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  • The Importance Of Return On Capital [View article]
    There is another so called "quality" factor in most common 4-factor and related models, which is probably related to profit margins and ultimately ROC. In that case you would have just re-discovered or re-phrased those "smart beta" or factor models. You would need to back-test at least against these known models, rather than the market, to demonstrate any potential value in overweighting high-ROC companies. Whether those models are still applicable despite their decade- to century-long successful backtesting, or whether they may have been arbitraged away by now and/or their explanatory root causes become irrelevant, is subject to intense discussion in the investment community. I personally have little hope that any such strategy that relies on simple backtesting and could be easily arbitraged away will ever have any predictive value on future returns. You can backtest as much as you want, you never know if you just do curve fitting while doing that. There is no easy free money.
    Dec 12, 2014. 11:21 PM | Likes Like |Link to Comment
  • The Importance Of Return On Capital [View article]
    Nice and insightful article. However, what practical conclusions exactly can we draw (if any)? ROC is not among one of the few "smart beta" strategies (mostly small, value, momentum) that have proven to be consistent over a relatively long time. Is there any rigorous study that has shown that e.g. a strategy overweighing high ROC companies outperforms a passive market strategy? If not, could it be that the ROC is typically already priced into the valuations, and/or past ROC is not a good predictor of future ROC of a company? I think it is well worth researching answers to these questions, before spending time and delving into the task of identifying high ROC companies in an attempt to create excess investment returns.
    Dec 12, 2014. 08:18 PM | Likes Like |Link to Comment
  • Kinder Morgan: What Worries Me The Most [View article]
    Thanks for the infos, KMR Holder and Be Here Now; but my question was concerning the scenario with more than one original KMR purchase. My broker (IB) told me beforehand that the highest cost basis method (the default method on my account) would be applied to net the long and short positions; but it did not happen and I have yet to figure out what happened as their accounting is hard to understand. I was hoping somebody else had more than one original tax lot, to compare results.
    Dec 5, 2014. 08:45 PM | Likes Like |Link to Comment
  • Kinder Morgan: What Worries Me The Most [View article]
    KMR Holder: Are the individual tax lots of the previous KMR shares transfered individually to the converted KMI shares (if there is more than one tax lot), or do all converted KMI shares in an account have the average tax basis of the previous KMR shares?
    Dec 3, 2014. 05:07 PM | Likes Like |Link to Comment
  • Kinder Morgan investors approve merger [View news story]
    I asked my broker the same question, who responded in pertinent parts:
    "... I am only assuming that this potential corporate action will create one merged company. If this is the case, the aforementioned 'netting' of your short and long positions would occur and there would not be any tax lots to match off... The tax optimizer would not need to be utilized, as the net effect would then be reflected on your account statements as one position."
    It appears to imply that the profits from the merger arbitrage are tax free. I have a hard time believing that. Can someone on this site confirm or refute this?
    Nov 21, 2014. 09:09 PM | Likes Like |Link to Comment
  • Kinder Morgan investors approve merger [View news story]
    KMR holder,

    thanks for your input. However, aside from the fact that I don't engage in market timing or prediction, as I prefer to make risk-free money, I'm not sure what the chart of KMI after 11/26 has to do with the merger arbitrage, as we established earlier that positions will be netted in the brokerage account, which in my understanding means that none of the positions that created the arbitrage will be left on or after 11/28. Please correct me if I misunderstood. Thanks.
    Nov 21, 2014. 08:53 PM | Likes Like |Link to Comment
  • Kinder Morgan investors approve merger [View news story]
    Probably about 1.5% or so arbitrage for me. I hope I benefited from the stock dividend - will check. Also have to check what short interest I paid on the KMI short position. I probably received the last KMR and paid the last KMI dividend, that should work automatically, right? Does anybody know why today after the vote there is still an arbitrage differential between KMR and KMI? I would like to make more free money, but I maxed out all my margin accounts.
    Nov 21, 2014. 01:42 PM | Likes Like |Link to Comment
  • Kinder Morgan investors approve merger [View news story]
    If I bought 2500 shares of KMR and sold short 6000 shares of KMI before the merger vote, will my positive and negative KMI positions be automatically "netted" after the merger? If yes, when exactly will that happen? Also, how will tax lots be matched?
    Nov 20, 2014. 10:29 PM | 1 Like Like |Link to Comment
  • Brookfield Infrastructure: Take Advantage Of Current U.S. Dollar Strength To Buy This Forever Stock [View article]
    "Brookfield Infrastructure has a stated objective of increasing distributions by 5%-9% per year. The company expects to be able to grow distributions from its cash flows, without need for new capital. Of the 5%-9% yearly target distribution increases, Brookfield expects 3%-4% to come from tariff increases, 1%-2% from contracted GDP-linked revenue growth and 2%-3% from the reinvestment of cash flows" -
    Just about any other major company could legitimately make that "stated objective". What is the value of that "stated objective" and the "target distribution increases"? Hint: In finance, past performance is one of the worst predictors of future results. The published rationale for those numbers are basically adjustment for inflation, plus growth that may or may not materialize, like for any other company.
    I believe BIP is a good company, but one should not forget the ca. 25% (or 1.25% of assets) fee "drag" that may make it uncompetitive in the long run. BAM receives those fees, largely independent of market conditions.
    Oct 29, 2014. 06:31 PM | Likes Like |Link to Comment
  • Deeply Undervalued Gold Stocks' Young Upleg Remains Intact [View article]
    This article reads like a sales pitch.
    What exactly are the "fundamentally-righteous levels relative to the metal that drives their [gold miners'] profits"?
    "Over the next several years, GDX would more than quadruple with a 307% gain"! Agreed, it could. Could it also post a 308% gain? Or 400%? Or -100%? Yes, it could!
    What makes you believe the GDX/GLD ratio is mean reverting? Gold miners have relatively fixed cost, and are thus a leveraged play. The average production cost is relatively close to the current gold price, with many miners operating at a loss. If anything, shouldn't rather the ratio of GDX/(GLD - [production cost]) be constant? This would show a fundamentally different picture of the risks and rewards of gold miners, than your assumption does.
    Sep 22, 2014. 02:24 PM | Likes Like |Link to Comment
  • Alternative Approaches For Managing Emerging-Market Equity Portfolios [View article]
    I would stay away from Wasatch Emerging Markets Small CAP (WAEMX). With an expense ratio of ca. 2% annually plus soft costs, and 41% turnover, it is extremely likely to underperform in the long run. Moreover, it is tilted towards the "Small Growth" segment, which statistically underperforms "Value" portfolios by several percentage points yearly over long time periods, according to common factor investing models. While the fund outperformed, the history is very short, and past outperformance has little to nothing to do with future results in the mutual funds world. Expense ratio has been proven to be the most relilable predictor of future returns.
    Sep 22, 2014. 01:35 PM | Likes Like |Link to Comment
  • Finding Value In China A-Shares [View article]
    How does a historic outcome prove a valuation thesis... why is the current price justified... what is the expected return on equity... is there a positive or negative correlation between economic growth of an economy and shareholder returns? I still don't see any conclusive rationale other than "I think/wish it should go up because it has lagged".
    Sep 19, 2014. 01:40 PM | Likes Like |Link to Comment
  • Finding Value In China A-Shares [View article]
    P/E values is just one component of most valuation techniques, and "fair" and historic P/E values vary greatly between countries around the globe. Can you offer a rational theory, valuation framework, or conclusive support, to underpin your thesis? Or is it just a "what went down, must/should go up [I wishfully hope]" approach?
    Sep 18, 2014. 08:34 PM | Likes Like |Link to Comment
  • Foreign Withholding Taxes In International Equity ETFs [View article]
    In all honesty, I'm not sure why anybody in the world would invest in a vehicle that has a 15% additional drag on any and all future distributions. It's like throwing 15% of your hard earned assets away (DCF method).
    Do you know if the U.S. also withholds from capital gains distributions from international holdings of U.S. funds to international investors? Why would any international investor use U.S. funds...
    Sep 16, 2014. 08:10 PM | Likes Like |Link to Comment
  • Replicating a Dimensional Funds Portfolio [View article]
    EVAL, JPGE, TILT, TLTE, FEMS, and many more. I doubt the estimated outperformance of DFA funds will be higher than their outrageous "advisor" fees, when you build your own small/value tilted portfolio using a combination of all those ETFs, with similar total size and value tilt.
    Sep 12, 2014. 02:58 AM | Likes Like |Link to Comment
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