Wednesday, April 29, 2015

It's a great quarter guys

My colleague Don shared this.   Apparently, more often than not, equity analysts will tell CEOs "it's a great quarter guys".

It is pretty common for "great quarter" stocks to tank shortly thereafter.

The fact that the analysts are so cosy with the CEOs of the companies that they cover says it all.   As I used to say to my students in my equity analysis course - you don't work for the company and you don't owe the company anything.  Your analysis must be at arms length, otherwise you risk suffering from Stockholm syndrome.

Thursday, April 23, 2015

Spoofing and and herd behavior

John Cochrane (of U. Chicago) has an enlightening post about the practice of spoofing (creating fake orders to lure other traders to do stupid things).   Suffice to say, Cochrane isn't a big fan of regulation that prevents traders from being dumb.   He's probably right.


Wednesday, April 22, 2015

NC Pension Fund Fees Approach $500 Million

Andy Silton does the math and reports that fees for the pension fund are approaching $500 Million.

Just so we are clear here, that's $500,000,000.

So what are we getting for all these fees?   Apparently not a whole lot of extra performance - which is no surprise to anyone who believes that markets are pretty efficient (they are).

Silton points out that otherwise the fund is in good health - which is good, but that doesn't make wasting hundreds of millions of dollars a year any less bad.


The question we should ask then is "how much should these fees be?"

I'd answer that for such a huge portfolio, 0.1% of assets is a good start, as I can pay only 0.18% for $3000 with Vanguard and it seems reasonable to assume that $90 billion would get some sort of discount.

So assuming $90 billion in the fund, 0.1% fee would yield $90 million in fees.  But even if you go with the Vanguard fee of 0.18%, we're still only looking at $162 million.   That's $338 million less that what we are paying.