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  • Investing In Biotech: Tekla CEFs Or IBB?  [View article]
    Left Banker: One last try and then I will concede defeat. You say "IBB is simply not getting 3% more a year in a portfolio's bottom line". And you are correct if you look at price. Over the last 10 years HQL has under performed by 2.18% a year based on price. I think we agree that NAV best measures the performance of the fund managers. In an open end fund that is about the only measure of performance. By that measure, comparing IBB and HQL over 10 years we have a difference of 3.06% a year. Over the last five years IBB outperformed by 2.8% a year and over the last 3 years the out performance of IBB was 4.7% a year. Sounds like a pretty consistent under performance. Some of that is higher expenses, some might be higher transaction costs but most of it is poor stock selection.

    So what causes the mixed numbers you mention--the jumping around on your graphs. IN 2007-9 the discount expanded. In early 2010 it hit 19% and today it is 2%. i don't have the historical numbers but think that 2% is closer to the long term norm. That 17% drop in discount, of course, shows up in the price--and I agree that is real money. So that offsets some of that 3% manager under performance. But what does that mean for the investor thinking about buying today? What does it say about the wisdom of holding? That drop in discount was a one time thing that benefited a small group of investors who didn't hold the fund in 2007 but bought at the bottom. It does nothing for the new investor. What the new investor will likely get is that continuing 3% under performance by the managers.

    I will admit I don't understand the "psychological barrier to selling". In one case the fund is selling and sending you the money and the other you are doing it yourself. But logic doesn't always rule the investment world no matter how efficient some think the markets are.

    Thanks for the debate!
    Sep 28, 2015. 07:29 AM | 1 Like Like |Link to Comment
  • Investing In Biotech: Tekla CEFs Or IBB?  [View article]
    Qniform: I could be missing something but here is what I see. In 2008 HQH lost 22% of their NAV. In addition to that performance loss I am assuming they had a distribution of 8-9%--and Morningstar doesn't seem to go back that far so I am only guessing. They had no income to distribute in 2008 so unless they are sitting on a chunk of cash going into 2008, where does the 8-9% distribution come from if not from selling at the bottom? I guess they could have borrowed money to do that distribution but I don't see any other way. Of course you are right about ETFs and open end funds needing to sell to meet customer withdrawals and CEFs don't have that problem but what I thought we were debating was if the distribution of a CEF could cause selling at the bottom in a down year.
    Sep 27, 2015. 03:54 PM | Likes Like |Link to Comment
  • Investing In Biotech: Tekla CEFs Or IBB?  [View article]
    Qniform. I understand your need for income in retirement, but I am thinking the CEF has the same timing issue as we do. When the market is down, such as in 2007 and 2008, and they were making distributions not covered by income, they were forced to raise cash by selling at the bottom. How is that any better than you selling after a market drop? In fact it seems worse--you can control when you sell. If they are forced to make a distribution every quarter in a down market they are forced to sell at the bottom. I still have a few years until RMDs are required but when that happens I will make sure that my conventional IRA has either enough bond and REIT income to cover the RMD or sufficient cash to make it through a bear market without having to sell at the bottom. What I won't do is give up total return in my funds for what I see as the artificial income of CEF distributions.
    Sep 27, 2015. 12:47 PM | Likes Like |Link to Comment
  • Investing In Biotech: Tekla CEFs Or IBB?  [View article]
    Left Banker: Thanks for the quick response. Two points: You say that CEFs are about income. If we change the word "income" to "distribution" then we have a good starting point. IBB also has "income" but because of the tax benefits of ETFs they can avoid the need to pass on most income (thus we avoid taxes). You notice the high market price of a share of IBB--that is because most of that income is being retained by the fund--even though the turnover rates of the three funds seems similar The customer, as you mention, can turn that unrealized capital gain into "income" by a simple selling of X % of his IBB. So I continue to miss your point about the value of that CEF "income". In the old days when commissions were huge there might have been some value in distributions in place of selling shares but I can't understand the value today with $7 commissions. I know many small investors love those distributions but my question to you is, should they? And more importantly should they give up total return for the convenience of a monthly or quarterly distribution that they can very easily perform themselves. Your second point about IRAs--the same conversion of unrealized capital gains to needed income is available in an IRA--so again why give up 3% a year in returns for something the investor can do themselves. We do seem to have a disconnect on returns over the last 3, 5 and 10 years so I can only assume you are using return on price and I am using return on NAV
    Sep 27, 2015. 12:33 PM | Likes Like |Link to Comment
  • Investing In Biotech: Tekla CEFs Or IBB?  [View article]
    This is a great article for highlighting the differences in how investors analyze their investment options. I always start by looking at the long term performance. Looking at the 10 year return of these three funds it's not even close. On a NAV basis, IBB had an annual return of 15.23%. HQH, 12.62% and HQL, 12.17%. Three and five year returns show a similar out performance by IBB. All numbers from Morningstar. Add to that the large tax efficiency difference of the ETF format and the after tax difference is just short of astronomical in favor of IBB.

    Of course you can look at the returns based on price instead of NAV and that helps the CEFs in some cases--but almost no change at the 10 year time frame.

    So looking at the numbers I am trying to see how an investor would come to believe that of these three options it makes sense to buy anything but IBB? Here is the best I could come up with.

    1. You believe that the 10 year numbers aren't representative of the future. That the two actively managed CEFs will improve their performance versus IBB going forward.
    2. Taxes don't matter to you, either because the funds are held in an IRA or if held in a taxable account you are in the 15% bracket and don't have to pay taxes on your capital gains and maybe live in a state with no income tax.
    3. The larger distribution of the CEFs is so important to you that you are willing to give up 3% a year in returns and pay the extra taxes. This would also seem to mean that you don't reinvest those distributions and are unwilling to just sell shares each year to obtain the same distribution.
    4. You are a trader and believe by timing the market and buying when the CEFs go to discount you can offset the reduced return, higher expenses and extra taxes.
    Sep 27, 2015. 10:40 AM | Likes Like |Link to Comment
  • The S&P 500 Death Cross - Time To Panic?  [View article]
    Rich: You make some good points but gloss over what seems to be the big shortcoming in Yellen's resume (and most of the other members of the current Fed). She doesn't seem to have ever worked in the real world. She has a career in academia and government. I am thinking she was appointed and selected to every job you list. Has she ever worried about making a payroll, dealing with competition, struggling with government regulation,etc? I'm not sure it makes sense for those impacting the economy at the Federal level not to have a very good working knowledge of it, as opposed to a knowledge based on theory and models. I would agree with many that electing members of the Fed would be ludicrous. Look how good we do electing members of congress who get a 20% approval rating year after year.

    It would be interesting to see a study of the Federal Reserve members going back to 1913 and see if we have always been academia heavy and real world experience light.
    Sep 26, 2015. 11:36 AM | 14 Likes Like |Link to Comment
  • Don't Worry About Public Bond Market Illiquidity  [View article]
    David: Maybe you could expand on one of your important statements that "dealers work in this way because they want the buyers to be long term holders". Why do the dealers care how long the buyers hold the bonds? I can see that they don't want the IPO process to be impacted by short term flipping but beyond the IPO period I can't see why it would matter to either the dealer or the issuing corp.
    Sep 23, 2015. 10:33 AM | 1 Like Like |Link to Comment
  • What The Failure Of Shiller's CAPE Shows About Stock Picking  [View article]
    I think there are many problems with CAPE. As you mentioned Jeremy Siegel talks about accounting changes (things like how management options are accounted for and how that impacts reported earnings). A much easier change to understand, which I think is beyond debate, are changes to the stocks that make up the S&P 500. In 2000 and prior there were no REITS in the S&P 500--then in 2001 they were slowly added--I think there are 20 REITS included now. As we all know REITs have very high (and artificial) PEs. Because depreciation reduces reported income, it is normal to see REIT PEs in the 35-50- range. What does adding 20 REITs, with those high PEs, do to the average PE of the S&P 500? What Shiller should do is identify and quantify all the changes that have taken place (during the years he is using as a baseline) both to accounting standards and stock inclusion and then he might have information of value.
    Sep 22, 2015. 01:01 PM | 1 Like Like |Link to Comment
  • Greece, The Epilogue  [View article]
    Herve: Great article until the conclusion. "Mr Tsipras realized he had no choice but to live within it's means". Approving a plan of action isn't "living within it's means". Plans are easy--actually taking action is difficult. In the years to come I think you will see very little change in Greece and further bailouts will be coming. Tsipras realized he can get the Germans to continue funding his country if he smiles and says the right things.
    Sep 22, 2015. 09:01 AM | 3 Likes Like |Link to Comment
  • Despite Continuing Low Interest Rates, Wells Fargo's Best Days Lie Ahead  [View article]
    I am thinking Gayle is just having a little fun with you boys. She wants to see if she can get you up on your hind legs baying at the moon and so far she is easily winning the contest. Chill out and pay attention to what is important in the investment world.
    Sep 19, 2015. 07:11 PM | 5 Likes Like |Link to Comment
  • Learning From Target Date Funds Without Actually Using Them  [View article]
    Well Roger it doesn't seem like context to me--it seems like substance--in fact I would say it is the major point of the article. Reread the first sentence in your article. And sure readers (and every day there are new ones on SA who don't know you from any of the million other authors) can go back and read your past articles or follow your links but I'm suggesting that isn't a reasonable expectation. Providing context in links makes all the sense in the world but the substance of the article should stand on its own. And the "not enough room" argument is ludicrous.
    Sep 17, 2015. 08:27 AM | 1 Like Like |Link to Comment
  • Learning From Target Date Funds Without Actually Using Them  [View article]
    Maybe I am not reading closely enough but I read your article and discussion of "liquid" and other alternatives that might be used and I can't find a single word about what those alternatives are? Do you assume that all readers understand the lingo/jargon of the professional money manager?
    Sep 16, 2015. 02:09 PM | 1 Like Like |Link to Comment
  • Omega Healthcare: Quality At A Discount  [View article]
    Steve: Thanks for the opinion--I am thinking you are right. Today I bought a third of a position at just over $33 and maybe in the next few days I will buy another third if the price drops a point or so. So now we can wait and see what the Fed does and what impact it has. Seems like a coin toss to me what the Fed will do (I hope they raise) and even more of a coin toss as to how the market will react. But my guess is that over the next few years there won't be very much in the way of interest rate hikes (as the economy struggles to do anything more than flatline and inflation drops even more) so I am slowly buying REITs and intermediate term corporate and muni bonds to bring my allocation back into a more normal balance.
    Sep 14, 2015. 07:50 PM | Likes Like |Link to Comment
  • Stocks Are Like Hamburgers: Be Bullish When Prices Go Down  [View article]
    Mark: I wonder if you have Buffett's theory right? I think he is talking about a market correction when some macro event is causing all stocks to fall. That might be like the price of hamburger falling and could be a great time to buy. When an individual stock (IBM) or industry (oil) falls there is generally a specific reason for the drop. Then you aren't sure there will be a bounce back. How would investors have fared if they used your hamburger theory buying Eastman Kodak over the last 30 years and how would investors have fared if they bought the passenger train industry in the 1950-60s? Maybe the analogy for these types of investments--if you are a hamburger distributor buying and selling the product do you want the price of hamburger to drop? Depends.
    Sep 14, 2015. 09:53 AM | Likes Like |Link to Comment
  • Omega Healthcare: Quality At A Discount  [View article]
    Tiki--Thanks for that idea. I might just buy a half tomorrow and see what happens later this week but it is tempting to wait when many investors might overreact to an 1/8 or 1/4 point increase, even if it might be the last increase in the fed rate for many a year if we get another recession.
    Sep 13, 2015. 07:16 PM | Likes Like |Link to Comment