to trade on fundamentals, rather than other more fleeting factors, market buzz. I've bee noticing over a long time that a lot of screens do tend to lean smaller.
    Oct 12 02:18 PM | Likes Like |Link to Comment
  • The Foreclosure Mess: We All Need to Calm Down [View article]
    Re: questions about title

    Title once owned by borrowers passes to a lender with a formal judgment of foreclosure. Assuming the creditor sells the property, title would then pass to the foreclosure buyer.

    There is a considerable body of well-settled law setting forth the conditions under which a judgment may be re-opened. If the foreclosure judgment is not re-opened, there is no dispute at all regarding title.

    In the article, I suggested that the foreclosure judgments in question here do not qualify to be re-opened. Actually, I was not attempting to present a full-blown legal brief here. Going further, we have the rights of what the law (not the media, the law) refers to as "innocent third parties,"which in this case refers to those who bought at foreclosure after doing reasonable (i.e. typical) due diligence.

    As difficult as it might be to re-open a foreclosure judgment after the fact where the borrower didn't raise objections the first time around if the property was still owned by a bank, the burden would increase monumentally if ownership passed to an innocent third party (and in a worst case scenario where a judge determines that the original judgment must, in a specific case, be corrected), money damages from bank to borrower is more likely than taking a house away from a foreclosure buyer.

    It's interesting to read the comments here. Emotions are incredibly high, right up there with and perhaps higher than the anti-analyst rage of the early 2000s. That's definitely understandable. I, too, am outraged by what happened. But when it comes to unraveling the foreclosure problems, none of this emotion and rage is relevant. Fortunately for our hopes of economic recovery (as annoyingly long as it's taking to unfold), the legal system is more than capable of tuning out the noise and handling the situation with considerably less sweat than rage-merchants realize.
    Oct 11 09:33 AM | Likes Like |Link to Comment
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