Tuesday, November 18, 2014

Do the portfolios of finance professionals underperform?

Apparently, using data from "the yelp of investing", it has been discovered that finance professionals underperform advertising and tech professionals when it comes to investing.

At first blush, this finding seems consistent with yet another failure for finance.  But I think the truth is somewhat less exciting.  I am guessing that finance professionals are far more diversified and more conservative in their investments.   A point that is raised in the article.

Further on there is discussion of a research paper that finds that finance experts don't beat regular folks when it comes to mutual funds.  Again, I don't think that there is much surprise here for the simple reason that markets are efficient.  Being an expert in finance doesn't make you able to predict the future.

Ironically, being an expert in finance does tell you that you shouldn't pay big fees to experts in finance to run your money.   You should index.

Thursday, November 13, 2014

Why the $13bn mortgage fraud settlement against Chase is pretty much a sham

The ugly truth revealed in Rolling Stone.  It's a long article but worth the read.  

All very depressing, especially in light of the most recent scandal involving forex market rigging by various UK banks.

Basically, despite the largest financial crisis since the great depression, nothing has changed and the regulators seem happy with that outcome.

Monday, November 10, 2014

Thursday, November 6, 2014

A 30 second course on asset allocation

From Josh Brown:  http://thereformedbroker.com/2014/11/06/thirty-second-course-on-asset-allocation-2/

Josh cites Jeremy Siegel's classic "stocks for the long run" which argues, that over any 30 year period, stocks virtually always beat bonds.   Still this doesn't mean that everyone should be 100% stocks - a topic that I've blogged on quite a bit over the years.   You can see my old posts here:


Tuesday, November 4, 2014

UK to start paying off perpetual bonds.

A 100 years ago, the British government decided to consolidate a variety of its debts.  In effect the government took out debt consolidation loans.  These loans got the name "Consols".

The debts consolidated read like a history of the UK including costs from Napoleonic wars and even the South Sea Bubble Crisis of 1720.  

Now, the UK government has now announced that it will begin "calling" - or redeeming - some of these debts - in effect finally paying them off.

Consols are interesting not just because of the slice of history that they provide, but because they are also perpetual bonds.  The pay a fixed coupon forever.  They are valued using the simple formula:

A recent quote shows a 2.5% consol trading off a yield of about 3.86%.  This would price the bond at:

The Economist has a nice article about the introduction of Consols. (Might be behind a paywall).

As a side, from this picture of one of the bonds that was consolidated.  It is pretty clear why we call interest payments on debts "coupons"!
Perpetual securities are actually not as rare as we might think.  Another similar type of security is Preferred Stock - which pays a fixed dividend forever.   Berkshire Hathaway (Warren Buffet's firm) bought a big chunk of preferred stock from Bank of America a few years back.