Seeking Alphalfa

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  • Indexing's Lesser-Known Benefit  [View article]
    "Returns for the value-weighted index, which is based on the author's measures of "cheapness" and "quality", based on trailing results, represent back-tested research results, are not indicative of any specific investment and are not based on actual trading."
    Nov 11, 2015. 09:34 AM | 1 Like Like |Link to Comment
  • How To Build An Early Retirement, Tax-Free Income Portfolio With Closed-End Funds  [View article]
    I have not looked at your fund choices specifically but two issues to be mindful: CEFs often have leverage which can substantially add risk. When funding sources dried up (lost liquidity) in 2008, certain CEFs were crushed. Secondly, CEFs often return capital in order to maintain an otherwise unsustainable payout. Share price can erode pretty quickly when a ROC is included with ongoing distributions.
    Aug 4, 2015. 02:50 PM | 3 Likes Like |Link to Comment
  • Why You Shouldn't Put Too Much Weight On Dividends  [View article]
    Alex - Per your comments on the (perceived) benefits of tax deferral, I am regularly surprised by investors (sometimes professionals - see below) that simply do not understand what we all learned in elementary school. That is, when multiplying numbers, the order does not matter. Calculating returns (before or after tax) is simply the multiplication of a string of numbers, with the tax rate being one of those numbers. No matter where you insert the tax rate, as long as it remains the same, the product (the return) is the same. No different for a portfolio that returns 100% in the first year and loses 50% in the second year vs. a competing portfolio that loses 50% in its first year and returns 100% in its second. The returns are the same because the order does not matter. Of course, changing the tax rate and accounting for flows can change the results materially.
    May 20, 2015. 10:00 AM | 2 Likes Like |Link to Comment
  • Time To Fade Exxon  [View article]
    I can't find the fade button on my trading screen -- I'm not sure what to do.
    Mar 27, 2015. 10:18 AM | 7 Likes Like |Link to Comment
  • Bond Fund Choices For Retiree Portfolios  [View article]
    quazog - many closed-end fixed income products are leveraged and some may include return of capital in the distribution rates. They are not categorically "bad" but just understand what you own and the risks you are assuming. These things imploded in 2008 when the auction-rate preferred market shut down. Many of these were down 50% from their highs.
    Feb 19, 2015. 11:57 AM | 4 Likes Like |Link to Comment
  • Time In, Not Timing, Is Everything  [View article]
    bherber - Of course it's small -- that's the point. It's a ridiculous scenario that drives a very skewed and misleading result – perfect fodder for reps to derive mutual fund sales but I expect the author could never get it past her compliance department. Her case could be made in a much fairer and balanced way.
    Jan 15, 2015. 10:33 AM | Likes Like |Link to Comment
  • Time In, Not Timing, Is Everything  [View article]
    If there are any mathematicians out there with too much time on your hands . . .

    Please calculate the probability that an investor (market timer, as it were), is fully invested for thirty years except for the three best days each year. Now that's a monkey on a typewriter if there ever was one. No comparison to the luckiest of investors who happened to be out of the market only on the three worst days each year -- which I expect, is equally likely / unlikely.

    FWIW I'm not a fan of market timing either -- just of bona fide presentations and analysis.
    Jan 14, 2015. 02:25 PM | Likes Like |Link to Comment
  • Preparing For Retirement In 2015 And Beyond  [View article]
    Cliff - Shares from DRIP plans may be transferred "in-kind" to your account at any broker-dealer. In theory, you could also have physical certificates produced and the dividends paid directly to you by the transfer agent (rather than posted to your brokerage account) -- although not a good idea IMO.
    Jan 9, 2015. 12:18 PM | 2 Likes Like |Link to Comment
  • This Isn't Investing...It's Russian Roulette  [View article]
    Just a point of clarification for non-gamblers or non-math folk. The actual odds of Russian roulette are 5-1 (or 1 chance in 6). Sorry I couldn't let it go :)
    Jan 8, 2015. 03:05 PM | 5 Likes Like |Link to Comment
  • How To Re-Balance Your Portfolio (NAAIM Maniac Edition)  [View article]
    This also looks really odd to me so I checked their website (below). My guess is the largest factor in the wild swings is the small inconsistent sample size -- which basically renders the data useless IMO.


    NAAIM member firms who are active money managers are asked each week to provide a number which represents their overall equity exposure at the market close on a specific day of the week, currently Wednesdays. Responses can vary widely as indicated below. Responses are tallied and averaged to provide the average long (or short) position or all NAAIM managers, as a group.

    Range of Responses:

    200% Leveraged Short
    100% Fully Short
    0% (100% Cash or Hedged to Market Neutral)
    100% Fully Invested
    200% Leveraged Long

    Data collection issues that may affect the statistical significance of this data include:

    Use of a single, composite number for each adviser may not accurately represent the market view of a manager who has short term and long term strategies that are providing conflicting signals or a manager who uses both contra-trend and trend following strategies for different portfolios.

    Investment Styles very widely among managers participating in this survey. They may include managers that trade very frequently and can switch long and short positions daily. Other managers stay fully invested at all times and only change allocations among market segments or sectors. Still others trade around core positions and only a portion of their portfolios change, but that portion could potentially go from long to short very quickly.

    Sample size: Although the number of participating managers, known as NAAIM Trend Setters, is steadily growing the sample size is not large and therefore may be less reflective of actual market conditions.
    Nov 21, 2014. 10:45 AM | 1 Like Like |Link to Comment
  • How Dividends Don't Matter In Retirement; A Few Examples  [View article]
    Catman - just a point of clarification for SA readers . . .

    Mutual funds are required (by tax law) to pay substantially all dividends and capital gains to shareholders. Internal / administrative fees generally reduce the distributed amounts. The term for this is "net investment income".
    Aug 7, 2014. 11:17 AM | 5 Likes Like |Link to Comment
  • Are Dividends A 'Bonus'? - Yet Another View  [View article]
    Mike - I don't have the entire history on this discussion nor have I dissected each comment here but let me have a shot at answering your question/objection. Different market participants value companies using different metrics, IMO primarily using a company's income statement and balance sheet (at least from a fundamental perspective). Those that argue the "permanent impairment" caused by the payment of dividends are arguing that the value of the company vis-à-vis the balance sheet is now less -- and there is really no arguing that -- the money is gone -- and the balance sheet is weaker as a result. Further, from an income statement perspective, the company now has less capital to grow its business, pay down debt, invest in other businesses, etc. All else equal (and that is critical here) the company is immediately less valuable to an analyst focusing on the balance sheet. The impact to the income statement is a bit more complicated as it is dependent on the opportunity cost of that lost cash. Some have argued that cash can be mismanaged by corporations and actually lead to losses (bad decisions). While that may be happen in some cases, in the aggregate, companies use cash toward productive means. None of this means the stock price can’t go up or can’t be trading at an all-time high in the face of this. I’m referring to the “value” of a company (from an analysis perspective) versus the market price.

    Let me give you a real life example of how I have seen cash used in valuation. Several years ago, I (along with a few other firms) was bidding to purchase a broker-dealer (price is not important). At the last minute, the owner disclosed that the firm’s investment portfolio (about $500,000 of marketable securities) was not included with the purchase. What do you think happened to the bids? Of course, they were all immediately reduced by $500,000. This the “permanent impairment” concept, albeit less complicated, than a dividend payment. In this case, all else was equal (save for a day of operating income) and the analysis was easy. Large, publicly traded companies have an infinite number of moving parts and their stock prices are affected by an infinite number of variables making the impairment much harder (if not impossible) to isolate. Does not mean that it’s not there – and it also does not mean that it matters equally to all investors.
    Jun 11, 2014. 12:52 PM | 3 Likes Like |Link to Comment
  • Municipal Bond Mark-Ups: Measuring 'Reasonable'  [View article]
    Excellent info for SA readers that might not be familiar with this area of the markets. IMO this is an area that is sorely lacking in disclosure -- especially on the retail side of the market.

    MSRB has made some progress here but until the SEC mandates better disclosure, retail investors will continue to overpay for munis in many cases. I agree that Schwab and other online firms do a great job with pricing.

    The author's advice regarding riskless (principal) vs. agency trades is great; though some firms may only do riskless trades on a principal basis. One can always use EMMA (trade info on MSRB's website) to determine the markup charged on a riskless trade.
    Apr 15, 2014. 10:29 AM | Likes Like |Link to Comment
  • The Richest Man In History Reveals His Simple Wealth Generating Secret  [View article]
    Mathman - yes -- as my IQ drops precipitously when quoting Ricky Bobby :)
    Mar 27, 2014. 10:20 AM | Likes Like |Link to Comment
  • The Richest Man In History Reveals His Simple Wealth Generating Secret  [View article]
    For those readers (and this author for that matter) inclined to do some research on John Rockefeller, his financial story is exceedingly interesting. He spent the first half of his life ruthlessly (the nicest word I could choose) creating and defending a monopoly -- and the second half giving away his money. With all due respect to the magic of dividends, attributing his financial "success" to dividend investing is quite a stretch.
    Mar 27, 2014. 10:05 AM | 20 Likes Like |Link to Comment