Most Penetrating Comment I've Seen on Jerome Kerviel and Societe Generale Yet

David Weidner of Marketwatch: "Kerviel, the bad apple who was smart enough to fool a banking empire but not enough to beat the markets...."

Brilliant. No sarcasm at all intended. Smart enough to utterly defeat whatever passes for internal risk controls at an ostensibly world-class institution, but not smart enough to beat the market. Who's next for a similar story? Goldman? Some other firm? Just a matter of time. It seems these guys are given ambitious goals to meet; they are, when you get down to it, told to win or else at what is rather like a very big ongoing coin-flipping contest. So what do you think is going to happen?


A rogue ruined the financial system? Which one? - MarketWatch

at an inflexion point in subprime crisis? Perhaps

Hat tip to Fintag on this one.

A couple of rather powerful thoughts: "...investors should be canny and careful, and take little for granted. My own strategy is to invest in sound assets and simply hold onto them. That’s because the other relevant phenomenon about crises, is the system ultimately recovers. If you have the staying power, you will probably do fine." This is how investing, real investing, is done. You establish an appropriate asset allocation for you, in full consideration of your own time horizon and ability to bear market risk. You stick to it. If you do not understand how to do this, you should study some, or you gird up your loins and go find yourself a trustworthy, competent adviser. He can.

A trustworthy adviser has an investment approach consistent with objective academic investment research, not Wall Street's age-old refrain: "We're sooo smart, we can out-research and out-invest and out-trade everyone else for you! It must be so. Just look at my nice watch and expensive office!"



Bruner: We are at an inflexion point in subprime crisis - General News - FinanceAsia.com - The network for financial decision makers

The other side: TheStreet.com's James Altucher rebuts Barron's, sort of...

Yes, it is a cute response. Meaningless, but cute! Altucher's test period is too short, ridiculously so, to "prove" anything. But I do believe him as to Cramer's picks being better than those of Barron's! Oh, well.

Both, using Altucher's methodology, underperformed the S&P 500 over the chosen "sample period". You would have done better with one buy of SPY. Better still, probably, if you then held it for a year and a day. Any of these people ever hear of transaction costs? Spreads? Income tax on short-term capital gains? The value of your own time, which could be spent having a life? Active investment management? Just another way of saying "negative alpha"? Has anyone ever started a recovery group for Street Addicts stock pickers?

Putting Cramer's Mad Money Picks to the Fire

Cramer's picks haven't beaten the market--Barron's

No kidding!

I credit Jim Cramer with working very hard at what he loves. And with being a fine communicator, and an under-appreciated writer. And he is likable, when he is not being completely nutty. But the market is just too efficient for him. No argument exists on this, the numbers are in. Only trading "true believers" are willing to commit money to trading approaches for which there is no rational basis to expect bigger gains after taxes as a result.

Because he is on after the markets close, and because the more naive of his viewers are immediately buying his picks, in after-hours trading, a number of day traders will be right there in after hours action, catching those market orders, shorting his picks as those folks buy in. I know that he says not to do that. They do it anyway. Guess how that works out.


Cramer's picks haven't beaten the market--Barron's: Financial News - Yahoo! Finance

You call that a sell-off? -- MarketWatch

Once in a while you see a statement which is just stunningly strange:

"In general, stocks are not cheap, especially if you consider that corporate profit margins are hitting all-time highs."

If earnings are high, then how is it that stocks are expensive?

Should you care? Should you act if you think stocks are expensive, or cheap? Market timers have no rational basis for expecting to beat out all the other market timers. N-O-N-E. Acting with money without some rational, defensible basis for what you are doing is not rational. Investors, not traders, as a group win. The objective research, as a body of research, bears that out.

Only if you think you have some genuine edge, would you rationally get into trading in general. No disclosed trading strategy has survived rigorous research to see if it works. Perhaps presence of a trading edge explains the existence of brokerage and institutional trading desks. For a brokerage to suggest it is working for you, while it is trading against you, is not my idea of fiduciary behavior. But, as an old friend, the first real portfolio manager I ever knew, once said to me, long ago in the '70s, when I expressed shock at something I had seen, "...but who ever told you that brokers are in business to serve the best interest of their clients?"

You call that a sell-off? - MarketWatch

Cheaters in CNBC's stock-picking game? What a Hoot!

I think it is beautifully ironic. Sublime in its own way.

Just for fun, there was a stock-picking "paper portfolio" contest in my class in investments (the CFP curriculum class to prepare for the CFP comprehensive exam,) a few years ago. Being the serious fellow I am, I asked the instructor if the contest wasn't an exercise in bad investing, and would it encourage the class to engage in bad investing? He indulgently and patiently assured me that it was just for fun.

As it happens, my wife happened to see a promo for the recent contest on CNBC with its million-dollar prize, and asked me why I hadn't entered. My answer was the same as before. Even though it is all in fun (I thought,) it still, if I won, would send the wrong message about investing and about me. It is not about utterly disregarding risk in search of maximal short-term gains. Well, what it did was worse -- it lured in some (alleged) out-and-out stock manipulators.


CNBC Calls In a Judge

A few thoughts on Ben Stein's latest column.

Ben is someone I would describe as a grand old man of personal finance, who usually retains his perspective when looking at things. You have to like the guy. So what's he saying?

"First, I'm not at all worried about the stock market despite the recurrent panic about subprime mortgage problems and resistance to some loans by lenders in private equity deals (which used to be called, appropriately, leveraged buyouts, or LBOs)." Neither am I. The economy is still just too good, and not looking like 2000 (for example).

Ben rather politely throws verbal ice-water on the hysterical financial media types for all the cat-fits they have had over the sub-prime lending industry's return to sanity: "Subprime is a small sector of the mortgage market...If all [distressed sub-prime loans go] into foreclosure (which is unlikely) ... the real loss might be about .9 percent, or less than 1 percent [of mortgage loans]." He provides enough detail to back this up. The financial media gets awfully lathered up over almost everything. It gets viewer attention but lessens their credibility.

He talks about how traders work, and how he sees their antics as not affecting the market in the longer run. Nicely done, Ben.

There's
more.

WSJ (subscription) "A Cool Million No Longer Buys You a Luxe Retirement"

Yes it's old news, in a sense, but don't give up!

If you are young, a few simple actions will make your future much more comfortable. Use your opportunities for tax-deferred investing. Put enough into your 401(k) to get any available employer match. Contribute to your IRAs, both traditional and spousal.

Go beyond tax-deferred. If you can, put something, say, one hundred dollars a month away, for the very long haul, not to buy a flat-panel TV. To get started, put the money in a savings account. Then, when practical, in a taxable brokerage account. Learn how to invest the taxable account money for the long haul, not the fast buck, not as "mad money", and in a tax-efficient way.

Avoid becoming financial-services road-kill. Avoid load funds like the plague. Like the plague. No-load mutual fund accounts, at the fund, are one good way. Companies such as Vanguard and T. Rowe Price are known for low expenses and good investor-friendly values. That's not a commercial, just the truth. I'd suggest avoiding the mutual fund companies which advertise over and over all the day long on CNBC and Bloomberg. Big ad budgets are paid for in high expense ratios! You want financial service pros whose highest priority is good client outcomes, not client-gathering marketing. Never go to an investment "seminar" even to get the free meal. It will really, really cost you. Don't invest through variable life or variable annuities, they're usually heavily-commissioned, "fee and expense you to death", poorly-performing, all around sorry deals. As you might have guessed, I don't like them much. Stir well, wait patiently while it simmers for twenty-five or thirty years, and voila! Magnifique! If at some point along the way you want a financial advisor, find one with low fees who doesn't sell commissioned investment junk products, and emphazises good fiduciary standards.


Getting Going - WSJ.com

Markets Made 'Unchanged' Into 20 Percent Gain: Chet Currier of Bloomberg

"If this steady-as-you-go spell has been tough on traders, it has gone down just fine with buy-and-hold investors in the stock market and stock mutual funds." -- Mr. Currier. Pithy and true. If you have been trying to game the Fed, building some sort of trading approach around what will, you hope, go up when an interest rate cut comes, then you haven't made much, or maybe you've even lost ground. If you were just well-invested, well allocated, and so on, you've reason to be smiling as you read this.

Is there a lesson in this? You bet. What has worked in investing continues to work.



Bloomberg.com: Opinion

Stocks in S&P still reasonably valued, no bubble here.

I have already read one "expert's" comment that the new S&P record 'makes him nervous'. Per the linked article, the S&P's stocks are 45 % cheaper than in 2000. No bubble here. Let's move forward.



Bloomberg.com: Exclusive

The Correction has been Corrected!

So, if the market has made back the ground lost due to the "correction" -- I despise that word -- does that mean that the correction was incorrect? Mark Hulbert discusses it.



February-March correction now completely overcome - MarketWatch

And Trading Isn't Investing Either, Mr. Hoenig

Whenever someone can articulate a rational basis for thinking you can come out ahead by trading, other than wishful thinking, I'll consider it something more than gambling. Technical analysis? Not acceptable, not rational, as there is no objective research support whatsoever.Did you get that, technical analysis is not rational. Fundamental analysis? For short-term trading? Market noise overwhelms whatever merit there might be. In the slightly longer run? Twenty thousand other guys got in before you. You're in danger of being the patsy, the mark, at the poker table. Careful investors win, as markets always have moved up over time. Market returns are good, very good, and available. Some turtles run rather well, it seems.



Investing Isn't Gambling, Though Both Carry Risk (McDonald's) | SmartMoney.com

Long-Term Investing Keeps Its Old-Fashioned Shine: Chet Currier, of Bloomberg News

One of the biggest problems with all of the financial media is the dysfunctional short-term fixation reflected in a huge percentage of the words written. This article is an exception. Kudos to Mr. Currier and Bloomberg for it.

Short-term thinking will get you taxed more heavily, subjected to huge risks that, remarkably, get smaller with a longer-term focus, and generally affected by numerous other problems such as performance-chasing, etc. Read the article. He's correct, as I see it. Don't know how to invest with a long term focus? Don't feel bad. CNBC and all the other financial MSM is just not about doing that. Exceptions exist, but you have to search them out. Like maybe this blog. At least that's my hope.



Bloomberg.com: Opinion