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Posts Tagged ‘investing’

Investing QOTD

Posted by Richard on May 7, 2012

My nominee for investing quote of the day is from Brian Hunt:

… When you buy a stock because it is highly rated by Wall Street firms, it’s like buying a used car that is rated highly by the majority of used car salesmen on the lot.

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How to retire as a millionaire

Posted by Richard on February 16, 2012

Denver’s 7NEWS wants to encourage you to save with what might seem to be an ambitious goal in mind: to retire as a millionaire. But if you start young enough, it’s not difficult at all:

It might help if you knew when you could be a millionaire. 7NEWS found a “Millionaire Calculator” that can predict that golden age.

We took the millionaire calculator to Rooster & Moon Coffee Pub in Denver to run the calculation, using current investments, monthly contributions, and a conservative 6 percent expected rate of return. The result revealed when $1 million would be saved.

Some patrons told 7NEWS reporter Amanda Kost that they were surprised by the results.

“This is how much you can put away, and this is where it can get you,” Laura Mulvey mused.

When Mulvey calculated her millionaire age of 88, she made some adjustments and found what saving more money could buy for her future. Her projected millionaire age went from 88 to 58.

“I love it. I love it. It definitely surprises me,” Mulvey said.

Check out the “millionaire calculator” links they’ve posted. But the real secret, and the reason this message is directed especially to the young, is the “miracle of compounding.” Richard Russell, author of Rich Man, Poor Man, explained it with this example decades ago:

In order to emphasize the power of compounding, I am including this extraordinary study, courtesy of Market Logic, of Ft. Lauderdale, FL 33306. In this study we assume that investor (B) opens an IRA at age 19. For seven consecutive periods he puts $2,000 in his IRA at an average growth rate of 10% (7% interest plus growth). After seven years this fellow makes NO MORE contributions — he’s finished.

A second investor (A) makes no contributions until age 26 (this is the age when investor B was finished with his contributions). Then A continues faithfully to contribute $2,000 every year until he’s 65 (at the same theoretical 10% rate).

Now study the incredible results. B, who made his contributions earlier and who made only seven contributions, ends up with MORE money than A, who made 40 contributions but at a LATER TIME. The difference in the two is that B had seven more early years of compounding than A. Those seven early years were worth more than all of A’s 33 additional contributions.

Specifically, investor B, who invests $2,000 a year for seven years and then stops after age 26 has about $945,000 at age 65. Investor A, who starts saving seven years later and continues to invest $2,000 a year until age 65 has about $974,000. But investor A has put in $80,000 versus investor B’s $14,000, and his investment has grown 11-fold while investor B’s investment has grown 66-fold.

Take it from someone who didn’t know this or heed it, who only started seriously saving after age 40, and who’s been saving 30-40% of his income to try to make up for lost time: start saving early. Max out your 401k and/or IRA starting with your first job. Keep it up for at least a decade, preferably two or more. You’ll be a millionaire or maybe a multimillionaire by the time you retire. If you don’t spend it all before you die, your kids will thank you. 😉

To put this in simple terms, how early in your life you start saving/investing is much more important than what you save/invest in. Time is what will make you rich.

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Interest on German bonds falls below zero

Posted by Richard on January 13, 2012

This just boggles my mind. Investors are paying the German government to take their money and hold onto it for 3 to 12 months:

Continuing the schizoid overnight theme, we look at Germany which just sold €3.9 billion in 6 month zero-coupon Bubills at a record low yield of -0.0122% (negative) compared to 0.001% previously. The bid to cover was 1.8 compared to 3.8 before. As per the FT: “German short-term debt has traded at negative yields in the secondary market for some weeks with three-month, six-month and one-year debt all below zero. Bills for six-month debt hit a low of minus 0.3 per cent shortly after Christmas…

Why would any rational person buy a bond that pays negative interest when they have a perfectly good mattress to put the cash under?

One of the commenters at Zero Hedge described it succinctly:

It’s like Ho’s paying tricks for sex.

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The Bernanke crash

Posted by Richard on September 22, 2011

Ronald Reagan famously said that the most frightening words in the English language are "I'm from the government and I'm here to help." Yesterday, Ben Bernanke declared "I'm from the Federal Reserve and I'm here to help." The S&P 500 has dropped over 6% since. I think we may have reached the point where investors react with panic whenever the government threatens yet again to "fix" things.

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Supporting financial jihad

Posted by Richard on May 20, 2010

In Supreme Court nominee Elena Kagan's thin resume, Frank Gaffney found evidence of something troubling (emphasis added):

It turns out that, at the very moment Ms. Kagan was pushing aggressively to remove military recruiters from the Harvard Law School campus during her tenure as its dean, she was very supportive of having what amounted to Saudi recruiters ensconced there for the purpose of enlisting some of the nation’s finest young lawyers to work for the industry known as Shariah-Compliant Finance (SCF).

The first insight this record suggests is that Ms. Kagan’s true motivation in barring the armed forces was, indeed, an animus towards the military, rather than concern about its supposed mistreatment of homosexuals.  After all, the theo-political-military-legal code that authoritative Islam calls “Shariah” and that is the law of the land in Saudi Arabia is infinitely more homophobic than the Pentagon’s efforts to enforce the U.S. statute that prohibits avowed gays and lesbians from serving in uniform.  The former requires the murder of homosexuals; the latter simply kept them out of the ranks.

Ms. Kagan’s troubling tolerance of Shariah would, of course, have vastly more far-reaching implications should she reach the Supreme Court.

The promoters of Sharia-Compliant Finance and their dupes in the media explain it with some hand-wavy blather about not charging interest and not investing in "impure" things like alcohol and pork. But it's much more than that, and it's a 20th-century invention.

Sharia-Compliant Finance was created by the Muslim Brotherhood in the 1940s as another tool to promote its goal of imposing radical Islam throughout the world. To be Sharia-compliant, you have to pay the zakat — a "charitable" donation that, more often than not, ends up in the hands of organizations promoting jihad or trying to rid the world of Jews. The Holy Land Foundation, a Muslim Brotherhood front group convicted in 2008 of conspiring to fund terrorist organizations, was an example. 

To be Sharia-compliant, you also have to get the approval of a "Sharia authority": 

Unfortunately, every one of such individuals embraces not only the supremacy of authoritative Islam’s Shariah.  Without exception, they aspire to its ultimate objective: a global theocracy in which a ruler (the “Caliph”) governs in accordance with Shariah.

Thus, the coterie of Shariah authorities now employed by most of the Western world’s financial institutions – including many in the United States – unfailingly champion a seditious program that has at its core the overthrow of the alternative legal systems like the U.S. Constitution and the government it empowers.

One of the most prominent of these authorities is Sheikh Yusef al-Qaradawi who sits on numerous SCF advisory boards and those of Persian Gulf sovereign wealth funds.  He also has his own television program on Al Jazeera, which he uses week after week to inveigh about and call for violence against infidels, the United States, Israel, apostates and, yes, homosexuals. Interestingly, Qaradawi has called zakat, the Muslim charitable donation required by SCF, a form of “financial jihad.”

According to Gaffney, Kagan's promotion of a Sharia-compliance project at Harvard helped the proponents of financial jihad gain significant power and influence in the finance industry and in government regulatory agencies.

Government involvement in promoting Sharia is the subject of a pending federal lawsuit. The Supreme Court may one day be asked to rule on whether such government promotion of Islamic law violates the Establishment Clause. Care to speculate on how a Justice Kagan, who helped make Harvard University "a major beachhead of Shariah in America," would vote in that case?

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Virtualization profits

Posted by Richard on August 14, 2007

VMWare shares rose 75% today, the biggest opening-day gain among this year's IPOs. The huge jump (from the $29 IPO price to a closing price of $51) gives the company a market capitalization greater than Ford's and just slightly behind software giant Adobe Systems. VMWare's surging sales and profits are due to the growing popularity of its ESX Server, a highly-specialized sort of operating system for running multiple instances of other operating systems. The Motley Fool explained VMWare's success reasonably well for the non-geek:

Back in the 1990s, a group of super-smart computer scientists from Stanford dusted off the concept of virtualization, which was once popular with mainframes during the 1970s. The technology made it possible to create more than one virtual machine on a single physical server.

It was a "eureka!" moment. With data-center space running about $1,000 per square foot, and power usage at about $560 per server, the cost savings of using virtualization can add up fairly quickly for customers. As a result, VMware has enjoyed crushing demand, roughly doubling its revenue every year since 1999.

Storage giant EMC bought VMWare in 2004 for $635 million, and still owns 87% of the shares (now worth north of $16 billion). So you'd think EMC shares would be through the roof today, too, right? Wrong — they were down 71 cents (3.7%). Go figure. 

I suppose the market's expectations for the VMWare IPO were already built into the EMC share price. It's up over 80% from when I bought it in July 2006. 

As for VMWare, there's one cloud on the horizon, and it's an Open Source cloud that may rain lawyers:

Bloomberg believe VMware’s IPO today may the largest technology offering since Google. But doubts have been cast over the company’s supposedly proprietary ESX product, which may be derived from Linux.

Christopher Helwig is the Linux SCSI storage maintainer, and one of the top 10 contributors to the Linux kernel. He has been pursuing VMware over the issue for a year.

Is Hellwig right, and is VMware a derived product of Linux? Unless vmkernel can be loaded without the Linux kernel, it would appear so. VMware was developed from another, long ago OS created as a research project, but it’s unclear whether vmkernel was ported from that OS or rewritten as the Linux-requiring binary blob.

What’s more of an issue is that VMware had these serious questions posed directly to them a year ago, repeated in a public forum many times since, but have yet to respond at all.

If you're interested in all the geeky details about the VMWare kernel, Linux kernel, bootloaders, and Linux kernel driver licensing, that VentureCake post will fix you right up. But note that Mike is an Open Source partisan, not a disinterested, objective observer.

In any case, if you're thinking this is another Google and wondering whether to jump aboard, you might want to factor in a litigation risk.  

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Maybe this should be a crime

Posted by Richard on May 25, 2007

Yesterday, I wrote disapprovingly about the criminalization of hateful speech. I'm pretty close to a First Amendment absolutist, really. But today, I read something so horrendous and pain-inducing that I'm tempted to call for criminal penalties. The material in question is shareholder information from ICICI Bank of India (I own some ADRs in it). To cope with the rather happy burden of a 40% annual growth rate, the bank's board wants shareholder permission to make some changes in capitalization and the articles of association pertaining to that. There are three proposals before the shareholders (see this PDF if you dare). It's the third one that brought me to my knees:

RESOLVED that pursuant to the provisions of Section 81 and other applicable provisions, if any, of the Companies Act, 1956 (including any amendment thereto or re-enactment thereof), and in accordance with the provisions of the Memorandum and Articles of Association of ICICI Bank Limited (the "Bank") and the regulations/guidelines, if any, prescribed by the Government of India, Reserve Bank of India, Securities and Exchange Board of India and United States Securities and Exchange Commission or any other relevant authority, whether in India or abroad, from time to time, to the extent applicable and subject to approvals, consents, permissions and sanctions as might be required and subject to such conditions as might be prescribed while granting such approvals, consents, permissions and sanctions, the Board of Directors of the Bank (hereinafter referred to as the "Board", which term shall be deemed to include any Committee(s) constituted/to be constituted by the Board to exercise its powers including the powers conferred by this Resolution) is hereby authorised on behalf of the Bank, to create, offer, issue and allot (including by way of Preferential Allotment, Private Placement (including allotment to qualified institutional buyers by way of Qualified Institutional Placement in terms of the Chapter XIII-A of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000) or Public Issue, with or without provision for reservation on firm and/or competitive basis, of such part of issue and for such categories of persons as may be permitted), in the course of one or more public and/or private offerings in domestic and/or one or more international market(s), equity shares and/or equity shares through depository receipts and/or convertible bonds and/or securities convertible into equity shares at the option of the Bank and/or the holder(s) of such securities, and/or securities linked to equity shares and/or securities with or without detachable/non-detachable warrants with a right exercisable by the warrant-holder to subscribe for equity shares and/or warrants with an option exercisable by the warrant-holder to subscribe for equity shares, exchangeable bonds and/or any instruments or securities representing either equity shares and/or convertible securities linked to equity shares (all of which are hereinafter collectively referred to as "Securities"), to all eligible investors, including residents and/or non-residents and/or institutions/banks and/or incorporated bodies and/or individuals and/or trustees and/or stabilizing agent or otherwise, and whether or not such investors are Members of the Bank, through one or more prospectus and/or letter of offer or circular and/or on public and/or Preferential Allotment and/or private/preferential placement basis, for, or which upon exercise or conversion of all Securities so issued and allotted could give rise to, the issue of an aggregate face value of equity shares not exceeding 25% of the authorised equity share capital of the Bank, as amended by the resolutions of the shareholders of even date such issue and allotment to be made at such time or times, in one or more tranche or tranches, at such price or prices, at market price(s) or at a discount or premium to market price(s), including at the Board's discretion at different price(s) to retail investors defined as such under relevant rules, regulations and guidelines of the relevant authority, in such manner, including allotment to stabilizing agent in terms of green shoe option, if any, exercised by the Bank, and where necessary in consultation with the Book Running Lead Managers and/or Underwriters and/or Stabilizing Agent and/or other Advisors or otherwise on such terms and conditions, including issue of Securities as fully or partly paid, making of calls and manner of appropriation of application money or call money, in respect of different class(es) of investor(s) and/or in respect of different Securities, as the Board may in its absolute discretion decide at the time of issue of the Securities.


OK, that's enough — I'll spare you the remaining five RESOLVEDs. I really did try. I made it almost half-way through that first paragraph, desperately hoping to reach a period soon, before my eyes became totally unfocused and my lip began quivering. I believe at the time I was inside three levels of nested parentheses.

If you can get further and would like to advise me what to think of this proposal, I'd appreciate it. I'd wash my hands of them, but my ADRs are up 110% in 10 months, and the way they're still growing…

Does the CIA know about Indian attorneys? Do the interrogators at Gitmo? Forcing prisoners to listen to this probably violates international law, but I'll bet it breaks them faster than Christina Aguillera music. 

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Bad news: Congress to work harder

Posted by Richard on January 5, 2007

The Democrats have promised that the new Congress will work much harder than the previous one. No more three-day weeks, no more lengthy recesses. They want to be in session far more days and do far more legislating. Naturally, that sends shivvers down my libertarian spine. If there’s one thing I liked about having the Republicans in charge (and often, there was only one thing), it was that they didn’t get much done. To me, "Do-nothing Congress" isn’t a pejorative, it’s high praise.

According to Andrew Roth at the Club for Growth blog, it’s not just me and a few cranky libertarians that feel that way — it’s investors in general. Roth looked at 2006, comparing a dollar invested in the S&P 500 only on days when Congress was in session versus a dollar invested only when Congress was out of session. At the end of the year, the return on the former was 2.25%, and the return on the latter was 11.56%. The spread was even greater for the NASDAQ Composite Index: if you were invested only when Congress was in session, you lost 5.70%, but if you were invested only when Congress was out of session, you gained 8.19% — almost a 14-point spread.

Roth’s observation isn’t new or unique. He pointed to a nice column from last August by Amy Shlaes. She talked about Peter Singer, who first noticed the "Congressional effect" in 1991 and has now created a hedge fund dedicated to making money from it. Singer has long-term empirical data to back up his thesis:

Choosing the Standard & Poor’s 500 Index as his measure, Singer reviewed 40 years of stock data and government calendars. At least one chamber is in session for more than half of the 250-odd trading days of the year. Yet the index made a greater share of its price gains when Congress was in recess — at least two to three times greater per day.

Economists Michael Ferguson and Douglas Witte reviewed even more data over longer periods, and found the Congressional effect in four different indexes. It was especially pronounced — even flabbergasting — for the Dow Jones Industrial Average:

Since 1897, the year after the Dow was created, an impressive 90 percent of the gains came on days when Congress was out. Their charts show that a dollar invested in 1897 with the strategy of going back to cash every time Congress met was worth $216 by 2000.

But an 1897 dollar invested on the reverse strategy was worth only $2 after a century. The big gap between performances began to show up after World War I, when it became clear that Washington would play a bigger role in the country.

For both philosophical reasons and down-to-earth, bread-and-butter economic reasons, I hope Pelosi’s and Hoyer’s promises of long hours and five-day work weeks turn out to be meaningless posturing, just like their promised "ethics reforms."

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