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Retired and loving it

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  • Robo Advisors - Awakening A Giant For The Benefit Of All [View article]
    As you say the biggest problem in the wealth management business is that fees are too high. The creation of ETF's has helped investors a great deal as it has all but destroyed the mutual fund business. Mutual funds do not outperform and their fee structure guarantees underperformance over long periods of time.

    The new robo advisor services hopefully will do the same thing to mainstream investment advisors who basically put all of their clients in either a 60:40 or 80:20 equity bond splitand hope for the best. For this they usually charge 1% or more. The real value of that advice is worth somewhere between minus 2% and zero. Over time robo advisors should be able to force down investment management fees. And the sooner the better.

    What robo advisors and ETF's unfortunately cannot do is reduce the dead weight of over diversification. By this I mean that ETF's forces people to put a lot of money in stocks that don't carry their weight. For example, a typical electric utility ETF will hold 50 or more utilities. The reality is that fewer than 5 of those holdings will drive 95% of the ETF's results which means that the remaining 45 holdings are doing very little for the client.

    The only real value in professional investment management comes from (1) Choosing the correct asset mix that will work until the next change in direction of markets, and (2) Buying as few securities as possible to effectively match index returns for each chosen asset class. What I mean buy this is that good investment advice tilts a portfolio to the asset class that is driving global performance with as few holdings as needed. A well constructed portfolio probably does not need many more than 50 holdings in total, particularly if the appropriate skew at the moment favors bonds. If bonds are the place to be holding one Treasury and one corporate ETF is more than enough.
    Apr 14 10:23 AM | Likes Like |Link to Comment
  • Capital Use And Measuring GDP In China [View article]
    It is as you say. The solution is to stop wasting capital but that will result in lower investment which will result in lower reported GDP. The Communist Party cannot afford civil unrest caused by a slowdown in GDP growth. They have to keep the wheels on the bus turning and that means ever more money spent on non-productive infrastructure. '

    Major cities around the world have largely been built to service the consumer economy. They were built slowly. In China there are now a good dozen major cities but they have been built to support the capital spending industry. If capital spending slows there will be a lot of office vacancies and a lot of really bad real estate loans.

    As much as China needs a soft landing it will be pretty much impossible to achieve.
    Apr 11 10:51 AM | Likes Like |Link to Comment
  • It's Bubble Time: A Study Of Peak PE For The S&P 500 [View article]
    It is all very interesting but what would be more interesting is knowing the event that will trigger a change in market direction. There are lots of possibilities but which one will break the camel's back? Valuation is rarely a reason for a change in market direction.
    Apr 11 10:35 AM | 2 Likes Like |Link to Comment
  • Ukraine, Russia, Germany And The Real Threat Facing The U.S. [View article]
    Interesting but the head of Gazprom Europe is about as meaningful as the Queen being officially the head of the UK government. Gazprom is controlled by the Kremlin.

    As for Germany being a port for Russian goods? What Russian goods? Russia produces oil and gas and virtually nothing else. Anything from China goes by ocean through Rotterdam and then to Germany.

    As for good relations. WWII was only 75 years ago and I doubt Russia will ever forget Stalingrad and the Germans are unlikely to forget about Prussia which no longer exists thanks to Russia.
    Apr 11 10:28 AM | 1 Like Like |Link to Comment
  • Hasenstab In Ukraine, On Ukraine [View article]
    Quite so. The Ukraine is as irrelevant to the world as Lesotho.
    Apr 10 02:28 PM | 1 Like Like |Link to Comment
  • "RBC nice" paying off [View news story]
    You can't be serious. You can't say bank without saying crook.
    Apr 10 10:13 AM | Likes Like |Link to Comment
  • Ukraine, Russia, Germany And The Real Threat Facing The U.S. [View article]
    A German and Russian alliance??? Hardly likely. Maybe we could ask the Prussians, if you can find any.
    Apr 9 09:55 AM | Likes Like |Link to Comment
  • The Market Looks At Ukraine And Shrugs [View article]
    The Ukraine has had two thousand years to become a prosperous state. They have failed to make progress. It could well take another two thousand years to notice a difference.
    Apr 9 09:50 AM | 1 Like Like |Link to Comment
  • When Safety Rallies, Pay Attention [View article]
    Indeed Alpha is in Beta rotation in disguise. Anyone who has managed ultra large pools of capital has known this for a very long time. When you are running a $10 billion plus portfolio it is impossible to stock pick your way to a superior return and those who claim they can do so have simply not been at it long enough to understand what they are really doing.

    The simple fact of investing large pools of money is that you have to be in front of the change in industry rotation to add any meaningful value. Your observation that defensive groups are now outperforming is a consequence of other things getting too expensive. People who run large pools of money do not turn to cash when they see an IPO bubble. They can't. They get paid to manage equities. Their only recourse when faced with an obvious bubble is to hide in a beaten up group. Utilities of late have been that group and those who made the switch three months ago are probably now contemplating where to rotate next because trust me utilities are now no longer cheap. They may continue to do well for a bit but the window dressers are now the ones pushing them higher.

    To reiterate. If you want to add a couple of hundred basis points in "Alpha" you have to do it by rotating through industry groups. There is just not enough Alpha in the old Graham and Dodd handbook of stock picking.
    Apr 8 10:49 AM | Likes Like |Link to Comment
  • John Hussman: The Other Side Of The Mountain [View article]
    Well done. We are still left however with the matter of predicting the next turning point for the economy and hence the stock market. There will be an event out there that in retrospect will be the obvious trigger for a change in direction. But what is it? Another failure in the housing market? A blow up in student loans (long, long overdue), a collapse in oil prices that forces the Middle East to flog their Treasuries? A major terrorist event which puts global trade in a gridlock?.....

    Just let me know....
    Apr 8 10:37 AM | Likes Like |Link to Comment
  • All Is Not Well On The Ukraine Front [View article]
    Quite so. Whatever the risks associated with possible disruptions to Russian gas passing through the Ukraine are more than offset by the possibility that Russia and not the EU will be stuck pouring money in the well known rat hole that is the Ukraine.

    In short the Ukraine is a liability to whoever becomes its caretaker. If the EU is wise it will let Russia take on the role.

    The market's attitude to the Ukraine is that it is unimportant and I believe that is correct. The Ukraine is a mess that is better left on the other side of the fence. It does not belong in the EU. Corrupt officials in the Ukraine make the Mafia look like amateurs.
    Apr 8 10:22 AM | 1 Like Like |Link to Comment
  • The Impact Of High-Frequency Traders [View article]
    Market maker profit opportunities have always existed. You just did not see them. In the old days the market maker saw all bid and offers and set his pricing to guarantee himself a profit no matter what. Today HFT does the same thing but they provide significantly more liquidity at any given price than the market maker ever did. Forty years ago you were lucky to get a 1000 shares filled at any given tick. Today you can fill 100,000 or more shares at every tick.
    Apr 7 09:23 AM | Likes Like |Link to Comment
  • The Impact Of High-Frequency Traders [View article]
    Quite so. I spent 38 years in the institutional money management world and absolutely trading costs today are lower than they have ever been. All HFT has done is migrate what was formerly the market maker's profit margin to the HFT traders. What HFT provides in turn is better liquidity than what the old market maker provided. In a sense it is true that HFT is skimming but so was the old market maker. What the old market makers did was skim but provide only marginal liquidity.

    From my perspective the old time market makers were just greedy hogs who did little to help me trade. HFT might indeed also be greedy hogs but at least today an institution can fill a 500,000 share order in a morning rather than two or three days. If you think the old system was better you have no appreciation for how expensive it was to have your order hanging out in the wind for two or three days before you got filled. By the third day everybody on the planet knew you were trading and that friends is not a good thing.

    As I said before HFT is bad only if they increase the risk of a failed trade. As long as they are adequately capitalized things should work out.

    HFT exists because it generates a high return on investment for HFT. If you forced them to hold more capital it would lower their return on investment and lower the risk of a failed trade.

    Forty years ago failed trades happened frequently and were dealt with easily because things moved slowly and you could easily back up the order flow to fix the boo boo. Now in less than a second there could be fifty individuals involved in a trade. Try fixing that problem if one of those individuals has fat fingers.
    Apr 7 09:13 AM | Likes Like |Link to Comment
  • The Impact Of High-Frequency Traders [View article]
    HFT has improved liquidity in the markets by a significant amount. This is good for everybody and it makes pricing more efficient. For example, if the market was filled only with Warren Buffett types there would be no liquidity in anything. Their buy and hold strategy would simply create a moat over which no individual investor could cross. HFT has allowed the individual the opportunity to invest like a Buffett.

    The risk of HFT is that they default on a trade. Such a default however small would start a chain reaction that could take the market down by 30% or more in an hour.
    Apr 4 10:36 AM | 1 Like Like |Link to Comment
  • Sector Rankings For ETFs, Mutual Funds, And Key Holdings [View article]
    Apr 4 10:13 AM | Likes Like |Link to Comment