Investing Curiouscatblog

Category: Investing

  • Stop Picking Stocks?

    Stop Picking Stocks—Immediately! by Henry Blodget. I don’t agree totally with his conclusion but the article is a good read. Definitely the kind of information investors need to know. I do agree that most of the time for 90%+ of the population stock picking doesn’t turn out to be the best financial move. Three counterpoints for why it can make sense: 1) tax smart investing (for buy and hold) 2) investor education (if you pay more attention by buying some individual stocks as part of an entire investment strategy) 3) the Peter Lynch buy what you know small cap strategy (buying companies that you understand better than “wall street” – as a part of an investment portfolio). From the article:

    The problem for investors is that even though stock-picking usually hurts returns, it’s extremely interesting and fun. If you are ever to wean yourself of this bad habit, therefore, the first step is to understand why it’s so rarely successful. The short answer is that the overall market provides most investment returns, not particular stock picks, so most stock pickers get credit for gains that came merely from being invested in stocks generally. Second, competition among stock pickers is so intense that it is extraordinarily difficult for any one competitor to get a consistent edge.

    Related: Curious Cat Investment Bookstore including: The Intelligent Investor by Ben Graham with forward by Warren Buffett and Security Analysis by Graham and Dodd

  • World Saving Glut – Effect of Oil Price Declines

    Do lower oil prices mean the end of the saving glut?:

    I am not sure whether there is a global savings glut or a global drought in non-residential investment or a bit of both. But I am quite confident that there is a savings glut in China. Savings seems to be above 50% of China’s GDP – which is nuts. And most of that isn’t household savings. There is no investment drought in China.

    There is also clearly a savings glut in the oil exporting countries. Lahart – drawing on work by Higgins, Klitgaard and Lerman of the New York Fed – notes that the oil exporters saved about ½ the surge in their oil export revenue over the past few years. The result: the current account surplus of many oil exporters surged to over 30% of their GDP.
    …
    The oil exporters seem to have gotten noticeably less frugal over time. They were very frugal in 2004. A bit less frugal in 2005. And even less frugal in 2006.

    As usual a good post by Brad Setser. The details of understanding the “savings glut” get complicated but essentially the idea is that huge savings from China, OPEC countries… create huge sums looking for investments (and fund the huge USA debts – public and private). And to some economists create the market for the debt (for example, without the savings glut their belief is there would not have been money to finance the huge questionable mortgage market over the last few year). As stated in, The Global Savings Glut:

    Generally, the flow of surplus global savings to the United States has caused Americans to spend more and save less. In recent speeches, Bernanke — a member of the Federal Reserve Board and nominated as head of the White House Council of Economic Advisers — has shown how. In the 1990s, some of the savings surplus went into the hot U.S. stock market, boosting prices further. Feeling wealthier — because their stock portfolios had fattened — Americans decided they could save less and shop more.

    And nearly all economist agree the “savings glut” creates the very low interest rates we have seen the last few years around the world.

    Related: The Global Saving Glut and the U.S. Current Account Deficit by Ben Bernanke – Savings Glut (The self-serving explanation for America’s bad habits) by Daniel Gross – Global Savings Glut Revisited – The Savings Glut

  • Earn more, spend more, want more

    Earn more, spend more, want more:

    It results in an obsessive, envious keeping-up-with-the-Joneses state of mind that increases our vulnerability to emotional disorders, and is responsible for rising levels of depression, addiction, violence and anxiety in the developed world. It is, I believe, a contagious disease of the middle classes.

    It does seem many people lose focus on happiness and instead focus on buying more things. This is something that I believe is a problem.

  • Social Security Trust Fund

    The Washington Post really doesn’t like Social Security … by Brad Setser

    Best I can tell, Social Security is in the best financial shape of any federal program. It is in far better future shape than Medicare. And it is in way better shape than the portion of the government that isn’t financed by the payroll tax. That part of the government has a $434 billion deficit. Social Security, by contrast, has a $185b cash flow surplus. Social Security’s revenues exceed its expenditures – and will continue to do so for several years. Its financial assets are growing – they will top $2 trillion at the end of this year.

    This is not the way the story is normally told. Social Security is actually in good shape for at least 30 years. That doesn’t mean it is not a big problem after that but Brad Setser makes a good point that the huge increase in the rest of the debt has really made that problem seem minor. The main point? We need to fix the rest of the budget mess, and while I still think Social Security needs adjustment really that is not as important as fixing the rest of the spending money the government doesn’t have.

    Related: Estate Tax Repeal

  • Living on Less

    I make $6.50 an hour. Am I poor? by Karen Datko:

    In a matter of months, I went from a comfortable life with decent pay and health insurance to a $6.50-an-hour job with no insurance, no furniture and just enough resources to keep the wolf from the door. I no longer buy anything unless it’s absolutely essential. I spend $40 at the supermarket and make it last for more than two weeks. I never turn down a free meal. I’ve learned to graciously accept money, furniture, elk meat and encouragement from worried friends.

    I am no longer proud.

    Pride should not be tied to how much money you have. It is, often, but it shouldn’t be. If you act foolishly or you waste money or you act irresponsibly being ashamed is possibly reasonable. When you have extra money, you can waste some and not feel ashamed because you have some to waste. But when you are doing your best you should be proud no matter how much money you have. Buying more pairs of shoes, or fancy coffee or a new video game or the full cable TV package… is not what you should take pride in.
    (more…)

  • Investor Protection Needed

    In an instant, retirement savings vanish by Bob Sullivan:

    With hacking of brokerage accounts increasing, the legal gap facing DeSmidt and other victims has regulators and critics debating the need for new consumer protections.
    …
    Few consumers appreciate the fact that, unlike credit card and checking account transactions, there are no federal consumer regulations specifically protecting consumers in the event of brokerage account hacking
    …
    Both credit card transactions and electronic account transfers, such as online banking payments, are governed by Federal Reserve regulations that strictly limit consumers’ losses from theft. Consumers who report credit card fraud are only liable for $50
    …
    Despite the lack of legal compulsion, some investment firms have taken to offering broad consumer protections anyway. Both e-trade and Charles Schwab offer credit-card style guarantees. Money stolen from Charles Schwab’s Web site will be returned to consumers as long as the theft is reported in a timely way, said Schwab’s Greg Gable.

    This risk is something the government should address. The risk is to the economy at large, as well as having extreme consequences for individual investors. We need to do as much as possible to encourage retirement savings. Not providing government backing (such as provided by FDIC…) is a mistake. The funding should be similar to that for FDIC where member banks are assessed fees to cover the costs of the program based on the risks seen in that institution.

    FDIC has done a great job of creating an environment that gives individuals confidence in the system and encourages economic development. Securities Investor Protection Corporation is another possible model but for something so important to the economic security of the country (and individuals lives) direct government involvement makes sense to me.

  • Encourage Your Kids to Start Saving Early

    How to make your kids millionaires by Walter Updegrave:

    Many younger workers don’t sign up for their 401(k) because the process feels too overwhelming. The last thing you want to do is add to the confusion by launching into a long lecture on asset allocation. A better tack, says Brigitte Madrian, a Harvard economist who studies the behavior of 401(k) participants, “is to break up the process into smaller pieces.”

    Your first goal: Encourage them to contribute enough to get the employer match, without worrying about sorting through all the investment options. Just have them stick the money in a target retirement fund (or if that’s not an option, a stock-index fund).

    You can talk to them later about boosting their contribution and fine-tuning their strategy.

    Related: Saving for Retirement – Start Young with 401k and Roth IRA – what is a 401k? – articles on investing for retirement

  • View Rental Prices in Your Area

    Rentometer is a cool interactive web site that maps rental prices near your rental (either as a renter or an investor). The site is new and expanding so the features are a bit limited now but still it is worthwhile and the new features will really make it great (active rental listings…).

    Related: Real Estate Investing Articles

  • Google to Let Workers Sell Options Online

    Google to Let Workers Sell Options Online:

    It would mark the first time a U.S. company has created a private Internet auction for stock options. Investment experts called the idea creative and said other firms might follow suit if Google’s plan succeeds. The private online auction is to be managed by Morgan Stanley and accessible only by Google employees and the participating investment banks.

    A good idea that reduces friction in the marketplace. Options are transferable, the problem with employee granted options is there is no reasonable marketplace to exchange the options for cash (the friction is very high). Google’s engineers focus on reducing friction in many processes. Many others just accept that the level of friction is inevitable. Google realizes it is not. More on Google Management.

  • Start Young with 401k and Roth IRA

    Putting away some money is vital, even if you are young and in debt by John Waggoner:

    Your company may also match your 401(k) contributions. Say you earned $50,000 a year and contributed 5% of pay to a 401(k). If your company matches 50 cents on the dollar and your money earns 5%, you’d have $3,847 after a year. In 10 years, you’d have about $56,000, if you got 3% raises yearly and earned 5% on your savings.

    Starting small – If you don’t have a 401(k) available, at least open a Roth IRA. You contribute after-tax money to a Roth, but you pay no taxes on your withdrawals at retirement.

    More on Roth IRA’s.