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by ghariton
27 Feb 2012 03:46
Forum: Stocks, Bonds, ETFs, Funds, REITS and More
Topic: REITs instead of bond funds
Replies: 29
Views: 1863

Re: REITs instead of bond funds

I would just add that nominal bonds can be very risky too. I found out the hard way in the 1970s.

George
by ghariton
27 Feb 2012 01:33
Forum: Stocks, Bonds, ETFs, Funds, REITS and More
Topic: Stingy Investor
Replies: 272
Views: 35901

Re: Stingy Investor

Robert Schiller in the New York Times : YOU don’t have to be a genius to pick good investments. But does having a high I.Q. score help? The answer, according to a paper published in the December issue of The Journal of Finance, is a qualified yes. The study is certainly provocative. Even after taking into account factors like income and education, the authors concluded that people with relatively high I.Q.’s typically diversify their investment portfolios more than those with lower scores and invest more heavily in the stock market. They also tend to favor small-capitalization stocks, which have historically beaten the broader market, as well as companies with high book values relative to their share prices . Gosh, I thought that successfu...
by ghariton
26 Feb 2012 18:05
Forum: Financial Planning and Building Portfolios
Topic: What if ... it is different this time?
Replies: 391
Views: 48208

Re: What if ... it is different this time?

Fwiw, John Quiggin is speaking at the Rotman School of Management early next month... John Quiggin on The Role Played by Discredited Economic Ideas in the Meltdown, Nov 10 at Rotman‏. While looking for something else, I chanced on this 27-page review by Stephen Williamson of John Quiggin's book, Zombie Economics. The last two paragraphs: Unfortunately, Quiggin’s urge to construct a simple narrative, and his political goals, get in the way of sound economics. Quiggin would have us believe that financial economists, macroeconomists, and various other economists enamored with the theoretical beauty of well-functioning markets, have constructed tools which, if we use them, will lead us astray. In particular, the poor will suffer, and society w...
by ghariton
26 Feb 2012 14:11
Forum: Stocks, Bonds, ETFs, Funds, REITS and More
Topic: Stingy Investor
Replies: 272
Views: 35901

Re: Stingy Investor

Book value is not rocket science for most firms, just spend some time thinking about it. I disagree. Net book value is the item in a firm's financial statements that warrants the most study, far and away. If a firm has depreciable assets (plant, equipment, etc) you should examine whether accumulated depreciation is adequate. Quite often a firm will merely use CRA's prescribed CCA rate. But CRA sets its rates for all sorts of reasons, and in any case they are hardly ever firm-specific. Even where a firm uses its own depreciation schedules, it is guessing at average remaining life of assets (an informed guess, one hopes, but far from rock-solid information). You also have to worry about obsolescence of existing assets. This can happen for ph...
by ghariton
26 Feb 2012 13:57
Forum: Stocks, Bonds, ETFs, Funds, REITS and More
Topic: REITs instead of bond funds
Replies: 29
Views: 1863

Re: REITs instead of bond funds

There is no free lunch. Bonds certainly carry risk. Of prime concern is interest rate risk -- interest rates are at record lows, and many think that they will move up, leading to big drops in bond prices. Can you get around this risk by simply holding the bonds to maturity? (I realize this is unlikely for the OP, but still an interesting question.) Well, it depends on why interest rates have gone up. If it is because real interest rates have gone up, there should be no problem. But if it is because inflation has gone up, your principal will have been eroded. You will bear a big real loss even if you hold to maturity. I've seen some studies of historic moves in nominal interest rates that suggest that roughly 80% of increases are due to incr...
by ghariton
25 Feb 2012 18:53
Forum: Stocks, Bonds, ETFs, Funds, REITS and More
Topic: Stingy Investor
Replies: 272
Views: 35901

Re: Stingy Investor

Yet, despite the flaws, low P/B stocks have done - perhaps surprisingly - well for a very long time. I certainly agree with the adjective "surprisingly". :wink: Yes, P/B has a track record, and yes, Fama and French use it as a measure of value, mostly on the basis that it has worked, empirically, in the past. But I don't understand why it has worked. In the absence of such understanding, I would merely be extrapolating a historic relationship -- a historic correlation, in my case. Say George, why only use technical analysis - vol,beta,skew,kurtosis - when fundamental info is available too? ;) :lol: :lol: I no longer pick individual stocks, except for a bit of play money. My interest in skewness and kurtosis is purely intellectual...
by ghariton
25 Feb 2012 17:40
Forum: Stocks, Bonds, ETFs, Funds, REITS and More
Topic: Stingy Investor
Replies: 272
Views: 35901

Re: Stingy Investor

I have long distrusted book value. Too often, it is quite arbitrary or influenced by factors that should not matter for an investor. As a result, the number can grossly understate value, e.g. if assets have increased in value due to inflation. Or it can grossly overstate value, e.g. if assets have become obsolete and haven't been properly written down. The first industry I worked with was transport. I did financial analysis and, later, productivity measures for CNR and CPR. One of the more interesting issues was how to treat their land. Land for stations and yards in downtown Toronto was carried at original cost. In other words, it was a function of the date of acquisition, not any intrinsic value. I also had to analyze airlines. The book v...
by ghariton
25 Feb 2012 16:04
Forum: Retirement, Pensions and Peace of Mind
Topic: A Simple Retirement Plan Using T-Bills/GICs
Replies: 326
Views: 24926

Re: A Simple Retirement Plan Using T-Bills/GICs

twocentsworth wrote:Those of us without pension plans are scratching our heads these days: we're damned if we do (fixed income) and damned if we don't (equities).
Roll your own pension plan. That's what RRSPs are for. You can create your own non-indexed pension with nominal bonds, or an indexed pension with RRBs.

Yes, it's hard to build up much of a pension with returns as low as they are. But company pension plans have the same problem. The low returns available these days are leading to growing pension fund deficits. So the participant in a private sector pension plan is not that much better off than you.

As for members of public sector pension plans...

George
by ghariton
25 Feb 2012 16:00
Forum: Retirement, Pensions and Peace of Mind
Topic: A Simple Retirement Plan Using T-Bills/GICs
Replies: 326
Views: 24926

Re: A Simple Retirement Plan Using T-Bills/GICs

http://business.financialpost.com/2012/02/25/bonds-knock-out-equities/ From the linked article: “I’m not sure they understand bond volatility, though,” Mr. Grestoni continues. “Rates are going to start rising, so if you commit to a 20-year bond at 2½% and the market rate goes up half a percentage point, you’re going to part with 30% of your capital. I guess that I don't understand bond volatility either, if that calculation is accurate. Maximum duration of a twenty-year bond is 20 (if it is a residual). Twenty times half a per cent rate increase is a 10% price decrease. These days, I'd forget about locking into long-term bonds or equities and stick with cash. :shock: A wide-spread reaction, if you count short-term fixed income instruments ...
by ghariton
25 Feb 2012 15:44
Forum: Financial Planning and Building Portfolios
Topic: Risk = ??
Replies: 491
Views: 108790

Re: Risk = ??

Bylo Selhi wrote:Even an all RRB portfolio or an annuity has its risks...
Yup. Annuities have credit risk -- another reason to delay their purchase, and to do lots of due diligence on the issuer.

RRBs have political risk. I still haven't figured out how to quantify that, even in theory.

George
by ghariton
25 Feb 2012 15:41
Forum: Financial Planning and Building Portfolios
Topic: Risk = ??
Replies: 491
Views: 108790

Re: Risk = ??

newguy wrote:For skewness are all your positive results from one large trade or something like that?
Not necessarily, although that makes it more likely.

A useful example when thinking about skewness is a bond, or a portfolio of bonds. There, the skew is negative (long tail on the left) due to credit risk. There is also volatility, due to market risk, i.e. changes in interest rates. But clearly volatility as a measure does a very poor job of capturing credit risk. Skewness (one quantification of which is through credit agency ratings) is separately important.

George
by ghariton
25 Feb 2012 15:29
Forum: Financial Planning and Building Portfolios
Topic: Risk = ??
Replies: 491
Views: 108790

Re: Risk = ??

Some words from Warren Buffett in his recent article in Fortune: Warren Buffett: Why stocks beat gold and bonds and a short bit with my emphasis in bold - The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability -- the reasoned probability -- of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a nonfluctuating asset can be laden with risk. Yes. But look at what's really going on. Buffett is looking at both expe...
by ghariton
25 Feb 2012 15:12
Forum: Financial Planning and Building Portfolios
Topic: Risk = ??
Replies: 491
Views: 108790

Re: Risk = ??

newguy wrote:I also try to estimate my confidence in the results.
A very important step that, unfortunately, almost no individual investors take.

When I was in graduate school, it was drummed into us ("hammered" might be more accurate) that no forecast or estimate should ever be given to a client without an accompanying confidence interval, or at least a qualitative assessment of the chances of the forecast/estimate being wrong. Then I entered the work force, and was told that people didn't want all that clutter -- just the point forecast, please.

Forty years later, people still don't want to know about uncertainty.

So congratulations on being one of the very few to take randomness seriously.

George
by ghariton
25 Feb 2012 15:01
Forum: Financial News, Policy and Economics
Topic: Charge GST on everything
Replies: 32
Views: 1850

Re: Charge GST on everything

newguy wrote:It's the defintion of groceries that's the problem.
Buy one doughnut, and its taxable because it's a snack. Buy a dozen doughnuts and it's not taxable because they are groceries.

Clearly part of a government campaign to get us to buy (and presumably eat) more doughnuts.

Buy a meal at a restaurant and it's taxable. Cook a meal at home and it's not.

Clearly part of a government campaign to keep women out of the work force and at home, cooking, etc.

George
by ghariton
24 Feb 2012 22:32
Forum: Financial News, Policy and Economics
Topic: Greece
Replies: 397
Views: 43217

Re: Greece

Isn't it enough that we're accepting your money? You want gratitude as well?
More than 70 percent of Greeks are angry and resentful at Germany for continued austerity measures, a new poll has found.

<snip>

It showed that 76 percent of respondents believed Germany was on balance "rather hostile" to Greece, and 73 percent said they had a negative attitude towards Chancellor Angela Merkel.

Nearly a third of those polled said they associate Germany with the words "Hitler, Nazism or the Third Reich."
Sorta like Quebec and Alberta.

George
by ghariton
24 Feb 2012 22:23
Forum: Financial News, Policy and Economics
Topic: Chinese Year of the Dragon
Replies: 4
Views: 828

Re: Chinese Year of the Dragon

And the predictable consequence
It used to be that European carmakers opened plants to assemble their cars in China. Now the Chinese have turned the tables with the opening of their first factory in Bulgaria, an EU country with low labor costs and taxes.

<snip>

Bulgaria, the EU's poorest country, is attractive as a labor market because it is an oasis of cheap wages and low taxes. Workers are considered well educated and the country is ideal as the site for a company like Great Wall to launch. Given that wages for factory workers have risen considerably in China in recent years, assembly sites abroad have become increasingly attractive for some manufacturers.
George
by ghariton
24 Feb 2012 22:11
Forum: Financial News, Policy and Economics
Topic: Chinese Year of the Dragon
Replies: 4
Views: 828

Re: Chinese Year of the Dragon

Interview with Liu Mingkang , former chairman of the China Banking Regulatory Commission, on China's economic problems: First, domestic and external demands [in China] have taken a sharp drop, especially in the second half of 2011 and first half of 2012. I think that the pressure to increase domestic demand is picking up. That is because domestic demand is driven by business productivity. Right now, business costs are rising. The cost of raw materials rose to between 5 and 10 percent of costs in 2011, labor costs to 25 percent, and finance costs to 50 to 60 percent. Leverage rates vary from industry to industry, but are usually above 50 percent. They are at that level due to rising interest rates and exchange rates. The yuan's exchange rat...
by ghariton
24 Feb 2012 18:30
Forum: Financial News, Policy and Economics
Topic: Greece
Replies: 397
Views: 43217

Re: Greece

The saga continues : As a political outcry grew on Friday over the revelation that an MP had transferred 1 million euros out of the country in May when authorities were struggling to appease Greek citizens’ fears of the repercussions of a possible default on their savings, Finance Minister Evangelos Venizelos told Parliament that a significant number of lawmakers had moved sums in excess of 100,000 euros out of the country. snip Earlier, addressing a cabinet meeting, Venizelos had told fellow ministers that there are several public figures among the Greeks who transferred a total of 16 billion euros abroad over the last two years. According to research conducted by the Finance Ministry’s information systems department, 9 percent of this mo...
by ghariton
24 Feb 2012 15:30
Forum: Financial News, Policy and Economics
Topic: Regulation v. Innovation
Replies: 77
Views: 9121

Re: Regulation v. Innovation

patriot1 wrote:ow about simply no bail-outs?
I would generally support that.

There are some cases where a firm performs an essential service, and then the government does have to worry about whether it ceases functioning or not. In these cases, bail-outs, or at least measures to ensure continuing operations, may be necessary. But they should be structured so that a maximum is recouped from the shareholders or other creditors.

George
by ghariton
23 Feb 2012 20:46
Forum: Financial News, Policy and Economics
Topic: Regulation v. Innovation
Replies: 77
Views: 9121

Re: Regulation v. Innovation

Over-regulated America : The home of laissez-faire is being suffocated by excessive and badly written regulation. Two forces make American laws too complex. One is hubris. Many lawmakers seem to believe that they can lay down rules to govern every eventuality. Examples range from the merely annoying (eg, a proposed code for nurseries in Colorado that specifies how many crayons each box must contain) to the delusional (eg, the conceit of Dodd-Frank that you can anticipate and ban every nasty trick financiers will dream up in the future). Far from preventing abuses, complexity creates loopholes that the shrewd can abuse with impunity. The other force that makes American laws complex is lobbying. The government’s drive to micromanage so many ...
by ghariton
23 Feb 2012 03:46
Forum: Retirement, Pensions and Peace of Mind
Topic: Boomertirement -- is this really a "crisis?"
Replies: 117
Views: 17921

Re: Boomertirement -- is this really a "crisis?"

DenisD wrote:Don't believe retirement doom and gloom
Actuary Malcolm Hamilton

<snip>

I don’t have much of an RRSP because I’ve been in a defined benefit pension plan my whole life. I have real-return Canada bonds purchased when they were first issued in 1991 – they mature in 2021. That’s about half of it.
Are the RRBs half of Mr. Hamilton's total savings, or half of his small (if not tiny) RRSP? If the former, does that mean that Mr. Hamilton is holding RRBs in a non-registered plan?

Any which way you look at it, I should have purchased more of the suckers, and earlier, instead of chasing tech stocks. On the other hand, profit-taking on the tech stocks allowed me to buy some of my RRBs. And so the circle goes...

George
by ghariton
22 Feb 2012 17:39
Forum: Financial News, Policy and Economics
Topic: Greece
Replies: 397
Views: 43217

Re: Greece

Sauve qui peut:
Justice Minister Miltiadis Papaioannou called on Wednesday on an unnamed MP who is alleged to have transferred 1 million euros to a bank account abroad to step forward or face the possibility that the government would reveal his or her identity.

“There is a need for the MP’s name to be made public,” said the minister. “It is best if the deputy does so on his own but in any case, the state will make every legal effort for the name to be published.”
Wonder whether the New Drachma notes will have a pretty design.

George
by ghariton
22 Feb 2012 12:25
Forum: Retirement, Pensions and Peace of Mind
Topic: OAS Changes Likely?
Replies: 747
Views: 34788

Re: OAS Changes Likely?

As regards low-paid federal public servants, the most common category is "clerical". The most common level in Ottawa is CR-4 (may differ in different regions). For a CR-4 the pay varies from $44,000 to $48,000, with the difference based on years on the job. That's $30/hour plus lots of benefits. The absolute lowest, as far as I'm aware. is "typist", i.e. below a secretary, making $35,000 to $38,000. There are very few of these left.

George
by ghariton
22 Feb 2012 03:29
Forum: Retirement, Pensions and Peace of Mind
Topic: OAS Changes Likely?
Replies: 747
Views: 34788

Re: OAS Changes Likely?

Here are the federal government pay scales by occupational group. As I understand it, it is not uncommon to finish one's career at the top of the Commerce Officer 2, Financial Manager 3 or Administrative Support 6 pay scales. In each of these cases, salary is in the $90,000 + range.

A 60% pension (30 years of service) would produce a pension of over $54,000 a year. For a couple, both of whom are in this situation, the pension would be $108,000. Plus OAS once you hit 65. I think I could live on that.

George
by ghariton
22 Feb 2012 02:52
Forum: Retirement, Pensions and Peace of Mind
Topic: Boomertirement -- is this really a "crisis?"
Replies: 117
Views: 17921

Re: Boomertirement -- is this really a "crisis?"

GM Canada pension plan still in trouble : General Motors of Canada Ltd. still faces a massive shortfall in its unionized pension plan despite a $3.2-billion contribution taxpayers made to the fund when the auto maker’s parent company went into bankruptcy protection in 2009. The shortfall stood at $2.2-billion as of Sept. 1, 2010 (the latest data available), which is a vast improvement on the $5.1-billion deficiency in the plan before the special payment was made. But it is still a significant amount for a plan that covers more than 30,000 retirees. <snip> About 30,000 unionized retirees drew pensions from GM Canada in 2010 – while the number of active workers stood at 6,168. That compared with 23,735 retirees and 15,223 working employees i...