Operating vs Financial Cash Flows

Photo Credit: Daniel Broche || To the victor goes the spoils, or, does a victory get spoiled?

==================================== I was at a CFA Baltimore board meeting, and we were talking before the meeting.  Most of us work for value investors, or, growth-at-a-reasonable-price investors.  One fellow who has a business model somewhat like mine, commented that all the money was flowing into ETFs which were buying things like Facebook, Amazon and Google, which was distorting the market.  I made a comment that something like that was true during the dot-com bubble, though it was direct then, not due to ETFs, and went to a different group of stocks. Let’s unpack this, starting with ETFs.  ETFs are becoming a greater proportion of the holders of stocks, and other assets also.  When do new shares of ETFs get created?  When it is profitable to do so.  The shares of the ETF must be worth Continue reading "Operating vs Financial Cash Flows"

The Best of the Aleph Blog, Part 30

Photo Credit: Philipp Messner || Every culture should learn their alphabet 😉

========================================= In my view, these were my best posts written between May and July 2014: Look to the Liabilities to Understand the Assets Why do new asset classes work very well for a time and then fail? I Have My Doubts Learning to live with uncertainty and thrive amid it. Asset Value Illusion People don’t need assets as much as they need streams of income derived from the assets (dividends, capital gains) that allow them to purchase the goods and services that they want and need.  (Low interest rates mean assets aren’t worth as much.) Illusory Investment Income
Some naively say, “Dividends don’t lie.”  Well yes, the money you receive is yours, but is the company as healthy after the dividend?  Will they be able to keep it up?  Often that is not the case.

A Bond Manager Thinks Continue reading "The Best of the Aleph Blog, Part 30"

Arconic Arguments

There’s a lot of bits and bytes spilled in the war between Elliott Associates (and those that favor their position) and the current board of Arconic.  I want to point out a few things, having held Alcoa since prior to the breakup, and added to my positions in both new Alcoa and Arconic post-breakup.
  • Profitability will likely improve more if Elliott’s nominees are elected to the board, and Larry Lawson is CEO.
  • The existing management team does not deserve credit for the recent rise in the stock price for two reasons: a decent amount of the rise in Arconic’s stock price anticipates a rising probability that the board and management team will be replaced.  Second, a decent amount of the increase in the stock price of Alcoa has been due to a rise in the price of aluminum, for which no single entity can take credit.  Current Arconic benefited from that, Continue reading "Arconic Arguments"

The Best of the Aleph Blog, Part 29

Photo Credit: Hanan Cohen || Anyone need a copy?

=============================== In my view, these were my best posts written between February and April 2014: On the Structure of Berkshire Hathaway On the Structure of Berkshire Hathaway, Part 2, the Harney Investment Trust This set of posts is unique in going through how the insurance entities of Berkshire Hathaway allow Buffett to hold as much as he does of his stocks/businesses through his insurance companies.  It also explains as much as can be publicly known about the secretive Harney Investment Trust. On the “770” Account How to dress up Permanent Life Insurance as a sexy investment vehicle, and get guaranteed underperformance. The Good ETF, Part 2 (sort of) If you are investing in any levered, inverse, or non-equity fund exchange traded product, then read the fine print of the prospectus.  If you fail to do that, you have no right to complain if Continue reading "The Best of the Aleph Blog, Part 29"

The Best of the Aleph Blog, Part 28

=============================== In my view, these were my best posts written between November 2013 and January 2014: Advice For Would-be Bloggers Be regular (I need that advice myself), write on what you care about, start small.  Not that much different than this recent interview of me regarding blogging. What Life Insurance to Buy? Depends on whether you need it for protection or as part of a tax shelter or estate plan. Protect Your Older Family & Friends Remember that older folks are very tempting targets for fraudsters, and very nice people delivering subpar service at a high price. Where to Find Data I give you my favorite sources.  Most are free. An Internship at a Hedge Fund Advice on what to do if you get such an opportunity. On Position Sizing in Equity Long-Short Hedge Funds It’s not an easy question, particularly when it comes to shorting or being levered Continue reading "The Best of the Aleph Blog, Part 28"

Four Simple Investment Strategies That Work

============================================================ This will be a short post, though I want to toss this question out to readers: what investment strategies do you know of that are simple, and work on average over the long-term? Here are four (together with posts of mine on the topic): 1) Indexing Index Investing is not Inherently Socialistic Why Indexes are Capitalization-Weighted Why do Value Investors Like to Index? On Bond Investing, ETFs, Indexes, and the Current Market Environment 2) Buy-and-Hold Buy-and-Hold Can’t Die Buy-and-Hold Can’t Die, Redux Buy and Hold Will Return — 2/15/2009 (what a time to write this) Patience and a Little Courage Risk vs Return — The Dirty Secret 3) The Permanent Portfolio The Permanent Portfolio Can the “Permanent Portfolio” Work Today? Permanent Asset Allocation 4) Bond Ladders On Bond Ladders I chose these because they are simple.  Average people without a lot of training could do Continue reading "Four Simple Investment Strategies That Work"

The Best of the Aleph Blog, Part 27

In my view, these were my best posts written between August and October 2013: I completed the last of my “Manager” series, on being an investment risk manager: The Education of an Investment Risk Manager, Part VI This is the bizarre story of how I pulled a win out of an impossible situation against my own management, and a major life insurer. The Education of an Investment Risk Manager, Part VII On the time that I correctly modeled a complex structured security, and the client wouldn’t listen to reason The Education of an Investment Risk Manager, Part VIII The time that I did a competitive study of the most aggressive life insurers, and how it did not dissuade my client’s management team from trying to imitate them. The Education of an Investment Risk Manager, Part IX (The End) A bevy of little tales about odd investment tasks that I succeeded with, and how Continue reading "The Best of the Aleph Blog, Part 27"