» Posted by Martin Weil on June 20, 2008

Chart courtesy Calculated Risk

» Posted by Martin Weil on March 05, 2008

Warren Buffett offers up his annual homily. Buffett's Chairman's Letter (pgs 3-22) is a must-read for investors.

» Posted by Martin Weil on February 12, 2008

It's that sad dawning when you realize the market is so much bigger than you are.

Mark Fishman on the failure of his $2 billion hedge fund, Sailfish, in the NY Times.

Sailfish was another hedge fund touting its managers' ability to earn excess returns with lower risk and volatility. More hedge fund failures are expected according to the article.

At a recent industry conference, one hedge fund manager, in an overview entitled "2008 and Beyond," was asked what his strategy was for 2008. "To get to, 'and beyond.' "

» Posted by Martin Weil on February 11, 2008

If you get speeding tickets, watch out: The chances are good that you will also engage in possibly dangerous investing behavior, too. That is the implication of a new study that found that individuals who receive more speeding tickets tend to churn their portfolios...They found that, other things being equal, an investor's portfolio turnover rate rose 11 percent after each additional speeding ticket he received.

So says a new study profiled in the NY Times

» Posted by Martin Weil on November 19, 2007

The entire market in subprime debt is just 1.4% of the size of global equity markets. Or, to put it another way, a 1.4% downward fluctuation in stocks erases the same amount of value as if all subprime-backed bonds were collectively marked to $0.

Tyler Cowen points out at Marginal Revolution.

» Posted by Martin Weil on October 03, 2007

I'll give you a hint. It's not the Wall Street Journal, they of the "less regulation and oversight" school, the argument being basically that more oversight would make the US less competitive internationally.

Well, the UKs Association of Pension Investors and a similar group in Australia beg to differ, according to this article in the Financial Times, describing a letter to our own SEC signed by several large European institutional investors.

"Rights to provide real director accountability to shareholders are sorely needed in the US," said Daniel Summerfield, co-head of responsible investment at the Universities Superannuation Scheme, the UK's second-largest pension scheme and a signatory to the letter to the SEC.

Seems these investors, along with many in Europe, have been badly shaken by the failure of our regulatory system to prevent the widespread damage to investors caused by the subprime credit meltdown.

» Posted by Martin Weil on August 07, 2007

The NY Times (registration required) has an excellent pictorial guide to what CDOs are, how they are made and to whom they are sold. Straightforward enough for the amateur to understand yet complete enough to satisfy even the professional.

» Posted by Martin Weil on August 03, 2007

"As the financial-liquidity police raid the credit-market brothel, even the piano player faces arrest. ...The credit bordello has enjoyed some wild times in the past few years, luring customers into the room at the back where the exotica are displayed. As the raid ensnares more and more of the regulars, newcomers are likely to become increasingly wary of the derivatives market's wares. And when the piano player is led off to jail, the music stops." Mark Gilbert from Bloomberg on the meltdown in the credit markets

» Posted by Martin Weil on July 28, 2007

The stock market sell-off this past week sent me scurrying to reread Robert Shiller's landmark examination of the 1990's stock market bubble Irrational Exuberance. It was a sobering read.

The parallels Shiller draws between the "New Era" thinking of the Gilded Age, the Roaring Twenties, the Nifty Fifty era and today are all too striking. The implications for investors, if these previous eras' denouements are to be repeated, are that it may be extremely difficult to make money in stocks, US stocks at least, over the coming twenty years. Shiller suggests that long-term generational bull markets in stocks, such as the one we have enjoyed since 1982, have had a strong tendency to be followed by long periods of very low or flat average returns. Such an outcome would wreak havoc with current assumptions about long-term investing and asset allocation theory.

While I have largely refrained from mixing political commentary with investment analysis in this space, one particular quote from Shiller (who does not so refrain), struck a very deep chord.

If we exaggerate the present and future value of the stock market, then as a society we may invest too much in business start-ups and expansions, and too little in infrastructure, education, and other forms of human capital. If we think the market is worth more than it really is, we may be complacent in funding our pension plans, in maintaining our savings rate, in legislating an improved Social Security system and other forms of social insurance. We might lose the opportunity to use our expanding financial technology to devise new solutions to the genuine risks... that we face.

» Posted by Martin Weil on July 18, 2007

"Weeks after the meltdown of two prominent Bear Stearns Cos. hedge funds that bet heavily on the market for risky home loans, the brokerage has told the funds' investors that the portfolios' assets are almost worthless, according to people familiar with the matter. The assets in Bear's more-levered fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund, are worth virtually nothing ... The assets in the larger, less-levered fund are worth roughly 9% of the value since the end of April... in March, before their sharp losses, the enhanced leverage fund had $638 million in investor money, while the other fund had $925 million."
from today's Wall Street Journal (fee site)

In the Financial Times (registration required), one Bear Stearns investor comments, "They are a big investment house. They are supposed to be professional. There is nothing to do now except maybe go shoot the guy who did it."