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Top drawer - The art market
604 words 18 December 2004
The Economist
ECN
373
English
(c) The Economist Newspaper Limited, London 2004. All rights reserved
The art market
A stunning price—and this time, for something old
IT IS said that people buy contemporary art when they are confident about the future and old art when they are not. Maybe a few worries are setting in. On December 9th, a piece of furniture known as the Badminton Cabinet—made, in pietra dura, ebony and ormolu, in 1720-32 by the Medici workshops for the third Duke of Beaufort—was sold at Christie's in London for £19m ($36.7m), a record for a non-pictorial work. The auctioneers had hoped to match the £8.6m paid by the previous owner in 1990.
The cabinet is the latest of a number of older works going for record prices. However, in recent years, contemporary art has made all the running. Last month saw record auction sales of contemporary art in New York. Research by the Art Sales Index shows that over the past four years the shares of contemporary and modern art in auction-market turnover have risen, while those of Old Masters and 19th-century works have declined. That said, Daniele Liberanome of Gabrius, a company that tracks art prices, considers Old Masters undervalued based on their performance since 1990.
Conventional wisdom has it that older art holds its value, while contemporary stuff is for risk-lovers. William Goetzmann, a professor at Yale, estimates that during the last art-market slump, which set in after 1990, Impressionist and contemporary works fell by most (51% and 40% respectively), while Old Masters suffered least (down by 16%). Yet despite the bumps, contemporary works have been rewarding for those who are prepared to hang on: according to Jianping Mei and Michael Moses, professors at New York University, since 1970 the returns on contemporary art have far outstripped those on Old Masters and 19th-century paintings.
Since the late 1980s, more sophisticated analysis of the art market and a growing interest in alternative investments have spurred the creation of several new investment funds focused on art. At a recent conference organised by one of these, the Fine Art Fund, Rachel Campbell of Maastricht University pointed out the low correlation between returns on art and on those other investments. Given that it usually pays to diversify, that is a good argument for investing in art, whatever your taste. The Fine Art Fund, which began buying this April (and has 36% of its money in cash), advises that investors spread their art allocation fairly evenly between Impressionists, Old Masters, modern art and contemporary works.
Contemporary art, in particular, has served rich investors well in the past few years. Prices stayed buoyant when stockmarkets slumped. Nevertheless, one recent academic study has found a correlation with another asset class: during the last world art boom, in the late 1980s, prices were closely tied to property values, specifically Japanese land prices. After 1990, art and property slumped together. Now property prices in several countries are once again at giddy heights.
Investing in art will always be a risky business. Works of art are by definition heterogeneous; holding periods vary; the market is illiquid; art yields no income, producing only capital gain or loss; transaction costs are high. As for contemporary art in particular, it is a sobering thought that, according to Mr Moses, each year an average of only two artists emerge whose work increases in value over time. All this speaks against a big commitment to speculating in art; better, maybe, simply to buy what you like, if you can: treat your money, in other words, not as invested but as consumed.
Document EC00000020041217e0ci0003l
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PERSONAL JOURNAL --- Canvassing the Art Market --- Old Masters and New Money: Getting a Realistic Perspective On Indexes That Track Prices
By Eric Uhlfelder Special to The Wall Street Journal 1,538 words
6 August 2004
The Wall Street Journal Europe
P1
English
(Copyright (c) 2004, Dow Jones & Company, Inc.)
PICASSO'S "Garcon a la Pipe" made the headlines when it sold for the equivalent of 86.5 million euros at Sotheby's New York this past spring, setting a record for the most-expensive painting sold at auction. But as an investment, a lesser-known drawing by the Spanish master, "Tete de Femme," was an even bigger gainer.
According to Michael Moses, finance professor at New York University's Stern School of Business -- and co-manager of an index that tracks repeat sales at New York auctions -- the drawing had fetched $26,400 (21,900 euros) at a November 1998 Christie's auction. Five-and-a-half years later, the piece resold at Sotheby's for $164,800. That's an annualized gain of 39%, during a period when the S&P 500 ended up about where it started. ("Garcon," hadn't sold since 1950, when it brought $30,000 -- meaning an annualized gain of just over 16%, and an illustration of the magic of compounding.)
While most art investments aren't going to perform like "Tete de Femme," especially over the short term, advisers and investors are recognizing more and more that art is a legitimate asset class that can improve returns. Over the 50 years through mid-2004, the broad Mei-Moses All Art Index appreciated at an annualized pace of 12.1%. That's half a percentage point higher than the return of S&P 500, dividends included, and 5.6 percentage points greater than 10-year U.S. Treasury bonds. And the art index had a low correlation with both -- 0.17 with the S&P 500 and -0.12 with Treasurys -- supporting the idea that art diversifies a stock and bond portfolio.
Art as pure investment may be catching on. Investors still can't buy an art index fund the way they can a stock index fund, but the London-based Fine Art Fund did recently become the first professionally managed pool of assets designed explicitly to profit from the appreciation of art. It's not for everybody -- minimum investment is $250,000 (with annual expenses of 2%). Designed to last 10 years and managed by a network of fine-arts specialists, the fund will spend its first three years investing exclusively in European and American canvases: 30% old masters, 30% impressionists, 20% modernists, and 20% contemporary. After that it will be permitted to sell paintings at anytime, and investors will be permitted to privately sell their shares, which they aren't allowed to do during the first three years. The fund will be marked to market -- that is, the value of the portfolio will be estimated -- every year to help assess share value and potential tax consequences. Management expects returns over the life of the fund to average between 10% and 12%, before expenses.
Additional art funds are being planned by Fernwood Art Investments, a specialty firm established by Merrill Lynch veteran Bruce Taub that has offices in Boston, New York and Miami. Mr. Taub, the chairman and CEO, is currently capitalizing one fund that's focused on master painters and another that's looking to exploit special opportunities. And Peter Hastings Falk's Connecticut-based art-management firm is currently setting up an American Art Investment Fund.
While the fund approach makes sense for establishing significant, professionally managed positions in important works of art, how can individual investors who don't have several hundred thousand dollars to pony up make a go of it? How can you evaluate a piece of art for its investment potential?
There's no shortage of figures -- a number of firms track art sales one way or another, maintaining databases that generate charts reassuringly reminiscent of those that follow, say, the stock market. But investors should understand their limitations. For instance, the oft-cited Mei-Moses index gives a broad, long-scale view of the market but isn't really an investment tool. The underlying data aren't available, making it difficult to know what segments of the art market and which artists in particular have been driving returns and which have been dogs.
And with all the indexes there are issues of methodology and accuracy. After surveying the sales of 4,200 French impressionist paintings, David Kusin, who manages a Dallas economic-research firm for institutions that focuses on art and antiques, reported finding material errors in one-third of all reported transactions, involving final sales prices, date of work, or anticipated pre-sale prices.
Still, the art databases are a good starting point, especially for new investors. Mei-Moses aside, providers do break down their numbers by individual artists, specific works, and major periods. In addition, a number of these Internet-based firms -- such as the Milan-based Gabrius Art Index and Lyon-based Artprice -- offer trend analysis, commentary and interactive usage, permitting investors to customize searches and identify promising opportunities. Most offer inexpensive temporary access for sampling or to accommodate the occasional user; price for a subscription ranges from $199 a year for Artprice to as much as $2,500 a year for access to Gabrius's entire database and analytics.
Mr. Hastings Falk likes ArtNet, Art Sales Index and Artprice. "These three databases," he says, "respectively provide images, the most comprehensive sales data covering all major mediums, and the most extensive provenance and price histories available on line."
Though most databases were formed between 1968 and 1987, they've generally backfilled historical data from before their founding, permitting analysis of longer-term trends. Nearly all collect and aggregate their information directly from auction house catalogs because the information is public and verifiable. The number of houses tracked by each index, however, varies widely. Gabrius tracks 53 of the most important while Artprice taps into 3,000, including many smaller and more obscure houses.
Specialists at each firm determine the range of artists and periods covered, which like the number of auction houses varies considerably. Art Market Research tracks 6,000 artists, Artprice more than 300,000. Most firms track sales in the major mediums -- paintings, works on paper, sculpture and photography -- which enables more than half the firms to create broad and highly refined indexes. Art Market Research, for instance, maintains 500, including the broad-based Art 100, Old Masters 100, and Contemporary Art 100. Gabrius aggregates performance of Old Master, 19th-century, 20th-century pre-War, and 20th-century post-War paintings. Frequency of update ranges from daily to quarterly.
Fernwood's Mr. Taub says the statistics underlying the databases take him only so far in evaluating a work of art. He requires more analysis, including "assessment of liquidity, correlation with traditional asset classes, risk-return profiles and hedging strength of a particular artist or movement, and identifying particular mediums of an individual artist or historical period that may outperform." Before making a transaction, Fernwood considers a piece of art the old-fashioned way, examining its provenance, or ownership history, its quality and rarity, and the frequency with which it comes to market.
Mr. Kusin agrees that if mined properly, indexes' raw data used in concert with specific benchmarks can be useful in assessing investment opportunities. You could, for example, compare the performance of 17th-century Dutch old master landscapes with AA-rated corporate bonds. But the broad strokes that general indexes may paint about the value of investing in art "are meaningless -- a thin visual description that will not help you decide when to buy or sell, because such trends fail to penetrate the dynamics and layers of the market."
As for comparing indexes between firms, that too can be of dubious value because of differences in methodology. Some indexes include art that fails to sell at auction, recording it at 75% of the low pre-auction estimate. Mr. Kusin favors the use of these so-called buy-in figures, saying they're essential for assessing downside risk. While concurring that buy-in figures are useful, William Goetzmann, a professor at Yale School of Management and co-creator of the Gabrius index, warns that such figures could at times be substantially off the mark, contributing to inaccurate risk assessment.
And some databases -- Artprice and Art Market Research, for example -- combine all sales of an artist or a historical period to determine averages and trends, while others -- such as Gabrius -- rely on repeat sales of given works. Mr. Hasting Falk believes it's essential to use both techniques to compile a comprehensive view "because not enough pieces are sold more than once." But it does make for apples-and-oranges comparisons.
For all their imperfections, art indexes make available data that would otherwise be virtually impossible to assemble, and facilitate greater interest in art as investment. And as demand for greater and more accurate analytics grows, so likely will the quality of the research that these indexes provide.
(See related article: "Private Bankers Bid to Play a Role in Building Your Collection; We Check Out Their Advisory Services and Tag Along at an Auction" -- WSJE August 6, 2004)
Document WSJE000020040806e0860002a
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Arbitragem: risco e oportunidade
959 words 14 July 2004
Valor Econômico
Portuguese
Copyright (c) 2004 Valor Econômico S.A. Todos os direitos reservados. É proibida a reprodução do conteúdo deste artigo em qualquer meio de comunicação, eletrônico ou impresso, sem autorização escrita do Valor Econômico S.A.. Para maiores informações entre em contato com nosso Departamento Comercial (+55-11-3767-1277) ou Redação (+55-11-3767-1151). http://www.valoronline.com.br
Discutiremos neste texto as operações de arbitragem e suas peculiaridades. A arbitragem é uma operação na qual o gestor identifica dois ativos com fluxo de caixa idênticos, porém com preços que, por alguma razão, não refletem a similaridade de fundamentos. O gestor, então, compra o ativo mais barato e vende o mais caro, apostando que o preço dos ativos irá convergir. A arbitragem com risco - mais comum na prática - é aquela na qual se identifica ativos com fluxo de caixa similar (e não necessariamente idênticos) e preços que não refletem a similaridade de fundamentos. O gestor monta sua posição apostando na convergência de preços. Operações de arbitragem também são conhecidas como "long/short".
O texto "The Limits of Arbitrage", escrito por Andrei Shleifer e Robert Vishny, professores de Harvard e Chicago respectivamente, é um dos principais sobre o tema. A visão convencional acadêmica (vide mercados eficientes) é de que oportunidades de arbitragem são escassas e rapidamente exploradas por um grande número de pequenos investidores. A grande contribuição dos autores foi fazer uma modelagem diferente: em vez de um grande número de pequenos investidores, no modelo de Shleifer & Vishny, as operações de arbitragem são feitas por um pequeno grupo de investidores profissionais altamente especializados com capacidade para montar posições grandes com recursos de terceiros.
O conceito central do artigo é de que operações de arbitragem podem ser relativamente complexas de modo que, apesar de o gestor saber perfeitamente o racional de suas operações, o mesmo não se pode dizer de seus clientes. Além disso, existe um nível razoável de volatilidade nos papéis arbitrados - que pode levar uma posição teoricamente vencedora no longo prazo a sofrer bastante no curto prazo. Como o investidor não tem o mesmo grau de informação do gestor, sua avaliação das "habilidades" do gestor acaba se baseando fundamentalmente em performance passada. É o que os autores denominaram PBA - Performance Based Arbitrage. E é exatamente aí que está o "pulo do gato" no modelo de Shleifer & Vishny: boas operações que sofrem volatilidade de curto prazo podem levar os investidores a resgatar dinheiro de fundos "long/short" forçando o gestor a reduzir suas posições e contribuindo para afastar ainda mais os ativos arbitrados de seus preços justos.
Outro texto interessante sobre o assunto, intitulado "Pairs Trading: Performance of a Relative Value Arbitrage Rule", foi escrito por três integrantes da Yale School of Management: Evan Gatev, William Goetzmann e K. Rouwenhorst. No artigo, os autores testaram uma estratégia de investimento denominada "pairs trading" com dados diários de 1962 a 1997, para ações do mercado americano. A estratégia consiste em identificar ativos com alta correlação histórica e aproveitar oportunidades em que seus preços se distanciem para comprar o mais barato e vender o mais caro. Os autores escolheram trabalhar com um horizonte de seis meses (ou seja, a cada seis meses as posições montadas durante o período que não funcionaram eram desfeitas com prejuízo) e com um gatilho para a montagem de posições de dois desvios padrões históricos.
Os autores encontraram um retorno anualizado médio de 12% para a estratégia, utilizando os 20 pares mais correlacionados do mercado. Ajustando pelos "spreads" (diferença) de compra e de venda, o resultado cai para cerca de 8%, ainda bastante relevante. Dos vinte pares mais correlacionados, 82% são compostos por papéis de "utilities" - composto por concessionárias de serviço público. Além de ser responsável pela grande parte das operações, o setor de "utilities" é disparado o mais rentável, com um retorno anualizado médio de 10,6% frente 4,9% para transportes, 7,6% para o setor financeiro e 5,5% para o setor industrial. E mais: além de ter o melhor retorno, o segmento de "utilities" ainda possui um desvio padrão menor que seus concorrentes.
Outro ponto relevante é que o retorno dos 20 pares de ativos mais correlacionados tem uma exposição positiva que, embora pequena, é estatisticamente significativa a fatores como tamanho e preço sobre valor patrimonial. Em outras palavras, o gestor muitas vezes está arbitrando empresas menores e mais baratas contra similares maiores e mais caras. As operações possuem uma volatilidade que não pode ser desprezada: na média 16% das operações apresentam retornos negativos em seis meses e o retorno mínimo para o portfólio em seis meses foi de aproximadamente uma queda de 10%! Ou seja, o gestor realmente tem de ter uma boa dose de cuidado para encarar esse tipo de estratégia.
Ao contrário da visão convencional de mercados eficientes, a presença de fundos especializados para explorar esse tipo de estratégia não parece ser suficiente para esgotar completamente as oportunidades disponíveis. Como foi bem colocado por Shleifer & Vishny, movimentos de zeragem de posição de fundos especializados por conta das oscilações aleatórias de curto prazo no preço das ações podem contribuir para deixar as arbitragens ainda mais interessantes.
No Brasil, nossa experiência corrobora a visão de Gatev, Goetzmann & Rouwenhorst de que o setor de "utilities" é bastante interessante de se arbitrar, principalmente tendo-se em conta o momento de consolidação que estamos vivenciando no setor de telefonia. Os custos de aluguel de ações, que ficam em torno de 5% a 6% ao ano, são consideravelmente menos atrativos que nos Estados Unidos, o que limita um pouco o número de operações possíveis. As oportunidades de arbitragem no mercado, porém, são muito interessantes. Nossa confusão societária resultante das diferentes classes de ações (ordinárias, preferenciais, etc) e das muitas holdings e operadoras presentes no mercado acabam gerando um ambiente de muitas oportunidades.
Acreditamos que o setor, ainda bastante incipiente, tem tudo pra se desenvolver bastante no país e se tornar uma classe realmente importante para o investidor que procura retornos atrativos em bolsa, mas não necessariamente está disposto a ficar comprado o tempo todo.
Document VALEC00020040714e07e00001
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Basel and the brush - Modern art
929 words 26 June 2004
The Economist
ECN
371
English
(c) The Economist Newspaper Limited, London 2004. All rights reserved
The Basel Art Fair, arbiter of contemporary taste
The arbiter of contemporary taste
FOR most of the year, the sleepy Swiss city of Basel sees nothing more exciting than a steady stream of central bankers on their way to the Bank for International Settlements. Except in early June, that is, when the place is invaded by a very unsteady flood of contemporary-art collectors rushing to the six-day Basel Art Fair. When the gates open on the first day, Nike-clad collectors literally sprint through the doors in pursuit of work by prized young artists. Some have been known to steal dealers' passes in order to sneak in early and get the pick of work that is newer and, in many cases, weirder than anyone else's.
By lunchtime on the first day, the VIP lounge is a scrum of hugely wealthy adrenaline jostling for food, puffing cigars and flashing digital images of art stored on Palm Pilots. According to a London dealer, David Juda, whose gallery was in at the founding of the fair, there has been a huge increase in interest in contemporary art since it began in 1970. “Today, people are more aware of what is happening in art and in museums,” he says. “They have more disposable income and they feel more at ease coming into a gallery than they would have, say, 30 years ago.” The fair is so successful that it is now held twice a year—once in Basel and once at Miami Beach (in December). This year 10,000 collectors flocked to the opening day, and over 50,000 attended during the week.
The draw is quality: Basel is the most strictly vetted modern-art fair in the world. A committee of international dealers selects each of the 270 galleries that attend on the basis of the quality and variety of their art. Stands are inspected daily, and dealers are encouraged to bring their best to Basel. It is possible to buy a Picasso or, if you're lucky, this century's Picasso. And that is part of the thrill: “It's like horse-racing,” says Mr Juda, “people only remember the bets that come in.”
Fancy a flutter on Finnbogi?
The fair is arranged on two floors: on the ground floor are the blue-chip art dealers such as Acquavella, Berggruen, Beyeler and Krugier. Upstairs are the more lively contemporary galleries where prices start at around euro5,000 ($6,000), but can be as high as the £450,000 ($824,000) paid for Jake and Dinos Chapman's sculpture of a copulating couple. Down the road from the main fair is the “Liste”, where even trendier young galleries show work by emerging artists. Here collectors pounce as if they're in a bargain basement, sometimes snapping up entire stands at once.
Some collectors come to Basel with their personal curator to advise them. Others—such as Francesca von Habsburg—rely on their instincts. This year Ms von Habsburg paid euro35,000 for a “sound installation” by an almost unknown Icelandic artist called Finnbogi Petursson because she loved the work: “It makes sound visible,” she says. The room-sized piece will go to Ms von Habsburg's new Vienna-based art foundation, dedicated to showing 21st-century art. Scion of a family famous for collecting old masters, Ms von Habsburg took a punt on Mr Petursson's work knowing that the Reykjavik gallery exhibiting it had launched the career of another Icelandic artist, Olafur Eliasson, who is now a star in the contemporary-art world.
Most collectors start by decorating their own houses. Frank Cohen, a Manchester millionaire, bought his first painting to furnish his home 30 years ago. But his interest has spiralled so much that next year he is opening a museum of contemporary art in Manchester to house his vast collection. An Argentine pharmaceuticals tycoon, Juan Verges, and his wife have been coming to Basel for eight years and have amassed such an immense collection of large-scale installations that they have restored a factory in Buenos Aires to exhibit them all. For Mr Verges, as for most collectors, buying new art allows him to get to know artists and to watch the creative process at first hand.
But not all buyers are wide-eyed enthusiasts with little concern for the future value of their purchases. Joao Reindeiro, president of Banco Privado Portugues, believes that contemporary art is a good investment. He sees it as a “risky asset class”, but one that has earned returns of 10-12% per annum over the past 17 years.
Collectors who want to keep an eye on the value of their art can turn to the Gabrius Index for help. Set up by William Goetzmann, a professor of finance at the Yale School of Management, it charts changes in the price of art that has been auctioned more than once. Mr Goetzmann says that contemporary art is like a “high beta” stock: one that rises and falls faster than others.
Last year, the sub-index of abstract contemporary art prices rose by 97%, a rate not seen since 1991. Does this presage a bubble similar to that of the late 1980s, when prices doubled almost every six months? Not yet, says Mr Goetzmann: “We are seeing the first flush of enthusiasm rather than a boom.” The sober-minded at Basel (a minority) noted that at the end of 2002 the abstract-art index stood at almost exactly the same level as a decade earlier.
Document EC00000020040625e06q0000e
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Your Home By the Numbers; Some basic tools can help you calculate how good an investment your house is.
By Peter Coy With Ann Therese Palmer in Chicago and Michael Eidam in Atlanta 2,744 words
14 June 2004
BusinessWeek
88
Volume 3887
English
(c) 2004 McGraw-Hill, Inc.
A house is most Americans' most valuable asset, and lately it has been the best-performing. In some ways, though, it's the least understood component of the average investment portfolio. Financial advice on homeownership consists mainly of real estate agents' truisms: Buy the most house you can afford.... The housingse market never crashes.... Houses are better to own than stocks and bonds because they're tangible. These sales slogans are a poor substitute for serious analysis of an asset that's critical to your financial future. To evaluate housing as part of your portfolio, set aside your affection for home, sweet home. Shake off the delusion that the recent leaps and bounds in home prices in many markets are sure to continue. Instead, look at the property you own -- or want to buy -- with the same cold detachment as you would 1,000 shares of IBM.
Employ basic concepts of investing: total return, risk reduction, transaction costs, liquidity, forced savings, leverage, market depth, tax treatment, and net present value. Few people are that rational about houses. ``People buy with their gut, and then they bring out their wallet,'' says Julie Garton-Good, an author of books on real estate. And when they do toss around investment terminology, it's usually because they have dollar signs in their eyes. ``A tendency to view housing as an investment is a defining characteristic of a 'housing bubble,''' economists Robert Shiller of Yale University and Karl Case of Wellesley College wrote in a Brookings Institution paper last year.
A good green-eyeshade analysis of housing might well lead you to the conclusion that house prices in some of the hottest markets -- from New York and Washington to San Francisco, Los Angeles, and San Diego -- are dangerously high. The warning signs are abundant: Prices have climbed much faster than incomes, interest rates appear to be rising from historic lows, and homeownership rates are already at record highs.
But regardless of whether the market you live in is frothy or flat, the purpose of this article is to show how tools of financial analysis developed by economists and top investors can help you make better decisions about the place you call home.
A good starting point is total return. Like the return on a stock, the return on a house has two parts. First, there's the ``dividend.'' That's the annual cash flow you get from the property. The dividend from a house is not a check payable to you. It's the money you save each year by not having to pay rent to a landlord to live there, minus annual homeowner expenses such as utilities, insurance, and upkeep. This dividend is roughly 6% or 7% a year before property or income taxes, according to Wellesley's Case.
PALTRY GAINS
THE OTHER PART OF your return is the capital gain or loss, which you get when you sell the house for more (or less) than you paid for it. From 1975 through 2003, house prices rose at a compound rate of 5.8% a year, according to data from the Office of Federal Housing Enterprise Oversight. Put the dividend and the capital gain together, and you get a highly respectable annual pretax return from housing of about 12%. That compares with the 13% annual pretax return from stocks over the same period, including both dividends and capital gains, according to Ibbotson Associates. For ease of comparison, these calculations assume that both the house and the stocks are bought with cash. In reality most houses are bought with borrowed money. After taxes, housing beat stocks over the period for high-income people whose stock returns were heavily taxed.
There is one important difference between the return on houses and the return on stocks: Although many people have gotten rich recently from housing, nationally, over the whole period, capital gains accounted for just 5.8 percentage points of housing's total return, vs. 9.4 percentage points of stocks' total return. Housing's capital gains look even smaller when inflation is stripped out (chart). From 1975 through 1995, the annual rate of appreciation after inflation for a typical single-family house was just 0.4%. Extending the period through 2003 gets you up to only a 1.3% annual rate. And even these modest figures overstate the annual capital gains by about half a percentage point because the price increases are partly the result of money spent by homeowners on renovations, according to OFHEO economists.
If history since 1975 repeats itself, boomers who aren't already sitting on a pile of housing wealth had better sock away lots of money in their 401(k)s, because they won't be able to count much on future gains from rising home prices. On the other hand, Gen-Xers who are still renting might actually be able to afford a house some day, because prices won't keep growing forever faster than the rate of inflation or the rate of income growth.
There's a subtler implication here as well. Many people make big sacrifices to buy the most expensive house they can afford, figuring that the bigger the house, the bigger the gain that it will someday produce. But that could be a mistake: History suggests that future after-inflation gains for most house sellers are likely to be modest.
So if you really like big houses, buy one. But if you hate dusting empty bedrooms and using intercoms to communicate with your children, purchase a smaller house -- and don't worry that you're missing out on big profits. Buying a smaller house will leave you with more money for things that will make your house more enjoyable. ``People end up being house-poor,'' says Susan Hirshman, financial planning strategist with JPMorgan Fleming Asset Management. ``You walk into a beautiful house and there's no furniture.''
RENT HEDGE
SMART INVESTORS also use houses as a means of risk reduction. Since homeownership protects you from having to pay rent, in effect it's a hedge against future rent increases. So the longer you plan to remain in one place, the more logical it is for you to buy rather than rent. A house can also stabilize an investment portfolio because the housing market's ups and downs aren't closely correlated with those of stocks and bonds. The trouble is that many people, especially young families just starting out, have the bulk of their wealth tied up in housing. Marjorie Flavin, an economist at the University of California at San Diego, advises that people whose assets are skewed toward housing should offset the high risk inherent in their housing investment by tilting the rest of their portfolio toward bonds and away from riskier stocks.
One of the best ways to improve your returns from housing is to minimize transaction costs, which are much higher for houses than for other assets. To sell $500,000 of stocks costs approximately $350 in brokerage commissions. In contrast, to sell a $500,000 house might cost more like $40,000 in fees, estimates Mike Sklarz, chief valuation officer for Fidelity National Financial, a real estate services company based in Jacksonville, Fla. Add to that sum the cost in money, time, and aggravation of preparing the property for sale and moving. Because transaction expenses are so high, it makes sense to move infrequently -- just as you save money on brokerage fees by not churning your account.
Many people underestimate the value of liquidity in housing until they need a lot of money in a hurry. Fortunately, the liquidity of housing has improved in recent years with the spread of rapid refinancing as well as home-equity loans and lines of credit. Most useful of all are home-equity lines of credit, which cost you nothing until you need to tap them in an emergency. If you don't already have one, get one.
Ironically, though, the ease of borrowing against equity takes away what was always one of homeownership's greatest advantages: forced savings. While people must still make principal payments every month, they can -- and do -- offset the equity accumulation by simultaneously borrowing.
Houses are money machines in good times because they're bought with enormous leverage. Assuming a downpayment of 5%, a one-year increase of 10% in a house's price gives you a 200% return on equity. That extreme degree of leverage would be fine if the truism about houses being a stable investment were correct. But that's only true of the national average. Prices are more volatile by region -- and more volatile still on a house-by-house basis. In a 1993 study, Yale School of Management economist William Goetzmann found that there was a one-third chance that the price of any given house in San Francisco would increase or decline 12.7% vs. the long-term trend in the course of just one year. The fluctuations were only slightly smaller for other cities.
Although leverage can be abused, there's nothing dangerous about a zero downpayment, per se, as long as you save the money you would have spent on the downpayment or put it back into the property. For example, Eric Kliem, 30, a loan agent, and his wife, Erin, 31, a high school teacher, put nothing down last year when they bought a $385,000 townhouse in Huntington Beach, Calif. They had money for a downpayment but chose to use it instead for renovations after the purchase. That raised the townhouse's value and gave them equity.
The mistake many people make is in thinking that the more leverage they're allowed to take on, the more they can afford to pay for a house. That's getting things backward. The prudent move is to figure out first how much you can afford to spend on a house, taking into account your income and other variables, then choose the balance between loan and downpayment. ``What you're qualified for and what you can afford are two different cases,'' says Paula Nichols, a Coldwell Banker broker on Chicago's North Side.
CLEVELAND'S VIRTUES
OF COURSE, IT'S HARD to stick to vows of prudence when faced with the exorbitant prices of houses in today's hottest markets. BusinessWeek's Luxury Housing Affordability Index (table) shows that while houses at the top end of the market are still easily affordable to upper-income households in places like Cleveland, St. Louis, and Atlanta, they're scarily high relative to top incomes in such cities as San Francisco, Washington, Los Angeles, and San Diego, where construction falls short of demand. Worried about getting suckered by buying at the top in one of those markets? Then settle for a smaller house, or rent and wait for a downturn -- or take another look at the virtues of Cleveland.
People who are buying houses in the top tier of the market are at the greatest risk of overpaying. That's because market depth is poor -- in other words, there are few transactions, so small fluctuations in supply and demand can cause big swings in prices. Don't assume the price that you're quoted is anywhere near what the market will bear. For example, Palladium Construction in Lake Forest, Ill., recently raised the asking price for a luxury house in the Chicago suburb of Highland Park to $8 million, even though it had been on the market at $6 million since 2000 with no takers.
Tax treatment is what decisively tips the balance toward homeownership for many families: Mortgage-interest payments are deductible. Also, there's no tax on the dividend of housing -- that is, the shelter value it provides you. And the first $250,000 in capital gains from a sale for an individual, or $500,000 for a couple, is tax-free if the house sold is a primary residence and the owner has lived in it for two of the previous five years. There's no limit on how often you can take this tax break. Plus, the 2003 tax law lowered taxes on capital gains over the limit to a modest 15%, from 20%. ``This is making housing a more attractive asset than it used to be,'' says Jonathan Noonan, chief investment strategist at Boston money manager Appleton Partners.
One family that has taken full advantage of the tax-law changes is Edmond and Jennifer Sahm and their two children, who in March closed on a new, $620,000 four-bedroom house in Carlsbad, Calif. Sahm, a certified public accountant, always buys newly built homes because, he says, builders sell them at a discount of 10% to 20% to existing homes. The Sahms have bought and sold two residences in the past five years, earning handsome capital gains both times, and have already contracted for another one for $1.1 million. A tip from Edmond Sahm: To get into new developments, ``get on the builder priority lists.''
THE BEST TOOL
WHILE ALL THE TOOLS mentioned above are useful, if you had to pick one technique for evaluating a house, it would be net present value. That's the value in today's dollars of the house's stream of cash flows. The negative cash flows each year are the mortgage payments, property taxes, utilities, and maintenance. The positive cash flows are savings generated by income-tax deductions and -- the big element -- avoided rent. The flows are netted out for each year, and discounted by the going interest rate. Typically, the longer you plan to stay in a house, the bigger the net present value will be.
You don't need an MBA to figure all this out. A program for calculating a house's net present value, which can be tried for free, is available at www.smithfinancialplace.com, created by Pomona College economists Gary and Margaret Smith. Reassuringly, the calculator produces answers that accord with common sense. For example, it shows that how much you pay for a house is a crucial factor in whether its net present value to you is positive or negative. (The message: Beware of bubbles and don't overpay.)
Wrestling with difficult questions such as a house's net present value isn't fun. But you owe it to yourself to make the smartest possible decisions about your biggest investment.
Bargains...and Bubbles?
The BusinessWeek Luxury Housing Affordability Index shows big differences between the largest metro areas.
METRO LUXURY AFFORDABILITY
AREA HOME INDEX
Cleveland $250,500 244
St. Louis 274,000 241
Columbus 269,000 236
Atlanta 312,000 235
Detroit 296,673 229
Philadelphia 320,000 227
Orlando 285,000 208
Tampa/St. Pete 272,000 208
Nashville 305,406 204
Charlotte 325,000 195
Denver 394,000 175
Chicago 435,000 165
Las Vegas 358,500 154
New Orleans 368,000 152
Sacramento 437,000 146
Baltimore 485,000 140
Riverside/
San Bernardino 406,000 139
Boston 679,250 130
Miami 450,000 124
San Jose 941,500 116
New York 650,000 110
San Francisco 1,195,000 94
Washington 940,000 93
Los Angeles 737,000 89
San Diego 765,000 89
HOW WE CREATED THE INDEX
The usual affordability index tells whether a midmarket house is within the budget of a middle-class family. BusinessWeek's index, based on house-price data from Fidelity National Financial, looks at the top 10% of house prices and incomes. An index value of 100 means that given prevailing mortgage rates, a family earning just enough to be in the top 10% of incomes in a metro area should be able to afford a house that's barely in the top 10% of prices. The higher the index, the more affordable the market. Metro areas listed are the biggest ones for which reliable data exist.
* Fourth quarter 2003
Data: Fidelity National Financial Inc., Housing & Urban Development Dept.
illustration | Illustration: Chart: HOUSING PRICES: THE LONG VIEW | illustration | Illustration: Chart: Location, Location, Location CHART BY RAY VELLA | photograph | Photograph: FLIPPING HOMES The Sahms bought and sold two in five years PHOTOGRAPH BY ROBERT BURROUGHS | photograph | Photograph: GIMME SHELTER Prices rise more slowly where there's lots of building PHOTOGRAPH BY ATIM BOYLE/GETTY IMAGES
Document BW00000020040610e06e00003
| Factiva | Dow Jones & Reuters |
Carried away? Burst of interest in IPO could lead some astray
Tom Abate Chronicle Staff Writer
1,221 words
29 April 2004
The San Francisco Chronicle
FINAL
C1
English
Copyright (c) 2004 Bell & Howell Information and Learning Company. All rights reserved.
Pssst. Have you heard that Google might be going public?
Fed by leaks from bankers "close to the deal" and repeated in countless media reports, Internet search engine Google Inc.'s expected IPO resembles, some market watchers fear, the sort of over- hyped stock stories that ignited the technology bubble of the late 1990s.
The worry is that however solid Google is as a business, a frenzy for its stock could drive its share price into the stratosphere. And that could make some people forget the lessons they learned when tech stocks crashed a few years ago and the excesses of Internet mania were purged from the marketplace.
"People do work themselves into enthusiasm for certain investments," said Yale University economist Robert Shiller, author of "Irrational Exuberance," published in 2000, just as the dot-com bubble was beginning to deflate.
Googlemania could hit a decisive point today, the deadline for the privately held search engine firm to reveal its finances, according to Securities and Exchange Commission rules. They say Google has so many internal shareholders -- financial backers and employees with stock options -- that it must have the financial transparency of a public firm.
Anticipation of this event has fueled speculation that Google's management will decide that because the company must bare its bottom line, it will go all the way and file an initial public offering to sell stock on Wall Street.
To be sure, not all market watchers agree that we are about to enter a dangerous new era of tech fever.
A successful Google IPO could simply return the market to health, allowing strong companies to raise the capital they need. And Google, they point out, is one of the most successful businesses on the Web.
If Google files an IPO, Yale finance Professor William Goetzmann said it is likely to open the window for other public offerings, to use the Silicon Valley slang.
"I think it would be wonderful if this IPO for Google went smoothly and reinvigorated the public equity markets," he said. "I don't see that as a problem of a fever or excess. I see the last few years of shutting down the equity markets as the panic."
Richard Peterson, who tracks public offerings for the Thomson Financial news service in New York, said IPO activity all but ceased after the dot-com collapse.
For most of the 1990s, Wall Street averaged 100 IPOs per quarter, he said. During the last two years, that fell to fewer than 100 IPOs per year. Peterson said there have been 46 IPOs so far in 2004, a sign that capital markets are beginning to regain their appetite for risky new offerings.
Tim Loughran, a University of Notre Dame finance professor who has studied IPOs going back more than 20 years, said the prospect of a Google offering is generating the same sort of excitement -- and for the same reasons -- as Apple Computer's 1980 IPO or the 1995 premiere of Netscape.
"These companies encapsulate the American dream of a couple of people sitting around, having a great idea, getting some success and going public," Loughran said.
Google certainly has all the attributes of a modern rags-to- riches myth. Founded by Stanford graduate students Sergey Brin and Larry Page, Google elbowed its way onto the computer desktop by dint of its sheer usefulness. It is expected to reveal today that it has become a revenue powerhouse in its last six years as a private firm.
At this point, it's difficult to gauge how much visions of a blowout IPO have seized the imaginations of Main Street investors. There are plenty anecdotes of individual investors clamoring for shares. But for all of Google's attributes, not the least of which is its awesome name recognition, media fascination with the company may be running ahead of investor appetite.
Sondra Harris, spokeswoman for Charles Schwab, said that, given all the speculation, she called several of the brokerage firm's regional offices to gauge interest in the possible offering.
"It varied from little to some," Harris said, adding, "The frenzy is being fueled more by the media coverage than interest on the part of individual investors."
Bill Brady helps run hedge funds for Presidio Management, a San Francisco institutional investor likely to get first crack at any Google shares.
"It's an exciting company, and it's creating a lot of excitement in the investment community," said Brady. But as a practical matter, because he doesn't know whether it's going public or how many shares Presidio would be offered if it did, he hasn't put a lot of time into weighing its merits.
The intensity of media coverage in advance of actual details doesn't surprise Shiller, who dedicated a chapter of "Irrational Exuberance" to the connection between the press and financial euphoria.
"I don't think there were any bubbles until there were newspapers," said Shiller, whose research went back to the Dutch tulip bulb craze of the 1630s.
"Holland was the first nation to have a free press," said Shiller, who said media reports spread enthusiasm the way sneezes spread germs.
Other economists believe markets are generally rational and pooh- pooh the notion that, when it comes to financial hype, the media is the biggest culprit.
"Everybody's interested in Google because it's a big company that we all know about," said John Cochrane, a professor at the University of Chicago's business school. "I have not seen evidence that the media by themselves can ignite the sort of frenzy that would not otherwise occur."
Ironically, stories about Google are sharing the news pages with articles about former Silicon Valley investment banker Frank Quattrone, who is being retried for alleged excesses during the IPO boom of the dot-com era.
But should Google go public, the volume of the coverage could make otherwise sober investors ignore fundamentals, said UCLA Professor Avanidhar Subrahmanyam, who studies investor psychology.
"I'm not saying Google's IPO wouldn't be successful, but the publicity feeds the frenzy, and the danger is that people get carried away," he said.
Loughran, of Notre Dame, said if and when Google does go public, small investors should not try to get in on the first day, but wait and see. "Microsoft was a big winner," he said. "But its IPO was in 1986, and the stock took years to take off."
But whether whipped up by media coverage or not, even smart people are excited by Google. "I got medical advice in a few minutes that would have taken me a week of visits to doctors' offices to get," said Arno Penzias, a Nobel Prize-winning Bell Labs scientist who is now a venture capitalist in San Francisco. ------------------ ------------------------------------------------
NOT MANY VENTURED, SOME GAINED A LOT
The number of initial public offerings in 2003 was the lowest in years, but several companies that did go public had significant gains.
Initial public offerings
99 510
00 373
01 108
02 97
03 88
04 46 (year to date)Sources: Thomson Financial, Bloomberg Financial MarketsChronicle Graphic
E-mail Tom Abate at tabate@sfchronicle.com.
Caption: Dan Hubig / The Chronicle;
Photo: GRAPHIC, CHART: SEE END OF TEXT
Document SFC0000020040429e04t0002v
| Factiva | Dow Jones & Reuters |
Carried away? / Burst of interest in IPO could lead some astray
Tom Abate Chronicle Staff Writer
1,222 words
29 April 2004
The San Francisco Chronicle
FINAL
C.1
English
Copyright (c) 2004 Bell & Howell Information and Learning Company. All rights reserved.
Pssst. Have you heard that Google might be going public?
Fed by leaks from bankers "close to the deal" and repeated in countless media reports, Internet search engine Google Inc.'s expected IPO resembles, some market watchers fear, the sort of over- hyped stock stories that ignited the technology bubble of the late 1990s.
The worry is that however solid Google is as a business, a frenzy for its stock could drive its share price into the stratosphere. And that could make some people forget the lessons they learned when tech stocks crashed a few years ago and the excesses of Internet mania were purged from the marketplace.
"People do work themselves into enthusiasm for certain investments," said Yale University economist Robert Shiller, author of "Irrational Exuberance," published in 2000, just as the dot-com bubble was beginning to deflate.
Googlemania could hit a decisive point today, the deadline for the privately held search engine firm to reveal its finances, according to Securities and Exchange Commission rules. They say Google has so many internal shareholders -- financial backers and employees with stock options -- that it must have the financial transparency of a public firm.
Anticipation of this event has fueled speculation that Google's management will decide that because the company must bare its bottom line, it will go all the way and file an initial public offering to sell stock on Wall Street.
To be sure, not all market watchers agree that we are about to enter a dangerous new era of tech fever.
A successful Google IPO could simply return the market to health, allowing strong companies to raise the capital they need. And Google, they point out, is one of the most successful businesses on the Web.
If Google files an IPO, Yale finance Professor William Goetzmann said it is likely to open the window for other public offerings, to use the Silicon Valley slang.
"I think it would be wonderful if this IPO for Google went smoothly and reinvigorated the public equity markets," he said. "I don't see that as a problem of a fever or excess. I see the last few years of shutting down the equity markets as the panic."
Richard Peterson, who tracks public offerings for the Thomson Financial news service in New York, said IPO activity all but ceased after the dot-com collapse.
For most of the 1990s, Wall Street averaged 100 IPOs per quarter, he said. During the last two years, that fell to fewer than 100 IPOs per year. Peterson said there have been 46 IPOs so far in 2004, a sign that capital markets are beginning to regain their appetite for risky new offerings.
Tim Loughran, a University of Notre Dame finance professor who has studied IPOs going back more than 20 years, said the prospect of a Google offering is generating the same sort of excitement -- and for the same reasons -- as Apple Computer's 1980 IPO or the 1995 premiere of Netscape.
"These companies encapsulate the American dream of a couple of people sitting around, having a great idea, getting some success and going public," Loughran said.
Google certainly has all the attributes of a modern rags-to- riches myth. Founded by Stanford graduate students Sergey Brin and Larry Page, Google elbowed its way onto the computer desktop by dint of its sheer usefulness. It is expected to reveal today that it has become a revenue powerhouse in its last six years as a private firm.
At this point, it's difficult to gauge how much visions of a blowout IPO have seized the imaginations of Main Street investors. There are plenty anecdotes of individual investors clamoring for shares. But for all of Google's attributes, not the least of which is its awesome name recognition, media fascination with the company may be running ahead of investor appetite.
Sondra Harris, spokeswoman for Charles Schwab, said that, given all the speculation, she called several of the brokerage firm's regional offices to gauge interest in the possible offering.
"It varied from little to some," Harris said, adding, "The frenzy is being fueled more by the media coverage than interest on the part of individual investors."
Bill Brady helps run hedge funds for Presidio Management, a San Francisco institutional investor likely to get first crack at any Google shares.
"It's an exciting company, and it's creating a lot of excitement in the investment community," said Brady. But as a practical matter, because he doesn't know whether it's going public or how many shares Presidio would be offered if it did, he hasn't put a lot of time into weighing its merits.
The intensity of media coverage in advance of actual details doesn't surprise Shiller, who dedicated a chapter of "Irrational Exuberance" to the connection between the press and financial euphoria.
"I don't think there were any bubbles until there were newspapers," said Shiller, whose research went back to the Dutch tulip bulb craze of the 1630s.
"Holland was the first nation to have a free press," said Shiller, who said media reports spread enthusiasm the way sneezes spread germs.
Other economists believe markets are generally rational and pooh- pooh the notion that, when it comes to financial hype, the media is the biggest culprit.
"Everybody's interested in Google because it's a big company that we all know about," said John Cochrane, a professor at the University of Chicago's business school. "I have not seen evidence that the media by themselves can ignite the sort of frenzy that would not otherwise occur."
Ironically, stories about Google are sharing the news pages with articles about former Silicon Valley investment banker Frank Quattrone, who is being retried for alleged excesses during the IPO boom of the dot-com era.
But should Google go public, the volume of the coverage could make otherwise sober investors ignore fundamentals, said UCLA Professor Avanidhar Subrahmanyam, who studies investor psychology.
"I'm not saying Google's IPO wouldn't be successful, but the publicity feeds the frenzy, and the danger is that people get carried away," he said.
Loughran, of Notre Dame, said if and when Google does go public, small investors should not try to get in on the first day, but wait and see. "Microsoft was a big winner," he said. "But its IPO was in 1986, and the stock took years to take off."
But whether whipped up by media coverage or not, even smart people are excited by Google. "I got medical advice in a few minutes that would have taken me a week of visits to doctors' offices to get," said Arno Penzias, a Nobel Prize-winning Bell Labs scientist who is now a venture capitalist in San Francisco.
----------------------------------------------------------------- -
CHART:
NOT MANY VENTURED, SOME GAINED A LOT The number of initial public offerings in 2003 was the lowest in years, but several companies that did go public had significant gains. Initial public offerings
99 510 00 373 01 108 02 97 03 88 04 46 (year to date)
Sources: Thomson Financial, Bloomberg Financial Markets Chronicle Graphic
E-mail Tom Abate at tabate@sfchronicle.com.
GRAPHIC, CHART: SEE END OF TEXT;
Caption: Dan Hubig / The Chronicle
Document SFC0000020040429e04t0001c
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Geld und Mehr
Investor psychologicus
1,503 words 25 April 2004
Frankfurter Allgemeine Sonntagszeitung
59
German
All rights reserved. Copyright Frankfurter Allgemeine Zeitung GmbH, Frankfurt am Main
Lange galt es als gesichert: Finanzmärkte sind ein Hort der Rationalität und Anleger kühle Rechner, die ihren Nutzen maximieren. Die Wirklichkeit sieht freilich anders aus. Die Geschichte der Börsen ist eine von Obsessionen, Irrtümern und Übertreibungen. Den rein rational handelnden Homo oeconomicus gibt es nicht. Warum sonst entstehen Blasen, und warum platzen sie? Warum gibt es so wenige Investoren, die dauerhaft erfolgreich sind, und so viele, die schlechter abschneiden als der Markt? Weil es in der Wirtschaft vor allem um Menschen geht und nicht um Zahlen. Mit dem Verhalten der Anleger befaßt sich die Behavioral Finance, eine Lehre, die Psychologie und Ökonomie verbindet. Wissenschaftler wie Martin Weber, Professor für Finanzwirtschaft an der Universität Mannheim, spüren den emotionalen Schwachstellen der Anleger nach. Seine Behavioral Finance Group analysiert, was die Anleger alles falsch machen und was sie verbessern könnten.
"Mein Ziel ist es, die Leute zu rationaleren Entscheidungen zu bewegen", sagt Weber. "Ich finde es schade, daß sie so viel Geld verlieren." Schon Investmentlegende Benjamin Graham wußte: "Das größte Problem der Anleger - und ihr schlimmster Feind - sind wahrscheinlich sie selbst." Von Catherine Hoffmann
Falscher Glamour.
Warum kaufen Anleger nur all die Aktien, die sie kaufen? Die amerikanischen Professoren Brad Barber und Terrance Odean, beide durch zahlreiche Forschungsarbeiten zum Verhalten von Investoren bekannt, sind der Frage nachgegangen. Ihr Ergebnis ist ernüchternd. Anleger begeistern sich nicht unbedingt für gewinnstarke und unterbewertete Unternehmen, denn die muß man ja erst mal suchen und finden. Wer eine Aktie kaufen möchte, kann zwischen Tausenden von Papieren wählen. Aber welcher Anleger ist schon in der Lage, die 500 Aktien im amerikanischen S&P-500 nach ihrer Attraktivität zu sortieren? Ein Computer, gefüttert mit den richtigen Auswahlkriterien, schafft das ohne Mühe, Menschen kaum. Das Angebot an Papieren überfordert noch den intelligentesten Investor.
Viele lösen das Problem, vermutlich unbewußt, indem sie einfach nur jene Titel in Betracht ziehen, die ihre Aufmerksamkeit erregen, sei es, weil sie in die Schlagzeilen geraten sind oder weil sie heftige Kursausschläge verbuchen - leider nicht zu ihrem Vorteil. Denn Aktien, die großes Aufsehen erregen, neigen dazu, sich künftig schlechter zu entwickeln als jene, die zuvor verkauft wurden. Was tun? Privatanleger sollten ihre Investments mittel- bis langfristig an festen Grundsätzen ausrichten und nicht nach jeder Neuigkeit handeln. Sicher kommt es infolge von Konjunkturdaten und Ereignissen wie den Anschlägen in Madrid zu Kursausschlägen an der Börse. Privatanleger können die Informationen aber nicht schnell genug wahrnehmen und zu ihren Gunsten umsetzen.
Teures Traden.
Eigentlich sollte es jeder Börsianer wissen: Hin und her macht Taschen leer. Doch unbeirrt von solchen Binsenweisheiten kaufen und verkaufen die Anleger munter Aktien, schichten ihr Depot häufig um - und erzielen damit vor allem eines, eine hohe Spesenabrechnung. Warum so hyperaktiv? "Investoren sind zu selbstsicher", sagt Martin Weber, Professor an der Uni Mannheim. "Sie überschätzen notorisch ihre Fähigkeiten als Investoren." Das ist ein ganz menschlicher Wesenszug, den man auch an Autofahrern oder Studenten beobachten kann. Die Mehrzahl hält sich für überdurchschnittlich gut, aber das kann ja gar nicht wahr sein. Im übergroßen Glauben an die eigenen Fähigkeiten fahren die Menschen zu schnell Auto oder schichten ihr Depot zu oft um, in der Hoffnung auf den sicheren Gewinn. Weber und sein Mitarbeiter Markus Glaser haben in einer Studie gezeigt, daß Anleger, die sich überdurchschnittliche Investmentfähigkeiten zuschreiben, auch tatsächlich mehr handeln - mit bescheidenem Ergebnis. Dieser Schlag von Anlegern verdient zumeist weniger als der Marktdurchschnitt. Je öfter das Depot umgeschichtet wird, desto geringer der Ertrag, hat Forscher Terrance Odean herausgefunden. Seine Überlegung: Jedesmal wenn ein Investor eine Aktie verkauft und eine andere dafür ordert, erwartet er, daß das neue Papier besser laufen wird als das alte. Tatsächlich zeigte sich bei der Analyse von 10 000 Trades bei einem Discountbroker, daß die frisch gekauften Aktien auf Jahressicht um drei Prozentpunkte schlechter abschnitten als die alten, Spesen nicht mal eingerechnet. Weitere Studien erhärteten den Verdacht. Aktive Trader verdienen weniger als solche, die eine Kaufen-und-Halten-Strategie verfolgen, und zwar gut sechs Prozentpunkte im Jahr.
Geliebte Verlierer.
Soviel Treue würde man eigentlich nicht erwarten. Anleger geben Aktien, die in die Verlustzone gerutscht sind, immer wieder eine Chance. Sie verspüren offenkundig einen inneren Widerwillen, sich von einem Wert zu trennen, wenn sich mit seinem Verkauf noch nicht einmal der historische Einstandskurs realisieren läßt. Denn wer eine Aktie unter Einstiegspreis verkauft, hat nicht nur Geld verloren, sondern verbucht auch einen psychischen Verlust. Ehrlicherweise muß sich der Investor eingestehen, daß er den Markt falsch eingeschätzt hat. Sein Stolz wird verletzt. Das ist einer der Gründe, warum Investoren Verluste zu lange laufen lassen.
Die wichtigste Frage, die sich ein Sparer stellen muß, lautet deshalb: Wieviel Verlust bin ich bereit, mit meinem Engagement einzugehen? Viele Privatanleger haben keine Vorstellung davon. Sie wissen zwar, daß sie Geld verdienen wollen, überlegen aber nicht, was passiert, wenn ihre Wette nicht aufgeht. Für den Anlageerfolg ist es aber entscheidend, die Konsequenzen der Fehlschläge zu minimieren. Die Schmerzgrenze sollte bereits vor dem Erwerb einer Aktie festgelegt werden. Am einfachsten setzen sich Anleger bereits beim Aktienkauf eine Stop-Loss-Marke und verkaufen eisern, wenn sie unterschritten wird. Sie sollte aber nicht zu knapp gesetzt werden, damit das Papier nicht bei der kleinsten Kursturbulenz aus dem Depot gefegt wird.
Gekappte Gewinne.
Entwickelt sich eine Aktie gut, bekommen es Anleger oft mit der Angst zu tun. Sie stoßen das Papier ab, das sich so vorteilhaft entwickelt hat, da sie befürchten, die bisherigen Gewinne bald wieder einzubüßen. In der Regel verkaufen sie also viel zu früh. Es sind keineswegs nur unerfahrene Kleinanleger, die diesem Effekt zum Opfer fallen, der ein Spiegelbild zum Festhalten an Verlusten ist. Kompetenz und Routine in der Geldanlage immunisieren nicht gegen Mutlosigkeit. Der Grund: In der Gewinnzone verhalten sich Menschen risikoavers, im roten Bereich der Verluste hingegen risikofreudig. Das haben Experimente gezeigt.
Aber wann ist nun der richtige Zeitpunkt gekommen, eine Aktie zu verkaufen? Die Frage klingt trivial, eine Antwort ist aus Sicht der traditionellen ökonomischen Theorie, die Anleitung zu optimalem wirtschaftlichen Handeln geben will, aber alles andere als einfach zu beantworten. Mit Sicherheit wird der optimale Verkaufszeitpunkt durch steuerliche Überlegungen bestimmt und durch die Frage, wieviel Gewinnpotential mit dem Titel noch verbunden ist. Ferner müssen Transaktionskosten berücksichtigt werden. Entscheidend ist aber wohl das Momentum eines Aktienkurses. Warum sollte ein Anleger verkaufen, solange es mit Schwung nach oben geht? Erst wenn die Dynamik nachläßt, ist Vorsicht geboten.
Begehrte Sieger.
Anleger investieren ihr Geld vorzugsweise in Fonds, die sich im Vorjahr gut geschlagen haben. Einer Studie von Terrance Odean zufolge fließen 39 Prozent des neu investierten Geldes in Fonds, die auf Jahressicht zu den besten zehn Prozent zählen. Mehr als die Hälfte der Käufe konzentriert sich auf die Top 20 Prozent des Vorjahres. Zahlreiche Studien belegen aber, daß die Wertentwicklung eines einzigen Jahres so gut wie nichts über die Fähigkeiten eines Fondsmanagers aussagt. Die Wissenschaftler sind da recht fatalistisch. Sie sind überzeugt, daß der Erfolg eines Managers eher ein Zufallsprodukt ist, so wie das Ergebnis eines Münzwurfs, und weniger determiniert, also vorbestimmt. Warum sonst gibt es so wenige Investoren, die dauerhaft besser sind als die Konkurrenz? Betriebswirt Martin Weber empfiehlt deshalb den Kauf von Indexprodukten, die auch deutlich kostengünstiger sind als Fonds.
Tückische Einfalt.
Die überwältigende Mehrzahl der Anleger hat viel zu wenige Aktien im Depot. Vor allem jüngere und aktive Investoren haben die Vorzüge der Vielfalt noch nicht erkannt. Diversifikation senkt das Risiko und stabilisiert die Rendite. Da verblüfft es, daß einer Studie von William Goetzmann und Alok Kumar zufolge mehr als ein Viertel der Investoren nur eine einzige Aktie im Depot halten, und mehr als die Hälfte weniger als drei Werte besitzen. Die Konsequenzen: Extrem hohe Wertschwankungen und ein miserables Risiko-Rendite-Verhältnis, schlechter noch als in einem zufällig zusammengewürfelten Portfolio. Der typische Fall ist der Angestellte eines Unternehmens, der nur Belegschaftsaktien kauft. Er setzt auf Vertrautes, weil er hofft, hier einen Informationsvorsprung zu besitzen. Der wiegt aber die Nachteile mangelnder Diversifikation nur in den seltensten Fällen auf. Anleger sollten deshalb die klassische Kapitalmarktlehre beherzigen. Das Risiko einer Anlage und die Gefahr, schlechter abzuschneiden als der Markt, nehmen ab, je vielfältiger das Depot ist. Um die 30 Titel sollten es schon sein.
Große Versuchung.
Wer gern Schokolade ißt, kennt das Problem vielleicht. Verspürt man Gelüste und ist eine Tafel im Haus, ist die Versuchung groß. Muß man erst mal zum Supermarkt gehen, verzichtet man vielleicht auf den Genuß. Bei Aktienkauf ist es nicht anders. Wer Kunde bei einem Online-Broker ist, kann spontanen Kaufgelüsten, Gerüchten oder Panik sofort nachgeben. Wer erst zum Bankberater gehen muß, denkt vielleicht noch mal nach. Studien zeigen: Wenn Anleger vom Telefon- auf den Online-Handel umsteigen, schnellt ihre Handelsaktivität in die Höhe. Zunächst wird da einfach ausprobiert, was neu ist. Aber auch wenn die erste Neugier abgeflaut ist, sind die Kunden am Computer aktiver, als sie es vorher waren. Schade, denn solange sie offline waren, verdienten sie wesentlich besser.
[Bildunterschrift:]
Aktienkurse sind nicht vorhersehbar, das menschliche Verhalten aber wohl. Behavioral Finance bietet Einblick ins Denken der Anleger.
Foto Mauritius
All rights reserved. (c) F.A.Z. GmbH, Frankfurt am Main
Document FAS0000020040503e04p00048
| Factiva | Dow Jones & Reuters |
Koude zonnige ochtend voorbode van fijne beursdag.
632 words 3 April 2004
De Tijd
38
Dutch
Copyright 2004 De Tijd. Not available for Redissemination except as permitted by your subscriber agreement.
Helder lenteweer heeft positieve impact op beurs
(tijd) - Zonnig weer in de ochtend zorgt voor een beter dan gemiddelde beursprestatie later op de dag. Zon heeft namelijk een positieve invloed op het gemoed en zorgt voor optimisme, terwijl bewolking de beleggende mens eerder neerslachtig maakt. Dat blijkt uit meerdere studies over het 'weereffect'. Een recente studie toont aan dat ook koude gunstig is voor de beurs, in tegenstelling tot warmte.
De eerste echte lenteweek zit erop. De Belgen kwamen massaal naar buiten, maakten hun eerste lentewandelingen en zochten hun eerste terrasjes op. Het deed merkbaar deugd. Uitgebreid psychologisch onderzoek bevestigt trouwens wat we vermoeden, namelijk dat zon en warmte een gunstige impact hebben op ons humeur. Maar heeft de zon ook een significante invloed op de aandelenmarkten?
Niet volgens de theorie van de efficiente markten. Die stelt dat de beleggers rationeel zijn, dat ze onmiddellijk en optimaal reageren op nieuws, dat de effectenkoersen een juiste weerspiegeling zijn van alle bekende informatie, dat humeur en emoties niet van tel zijn op de beurs. Kortom, het weer heeft volgens die theorie geen impact op de markten, behalve dan indien extreme weersomstandigheden de fundamentele waarde van bijvoorbeeld landbouwbedrijven aantasten.
De psychologische wetenschap ziet het anders. Het weer beinvloedt het humeur. Het humeur, op zijn beurt, beinvloedt het gedrag. In de wereld van de beurs kan dat dus tot wijzigingen in de koop-of verkoopbeslissingen leiden. De 'behavioural finance', de financiele wetenschap die rekening houdt met de psychologie, begon zich pakweg twintig jaar geleden voor de interactie tussen weer en beurs te interesseren. Sedertdien verschenen tientallen studies over het onderwerp. Het gros van de wetenschappers stelde vast dat zonneschijn een positieve invloed heeft op beurskoersen. Ze suggereren dat mensen zich met een straaltje zon gelukkiger voelen en daarom optimistischer zijn, bijvoorbeeld over de nabije economische toekomst.
Edward Saunders stelde in 1993 empirisch een significant negatieve correlatie vast tussen de wolken boven New York en de prestaties van Wall Street. Een van de bekendste papers is van de Amerikaanse academici David Hirshleifer en Tyler Shumway uit 2001: 'Good Day Sunshine: Stock Returns and the Weather.' Het duo bekeek de relatie tussen een eventuele aangename ochtendzon en de evolutie tijdens dezelfde dag van de lokale beursindexen. Ze onderzochten daarvoor 26 beurzen, waaronder die van Brussel, in de periode van 1982 tot 1997. Ze stelden een 'zeer significante correlatie' vast tussen zon of bewolking en aandelenkoersen. Regen en sneeuw hebben geen noemenswaardige invloed.
Temperatuur
De Canadese vorsers Melanie Cao en Jason Wei bespraken in een vorig jaar uitgebrachte studie 'Stock Market Returns: a Temperature Anomaly' het verband tussen de temperatuur en de beurs: koude heeft een gunstig effect op de koersen, warmte is ongunstig. Hun verklaring: gure temperaturen leiden vaak tot agressie, en warmte heeft dikwijls apathie tot gevolg. Volgens Cao en Wei betekent meer agressie dat de beleggers bereid zijn mee risico's te nemen. Apathische beleggers zijn dan weer risicoavers. De impact van koude is overigens veel groter dan de invloed van warme dagen.
In een notendop: een koude zonnige ochtend belooft in een fijne beursdag uit te monden. Kunnen beleggers munt slaan uit deze informatie? Hirshleifer en Shumway beweren dat handelen op basis van het weer wel degelijk tot een extra return kan leiden, maar onder meer wegens de oplopende transactiekosten is dat voordeel eerder beperkt. 'Ons lijkt het belangrijker dat de beleggers zelf beseffen dat hun oordeel op zonovergoten dagen misschien wordt bepaald door emoties.' Er is in deze materie nog veel ruimte voor verder onderzoek en discussie. William Goetzmann en Nig Zhu van de universiteit van Yale volgen in hun recente paper, 'Rain or Shine: Where is the Weather Effect?' een nieuw onderzoekspad: niet de beleggers worden beinvloed door het weer, maar wel de beurshandelaren en marktmakers.
Document FETIJD0020040403e0430003q
| Factiva | Dow Jones & Reuters |
Mutual Funds See No Injuries From 'Timing'
By Tom Lauricella 1,015 words
3 March 2004
The Wall Street Journal
C1
English
(Copyright (c) 2004, Dow Jones & Company, Inc.)
NO HARM, no foul.
So say some mutual-fund companies in response to allegations that they allowed certain traders to improperly buy and sell fund shares. Because other fund shareholders seemingly suffered little or no financial harm from some of these trading arrangements, the firms involved are invoking the sports adage -- that there's no harm so there's no foul -- as a defense against regulators pursuing fraud and similar charges. However, experts doubt this defense will be enough to sway investigators.
Franklin Resources Inc., which operates the Franklin Templeton and Mutual Series fund groups, is one fund company using this defense. In an administrative complaint last month, Massachusetts regulators claim that Franklin employees allowed a trader to rapidly buy and sell shares in Franklin Small Cap Growth Fund despite prospectus language saying the fund did "not allow investments by market timers."
But Franklin contends no rules were broken. The company says the trader lost about $700,000 in making three purchases and sales of fund shares in a month. In its written response to the Massachusetts charges, the company used variations of the phrase "no harm" five times in the first four paragraphs.
Meanwhile, Pacific Investment Management Co., or Pimco, which was accused in February by New Jersey investigators of allowing a hedge fund to conduct rapid trading in Pimco bond funds, said in a letter to clients signed by Bill Gross, Pimco's chief investment officer, and Pimco Chief Executive Officer William Thompson that the trading "harmed no shareholders."
Indeed, Pimco stock-fund officials in a separate note said that an independent investigation "concluded that shareholders of three funds had actually benefited from the trading and that returns on the remaining fund had been reduced by less than $1.2 million."
At the center of the six-month-old investigations into trading abuses is a practice known as market timing. Market timing is intended to take advantage of "stale" fund-share prices that understate the value of the securities in a fund's portfolio. While market timing isn't illegal in itself, timing activity can result in fraud charges if a fund company allows such trading while pretending to block it.
The share-trading scandal already has produced settlements in which the damage done to fund shareholders appears to have run into the hundreds of millions of dollars. According to people familiar with the investigations of Alliance Capital Holding LP and Massachusetts Financial Services Co., market timers likely skimmed a total of more than $300 million from long-term shareholders by their rapid trading. Both firms settled charges without admitting or denying wrongdoing.
But the allegations against those firms involved a large amount of improper trading. Companies in which such trading wasn't as widespread argue the damage suffered by shareholders was likely much smaller, if it existed at all, a claim the firms are using as a defense.
Legal experts and regulators say that while claiming "no harm, no foul" may help with damage control for a firm's reputation and as a defense against financial liability in shareholder suits, that argument may not do much to fend off charges of wrongdoing from regulators. Those charges are based on allegations of fraud and failure to live up to fiduciary duties to protect investors, neither of which require that shareholders suffer monetary harm in order to be proven, these observers say.
"The real touchstone had been whether or not the conduct was done in a manner that was deceptive," says Stephen Crimmins, an attorney at Pepper Hamilton LLP in Washington and a former Securities and Exchange Commission enforcement lawyer. "Fiduciary standards . . . don't turn on whether or not actual harm was done as a result of your actions."
Adds David Brown, who has been heading up the mutual-fund investigation for New York Attorney General Eliot Spitzer, "There's a very bright line out there [between right and wrong] when it comes to fiduciary duties."
In a written statement, Franklin says its "first priority is to protect the best interests of our funds' shareholders. Our policy is to work closely with regulators to deal swiftly with any issue such as this." A spokesman for Pimco declined to elaborate on previous statements regarding fraud charges involving its prospectus statements.
Experts say that one reason that market timing is costly to long-term investors is because each such trade when share prices are rising drains off profits available to long-term investors, a phenomenon known as dilution. But just like any other shareholder, a market timer holding fund shares that decline in price can end up recording a trading loss.
In such circumstances, some observers argue that the reverse of dilution can take place and the long-term fund shareholders actually end up benefiting from the timing. The reasoning is that the loss booked by the market timer can end up reducing the losses suffered by long-term shareholders. Some fund companies, meanwhile, have been subtracting the losses on those trades from the gains to calculate the net impact on their funds.
For example, the trustees for a fund run by Janus Capital Group Inc. have said market timers made profits of $22.8 million, but they said that figure was a "net" total that subtracted losses from the gains.
A spokeswoman for Janus said in a prepared statement that "the methodology was determined by the independent trustees of the Janus Funds with advice and assistance from outside advisers. As Janus has said all along, we're committed to doing the right thing for our shareholders."
Regulators and academics say that even in a down market, long-term fund shareholders suffer from the timing. By subtracting a timer's losses, the total ends up underestimating the damages, they contend.
"It's not the timing per se that causes the damages, it's the exploitation of the stale prices," says William Goetzmann, a professor of finance at the Yale School of Management, who co-wrote a study published in 2000 about the impact of market timing.
Document J000000020040303e0330002n
| Factiva | Dow Jones & Reuters |
The Dismal Science: The Feeling's Not Mutual
By Susan Lee 1,020 words
24 November 2003
The Wall Street Journal
A15
English
(Copyright (c) 2003, Dow Jones & Company, Inc.)
No doubt about it -- mutual funds have blotted their copybooks, big time. This is doubly unfortunate. It reinforces the notion that Wall Street is an insiders' heaven, subject to the usual drivers of scandal like greed and dishonesty. But it also causes individual investors to be wary of a financial tool that possesses the great virtues of one-stop diversification and good liquidity.
So it's not exactly encouraging that the reforms being considered are going off in all directions -- most of them misguided. Case in point: the House just passed a blunderbuss bill that would punish everybody -- innocent investors along with the funds themselves.
At the center of the problem is an opportunity for gaming the system that is unique to mutual funds -- stale prices. Unlike closed-end or exchange-traded funds, which are priced, or up-dated, continuously across the trading day, mutual funds are priced once a day. Their value is set at 4 p.m. based on the most recent transaction prices. Thus, while differences between prices and expectations can be arbitraged away in an instant with exchange-traded funds, prices in mutual funds grow stale, presenting a giant inducement for timers.
Although opportunities to trade off stale prices are most delicious in funds with international stocks -- where prices can be stale for 15 hours -- timing is also possible for funds with small cap stocks and high-yield and convertible bond funds. These domestic funds are particularly vulnerable if the underlying instruments trade infrequently with wide spreads.
Stale prices, thus, are a systematic problem that requires a systematic remedy. And this is what makes fair-value pricing so attractive. Essentially, this method estimates what value would be if trading were continuous and then adjusts the stale value accordingly. A simple example: If the U.S. market closes up, there is a better than average chance that Asian markets will open up since those markets are seriously influenced by the U.S. market. A fair-value pricing model would adjust upward any Asian stocks held in a mutual-fund portfolio.
The adjusted, or fair-value price, will then reflect all public information available to investors at the market close. And here's the nifty trick: Since fund returns are now unpredictable, and since market-timing is driven by the ability to predict a fund's share price, market-timing is no longer profitable.
Granted -- given recent experience with sleazoid fund managers -- fair-value pricing can sound like an invitation for mischief. After all, it involves imputing a value to stocks in the absence of market trading. It substitutes the judgment of a model for the outcome of the expectations of many investors.
But a model is just a price-setting algorithm and it can be evaluated on its record in adjusting prices. A good model will adjust the prices too high half the time and too low the other half. Simply put, since fair-value pricing is just as likely to lower, as it is to raise prices, there is no bias. If the model yields any other result, it is clearly biased.
Of course something could happen between the market's close and open to change prices -- up or down -- but that's hardly the model's lookout. As William Goetzmann, an economist at Yale, says: "There is no way to know if a price is right or wrong without continuous trading -- even if the market opens at a different value, it could be responding to later information. But we know that stale prices are wrong and can be ripped off." Market-timers who try to game funds that use fair-value pricing will only win on 50% of their trades, but timers gaming funds with stale prices, on the other hand, will win 75% of the time. Eric Zitzewitz, an economist at Stanford who has studied market timing, argues: "A properly constructed fair-value pricing model would eliminate dilution and substantially reduce market-timing and its associated costs."
If the choice between stale and fair-value pricing is a no-brainer, so is another issue -- how often to use fair-pricing. The Securities and Exchange Commission, in a 2001 letter, mandated its use after "significant events." Mutual funds have generally interpreted this to mean an event that could move the market by at least 3%. Given that this comes to no more than seven days a year, it's not a very frequent occurrence. No surprise, then, that a majority of funds rarely act on fair-value pricing.
The problem, however, is that unless fair-value pricing is employed daily, market-timing will be profitable. A study by Conrad Ciccotello, Roger Edelen, Jason Greene and Charles Hodges looked at a sample of international funds yielding, on average, 14% annually. If funds never adjusted prices, timers earned returns of 35%. If funds adjusted prices for significant events two or three times a year, timers still earned returns of 33% a year. More dramatically, even if funds employed fair-value standards on 52 trading days, returns from stale pricing would only fall to 24%. Since there is a major potential for dilution even on days that experience no significant events, fair-value pricing must be employed on a daily basis to be effective. As the economists conclude: "When prices are stale, every day is a significant event."
Any reform that does not require funds to use fair-value pricing daily will miss the point. Indeed, any reform that goes beyond fair-value pricing is unnecessary. And wildly popular reform, like restricting the number of trades over a certain period or raising fees for short-term trading, will add to investors' costs, reduce liquidity and only lessen the opportunity for stale-price trading, not eliminate it.
The House bill does include, in its many provisions, a fair-value pricing requirement. A truly informed Senate (I know, an oxymoron) would just strip out all the harmful noise. Or the mutual-fund blot will have an indelible impact.
---
Ms. Lee is a member of the Journal's editorial board.
Document J000000020031124dzbo0001b
| Factiva | Dow Jones & Reuters |
The scandal spreads - Suspensions and sackings.
909 words 11 October 2003
The Economist
English
(c) The Economist Newspaper Limited, London 2003. All rights reserved
America's mutual funds
A wave of suspensions and sackings hits a $7 trillion industry
"THE full extent of this complicated fraud is not yet known," said Eliot Spitzer, New York state's attorney-general, when he launched an investigation into mutual-fund fraud on September 3rd. A month on, it still isn't. The industry, which oversees $7 trillion of Americans' assets, is fighting for its reputation. Several dozen class-action lawsuits have already been filed. Mutual funds and their investors are wondering what Mr Spitzer's probe, and another by the federal Securities and Exchange Commission (SEC), will unearth.
So far one of the four firms cited in Mr Spitzer's original complaint, Bank of America, has fired three employees. Another, Strong Capital, said late last month that it would make "appropriate reimbursements" to clients if an internal review finds they have been harmed. Merrill Lynch, Prudential and Alliance Capital have also fired or suspended staff. Following a second complaint by Mr Spitzer, on October 2nd a former trader at Millennium Partners, a hedge fund, pleaded guilty to securities fraud. The chief executive of Security Trust, another company the attorney-general is after, resigned on October 6th. Others have received subpoenas from Mr Spitzer.
Like investment banks, with which Mr Spitzer reached a settlement in April, mutual funds have long been known to have potential conflicts of interest. On the one hand, fund managers' earnings are related to how much money they manage. On the other, their quest for size can sometimes clash with the financial interests of their investors. Although they have a fiduciary duty to investors, they stand accused of breaching it.
Market timing and late trading, the two practices currently under scrutiny, are litmus tests of fund managers' loyalties. Market timing exploits inefficiencies in the way the prices of shares in mutual funds are derived from the prices of underlying securities (such as shares in listed companies). The value of a mutual fund does not change in the course of a day: its shares are bought or sold at a price fixed by the fund's manager, who also acts as the primary market maker for the fund's own shares. Fund prices are usually fixed at the end of the previous trading day. Thus an American manager whose fund specialises in Japanese shares uses stale closing prices from Tokyo, established 14 hours before trading ends in New York, to fix the value of his own fund. If market moves in America suggest a sunny outlook for the next day in Japan, a market timer, usually a professional trader, can buy the mutual fund at the fixed price, reflecting stale Tokyo prices, and then sell the fund's shares back to its manager the next day at a profit.
This is not illegal. But it hurts long-term mutual-fund investors, because the market timer's quick sale reduces the fund's asset value and imposes transaction costs on the fund. Yet fund-management firms are tempted to allow market timing by traders who promise to throw more business their way in the future. The practice becomes legally murky when mutual funds say in their prospectus, as most do, that they act to prevent timing, but still allow the practice. Some firms explicitly say that they accept or even invite market timing.
Late trading is tempting for mutual funds for the same reason: if fund managers allow it, late traders will put more business their way. Helped by friendly fund managers, late traders place buy or sell orders after the value of a fund has been set at the end of the trading day. They can then profit from news about companies whose shares are held in the fund. This is prohibited by federal securities law, but can go unnoticed if traders and fund managers cover their tracks.
The scandal is prompting investors to question whether mutual funds are acting in their interest. No individual is likely to have lost much, yet the collective sum is large. William Goetzmann of Yale University estimates that in the 17 months to June 1998 trading on stale prices in 116 mutual funds cost investors 0.44% of the funds' assets, or $1.5 billion. This shaving of returns might not be spotted during a bull market. In a bear market, where gains are harder to come by, investors are more sensitive.
Regulators are now seeking ways of straightening out mutual funds' allegiances. In testimony to the Senate banking committee last week William Donaldson, chairman of the SEC, said that the agency will demand more transparency on funds' expenses and commissions, and more information on their policies on market timing. The SEC will probably recommend that mutual funds adopt "fair-value" pricing: instead of actual, stale prices, mutual funds would price Japanese stocks, say, according to what they think their value should be after New York's trading day. If funds did not use fair-value pricing, they would have to explain why.
However, fair-value pricing may also be open to abuse, because of its subjectivity. Indeed, until recently the SEC itself was disinclined to advocate fair-value pricing, on the ground that it involved "complicated judgment calls". Even with fair-value pricing, investors would have to rely on simple faith that mutual funds were not breaching their fiduciary duty. The coming months will show whether fund managers deserve Americans' confidence.
Document EC00000020031013dzab0000x
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Quarterly Mutual Funds Review --- Stock Funds Gain, Tech Rebounds -- but It's Not the Same --- Investors Remain Cautious About Chasing `Hot' Returns; Too Distracted by Probes?
By Ian McDonald The Wall Street Journal Online 1,423 words
6 October 2003
The Wall Street Journal
R3
English
(Copyright (c) 2003, Dow Jones & Company, Inc.)
CALL IT A quiet boom.
Even after staging a bit of a retreat in the final days of the third quarter, stocks have posted eye-catching returns so far this year. But absent so far in the run-up has been the customary fanfare about -- and money flooding into -- the highest-flying stock mutual funds.
"It's strange most clients haven't noticed these gains, yet," says Rich Chambers, a financial adviser based in Menlo Park, Calif. "They're still a bit numb from the bear market, so they've stopped following things."
It's understandable if this year's stock-fund comeback is lost on many Main Street investors. Allegations of improper buying and selling of fund shares and continuing probes into fund-trading practices have no doubt stolen attention from fund-performance numbers. And during the brutal three-year bear market for stocks, the once-fervent interest that many investors had shown in Wall Street's doings cooled as returns in their savings and retirement accounts turned ice cold.
But the stock rally that started in March, driven by hopes for a lasting recovery of the economy and corporate profits, has produced gains so far this year that are still as impressive as they are broad. Of the 41 stock-fund categories tracked by Lipper Inc., only the group that includes many bear funds has lost ground this year. The result should be a pleasant surprise for many investors opening their third-quarter account statements.
The Lipper 1000 Fund Index, a basket of the nation's largest 1,000 stock funds, is up 17.89% so far this year. That tops the index's return over the same stretch in 1999, when it gained 4.79%. In fact, the index has posted a larger gain for the first three quarters of a year just 10 times since 1970, according to Lipper data.
Investors surveying fund returns so far this year might feel deja vu from the stock market's tech-led bull run in the late 1990s. After all, many of the most focused and aggressive funds are leading the performance derby once again. The nation's average technology and China funds top the charts with gains of more than 35% for both categories, since Jan. 1.
Some investors might be cheered to see that there are different return dynamics from the tech bubble, too. Back then, shares of large technology, media and telecommunications firms often led the way. But shares of fast-growing smaller-capitalization companies tend to rise quickest when investors believe the economy is going through a growth spurt, and funds focusing on those stocks are out front this year. The average small-cap growth fund is up 28.2% so far this year through the third quarter, for example, compared with 15.71% for the average large-cap growth fund.
Many market observers have said it is customary for the most speculative and hardest-hit areas in a bear market to bounce highest when there's hope for an economic and profit recovery. What's intriguing is that many fund investors have steered clear of hot funds and charted a measured course.
Typically the fund categories that top the performance scoreboards also top sales charts, but that's not the case this year. Despite their heady gains, redemptions from technology funds outpaced investments into them by $15 million from January through the end of August, according to Lipper.
That's not to say investors are still shunning stocks. About $36 billion flowed into U.S. stock funds in the first eight months of this year, compared with $7.8 billion for bond funds. But most stock-fund investments went to less-aggressive, more-vanilla fare. Cash flowing into multicap core funds, which blend the value and growth investment styles across market capitalizations, and funds tracking the Standard & Poor's 500-stock index accounted for about two-thirds of this year's new money going into stock funds, according to Lipper.
Even so, these conservative choices may be less conservative than they sound. Historically, the stocks in the S&P 500 have traded at about 15 times their earnings. Today they are trading at almost twice that, according to Standard & Poor's. Meanwhile, stocks held in the average technology fund are trading at nearly 40 times their earnings over the past four quarters, according to researcher Morningstar Inc.
"After a boom breaks, you often get a sort of echo like this," says David Testa, chief investment officer at fund group T. Rowe Price. "People loved that earlier game and the wonderful dreams that came with it, but I'm afraid it's just a short rebound and not a longer-term trend."
Other managers share the sentiment. "This is a year when pigs can fly," says Jeff Van Harte, manager of the $150.9 million Transamerica Premier Equity Fund, up 16.86% this year through Sept. 30. "People shouldn't be too surprised by what's happened so far this year, but they shouldn't get greedy either. If you own a fund that's up 40%, you might want to take some money off the table."
To be sure, some believe tech shares may be able to keep their torrid pace.
"If you look at the performance numbers in a vacuum, they look overly gaudy," says Kevin Landis, manager of the $624 million Firsthand Technology Value Fund, which is up 59.70% since Jan. 1 and has posted a 36.15% average annual loss over the past three years. "But that ignores the possibility that these stocks might have been oversold during the downturn."
Still, it seems that many investors are keeping a diversified stance. "People learned an awful lot about risk in the past few years," says William Goetzmann, a finance professor at the Yale University School of Management. "They understand that equities can be a good long-term investment, but they now know just how volatile they can be."
Mr. Goetzmann theorizes that many investors have likely ratcheted down their return expectations, but not given up on stocks. Instead, he thinks many have built diversified portfolios aiming for returns similar to the overall stock market, rather than swinging for the seats with racier fare.
He may be right. Aaron Shumaker, a 21-year-old finance student at Georgetown University in Washington, began investing money from summer jobs in funds near the start of the bear market. Despite that rough introduction to investing, he has kept adding to a diversified portfolio of stock funds, eschewing sector funds thus far, while aiming for the 10% annualized gain that stocks have averaged over time.
"I'm just going to keep putting money to work as I have it," the Grosse Point, Mich., native says. "Stocks have averaged a 10% annual return over the long term, so given losses in recent years my outlook is pretty positive going forward."
Even if stock prices keep trudging up, however, fund analysts say one headache from the bubble might come back: taxes. In 2000 most stock funds lost ground, but they nonetheless distributed investment gains to shareholders from the sale of stocks that still showed profits chalked up in earlier years. Those who owned funds outside of tax-deferred accounts often found themselves faced with both investment losses and a tax bill.
Most stock funds booked enough losses during the bear market to avoid having to pay out taxable capital-gains distributions anytime soon. But the same can't be said of bond funds, which earned solid returns in recent years. Observers are most concerned about Treasury funds, which have risen a cumulative 27.74% over the past three years, but are down 1.48% this quarter.
"We think investors should be wary of capital-gains issues with their fixed-income funds in general and their Treasury funds in particular," says Lipper fund analyst Andrew Clark. "There's a distinct possibility that there could be a double whammy like equity funds delivered in 2000."
That said, Mr. Clark and others think surprising stock-fund gains might just be strong enough to overshadow any bad bond-fund news investors get this year.
---
Journal Link: WSJ.com subscribers can read Ian McDonald's "Fund Fiend" and "Seven Questions" columns in the Online Journal, at WSJ.com/YourMoney.
Document J000000020031006dza60002w
| Factiva | Dow Jones & Reuters |
Fund of Information
The Unlevel Playing Field: At some mutual funds, big investors got big breaks
By Erin E. Arvedlund 2,446 words
8 September 2003
Barron's
F2
English
(c) 2003 Dow Jones & Company, Inc.
The mutual-fund industry still has $7 trillion in assets. It also has 95 million confused, angry investors.
For years, the industry urged Americans to "buy-and-hold." Don't try to time the stock market, investors were told. Redemption fees discouraged the little guy from looking for such near-term opportunities -- slapping, in effect, fines of up to 2% or more on those who trade in and out of their funds regularly.
Now, it turns out there may be a double standard -- depending on how much you have to invest.
New York State Attorney General Eliot Spitzer last week alleged that mutual-fund companies had allowed billion-dollar hedge funds to do two things Mom-and-Pop investors cannot. One was legal, but ill-advised (trade rapidly in and out of mutual funds, while shorting the stocks in those same funds' portfolios). The other was outright fraud (engage in after-hours day-trading of mutual-fund shares).
What's worse, the trades were risk-free for hedge fund Canary Capital Partners, a low-profile, $1-billion shop with stellar, double-digit returns. While stocks were careering downward in 2000, Canary earned 49.5%. In 2001, it gained 28.5%; in 2002, 15% -- all net of fees.
Canary's secret, according to Spitzer: buying or selling mutual funds after the market closed, at that day's price. Normally, anyone buying shares after the close would pay whatever the fund closed at the following day. Canary's trades often followed a material news event sure to move prices in the next trading session. Spitzer rightly likened Canary's strategy to "betting on yesterday's horserace."
Vanguard founder and fund sage, Jack Bogle, asks: "What were the fund companies thinking?" Here's what: More assets equal more fees, more profits to the management company and. for the public fund firms, a higher stock price.
Edward Stern, son of a prominent New York real-estate magnate, Leonard Stern (namesake to New York University's Stern School of Business) founded Canary Capital, which, without admitting or denying guilt, settled with Spitzer's office and paid $40 million in fines and restitution. Other mutual- and hedge-fund firms have been subpoenaed, including Vanguard and Millennium Partners, although it's not clear whether they were involved in the strategy.
According to the attorney general's complaint, Janus, Banc One, Bank of America and private firm Strong, among others, let Stern's hedge fund trade in-and-out of their mutual funds at will -- for a price. By July 2003, Stern had relationships with as many as 30 fund companies, although not all are named. (To read the complaint, filed in New York Supreme Court, visit Spitzer's Website ( www.oag.state.ny.us/ ).
Bank of America, for example, let Canary trade certain of its Nations brand of funds -- such as Nations Convertible, Nations Emerging Markets, Nations International Equity and Nations Small Cap. Then, dollar-for-dollar, Canary would park assets in other Nations funds to make up for the money racing in and out. Bank of America even extended Canary Capital a $300 million line of credit, on which Stern paid a generous interest rate.
Bank of America allegedly helped Canary short stocks owned by some Nations funds it was timing. To do so, Canary paid additional derivatives trading fees. Bank of America allegedly even set up a special trading connection to handle Canary's many orders after the close of trading.
Mutual-fund managers are paid a percentage of assets, and so might benefit by having hedge funds bulk up their funds. But according to Spitzer, many were "enraged" by fund timers, who were catered to by the sales side of these fund complexes, but who would regularly yank assets out, disrupting portfolio strategies.
E-mails from the Canary complaint show that some portfolio managers had no idea their funds were being rented out. Janus employees would work hard "to control timing so it does not become a hindrance to the portfolio manager. If properly controlled, it should be invisible to the PM" at funds such as Janus Mercury.
Strong, according to the complaint, insisted that Canary be invested in its funds "on the last day of the month if they invested at the first day of the same month" -- possibly to avoid detection by compliance. Among the funds Strong made available were Strong Growth, Strong Growth 20, Strong Advisor Mid Cap Growth, Strong Large Cap Growth and Strong Dividend Income. At the same time, Strong allegedly was asking Canary for money to seed a new hedge fund.
Jerry Paul, who left the Invesco High Yield Fund in 2001 to launch Quixote Capital, a hedge fund in Greenwood Village, Colo., recalls regularly battling big money flows from timers when he was running the high-yield bond portfolio. "It was a pain in the neck, always large flows in and out, and never at really opportune times," he says. "The sales guys wanted the assets, and the deal was they would move them" from the bond portfolio to a stock or other fund. "While it caused me a lot of trouble, they got to keep assets in-house and bill on them." Finally in the late 1990s, at his insistence, "we threw them out."
Advisers all over the country are probably trying to decide whether to keep or dump the funds named in the complaint. "We have already begun the process of selling Janus High Yield and begun searching for a replacement for Janus Balanced," says Tom Meyer of Meyer Capital in TKKKK.
However, Mark Constant, an asset-management analyst at Lehman Brothers, estimates that "potentially ill-gotten profits [which translate into losses for other clients] are unlikely to exceed $100 million, let alone the billions some have suggested." In short, he says, the practice may not be widespread. "We expect mutual funds to remain the preferred investment vehicle for most individuals. . . .
Thus, Constant has "overweight" ratings on stocks of several fund purveyors, including Franklin Resources, AMG, Federated and BlackRock.
Spitzer repeatedly uses the phrase "market timing" to refer to what Stern's hedge fund was doing. But, if the complaint is accurate, Canary was really cheating the system. The fancier, but correct, name for what up to now has been a legitimate strategy is "time zone arbitrage," in which investors take advantage of stale prices, for example, in values of U.S. stocks traded overseas. One estimate is that $30 billion is chasing this strategy.
It works this way: The net asset value of the funds are based on the U.S. stock market close -- and fund arbs take advantage of pricing delays.
The most lucrative short-term fund arbitrage is in international funds, according to Eric Zitzewitz, an associate professor at the Stanford Graduate School of Business. His October 2002 paper on the subject found that investors in funds focusing on particular regions, such as Europe or Asia, lost about 1.6% of their assets per year to market timers. In total, the cost was $4 billion annually. Others, like Jason Greene at the University of Georgia, estimate the cost to investors at $1 billion annually.
How do other investors suffer? If a timer buys at the last moment and takes part of buy-and-hold investors' upside when the market rises, the next day's net asset value is reduced for those still in the fund. Conversely, if the timer shorts on bad days, his arbitrage magnifies losses experienced in a declining market.
Long-term investors don't know this is happening. Say the news overnight is that European markets went up by 25%, yet their mutual fund rose only 20%. Where did the money go? Explains Geert Rouwenhorst, a professor of finance at Yale: "It disappeared into the pockets of the short-term trader, who realized that the mutual fund had mispriced its shares. The short-term trader walks away with a quick return, leaving behind the long-term shareholders of a mutual fund that is underperforming its benchmark."
Fund directors simply have to look at flow data to figure out if their fund is the target of market timers. In Nations Equity International (see chart), the data show assets increasing and decreasing symmetrically by hundreds of millions of dollars each month, although strangely, the fund's assets stayed roughly flat. A huge change in flows either up or down is normal, says Max Rottersman, founder of FundExpenses.com. But between April and September 1999, at least $150 million was moving back and forth every month in Nations International Equity.
Other clear danger signs are share-turnover in excess of 8%, he adds. "Only a market-timer would hold any equity fund for less then a year. If more than 8% of a fund's assets are being sold and redeemed on a consistent monthly basis without a corresponding change in overall net assets, then the fund is behaving abnormally," Rottersman says.
Between April and September 2000, an average of $250 million moved back and forth in the $1 billion Nations International Equity fund each month. Thus, every four months, it had the equivlanet of 100% portfolio turnover. "At 25% per month, this fund is well above the 8% warning line -- a clear sign to any conscientious trustee."
Timing has garnered support from some strange places.
"I am alarmed by mutual funds' increasingly discriminatory practices toward market timers," U.S. Rep. Thomas Tancredo, a Colorado Republican, wrote on Sept. 13, 2001, to then-SEC Chairman Harvey Pitt. In Tancredo's view, investors should have the flexibility to "switch amongst funds at will." According to his letter, written just two days after the terrorist attacks in New York and Washington, Tancredo had been burned by back-end loads fees imposed on timers by Alliance Capital.
Timing is legal, but Bogle says, "it shouldn't be done on long-term shareholders' nickel. It's a breach of fiduciary duty."
Academics say that using the right prices to value mutual funds is the way to close the loophole allowing mutual fund timing, or arbitrage, to go on so long.
In their paper, "Day Trading International Mutual Funds: Evidence and Policy Solutions," Yale professors Rouwenhorst and William Goetzmann suggest a method, known as "fair value pricing." Some fund firms already use it.
(MORE)
Both ITG and FT Data Interactive have come up with systems for such pricing. And among FT Data Interactive's customers are Delaware Investments, Safeco, ING Funds, Eaton Vance, and J.P. Morgan Fleming. In addition, American Funds and T. Rowe Price have developed their own fair-value pricing tools, says Geoff Bobroff, a fund consultant in East Greenwich, R.I. But any system is likely to be controversial.
Higher redemption fees, says Rouwenhorst, "are not a solution. Mutual funds increasingly are competing with ETFs, which don't have this problem of stale prices. There's no fighting the symptoms, just fixing the prices."
The charges by Spitzer could undermine the basic trust between mutual funds and their investors -- the covenant that every shareholder is on a level playing field. It could also lead to some nasty investor lawsuits against the fund companies implicated in the hedge-fund scandal.
The SEC has pledged to support Spitzer's review. But, Bogle says the agency "should be embarrassed by this." And Spitzer? "He should get the mutual funds medal of honor."
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E-mail: erin.arvedlund@barrons.com
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Scoreboard
Gainful Week
-- Domestic diversified funds climbed 2.46% in the week ended Thursday, while the broad market rose 2.51%, according to Lipper. Of the major investment styles, small-cap growth, core and value funds beat the market, advancing 3.32%, 3.05% and 2.75%, respectively. Of the 25 largest funds, Fidelity Low-Priced Stock was up 3.11%, and Fidelity Magellan, 2.48%. But Vanguard GNMA lost 0.12%.
-- Jack Willoughby
One WeekYear-to-Date
U.S. STOCK FUNDS 2.46 22.36
U.S. BOND FUNDS 0.10 3.85
TOP SECTOR / Latin American Funds 4.46 35.93
BOTTOM SECTOR / Target Maturity Funds -1.35 -2.76
THE WEEK'S TOP 10
Fund
Investment Objective One WeekYear-to-Date
Apex Mid Cap Gro
Small Cap Core 8.61% 127.78%
Winslow Green Growth
Small Cap Growth 8.40 88.95
Thurlow Growth
Small Cap Growth 7.25 34.14
Matthews Asian Japan
Japanese 7.22 38.04
ProFunds Technology Inv
Technology 7.17 57.23
ProFunds Wireless Inv
Telecommunication 7.14 44.50
Ameristock Focus Val
Mid Cap Value 7.11 24.10
ProFunds UltraSm-Cap Inv
Small Cap Core 6.88 72.77
Reynolds Fund
Multi Cap Core 6.87 100.00
ProFunds UltraJapan Inv
Japanese 6.82 49.69
THE WEEK'S BOTTOM 10
Rydex Dynamic Vn 100 H
Spec Dvsfd Equity -6.07% -55.74%
ProFunds UltSht OTC Inv
Spec Dvsfd Equity -5.93 -55.43
ProFunds UltraBear Inv
Spec Dvsfd Equity -5.00 -32.93
Rydex Dynamic Tm 500 H
Spec Dvsfd Equity -4.95 -32.90
Oppenheimer Rl Asset A
Specialty & Misc -3.87 9.71
ProFunds Sh SC Inv
Spec Dvsfd Equity -3.31 -28.01
Potomac OTC/Short Inv
Spec Dvsfd Equity -3.04 -33.28
Rydex Arktos Inv
Spec Dvsfd Equity -3.00 -31.54
ProFunds Sh OTC Inv
Spec Dvsfd Equity -2.96 -31.88
Amer Cent T2025 Inv
Target Maturity -2.88 -6.78
THE LARGEST 10
Net Assets Investment 3-Year* 1-Week YTD
(billions) Objective Return Return Return
Vanguard 500 Index Inv
$65.900 S&P 500 Funds -10.88% 2.54% 18.19%
Fidelity Magellan Fund
62.510 Large Cap Core -12.31 2.48 16.46
American Funds ICA A
50.956 Large Cap Core -2.78 1.64 14.48
American Funds Wsh A
47.911 Large Cap Value 2.28 1.88 14.45
PIMCO Total Return Inst
40.500 Intmd Inv Grade 8.89 -0.02 1.94
American Funds Gro A
39.077 Multi Cap Growth -9.78 1.61 22.96
SPDR Trust 1
37.448 S&P 500 Funds -11.07 2.54 18.10
Fidelity Contrafund
31.161 Multi Cap Growth -5.23 1.82 17.41
Fidelity Gro & Inc
28.296 Large Cap Core -8.00 2.56 11.81
American Funds Inc A
25.891 Income 6.35 1.28 12.90
*Annualized. Through Thursday.
Source: Lipper
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Cash - Property - The art of homemade profit - Barbara Oaff tries to
combine investing and decorating on ...
By Barbara Oaff.
996 words
13 July 2003
The Observer
15
English
© Copyright 2003. The Observer. All rights reserved.
Cash - Property - The art of homemade profit - Barbara Oaff tries to combine investing and decorating on a budget of £1,000.
IS IT possible to adorn your home for pleasure and profit? The well-off can fill their mansions with artworks, antiques and furniture that have the potential to rise in value, but what about the rest of us? Can we too indulge in what could be called 'investment-decorating', albeit on a smaller scale and to a tighter budget? To find out, Cash went shopping with £1,000.
Furniture
'The smart money is on rustic,' says John Andrews, author of the Antique collector's Furniture Index. Last year's best performer was country style, increasing in value by 3 per cent. Colin Phillips, a Harrogate antiques dealer specialising in country-style furniture, says £600 would buy an eighteenth-century side table or a hanging corner cabinet and £1,000 would buy a set of chairs.
Prints
Limited edition prints can make a statement and possibly a profit too. The price of screen prints, mono prints and etchings rose 3.5 per cent last year according to Artprice, a company that tracks auction results in 40 countries.
The best performing printmaker was Andy Warhol, whose iconic images have risen 75 per cent since 1997. But encouragingly for us, prints costing under £1,000 have also done very well. Some of them have actually doubled in value in under 10 years. Even better news is that Artprice says the less expensive prints still have 'very strong possibilities for growth'.
Robert Branchdale, a print consultant with the commercial gallery Art Contact, suggests that those who prefer abstract art look at Sir Terry Frost, Albert Ervin, John Hoyland and Bridget Riley. For more figurative and representative styles turn to Lucian Freud, Patrick Hughes, John Piper and Patrick Caulfield.
Photographs
Vintage is what's hot right now. Artprice calculates that this style has risen in value by 145 per cent since 1997. Last month a photograph by nineteenth-century French snapper Joseph Philibert Girault de Prangey broke the £500,000 barrier at auction.
It could be an opportune time to go shopping for an original vintage photograph, even on a much more modest budget, as 25 galleries in London are hosting a joint exhibition called Made in Paris until the end of the month. The show is co-ordinated by the Institut Francais du Royaume-Uni. The images on sale range from iconic portraits and traditional landscapes to social documentary. Happily, a few are within our reach. To find out more visit www.institut-francais. org.uk/madeinparis.
If you can't get to these shows, a visit to The Photographers' Gallery in London may be worthwhile. It has a rolling programme of work available at affordable prices. Call 020 7831 1772 for details.
Modern art
The fortunes of modern art have fluctuated in recent years, but are now riding upwards again, with prices rising 5.3 per cent since January, according to Artprice.
A few weeks ago a US auction house sold a painting by the American abstract expressionist Mark Rothko for a record-breaking $14.6 million. Of course, £1,000 will not buy anything by an established artist, but the way around that could be to take a punt on who is going to be the next big thing.
A good place to look for your new master is one of the more prestigious art school graduate shows, namely Slade, Goldsmith, Royal College or the Royal Academy.
The Royal Academy of Art is, for the first time, showcasing works by graduates from all these schools and its keeper Brendan Neiland says 'there are some bargains are to be grabbed'. The exhibition runs until 10 August.
Sculpture
What about something more traditional, like a bronze sculpture, for example?
Alexander Kader, head of European sculpture at Sotheby's, says £1,000 would definitely buy a charming nineteenth-century piece.
He has two hot picks, both of them French sculptors who worked in the 1830s: Antoine-Louis Barye, who depicted wild animals, and Aime-Jules Dalou, who represented peasant workers. Kader says they are currently 'under-appreciated' and therefore represent good value. To find out when their work will next come under the hammer, visit www.sothebys.com.
Objets d'art
You can buy 'quite a lot' in this department for £1,000, says Rik Pike, of CSK at Home, a new initiative run by Christie's South Kensington, where, four times a year, items up for auction are presented as they would be in a home. The next show is scheduled to begin on 5 October. Our £1,000 budget could take in a range of decorative items, from vases and bowls to Art Deco lampshades.
But a word of warning from Roland Arkell, news editor of the Antiques Trade Gazette. 'Buy something that you really like because you may be looking at it for a long time before it generates a meaningful return on your money, if indeed it ever does.'
This advice applies to any investment-decorating purchase. Everyone Cash talked to urged buying for pleasure rather than profit because, even with good luck and good management, you may never realise a financial gain. Professor William Goetzmann, director of Yale's International Centre for Finance, stresses that art, antiques and furniture are 'extraordinary risks'.
There are other factors that make this kind of practical investing difficult. Making a purchase can attract high sales commissions. Having the purchase authenticated can be difficult and expensive. The same applies to getting it home. And once your new heirloom is safely on display, insurance can be a costly ongoing liability. Some items even need a specially controlled environment, one that is not only childproof but also humidity-proof. Maybe some good old-fashioned retail therapy at Ikea is a more comforting idea.
Document ob00000020030714dz7d0002i
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Got a Big Mortgage? Buy More Bonds.; Buy bonds, hedging your home.
Ira Carnahan
767 words
17 March 2003
Forbes Magazine
168
Volume 171; Issue 06
English
Copyright 2003 Forbes Inc.
Your home loan isn't just a financial stretch. It's really a short position in the fixed-income market.
How much of your portfolio should be invested in bonds? You've likely already considered the normal stuff such as your tolerance for risk, when you'll need your money and your outlook for the bond--versus the stock--market. But there's another variable you should factor in and it's one most folks overlook: the mortgage on your house.
So says the Wharton School's Christopher Mayer. When you take out a fixed-rate mortgage for $400,000, you're taking the equivalent of a $400,000 short position in bonds. Do you want to short the bond market? This risky bet would lose money if interest rates fell, but pay off if rates went sky-high. Maybe you want to speculate on bond prices, maybe not. If you are like most homeowners, you haven't even thought about your mortgage that way.
Consider what happens if interest rates rise sharply. You, as a borrower, make out great. Rates are high (probably) because inflation has picked up, meaning you can repay the principal with cheap dollars. Meanwhile the fellow who invested $400,000 by buying your mortgage is sitting on a paper loss. The IOU's value might shrink to $300,000. (Just this sort of problem bankrupted thrifts a generation ago.) In similar fashion, sharply rising rates could turn a $400,000 investment in bonds into $300,000 faster than you can say "Alan Greenspan."
So if you've got a big mortgage, consider holding more bonds than you otherwise would as a hedge against the short position represented by your mortgage.
One hedging option is to invest in a mutual fund that holds mortgage-backed securities, such as Fidelity Mortgage Securities Fund (current yield: 3.2%) or Vanguard GNMA (5.2%). These are particularly good at counterbalancing a home mortgage because they consist, at bottom, of other people's mortgages. Built into almost all mortgages is a call option. If rates fall, the borrower has the right to call in the IOU--that is, pay off the debt early--by refinancing. This call option has the effect of mitigating the damage a borrower suffers during a decline in rates, while lessening the potential gain for the investor who owns the mortgage (or a Ginnie Mae). The call does not eliminate the effect of rate changes because there is still a big frictional cost to refinancing (appraiser's fee, points and whatnot).
Treasury bonds are (mostly) noncallable, so they are not a good hedge for a mortgage borrower.
If you have $400,000 in your taxable brokerage account, you'd do well to just pay off the mortgage. No sense borrowing at 6% just so you can collect 5% at Vanguard. But what if the $400,000 is tucked away in a tax-deferred 401(k) account? Then you have a nice little tax arbitrage on your hands. The interest cost is deductible immediately, while the offsetting interest income is taxed decades hence.
There's another way to arbitrage, although you have to be careful not to run afoul of the Internal Revenue Service. Borrow at under 6%, fully deductible, while investing at 4%, tax free, by owning a municipal bond fund. Now you can't just take out a home mortgage and then plop the proceeds into a muni fund. But if you took out the mortgage when you were young, and later accumulate savings or an inheritance, you are under no obligation to pay off the mortgage with your cash. You can continue to take deductions for the mortgage interest while using the new cash to buy the muni shares. An intermediate-term muni fund would be a good match for a long-term fixed-rate mortgage.
What if you don't have a 15- or 30-year fixed mortgage? Say your loan adjusts in five years. Then pick a shorter-term bond fund, like Vanguard's Limited-Term Tax-Exempt Fund, with an average duration of 2.6 years (yield: 2.1%).
Finally, what about the mansion that mortgage is paying for? A collapse in home values would wreck your net worth. Should you hedge the house, too? That's not easy to do, says Yale School of Management's William Goetzmann. The best protection here is to lessen your overall level of financial risk. Have plenty of cash and buy some life insurance.
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Long-term faith in stocks wavers
David R. Francis 998 words
10 March 2003
Christian Science Monitor
ALL
21
English
Copyright (c) 2003 Bell & Howell Information and Learning Company. All rights reserved.
Wall Street pretty much agrees that a successful invasion of Iraq by the United States and whatever allies it can round up would be good for the stock market.
Share prices will be "substantially higher by year end," says David Malpass, chief economist of Bear, Stearns & Co., a major investment firm based in New York.
Beyond such a rally, though, the financial community is divided and undecided on the course of stock prices. Perhaps the most significant question for investors, especially baby boomers facing retirement, is this: Will stock prices return soon to their historic growth pattern?
Since 1926, stocks (free of taxes, dividends reinvested) have provided an average annual return in nominal dollars of 10.7 percent. That's a sizable premium over the 5 percent return on bonds.
Three years ago today, the Nasdaq Composite Index bubble began to burst. It closed that March 10 at 5048. Last week the index was running around 1300. The index, with its heavy load of high-tech companies, has declined 30 percent in the past 12 months alone.
The Standard & Poor's 500 index hasn't been hit quite so hard. Still, it is down about 28 percent in the past 12 months.
"People have postponed their retirement because of what has happened to stocks," notes Mark Wohar, an economist at the University of Nebraska, Omaha.
Professor Wohar's hope is that the "New Economy" is real and sustainable, that computers and other innovations will boost productivity sufficiently that corporate earnings and the economy will flourish, and thus stock prices will thrive nicely in the future.
But he and others aren't so sure of that outlook.
Several major companies have been modestly lowering the expected return on their pension investments - for example, IBM from 10 percent to 9.5 percent, Fidelity Investments from 7.75 to 7, Citigroup from 9.5 to 8.
Economists at Goldman, Sachs & Co., an investment-banking firm in New York, predict the long-term return on equities will be about 6 to 6.5 percent a year. That implies corporations will have to trim their projected pension returns further.
One reason, explains chief economist Bill Dudley, is lower inflation. Over 40 years, the average inflation rate has been about 4 percent a year. It is now running between 1.5 and 2 percent.
To Mr. Dudley, the market debacle of the past three years has taught investors that stocks are riskier than bonds and some other investments. The "love affair" with equities has decidedly cooled.
"But people are not yet realistic," he says. "They are not saving enough from their income to have a good retirement."
Three years ago, Yale economist Robert Shiller's book, "Irrational Exuberance," was published. In it, he argued that stock prices in the 1990s displayed the usual features of a speculative bubble - "wishful thinking on the part of investors that blinds us to the truth of our situation."
One "truth" was that the ratio of stock price to earnings would return to its historic average of 15 or 16. The P/E ratio for the S&P 500 is now about 29, same as it was three years ago, because corporate earnings took a tumble since then.
If Mr. Shiller is right, prices still have a long way to tumble, warns Wohar. Those investors who hold on to their stock portfolios, counting on a rebound, could see their retirement funds dwindle further.
Much depends on the economy. If it picks up steam, earnings should follow. The P/E ratio could gradually improve. But Edward Yardeni, chief economist of Prudential Securities Inc., suggests that "deflationary pressures and rising pension costs" could trim expectations for long-term earnings.
During the stock-market boom, some bullish analysts maintained that stocks were no longer so risky. Therefore, the premium return that stocks command over bonds would shrink or even disappear. That shift would justify a higher P/E ratio than 15 or 16.
"What is kind of amazing with the United States market is that historically, its returns have been pretty robust," notes William Goetzmann, an economist at the Yale School of Management in New Haven, Conn. "The 20th century was the American century in many ways. But we don't know what the 21st century will be."
Maybe, investors need to reduce expectations for the market "a little bit," he speculated.
Facing many uncertainties at the moment, investors aren't demonstrating great confidence.
Stock prices are going up and down like a yo-yo. Last year, the S&P 500 index changed 2 percent or more in a day on 52 days. That's the most volatility since 1938. The index traded all of 1995 without such a change in one day.
Analysts suspect that millions of individual investors who normally just buy and hold stocks are bailing out, at least partly. Households were net sellers of $466 million of US equity funds in January after withdrawing $8.3 billion in December. Merrill Lynch analysts calculate that investors took another $9 billion out in February.
Some were fleeing into bond funds, which many consider safer, despite the risk that higher interest rates would depress their price. Fixed-income investments took in some $12.7 billion in January.
"Bottom line," note the Merrill Lynch analysts, "individual investors can be expected to (1) sell into rallies; (2) not buy into the 'dips' and (3) ignore the pundits, who on average are telling investors to have close to 70 percent of their financial assets in stock."
Such a gloomy view would have been unusual in a brokerage house a few years ago. Most firms prized positive views by their researchers. Analysts may be freer to present their honest opinions today.
"Nobody can predict when the market is going to turn around," says Goetzmann.
Stock-market forecasts are notoriously inaccurate.(c) Copyright 2003. The Christian Science Monitor
Document CHSM000020040511dz3a003bs
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Just the two of us - Sotheby's and Christie's alone again.
823 words 1 March 2003
The Economist
English
(c) The Economist Newspaper Limited, London 2003. All rights reserved
Auction houses
The duopoly in fine-art auctions is weakened but very much alive
ALFRED TAUBMAN is still in jail in Rochester, Minnesota, but he is already planning life after his release. On February 21st, his family shelved its planned sale of a majority stake in Sotheby's, one of the two leading auction houses for fine art. After serving his sentence, reduced from a year and a day to ten months and two weeks, for his part in a price-fixing scandal, Mr Taubman will be free in May. Rumours abound that the former chairman of Sotheby's will reclaim his old job.
"We have absolutely no indication that Mr Taubman will be involved in the affairs or the management of the business when he comes back," says William Ruprecht, chief executive of Sotheby's. But Mr Taubman controls 22% of the company's capital and 63% of the voting rights. He can appoint some members of Sotheby's board, now full of titled folk, financiers and retired ambassadors.
Like his counterpart at Christie's, Mr Ruprecht wants to draw a line under the past three years. In 2000, Christie's and Sotheby's agreed to pay $256m apiece to compensate clients for illegally co-ordinating the commissions they charged on sales. Mr Taubman paid $156m of Sotheby's bill; the firm paid $100m. Sotheby's was also fined $45m by America's Department of Justice (DOJ) and $20m by the European Commission. Christie's won exemption from the DOJ and EU fines by spilling the beans on the price fixing.
As if that were not bad enough, Sotheby's and Christie's found themselves under attack from an interloper. In 1999, Bernard Arnault, head of LVMH, a French luxury-goods conglomerate, bought Phillips, a smaller auction house, with the aim of breaking the duopoly at the top of the market. Phillips aggressively bought market share, mainly by giving sellers lavish guarantees, promises to buy their art at a pre-agreed price if the bidding failed to go high enough - and so won the sales of many coveted collections that would otherwise have gone to Christie's or Sotheby's. All this was painful for the big two.
In December, Sotheby's even sold its grand Manhattan headquarters for $175m to RFR Holding, a property firm, and leased it back for up to 40 years. It cut annual operating costs by $70m in the last two years. Staff numbers were chopped from 2,100 to 1,800, with more job losses likely. Earlier this month, Sotheby's abandoned its partnership with eBay after it lost $100m through its various attempts to sell fine art over the internet. Christie's has also cut staff, by some 15% since 2001, to around 1,900. Like Sotheby's - but presumably entirely coincidentally - it raised its commissions at the start of the year to strengthen its balance sheet.
"We have now put the vast majority of our legal troubles behind us," says Mr Ruprecht. They have also put Phillips behind them - which may have made it easier for the reborn duopoly to raise their commissions. Having lost all of Mr Arnault's financial support in January, Phillips is to fire half its staff and close all but four of its auction departments: it is hanging on to contemporary art, American paintings, 20th-century design, and jewellery.
Yet prospects for Sotheby's and Christie's remain tough. Moody's, a credit-rating agency, continues to regard Sotheby's debt as junk. (As Christie's is a private firm, its finances are more opaque, but probably not much better.) Buyers have started to dwindle due to declining wealth after the stockmarket-bubble burst and fear of war. Nobody who does not have to wants to sell into what is now a buyers' market.
How strong a link there is between art and the stockmarket is much debated. Certainly, the art market has remained buoyant long after the stockmarket crashed. Mr Ruprecht thinks that high-quality art tends to be more stable than most financial investments. When rare art comes to the market it is a once-in-a-lifetime opportunity, he argues, and people always buy. Rubens's "Massacre of the Innocents" sold for a record-breaking $77m at Sotheby's last year.
William Goetzmann at Yale School of Management has subjected the art market to econometric analysis, and found that the art market's "beta" - its synchronised movement with the stockmarket - is higher than one. This means that in boom times art moves up more, and in crashes art drops lower. But the effect is lagged, he says; so the real pain in the art market may still lie ahead. So if Mr Taubman does return to his old job in May, he may find he has his work cut out. Still, it beats jail.
Document ec00000020030303dz31000cc
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At your own risk.
910 words 11 January 2003
The Economist
English
(c) The Economist Newspaper Limited, London 2003. All rights reserved
Hedge-fund regulation
Investors in hedge funds should be able to look after themselves
THE Securities and Exchange Commission (SEC) looks at hedge funds at regular intervals. It reviewed them in 1998 after the near-collapse of Long-Term Capital Management (LTCM). At that time big hedge funds such as LTCM were being watched for the threat they might pose to the stability of the financial system. Today hedge funds are once more in the spotlight, but for less dramatic reasons. A series of minor debacles prompted the SEC to launch a fact-finding mission in May: there are concerns about fraud, bad valuation of net assets, and misrepresentation to investors. The laborious investigation goes on, while investors continue to pour their money into these unregulated beasts. Despite the generally flat performance of hedge funds during 2002, they did better than most other classes of investment.
This week, one big hedge-fund manager, Gotham Partners, said it would close its two main funds, with possible losses to investors. The reasons for Gotham's sudden unravelling are still not entirely clear. On January 7th a judge in New York ordered the distribution to investors of most of what was left of the assets in Lipper Convertibles, a hedge fund that collapsed last year (see table).
The common feature of most hedge funds is that they are unregulated, private investment pools. Their investment techniques differ widely. "Long-short" equity funds, for instance, buy undervalued equities and short-sell those they deem overpriced; convertible-arbitrage funds seek to exploit price differences between pairs of bonds convertible into shares. The riskiness of hedge funds varies widely, from those managed conservatively (mutual funds, in all but name) to those that borrow money to invest three or four times their capital. The great majority of hedge funds are incorporated as limited partnerships offshore and do not report to or register with the SEC, although about 90% of them operate in America.
One way to force hedge funds into the regulatory fold would be to require them to register as investment advisers under the Investment Advisers Act (IAA) of 1940. Until now they have been exempt, as they are from the Investment Company Act of 1940 and the Securities Act of 1933. This means that hedge funds cannot market themselves publicly and are required to limit their investors to up to 100 "accredited" investors (earning more than $200,000 a year and disposing of at least $1m in assets), or up to 500 "qualified purchasers" (individuals with at least $5m, or institutions with at least $25m, in liquid investments). The SEC could easily amend these IAA rules. Such a change would make hedge funds more like other investment companies that are overseen and audited by the commission.
In principle, there are three arguments in favour of regulating hedge funds: curbing fraud; achieving greater transparency; and protecting unsophisticated investors. Free marketeers, on the other hand, oppose cumbersome strictures on what they argue is a useful, often counter-cyclical, investment class, now totalling about $500 billion, distributed globally in about 6,000 different funds. This is despite the fact that, even if a hedge-fund manager lies to investors about the value of the fund's holdings, or absconds with the money under management, there is little regulators can do.
In practice, though, fraud is no more frequent with hedge funds than with traditional fund managers, say advocates of the status quo. Investors already benefit from considerable transparency: most funds disclose the salient features of their portfolio monthly to clients. Some even let their clients look at positions on the internet at all times, with access by password. Moreover, providing obligatory information to regulators has done little to prevent collapses in the past. LTCM disclosed its trades to the Commodity Futures Trading Commission (CFTC) - hedge funds with American clients trading commodity futures or options are not exempt and have to report to and register with the CFTC - but the regulator did not react before LTCM ran into trouble.
In any case, the overwhelming majority of hedge funds' clients are still institutional investors or rich individuals, who are (or ought to be) sophisticated enough to look after themselves. Few tears should be shed for those who lost some of their millions with Beacon Hill Asset Management or in the Lipper fund.
The underlying problem is increasing demand from retail investors. Pensioners and small savers are already investing indirectly through managers of funds that invest in hedge funds (so-called funds of funds). They cannot, at present, invest in hedge funds directly. Most hedge-fund managers do not want them to: they would rather stick to running a few big chunks of money from the rich or from institutions, for administrative as well as regulatory reasons. Many are chary of growing to a size that would hamper their usually flexible and aggressive trading style: though of course some find it hard to turn down new money. Most of all, they would like to avoid being regulated like mutual funds.
Trying to regulate hedge funds carries a big risk, says William Goetzmann of Yale University. All that hedge-fund activity could easily flow into another unregulated format. It is still not clear which way the SEC will jump. The review was launched under the auspices of its former boss, Harvey Pitt, who resigned in November. William Donaldson, the nominated new head of the SEC, may have different priorities.
Document ec00000020030113dz1b00062
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副刊-经济•企管 - 调查发现美投资者偏向集束投资
何伟杰
530 words
15 November 2002
信报 (简体)
Chinese - Simplified
(c) 2002 信报有限公司版权所有
The magic of compounding works well with dividends, pros say.
Miller将持有稳健派息股的投资组合比喻为一部制造入息的机器，将股息再投资形成的复合增长(growth through compounding)和公司不时增加派息数量形成的股息增长(dividend growth)看作这部机器的两个动力来源。
Compounding is the way your investment grows as it earns returns on your initial money invested and on the interest or dividends earned. If you plow dividends back into your portfolio, the power of compounding can be truly amazing.
有的行家还说一些公司允许投资者绕过市场和经纪以免佣或只收低手续费的方式定期按市价追加投资于公司的股份之中以放大收益，可以当作Miller入息机器的第三种动力来源。
每日美语知新–In a survey of 158,031 accounts at a discount broker (in the U.S.): More than 50 percent of portfolios contained only three stocks or less; over 25 percent held only one stock; and less than 5 percent held more than 10 stocks. These results are surprising because many experts view 10-30 stocks as a minimum for diversification. Why do investors hold so few stocks? Diversification tends to cost money for commissions, and, time to be adequately informed about stocks in portfolio.（William Goetzmann / Alok Kumar）
一项对美国某折扣经纪旗下十五万八千零三十一个账户进行的研究发现：（这些账户的投资）组合中有百分之五十以上所持股票不多于三种；另外百分之二十五的组合仅持有一种股票；组合持股种数高于十种者少于账户总数的百分之五。这次调查的发现出人意料之外，因为很多专家认为一个组合最少要持有十至三十种股票才能达到多元化。
为什么投资者购持的股票品种这少？进行多元化必须支付的佣金通常较多，为了对跟组合相关公司的各方面进展保持足够了解也要花费较多的时间。
神物风云各有时
．之二六六
Document HKEJCN0020030116dybf0020c
| Factiva | Dow Jones & Reuters |
副刊-經濟•企管 - 調查發現美投資者偏向集束投資
何偉傑
530 words
15 November 2002
信報
Chinese - Traditional
(c) 2002 信報有限公司版權所有
The magic of compounding works well with dividends, pros say.
Miller將持有穩健派息股的投資組合比喻為一部製造入息的機器，將股息再投資形成的複合增長(growth through compounding)和公司不時增加派息數量形成的股息增長(dividend growth)看作這部機器的兩個動力來源。
Compounding is the way your investment grows as it earns returns on your initial money invested and on the interest or dividends earned. If you plow dividends back into your portfolio, the power of compounding can be truly amazing.
有的行家還說一些公司允許投資者繞過市場和經紀以免佣或只收低手續費的方式定期按市價追加投資於公司的股份之中以放大收益，可以當作Miller入息機器的第三種動力來源。
每日美語知新–In a survey of 158,031 accounts at a discount broker (in the U.S.): More than 50 percent of portfolios contained only three stocks or less; over 25 percent held only one stock; and less than 5 percent held more than 10 stocks. These results are surprising because many experts view 10-30 stocks as a minimum for diversification. Why do investors hold so few stocks? Diversification tends to cost money for commissions, and, time to be adequately informed about stocks in portfolio.（William Goetzmann / Alok Kumar）
一項對美國某折扣經紀旗下十五萬八千零三十一個賬戶進行的研究發現：（這些賬戶的投資）組合中有百分之五十以上所持股票不多於三種；另外百分之二十五的組合僅持有一種股票；組合持股種數高於十種者少於賬戶總數的百分之五。這次調查的發現出人意料之外，因為很多專家認為一個組合最少要持有十至三十種股票才能達到多元化。
為什麼投資者購持的股票品種這少？進行多元化必須支付的佣金通常較多，為了對跟組合相關公司的各方面進展保持足夠了解也要花費較多的時間。
神物風雲各有時
．之二六六
Document hkej000020030116dybf0020c
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Assess Your Risk; How's that new fund you're considering going to affect
your portfolio's volatility?
Ira Carnahan
1,238 words
28 October 2002
Forbes Magazine
338
Volume 170; Issue 09
English
Copyright 2002 Forbes Inc.
Before you buy a fund, you should know what it will do to the overall risk of your entire portfolio of funds. Here's a canny performance measure to help you judge.
It's a fundamental principle of investing that raw performance doesn't tell you how good a stock picker is. You have to know how much risk he took to get that return. In a bull market a subpar player can have a terrific gain just by buying on margin--or buying high-risk stocks. In the late 1990s some mediocre Wall Streeters looked for a while like geniuses just by going heavily into Nasdaq stocks. You know what happened to them.
This principle of comparing risk and reward is enshrined in the various rating systems for mutual funds. This magazine, for example, grades funds separately for bull- and bear-market performance; if a seemingly hotshot fund boasts of a terrific ten-year gain but gets a FORBES D or F in down markets, then it was taking big risks with customers' money and doesn't deserve any of yours. Morningstar rates funds with a formula that penalizes gamblers and rewards the steady performers. A similar methodology is incorporated in the widely used Sharpe ratio, named after Nobel economist William Sharpe. Sharpe divides a portfolio's excess return (return less the riskless T bill return) by its volatility.
Now we'd like to add to your arsenal of fund-picking tools a less well known measure called the Treynor ratio. Its particular virtue is that it puts a fund's risk in context. It attempts to answer this question: Does a chosen fund deliver good performance relative not to its own volatility, but relative to the volatility it is likely to add to your overall portfolio? The results are (on occasion) a bit surprising. Shopping for a Treynor ratio winner may give you a fund that jumps around a lot by itself but probably won't make your portfolio jump around. Don't use Treynor numbers if you intend to own just one fund. Do use them if you have a diversified collection of funds and/or stocks.
Example: State Street Research Global Resources. All by itself, it's risky indeed. One quarter it's up by 9%, the next it's down 14%, then it's back up again. Naturally the State Street fund gets faulted for riskiness. Morningstar gives the A shares just two stars. Investors scared away by that rating, though, would miss some nice performance. The fund is up 4.2% this year and an annualized 13.8% over the past three, beating most others in its category (natural resources) and the S&P 500.
There's a reason for the energy fund's good results during a bear market and, if you can stomach its 5.75% front-end load, for adding it to a mix of other stock market investments. Namely, when oil prices shoot up, the fund's energy stocks are likely to do well, just when fears of inflation and depressed corporate profits damage most other stocks. In other words, a fund like this is a nice counterbalance to a fund that owns Cisco Systems and Delta Air Lines, especially if you can buy it with no load through your re-tirement plan. Gold stocks (or funds that own them) would offer similar benefits. It would be a big mistake to own a gold fund and nothing else, but there's something to be said for putting 15% of your equity money in gold and the rest in mainstream funds.
The Treynor ratio is named for Jack L. Treynor, one of the fathers of modern portfolio theory and for years editor of the Financial Analysts Journal. (At 72, he is still a trustee of several Eaton Vance mutual funds.) Treynor's formula divides a portfolio's excess return by its "beta." Beta is the widely used measure of market-related risk in a stock or collection of stocks. If a stock has a beta of 0.5, it tends to move up (or down) with the market but only half as far. Cisco has a beta (as calculated by Value Line) of 1.45--meaning it's likely to go up 14.5% in a month when the market climbs 10%.
Note: Beta is not, as is so often claimed by naive market-watchers, a measure of volatility. Newmont Mining has one of the lowest betas in the Value Line universe (0.35), but this gold stock is no low-volatility stock. Quite the contrary. The low beta simply tells you that Newmont does not march to the S&P 500's drummer. This is a useful trait if you want to offset the market's gyrations.
The idea behind the Treynor ratio is that market risk--measured by beta--can't be diversified away through investing in a panoply of funds, and so ought to be penalized. Treynor adherents shrug off that part of a particular fund's volatility that's not related to the broader market, since you will overcome this risk by diversifying.
Yale School of Management professor William Goetzmann suggests using Treynor ratios this way: Look at funds category by category (small-company value, small-company growth, large-company value, etc.), and go for one of the high scorers in each category. A further refinement is to avoid expensive funds, no matter how nice their performance measures. The table shows high Treynor scorers with reasonable expenses in various categories.
One is James Gipson's Clipper Fund, which we featured in our Feb. 4 issue. Gipson has done well betting on tobacco-tainted Philip Morris and now looks for a Tyco comeback. FMI Focus, a champ in small-company growth highlighted in our Sept. 16 issue, has made a bundle in retail with the Jos. A. Bank men's clothing chain. Other hits include Tollgrade Communications and Quest Diagnostics.
You can get Treynor ratios for funds on Yahoo's Web site or calculate them yourself (see box). One big caution before you dive into any fund-rating formula: Past performance is no guarantee of future results. That oft-heard disclaimer is an understatement. Any fund-rating system is based on historical performance, and this is only weakly correlated with future performance. That's one reason we keep harping on the expense ratio. This is one of the few things about a fund that is predictable, and high expenses will definitely make you poorer over time.
Risk-Reward Roundup
These funds have the best Treynor ratios among those with reasonable
costs in each category. The ratio rewards funds with good past returns
relative to market-related risk.
Fund/category
Treynorratio Beta 5-yearaveragereturn
Expenseratio
Clipper/large value
33 0.4 10.81%
1.08
Mairs & Power Growth/large blend
10 0.6 7.21
0.76
Jensen/large growth
8 0.7 7.25
1.00
Weitz Partners Value/mid-value
15 0.6 9.26
1.08
Meridian Value/mid-blend
17 0.7 13.07
1.10
Osterweis/mid-growth
11 0.9 10.71
1.43
Ariel/small value
12 0.6 8.45
1.19
FMI Focus/small growth
15 1.1 14.40
1.50
Document fb00000020021011dyas0001x
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¿Será Hora de Vender su Departamento en EE.UU.?.
Por Ray S. Smith y Jaime Mejía, The Wall Street Journal.
1,010 words
24 October 2002
The Wall Street Journal Americas
2
Spanish
(Copyright (c) 2002, Dow Jones & Company, Inc.)
Recientemente, Se Ha Percibido Allí un Debilitamiento de Ciertos Segmentos del Sector Inmobiliario
Ante la incertidumbre de las devaluaciones y la inestabilidad política y económica, cada vez más inversionistas de América Latina ponen sus ojos sobre un activo que ha tenido los mejores rendimientos en los últimos años: los bienes raíces en el sur de la Florida.
Sin embargo, en los últimos meses, han empezado a dispararse las alarmas sobre un posible sobrecalentamiento del sector inmobiliario en Estados Unidos, por lo que es posible que Florida también haya empezado a sentir los efectos.
En materia de ventas y precios en Miami, los primeros seis meses de 2002 todavía no muestran debilitamiento. De acuerdo con la firma de investigaciones Integra Realty Resources, los precios de los condominios usados en el condado de Miami Dade aumentaron un 15,6% en el primer semestre de 2002, frente al mismo lapso del año anterior.
Pero en ciertos segmentos del mercado ya se empiezan a percibir señales preocupantes.
"Miami sigue experimentando un crecimiento impresionante en la demanda de bienes raíces, pero ya hemos empezado a percibir cierta debilidad en las propiedades más lujosas, que superan el millón de dólares. Los períodos de venta de estos inmuebles es más largos de lo normal", dice Dawn M. Soper, analista de Integra.
Otra señal de debilitamiento en el mercado estadounidense es que parte del dinero de los inversionistas institucionales se está yendo de los bienes raíces. Con el desplome de las acciones, los inversionistas han destinado miles de millones a propiedades durante los últimos 12 meses, comprando acciones y fondos de inversión vinculados a este sector o edificios para alquilar.
En lo que va de año, alrededor de US$3.460 millones han ingresado en fondos de inversión de bienes raíces, por encima de los US$302 millones del mismo período del año pasado, según AMG Data Services. Luego de dos años de alzas, las ganancias en inversiones en fideicomisos de bienes raíces cayó un 9% en el tercer trimestre, según Morgan Stanley.
Algunos gestores de dinero y de fondos están reduciendo su riesgo en el sector de los bienes raíces. Para los inversionistas individuales, los asesores financieros recomiendan recortar las tenencias a alrededor de entre un 5% y un 10% del total de los activos, sin incluir la casa propia. La cifra es menor al 15% recomendado el año pasado.
Armada Small-Cap Value Fund en Cleveland, que gestiona alrededor de US$800 millones, recortó su exposición en el sector de bienes raíces de un 15% a un 9%, dice su gestor de cartera Dan Bandi. Peter Doyle, estratega jefe de inversiones de Kinetics Mutual Funds, en White Plains, Nueva York, dice que hace poco vendió inversiones en fondos de bienes raíces por preocupaciones sobre el mercado de oficinas en el área de Nueva York. Los bienes raíces generalmente van de la mano con el desempeño de la economía y la amplia y continuada debilidad actual está afectando la demanda de espacio. Un ejemplo es el mercado de oficinas, donde la tasa de espacio desocupado alcanzó un 15,7%, su nivel más alto desde 1993, según Reis, una firma de investigación.
Si la burbuja de los bienes raíces explota, no espere que se vuelva a inflar pronto. Cuando los precios de los bienes raíces se hundieron a fines de los 80 y principios de los 90, no repuntaron en años. "Hemos visto grandes períodos en los que los bienes raíces son como un activo abandonado", dice William Goetzmann, profesor de la Escuela de Negocios de Yale. "Es muy posible que eso vuelva a suceder".
Pero no todos están decepcionados de los bienes raíces. El equipo de inversión del California Public Employees Retirement System, o Calpers, el sistema de pensiones de los trabajadores del estado de California, está recomendando aumentar su asignación de bienes raíces a un 9%, de un 8%. Los bienes raíces, incluyendo los fondos de inversión en bienes raíces (REIT) y las propiedades comerciales representan actualmente US$13.000 millones del fondo de US$136.000 millones de Calpers, según un vocero.
¿Qué deben hacer los inversionistas individuales? Para la mayoría de la gente en América Latina, la inversión en bienes raíces en EE.UU. es una parte importante de sus ahorros, y ha sido una inversión espectacular en años recientes. En los últimos seis años la valorización de un condominio en Miami ha estado entre el 5% y el 15% anual.
Si usted considera vender su condominio o casa en Florida, será mejor hacerlo más temprano que tarde, según los planificadores financieros. Los precios de las casas han aumentado por lo menos a dos veces el ritmo de los ingresos por hogar en más de 100 ciudades de EE.UU. desde 1998, y ahora muchos economistas están preocupados de que ciertas áreas podrían estar por caer.
De todas maneras, nadie puede predecir cuándo va a terminar el gran auge de los bienes raíces en EE.UU. Recientemente, por ejemplo, el sector tuvo un nuevo indicador de solidez: según el Departamento de Comercio, la construcción de casas nuevas aumentó un 13,3% en septiembre, la tasa de crecimiento más alta desde 1986. Las señales pueden confundir al inversionista. Lo que es claro es que quien invierta hoy está pagando los precios más altos de los últimos 10 años y eso implica ir con pies de plomo.
Qué Hacer
Si está pensando en invertir en bienes raíces en EE.UU. o ya tiene inversiones, estas son algunas recomendaciones:
* Los expertos recomiendan que las inversiones en bienes raíces deben estar entre el 5% y el el 10% de la cartera total del inversionista. Hace un año la recomendación estaba entre el 10% y el 15%.
* La demanda de bienes raíces en Miami sigue muy fuerte. Sólo se ven señales de debilidad en el segmento más lujoso.
* Si está pensando en vender su inversión en bienes raíces, podría ser un buen momento. Los precios ya han aumentado demasiado.
Document wsjaes0020021024dyao00008
| Factiva | Dow Jones & Reuters |
¿Llegó la Hora de Vender su Apartamento en Miami?
Por Ray S. Smith y Jaime Mejía, The Wall Street Journal.
1,006 words
18 October 2002
The Wall Street Journal Americas
2
Spanish
(Copyright (c) 2002, Dow Jones & Company, Inc.)
Ante la incertidumbre de las devaluaciones y la inestabilidad política y económica, cada vez más inversionistas de América Latina ponen sus ojos sobre un activo que ha tenido los mejores rendimientos en los últimos años: los bienes raíces en el sur de la Florida.
Sin embargo, en los últimos meses, han empezado a dispararse las alarmas sobre un posible sobrecalentamiento del sector inmobiliario en Estados Unidos, por lo que es posible que Florida también haya empezado a sentir los efectos.
En materia de ventas y precios en Miami, los primeros seis meses del 2002 todavía no muestran debilitamiento. De acuerdo con la firma de investigaciones Integra Realty Resources, los precios de los condominios usados en el condado de Miami Dade aumentaron un 15,6% en el primer semestre de 2002, frente al mismo lapso del año anterior.
Pero, en ciertos segmentos del mercado, ya se empiezan a sentir señales preocupantes. "Miami sigue experimentando un crecimiento impresionante en la demanda de bienes raíces, pero ya hemos empezado a percibir cierta debilidad en las propiedades más lujosas, las que superan el millón de dólares. Los períodos de venta de estos inmuebles están siendo más largos de lo normal", dice Dawn M. Soper, analista de Integra.
Otra señal de debilitamiento en el mercado de EE.UU. es que parte del dinero de los inversionistas institucionales se está yendo de los bienes raíces. Con el desplome de las acciones, los inversionistas han destinado miles de millones a propiedades durante los últimos 12 meses, comprando acciones y fondos de inversión vinculados a este sector o edificios para alquilar. En lo que va del año, alrededor de US$3.460 millones han ingresado en fondos de inversión de bienes raíces, por encima de los US$302 millones del mismo período del año pasado, según AMG Data Services. Luego de dos años de alzas, las ganancias en inversiones en fideicomisos de bienes raíces cayó un 9% en el tercer trimestre, según Morgan Stanley.
Algunos gestores de dinero y de fondos están reduciendo su exposición en el sector de bienes raíces. Para los inversionistas individuales, los asesores financieros recomiendan recortar las tenencias a alrededor de entre un 5% y un 10% del total de los activos, sin incluir la casa propia. La cifra es menor al 15% recomendado el año pasado.
Armada Small-Cap Value Fund en Cleveland, que gestiona alrededor de US$800 millones, recortó su exposición en el sector de bienes raíces de un 15% a un 9%, dice su gestor de cartera Dan Bandi. Peter Doyle, estratega jefe de inversiones de Kinetics Mutual Funds, en White Plains, Nueva York, dice que hace poco vendió inversiones en fondos de bienes raíces por las preocupaciones sobre el mercado de oficinas en el área de Nueva York.
Los bienes raíces generalmente van de la mano con el desempeño de la economía y la amplia y continuada debilidad actual está afectando la demanda de espacio. Un ejemplo es el mercado de oficinas, donde la tasa de espacio desocupado alcanzó un 15,7%, su nivel más alto desde 1993, según Reis, una firma de investigación.
Si la burbuja de los bienes raíces explota, no espere que se vuelva a inflar pronto. Cuando los precios de los bienes raíces se hundieron a fines de los 80 y principios de los 90, no repuntaron en años. "Hemos visto grandes períodos en los que los bienes raíces son como un activo abandonado", dice William Goetzmann, profesor de la Escuela de Negocios de Yale. "Es muy posible que eso vuelva a suceder".
Pero no todos están decepcionados de los bienes raíces. El equipo de inversión del California Public Employees Retirement System, o Calpers, el sistema de pensiones de los trabajadores del estado de California, está recomendando aumentar su asignación de bienes raíces a un 9%, de un 8%. Los bienes raíces, incluyendo los fondos de inversión en bienes raíces (REIT) y las propiedades comerciales representan actualmente US$13.000 millones del fondo de US$136.000 millones de Calpers, según un vocero.
¿Qué deben hacer los inversionistas individuales? Para la mayoría de la gente en América Latina, la inversión en bienes raíces en EE.UU. es una parte importante de sus ahorros, y ha sido una inversión espectacular en años recientes. En los últimos seis años la valorización de un condominio en Miami ha estado entre el 5% y el 15% anual.
Si usted considera vender su condominio o casa en Florida, será mejor hacerlo más temprano que tarde, según los planificadores financieros. Los precios de las casas han aumentado por lo menos a dos veces el ritmo de los ingresos por hogar en más de 100 ciudades de EE.UU. desde 1998, y ahora muchos economistas están preocupados de que ciertas áreas podrían estar por caer.
De todas maneras, nadie podrá predecir con seguridad cuando va a terminar el gran auge de los bienes raíces en EE.UU. Esta semana, por ejemplo, el sector tuvo un nuevo indicador de solidez: de acuerdo con del Departamento de Comercio, la construcción de casas nuevas aumentó un 13,3% en septiembre, la tasa de crecimiento más alta desde 1986. Las señales pueden confundir al inversionista. Lo que es claro es que quien invierta hoy está pagando los precios más altos de los últimos diez años y eso implica ir con pies de plomo.
¿Qué Hacer?
Si está pensando en invertir en bienes raíces en EE.UU. o ya tiene inversiones, estas son algunas recomendaciones:
* Los expertos recomiendan que las inversiones en bienes raíces deben estar entre el 5 y el el 10% de la cartera total del inversionista. Hace un año la recomendación estaba entre el 10% y el 15%.
* La demanda de bienes raíces en Miami sigue muy fuerte. Sólo se ven señales de debilidad en el segmento más lujoso.
* Si está pensando en vender su inversión en bienes raíces, puede ser un buen momento. Los precios ya han aumentado demasiado.
Document wsjaes0020021018dyai00008
| Factiva | Dow Jones & Reuters |
La grande corsa del mattone forse è arrivata al traguardo.
Di Ray A. Smith staff reporter.
814 words
11 October 2002
MF - Mercati Finanziari
17
Italian
Copyright Milano Finanza Editori SpA 2002, All Rights Reserved.
Gli esperti consigliano di ridurre l'esposizione del portafoglio verso il settore al 5%
Il settore dell'immobiliare sta perdendo parte del suo appeal.L'anno scorso, quando il mercato azionario stava scendendo, gli investitori hanno trasferito miliardi di dollari negli immobili, acquistando azioni delle società immobiliari e dei fondi specializzati nel settore o acquistando immobili. Secondo i dati forniti da Amg data services, dall'inizio dell'anno a oggi circa 3,46 miliardi di dollari sono approdati nei fondi immobiliari, in rialzo rispetto ai 302 milioni dello stesso periodo dell'anno precedente. Ora però sembra che il momento favorevole sia finito. Gli affitti per gli spazi destinati a uso ufficio sono in calo e i costi di costruzione potrebbero presto cominciare a scendere. Dopo due anni di aumenti, i ritorni dei trust di investimento immobiliare sono scesi del 9% nel terzo trimestre, come riferisce Morgan Stanley.Alcuni gestori e fondi pensioni hanno ormai visto abbastanza. E hanno deciso di ridurre la propria esposizione verso il settore immobiliare. Ai piccoli investitori i consulenti finanziari stanno consigliando di ridurre le partecipazioni al 5-10% degli asset complessivi, senza includere l'abitazione principale. Questa percentuale è inferiore rispetto a quella consigliata all'inizio dell'anno del 15%.Armada small-cap value fund di Cleveland, che gestisce circa 800 milioni di dollari, ha tagliato la propria esposizione nei confronti delle società immobiliari dal 15 al 9%, spiega il gestore di portafoglio, Dan Bandi. Al contrario, il fondo sta acquistando azioni di produttori prodotti di base, quali le cartiere o le società chimiche, che in genere sono le prime che beneficiano in un ciclo economico. «Abbiamo guardato a valutazioni medie e a chi avrebbe beneficiato del rafforzamento dell'economia, e abbiamo pensato che questi potrebbero essere i titoli ciclici a differenza di quelli immobiliari», afferma.Peter Doyle, responsabile delle strategie di investimento di Kinetics mutual funds di White Plains (New York), dice di aver recentemente venduto parte degli investimenti immobiliari quali Vornado realty trust e Sl green realty per le difficoltà che sta incontrando il mercato immobiliare dell'area di New York. Il motivo: le società di servizi finanziari che occupano la maggior parte degli spazi a uso ufficio di New York stanno licenziando molti dipendenti e «alla fine questo avrà delle ripercussioni per le società immobiliari che danno in affitto gli spazi».Anche il Tiaa-Cref, il fondo pensione per insegnanti e professori universitari, ha recentemente ridotto la propria esposizione nei confronti del settore immobiliare, che da 1,05 miliardi di dollari investiti all'inizio dell'anno è passata a 900 milioni.In genere il mercato immobiliare segue gli andamenti dell'economia, e la diffusa e continua debolezza sta riducendo la domanda di spazi in affitto. Un esempio sono gli spazi a uso ufficio: secondo i dati forniti da Reis, una società di ricerche, il tasso di occupazione ha recentemente toccato il 15,7%, il livello più basso dal 1993.La domanda di immobili è stata stimolata da fattori temporanei, quali i tassi di interesse bassi e il mercato azionario depresso.Se la bolla immobiliare è scoppiata, non aspettatevi che possa riformarsi presto. Quando i prezzi del real estate sono crollati alla fine degli anni 80 e all'inizio degli anni 90 non si sono ripresi per anni. «Abbiamo assistito a prolungati periodi di tempo nei quali l'immobiliare era un settore trascurato», osserva William Goetzmann, professore della Yale school of management. «È senza dubbio possibile che questo accada di nuovo».Per la verità non tutti hanno un atteggiamento negativo nei confronti del settore immobiliare. Lo staff di investimento del California public employees retirement system, Calpers, sta consigliando di aumentare l'investimento nel settore dall'8 al 9%. In questo momento, 13 miliardi di dollari del patrimonio di 136 miliardi di Calpers sono investiti nel real estate, compresi i trust immobiliari e le proprietà commerciali. Il cda del fondo voterà a breve sulla proposta dello staff di investimento.Ma che cosa devono fare ora i piccoli investitorì Per molti, il loro investimento più importante è la casa in cui abitano, che si è rivelato un investimento davvero redditizio. Se avete in mente di venderla, meglio farlo subito, come spiegano i consulenti finanziari. I prezzi delle prime case sono cresciuti a un ritmo almeno doppio del reddito delle famiglie in più di 100 città americane a partire dal 1998 e ora numerosi economisti temono che presto in alcune aree ci possa essere un crollo dei prezzi.Alla stessa stregua, se avete costruito il vostro portafoglio con titoli immobiliari, potrebbe essere arrivato il momento di eliminare alcuni nomi, e soprattutto quelli dei settori degli appartamenti e degli uffici, spiegano i gestori.Proprio lunedì scorso, Cornerstone realty income trust di Richmond (Virginia), società immobiliare specializzata in appartamenti, ha annunciato una riduzione del proprio dividendo.
Document mercti0020021013dyab0005m
| Factiva | Dow Jones & Reuters |
Time to Cash Out
Of Real Estate, Too?
---
Pros Start to Shed Property Holdings, Fearing
A Correction; Timing When to Sell the House
By Ray A. Smith
1,009 words
10 October 2002
The Wall Street Journal
D1
English
(Copyright (c) 2002, Dow Jones & Company, Inc.)
SOME OF THE smart money is moving out of real estate.
With stocks plunging, investors have poured billions of dollars into properties over the past year, gobbling up real-estate stocks and mutual funds or buying rental units. So far this year, some $3.46 billion have flowed into real-estate mutual funds, up from $302 million in the year-earlier period, according to AMG Data Services.
Now, however, there are signs that the run might be over. Rents are dropping for office space, and building prices are likely to begin sliding soon. After two years of increases, returns on real-estate investment trusts fell 9% in the third quarter, according to Morgan Stanley.
Some money managers and pension plans have seen enough. They are lowering their exposure to real estate. For individuals, financial planners are recommending cutting holdings to about 5% to 10% of your total assets, not including your house. That's down from recommended holdings of as much as 15% earlier in the year.
Armada Small-Cap Value Fund in Cleveland, which has some $800 million under management, has trimmed its REIT allocation to 9% from 15%, says portfolio manager Dan Bandi. Instead, the fund is buying stocks of basic material makers, such as paper or chemical companies -- that tend to benefit first in an economic cycle. "We looked at relative valuations and who would benefit from a strengthening economy, and we thought that would be cyclicals as opposed to the REITs," he says.
Peter Doyle, chief investment strategist of Kinetics Mutual Funds, in White Plains, N.Y., says he recently sold some of his office REIT holdings such as Vornado Realty Trust and SL Green Realty over concerns about the office market in the New York area. His rationale: Financial-services companies that occupy much of the office space in New York are laying off employees, and "ultimately, that will have ramifications for the REITs that are the landlords."
The widely held Teachers Insurance and Annuity Association-College Retirement Equities Fund, or TIAA-CREF, also recently trimmed its pension system's holdings in real-estate securities to $900 million from $1.05 billion at the beginning of the year.
Real estate generally tracks the performance of the economy, and the broad, continuing weakness is undercutting demand for space. A case in point is the office market, where the vacancy rate hit 15.7% recently, its highest level since 1993, according to Reis, a research firm.
On top of that, demand for real estate has been pumped up by temporary factors such as historically low interest rates and a depressed stock market.
If the real-estate bubble is pricked, don't expect it to re-inflate again anytime soon. When real-estate prices crashed in the late 1980s and early 1990s, they didn't rebound for years. "We have seen long stretches of time when real estate is sort of a neglected asset class," says William Goetzmann, professor at the Yale School of Management. "It's certainly possible for that to happen again."
To be sure, not everyone is down on real estate. Investment staff at the California Public Employees Retirement System, or Calpers, is recommending that it boost its real-estate allocation to 9% from 8%. Real estate, including REITs and commercial properties, currently accounts for $13 billion of Calpers' $136 billion fund, according to a spokesman. The board is expected to vote on that recommendation shortly.
What should individual investors do? For most people, their biggest investment is their home, which has been a spectacular investment in recent years. If you're considering selling your house, sooner rather than later might be the way to go, according to financial planners. Home prices have increased at least twice as fast as household income in more than 100 U.S. cities since 1998, and now many economists fret certain areas could be poised for a tumble.
Likewise, if you've built up your investment portfolio with REIT stocks, it may be time to knock down a few names, particularly in the apartment and office sectors, money managers say. Just this Monday, Cornerstone Realty Income Trust, a Richmond, Va., apartment REIT, announced it was cutting its dividend.
For those who have parked money in rental properties, it's a tougher call. Properties with strong tenants can continue to be good income generators even when the real-estate market is getting roughed up.
Now, many pros are moving back into battered stocks and out of real estate. Ed Maraccini, portfolio manager of Johnson Asset Management, a Racine, Wis.-based money manager with $800 million under management, says he has reduced the exposure to REITs in the Johnson Family Small-Cap Value Fund to about 7.5% from about 11% at the beginning of the year. He's shifted some of that money into technology and health care.
REITs by law must pay out at least 90% of their taxable income in the form of dividends to shareholders. Earlier in the year, mutual funds that hold REITs with high dividends had been a decent bet -- down, but not down as much as other real-estate funds. Now they are showing more signs of stress: In the past week alone, one of these mutual funds, Alpine Realty Income & Growth Fund, declined 4.8%. Another one, Kensington Select Income Fund, was down 2.8%, according to Morningstar Inc.
---
What to Do
Concerned you have too much riding on real estate? Here are some
guidelines.
-- The current recommended allocation for people who hold real-estate
investments in their portfolios is 5% to 10% vs. 10% to 15% earlier in
the year (excluding your home).
-- Investment managers are selling apartment and office REITs, but
holding mall REITs.
-- If you are thinking of selling a home, it may be a good time.
Price increases have put homes out of reach for many, which could
weaken demand.
Document j000000020021010dyaa00007
| Factiva | Dow Jones & Reuters |
Hedge Funds May Give Colleges Painful Lesson
By Gregory Zuckerman
1,252 words
7 October 2002
The Wall Street Journal
C1
English
(Copyright (c) 2002, Dow Jones & Company, Inc.)
ARE SOME OF THE nation's most prestigious universities about to get a painful education in hedge-fund risk?
The question comes amid signs that schools across the country have piled into hedge funds in recent years in hopes of sidestepping the bear market in stocks. According to Commonfund, an organization that helps invest money for colleges, about 13% of the money invested by educational endowments is in hedge funds, up from about 7% two years ago.
But while hedge funds have thrived in the bear market -- benefiting the schools in the process -- their performance has slipped in recent months. Just as the college investments are rising, an industry shakeout is forcing some smaller funds to close, while some see evidence of growing fraud in some parts of the business.
"There's clearly a big rush and that concerns a lot of people, including us," says John Griswold, a Commonfund investment executive. "In these days when institutional budgets are under pressure, it's a tough thing to say `I want to invest in a risky asset class that I don't know much about, I can't find out what they're doing with my money and may blow up some day.'"
The rush into hedge funds by colleges, some of them public institutions, raises eyebrows in part because the investment vehicles remain opaque. Many hedge funds are reluctant to give much data on their investment positions, despite a series of scandals that has prompted the Securities and Exchange Commission to increase its scrutiny.
Historically used as investment pools for institutions and wealthy individuals, hedge funds have the leeway to take risks by using leverage, or borrowed money, to amplify their returns. Investors pay steep investment fees and face restrictions on when they can pull money out of a fund.
But hedge funds gained ground last year, even as stocks tumbled, and some schools are putting a much higher percentage of their investments in funds than the industry norm.
New Jersey's Princeton University has 29% of its endowment in hedge funds, up from 25% two years ago. The University of North Carolina in Chapel Hill has more than quadrupled the size of its hedge-fund portfolio, to 30% of its endowment's total, during the past four years, while the University of Chicago is allocating 15% of its money to hedge funds, up from about 1% two years ago.
Like other schools, Chicago's interest comes as it slashes its stock portfolio, to 22% from about 35% two years ago -- a move that is proving prescient. Philip Halpern, the school's chief investment officer, says the endowment is aware of the risks of hedge funds but has focused on "nondirectional" funds, such as merger-arbitrage and convertible-arbitrage funds, that aim to generate small, consistent profits no matter what the market does. "We expect risk to the portfolio to go down, and the diversification to go up," he says.
The University of Notre Dame in Indiana has raised its hedge-fund allocation to 18%, and it will likely hit 25% during the next couple of years, Chief Investment Officer David Malpass says. That is up from roughly 11% five years ago.
"The opportunity in the hedge area is to go long and short," or bet on both the rise and fall of the market, something most mutual funds don't do, says Mr. Malpass, who is shifting into distressed-debt funds lately.
The move into hedge funds has paid off, at least so far. Princeton's $8 billion investment portfolio is up more than 5% during the past two years, compared with losses of more than 35% in stocks for that period. The University of Chicago's $3.2 billion endowment declined during the past two years, but the losses would have been much worse had it not been for gains of about 20% from hedge funds.
But things are getting trickier. The school's hedge-fund investments were down in two recent months, including what Mr. Halpern calls a "terrible" June when they fell about 1.5%.
For the year, overall hedge-fund returns are less than 1%. That beats the heavy losses in the stock market, but not the big gains in bonds. Meanwhile, swarms of new funds during the past two years have resulted in a glut, forcing many smaller operators to begin closing their doors due to poor performance. Even investment pros, such as Leon Cooperman of $2 billion hedge fund Omega Advisors, are reporting losses as stocks tumble.
That trend has some worried. In the past, some universities jumped on investment bandwagons, only to come up short. In the 1980s, endowments shifted big into real estate but were burned by the credit crunch of the early 1990s. During the past few years, some schools lost big money getting in late on the venture capital wave. The venture-capital investments of Notre Dame's fell 30% last year, though the school has scored annual gains of 32% from the area since 1980.
Hedge-fund investing is taking a toll on some. The California Public Employees Retirement System, which got into hedge funds for the first time two years ago, lost about half of its $300 million investment in Pivotal Partners, a tech hedge fund that closed down earlier this year.
That isn't stopping some schools. Just over a month ago, the California Institute of Technology made its first hedge-fund investment, shifting 6% of its $1.1 billion endowment into various hedge funds. The school expects to ratchet up its hedge-fund allocation to 15% during the next six months, while cutting its exposure to stocks.
To keep risks down, CalTech says it is sticking with veteran managers, such as Steven Tananbaum and Leon Wagner, junk-bond specialists at GoldenTree Asset Management. "We expect hedge funds to protect our principal, bring down overall risk and provide us with equity-like returns over the long run," says Sandra Ell, CalTech's chief investment officer.
For its part, the University of North Carolina is turning to funds that use little leverage, such as Lee Ainslie's Maverick Capital. Others, such as Citadel Investment Group, use a "moderate" amount of leverage, says Mark Yusko, the school's chief investment officer. "We're starting to see some second-tier managers start funds that people shouldn't look at," he says.
Other schools are hiring large staffs to try to screen for unscrupulous hedge managers or are hiring outside advisers to help them. The biggest danger, analysts say, is in smaller endowments pushing into hedge funds even though they have little expertise picking managers. Latecomers likely will be unable to place their money with the best hedge-fund managers, some say; and as hedge funds multiply, the market inefficiencies they aim to take advantage of may dwindle.
"There's a huge trend toward hedge investments by smaller schools, especially with the downdraft in the market," says Professor William Goetzmann of Yale University's Yale School of Management in New Haven, Conn. "It is troublesome. . . . Hedge funds can look like they make steady, low-volatility profits and then every once and a while there is a catastrophe and hedge funds just go out of business."
Mr. Halpern of the University of Chicago adds: "There's a lot of money going into hedge funds by people who really don't know what they're doing and are taking risks they don't understand."
Document j000000020021007dya70001q
| Factiva | Dow Jones & Reuters |
MONEY: Behind the Numbers
Does Global Diversification Pay?
Stephen Foerster
260 words
27 September 2002
The Globe and Mail
Metro
133
English
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."
Canada has raised its foreign content limit for RRSPs and pension funds from 10% to 30% since 1990. The goal of international diversification is to spread risk and raise potential returns. When markets in one country are down, they may be up in others. But have global markets become so integrated that diversification no longer pays?
Lingfeng Li of Yale University and William Goetzmann and K. Geert Rouwenhorst of Yale School of Management examined world equity markets from 1872 to 2000. They focused on correlations between markets-the extent to which stock price changes in one country coincide with price changes in another. Correlation can range from -1 to 1. Negative correlations suggest markets tend to move in opposite directions. In general, lower correlations mean reduced risk.
Results from 45 countries show that average correlations have increased substantially since 1945 (see chart), implying the benefits from diversification have declined. The researchers also looked more closely at the United States, Britain, France and Germany. Correlations were high during bear markets, particularly the Great Depression, and low in times of war.
Of course, newer markets have opened and expanded in recent years, giving investors more options abroad.
The results suggest Canadians should take a more disciplined approach to global diversification, and not simply invest in the United States. They should also look to emerging markets, but choose carefully among them.
Stephen Foerster is an associate professor at University of Western Ontario's Richard Ivey School of Business
Illustration
Document glob000020020927dy9r00030
| Factiva | Dow Jones & Reuters |
Buy for pleasure, not profit.
675 words 4 July 2002
Financial Times (FT.Com)
English
Copyright (c) 2002 Financial Times Group
Art is one of the few respectable investments, said Soames Forsyte, a character in John Galsworthy's novels. After all, it's a visible asset that you can enjoy. But investors interested in buying art should choose their paintings carefully and advisers say they should buy as much for enjoyment as for any expectation of a rise in value.
Masterpieces underperform other paintings, probably because buyers pay too much for them, according to new research*. After paying over the odds, buyers then watch their investments fall in value as the market drops back to its trend, the researchers suggested. The trend may have been exacerbated in recent years by price fixing admitted by Christie's and Sotheby's.
In contemporary art, the top 20 per cent of paintings by price have underperformed the rest of the market by about 5 per cent a year on average between the mid-1980s and the mid-1990s. Other academics found similar results among American, Impressionist and Old Master paintings, the study said.
But would a modern-day Mr Forsyte make more money by investing in art than the stock market? Collectors could have profited by buying Masters in the 1960s and selling in the 1990s. Annual returns between 1962 and 1991 were 5 per cent above inflation on average. That trailed UK equities, where nominal returns came to 5.9 per cent, according to the Barclays Equity Gilt Study.
In the long-term, the return on art has been 4.9 per cent a year after inflation between 1875 and 2000. There is no direct comparison, but with UK equities the real return since 1899 is 5.3 per cent.
When you add in the pleasure of owning paintings, those returns are tempting. But some academics warn that art investors make money only by taking serious risks. "While returns on art investment have exceeded inflation for long periods, and returns in the second half of the 20th century have rivalled the stock market, they are no higher than would be justified by the extraordinary risks they represent," writes Professor William Goetzmann at Yale.
Another reason to be wary is that art indices may not be fully representative. They may suffer from "survivorship bias". Sale prices come from auction records, so they only include paintings that have been re-auctioned. This excludes bad performers, because paintings that fall spectacularly are not normally sold again at auction.
Bankers are also cautious. The market is illiquid and vulnerable to fashion, and paintings generate no income, they say.
"If you like it and can afford it, go and buy it. But don't expect to get any return," says Peregrine Banbury at Coutts, the private bank.
One killer is the cost of trading. Buyers can pay up to 17.5 per cent in commission, and sellers might face a 13.5 per cent bill, though the latter can negotiate lower sums if they are selling expensive works. These costs are far higher than the price you pay to invest in shares or bonds: "As an investment you're immediately caned," says Mr Banbury.
Returns could also suffer because of the cost of insuring paintings. The Railways Pension Fund, which invested GBP40m in art in the 1970s, said this made the asset less attractive compared with other options. It sold up and bought other investments.
Then there is every collector's nightmare: fakes. Of course, buyers will use experts to analyse paintings, but they can make mistakes, warns Suzanne Gyorgy of Citigroup's art advisory team.
Advisers, then, tell clients to buy paintings because they like them, not because they expect to make a fortune. If people do buy paintings, they may diversify their portfolios; Academic research shows art tends to rise when equities fall and vice versa, so stock market losses could be offset by artistic rises.
*Art Auctions: A survey of empirical studies by Orley C. Ashenfelter of Princeton and Kathryn Graddy, of Oxford, published by the Centre for Economic Policy Research.
www.londonart.co.uk.
Document ftcom00020020705dy740001a
| Factiva | Dow Jones & Reuters |
Wealth
Basket case: Despite endless reminders from the experts,
investors are still not diversifying their portfolios
Moshe A. Milevsky
National Post
740 words
1 July 2002
National Post
National
25
English
(c) National Post 2002. All Rights Reserved.
I wouldn't be surprised if the word "diversification" has appeared in more personal-finance articles than "portfolio" or "investments." Diversification to a financial planner is the equivalent of location to a real estate broker; both capture the essence of their trades and both have become cliches. Financial planners, consultants and academics have been preaching the virtues of "not putting all your eggs in one basket" ever since, well, there have been eggs and baskets.
Yet a comprehensive study by Yale University's William Goetzmann and Cornell University's Alok Kumar that tracked the behaviour of investors over a five-year period, raises serious doubts as to whether anybody is actually listening to this seemingly tiresome advice. The scholars studied a database of more than 40,000 investment accounts totalling close to US$2.5 billion in assets from a large U.S. discount brokerage covering the years 1991 to 1996. They measured the extent to which investors diversify their stock holdings and construct "efficient" portfolios that balance risk and return across different industries and economic sectors.
Their results are revealing. First, while the average portfolio had almost US$36,000 invested, the median number of stocks it held was only three. Yes, three. In the most recent sample year, more than 25% of the portfolios contained only one stock, and more than 70% contained five or fewer. Even worse, these stocks tended to be clustered in the same industry, so portfolios were not diversified or well-balanced. The most popular were IBM, AT&T, Wal-Mart, Merck and Glaxo, which is consistent with the heavy trading volume in these stocks.
The authors tracked the evolution and performance of the brokerage accounts, and as the table shows, investors become more diversified over time. By 1996, more than 30% of the accounts had more than five stocks, while in 1991 the number was closer to 17%. But this is a far cry from the 20 to 30 names that most experts believe are needed for a properly constructed portfolio.
Investment returns in the study consistently lagged the major indices and tended to be more volatile. This means that the average stock in the average portfolio fluctuated more in price than the average stock in the index. Even worse, individual securities have tended to get more volatile during the last 10 years. Thus, old rules of thumb dictating the size of a diversified portfolio must be revised upwards as well. If individual stocks are bouncing around more, you must buy more of them to smooth out the bouncing.
Now granted, some might argue that because this data is based on discount brokerage accounts, it reflects "play money" and not people's beloved nest eggs. But this doesn't appear to be the case. The researchers were careful to document that the average portfolio size was quite large compared to the average annual income of the owners of the portfolios. The average account represented at least 100% of annual income, so this was not casino money we're talking about.
Also, while the numbers are more than five years old (academic studies are notoriously slow to be published) the recent technology boom and bust only serve to confirm the author's conclusion that people are practising inappropriate and naive stock selection.
So if the U.S. experience is any indication -- and I would argue that our investor behaviour is similar -- while you may be tired of hearing about the importance of spreading your assets across various sectors, most people are still not listening. So, here it is one more time. Take a close look at your financial portfolio and make sure that your assets -- and especially your stocks -- are diversified.
ALL OR NOTHING:
Investors are diversifying more, but a recent study finds that most still hold three or fewer stocks:
% of Portfolios, % of Portfolios,
1991 1996
33.02% 25.50%
20.55% 17.37%
13.51% 12.01%
8.86% 9.30%
6.11% 6.59%
12.36% 17.40%
3.28% 6.13%
2.31% 5.70%
Graphic/Diagram: Illustration by Gary Taxali; Table: W.
Goetzmann and A. Kumar, "Equity Portfolio Diversification", NBER Paper
#8686 / ALL OR NOTHING: Investors are diversifying more, but a recent
study finds that most still hold three or fewer stocks: (Online)
Document finp000020020703dy710000n
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Buy for pleasure, not profit.
675 words 17 June 2002
Financial Times (FT.Com)
English
Copyright (c) 2002 Financial Times Group
Art is one of the few respectable investments, said Soames Forsyte, a character in John Galsworthy's novels. After all, it's a visible asset that you can enjoy. But investors interested in buying art should choose their paintings carefully and advisers say they should buy as much for enjoyment as for any expectation of a rise in value.
Masterpieces underperform other paintings, probably because buyers pay too much for them, according to new research*. After paying over the odds, buyers then watch their investments fall in value as the market drops back to its trend, the researchers suggested. The trend may have been exacerbated in recent years by price fixing admitted by Christie's and Sotheby's.
In contemporary art, the top 20 per cent of paintings by price have underperformed the rest of the market by about 5 per cent a year on average between the mid-1980s and the mid-1990s. Other academics found similar results among American, Impressionist and Old Master paintings, the study said.
But would a modern-day Mr Forsyte make more money by investing in art than the stock market? Collectors could have profited by buying Masters in the 1960s and selling in the 1990s. Annual returns between 1962 and 1991 were 5 per cent above inflation on average. That trailed UK equities, where nominal returns came to 5.9 per cent, according to the Barclays Equity Gilt Study.
In the long-term, the return on art has been 4.9 per cent a year after inflation between 1875 and 2000. There is no direct comparison, but with UK equities the real return since 1899 is 5.3 per cent.
When you add in the pleasure of owning paintings, those returns are tempting. But some academics warn that art investors make money only by taking serious risks. "While returns on art investment have exceeded inflation for long periods, and returns in the second half of the 20th century have rivalled the stock market, they are no higher than would be justified by the extraordinary risks they represent," writes Professor William Goetzmann at Yale.
Another reason to be wary is that art indices may not be fully representative. They may suffer from "survivorship bias". Sale prices come from auction records, so they only include paintings that have been re-auctioned. This excludes bad performers, because paintings that fall spectacularly are not normally sold again at auction.
Bankers are also cautious. The market is illiquid and vulnerable to fashion, and paintings generate no income, they say.
"If you like it and can afford it, go and buy it. But don't expect to get any return," says Peregrine Banbury at Coutts, the private bank.
One killer is the cost of trading. Buyers can pay up to 17.5 per cent in commission, and sellers might face a 13.5 per cent bill, though the latter can negotiate lower sums if they are selling expensive works. These costs are far higher than the price you pay to invest in shares or bonds: "As an investment you're immediately caned," says Mr Banbury.
Returns could also suffer because of the cost of insuring paintings. The Railways Pension Fund, which invested GBP40m in art in the 1970s, said this made the asset less attractive compared with other options. It sold up and bought other investments.
Then there is every collector's nightmare: fakes. Of course, buyers will use experts to analyse paintings, but they can make mistakes, warns Suzanne Gyorgy of Citigroup's art advisory team.
Advisers, then, tell clients to buy paintings because they like them, not because they expect to make a fortune. If people do buy paintings, they may diversify their portfolios; Academic research shows art tends to rise when equities fall and vice versa, so stock market losses could be offset by artistic rises.
*Art Auctions: A survey of empirical studies by Orley C. Ashenfelter of Princeton and Kathryn Graddy, of Oxford, published by the Centre for Economic Policy Research.
www.londonart.co.uk.
Document ftcom00020020618dy6h0001d
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FT MONEY - PERSONAL FINANCE - Buy for pleasure, not profit.
By ALEXANDER JOLLIFFE.
956 words
15 June 2002
Financial Times
3
English
(c) 2002 Financial Times Limited. All Rights Reserved
FT MONEY - PERSONAL FINANCE - Buy for pleasure, not profit - INVESTING IN ART - Buyers tend to pay too much for masterpieces, says Alexander Jolliffe, which is just one of many factors to bear in mind when buying paintings.
Art is one of the few respectable investments, said Soames Forsyte, a character in John Galsworthy's novels. After all, it's a visible assetthat you can enjoy. But investors interested in buying art shouldchoose their paintings carefully and advisers say they should buy as much for enjoyment as for any expectationof a rise in value.
Masterpieces underperform other paintings, probably because buyers pay too much for them, according to new research*. After paying over the odds, buyers then watch their investments fall in value as the market drops back to its trend, the researchers suggested. The trend may have been exacerbated in recent years by price fixing admitted by Christie's and Sotheby's.
In contemporary art, the top 20 per cent of paintings by price have underperformed the rest of the market by about 5 per cent a year on average between the mid-1980s and the mid-1990s. Other academics found similar results among American, Impressionist and Old Master paintings, the study said.
But would a modern-day Mr Forsyte make more money by investing in art than the stock market? Collectors could have profited by buying Masters in the 1960s and selling in the 1990s. Annual returns between 1962 and 1991 were 5 per cent above inflation on average. That trailed UK equities, where nominal returns came to 5.9 per cent, according to the Barclays Equity Gilt Study.
In the long-term, the return on art has been 4.9 per cent a year after inflation between 1875 and 2000. There is no direct comparison, but with UK equities the real return since 1899 is 5.3 per cent.
When you add in the pleasure of owning paintings, those returns are tempting. But some academics warn that art investors make money only by taking serious risks. "While returns on art investment have exceeded inflation for long periods, and returns in the second half of the 20th century have rivalled the stock market, they are no higher than would be justified by the extraordinary risks they represent," writes Professor William Goetzmann at Yale.
Another reason to be wary is that art indices may not be fully representative. They may suffer from "survivorship bias". Sale prices come from auction records, so they only include paintings that have been re-auctioned. This excludes bad performers, because paintings that fall spectacularly are not normally sold again at auction.
Bankers are also cautious. The market is illiquid and vulnerable to fashion, and paintings generate no income, they say.
"If you like it and can afford it, go and buy it. But don't expect to get any return," says Peregrine Banbury at Coutts, the private bank.
One killer is the cost of trading. Buyers can pay up to 17.5 per cent in commission, and sellers might face a 13.5 per cent bill, though the latter can negotiate lower sums if they are selling expensive works. These costs are far higher than the price you pay to invest in shares or bonds: "As an investment you're immediately caned," says Mr Banbury.
Returns could also suffer because of the cost of insuring paintings. The Railways Pension Fund, which invested £40m in art in the 1970s, said this made the asset less attractive compared with other options. It sold up and bought other investments.
Then there is every collector's nightmare: fakes. Of course, buyers will use experts to analyse paintings, but they can make mistakes, warns Suzanne Gyorgy of Citigroup's art advisory team.
Advisers, then, tell clients to buy paintings because they like them, not because they expect to make a fortune. If people do buy paintings, they may diversify their portfolios; Academic research shows art tends to rise when equities fall and vice versa, so stock market losses could be offset by artistic rises.
*Art Auctions: A survey of empirical studies by Orley C. Ashenfelter of Princeton and Kathryn Graddy, of Oxford, published by the Centre for Economic Policy Research. www.londonart.co.uk
Dresdner Bank's private equity business is marketing a fund which will invest in fine art acquiring paintings and sculptures of "museum quality", writes Alexander Jolliffe.
The chairman will be Lord Gowrie, who had the same job at Sotheby's, the auction house, and the fund plans to have a strong weighting in Old Masters and Impressionists, saying they are less risky than the others.
Investors will be able to hang the closed-ended offshore fund's paintings in their homes or offices. If you invested $500,000 ( £340,000), you could have up to $1.5m-worth of art in your house. It is only available to investors with an investment sum of at least $250,000. They will not receive any cash return on their investment until the seventh year. UK investors will not be covered by British compensation schemes, which pay cash in some circumstances to investors who have lost money because of bad financial advice.
Dresdner hopes to use its negotiating clout to cut the cost of trading and get access to paintings which may not be available to private investors. The fund will use experts to get advice about which paintings to buy. The art works will mostly be worth between $250,000 and $2m, although the fund could buy objects worth between $50,000 and $15m.
Investors will pay initial charges up to 2 per cent and annual fees of the same amount.
1.
Document ftft000020020615dy6f0009d
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MONEY: Behind the Numbers
Do you own too few stocks and funds?
Stephen Foerster
272 words
26 April 2002
The Globe and Mail
Metro
101
English
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."
We've all heard the old adage "Don't put all of your eggs in one basket." Fifty years ago, a young researcher named Harry Markowitz devised a theory of efficient stock diversification. He shared the Nobel Prize for economics in 1990. That concept has caught on, particularly among investors in mutual funds and exchange-traded funds. In fact, some analysts say many investors now hold too many funds and may be over-diversified.
But a study by William Goetzmann of Yale School of Management and Alok Kumar of Cornell University suggests that the vast majority of individual investors may still be surprisingly under-diversified.
The researchers looked at more than 40,000 equity investment accounts at a large U.S. discount brokerage between 1991 and 1996. In 1996, one-quarter of investors owned just one stock, and more than half owned less than four stocks. Just 12% owned more than 10 stocks, often cited as the minimum number for adequate diversification. Mutual funds accounted for an average of just 15% of the investors' portfolios, too low to compensate for the lack of equity diversification. Goetzmann and Kumar also found that younger, active investors and those in non-professional occupations tended to hold fewer stocks.
Better-diversified portfolios also earned higher risk-adjusted returns (measured by the Sharpe ratio-a portfolio's excess return over market divided by its standard deviation). The key is to avoid the trap of believing that active trading of a few stocks is a route to superior performance.
Illustration
Document glob000020020426dy4q0002p
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Research Backlash Spawns Do-It-Yourself Services
By Karen Talley
572 words
25 April 2002
12:33 pm
Dow Jones News Service
English
(Copyright (c) 2002, Dow Jones & Company, Inc.)
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Self analysis. That's what it may come to in this era of Enron and questions about analysts' objectivity.
A new service allows investors to do their own analysis of public companies through a website that primarily supplies information about how well a company generates cash. The product - Stock Diagnostics - is believed to be among the first of many such services that are expected to begin cropping up.
Whether these companies are capitalizing on a barrage of bad publicity for Wall Street or are bona fide services that provide information investors are sorely lacking, what's for sure is that investors may see a slew of new research tools being rolled out.
"Face it," said Ron Erickson, the man behind Stock Diagnostics, "There has arisen an element of mistrust around analysts."
This is especially true when it comes to the way analysts tend to praise earnings announcements, even if the company has excluded negative information, said Erickson, whose background includes being a co-founder of EggHead Software, which pioneered computer product retailing but ended up closing its stores as computer companies began selling directly to customers.
What Stock Diagnostics does is identify companies that are reporting record earnings, which may have left out certain items, and have negative operational cash flow per share. "Earnings are often managed numbers that don't accurately reflect what's really going on at a company," Erickson said. "Looking beneath the surface has become especially necessary."
The reasoning is healthy companies derive a lot of their sales and profits from their products and services, which gives them positive operational cash flow. But unhealthy companies may use proceeds from loans, additional stock offerings or sold units to bulk up revenue and thus profits. "If you are in business your primary business must be generating cash flow," Erickson said. He added that often, companies that are posting record earnings and negative cash-flow have high stock prices, because investors peg off the earning part, and very high insider selling, because executives recognize the true condition.
Mike Markowski, director of research at Stock Diagnostics, said analysis of 7500 fourth quarter 2001 reports turned up 51 showing record earnings and negative cash flow, a condition the company calls "EPS Syndrome." Going back five years, the program tagged 1400 companies, Markowski said.
Services like Stock Diagnostics "are an exciting development as long as they are quality tools," said William Goetzmann, finance professor at the Yale University School of Management."They would move the marketplace for providing information to a whole new level," giving people another way to evaluate stock prices.
But a cautious approach is warranted, some said.
"These people are identifying a need and filling that need with a product," said Edwin Ruh, chairman of the Veritas Venture Lab, who is seeing more of these types of services popping up.
But investors should recognize these companies are no different than investment firms in that both are motivated by making money, Ruh said. In Stock Diagnostics' case, the service will be marketed for $19.95 a month to individual investors, brokers and others with an interest in stocks.
Erickson even boldly - or impishly - said the service will be offered to analysts. "Who knows, maybe they would welcome another tool," he said.
-Karen Talley; Dow Jones Newswires; 201-938-5106; karen.talley@dowjones.com
Document dj00000020020425dy4p001uu
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Los emergentes pueden estar de vuelta, pero en dosis moderadas.
Por Jonathan Clements, Redactor de The Wall Street Journal.
757 words
14 February 2002
The Wall Street Journal Americas (Español)
2
Spanish
(Copyright (c) 2002, Dow Jones & Company, Inc.)
Póngase el cinturón de seguridad, cierre los ojos y apriete los dientes. Es hora de invertir en los mercados emergentes.
Los grandes valores estadounidenses todavía están sobrevalorados, los bonos de alta calidad ofrecen rendimientos patéticamente bajos y los mercados europeos no resultan tan atractivos.
Entonces, ¿qué es lo que hay que hacer? La receta ahora mismo es abalanzarse sobre inversiones como los mercados emergentes. Una buena noticia para Latinoamérica. Es más, algunos inversores de la región están adquiriendo posiciones en emergentes a través de fondos estadounidenses.
He aquí algunos de los motivos por los cuales un cierto grado de exposición a los emergentes podría ser una gran aporte a su cartera:
* REANIMACIÓN: Los mercados emergentes subieron un 79,6% en 1993, propiciando embriagadoras predicciones de fabulosos retornos. Pero aquellos que se apresuraron a comprar se llevaron una gran decepción. Los mercados emergentes registraron pérdidas en cinco de los últimos ocho años, según la firma de Chicago Ibbotson Associates.
Pero en el largo plazo hay señales de vida. Pese a una caída de los mercados globales y la crisis de deuda en Argentina, los fondos estadounidenses que invierten en emergentes perdieron sólo un 3,7% el año pasado, gracias a un vigoroso repunte del 24% en los últimos tres meses de 2001. Esa resistencia se ha prolongado hasta este año, con los fondos ganando un 3,7% en enero, según la firma de investigación de Chicago, Morningstar Inc.
* CAZA DE GANGAS: Una vez que los mercados ganan impulso generalmente van como balas, pero para que las ganancias sean sostenibles uno necesita valoraciones muy bajas.
Los mercados emergentes cumplen con ese requisito. "En septiembre del año pasado, los mercados emergentes se encontraban en el nivel más bajo de los últimos 16 años en comparación con el S&P 500, basándose en la relación precio-ganancia y la relación precio-valor en libros", afirma Chris Alderson, el principal gestor del fondo T. Rowe Price Emerging Markets. "Tuvimos un repunte bastante pronunciado en el cuarto trimestre, pero todavía estamos en niveles mínimos".
Alderson añade: "Definiría los emergentes como mercados que cotizan con un gran descuento y que están simplemente esperando el catalizador que propicie un mayor crecimiento global para de esa forma demostrar su valor oculto. Históricamente, los mercados emergentes han tenido un mejor comportamiento cuando la economía global se está recuperando, y eso es lo que parece estar sucediendo en estos momentos".
* REDUCIR EL RIESGO: Últimamente, los inversionistas estadounidenses han lamentado la sincronización entre los mercados internacionales y el estadounidense, con lo que se reducen las ventajas derivadas de la diversificación internacional. Pero la historia es más complicada, según un estudio elaborado por William Goetzmann, Lingfeng Li y Geert Rouwenhorst, que descubrieron que la correlación entre los principales mercados ha aumentado en las últimas décadas, pero al mismo tiempo se ha producido un rápido incremento en el número de países con mercados bursátiles activos y esos mercados han demostrado ser buenos para la deseada diversificación.
"La buena noticia es que uno todavía puede obtener el beneficio de la diversificación", afirma Goetzmann, un profesor de finanzas en la Facultad de Administración de la Universidad de Yale. "La mala noticia es que tienes que arriesgar tu dinero en estos mercados periféricos", añade Goetzmann.
En otras palabras, los mercados emergentes - erráticos como son-podrían ayudar a equilibrar la volatilidad general de una cartera. Pero no hay que exagerar. David Booth, copresidente de Dimensional Fund Advisors, en California, recomienda que los inversionistas estadounidenses pongan quizás un cuarto de su exposición en acciones extranjeras en mercados emergentes.
"La rentabilidad esperada es mayor cuando las perspectivas económicas son más débiles", dice Booth. "Dado que las expectativas económicas no son particularmente estelares, y las valoraciones parecen razonables, ahora es probablemente un buen momento para invertir en mercados emergentes".
* REBAJAR IMPUESTOS: El terrible rendimiento de los fondos de mercados emergentes tiene su contrapartida. "El lado bueno de haber tenido un rendimiento tan pobre en los últimos tres a cinco años es que muchos de los fondos han acumulado pérdidas de capital", dice Bill Rocco, analista de Morningstar. "Eso debería permitirles evitar pagar por las ganancias aun cuando tengan un buen rendimiento en los próximos años". Rocco también destaca que muchos fondos de acciones extranjeras ampliamente diversificados mantienen a menudo una notable posición en mercados emergentes, por lo que es recomendable comprobar cuál es la exposición personal que se tiene antes de hacer una gran apuesta en este terreno.
Document wsjaes0020020214dy2e0000b
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Don't Be Shy: Emerging Markets are OK
By Jonathan Clements
895 words
12 February 2002
The Wall Street Journal
C1
English
(Copyright (c) 2002, Dow Jones & Company, Inc.)
STRAP YOURSELF IN, close your eyes and clench your teeth. It's time to invest in emerging markets.
Blue-chip U.S. stocks still look overvalued, while high-quality bonds offer pathetically low yields. What to do? To make decent money in the years ahead, I believe you need to dabble in unconventional investments like real-estate investment trusts, high-yield junk bonds and inflation-indexed Treasury bonds.
To that list, add one of the most gut-wrenching investments, emerging markets. Here's why a smidgen of emerging-markets exposure could be a great addition to your portfolio:
PERKING UP: Emerging markets soared 79.6% in 1993, prompting heady predictions of further fabulous returns. But those who rushed to buy were bitterly disappointed. Emerging markets have posted losses in five of the past eight years, according to Chicago's Ibbotson Associates.
But at long last, there are signs of life. Despite a global stock-market slump and the Argentine debt crisis, emerging-markets funds lost just 3.7% last year, thanks to a vigorous 24% rally in 2001's last three months. That resilience has carried over into this year, with the funds up 3.7% in January, according to Chicago fund researchers Morningstar Inc.
BARGAIN HUNTING: Once markets have momentum, they often keep barreling along. But for the gains to be sustained, you need rock-bottom valuations.
Emerging markets score on that criterion. "In September of last year, emerging markets were at a 16-year low relative to the Standard & Poor's 500, based on price-to-book value and price-to-earnings ratios," says Chris Alderson, lead manager of the T. Rowe Price Emerging Markets Stock Fund. "We had a pretty sharp rally in the fourth quarter, but we're still at a multiyear low."
Mr. Alderson continues: "I would characterize emerging markets as rather like a deep-discount value stock that's just waiting for the catalyst of stronger global economic growth to unlock that value. Historically, emerging markets have outperformed when the global economy is recovering, and that seems to be happening right now."
REDUCING RISK: Lately, investors have lamented the way foreign-stock markets have increasingly moved in sync with U.S. shares, thus trimming the risk-reduction benefits that come with international diversification. But the story is more complicated than that, according to a study by William Goetzmann, Lingfeng Li and K. Geert Rouwenhorst.
The three authors found that the correlation among major markets has indeed increased in recent decades. But at the same time, there has been a rapid rise in the number of countries with active stock markets, and these markets have proved to be good diversifiers for U.S. stock investors.
"The good news is, you can still get the diversification benefit," says Mr. Goetzmann, a finance professor at Yale University's School of Management. "The bad news is, you have to risk your money in these fringe markets."
In other words, emerging markets -- as erratic as they are -- could help to temper your stock portfolio's overall volatility. But don't go overboard. Consider putting maybe a quarter of your foreign-stock exposure in emerging markets, suggests David Booth, co-chairman of Dimensional Fund Advisors in Santa Monica, Calif.
"Expected returns are highest when the economic outlook is bleakest," Mr. Booth says. "Since the economic outlook is not particularly stellar, and valuations seem reasonable, now is probably a good time to invest in emerging markets."
TRIMMING TAXES: Emerging-markets funds' horrible performance has a silver lining. "The flip side of being such poor performers over the past three to five years is that many of the funds have banked capital losses," says Bill Rocco, a senior analyst with Morningstar. "That should allow them to avoid paying out gains even if they do perform well in the next few years."
Mr. Rocco recommends no-load funds such as Dreyfus Emerging Markets and T. Rowe Price Emerging Markets Stock, as well as broker-sold funds like Oppenheimer Developing Markets and Pioneer Emerging Markets.
But he notes that many broadly diversified foreign-stock funds also keep a hefty chunk in emerging markets, so check how much exposure you already have before making a big bet in this area. "You can get by with a mainstream foreign fund, with its 10% emerging-markets exposure," Mr. Rocco reckons. "That's fine for most people."
If you do decide to buy a dedicated emerging-markets fund, also consider Vanguard Emerging Markets Stock Index Fund, which charges annual expenses of just 0.59% a year, far below the hefty 2.08% average for emerging-markets funds.
Sure, emerging markets are supposedly inefficient, and thus an index fund, which makes no effort to pick the best companies, might seem like an odd choice. But since the Vanguard fund's launch in 1994, its performance ranks fourth out of the 21 funds in existence for that period, according to Morningstar.
Whatever fund you select, be prepared for a rough ride. "Only a minority of investors can tolerate an emerging-markets fund in their portfolio because of the high volatility and lurid press," says William Bernstein, an investment adviser in North Bend, Ore. "You've got to be able to invest in Argentina and read about it at the same time."
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Robotrading 101
James M. Pethokoukis
1,320 words
28 January 2002
U.S. News & World Report
23
English
c Copyright 2002 U.S. News & World Report. All rights reserved.
William Peter Hamilton, former editor of the Wall Street Journal, was a market timer extraordinaire. Hamilton's investment instincts beat the market by nearly 3 percentage points a year between 1930 and 1997. There's just one hitch--Hamilton died in 1929. His results are real, but he is not--at least not any longer.
Those sparkling returns were produced by a VirtualHamilton neural network--a branch of artificial intelligence whereby software programs "learn" through trial and experience--created by a team from New York University and Yale. The real Hamilton ran the Journal in the early 1900s, but the academics mined his writings to replicate the pundit's mind. They then fed the VirtualHamilton seven decades of market data to see how it performed.
Techies joke that AI is a technology that is supposed to make real computers act as they do in movies such as 2001: A Space Odyssey and last summer's A.I. Wall Street's AI can't yet match Hollywood's version of thinking, self-aware computers, but as much as $250 billion is currently being managed using sophisticated computer tools. These include neural nets, expert systems (investment acumen distilled into rules of thumb), and genetic algorithms (stock strategies digitally converted into cyberspace creatures that mutate and evolve like human DNA).
"We all have the same data, and the question is what the hell are we going to do with it," says Doug Case, chief investment officer at Advanced Investment Technology in Clearwater, Fla. Case sees AI as the key to decrypting high-velocity, information-saturated financial markets. "AI can deal with that data and handle these disorderly global markets," says Case, whose $1 billion firm is majority owned by State Street Global Advisors. There's even a chance that as AI filters down to amateur stock pickers (box, Page 24), the result may be warp-speed markets where using this technology will be a must. "In this escalating arms race, the humans with better information and more powerful AI tools will be able to fight the more competitive battle," says John Moody, a professor of computer science at the Oregon Graduate Institute and a hedge-fund manager.
"Skunk Works." At PanAgora Asset Management in Boston, researchers in the firm's advanced products division (nicknamed the "Skunk Works" as homage to the secretive Lockheed Martin unit that developed the Stealth fighter) have created a hedge fund where stocks are traded by a "virtual securities analyst." It uses an expert system to try to mimic human analysts by converting their smarts into a string of programmed if/then statements. (If a company's cash flow is less than the sector average, then the quality of that cash flow is low.) A summary of these statements then produces a buy/sell decision. "Real analysts think what they do is some sort of art, but it can really be reduced to rules," says Edgar Peters, the firm's chief investment officer. Why not just hire a real analyst? A human analyst can analyze only a small number of stocks. An AI analyst can cover them all--and without a fat expense account or million-dollar salary.
Neural networks function more like the human brain. They can compare existing stock-trading patterns with previous situations and eventually "learn" what works and what doesn't as the program digests more data. Unlike traditional financial models, neural nets capture interconnections among financial variables. At Case's AIT, neural nets search out linkages between stock performance and variables such as price momentum, free cash flow, and the state of the overall economy.
AIT's neural nets have discovered, for instance, that with some stocks, the price-earnings ratio is a key indicator of its future return during good economic times. But when the economy is slowing, the stock's price momentum becomes more critical. Gaming company Aztar is one of AIT's largest positions. With low inflation and a steepening yield curve (a widening gap between short- and long-term interest rates), AIT's models show valuation and price patterns for the stock similar to those that have been bullish in the past. AIT's AllCap large-stock portfolio has beaten the overall market by an average of 3 percentage points a year since 1999. Those strong, though not otherworldly, results back up Case's cautionary contention that while AI is a formidable investing tool, "it's not some holy grail."
Still, the results can sometimes be astounding. Standard & Poor's uses a neural net to compile its Neural Fair Value 20 portfolio--available in its Outlook newsletter for $19.50 a month--which gained 29 percent last year, compared with a 13 percent loss for the S&P 500. The network constantly looks back six months to find the factors that seem to affect stock prices to predict the best performers over the next six months. Among the stocks in the portfolio are Computer Associates, PacifiCare Health Systems, and Tommy Hilfiger.
The VirtualHamilton presents a more tantalizing use of the technology. Why not also a VirtualBuffett or VirtualLynch? These digital doppelgangers might beat the originals by quantifying the unconscious intuition of these fabled investors. Just as an Ichiro Suzuki doesn't run trajectory and velocity calculations before catching a fly ball, many managers probably don't fully understand how they analyze stocks. Digitize a superstar manager's moves, and you might be able to hack his financial mind. "That's called reverse engineering," says Yale finance professor William Goetzmann. "And I suspect it is scaring some managers away from using a single broker who can view all of their trades." Using available information, Goetzmann himself has been attempting to reverse engineer the decisions made by managers of some unnamed mutual funds. "The idea being to see what makes managers trade, what signals they use, and if there is a magic formula," he says.
Math whiz. If there's a wild card in this investing arms race, it may be FatKat. The company may sound like a villain in a James Bond flick, but it's really a fledgling investment firm in Wellesley, Mass., founded by inventor and AI evangelist Ray Kurzweil. Although he's currently mum on FatKat, Kurzweil has written about the potential of mathematical formulas known as genetic algorithms to beat the market. The Darwinist process would begin with software randomly generating a million sets of rules for buying and selling stocks. Each set is a financial organism with the rules constituting its DNA. The ones that can't beat the market are killed, while the stock-savvy survivors mutate and breed until the population is back to a million. Rinse and repeat 100,000 times. "The surviving software creatures should be darn smart investors," he writes in The Age of Spiritual Machines.
How smart might AI programs get? By the year 2050, perhaps, investment software programs may be able to "come up with their own investment hypotheses, test them out, and implement them," says Andrew Lo, director of MIT's Laboratory for Financial Engineering. For now, though, humans still have a big role to play in the AI investment process. While the numbers are being crunched, the world keeps spinning and you need humans to keep track of it. At AIT, it takes all weekend to download data and update investment models. You also need humans to monitor the world for events that aren't reflected immediately in the data, such as terrorist attacks. And what happens if supersmart computers eventually get so good at the prediction game that all investors are made of silicon rather than carbon? Then the computers, as Kurzweil puts it, "will be trying to outpredict each other."
Sophisticated computer programs take the human element out of picking winners on Wall Street
Drawing: No caption (Illustration by Gordon Studer for
USN&WR)
Document usn0000020020123dy1s0000a
| Factiva | Dow Jones & Reuters |
COMMISSIONI DI GESTIONE PIU' BASSE, NIENTE SPESE DI INGRESSO E USCITA
NEI TRE SUPERMERCATI...
Di GIARDINI MARIA.
805 words
21 January 2002
La Stampa
Italian
(c) 2002, La Stampa
COMMISSIONI DI GESTIONE PIÙ BASSE, NIENTE SPESE DI INGRESSO E USCITA NEI TRE SUPERMERCATI DISPONIBILI SU INTERNET. SOTTOSCRIZIONI IN CRESCITA DOPO L'11 SETTEMBRE Quanto conviene comprare il fondo on line In Germania già coprono il 6,4% del mercato, in Italia siamo sotto l'1%
G. GLI ORDINI IN BORSA A GENNAIO
Maria Giardini Diversificare gli investimenti. È questa la parola d'ordine per chi vuol ridurre l'impatto del rischio sul proprio portafoglio e non correre così brutte sorprese. Ma una corretta strategia di diversificazione, al mondo d'oggi, non è poi così semplice, a giudicare dai risultati di uno studio di due professori di Yale, William Goetzmann e Lingfeng Li. Negli Anni 60, secondo i risultati della ricerca, bastava distribuire i propri risparmi in un giardinetto di titoli di 4 Paesi (Stati Uniti, Gran Bretagna, Francia e Germania) per ridurre la volatilità del 30%. Per ottenere lo stesso risultato, nel 2000, sarebbe stato necessario distribuire i propri investimenti nelle Borse di 50 paesi. Basta una considerazione del genere per capire che non è facile puntare su una corretta diversificazione ""globale"" senza passare per lo strumento dei fondi comuni. Ma, almeno per chi punta a diversificare il proprio portafoglio italiano, il 2002 ha portato una grande novità nell'ambito del ""fai da te"": l'abolizione del lotto minimo. Dal l° gennaio, infatti, anche in Italia è possibile costruirsi un giardinetto di titoli in grado di replicare il Mib 30 pur possedendo capitali limitati: è possibile per esempio, acquistare 1 Fiat o 1 Generali e replicare alla pari il paniere. La convenienza? Disporre, in pratica, di un fondo passivo (quelli che replicano l'indice) costruito su misura, a prezzi inferiori e senza commissioni di gestione. Come reagirà il sistema del risparmio gestito? In attesa di una risposta sul fronte dei costi, val la pena di ricordare l'esistenza di una nicchia di mercato che sembra, finalmente, destinata a uscire dal limbo: il mercato dei fondi on line. La vendita attraverso i supermercati dei fondi disponibili sul web (attualmente sono tre, Fundsworld, Fundstore e Ondine sim) offre infatti il vantaggio di minori costi di gestione. Spiega Anna Ponzani, responsabile dell'ufficio studi Kpmg consultino: ""Comprare fondi in internet è certo più conveniente rispetto ai sistemi tradizionali. Basti pensare alla soppressione delle commissioni di ingresso e distribuzione"". Finora, causa la crisi del mercato e le difficoltà del mondo internet, il decollo è stato meno brillante delle previsioni, ma gli specialisti non disperano: il mercato comincia a muoversi. Il confronto con gli altri paesi europei, poi, permette di scommettere su una crescita del segmento: in Italia e in Spagna, finora, le sottoscrizioni tramite web rappresentano poco meno dell'1%, ma in Germania la quota è del 6,4% del mercato. Certe considerazioni vanno prese con molta prudenza (non sembra credibile, come si sosteneva nel 2000, che nel giro di 5 anni i compratori di fondi via internet salissero addirittura a quota 830 mila) ma è facile prevedere che i minori costi prima o poi riusciranno a promuovere l'offerta via web. E l'abolizione del lotto minimo? ""Non credo - risponde Gianni Bizzarri di Fundstore - che la possibilità di costruirsi un giardinetto di titoli per conto proprio possa rappresentare una vera concorrenza per noi. Il pubblico dei fondi è diverso. E non dimenticate che con il fai da te si rischia di pagare costi elevati per transazioni dal valore irrisorio"". Il problema dei costi è la vera insidia che sta animando le discussioni dei vari trading on line. Alcuni servizi di trading on line, infatti, richiedono una commissione fissa minima che varia tra 2 e 10 euro. Se un ordine ha un valore inferiore al minimo, il rischio è addirittura di dover pagare più per la commissione che per i titoli acquistati.. ""Ho fatto il calcolo - spiega un trader - che a fronte di una commissione fissa minima di 3 euro, l'operazione diventa conveniente solo per acquisti di 1500 -1600 euro per volta. Alla faccia dell'abolizione del lotto minimo.."". Anche per queste ragioni l'inizio d'anno non ha registrato l'incremento del numero di operazioni che si aspettava la Borsa italiana. Commentano da Mediosim Banca della Rete: ""È presto. Non abbiamo ancora registrato alcuna variazione significativa riguardo a volumi o a numero di ordini, anche se abbiamo segnalato la novità ai clienti. Ma ci vorrà un pò di tempo prima che sia recepita da tutti"". I tempi e gli umori dei risparmiatori, del resto, non sempre sono facili da interpretare. Più della metà delle sottoscrizioni di Fundsworld (nell'ordine delle centinaia di iscrizioni) è stata effettuata dopo l'11 settembre. La tragedia e la recessione, probabilmente, hanno stimolato la voglia di tagliare i costi e di tentare strade nuove. /.
Document stma000020020123dy1l00028
| Factiva | Dow Jones & Reuters |
MONEY Behind the Numbers
Hedge Funds: Some styles are riskier than others
Stephen Foerster
293 words
28 December 2001
The Globe and Mail
Metro
83
English
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."
Last year was dismal for stock markets worldwide, prompting many investors to consider hedge funds. The original hedge funds were supposed to do well in up or down markets by investing long positions in undervalued securities and short positions in overvalued ones. As of 2000, worldwide hedge fund assets were estimated at more than $400 billion (U.S.).
There are several investing styles guiding hedge funds, according to a paper by Stephen Brown of New York University and William Goetzmann of Yale School of Management. They looked at eight style categories of funds over rolling three-year periods.
Brown and Goetzmann measured value at risk--the maximum probable loss per month per dollar invested, relative to expected return. Hedge funds in the U.S. equity, event-driven international and global macro categories were the riskiest (categories 1, 2 and 3 on the chart). Many event-driven funds bet on mergers and distressed companies. Global macro funds bet on interest-rate and currency swings.
After that came international and emerging markets funds (categories 4 and 5). Event-driven domestic, property/fixed income and non-directional/relative value funds were the least risky (categories 6, 7 and 8). Non-directional funds try to stay independent of market movements. Relative value funds do that by taking advantage of anomalies in the relative prices of assets with similar characteristics, such as stocks and bonds of the same company.
A key message is that hedge fund investors should weigh the inherent risk of various styles, particularly if a fund invests aggressively abroad. Stephen Foerster is an associate professor at University of Western Ontario's Richard Ivy School of Business
Illustration
Document glob000020011228dxcs00027
| Factiva | Dow Jones & Reuters |
Online art information company stands out after industry shakeout
By SARA SILVER
Associated Press Writer
1,022 words
30 August 2001
09:12 pm
Associated Press Newswires
English
Copyright 2001. The Associated Press. All Rights Reserved.
NEW YORK (AP) - A pair of gunslinging Elvises greets visitors to the lower Broadway offices of artnet.com. The Andy Warhol silkscreen is an apt symbol for the company's chief executive, Hans Neuendorf, who has survived a blood bath in the online art world and is fighting his way to profitability.
Last December, after losing dlrs 9 million on his 18-month-old online auction site, Neuendorf abandoned all attempts to sell art online. Instead, he turned artnet.com into an information site, where dealers and others can find gallery listings, auction price histories and images of art works.
"We're trying to promote the dealers and let them do their business," says Neuendorf, whose Frankfurt-based company has lost dlrs 48 million since 1989.
The company's latest earnings report, released Monday, shows net losses of dlrs 1.9 million in the second quarter, down from dlrs 2.1 million in the first quarter. The loss is partly due to severance payments and other charges from the online art auctions.
While online companies have successfully sold prints, photographs and documents, the volume wasn't enough to support ventures such as Art.com, Onview.com and eArtGroup.com, or the antiques appraisal site Eppraisals.com. Sothebys.com last year closed one of its two Web sites, which it ran in partnership with Amazon.com.
As an information tool, however, the Internet is popular with galleries eager to display their inventories to prospective clients. Most of the major U.S. galleries have signed on with artnet.com.
Artnet.com's free online Gallery Network lets connoisseurs locate and view works on offer at 1,200 member galleries, ranging from Manhattan powerhouses to Midwestern specialists. For example, Mary Cassatt fans planning to visit New York City can find 16 prints, paintings and watercolors on sale through six Manhattan dealers. For dlrs 2 to dlrs 3 per database search, they can find out what similar works have fetched at recent auctions.
While some buyers reach dealers by way of the Internet, sales are completed through the usual channels.
"We're in Des Moines, Iowa, and we're getting calls from people all over the world," says Karolyn Sherwood, director of Steven Vail Galleries, which signed up with artnet.com two years ago.
"Making the match is the big cost" of the art business, Neuendorf says, and "that is the huge advantage of the Internet." Listing a gallery on artnet.com's Web site for a year costs about dlrs 3,000, less than the cost of a single full-page ad in many glossy art magazines. This service accounts for 70 percent of the company's revenue.
Neuendorf owned contemporary art galleries in Hamburg and Frankfurt, exhibiting works by the young Andy Warhol, Cy Twombly and David Hockney.
Slender at 63 with an elegantly shaved head, he joined artnet.com full-time in 1990, a few months after it was founded by a group of European and U.S. dealers and collectors who wanted to develop a database of auction prices paid for artworks. He became CEO in 1995 and raised dlrs 25 million on Germany's Neuer Markt index to support the database's move to the World Wide Web from its previous, less accessible format. The company's stock, which peaked at 66 euros shortly after its May 1999 initial public offering (then worth about dlrs 70), now trades at about 1.6 euros (about dlrs 1.50).
The database has 3,300 subscribers - auction houses, galleries, dealers and collectors - who use it to quickly check the value of comparable pieces.
The database "has made the pricing structure for art more rational and has changed the way one can do art history," says William Goetzmann, a Yale School of Management professor who once directed the Museum of the West.
Artnet.com has several competitors for art price information, but none offer the ability to clearly see the artworks being described.
Artprice.com, which trades on France's Nouveau Marche exchange, boasts that it contains results from 3,000 auction houses, but won't include images it doesn't have permission to use. Artfact.com, based in Kingstown, Rhode Island, says its comprehensive information and decorative arts coverage makes it popular with antiques dealers and academics.
The London-based Art Sales Index, which put its print edition online, offers a database of 2.4 million records going back to 1950. But managing director Duncan Hislop acknowledges that the site, just now adding thumbnail images that aren't zoomable, "has a long way to go to match Artnet" in providing high-quality digital images.
"You can't 'talk' a piece of art, you have to look at it," explains Michele Heinrici, registrar at the Robert Miller Gallery in midtown Manhattan, a frequent user of artnet.com. "For us, the Internet is more of an information tool than a sales tool."
Artnet.com still has problems. Neuendorf said the company had to install extra firewalls to protect its database last week after someone took down the site for four days.
To make it through to this year, Neuendorf had to cut the company's staff from 120 to 50 and throw in another dlrs 400,000 on top of his initial dlrs 10 million investment.
And a March deal to link eBay Premier's offerings with artnet.com's database has yet to be implemented.
Still, Neuendorf says the company is bringing in more each month in sales than it is spending and expects to report actual profits by next year.
In a sign of confidence, the London hedge fund manager Crispin Odey bought about dlrs 400,000 of stock at a premium this summer. This makes artnet.com among the lucky Internet companies to find financing this year, which high profile ventures, like the home delivery services kozmo.com and Webvan.com, could not.
---
On the Net:
http:/www.artnet.com
http:/www.artprice.com
http:/www.art-sales-index.com
http:/www.artfact.com
Rush
AP Photo NY300
Document aprs000020010831dx8v002by
| Factiva | Dow Jones & Reuters |
Online art information company stands out after industry shakeout
By SARA SILVER
Associated Press Writer
1,021 words
30 August 2001
12:00 am
Associated Press Newswires
English
Copyright 2001. The Associated Press. All Rights Reserved.
NEW YORK (AP) - A pair of gunslinging Elvises greets visitors to the lower Broadway offices of artnet.com. The Andy Warhol silkscreen is an apt symbol for the company's chief executive, Hans Neuendorf, who has survived a blood bath in the online art world and is fighting his way to profitability.
Last December, after losing $9 million on his 18-month-old online auction site, Neuendorf abandoned all attempts to sell art online. Instead, he turned artnet.com into an information site, where dealers and others can find gallery listings, auction price histories and images of art works.
"We're trying to promote the dealers and let them do their business," says Neuendorf, whose Frankfurt-based company has lost $48 million since 1989.
The company's latest earnings report, released Monday, shows net losses of $1.9 million in the second quarter, down from $2.1 million in the first quarter. The loss is partly due to severance payments and other charges from the online art auctions.
While online companies have successfully sold prints, photographs and documents, the volume wasn't enough to support ventures such as Art.com, Onview.com and eArtGroup.com, or the antiques appraisal site Eppraisals.com. Sothebys.com last year closed one of its two Web sites, which it ran in partnership with Amazon.com.
As an information tool, however, the Internet is popular with galleries eager to display their inventories to prospective clients. Most of the major U.S. galleries have signed on with artnet.com.
Artnet.com's free online Gallery Network lets connoisseurs locate and view works on offer at 1,200 member galleries, ranging from Manhattan powerhouses to Midwestern specialists. For example, Mary Cassatt fans planning to visit New York City can find 16 prints, paintings and watercolors on sale through six Manhattan dealers. For $2 to $3 per database search, they can find out what similar works have fetched at recent auctions.
While some buyers reach dealers by way of the Internet, sales are completed through the usual channels.
"We're in Des Moines, Iowa, and we're getting calls from people all over the world," says Karolyn Sherwood, director of Steven Vail Galleries, which signed up with artnet.com two years ago.
"Making the match is the big cost" of the art business, Neuendorf says, and "that is the huge advantage of the Internet." Listing a gallery on artnet.com's Web site for a year costs about $3,000, less than the cost of a single full-page ad in many glossy art magazines. This service accounts for 70 percent of the company's revenue.
Neuendorf owned contemporary art galleries in Hamburg and Frankfurt, exhibiting works by the young Andy Warhol, Cy Twombly and David Hockney.
Slender at 63 with an elegantly shaved head, he joined artnet.com full-time in 1990, a few months after it was founded by a group of European and U.S. dealers and collectors who wanted to develop a database of auction prices paid for artworks. He became CEO in 1995 and raised $25 million on Germany's Neuer Markt index to support the database's move to the World Wide Web from its previous, less accessible format. The company's stock, which peaked at 66 euros shortly after its May 1999 initial public offering (then worth about $70), now trades at about 1.6 euros (about $1.50).
The database has 3,300 subscribers - auction houses, galleries, dealers and collectors - who use it to quickly check the value of comparable pieces.
The database "has made the pricing structure for art more rational and has changed the way one can do art history," says William Goetzmann, a Yale School of Management professor who once directed the Museum of the West.
Artnet.com has several competitors for art price information, but none offer the ability to clearly see the artworks being described.
Artprice.com, which trades on France's Nouveau Marche exchange, boasts that it contains results from 3,000 auction houses, but won't include images it doesn't have permission to use. Artfact.com, based in Kingstown, R.I., says its comprehensive information and decorative arts coverage makes it popular with antiques dealers and academics.
The London-based Art Sales Index, which put its print edition online, offers a database of 2.4 million records going back to 1950. But managing director Duncan Hislop acknowledges that the site, just now adding thumbnail images that aren't zoomable, "has a long way to go to match Artnet" in providing high-quality digital images.
"You can't 'talk' a piece of art, you have to look at it," explains Michele Heinrici, registrar at the Robert Miller Gallery in midtown Manhattan, a frequent user of artnet.com. "For us, the Internet is more of an information tool than a sales tool."
Artnet.com still has problems. Neuendorf said the company had to install extra firewalls to protect its database last week after someone took down the site for four days.
To make it through to this year, Neuendorf had to cut the company's staff from 120 to 50 and throw in another $400,000 on top of his initial $10 million investment.
And a March deal to link eBay Premier's offerings with artnet.com's database has yet to be implemented.
Still, Neuendorf says the company is bringing in more each month in sales than it is spending and expects to report actual profits by next year.
In a sign of confidence, the London hedge fund manager Crispin Odey bought about $400,000 of stock at a premium this summer. This makes artnet.com among the lucky Internet companies to find financing this year, which high profile ventures, like the home delivery services kozmo.com and Webvan.com, could not.
---
On the Net:
http:/www.artnet.com
http:/www.artprice.com
http:/www.art-sales-index.com
http:/www.artfact.com
End Adv for Aug 30-Sept 2 and Thereafter
Advance
AP Photo NY300 of Aug. 27
Document aprs000020010828dx8u00s8w
| Factiva | Dow Jones & Reuters |
No Hedging Here
James M. Clash
1,468 words
6 August 2001
Forbes
70
Volume 168; Issue 03
English
Copyright 2001 Forbes Inc.
Given the recent stampede of cash into hedge funds, Forbes thought it would be instructive to bring a respected hedge fund manager together with a respected mutual fund manager to debate merits of the two fund classes.
For hedge funds, we chose George Hall, 40, manager of New York's Clinton Group (assets: $4.4 billion), a hedge fund specializing in mortgage-backed securities.
Representing the mutual fund industry is John Bogle, 72, who really needs no introduction. He is founder of the Vanguard Group and a champion of low-cost mutual funds.
Following are edited excerpts from a two-hour discussion held last sping at FORBES headquarters.
FORBES
: Mutual funds charge annual expenses of 1.3% of assets. Hedge funds take that, plus 20% of profits. What do you guys think of the disparity?
John Bogle
: What do we know about the stock market? It's a giant casino. All investors over time get the market's return, before fees. After costs, though, the market is a loser's game by definition. The croupier rakes too much out. That includes Wall Street, mutual fund managers, and federal and state governments in the form of taxes. It seems to me inconceivable that you could take $500 billion run by 6,000 different hedge funds and expect those managers to be smarter than the rest of the world. If they are say, 20% smarter, you're even. Or maybe you're losing a little bit, because they're taking an average annual fee in the nature of 2% in addition to the 20% carry? I love any business that can call a fee a carry. I calculated it roughly; if there's a 10% return in the market, a hedge fund would have to give you 17% before fees, assuming a 20% carry on gross return, a 2% annual fee, and half the gain being long-term, half short-term. I don't think that $500 billion has any remote possibility of beating 17%.
George Hall
: In the traditional sense, go back in history to 1949 and to A.W. Jones. His concept was you buy an asset and sell another, trying to lock in some profit from the relative return of the assets, irrespective of the market's direction. This is called a long-short strategy. It can also be referred to as an arbitrage strategy, what a hedge fund is supposed to be, and what we do at Clinton Group. I would make a case that hedge funds can be viewed as somewhat cheaper than a typical stock mutual fund. A fixed income arbitrage fund like mine, for example, uses a lot of leverage. I'll make up a number; let's assume it's 15 to 1. There should also be a hedge, a short side, and let's say that position is also 15 to 1. All the shorts and longs have to be funded, so there is a much more aggressive daily valuation and revaluation of the portfolio than with a mutual fund. If you look at the actual fee the hedge fund is getting on a total capital basis, then, it can be argued it is in the nature of just three or four basis points, much lower than a mutual fund.
FORBES
: With all the new money going into hedge funds, it seems that we've forgotten about Long-Term Capital Management's implosion in 1998?
Hall
: There was a lack of interest at getting back into hedge funds after Long-Term Capital Management. We are recovering from that. There does seem to be a lot more money flowing into hedge funds. Long-Term Capital Management, I don't really want to discuss too much about it, but that's an isolated example. There are many more public companies that have lost capital and filed for bankruptcy. In the early 1990's, there was a lot of concern that Citibank would potentially go under, and if that had happened-and obviously we never would have let it happen-nobody would say that there's no room in the world for banks, and that people should no longer invest in banks. They would just realize there was a risk that went with the territory.
Bogle
: Let me comment on Long-Term Capital Management. Isolated is not the right word. UBS-Warburg has this wonderful book I read from cover to cover, and they're promoting hedge funds in it. They have a list of losses. Askin Capital Management, 1994, $420 million; Argonaut Capital Management, 1994, $110 million. Vairocana Limited, 1994, $700 million. By the way, they have the reasons the funds went wrong. In Askin's case, "Hedge did not work. Liquidity squeeze. Could not meet margin calls. Did not inform investors." Vairocana: "Change of strategy from duration neutral to directional plays on falling interest rates." Global Systems, Victor Niederhoffer, 1997: "Market losses. Short puts in market correction. Margin calls." Long-Term Capital management, $3.6 billion loss: "Market losses. Excess leverage. Margin calls. Fund was underfunded (or over-leveraged)." Manhattan Investment Fund: "Managers sent fictitious statements for three years." Tiger Management, loss unknown. Soros Fund, loss unknown. Ballybunion Capital Partners, long-short equities, 2000 failure. Only cost $7 million of somebody else's money. A lot of money to somebody. "Reporting of false performance figures, wrong information on Web." These are, together, not isolated instances.
FORBES
: Why are mutual fund managers defecting to hedge funds, and is it something to be concerned about?
Bogle
: There's more money to be made in the hedge fund business. But there's no evidence that mutual fund records are any different now, nor will they be in the future, because of defections. It's had no effect on Vanguard's actively managed funds, and obviously it doesn't affect our index funds. I doubt that it's systematically going to shift good returns from the mutual fund business to hedge funds. I think it is a craze and will come and be gone.
Hall
: More money is not really the answer. They only make more if they have the returns. The 2% annual fee that the hedge fund manager gets doesn't put a lot into his pocket. Most of it covers expenses to run the company. The money really comes from performance. So why do they leave? A hedge fund isolates what the manager actually does. His ability becomes picking stocks, not having to bother with the administrative trouble of putting 85% of his fund's stocks into an index because he knows that if he doesn't track the index pretty closely, he could lose his job. His real value-added is not just replicating an index. That's why managers leave. It's a more appropriate use of their skills.
FORBES
: Are hedge funds appropriate for retail investors?
Bogle:
It's hard to think about them as a group. First, there are a wide variety of strategies. And then they have an astonishing failure rate. A paper I read from Professor William Goetzmann, up at Yale, says that the probability of a hedge fund or a hedge fund manager surviving for seven years is less than 20%. Barrons looked at the year 2000: Of 573 hedge funds they surveyed in the first quarter of 2000, 167 were gone by the end of the year. The studies we've talked about today say hedge funds are not competitive with the market, which is another way of saying they're not competitive with index funds. And I'd stand on that. The enduring values of investing for me are focusing on compound return over the long run, and it works. Alternative investors, as a group, will fall woefully short. So with hedge funds, be sure you understand the risks and the costs, and basically look before you leap. I don't think your typical retail investor should be in hedge funds and, if they are, do it in moderation, say 10% to 20% of their investments. Where they really don't change the characteristics of their portfolio much. I'd stay down the center and stay the course, because we could well have some rough weather ahead.
Hall:
I agree with the long-term approach. It's easy to forget about the bear markets we've had, and how terrible they've been. In terms of the typical retail investor, I think with hedge funds the market needs more time to shake out some of the people who are not going to be successful. I don't think the investing public is quite ready for investing just in hedge funds. We've got to make the data more meaningful and have greater survivorship.
Back to story.
Document fb00000020010723dx860000h
| Factiva | Dow Jones & Reuters |
Housing Hoax
Motherhood. Apple pie. Buying homes on margin. Dare we criticize them?
BY Ira Carnahan
802 words
16 April 2001
Forbes
087
English
Copyright 2001 Forbes Inc.
Motherhood. Apple pie. Buying homes on margin. Dare we criticize them?
When Francine Little, a hotel room cleaner, bought a $125,000 three-bedroom house in Capitol Heights, Md., she thought it would mean a better life for her kids. Little had always rented apartments. But with the government insuring the mortgage, and with help from her mother, she got the house by putting just 6% down. Now, three years later, Little is facing foreclosure. Does she regret buying? "Sometimes," she sighs.
So does Lisa Smith. The summer day in 1997 when she and her three kids moved into a $129,000 house in Queens, N.Y. "was the best day in the world,"she told a Senate committee investigating lending abuses. But within two years Smith was forced to take out second and third mortgages to cover repairs. By the following year she had lost the house and filed for bankruptcy. "I hope this never happens to anyone else," she said. "Although my credit has been totally destroyed, I feel so much better that I left the house."
Low-income buyers are lured into what's promoted as the ultimate American dream. Then they're hit by the nightmares familiar to middle-class buyers: costly repairs, falling property values, unemployment. So they lose their dream homes, ending up worse off than if they had continued to rent. In some neighborhoods, 15% of Federal Housing Administration insured mortgages have gone into default or foreclosure within the first two years.
But you'd never know this by listening to America's politicians, who are forever promoting new programs to entice the poor to buy their own homes. President Bush, for example, has promised to start an American Dream Down Payment Fund. It sounds like a good idea: A federal subsidy could make up for the fact that tax deductions for homeowners don't do much for a person too poor to profitably itemize.
But the government does plenty already to push universal home ownership. The Federal Housing Administration lets borrowers take mortgages with less than 5% down. The Department of Veterans Affairs requires nothing. The Department of Housing & Urban Development leans on Fannie Mae and Freddie Mac, both federally chartered, to buy low-income mortgages. The Community Reinvestment Act pressures banks to lend in areas deemed "underserved." And then there is a vast public relations campaign, including home-buying fairs and advertising.
Underlying all this activity are two articles of faith: Home ownership is a safe investment, and what's good for the middle class must be good for the poor. Neither is true.
Just ask Sonia Pratts, who sank everything she had into a down payment on an $80,000 money pit in Hollywood, Fla. "My life and my husband's life have been devastated," she told a Senate committee. "We are just getting by on our paychecks and could never hope to make the needed repairs," she said. "My dream home is now a nightmare."
Even houses in good condition are risky. Over the past two decades 44 out of 51 states (including the District of Columbia) have seen five-year periods in which someone buying at the start would have lost money selling at the end, say Yale economists William Goetzmann and Matthew Spiegel in a recent study.
They note that while the volatility of housing prices may not appear overly high, the number understates the risk. Why? Price trends for houses, unlike those for stocks, carry over strongly year to year. "Once a local housing market drifts lower it may be a long time before it recovers," they write.
A little volatility can do a lot of damage to someone buying on margin, says Penn's Christopher Mayer. If a buyer puts down 2.5% and the house drops in value by 5%, what does he do if he needs to move? Just to sell the house he has to come up with new cash. If he doesn't have it, he may take a hike, leaving some bank or federal agency to take a loss while he takes a hit to his credit standing. Or he may hang in, struggling with payments and sticking around in a bad job market. Right there is a side effect of home ownership that Fannie Mae didn't tell you about: higher unemployment. A 1996 study by economist Andrew Oswald suggests that a 10% rise in home ownership leads to a 2% rise in unemployment.
Prosperous people have a habit of owning their homes and leasing their cars. Less prosperous families tend to do the reverse. They may have a better idea of what's good for them than the government does.
Document fb00000020010711dx4g000mq
| Factiva | Dow Jones & Reuters |
格老呼吁中小学开展理财教育
703 words 10 April 2001
信报 (简体)
Chinese - Simplified
(c) 2001
耶鲁的William Goetzmann教授和加州大学Philippe Jorion教授合作进行研究，统计了三十九个国际性股票市场由一九二○到一九九五年合共七十多年的数据，才得知期间这些市场合起来平均回报竟是负百分之零点二八（-0.28％）。
这就是说，在这期间如把一笔资金投进这些市场理论上全无收获，反赔掉本金百分之零点二八：当今的负资产阶层算是找到了些先行者？
The average return for the stock markets of the 39 countries that have been open since 1920 was -0.28 percent, their research has revealed. As reported by Wynn Quon, the professors believe that the superlative performance of North American stock markets and the U.S. market specifically is not typical of stock markets.
这两位教授的研究说明并不是凡是股市就一定长线看升。照其结论看来，北美股市，尤其美市，过去半个多世纪业绩卓著，仅仅反映了这个地区经济在二十世纪的勃兴（reflecting America's economic ascendancy during this period），可惜这骄人表现并非全球股市的典型代表。
每日美语知新–Americans "need to accumulate the appropriate knowledge on how to use new technologies and on how to make financial decisions in an informed manner, " Alan Greenspan said in an address to a Fed community affairs research conference on April 6. "Just as we have recognized how critical it is to demystify technology and to increase workers' comfort and familiarity with the new tools required for their success, so should we work to educate consumers on evaluating the broad array of products offered by financial service providers and to empower them to make the choices that contribute to their overall wellbeing, " he continued. The Fed chairman suggested that the education process start as early as possible. "Improving basic financial education at the elementary and secondary school level is essential" to help young people avoid poor financial decisions "that can take years to overcome, " he added.（Bloomberg）
格林斯平四月六日在联储局社区事务研究会议上说，美国人「需要积累如何使用新技术的知识，也需要积累如何作出明达的财务抉择的知识」。他表示：「我们已经认识到揭开科技神秘的面纱，提高员工对做好工作所需新型工具的熟练掌握程度都非常重要。同样的，我们也应该努力教育消费者如何评估财经行业提供的众多产品，帮助消费者提高抉择能力，以便选用能切实改善他们福祉的产品。」格林斯平认为开展理财教育愈早愈好，「由中小学的层次着手改善财务知识的基础教育有根本性的意义，」这样将能帮助年轻人避免作出不恰当的财务决定，因为这种不当决定一旦作出往往祸害连年。
佳句点朱圈．之三一三
Document HKEJCN0020010712dx4a007fl
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格老呼籲中小學開展理財教育
703 words 10 April 2001
信報
Chinese - Traditional
(c) 2001
耶魯的William Goetzmann教授和加州大學Philippe Jorion教授合作進行研究，統計了三十九個國際性股票市場由一九二○到一九九五年合共七十多年的數據，才得知期間這些市場合起來平均回報竟是負百分之零點二八（-0.28％）。
這就是說，在這期間如把一筆資金投進這些市場理論上全無收穫，反賠掉本金百分之零點二八：當今的負資產階層算是找到了些先行者？
The average return for the stock markets of the 39 countries that have been open since 1920 was -0.28 percent, their research has revealed. As reported by Wynn Quon, the professors believe that the superlative performance of North American stock markets and the U.S. market specifically is not typical of stock markets.
這兩位教授的研究說明並不是凡是股市就一定長線看升。照其結論看來，北美股市，尤其美市，過去半個多世紀業績卓著，僅僅反映了這個地區經濟在二十世紀的勃興（reflecting America's economic ascendancy during this period），可惜這驕人表現並非全球股市的典型代表。
每日美語知新–Americans "need to accumulate the appropriate knowledge on how to use new technologies and on how to make financial decisions in an informed manner, " Alan Greenspan said in an address to a Fed community affairs research conference on April 6. "Just as we have recognized how critical it is to demystify technology and to increase workers' comfort and familiarity with the new tools required for their success, so should we work to educate consumers on evaluating the broad array of products offered by financial service providers and to empower them to make the choices that contribute to their overall wellbeing, " he continued. The Fed chairman suggested that the education process start as early as possible. "Improving basic financial education at the elementary and secondary school level is essential" to help young people avoid poor financial decisions "that can take years to overcome, " he added.（Bloomberg）
格林斯平四月六日在聯儲局社區事務研究會議上說，美國人「需要積累如何使用新技術的知識，也需要積累如何作出明達的財務抉擇的知識」。他表示：「我們已經認識到揭開科技神祕的面紗，提高員工對做好工作所需新型工具的熟練掌握程度都非常重要。同樣的，我們也應該努力教育消費者如何評估財經行業提供的眾多產品，幫助消費者提高抉擇能力，以便選用能切實改善他們福祉的產品。」格林斯平認為開展理財教育愈早愈好，「由中小學的層次著手改善財務知識的基礎教育有根本性的意義，」這樣將能幫助年輕人避免作出不恰當的財務決定，因為這種不當決定一旦作出往往禍害連年。
佳句點硃圈．之三一三
Document hkej000020010712dx4a007fl
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美市货币供应量今春增长迅猛
614 words 9 April 2001
信报 (简体)
Chinese - Simplified
(c) 2001
Edgar Smith是早期主张长期购持股票出名的，上个世纪二十年代他所著《Common Stocks as Long-Term Investments》，如果不翻查纪录也不经人说破，我们会以为是今天新书的书名。
当代最有影响的要数Jeremy J. Siegel教授的《Stocks for the Long Run》，书局裹仍多的是他这两年才出的新版、更新版。
但叫人吃惊的是虽然新书仍在卖得欢，Siefel教授他自己其实已经修改了看法！尤其就在近月他已表示对美股的后续优绩不再抱有奢望。他觉得今后好一段时间美股回报比率也许仅为一个较低的单位数。
The oft-quoted studies that show stocks trumping all other types of investments have a build-in bias. This supposedly universal wisdom is based on the behavior of the U.S. market in the 20th century, writes Wynn Quon.
Wynn Quon表示，以往这种出名的研究本身具有一种偏向，因为它们依靠的是二十世纪美国市场的数据。
照耶鲁大学教授William Goetzmann的看法，二十世纪的美国财经历史反映的并非人类经济发展的常态，而是例外。不妨说，是幸运的例外。
每日美语知新–Money supply growth is surging, and some economists think that's exciting news for the economy. And if it's good for the economy, maybe the stock market won't do so badly, either. "Money（supply measuring）is not perfect. But it does have a 40-year track record that will beat just about anything else," said Paul Kasriel, head of economic research for Northern Trust. Kasriel admits his view is in a minority among economists. Many don't rely as heavily on money supply statistics as they once did.（Ken Hoover）
（美国资本市场的）货币供应量正在迅猛增长著，有些经济学者相信这对美国经济来说是令人鼓舞的好消息。如果货币供应增加对经济有利的话，那么往后股市的表现也许就不致太差。
「货币供应的测量工作还做得并不完美，但到底它已有四十年的纪录，比任何其他经济测量工具都来得长，」Norther Trust（北方信托）公司经济研究部门主管Paul Kasriel说。Kasriel承认在经济学界像他这样重视此项数据的人处于少数，很多经济学者现在已不如从前那样依赖货币供应数据。
佳句点朱圈．之三一二
Document HKEJCN0020010712dx49007am
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美市貨幣供應量今春增長迅猛
614 words 9 April 2001
信報
Chinese - Traditional
(c) 2001
Edgar Smith是早期主張長期購持股票出名的，上個世紀二十年代他所著《Common Stocks as Long-Term Investments》，如果不翻查紀錄也不經人說破，我們會以為是今天新書的書名。
當代最有影響的要數Jeremy J. Siegel教授的《Stocks for the Long Run》，書局裹仍多的是他這兩年才出的新版、更新版。
但叫人吃驚的是雖然新書仍在賣得歡，Siefel教授他自己其實已經修改了看法！尤其就在近月他已表示對美股的後續優績不再抱有奢望。他覺得今後好一段時間美股回報比率也許僅為一個較低的單位數。
The oft-quoted studies that show stocks trumping all other types of investments have a build-in bias. This supposedly universal wisdom is based on the behavior of the U.S. market in the 20th century, writes Wynn Quon.
Wynn Quon表示，以往這種出名的研究本身具有一種偏向，因為它們依靠的是二十世紀美國市場的數據。
照耶魯大學教授William Goetzmann的看法，二十世紀的美國財經歷史反映的並非人類經濟發展的常態，而是例外。不妨說，是幸運的例外。
每日美語知新–Money supply growth is surging, and some economists think that's exciting news for the economy. And if it's good for the economy, maybe the stock market won't do so badly, either. "Money（supply measuring）is not perfect. But it does have a 40-year track record that will beat just about anything else," said Paul Kasriel, head of economic research for Northern Trust. Kasriel admits his view is in a minority among economists. Many don't rely as heavily on money supply statistics as they once did.（Ken Hoover）
（美國資本市場的）貨幣供應量正在迅猛增長著，有些經濟學者相信這對美國經濟來說是令人鼓舞的好消息。如果貨幣供應增加對經濟有利的話，那麼往後股市的表現也許就不致太差。
「貨幣供應的測量工作還做得並不完美，但到底它已有四十年的紀錄，比任何其他經濟測量工具都來得長，」Norther Trust（北方信託）公司經濟研究部門主管Paul Kasriel說。Kasriel承認在經濟學界像他這樣重視此項數據的人處於少數，很多經濟學者現在已不如從前那樣依賴貨幣供應數據。
佳句點硃圈．之三一二
Document hkej000020010712dx49007am
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Highly contagious - World stockmarket contagion.
1,325 words 24 March 2001
The Economist
English
(c) The Economist Newspaper Limited, London 2001. All rights reserved
Highly contagious - World stockmarket contagion - Stockmarkets have plunged nearly everywhere, regardless of national economic prospects. Is there a new global virus in financial markets?
THE half-point cut in interest rates by America's Federal Reserve on March 20th was the third such cut this year. By past standards that counts as pretty aggressive monetary easing, but it does not seem to have satisfied stockmarket investors, who had hoped for a bigger cut. After the Fed's decision, Wall Street fell again, leaving the S&P 500 index down 27% from its peak last March. The Nasdaq has now lost more than 60% of its value. Moreover, the bears are out all over the world.
In the week before the Fed's rate cut, no fewer than 38 of the 40 stockmarkets tracked by The Economist fell. This week, 32 of them slid again. It is understandable that America's overvalued stockmarket should plunge once its economy started to slow. Likewise, the 35% fall in the Nikkei 225 over the past year reflects the sickly state of Japan's economy. European economies, on the other hand, are meant to be in much better shape. Household savings are comfortably high, and private-sector debt is more modest than in America. Though business confidence is dented, notably in Germany, a recession in Europe is not expected. Yet many European stockmarkets have fallen further from their peak last year than American shares (see table). Why the hammering?
Some economists think a new form of financial contagion is spreading, via stockmarkets, in a way similar (if slower) to that in which Asia's financial crisis in 1997-98 infected one economy after the other. If stockmarkets tumble in even healthy economies, then business and consumer confidence there can be hurt. Where American recessions used mainly to affect the rest of the world through trade, stockmarkets are now perhaps a more powerful channel.
There seem to be three main reasons for the plunge in European shares. One is that some European stockmarkets had climbed higher, and possibly become more overvalued, even than Wall Street. Between January 1995 and its peak last year, the S&P 500 rose by 233%; in local-currency terms, the markets in Germany and Sweden rose by 286% and 372%, respectively. (In dollar terms they rose somewhat less.) A year ago, the Nasdaq's valuations did indeed look crazy. But the price-earnings (p/e) ratios of European high-tech shares looked crazier still.
In part, this was because the choice of "new economy" shares was more limited in Europe than in America, while the demand for those shares at home was strong. Peter Oppenheimer, a strategist at HSBC, a global bank, calculates that (at their peak) high-tech shares in Europe were discounting an average real profit growth over the next ten years of 19% a year. That compared with 14% real growth for American high-tech shares. So it is hardly surprising that European stockmarkets have since tumbled.
But though the gap has closed, high-tech shares still seem to be discounting slightly faster profit growth in Europe than in America. For the broader market, shares in Europe now look more attractive than those in America, with lower p/e ratios.
A second reason why European shares seem to have parted from their underlying economies is that many large, European companies are exposed to demand in America. In 1999, for instance, 21% of the sales of European firms went to the Americas (north and south), up from 16% in 1998. Last year, that share was no doubt higher still, given the buying spree that European firms have enjoyed in the United States. According to Morgan Stanley, sales of European companies' American-based affiliates were four times as big as their exports in 1998 (the latest figures available). Now those sales are being squeezed. Figures from America's Department of Commerce show that the income of European firms' American affiliates fell by 20% in the year to the fourth quarter of 2000.
European firms' profits are also exposed to swings in the exchange rate of the euro against the dollar. Until now, the dollar has been strong. But if America actually went into recession, the greenback might weaken. That, in turn, would reduce the dollar profits of European firms when converted into local currency. Europe's multinationals are far from being immune to America's slowdown.
The third factor in the fall in European share prices is the longer-term evidence that stockmarkets are becoming more correlated with one another (see article). Research by William Goetzmann, an economist at the International Centre for Finance at Yale University, shows that during the 1990s the correlation between American and European share prices rose to its highest this century - except for during the Great Depression.
Some increased correlation is the inevitable effect of greater cross-border movements of capital and technology. Yet in times of crisis, correlations tend to get closer. Current unease in financial markets has eroded investors' appetite for risk, encouraging them everywhere, not just in America, to shift from equities into safer bonds. And in America, as share prices tumble, the risk models used by financial institutions also force them to sell overseas equities to reduce the overall riskiness of their portfolios. This also helps to explain the otherwise puzzling rise of the dollar of late.
Chain reactions
Not only do stockmarkets move more closely together these days; worldwide, stockmarket capitalisation counts for more, as a proportion of world GDP, than it used to. The $10 trillion of paper wealth that has been destroyed worldwide over the past year accounts for about 30% of world GDP. Never has so much been lost in such a short time.
Still, stockmarkets are only one of several new forces of potential contagion in a more globalised era. Traditionally, standard economic models judged the likely impact of an American recession on the rest of the world by focusing mainly on trade links. Today these models should worry Mexico and Canada, whose exports to America account for one-quarter and one-third of their GDP respectively. But Europe is relatively immune, through trade links, to an American recession. The EU's exports to America account for less than 3% of its GDP. However, as indicated above, this understates Europea's true exposure to the American market.
Another new way in which conventional trade links may underestimate the worldwide impact of an American downturn is the world-girdling supply chain in information technology (IT). East Asian economies, which are big IT producers, may be particularly exposed. America's boom in IT spending pulled in lots of imports from Asia, and helped the region to recover from its crisis in 1997-98. But as America's boom turns to bust, IT imports are likely to collapse, hitting Asia harder than in past American downturns. Growth forecasts through the region are being chopped. South Korea's GDP actually fell in the fourth quarter.
According to Andy Xie, at Morgan Stanley in Hong Kong, IT equipment accounts for well over half of Taiwan's and South Korea's exports to America and 80% of Malaysia's. The bank forecasts that growth in America's total imports will slow from 14% last year to only 1% this year. That would be the sharpest deceleration in import growth in almost two decades. The slump in America's imports of IT equipment will be even sharper. Recent Asian data suggests that the region's exports of IT equipment to the United States have already fallen by 15% over the past year. Japanese firms are also slashing their IT budgets. America and Japan together account for almost half of East Asia's total exports. It is through the complex of cross-border IT supply chains, and through more integrated financial markets, that a more virulent sort of global virus might travel.
Document EC00000020030605dx3o0002t
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DJ 投资提示﹕道琼斯指数下跌 熊市说大行其道
1,657 words 20 March 2001
09:20 pm
道琼斯中文财讯 (简体)
Chinese - Simplified
(c) 2001
按照一个有上百年历史的学说﹐目前市场深深陷在熊市之中﹐而这在1999年下半年就开始了。
纽约（道琼斯）--华尔街上的熊市论者可能还有一项论据可支持自己的悲观观点。
上周﹐近期科技股的狂跌浪潮波及蓝筹股和周期性运输类股﹐证实了一个古老的学说﹐这一学说标志著市场已深陷熊市﹐且还会继续恶化。
所谓的“道氏理论”(Dow Theory)认为﹐如果道琼斯运输业股票价格平均指数(Transportation Average)和道琼斯工业股票平均价格指数(DJIA)双双降至新低﹐则证实整个大盘都在走下坡路。
真是这样吗﹖并不是所有人都这么想。
摩根士丹利添惠(Morgan Stanley Dean Witter, 又名﹕摩根士丹利丁威特)的技术策略师乔纳森．杜德(Jonathan Dood)说﹕“在最近一二十年来﹐这样的信号都是延后发出的。等到我们收到信号的时候﹐它对我们已经没有用处了。”
即使是该理论的信徒﹐对于如何解释这一现象﹐他们之间仍存在分歧。例如﹐Dow Theory Letters Inc.的编辑兼出版商理查德．罗素(Richard Russell)认为﹐熊市于1999年9月就已降临。《道氏理论预测法》(Dow Theory Forecast)的编辑理查德．莫罗尼(Richard Moroney)认为应该是1999年10月。
该理论的大多数支持者认为华尔街陷入熊市已经有一年多了。这一理论是以道琼斯公司(Dow Jones & Co.)创始人之一查尔斯．道(Charles Dow)的著作为基础的﹐不过道本人从来没有支持过这一观点。
罗素认为﹐道琼斯指数和道琼斯运输业指数在上周的大幅下挫表明﹐这两项指数还会走低﹐而且﹐像标准普尔500种股票指数这样反映大盘走势的指数还会下滑。
上周四﹐这两项指数都温和上扬﹐部分收复失地。道琼斯运输业指数打破连续4个交易日下滑﹐回升了22.11点﹐以2703.01点报收﹐涨幅0.8%。道琼斯指数重返10000点﹐收于10031.28﹐上升57.82点﹐升幅达0.6%。
但就整周而言﹐两项指数均呈下降之势﹐跌幅分别为8.1%和5.8%。
即便如此﹐它们现在的点数还远不至于再次引起“道琼斯理论“信徒的警觉。
莫罗尼说﹐下一个心理警戒点位是道琼斯交通业指数跌至2263.59点﹐道琼斯指数跌至9796.03点﹐这是2000年3月8日这两项指数在经历了之前的沽售后所达到的收盘点数。
截至上周四收盘时﹐道琼斯运输业指数比这一水平高440点﹐道琼斯指数还高出235点左右。
美林(Merrill Lynch)的高级国际市场分析师沃尔特．墨菲(Walter Murphy)说﹕“我们离崩溃还有一段路呢。”
莫罗尼认为﹐在这两大指数于2000年3月创下低点之前﹐它们在1999年10月都发出了“卖出信号”──当时﹐道琼斯指数跌破了其关键的支撑点位﹐而道琼斯运输业平均指数一早就创下了新低。
莫罗尼说﹕“根据我们对道琼斯理论的理解﹐最后一个重要的信号是出现在1999年10月﹐那是一个进入熊市的信号。”他每周的投资建议都是以该理论为基础的。
莫罗尼指出﹐即使截至去年此时﹐两项指数自1999年10月以来的下跌之势被止住了﹐但之后它们的上涨幅度有限。按照该理论﹐这意味着熊市还没有结束。
他说﹕“我们还处在熊市中﹐我们需要判断现在的熊市是否会持续下去。如果这两个指数跌破去年3月份的低点﹐就有理由这样认为了。”
如今﹐许多市场观察家认为这个有百年历史的理论过时了。A.G. Edwards & Sons Inc.的首席市场策略师艾尔．戈德曼(Al Goldman)认为﹐它“早在40年前就寿终正寝了”。
戈德曼更相信威尔希尔5000指数､纽约证券交易所综合指数和标准普尔500指数这些反映市场大盘趋势的指数。
但一些研究表明﹐道琼斯理论比那种久经考验的买进-持有策略更加可靠。
耶鲁大学(Yale University)管理学院(School of Management)最近进行了一项研究﹐执笔人之一威廉．戈兹曼(William Goetzmann)说﹐这一研究表明﹐在1930年到1997年之间﹐按照道理论指示的时机买卖股票﹐其业绩平均每年要比在买进-持有策略指导下获得的投资业绩高出2%。
不管这一理论是否正确﹐现在﹐交通类股表现不佳。
上周﹐美国最大的4家航空公司和各大运输企业接连发布第一季度的利润预警﹐给道琼斯运输业指数以重创。
联合航空公司(United Airlines)的母公司UAL Corp. (UAL)､美利坚航空公司(American Airlines)的母公司AMR Corp. (AMR)､达美航空公司(Delta Air Lines, DAL)和西北航空公司(Northwest Airlines, NWAC)上周都警告说﹐第一季度的收益会大大低于分析师预期值﹐部分原因是商业旅行的需求减少。
美国十大航空公司中有6家在本季度发布收益预警﹐而且其中只有大陆航空公司(Continental Airlines Inc., CAL)和美国西南航空(Southwest Airlines Co., LUV)两家预计会有盈利。
所罗门美邦(Salomon Smith Barney)航空业分析师布赖恩．哈里斯(Brian Harris)说﹕“航空公司的表现往往会滞后于经济指数﹐它们现在才开始感受到经济减速的伤害。”
在货运业﹐CNF Inc. (CNF)､Roadway Express Inc. (ROAD)､M.S. Carriers Inc. (MSCA)和Knight Transportation Inc. (KNCT)上周指出﹐第一季度收益会达不到预期。
美银证券(Banc of American Securities LLC)的货运和物流业分析师彼得．科尔曼(Peter Coleman)在报告中写道﹕“现在投资货运类股为时尚早。经济的不景气对这些周期性股票会产生更持久的影响。”
By Sonoko Setaishi
Of DOW JONES NEWSWIRES
Document DJNCCN0020010713dx3l002gd
| Factiva | Dow Jones & Reuters |
DJ 投资提示﹕道琼斯指数下跌 熊市说大行其道
1,651 words 19 March 2001
02:33 am
道琼斯中文财讯 (简体)
Chinese - Simplified
(c) 2001
按照一个有上百年历史的学说﹐目前市场深深陷在熊市之中﹐而这在1999年下半年就开始了。
纽约（道琼斯）--华尔街上的熊市论者可能还有一项论据可支持自己的悲观观点。
上周﹐近期科技股的狂跌浪潮波及蓝筹股和周期性运输类股﹐证实了一个古老的学说﹐这一学说标志著市场已深陷熊市﹐且还会继续恶化。
所谓的“道琼斯理论(Dow Theory)”认为﹐如果道琼斯运输业股票价格平均指数(Transportation Average)和道琼斯工业股票平均价格指数(DJIA)双双降至新低﹐则证实整个大盘都在走下坡路。
真是这样吗﹖并不是所有人都这么想。
摩根士丹利添惠(Morgan Stanley Dean Witter, 又名﹕摩根士丹利丁威特)的技术策略师乔纳森．杜德(Jonathan Dood)说﹕“在最近一二十年来﹐这样的信号都是延后发出的。等到我们收到信号的时候﹐它对我们已经没有用处了。”
即使是该理论的信徒﹐对于如何解释这一现象﹐他们之间仍存在分歧。例如﹐Dow Theory Letters Inc.的编辑兼出版商理查德．罗素(Richard Russell)认为﹐熊市于1999年9月就已降临。《Dow Theory Forecast》的编辑理查德．莫罗尼(Richard Moroney)认为应该是1999年10月。
该理论的大多数支持者认为华尔街陷入熊市已经有一年多了。这一理论是以道琼斯公司(Dow Jones & Co.)创始人之一查尔斯．道(Charles Dow)的著作为基础的﹐不过道本人从来没有支持过这一观点。
罗素认为﹐道琼斯指数和道琼斯运输业指数在上周的大幅下挫表明﹐这两项指数还会走低﹐而且﹐像标准普尔500种股票指数这样反映大盘走势的指数还会下滑。
上周四﹐这两项指数都温和上扬﹐部分收复失地。道琼斯运输业指数打破连续4个交易日下滑﹐回升了22.11点﹐以2703.01点报收﹐涨幅0.8%。道琼斯指数重返10000点﹐收于10031.28﹐上升57.82点﹐升幅达0.6%。
但就整周而言﹐两项指数均呈下降之势﹐跌幅分别为8.1%和5.8%。
即便如此﹐它们现在的点数还远不至于再次引起“道琼斯理论“信徒的警觉。
莫罗尼说﹐下一个心理警戒点位是道琼斯交通业指数跌至2263.59点﹐道琼斯指数跌至9796.03点﹐这是2000年3月8日这两项指数在经历了之前的沽售后所达到的收盘点数。
截至上周四收盘时﹐道琼斯运输业指数比这一水平高440点﹐道琼斯指数还高出235点左右。
美林(Merrill Lynch)的高级国际市场分析师沃尔特．墨菲(Walter Murphy)说﹕“我们离崩溃还有一段路呢。”
莫罗尼认为﹐在这两大指数于2000年3月创下低点之前﹐它们在1999年10月都发出了“卖出信号”──当时﹐道琼斯指数跌破了其关键的支撑点位﹐而道琼斯运输业平均指数一早就创下了新低。
莫罗尼说﹕“根据我们对道琼斯理论的理解﹐最后一个重要的信号是出现在1999年10月﹐那是一个进入熊市的信号。”他每周的投资建议都是以该理论为基础的。
莫罗尼指出﹐即使截至去年此时﹐两项指数自1999年10月以来的下跌之势被止住了﹐但之后它们的上涨幅度有限。按照该理论﹐这意味着熊市还没有结束。
他说﹕“我们还处在熊市中﹐我们需要判断现在的熊市是否会持续下去。如果这两个指数跌破去年3月份的低点﹐就有理由这样认为了。”
如今﹐许多市场观察家认为这个有百年历史的理论过时了。A.G. Edwards & Sons Inc.的首席市场策略师艾尔．戈德曼(Al Goldman)认为﹐它“早在40年前就寿终正寝了”。
戈德曼更相信威尔希尔5000指数､纽约证券交易所综合指数和标准普尔500指数这些反映市场大盘趋势的指数。
但一些研究表明﹐道琼斯理论比那种久经考验的买进-持有策略更加可靠。
耶鲁大学(Yale University)管理学院(School of Management)最近进行了一项研究﹐执笔人之一威廉．戈兹曼(William Goetzmann)说﹐这一研究表明﹐在1930年到1997年之间﹐按照道理论指示的时机买卖股票﹐其业绩平均每年要比在买进-持有策略指导下获得的投资业绩高出2%。
不管这一理论是否正确﹐现在﹐交通类股表现不佳。
上周﹐美国最大的4家航空公司和各大运输企业接连发布第一季度的利润预警﹐给道琼斯运输业指数以重创。
联合航空公司(United Airlines)的母公司UAL Corp. (UAL)､美利坚航空公司(American Airlines)的母公司AMR Corp. (AMR)､达美航空公司(Delta Air Lines, DAL)和西北航空公司(Northwest Airlines, NWAC)上周都警告说﹐第一季度的收益会大大低于分析师预期值﹐部分原因是商业旅行的需求减少。
美国十大航空公司中有6家在本季度发布收益预警﹐而且其中只有大陆航空公司(Continental Airlines Inc., CAL)和美国西南航空(Southwest Airlines Co., LUV)两家预计会有盈利。
所罗门美邦(Salomon Smith Barney)航空业分析师布赖恩．哈里斯(Brian Harris)说﹕“航空公司的表现往往会滞后于经济指数﹐它们现在才开始感受到经济减速的伤害。”
在货运业﹐CNF Inc. (CNF)､Roadway Express Inc. (ROAD)､M.S. Carriers Inc. (MSCA)和Knight Transportation Inc. (KNCT)上周指出﹐第一季度收益会达不到预期。
美银证券(Banc of American Securities LLC)的货运和物流业分析师彼得．科尔曼(Peter Coleman)在报告中写道﹕“现在投资货运类股为时尚早。经济的不景气对这些周期性股票会产生更持久的影响。”
By Sonoko Setaishi
Of DOW JONES NEWSWIRES
Document DJNCCN0020010713dx3j002f2
| Factiva | Dow Jones & Reuters |
GLOBAL INVESTING - $1.2m donation for market research NEWS DIGEST.
By ALISON BEARD.
219 words
14 March 2001
Financial Times
English
(c) 2001 Financial Times Limited. All Rights Reserved
$1.2m donation for market research
An anonymous donor has given $1.2m to the International Center for Finance at the Yale School of Management to fund research on stock market history.
The gift - a $950,000 grant and a $250,000 "challenge" which would match other donations to the center - will be used to publish a volume on financial innovation, to establish a research collection of historical financial securities and to develop a database of global market prices.
"We are tying historical research to the new technology for data distribution - something like the Human Genome Project only for financial data," said William Goetzmann, ICF director.
For example, a record of the London Stock Exchange from 1871 to 1930, which exists only in hard copy, will be transferred to an electronic database that can be charted and analysed. Once finished, it will be open to the public.
"Our plan is to allow researchers from all over the world to download detailed stock market prices and records from the ICF website and to augment it with their own collection," Prof Goetzmann said.
The ICF, which opened in 1999, is dedicated to the study of long-term global market development and the evolution of financial instruments and contracts.
Document ftft000020010715dx3e00gkq
| Factiva | Dow Jones & Reuters |
GLOBAL INVESTING - $1.2m donation for market research NEWS DIGEST.
By ALISON BEARD.
219 words
14 March 2001
Financial Times
English
(c) 2001 Financial Times Limited. All Rights Reserved
$1.2m donation for market research
An anonymous donor has given $1.2m to the International Center for Finance at the Yale School of Management to fund research on stock market history.
The gift - a $950,000 grant and a $250,000 "challenge" which would match other donations to the center - will be used to publish a volume on financial innovation, to establish a research collection of historical financial securities and to develop a database of global market prices.
"We are tying historical research to the new technology for data distribution - something like the Human Genome Project only for financial data," said William Goetzmann, ICF director.
For example, a record of the London Stock Exchange from 1871 to 1930, which exists only in hard copy, will be transferred to an electronic database that can be charted and analysed. Once finished, it will be open to the public.
"Our plan is to allow researchers from all over the world to download detailed stock market prices and records from the ICF website and to augment it with their own collection," Prof Goetzmann said.
The ICF, which opened in 1999, is dedicated to the study of long-term global market development and the evolution of financial instruments and contracts.
Document ftft000020010715dx3e00fjt
| Factiva | Dow Jones & Reuters |
Unwise Wisdom:
Buying a house is better than renting
By Andrew Nieland
2,102 words
29 January 2001
The Wall Street Journal
R12
English
(Copyright (c) 2001, Dow Jones & Company, Inc.)
Buying a house is the biggest investment most people will ever make. That's not to say it's the best investment. Indeed, for many it may not even be a good one.
Contrary to popular opinion, renting can often be the better alternative, especially if there's a chance you'll stay put less than five years, and if renting can free up cash for investing in stocks or bonds -- assets that studies have shown increase in value faster than a home. Renting also means no exposure to falling values should the property market turn. A house can be difficult and expensive to sell under any circumstances, and an owner's entire investment can be wiped out if the home's value has fallen even slightly. Nor are the supposed tax benefits of paying a mortgage necessarily all they're cracked up to be.
To be sure, there are a lot of good nonfinancial reasons to buy a house. Psychologically, it can create a sense of responsibility, a feeling of permanence -- and it can force the buyer to save money that he or she might otherwise spend.
And certainly the potential for a big return is there. But it is far from guaranteed. How much is your home's value likely to grow over time? "Less than you'd expect," says William Goetzmann, director of the International Center for Finance at Yale University's School of Management. Prof. Goetzmann recently completed a study of how the value of homes in 12 U.S. cities performed from 1980 to March 1999, compared with stocks, bonds and Treasury bills. The results were surprising: Stocks appreciated an average total return of 18% a year over the period, and bonds posted a total return of 11% a year. Houses averaged an annual return of 4% to 5%. "In many cities," Prof. Goetzmann says, "homes underperformed Treasury bills," which averaged 6% a year.
Critics might counter that the period covered by the study was an exceptional one for financial markets, and that in coming years buying a home could compare much more favorably with stocks, particularly considering that the Dow Jones Industrial Average last year fell 6.2%.
Some also argue that returns on buying a home get a boost from the power of financial leverage. If you purchase your home with borrowed money, as most people do, you invest only a percentage of the asset's value -- but you stand to profit on the appreciation of the whole asset. So if you make a 20% down payment on a $200,000 house, and you sell it in five years for $220,000, you've gained $20,000 (not including interest payments), a 50% return, even though the asset appreciated only 10%. That's not bad, even after you pay off your real-estate agent.
But be forewarned: Leverage is a double-edged sword. If the same home lost 5% of its value and you suddenly had to move, you'd sell for $190,000 and end up losing 25% of your original investment.
What about taxes? Mortgage interest and property taxes are tax-deductible, making tax savings one of the biggest boons of homeownership. But this boon can be overstated.
If a married couple files jointly in the 28% tax bracket and pays $20,000 in mortgage interest and property taxes in a given year, it might seem that they could save $5,600 annually by deducting that interest. But this is only true if their other itemized deductions exceeded the standard deduction of $7,350. If not, they would save only 28% of the difference between $20,000 and the $7,350 standard deduction, or $3,542. Had they overlooked the impact of the standard deduction, they would have overestimated their annual tax saving by more than $2,000. Finally, bear in mind that interest deductions peak in the first year of a mortgage. As you chip away at the principal, you pay less interest each year, reducing your annual tax saving.
However, the tax case for home ownership has improved in recent years, thanks to a 1997 law that virtually eliminates taxes on capital gains from the sale of a home. Married couples filing jointly can exclude up to $500,000 of gains from taxation, and singles can exclude $250,000. To qualify for the full exemption, you must have owned the home and lived in it as your primary residence for at least two of the five years prior to the sale.
A lot of people claim that paying a mortgage lets you build equity, saving money that would otherwise be spent on rent. In the long run, this is true: After 30 years of mortgage payments, you've earned a house, while after 30 years of renting, you've earned nothing but your landlord's gratitude. But in the short term, the large amounts of interest payments that whittle away at your tax bill also reduce the amount of equity you're building. Michael Schill, a professor of law and urban planning at New York University, says, "A lot of people think of paying rent as burning money, but if you do the numbers very carefully, you'd be surprised how little of the mortgage you've paid off in five years." And most experts say the average homeowner moves every five to seven years.
Consider a 30-year mortgage on a $200,000 house at 8%. After five years, you'd have made roughly $90,000 in mortgage payments. Of that, nearly $80,000 would have gone to pay interest, meaning you'd have paid down only about $10,000 of the principal. So if you sold the house for $200,000 at this point and paid off the remaining $190,000 on your mortgage, you'd have a $10,000 gain -- assuming that you would have otherwise spent that $90,000 on rent -- even if your house's value didn't change. But a small amount of depreciation, or just the cost involved in selling a home, could be enough to wipe out this gain. Despite the "equity building" argument, the appreciation of your property is the most important determinant in the success of your home as an investment.
There are other factors that make home ownership riskier than is commonly believed. Because each house is unique, and because decisions to buy and sell houses can be very emotional, it is hard to determine what a home is actually worth, and, therefore, what to pay for it. The chance of a wide gulf between what you pay and what something is worth is called "price risk," and it's pretty significant in the housing market. As Prof. Goetzmann says, "It's not unusual to see a 5% difference between the price paid and the `fundamental value' of a house. With stock, the bid-ask discrepancies are never that vast."
Selling your home is time-consuming, expensive and, short of a home-equity loan, the only way to get your money out of a house once you've bought it. Usually, when you tie up your money this way, there's a higher return built in -- banks, for example, will pay more interest on longer-term CDs. The illiquidity of a house lacks this built-in benefit.
A home investment also lacks diversification. Dumping most of your cash into a single stock and hoping it takes off might seem a foolhardy strategy. But in some ways, that's what a lot of home buyers do. "An individual stock is more volatile than a given home on a whole, but you protect yourself by buying an index fund, or multiple stocks," says Eric Belsky, director of Harvard's Joint Center for Housing Studies, "You can't buy into a house index."
Buying can also make more or less sense based on where you live.
"Buying and renting markets are not perfectly efficient," says Prof. Goetzmann, so local markets could favor buyers or renters depending on the relative supply and demand of owner and rental units. Statistics compiled in November 2000 by Runzheimer International, a Rochester, Wis., consulting firm specializing in travel and living costs, demonstrate this point: On average, it costs around 30% more to buy a given home in New York than in Denver, while the rental cost for comparable properties is 84% higher in New York, suggesting that the New York market favors buyers and the Denver market favors renters. In general, the best way to figure out which group your location favors is to price comparable sale and rental properties and calculate the comparable living costs over a five-year or 10-year period.
Ultimately, two factors tend to outweigh all the other risks and benefits of buying a home -- time and appreciation. Holding a house for a long time spreads out the high transition costs of buying and selling, and also affords greater stability in monthly payments. "When you own a house," says NYU's Prof. Schill, "the biggest cost element is the mortgage, which is controllable. There's an element of security, particularly if you have a fixed-rate mortgage. If you're renting, you're at the mercy of your landlord, and you're likely to pay more and more each year."
Similarly, holding onto your home gives you a greater ability to ride out cycles in the housing market, making it easier to sell your home for more than you paid for it. On average, according to calculations by Harvard's Joint Center for Housing Studies, if you buy a $120,000 home on a 30-year, fixed-rate 8% mortgage, and its value remains stable, you'd show only a 12% return -- the difference between the sale price and the amount still owed on the mortgage -- after 10 years. If you sold after only five years, you'd actually lose about 19% of your investment because you would have paid off less of the principal.
Now, if the same house appreciated 5% annually, you'd more than triple the value of your investment after year 10, but that type of appreciation requires excellent timing; you need to buy near the bottom of a housing cycle and ride it all the way to the top. A more conservative appreciation rate of 3% would leave you around 50% ahead after five years. By contrast, if you had rented and put that $24,000 down payment into Treasury bills at 6%, after five years you'd be up about 25% after paying capital-gains taxes. Ultimately, it's a personal choice whether the chance of that additional gain justifies the greater risk.
Does this make the two-thirds of Americans who own their homes rubes? Not really. As anyone who has ever tried to sleep in a mutual fund can attest, there are compelling nonfiscal reasons to buy a house, ranging from stability and freedom to renovate to the flush of pride that comes from living "the American dream." But experts unanimously recommend that you let these factors -- not visions of financial windfall -- be your guide.
"Buy because you think that's the more desirable living arrangement," says Mark Obrinsky, chief economist of the National Multi-Housing Council in Washington, D.C. "Given that the return on your financial investment is uncertain," he says, "I wouldn't make gains the linchpin of my decision."
---
Mr. Nieland is a reporting assistant for The Wall Street Journal in New York.
---
Journal Link: Join a discussion about buying vs. renting a home in the online Journal at WSJ.com
---
Building a Nest Egg?
How returns on a 20% home down payment can vary depending on rate of
appreciation and holding period*
Holding Cash Percentage
Period Return* Return
No Annual Appreciation
1 year -$8,588 -36%
3 years -6,684 -28
5 years -4,463 -19
10 years 2,841 12
Annual Appreciation of 3%
1 year -$5,233 -22%
3 years 3,687 15
5 years 13,350 56
10 years 41,305 172
Annual Appreciation of 5%
1 year -$2,996 -12%
3 years 10,945 46
5 years 26,436 110
10 years 73,177 305
*Calculations are based on purchase of a median-priced home of
$120,000 and a 30-year fixed-rate mortgage of 8%. Fixed settlement
costs are $1,275, and variable costs are 6.8% of the sales price.
Includes paydown of loan principal.
*Less transaction costs
Source: Joint Center for Housing Studies, Harvard University
Document j000000020010711dx1t001o5
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Forget the Spread
Mesmerized by the narrow gap in rates, home buyers are flocking to
fixed-rate mortgages. For many, it's a mistake.
BY Ira Carnahan
826 words
22 January 2001
Forbes
142
English
Copyright 2001 Forbes Inc.
The spread between rates on fixed and adjustable mortgages is the smallest it has been in nearly two decades. For 30-year fixed-rate mortgages, the average rate is about 7.5%. For one-year adjustable-rate mortgages (ARMs), it's around 7%. So what do most home buyers do? Go with the fixed. Only about 15% of new mortgages these days are ARMs, compared with over half in the mid-1980s.
A fixed-rate mortgage insulates buyers from any increase in payments, in exchange for only a small extra cost. Sounds like a no-brainer. But it isn't.
"The market sets the price for these securities pretty well. There's no deal to be had here," says William Goetzmann, who directs the International Center for Finance at Yale University.
To see why, think about how short-term interest rates, like those on ARMs, are linked to long-term rates such as those on 30-year mortgages. Think of a 30-year loan as a series of 30 one-year loans, taken out one after the other. Why should a 30-year rate differ at all from a one-year rate? The 30-year rate reflects the market's forecast of rates on future one-year loans. If rates are expected to rise, the 30-year loan will be priced well above the current one-year rate. But if one-year rates are likely to drop, the rate on a 30-year loan may be much closer to that of a one-year. Long-term rates also reflect expected volatility: If wide swings in future rates seem likely, a 30-year mortgage must include a substantial "risk premium" to compensate lenders for the risk.
The small gap between fixed and adjustable loans today reflects a consensus that short-term rates will hold steady or fall. So home buyers shouldn't choose a 30-year loan based on the narrow gap versus an ARM. It's small for good reason.
While you get less of a discount for taking an ARM now than in the past, you also take on a lot less risk that rates will go up. In other words, an ARM is no better or worse a deal than it was when the spread between ARMs and fixed-rate mortgages was far greater.
Not convinced? Look at it from the point of view of mortgage lenders, says Columbia Business School professor Frederic Mishkin. "These guys who are issuing fixed-rate mortgages are not doing it to lose money," he says. "If they actually think interest rates are going to rise, then they're out of their minds to give you a fixed-rate mortgage."
Yale's Goetzmann agrees. "You're not getting a bargain," he says. "Your mortgage shouldn't be the tool you use to speculate on interest rates."
So how should you choose between a fixed and an ARM? Start with a few basic facts. ARMs come in several types, charging a low entry rate for a fixed period?one, three, five, seven or ten years?followed by annual adjustments based on short-term interest rates.
An ARM can be preferable to a 30-year fixed for three good reasons. First, you don't think you'll live in your house all that long; why pay 50 extra basis points ($1,500 a year on a $300,000 mortgage) to lock in a fixed rate for three decades if you'll be there only a few years?
Almost half the people who buy homes move within five years, says the National Multi Housing Council, a D.C. trade group. Douglas Duncan, chief economist at the Mortgage Bankers Association, estimates the average mortgage is held about five years, down from seven to nine years in the past.
A second reason to take an ARM is that it lets you qualify for a larger loan. When lenders decide how much to lend, they look at how big your monthly house payment will be as a percentage of your income. If it's going to be above 30% or so, they worry. An ARM can keep you from reaching this point, because with the lower initial rate you have lower payments. Of course, taking out a larger loan makes sense only if you can afford to pay it off.
The third reason to take an ARM is that you're willing to bear the risk that rates will go up, in return for a lower rate to start. (Your risk isn't unlimited; nearly all ARMs have a lifetime cap.)
Taking this risk is a smart way to pay less if you can handle it. If you can't ?if a big jump in payments would stretch you too far?go with the fixed.
Document fb00000020010711dx1m0009i
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Belgische aandelen bieden over periode van dertig jaar hoogste return ter wereld.
428 words 13 January 2001
De Financieel Economische Tijd
1
Dutch
(c) 2001 De Financieel-Economische Tijd Not available for re-dissemination
Brusselse beurs fors ondergewaardeerd
BRUSSEL (tijd) - Iemand die dertig jaar geleden 1 munteenheid belegde in Belgische aandelen en alle dividenden telkens herinvesteerde, had begin vorig jaar bovenop de inflatie 35 munteenheden bijeengespaard. Daarmee doet de Belgische beurs het ruim beter dan alle andere belangrijke markten. Die opmerkelijke vaststelling stond vorig jaar als voetnoot in een studie van de economen Philippe Jorion en William Goetzmann, en werd door KBC geactualiseerd.
Het model van Stefan Duchateau wijst op een sterke onderwaardering van de Brusselse beurs. Dat model is gebaseerd op de rente en de verwachte bedrijfswinsten en is erg betrouwbaar. Sinds midden 2000 ligt de modelcurve echter een stuk hoger dan de Bel20. Dat leidt stilaan tot koopgelegenheden.
De Belgische aandelen zullen die onderwaardering niet meteen wegwerken, meent Duchateau: De Brusselse beurs noteert traditioneel met een disagio. In 1998 en 1999 was dat volkomen terecht, vermits de rentegevoelige beurs een renteklim moest verwerken en heel wat sleutelbedrijven (Fortis, KBC, Barco, Real Software,...) slechte resultaten publiceerden.
Sindsdien zorgen andere elementen voor de tegenvallende Belgische beursprestaties, vervolgt Duchateau. De belangrijkste oorzaak is de geringe buitenlandse interesse. Dat is logisch: België neemt niet eens 1 procent van het globale aandelenaanbod voor zijn rekening. Buitenlanders hebben België niet nodig om hun portefeuilles te diversifiëren, terwijl Belgen het buitenland uiteraard wél nodig hebben.
Voorts zijn er de typisch Belgische problemen van de geringe liquiditeit en het zwakke imago. Dat laatste zou ik niet overschatten. In 1996 en 1997 was Brussel een van de beste beurzen ter wereld, terwijl ons imago toen een dieptepunt bereikte, herinnert Duchateau aan de Agusta-en Dutroux-periodes.
Waar klagen we overigens over? Brussel is de best presterende beurs ter wereld. De economen Philippe Jorion en William Goetzmann publiceerden in juni 1999 een studie over de returns over een lange termijn van 39 aandelenmarkten. Stefan Duchateau liet de studie actualiseren. En wat blijkt? Rekening houdend met de herbelegging van dividenden en gecorrigeerd voor inflatie verveelvoudigden Belgische aandelen sinds 1970 met factor 35. Alleen de Zweedse beurs komt enigszins in de buurt. De studie geeft hiervoor geen verklaring.
De prestatie is alleszins te danken aan het hoge dividendrendement in België. Zonder dividenden konden de Belgische aandelen van 1921 tot 1996 zelfs niet de inflatie bijbenen. Duchateau vermoedt dat die ongewoon hoge dividenduitkeringen te maken hebben met de typisch Belgische holdingstructuur. Hoe dan ook, de Belgische belegger van de vorige generatie mag niet klagen. PHu
Pagina 7: Stefan Duchateau (KBC) verwacht klim S&P500-index van 20 procent in 2001.
Document fetijd0020010712dx1d007ej
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The New Global Investor:
As frontiers vanish, opportunities are beckoning
BY CHRISTOPHER FARRELL
1,583 words
11 September 2000
Business Week
160
Number 3698
English
(c) 2000 McGraw-Hill, Inc.
Ah, the New Economy: Goods, capital, technology, labor, and information are traversing the globe as never before. Investing across borders, too, is easier than ever--and this still-nascent, worldwide economic transformation is rewriting the traditional rules of global investing.
Gone are the days when an investor could simply layer a few foreign stocks or funds, chosen to represent major countries or regions of the world, onto a portfolio of U.S. equities. Today's globetrotting investor looks for companies that are worldwide industry leaders--wherever they're headquartered. She's just as willing to buy Germany's Siemens and Sweden's Ericsson as America's Motorola or Qualcomm. ``The really interesting companies are world-class at what they do,'' says Greg Smith, chief investment strategist at Prudential Securities. ``The fact that they are American or Scandinavian is a side issue.''
The traditional global investor sought diversification, hoping that European shares, say, would take up the slack when U.S. markets slipped. But as companies go global and stock markets increasingly move in sync, picking stocks by country or region no longer offers that protection. Instead, investors must diversify across industries, especially in those sectors--telecommunications, technology, pharmaceuticals, energy--where globalization rules the day. ``The world has changed, and the industry dimension matters more now than the country dimension,'' says Stefano Cavaglia, head of equity strategy at Brinson Partners. XENOPHOBIA. Fortunately, investors have more choices than ever as they construct a global portfolio. Mutual-fund managers more and more are looking at investment research and stockpicking from a global perspective. Sector funds--mutual funds that specialize in technology, health care, and other major industry categories--span the globe (page 164). A relatively new type of security, the exchange-traded fund, is giving traditional country-specific closed-end funds a run for their money. Stockpickers can buy shares of more and more foreign corporations in the form of American depositary receipts (ADRs) sold on U.S. stock exchanges. The World Wide Web offers plenty of cyberspace portals for gathering information on investment prospects abroad (page 167).
Americans have always been xenophobic investors: Research indicates that you're more likely to buy stock in your own local telephone company than to invest in even another Baby Bell, let alone a European telecom. And in the last decade, U.S. investors have seen little to tempt them to cross borders. Why go abroad when the Standard & Poor's 500-stock index is posting average annual returns of 18%, vs. a mere 7% annual gain in the Morgan Stanley Capital International Europe Asia and Far East (EAFE) Index? Add on the risk of foreign blowups--remember the Mexican meltdown of 1994-95 and the Asian crisis of 1997-98?--and U.S. stocks seem especially comforting.
Yet investing internationally has paid off in other eras. The EAFE index posted 23% average annual returns from 1979 to 1989, outpacing the S&P 500's 17.6%. And global economic indicators point to greater opportunities for investing abroad. Global inflation is dormant, and growth remains strong: The Wall Street consensus forecast predicts 3.8% world growth this year and 3.2% in 2001.
Internal reforms in many countries promise to bolster growth. With the rise of international trade agreements, governments everywhere are opening their economies and deregulating industries. European integration has ignited a firestorm of mergers and acquisitions. China will benefit from joining the World Trade Organization, and much of developing Asia is racing to join the New Economy. Japan's economy is barely stirring, but its industrial giants remain among the most competitive companies in the world.
Multinational corporations everywhere are embracing U.S.-style restructuring and New Economy strategies. Mergers and acquisitions--all the rage in executive suites--are accelerating the trend toward global industry sectors. Consolidation within industries accounted for three-quarters of all cross-border mergers over the past two years, vs. half in the early 1990s, calculates Cavaglia of Brinson Partners. High-tech companies are especially global in their reach: 40% of Yahoo!'s customers are outside the U.S., while Finland's Nokia has a 37% share of the U.S. cellular market. LINKED MARKETS. But these same trends are undermining the traditional rationale for investing overseas: country diversification. Thanks to the rise of the Internet and a borderless world economy, national markets are sliding closer together. The correlation between the S&P 500 and Morgan Stanley's EAFE index has risen from 25% in 1995 to 78% this year--meaning that Wall Street and foreign bourses are now three times more likely to move in lockstep, according to the mutual fund company Rowe-Price Fleming International. Economists William Goetzmann of Yale and Phillippe Jorion of the University of California at Irvine point out that only twice in history--during the gold-standard days of the late 1800s and in the Great Depression--have markets been tied so tightly.
The 24-hour electronic worldwide stock market is especially powerful for technology, media, telecommunications, pharmaceuticals, and other truly global businesses. When America's tech-laden Nasdaq composite index rallies, so do Europe's Euro-tech index, Japan's Jasdaq, and Korea's Kosdaq. And when Finnish wireless giant Nokia shocked investors with lower-than-expected earnings on July 27, skittish investors hammered tech stocks worldwide. ``It is more of a global marketplace, and maybe one of the best examples is technology,'' says Nick Sargen, global market strategist for J.P. Morgan.
Investors can still reap the rewards of diversification--but doing so takes a smarter strategy. The first step is to divide up the equity share of your portfolio among industry sectors. If you're a typical investor with average risk tolerance, you should allocate a significant chunk of your stock dollars to technology, media, and telecom shares, which constitute some 40% of global equity market capitalization. Your global portfolio should also encompass financials, which make up 20% of the worldwide market and include such behemoths as Citigroup and Deutsche Bank. Cyclical services, like restaurants, account for another 10%; pharmaceuticals are 8%, basic materials, 5%, and so on. BRIGHT PROSPECTS. This sectoral approach does not rule out investing in U.S. companies. But even in New Economy areas that American companies dominate, there are some bright prospects to be discovered abroad. European companies Schlumberger and Gemplus are the world's largest makers of smart cards. Micronas, a Swiss/German company, developed the popular MP3 Internet music technology. Japan's NTT DoCoMo has the world's largest Internet cellular-phone network. Says Vince Fioramonti, international portfolio manager at Aeltus Investment Management: ``Investing internationally is a way of increasing your opportunity to invest with leading companies everywhere.''
Even if you invest mainly by industry, you'll want to allocate funds to the pursuit of country diversification. Legal, regulatory, and political variations among countries still count: Just look at Japan's stalemated politics, which is prolonging a decade of stagnation, vs. Germany's tax-slashing policies, which are expected to boost the country's growth rate from less than 3% this year to 3.5% in 2001. ``Specific country policies toward their currency and economies still have an impact,'' says Jeremy Siegel, finance professor at the Wharton School at the University of Pennsylvania.
To carry out your strategy, you can choose from among an array of tools. Mutual funds remain the most popular way to invest abroad, either by sector or by country or region. With funds, you get professional money managers, aided by equity analysts who specialize in understanding industries worldwide, to deal with unfamiliar markets and exotic locales. Global index funds are a relatively low-cost venue for investing abroad. The Vanguard Total International Stock Index invests in Europe, Asia, and emerging markets. The E*Trade Funds Global Titans Index Fund tracks the world's 50 biggest blue-chip firms, based on a Dow Jones index. MORE FUND OPTIONS. The global marketplace is more open to stockpickers these days, too. Finland's Nokia and Japan's Honda Motors are among the hundreds of foreign companies whose shares trade as ADRs on U.S. exchanges.
Wall Street is excited about exchange-traded funds, mutual funds that trade continuously through the day. You can buy single-country ETFs for 20 countries, ranging from Taiwan to Mexico and Germany, and new ones are being created all the time. Unlike the closed-end mutual funds traditionally used to invest in single countries, an ETF almost always trades close to its value of its underlying assets. And an ETF charges lower fees, because it's based on a country's stock index and doesn't employ professional stockpickers.
A compelling combination of economic and financial factors suggests that investing abroad is a better long-term strategy than ever. Look at it this way: Three decades ago, stocks worldwide were worth nearly $1 trillion--and America's markets accounted for two-thirds of that value. Today, the U.S. is less than half of a $32 trillion global market. In a world economy that's ever more tightly linked, the investment strategy of choice is a global one.
Illustration: Chart: GLOBAL MARKETS ARE GROWING FAST...SHRINKING THE
U.S.'s DOMINANCE...AND INTERNET USE ABROAD IS CATCHING UP, TOO CHARTS BY
ROGER KENNY/BW
Illustration: Chart: THE CASE FOR GLOBAL SECTOR INVESTING CHARTS BY
ROGER KENNY/BW
Document bw00000020010804dw9b003ir
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La peor pesadilla del especulador aficionado.
Por J.M.
1,227 words
23 April 2000
El País
Spanish
(c) Copyright DIARIO EL PAIS, S.L. http://www.elpais.es.
"Compra. Compra. No. Vende. No, no. Compra otra vez". Se mida como se mida, estas voces se oyen cada vez con más frecuencia en los mercados financieros de Estados Unidos: el ruido se está volviendo ensordecedor.
De media, cada una de las acciones de la Bolsa de Nueva York (New York Stock Exchange), sin contar el mercado de valores tecnológicos Nasdaq, cambió de manos una vez al año en 1999. En 1981, lo hacía una vez cada tres años. Y en 1974, el ritmo era una vez cada seis años.
Así que la gente está cada vez más disparada. El perfil del inversor que compra y vende con frecuencia desbocada, sin embargo, no está muy definido, ni siquiera para las autoridades bursátiles. Georges Ungeux, vicepresidente ejecutivo de la Bolsa de Nueva York, tiene dudas:
- No sabemos quiénes son. ¿Usted se ha econtrado a alguno estos días?
- No.
- Yo tampoco.
Para complicar las cosas, las acciones no sólo cambian de manos cada vez con más frecuencia, si no que su precio sufre variaciones, arriba y abajo, cada vez más brutales, una volatilidad que convierte a los mercados financieros en más inmanejables si cabe, como quedó meridianamente claro en las dos últimas semanas de turbulencias.
"En general", razona Ungeux, "esa gente se comporta siguiendo tendencias. Van ciegamente en una dirección. Cuando la tendencia cambia, ellos cambian súbitamente"
Pero un estudio reciente muestra que quizá esto no sea así del todo. Massimo Massa y William Goetzmann, dos economistas de la Yale School of Management, han seguido de cerca el comportamiento de 91.000 inversores particulares y sus conclusiones resultan sorprendentes: dos tercios consideran que a mayor volatilidad, más posibilidades de pescar buenas oportunidades, lo que implica que no siempre se sigue "ciegamente" la tendencia general.
En cualquier caso, el aumento de la volatilidad es cierto y resulta preocupante por varias razones: hace que la decisión de invertir sea más arriesgada y ensancha sus sacudidas a otros mercados (bonos, por ejemplo).
Ello, sin tener en cuenta otro problema: muchos de estos inversores particulares, animados ahora además por las facilidades de negociar acciones por Internet, sin pasar por las casas de valores tradicionales, están comprando en la Bolsa a crédito. Incontables anuncios en televisión animan a los estadounidenses a lanzarse al ruedo.
En uno de ellos, una serie de jóvenes de buen aspecto lanza un subliminal mensaje de anarquismo inconsciente (muy americano, por otra parte) y anima a seguir las intuiciones propias. "No confiamos en el Gobierno. No confiamos en las compañías. Apostamos por nosotros mismos".
El mecanismo es sencillo. El inversor solicita un crédito a su intermediario bursátil para comprar acciones, que en inglés se denomina margin debt. El año pasado, el volumen de estos créditos se disparó un 62% hasta un récord de 40 billones de pesetas (230.000 millones de dólares), casi la mitad de todos los bienes y servicios que produce España en un año.
"Aquí se pide prestado para comprar acciones", dice el vicepresidente de la Bolsa de Nueva York. "Sé que en Europa no es costumbre, pero en Estados Unidos está muy extendido". Cuando el mercado se da la vuelta, este mecanismo se convierte en una trampa mortal para el inversor. Si el valor de las acciones compradas a crédito cae por debajo de un determinado nivel, los intermediarios bursátiles levantan el teléfono (o envían un correo electrónico) a sus clientes: o se aporta más dinero o se venden las acciones. En algunos casos, de forma inmediata. Es lo que en inglés se denomina margin calls, la pesadilla de cualquier inversor aficionado.
Estas llamadas de alerta ejercen además un efecto perverso en el mercado. Porque se producen, evidentemente, cuando las acciones caen, no cuando suben.
Y de todos los inversores que reciben un toque de atención para que aporten más dinero un día de caídas generalizadas (como las que se han vivido en las dos últimas semanas, tanto en la Bolsa de Nueva York como en el Nasdaq), un porcentaje mínimo está en condiciones de rascarse más el bolsillo. La mayoría tienen que vender, en contra de su voluntad.El pasado 3 de abril, cuando se conoció la sentencia judicial desfavorable contra Microsoft, el Nasdaq cayó un 7,63%. Ese día, según varios intermediarios bursátiles, se realizaron un 50% más de estas llamadas que un día normal.
Al día siguiente, 4 de abril, en medio del pánico que se desató, el Nasdaq llegó a caer a media sesión más de un 13% (aunque luego se recuperó), con lo que muchos inversores se pillaron los dedos en la ratonera: hubo un 100% más de margin calls.
Lo peor es que todo está encadenado. La venta forzada de estas acciones arrastra el índice hacia abajo, lo que provoca que nuevos inversores se queden al descubierto. Nueva ronda de llamadas de alerta. Nuevas ventas. Siguen las caídas. Más margin calls. Un círculo vicioso.
Los efectos negativos de este fenómeno están todavía por evaluar, más allá de la desestabilización de los mercados financieros, y sus repercusiones en las Bolsas de todo el mundo.
"Además", añade Pablo Goldberg, uno de los vicepresidentes del banco ABN Amro, "hay que tener en cuenta lo que se denomina efecto riqueza. Mucha gente está gastando a cuenta de sus ingresos futuros, y un derrumbe en la Bolsa podría conllevar una contracción del gasto notable".
Las autoridades responsables de los mercados financieros se han mostrado debidamente preocupadas, pero sólo debidamente, y no parecen muy dispuestas a frenar este fenómeno.
Una manera de atajar la creciente avalancha de inversores endeudados sería endurecer las normas. Ahora, por ejemplo, un inversor puede mantener un portafolio que duplique o triplique el valor del dinero que ha pedido prestado, un porcentaje que varía según la confianza que cada intermediario bursátil otorgue al cliente.
Tanto el Nasdaq como la Bolsa de Nueva York podrían endurecer esos porcentajes, pero Ungeux, vicepresidente del principal mercado estadounidense, no lo cree conveniente.
"Si cambiásemos las normas ahora mismo, tal como está el mercado, y exigiésemos condiciones más duras", explica, "tendríamos un gran incremento de margin calls y podríamos desatar un pánico vendedor. Así que mejor no".
Pero si al creciente endeudamiento se le suma la volatilidad, también mayor cada día, el panorama se vuelve preocupante. Wall Street está hoy más sobrevalorado de lo que ha estado en los últimos 150 años, según Exhuberancia Irracional, un libro de Robert Shiller, profesor de Economía en Yale, que ha tomado el título prestado de la famosa ocurrencia del presidente de la Reserva Federal, Alan Greenspan, y que acaba de publicarse en Estados Unidos.
Shiller asegura en su libro que es imposible que "se dé un crash si el público general no se ha volcado previamente en el mercado", que es precisamente lo que está sucediendo últimamente, con las facilidades que Internet ofrece para comprar acciones.
Ungeux considera también que hay demasiada atención pública volcada en la Bolsa. "El mercado está muy afectado por toda esa atención; y perdone que se lo diga, parte de la culpa la tienen ustedes [los periodistas]. Hace cinco años, nadie se hubiera preocupado por la caída del Nasdaq".
Endeudamiento, excesiva atención pública y volatilidad, que vuelve a incrementarse, como sucedió poco antes de 1929 y 1987 (el último gran crash), según Shiller: la combinación no puede ser peor.
Diario El País Internacional, S.A., 2000.
Document elpais0020010807dw4n00kh2
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MUTUAL FUNDS REPORT: STRATEGIES
Monitoring Trades for the Good of a Fund
By MARK HULBERT
1,392 words
9 April 2000
The New York Times
Page 17, Column 2
English
c. 2000 New York Times Company
BIG BROTHER is watching. But don't worry, it's all for the good of your foreign stock fund.
In this case, the person doing the watching is one David Jones, a vice president at the FMR Corporation, parent of Fidelity Investments. His job includes tracking down investors who use a particular day-trading strategy that can damage the returns of funds that invest in foreign markets.
He's serious, too. ''We will find investors who try this kind of strategy and they will be asked to leave,'' Mr. Jones said in a telephone interview.
Many investors, no doubt, will be surprised to learn that anyone cares about their mutual fund trades, much less wants to watch them. But most fund companies -- not just Fidelity -- spend a lot to monitor the trading patterns of their investors. And, like Fidelity's Mr. Jones, they'll ask you to take your business elsewhere if they decide you're a day trader taking advantage of their funds.
A day trader can exploit many mutual funds because of how they calculate their net asset values -- the prices at which they can be bought or sold. With just a few exceptions, funds calculate their net asset values once a day, at 4 p.m. Eastern time, based on the closing trades of the securities they own. That method gives day traders a couple of unfair advantages -- and one that pertains particularly to foreign funds.
When foreign stock and bond funds based in the United States price themselves at 4 p.m., they are using prices that are hours out of date. Funds that invest in Japan, for example, are using prices that are fully 14 hours out of date. That's because the Japanese markets close at 2 a.m. Eastern time.
The stale pricing gives shrewd traders a chance at easy profit. All they have to do is find news in the 14-hour window that can be expected to move the Japanese stocks up or down, then buy or sell just before the close of the United States markets.
Imagine, say, that after the close of the Tokyo market on a particular day, OPEC announces that it will increase production sharply; as a result, the price of Dubai crude plunges. The news, of course, is bullish for the Japanese economy, because the nation depends completely on imported oil -- and it's almost a sure bet that the Nikkei 225 index will rise sharply when the next session opens. By buying, say, the Warburg Pincus Japan Growth fund in the United States at the net asset value at 4 p.m., a day trader can, in effect, buy Japanese stocks at the prices that existed before the OPEC announcement.
It is the closest that investors will probably ever come to being able to act on Will Rogers's famous advice: ''Buy some good stock and hold it till it goes up. If it don't go up, don't buy it.''
Of course, not every event is as sure a bet as an OPEC announcement when it comes to moving the Japanese market. But day traders have discovered that daily fluctuations in the Standard & Poor's 500-stock index work almost as well as an indicator. Much of what moves the S. & P. moves Japanese stocks, too. Movement in the S. & P. 500 on one day is often mimicked the next in the Nikkei 225.
Exploiting the correlation is simple. Buy a Japanese stock fund on days when the S. & P. 500 rises, and move to cash on days when the S. & P. drops.
How profitable can the strategy be? Plenty, according to research by two finance professors from the Yale School of Management, William Goetzmann and K. Geert Rouwenhorst, and one of their graduate students, Zoran Ivkovich.
They applied this simple strategy to 17 Japanese stock funds based in the United States from the beginning of 1990 through July 1998. Ignoring the effects of loads, or sales charges, for those funds that charge them, they found that the approach beat a buy-and-hold strategy by an average of nearly 27 percentage points a year, albeit without taking into account taxes or trading costs. Even better, risk was reduced sharply, because the strategy meant being in the market only about half the time.
But Professor Goetzmann and his colleagues didn't confine their research to Japanese funds. They applied the idea to nearly 400 foreign stock funds of various stripes based in the United States. Not surprisingly, the strategy was most profitable for funds whose stocks trade principally in markets, like Japan's, whose market hours don't overlap with those in New York. The strategy was only marginally profitable when applied to Latin America, whose market hours largely coincide with New York's.
The easy day-trading profits aren't free, however. The foreign funds' long-term shareholders pay for them -- to the tune of around $50 million a year, according to Professor Goetzmann's estimate.
The cost would no doubt have been greater, but the strategy has been relatively unknown -- at least until recently. Another mitigating factor has been fund company ''security officers'' like Fidelity's Mr. Jones.
But there is evidence that more day traders are slipping through the fund companies' defenses. Mr. Jones concedes that Fidelity has ''seen an increase in short-term trading of our international funds recently.'' And the Securities and Exchange Commission reports similar complaints from other fund families.
One way that day traders can escape detection is by investing through a mutual fund marketplace like Charles Schwab's OneSource, which gives them anonymity because Schwab pools all its customers' investments in a particular fund into one account. A bigger potential problem for the funds comes from corporate retirement plans, which not only aggregate all plan members into one account but also provide a tax-free vehicle for the day traders, removing a key drag on the strategy's profitability.
OneSource and other fund marketplaces charge a fee for short-term trading. But Professor Goetzmann has found that such fees do not cut profits enough to dissuade the day traders' moves. He says fees for round-trip transactions, buying and selling a fund, would have to total 30 to 45 basis points, or hundredths of a percentage point, to make the day-trading strategy unprofitable.
But on an investment of $100,000 or so through OneSource, for example, a round-trip transaction can cost as little as 3 basis points.
On March 1, Fidelity announced that in order to curtail short-term trading, it would begin imposing a redemption fee of 100 basis points on investments in its international stock funds that are held for less than 30 days. A number of other fund companies have announced their intentions to levy such fees, which are paid back into the funds themselves, compensating long-term shareholders for the costs of the day trading.
AN alternative solution for funds would be to calculate net asset values differently. Professor Goetzmann and his colleagues propose a complex solution that in effect ''freshens'' the stale prices of foreign stocks after trading has stopped in their home markets. They say funds already have the authority to use such a system, since the S.E.C. allows funds to use what is known as ''fair value pricing,'' in effect, determining the value of their holdings on a basis other than a stock's closing trades. The funds have used this method, although rarely, to price securities during times of foreign market turmoil.
Until funds adopt a procedure like Professor Goetzmann's, it may make sense for long-term investors to steer clear of any foreign stock fund that doesn't discourage short-term trading. Of course, front- or back-end loads, or sales charges, are one way to discourage such short-term trading, but they constitute another kind of price tag. No-load funds that charge redemption fees on short-term trades are far preferable.
Mark Hulbert is editor of The Hulbert Financial Digest, a newsletter based in Annandale, Va. His column on investment strategies appears every other week. E-mail: strategy@nytimes.com.
Cartoon (Randy Enos)
Document nytf000020010809dw4900ku2
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Wall Street busca um rumo dentro da bolha especulativa.
707 words 3 April 2000
Gazeta Mercantil
Portuguese
(c) 2000 Gazeta Mercantil S/A
Finanças & Mercados
3 de abril de 2000 - Desde que os principais índices do mercado financeiro atingiram o pico em janeiro, eles parecem ter perdido o senso de direção. A alta de 499 pontos em um único dia no índice Dow Jones Industrial, em 16 de março, foi apenas um indicador de uma volatilidade que se tornou cada vez mais familiar dos investidores, acostumados a pregões cada vez mais dramáticos. Oscilações de centenas de pontos em um só dia, com freqüência revertendo movimentos do dia anterior, se tornaram comuns na Nasdaq, a bolsa eletrônica repleta de ações de tecnologia.
Essa tendência de volatilidade, cada vez maior, é importante por vários motivos. Primeiro, segundo a The Economist, por que mostra o que está acontecendo em uma economia, nas mentes dos investidores, depois por que torna o investimento em ações uma atividade mais arriscada. Além disso, produz grandes efeitos em cadeia sobre os preços de outros títulos, como os bônus do Tesouro.
O recente aumento de volatilidade deve ser visto em seu contexto histórico. Como os mercados de ações subiram muito nos últimos anos, é de se esperar oscilações maiores no valor em pontos dos índices. William Schwert, economista na Simon School em Rochester, ressalta que, apesar do aumento de 499 pontos no índice Dow Jones ter sido seu maior avanço diário já registrado, em termos percentuais não ficaria entre as 35 principais altas desde 1885. Além disso, diz ele, a volatilidade está subindo de níveis historicamente baixos. Com um parâmetro de um século, segundo Shwert, a volatilidade não está tão elevada.
Isso pode ser verdade, mas a volatilidade aumentou a um ritmo suficiente para ter algumas grandes conseqüências. Para começar, tornou a aplicação muito mais arriscada para aqueles corajosos que preferem entrar e sair freqüentemente do mercado. No entanto, é discutível até que ponto os investidores ficam sensíveis a esse aumento de risco. Grandes investidores institucionais adotam estratégias de longo prazo que dão pouca importância, ou até nenhuma, para as oscilações diárias. E quanto aos investidores individuais? Segundo um novo estudo pelos economistas William Goetzmann e Massimo Massa, 20% dos 91 mil investidores individuais que eles estudaram reagiram coerentemente às mudanças em volatilidade. Estranhamente, no entanto, dois terços consideraram o aumento da volatilidade uma oportunidade para entrar no mercado.
Os economistas financeiros não sabem ao certo por que a volatilidade cresce e reflui, mas calculam que existem três causas comuns. Uma é que o apetite dos investidores por risco fica menos saciado. Outro é que existem muitas notícias contraditórias: os preços das ações estão reagindo às novas informações, que poderiam contar uma história diferente de um dia para outro. E uma terceira é que os investidores estão cada vez mais incertos sobre o verdadeiro valor das ações - e sobre partes diferentes do mercado.
Sem dúvida, os bancos de investimento destinam menos capital à negociação de ações, que seus acionistas consideram arriscada. Isso deixa os mercados com menos liquidez e, portanto, provavelmente mais voláteis. Philip Roth, analista do Morgan Stanley Dean Wittter, afirma que os investidores institucionais também têm culpa. Um possível culpado é o inflado setor de fundos de índice. Para manter suas carteiras valorizadas, eles precisam comprar ações quando os preços sobem e as vendem quando caem, amplificando a volatilidade.
Os chamados investidores em valor são uma causa adicional de volatilidade. Apesar de professarem investir somente em ações que são pechinchas, muitos deram-se tão mal e mergulharam em investimentos que, de outra maneira, teriam ficado distantes, notadamente das ações de tecnologia. Quando estas cambaleiam, eles as vendem prontamente, redirecionando seu dinheiro a investimentos com que se sentem mais à vontade. Tal comportamento ajuda a explicar porque a Nasdaq com muitas ações de tecnologia, e o Dow se moverem com tanta freqüência em sentidos opostos.
A volatilidade crescente pode indicar cenários até mais nocivos. Antes dos colapsos dos mercados de ações de 1929 e 1987, houve sensível aumento de volatilidade. Robert Shiller, autor de Exuberância irracional, um novo livro sobre mercado de ações e psicologia de investidor (ver abaixo), diz que a história pode não se repetir, mas nos EUA, a obsessão do público pelas ações nunca foi tão grande como agora.
(c) 2000 Gazeta Mercantil S/A.
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Wake-up call.
1,335 words 25 March 2000
The Economist
English
(c) The Economist Newspaper Limited, London [Year]. All rights reserved
New York
Share prices are becoming more volatile. Does it matter?
IT IS as if share prices were being set by the Grand Old Duke of York. Since America's main stockmarket indices peaked in January, they seem to have lost a sense of direction. But they have lost none of their sense of drama. The 499-point one-day rise in the Dow Jones Industrial Average on March 16th was merely indicative of a volatility that has become increasingly familiar. And hundred-point single-day moves, often reversing similar changes the day before, have become positively commonplace on Nasdaq, the electronic exchange stuffed with technology shares.
Greater volatility matters for several reasons. It sheds light on what is happening in an economy-and in the minds of investors. It makes investing in shares a riskier business. And it has big knock-on effects on the prices of other securities, such as bonds.
The recent rise in volatility should be seen in its historical context. Because stockmarkets have risen so much in recent years, you would expect bigger swings in the points value of the indices. William Schwert, an economist at the Simon School in Rochester, points out that, although a jump of 499 in the Dow was its biggest-ever daily points gain, in percentage terms it would not make the top 35 increases since 1885. Moreover, he says, volatility is rising from historically low levels. With a century-long yardstick, he says, it is "not ridiculously high".
That may be so, but volatility has increased fast enough to have some big consequences. For a start, it makes trading much riskier for those brave souls who favour frequent shifts into and out of the market. How sensitive investors are to this increased risk is debatable, though. Many big institutional investors pursue long-term strategies that pay little or no heed to day-to-day movements.
But what of individual investors? Cynics think that individual investors lack the intellectual wherewithal to understand a concept as sophisticated as volatility. But that is not entirely true, according to a new study by William Goetzmann and Massimo Massa, two economists*. They found that one in five of the 91,000 individual investors they studied responded consistently to changes in volatility. Oddly, though, two-thirds of these regarded increased volatility as an opportunity to move into the market.
Financial economists are unsure why volatility ebbs and flows, but they reckon there are three common causes. One is that investors' appetite for risk becomes less settled. Another is that there is a lot of contradictory news about: share prices are responding to new information, which might tell a different story from one day to the next. And a third is that investors are increasingly uncertain about the true value of shares-and about different parts of the market.
Certainly, investment banks are devoting less capital to trading,which their shareholders consider risky. This makes markets less liquid and, therefore, probably more volatile. Philip Roth, an analyst at Morgan Stanley Dean Witter, says that institutional investors are also to blame. One possible culprit is the ballooning index-fund industry. To keep their portfolios in line with their weightings, they have to buy shares when prices are rising and sell them when they are falling, amplifying volatility.
So-called value investors are a further cause of instability. Although they profess to invest only in shares that are cheap, many have done so badly with this strategy that they have dipped their toes into investments that they otherwise would not have touched with a bargepole, notably technology stocks. When these falter, they promptly sell, popping their money back into investments with which they feel more comfortable. Such behaviour helps to explain why the tech-heavy Nasdaq and the Dow have so often moved in opposite directions lately.
What of the other two causes? The current high volume of share trading suggests that there is plenty of disagreement and uncertainty about, rather than a lot of contradictory news. News more often moves prices without resulting in much trading volume, when its meaning is relatively clear. Yet now, on average, every share of every company listed on the New York Stock Exchange changes hands at a rate of once a year-compared with once every three years in 1981, and every six years in 1974.
There are good reasons to be less confident about how to value shares in general, and tech stocks in particular. The macroeconomic outlook is becoming harder to fathom. Worried about overheating (partly as a result of buoyant share prices), the Federal Reserve has been pushing up short-term interest rates. But many investors think that dot.com companies that have been driving overall prices higher will be little affected by rising interest rates since they have few debts. Old-economy firms have lots.
Which is another reason to fret about increased volatility in the stockmarket. There is a close connection between volatility in the overall market and spreads over government bonds that companies must pay for their debt (see chart). Intuitively, this makes sense: greater volatility in the stockmarket may mean that investors are less certain about firms' business outlook, and therefore their ability to service their debts.
Last year was a bad one for the corporate-bond market. Defaults were at their highest level since the recession of 1991. The outlook for this year is little better. Lea Carty of Moody's, a rating agency, expects defaults on junk bonds to exceed 6% at an annual rate later this year, compared with a historic average of 3.25%. This greater risk of default is linked to greater stockmarket volatility.
In fact, it is probably more complex than this. KMV, a credit-research firm, looks at the behaviour of a firm's share price to assess the likelihood of it defaulting. The firm reckons that the risk of default among the 9,000 or so non-financial American firms it tracks has doubled in the past 18 months. This seems odd. Firms' equity is measured at market prices, and their debts at face value-and equity prices have gone up rather a lot in the last 18 months. You would expect default risk to have fallen. So why hasn't it?
One reason is that many firms have increased their debts sharply. In the year to last September, debts of non-financial firms increased by 12%, the fastest rise since the mid-1980s. Much of this has been in the form of short-term debt, which is riskier for firms because lenders might refuse to roll it over.
A lot of the extra debt has been used to buy back shares. This is potentially problematic because investors are left more exposed to the underlying business risk of a firm: they end up with what is left after its debts have been paid. And thanks to the frenetic pace of technological change, that risk may be increasing. The net result, says David Goldman, a credit analyst at Credit Suisse First Boston, is that giant firms with seemingly unassailable market positions are becoming as risky as high-tech companies. And the spreads on their bonds over Treasuries may start to increase, too-as those of lower-grade debt have already done.
Rising volatility may point to even nastier scenarios. Before the stockmarket crashes of 1929 and 1987, it increased sharply. Robert Shiller, author of "Irrational Exuberance", a new book on the stockmarket and investor psychology (see article), says that history may not repeat itself: volatility can rise and fall without a crash. On the other hand, it does tend to increase as public interest in the stockmarket increases, and "you can't have a crash without a lot of public attention being paid to the market". In America, the public's obsession with shares has never been greater.
*"Daily momentum and contrarian behaviour of index fund investors", by William Goetzmann and Massimo Massa, Yale School of Management, December 1999.
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INVESTING / Who Are the Millennium's Top Investors? / Carson Group
picks the most influential money managers
THE ASSOCIATED PRESS
517 words
5 December 1999
Newsday
ALL EDITIONS
F09
English
(Copyright Newsday Inc., 1999)
WITH THE END of the millennium rapidly approaching, it was inevitable that someone would compile a list of the greatest investors of the 20th Century.
Someone has. The Carson Group, a New York consulting firm, compiled a Top 10 list from a survey of more than 300 investment professionals.
Not surprisingly, Berkshire Hathaway Chairman Warren Buffett tops the list, followed by longtime Fidelity fund manager Peter Lynch in second place and John Templeton of the Templeton Group in third.
Benjamin Graham and David Dodd, considered the founders of so- called value investing, and hedge fund guru George Soros round out the top five.
Not until seventh place does the name of Vanguard Group founder John Bogle appear. Bogle is known as the father of index fund investing, a low-cost, low-risk strategy that has come to dominate the American investment landscape.
Since these types of Top 10 lists are created to stir debate, Bogle's ranking raises the question of who was the most influential investor of the past century-not merely the money manager with the best performance track record.
For some, at least, the nod goes to Bogle.
There's little argument that Buffett is the most famous investor of the past 100 years, and certainly the wealthiest. But, to some, his legacy has been more symbolic than tangible. Buffett showed that an individual investor, by using discipline and patience, can outperform the broader market. He is considered an inspiration to millions of other investors who seek to do the same.
Bogle, on the other hand, said individual investors should join the markets, as it were, rather than try to beat them. His low-cost index funds, which were introduced in the mid- 1970s and seek to mirror the results of the broader market, have allowed millions of investors to participate in the greatest economic boom in American history.
Consider that investors can purchase shares in a Vanguard index fund for as little as $1,000. Moreover, many of the thousands of index funds that have emerged in the wake of Bogle's creation are even less expensive.
Meanwhile, a single Class B share of Buffett's Berkshire Hathaway firm recently cost $1,900. But keep in mind, those lower-cost shares have only been available since 1996. Prior to that, Berkshire Hathaway shares were only available to the wealthy.
Indeed, a single Berkshire Hathaway Class A share recently cost nearly $59,000.
"Bogle was the guiding spirit behind making index fund investing broadly available to American investors. And that democratization of capital has been one of the most important phenomena of the 20th Century," said William Goetzmann, director of the International Center for Finance at Yale University.
Many economists believe the long-running bull market and the sustained strength of the U.S. economy is a direct result of the seemingly endless flow of money by average income investors into mutual funds, whose assets are then reinvested in the stock market.
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Buffett tops list of 20th century's greatest investors
But a case can be made for John Bogle, the father of index fund investing
DUNSTAN PRIAL
Associated Press
570 words
29 November 1999
The Globe and Mail
Metro
M2
English
"All material copyright Bell Globemedia Publishing Inc. and its licensors. All rights reserved. "
New York -- With the end of the millennium rapidly approaching, it was inevitable that someone would compile a list of the greatest investors of the 20th century.
Someone has. The Carson Group, a New York consulting firm, compiled a top-10 list from a survey of more than 300 investment professionals.
Not surprisingly, Berkshire Hathaway chairman Warren Buffett tops the list, followed by long-time Fidelity fund manager Peter Lynch in second place, and John Templeton of the Templeton Group in third.
Benjamin Graham and David Dodd, considered the founders of so-called value investing, and hedge fund guru George Soros round out the top five.
Not until seventh place does the name of Vanguard Group founder John Bogle appear. Mr. Bogle is known as the father of index fund investing, a low-cost, low-risk strategy that has come to dominate the American investment landscape.
Since these types of top-10 lists are created to stir debate, Mr. Bogle's ranking raises the question of who was the most influential investor of the past century -- not merely the money manager with the best performance track record.
For some, at least, the nod goes to Mr. Bogle.
There's little argument that Mr. Buffett is the most famous investor of the past 100 years -- and certainly the wealthiest. But, to some, his legacy has been more symbolic than tangible. Mr. Buffett showed that an individual investor, by using discipline and patience, can outperform the broader market. He is considered an inspiration to millions of other investors who seek to do the same.
Mr. Bogle, on the other hand, said individual investors should join the markets, as it were, rather than try to beat them. His low-cost index funds, which were introduced in the mid-1970s and seek to mirror the results of the broader market, have allowed millions of investors to participate in the greatest economic boom in American history.
Consider that investors can purchase shares in a Vanguard index fund for as little as $1,000 (U.S.). Moreover, many of the thousands of index funds that have emerged in the wake of Mr. Bogle's creation are even less expensive.
Meanwhile, a single class B share of Mr. Buffett's Berkshire Hathaway firm recently cost $1,900. But keep in mind, those lower-cost shares have only been available since 1996. Prior to that, Berkshire Hathaway shares were only available to the wealthy.
Indeed, a single Berkshire Hathaway class A share recently cost nearly $59,000.
"Bogle was the guiding spirit behind making index fund investing broadly available to American investors. And that democratization of capital has been one of the most important phenomena of the 20th century," said William Goetzmann, director of the International Center for Finance at Yale University.
THE INVESTORS
The greatest investors of the 20th century, as compiled by the Carson Group of New York:
1. Warren Buffett, Berkshire Hathaway
2. Peter Lynch, Fidelity Funds
3. John Templeton, Templeton Group
4. Benjamin Graham and David Dodd, analysts
5. George Soros, Soros Fund
6. John Neff, Vanguard Group
7. John Bogle, Vanguard Group
8. Michael Price, Franklin Mutual Funds
9. Julian Robertson, Tiger Management
10. Mark Mobius, Templeton Group
Associated Press
Illustration
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Buffett is top money manager.
507 words 26 November 1999
Straits Times
English
(c) 1999 Singapore Press Holdings Limited
Shrewd stock-picker is declared the century's finest in a survey of 300 global investment professionals
LEGENDARY stock-picker Warren Buffett of Berkshire Hathaway was named the top money manager of the century in a poll of 300 global investment professionals.
He pushed Mr Peter Lynch, guru of Fidelity Magellan mutual fund, and Mr John Templeton, retired founder of Templeton Investment Council, to second and third places respectively.
At No. 4 were partners Benjamin Graham and David Dodd who co-authored Security Analysis in 1934, regarded widely as the "bible of fundamental analysis".
Hedge fund investor George Soros, who has been blamed for much of Asia's economic woes, rounded out the top five in the survey by capital markets intelligence firm, the Carson Group.
Said Carson chairman David Geliebter: "Given the impact the capital markets have had on all aspects of our lives, we felt it fitting to recognise those individuals who have stood out in the field of institutional money management which today manages more than three-quarters of the world's multi-trillion-dollar equity capital."
Mr Buffett is the third-richest person in the United States, according to a recent Forbes 400 list, with an estimated wealth of US$31 billion (S$51.6 billion).
Known as one of the shrewdest investors of the century, he adopted the philosophy of owning companies whose intrinsic value was greater than the market value of their shares.
Like the Wizard of Oz, Mr Lynch popularised the notion that the answer to most investing questions was in the products we bought and the stores we frequented, said Carson.
"His message was that you need look no further than your own home for understanding what companies will succeed," it added.
While Mr Buffett and Mr Lynch were by far the top two choices, the survey challenged its respondents on what constituted a great money manager, said Carson.
Each of the top 10 money managers had great track records in their own right.
However, there were some individuals who stood out in terms of the influence they have had on America's trillion-dollar investment industry and practices.
Take Mr John Bogle, founder of the Vanguard Group and No. 7 in the rankings.
He pioneered America's first mutual fund linked to the Standard & Poor's (S&P) Index of 500 stocks.
"Buffett may have handily beaten the S&P 500 over his career, but credit John Bogle for allowing people of modest means to share in the extraordinary gains by investing in the S&P," said Mr William Goetzmann, a professor of finance and management studies at the Yale School of Management.
"The same cannot be said for Buffett who has kept the price of Berkshire Hathaway so high that only relatively wealthy investors could share in the success.
"At least Bogle democratised equity fund investing and that is worth a lot more than beating the index by a few basis points."
(c) 1999 Singapore Press Holdings Limited.
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100 Years and Many Millions; Buffett Named Investor of The Century
Dunstan Prial
Associated Press
629 words
25 November 1999
The Washington Post
FINAL
E01
English
Copyright 1999, The Washington Post Co. All Rights Reserved
With the end of the millennium rapidly approaching, it was inevitable that someone would compile a list of the greatest investors of the 20th century.
Someone has. The Carson Group, a New York consulting firm, compiled a top-10 list from a survey of more than 300 investment professionals.
Not surprisingly, Berkshire Hathaway Chairman Warren Buffett tops the list, followed by longtime Fidelity fund manager Peter Lynch in second place and John Templeton of the Templeton Group in third.
Benjamin Graham and David Dodd, considered the founders of "value investing," and hedge-fund guru George Soros round out the top five.
Not until seventh place does the name of Vanguard Group founder John Bogle appear. Bogle is known as the father of index-fund investing, a low-cost, low-risk strategy that has come to dominate the American investment landscape.
Since these types of lists are created to stir debate, Bogle's ranking raises the question of who was the most influential investor of the past century--not merely the money manager with the best track record.
For some, at least, the nod goes to Bogle.
There's little argument that Buffett is the most famous investor of the past 100 years, and certainly the wealthiest. But, to some, his legacy has been more symbolic than tangible. Buffett showed that an individual investor, by using discipline and patience, can outperform the broader market. He is considered an inspiration to millions of other investors who seek to do the same.
Bogle, on the other hand, said individual investors should join the markets, as it were, rather than try to beat them. His low-cost index funds, which were introduced in the mid-1970s and seek to mirror the results of the broader market, have allowed millions of investors to participate in the greatest economic boom in American history.
Consider that investors can purchase shares in a Vanguard index fund for as little as $1,000. Moreover, many of the index funds that have emerged in the wake of Bogle's creation are even less expensive.
Meanwhile, a single Class B share of Buffett's Berkshire Hathaway firm recently cost $1,900. But keep in mind, those lower-cost shares have only been available since 1996. Before that, Berkshire Hathaway shares were available only to the wealthy. Indeed, a single Berkshire Hathaway Class A share recently cost nearly $59,000.
"Bogle was the guiding spirit behind making index-fund investing broadly available to American investors. And that democratization of capital has been one of the most important phenomena of the 20th century," said William Goetzmann, director of the International Center for Finance at Yale University.
Many economists believe the long-running bull market and the sustained strength of the U.S. economy are the direct results of the seemingly endless flow of money from average-income investors into mutual funds, whose assets are then reinvested in the stock market.
The cycle has allowed thousands of start-up companies in formerly unknown sectors such as the Internet to expand and create jobs due to the ease with which new firms can gain access to money through the public equity markets.
APPRECIATING INVESTORS; The greatest investors of the 20th century, as ranked by the Carson Group:
1. Warren Buffett
Berkshire Hathaway
2. Peter Lynch
Fidelity Funds
3. John Templeton
Templeton Group
4. Benjamin Graham and David Dodd
analysts
5. George Soros
Soros Fund
6. John Neff
Vanguard Group
7. John Bogle
Vanguard Group
8. Michael Price
Franklin Mutual Funds
9. Julian Robertson
Tiger Management
10. Mark Mobius
Templeton Group
http://www.washingtonpost.com
IG CAPTION: Michael Price CAPTION: George Soros CAPTION: Peter
Lynch CAPTION: Julian Robertson Jr.
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Bull's last charge?
1,039 words 28 March 1999
The Economic Times
English
(c) 1999 The Times of India Group
TRADERS cheered on the floor of the New York Stock Exchange as the Dow Jones Industrial Average edged past the 10,000 mark for the first time on March 16. By the time the cameras ceased clicking, the Dow was back in four figures again. The bull market in American shares is still under way-but the Dow's hesitant creep past its latest milestone reflected growing unease. The stockmarket indices are increasingly dependent on only a handful of shares to lift them higher, raising questions about whether this dwindling band can take the strain.
Wall Street's best-known bulls are still rampant, however. Ralph Acampora of Prudential Securities, has his sights on a Dow at 11,500 some time this year. Abby Joseph Cohen of Goldman Sachs, is more bullish-even spotting signs of improvements in some of the world's troubled economies, which would bode well for US corporate profits.
Many bearish commentators (a category that has included The Economist), are loth to cry wolf again, having been embarrassed too often during the past few years. Why not 11,500, they shrug? For that matter, why not 36,000, as suggested by James Glassman of the American Enterprise Institute?
True, the profitability of American companies has increased during the past few years, partly justifying higher share prices. But Ned Riley, strategist at Bank Boston, calculates that only 20 per cent of the rise in the broad S&P 500 index since 1990 was linked to increased profits. Fully 80 per cent stems from rises in the average p/e ratio-of share prices to profits-which has now reached its highest ever. And there is no sure way of predicting what will cause investors to lower their expectations. Disappointing profits have not yet done so; according to First Call, a research firm, the earnings of the S&P 500 rose by only 3.7 per cent in 1998 compared with 1997, far below expectations a year ago.
But recently the bears have found fresh justification for their gloom in signs that America's new popular religion has become narrower. Belief in the virtues of shares in general is giving way to faith in a few talismanic shares. Whereas on March 16 the Dow was 12 per cent higher than it was on June 1, 1998, and the S&P 500 20 per cent higher, the Russell 2000 index, which contains a much broader spectrum of shares, was down by 11 per cent. The ten best-performing Dow shares are up by 48 per cent since last June. According to Philip Roth, an analyst at Morgan Stanley, two-thirds of the shares in the Russell 2000 are now more than 20 per cent below their 1998 highs.
The growing gap between a few leading shares and the rest makes some sense. Last year, most of the 50 biggest S&P 500 shares delivered higher profits, whereas the earnings of two-thirds of the remaining 450 fell. The average p/e of the 100 biggest S&P 500 companies-around 32 times forecast 1999 profits-is well above the 19 times for the smallest 100. Thus, investors expect continued faster earnings-growth from giant firms like Microsoft and GE. If, as seems likely, these firms fail to maintain this growth, disillusioned investors may punish them severely-as they recently did one wonder-share, Dell, when its revenues disappointed them. Only a few Wall Street analysts, led by Cohen, are optimistic about profits this year. Most macroeconomists predict another tough year. And there is concern about the quality of company reporting. In his latest letter to shareholders, Warren Buffett, observed that "a growing number of otherwise high-grade managers have come to the view that it's okay to manipulate earnings to satisfy what they believe are Wall Street's desires".
Yet, for all this, it is possible that big shares will continue to rise. One reason is that American baby-boomers are pumping money into retirement funds, and a growing share of this money is going into funds that track big stockmarket indices. One recent study tackles economists' traditional argument that mismatches of supply and demand should not move share prices because the market is "efficient"-meaning that prices reflect all available information. It found evidence that surges of money into index mutual-funds led to permanent increases in share prices, and may explain up to 30 per cent of the recent increase in the S&P 500.
Some 29 per cent of money invested in American equity mutual-funds in '98 went into index funds-six times that in '94. Many mutual funds that claim to be actively managed also, in practice, track indices. Pension funds, too, are indexing more than ever. Two other sources of demand also favour big stocks. Foreign investors are pouring money into US shares-with net purchases of $64 bn in '97 and $43 bn in '98-and they typically choose well-known companies. Firms have also been buying their own shares.
How long demand remains so strong will depend, in part, on America's macro-economic policymakers. The Fed, which cut rates thrice last year, seems unlikely to put them up again. New data from the Fed shows that America's financial sector borrowed a record $1.1 trillion last year (up from $653 bn in '97). Much of this can be attributed to Freddie Mac and Fannie Mae, two federal-government-sponsored mortgage agencies. David Tice of the Prudent Bear Fund, says that for no obvious reason, they went on a lending binge just as the rest of the market dried up in the panic of last autumn. Will the authorities reduce this flow of money any time soon? Maybe. But next year both the Clinton administration and Alan Greenspan, the Fed's chairman, come to the end of their terms in office. Both may feel tempted to keep inflating the stockmarket bubble and leave the aftermath to their successors.
"Index Funds and Stock Market Growth", Yale Working Paper, 1998, by William Goetzmann of Yale and Massimo Massa of INSEAD.
Published with permission.
(c) 1999 The Times of India Group.
Document ectim00020010904dv3s00g5m
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"Index Funds and Stock Market Growth", Yale working paper,.
20 words 20 March 1999
The Economist
English
(c) The Economist Newspaper Limited, London 1999. All rights reserved
1998. By William Goetzmann of Yale and Massimo Massa of INSEAD.
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SURVEY - BUSINESS EDUCATION - Harsh lessons from Wall St.
By John Authers.
973 words
26 January 1999
Financial Times
7
English
(c) 1999 Financial Times Limited. All Rights Reserved
For MBAs, the rules of the Wall Street game have changed. Last year, when many MBA students hopeful of a job there were busily taking internships in investment banks, New York's markets took a sudden and dangerous lurch.
The Russian debt default, announced late in August, led to the biggest single-day fall in the Dow Jones Industrial Average, and led to almost total collapse in the corporate bond markets, on which many investment banks depend for profits.
Many investment banks were in the throes of implementing ambitious mergers, and lay-offs were the only solution.
It was a rather more drastic lesson in the potential risks of working on Wall Street than any of the students can have expected.
Now that Wall Street's hiring season is over, the effects on MBA recruitment have not have been as dramatic as expected. Investment banks have felt obliged to keep their MBA recruitment running, even if they are shedding people elsewhere in the firm.
Edward Goldstein, at Brecker & Merryman, a New York personnel consultancy, says: "The efforts in terms of building relations with leading business schools, and building a reputation on campus, are such that if you turn that spigot on and off you do significant injury to your ability to recruit down the road."
So banking chief executives still made regular appearances on campus late last year - particularly at the schools which specialise in finance, such as Columbia and New York University's Stern school, which are both physically close to Wall Street, and the University of Chicago.
Demand for jobs on Wall Street also seems to be only slightly tempered by last year's events. As one placement officer put it: "Anyone who made a decision to go to Wall Street and spend a summer there has to be able to deal with these down-turns. No one really second-guessed their career decision."
But if the total number of jobs on offer at investment banks has remained roughly unchanged, the dynamics of their recruitment game are changing.
Last year saw the end of several years of hyper-inflation in first-year offers.
Mr Goldstein says: "You are seeing a stabilisation and slowdown of the rather insane escalation that was going on in the two or three previous years. There's been a dampening down of the competitive push upwards, but you still have the consulting firms who are competing for the same talent."
Investment banks also felt that applicants were under much more pressure to decide on offers quickly last year, another signal that the balance between supply and demand was changing. They would once allow students the luxury of several weeks to decide; last year they were hurried, and forced to make swift decisions by recruiters working to much tighter quotas.
Tom Fernandes, at Columbia, says: "Firms were cautious in their offering. They wanted to manage the yield a little more carefully and have students make decisions sooner. It's risky for them to have a number of open offers across schools."
He says there was a slight dip in the number of summer interns being offered jobs. There was also a decline in recruitment to emerging markets trading, the area which has been worst hit in the last 18 months, although he stresses that this had never accounted for a particularly large proportion of recruits.
At Stern, where almost 50% of students take jobs in investment banking, the same picture emerged. George Daly, its dean, says: "The window of opportunity closes much more quickly. Firms want to turn around an offer within four or five days. They don't want students shopping their offers around."
Stern also noted a dip in recruitment to emerging markets and other trading and sales jobs, but saw continued heavy recruitment to mergers and acquisitions, a business which is still booming at unprecedented levels.
None of this seems likely to reduce the popularity of finance as a specialism. It has grown in popularity almost as swiftly as entrepreneurship in recent years.
Yale's School of Management set up its own centre for international finance last year, and William Goetzmann, who heads it, suggests that the discipline would remain popular even if Wall Street moved into a bear market.
"Finance offers a few things which are very attractive," he says. "It represents a body of knowledge and tools which can be applied to many different situations. It's a box of tricks which can be used to decide whether a project is worth doing or not - whether it's a marketing decision or an economic decision or whatever."
He adds that one of the single scariest events to hit Wall Street last year, the rescue of the enormous Long Term Capital Management hedge fund, had benefited the course. "The LTCM meltdown was fantastic for us because it was a vehicle for teaching," he says. "They were doing risk arbitrage, and it was a wonderful way to motivate our people to look at arbitrage models. And we looked at management contracts and how they affect the decisions managers take."
Mr Goetzmann set an end-of-term exam based exclusively on Long-Term Capital Management.
Wall Street's problems have also created more work for schools' careers departments. New York University's Stern school reports that it has had to field plenty of calls from alumni over the last few months. Suddenly down-sized after only a few years in the job, the best place to turn seemed to be the office which found them their first placement.
Which all underlines that students should be basing their decision on a lot more than the financial contents of their first-year package.
Copyright Financial Times Limited 1999. All Rights Reserved.
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Count on Yale for finance - NEWS FROM CAMPUS.
87 words 4 January 1999
Financial Times
15
English
(c) 1999 Financial Times Limited. All Rights Reserved
Empirical corporate finance will be the next topic for discussion at the Yale School of Management's newly-created International Centre for Finance. The centre is under the directorship of finance professor William Goetzmann.
By autumn next year it should be housed in one of Yale's landmark mansions - which is now being restored - opposite the Yale president's house. Yale SOM: US, 203 432 6006
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THE GURUS SPEAK
Four experts reflect on the market turmoil and share their counsel
2,491 words 9 November 1998
Business Week
134E2
Number 3603
English
(c) 1998 McGraw-Hill, Inc.
How are the pros playing this turbulent market? To get some answers, Contributing Economics Editor Christopher Farrell talked with Fiduciary Trust Co. International President Anne Tatlock, Sit Mutual Funds President Mary Stern, and two leading academic market watchers, Jeremy J. Siegel, finance professor at the Wharton School, and William N. Goetzmann, professor of finance at the Yale School of Management.
SNIFF OUT SMALL CAPS
The market's swings are disconcerting to Mary Stern. The head of Sit Mutual Funds thinks investors were far too enthusiastic about the global equity markets in recent years, and are now far too pessimistic. Stern, who oversees $1.7 billion from her home base in Minneapolis, thinks ``there has been a rapid shift [away] from too much money flying around the globe'' with little appreciation for risk. ``Now the pendulum has swung so far that risk premiums may be too high and liquidity too low.''
Still, like many other money mavens, Stern, 50, remains cautiously optimistic. She thinks the global crisis is far from over, but believes investors don't face financial Armageddon, either. Inflation is dormant, and that's good for financial assets, she says. But while many investors are enamored of large-capitalization stocks, because they're easier to buy and sell when times are tough, Stern prefers smaller companies that have fallen far out of favor. The Dow Jones industrial average is up 7% this year through Oct. 23, but still down 9% from its July peak. Yet the Russell 2000, a commonly used benchmark for small caps, is down 15% so far this year and is off 25% from its April peak. Stern's own fund, Sit Small Cap Growth, is down almost 22% since April. Stern thinks that small companies are not so exposed to the international economy, and thus should grow faster than their bigger cousins. For example, the consensus among Wall Street analysts is that earnings on the Standard & Poor's 500-stock index will expand by around 3% next year. Earnings on the Russell 2000 small-cap companies, meanwhile, are expected to grow 15% to 20%.
Valuation levels are also more attractive. Price-earnings ratios on mid-cap stocks are about equal to the Standard & Poor 500's p-e of 27. But mid-caps should grow two or three times as fast as the market in general. Small-cap stocks can be bought at a modest discount to the market's p-e and have estimated growth rates three to four times the overall market. So by all rights, Stern maintains, this would be a great time to snap up such apparent bargains. Stern is bullish on health technology, software, and computer and financial-services companies in the small- and mid-cap sectors; among small caps, she is high on commercial service companies, as well.
Stern also favors tax-exempt bonds (page 132). For anyone in the 28% tax bracket or higher, they offer a good risk-adjusted, aftertax return compared with U.S. Treasury securities. A person in the 28% tax bracket would have to find a taxable yield of 7% or better to beat a 5% tax-exempt intermediate bond. By contrast, most Treasury securities are yielding 5% or less these days.
In reflecting on the turmoil of recent months, Stern finds a lot of the investment lessons mundane--but critical for anyone participating in the markets. Diversification, asset allocation, and reasonable return expectations are the mantras. ``We had been lulled into a belief that we could just throw money into the market--and be wealthier than before,'' she says. No more.
YOU CAN'T BEAT STOCKS
The idea has been drilled into anyone saving for retirement: Invest in stocks for sure-fire, long-term superior performance. Perhaps no one is more associated with that strategy than Wharton's Jeremy J. Siegel, author of Stocks for the Long Run (McGraw-Hill, $29.95).
So after the Dow's 9% retreat from its July peak, is Siegel cautious? You bet. Noting that slowing corporate-profit growth and high price-earnings ratios don't mix, ``I don't think the current stock market decline is over,'' he warns. Indeed, he thinks investors now need to lower their expectations on equity returns, arguing that the 15% to 20% annual gains of the great bull market were a once-in-a-lifetime performance. But is Siegel giving up on stocks? No way. ``For the long run, relative to bonds at 5%, I still think there is no contest,'' he says.
Siegel sees annual stock returns getting back to the historical rate of 7%, after adjusting for inflation, for years to come. While that's far below the double-digit rates of recent years, it still represents a tidy real return. He even thinks long-term returns could do slightly better than the historic average, say, 8%. One reason Siegel remains a bull is the remarkable productivity gains from the technological revolution. Technology will remain a potent force in the economy, he says. ``The dynamics of the computer revolution are very much intact. And I do think we are in a communications revolution. This is something that can generate a lot of profits.''
Another factor is the global economy. A driving force in the bull market of recent years was the vision, fueled by the collapse of communism, that the developing world's consumers would become big buyers of soda, razor blades, disposable diapers, cars, computers, and other goods. The global financial crisis has put that vision on hold--but not indefinitely, Siegel believes. Emerging economies will recover, and that will provide opportunities for dynamic American companies to record good earnings growth.
Siegel's advice for investors is not to try to time economic or earnings recoveries, however. ``It's hard for the best investors to bail out before the top. It's even harder to get back in at bottom when a deep gloom grips the market,'' he says. For those reasons, he argues, investors are better off regularly purchasing stocks via 401(k) or other retirement savings plans. That way, they can buy good companies at cheaper prices when the market turns down. And by all means, stick with well-diversified mutual funds or broad portfolios of high-quality equities. Three-quarters of any portfolio should be in Standard & Poor's 500 stocks, he says.
What are Siegel's favorite market sectors? In addition to high tech, which includes some of the world's most dynamic companies, he favors pharmaceuticals. He thinks consumer-products makers with strong brand names will continue to do well in world markets. Siegel is also starting to draw a bead on real estate investment trusts, which he terms the ``emerging asset class of the next century.'' REITs have suffered huge declines recently after a dramatic growth surge, and Siegel is wary of plunging in right now. But he notes that real estate offers an opportunity for genuine diversification because this sector doesn't march in lockstep with stocks and bonds. That's an intriguing tip from a prof who long has lectured on diversification as the key to successful investing.
THE U.S. IS A GOOD BET
The world economy is stalled. Asian prosperity is a fading memory. Latin America teeters on the brink of recession. World financial markets are depressed. Yet the average American consumer is hardly trembling. With good reason, says Anne Tatlock of Fiduciary Trust Co. in New York. U.S. inflation is nearly nonexistent, employment is high, interest rates are down sharply, and federal and state governments enjoy ample budget surpluses. Sure, some people on Wall Street are suffering big losses. ``But the average person in the street is shaking his head and saying: `These guys deserve it,''' says Tatlock, a money manager for wealthy individuals and corporations whose Wall Street career dates back to the 1960s.
Still, Tatlock is concerned. Behind the turmoil in the marketplace, she sees a massive unwinding of highly leveraged inv