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Some of canada's best investors are retail investors. This shows that retail investors can thrive too. With small seed capital and the right philosophy, one can go a long way. Check this next article out:
http://www.canadianbusiness.com/my_money/investing/article.jsp?content=20071026_143049_4884
Better and better,
Lucas
Monday, November 12, 2007
Sunday, November 11, 2007
Are you overpaying for performance?
I would just like to make a comparison between the fee structure of a typical buffet investment partnership vs a typical mutual fund fee structure. Here is how it goes:
Buffet Partnership fees:
1) There is no management fees.
2) Performance fees are only charged if the return is greater than 6% per year.
3) 25% of excess over 6% is charged as performance fees.
Example:
Gross return : 10%
Performance fees = 0.25 x (10% - 6%) = 1%
After fees return = 9%
Mutual fund fees structure:
1) 2% management fees regardless of whether return was positive or negative for the year.
2) 20% cut of profits after 2% deduction
Example:
Gross return : 10%
After fees return = (10% - 2%) x 80% = 6.4%
As you can see from the above examples, with the same gross return, one would have gotten 9% after fees in the buffet partnership while one would have gotten 6.4% in a mutual fund. This reveals the fairness through which buffet operated his partnership. Besides it is also known that 80% of all fund managers underperform their benchmark indexes. Hence, are you overpaying for performance? Just something to think about folks.
Better and better,
Lucas
Buffet Partnership fees:
1) There is no management fees.
2) Performance fees are only charged if the return is greater than 6% per year.
3) 25% of excess over 6% is charged as performance fees.
Example:
Gross return : 10%
Performance fees = 0.25 x (10% - 6%) = 1%
After fees return = 9%
Mutual fund fees structure:
1) 2% management fees regardless of whether return was positive or negative for the year.
2) 20% cut of profits after 2% deduction
Example:
Gross return : 10%
After fees return = (10% - 2%) x 80% = 6.4%
As you can see from the above examples, with the same gross return, one would have gotten 9% after fees in the buffet partnership while one would have gotten 6.4% in a mutual fund. This reveals the fairness through which buffet operated his partnership. Besides it is also known that 80% of all fund managers underperform their benchmark indexes. Hence, are you overpaying for performance? Just something to think about folks.
Better and better,
Lucas
Pavlov and investing? Any similarities?
"Common sense is the collection of prejudices acquired by age eighteen"
Albert Einstein
How true can that get? From a very young age, we were taught by our elders, by people to distinguish right from wrong, black from white, good versus evil and what not... Although most times, these teachings or values serve to protect us, to help us survive and thrive in society. But all too often, it builds within us a set of prejudices that goes beyond logic. Our reactions too become synchronised with the masses, being one with the crowd. Look at the division between the anglicans and the catholics in Ireland,the slavery and discrimination of the blacks in the US. Racism? Religious differences, racial differences and more all point to one thing and that is the different groups of shared ideology or herd mentality has been propagated throughout mankind for ages.
Pavlov, a russian scientist speaks about conditioning in scientific terms and his research included areas of temperament, conditioning and involuntary reflexes. When a dog hears the bell ringing with food placed outside the doghouse, it immediately knows that food awaits him. Through such conditioning, upon ringing of bells, the dogs start to salivate even without the aroma of food awaiting him. This is in fact a reflex action. Us human beings are like that too. We have been conditioned to react in certain manners due to the shared ideology that we have been brought up with. I take the Mass Rapid Transit to work everyday in singapore. Observe this and you will know that it is true. When there is a crowd of people alighting from the trains, there seems to be this mad rush for a few gantry exit points. Everyone squeezes out through these few gantry exits while you can spot other gantry exits available and unused. This, ladies and gentlemen is the herd mentality at work. Aren't we conditioned like dogs too if that's the case?
How does this apply to the stock market? It seems that as the indian and chinese stock markets are going up, more people want to join the band wagon. This effects a series of moves in the stock market that causes the stock market to be overvalued. India is trading at a PE of 55x while China is trading at a PE of 60x. Ridiculous but the higher it goes, the more the inflow of funds from investors, the herd. Contrastingly, when markets do correct everyone seems scared and panicky. In both scenarios painted above, it is most logical to underinvest when the markets are seemingly high and to be greedy when the markets are low for you get them at bargain prices.
Buffet speaks about this in his own way. He says: Be greedy when the market is fearful and fearful when the market is greedy.
Benjamin Graham too speaks about this. His analogy of Mr Market being a manic depressive is breeds familiarity among the value investing circles.
Tying it all together, i just like to put it in plain simple terms. Investing can be difficult because of social conditioning. It is more temperament that IQ. It reflects on the composure and awareness of an individual. The way a person looks at investments speaks volumes on a person's character as well. This game is simply a transfer of wealth from the person controlled by the herd to a person of awareness and composure. So ask yourself whenever you are about to make an investment decision. Am i part of the herd???? Just something to think about folks...
Better and better,
Lucas
Albert Einstein
How true can that get? From a very young age, we were taught by our elders, by people to distinguish right from wrong, black from white, good versus evil and what not... Although most times, these teachings or values serve to protect us, to help us survive and thrive in society. But all too often, it builds within us a set of prejudices that goes beyond logic. Our reactions too become synchronised with the masses, being one with the crowd. Look at the division between the anglicans and the catholics in Ireland,the slavery and discrimination of the blacks in the US. Racism? Religious differences, racial differences and more all point to one thing and that is the different groups of shared ideology or herd mentality has been propagated throughout mankind for ages.
Pavlov, a russian scientist speaks about conditioning in scientific terms and his research included areas of temperament, conditioning and involuntary reflexes. When a dog hears the bell ringing with food placed outside the doghouse, it immediately knows that food awaits him. Through such conditioning, upon ringing of bells, the dogs start to salivate even without the aroma of food awaiting him. This is in fact a reflex action. Us human beings are like that too. We have been conditioned to react in certain manners due to the shared ideology that we have been brought up with. I take the Mass Rapid Transit to work everyday in singapore. Observe this and you will know that it is true. When there is a crowd of people alighting from the trains, there seems to be this mad rush for a few gantry exit points. Everyone squeezes out through these few gantry exits while you can spot other gantry exits available and unused. This, ladies and gentlemen is the herd mentality at work. Aren't we conditioned like dogs too if that's the case?
How does this apply to the stock market? It seems that as the indian and chinese stock markets are going up, more people want to join the band wagon. This effects a series of moves in the stock market that causes the stock market to be overvalued. India is trading at a PE of 55x while China is trading at a PE of 60x. Ridiculous but the higher it goes, the more the inflow of funds from investors, the herd. Contrastingly, when markets do correct everyone seems scared and panicky. In both scenarios painted above, it is most logical to underinvest when the markets are seemingly high and to be greedy when the markets are low for you get them at bargain prices.
Buffet speaks about this in his own way. He says: Be greedy when the market is fearful and fearful when the market is greedy.
Benjamin Graham too speaks about this. His analogy of Mr Market being a manic depressive is breeds familiarity among the value investing circles.
Tying it all together, i just like to put it in plain simple terms. Investing can be difficult because of social conditioning. It is more temperament that IQ. It reflects on the composure and awareness of an individual. The way a person looks at investments speaks volumes on a person's character as well. This game is simply a transfer of wealth from the person controlled by the herd to a person of awareness and composure. So ask yourself whenever you are about to make an investment decision. Am i part of the herd???? Just something to think about folks...
Better and better,
Lucas
Questions on insider trading!
Recently, a friend asked me to write more on ths usefulness of insider trading indicators. Here are some findings which can be found in research conducted by insider trading expert , Nejat Seyhun.
The First most basic question is : Does insider trading help to predict any form of stock market returns?
It has been found that stocks with insider purchases actually outperform the market by 4.5% and stocks with insider sales actually underperform the market by 2.7%. But it is important to note that insider sales may not necessarily mean a bearish signal as sales by insiders can mean that they need the money to purchase a new home , car etc not indicative of stock moves to the downside entirely.
What kinds of stocks should i buy a longside the insiders?
One should buy stocks with insider purchases focused on small cap companies. On average, insiders earn 6.2% in small companies as opposed to 1.7% in large caps. Ahmet of Okumus capital has been getting astounding returns of 33% per annum. In fact in his earlier years, he had been doing way better and the reason for it i feel is that he focuses on beaten down small caps with insider purchases.
Does insider purchases predict dividend hikes or initiations?
No there is no correlation.
Does insider trading predict an upside in the coming earnings quater or upside surprises?
No there is absolutely no correlation.
Does insider trading predict the success of a merger or acquisition?
Nope it does not. Prices of target firms rise due to institutional participation and not insider purchases. Besides trading on information which have a material effect on price before it is disclosed is illegal.
One point to note is that although insider purchases are normally followed by stock moves to the upside, it is of my opinion that these stock moves are a "psychological" market phenomenon and not necessarily mean that the stock is undervalued. The market would reason it this way: since the insiders are buying it must mean that something good must be happening so lets hop on and join the band wagon. I feel that there are flaws inherent in such surfacial thinking to say the least and i do beg to differ. Firstly, insider buying may not necessarily mean that the company is priced at a discount to its intrinsic value. For example, i came across an alternative energy company(ener). it was trading at a forward PE of 60 and the insiders were scooping it up. I thought to myself that this guy surely does not know what he is doing and is going beyond logical reasoning. Hence, it is always important to combine insider trading with fundamental analysis to gauge the true value of a company before buying into one. Do not do it blindly!
Feel free to pose me and manpreet any questions regarding this.
Better and better,
Lucas
The First most basic question is : Does insider trading help to predict any form of stock market returns?
It has been found that stocks with insider purchases actually outperform the market by 4.5% and stocks with insider sales actually underperform the market by 2.7%. But it is important to note that insider sales may not necessarily mean a bearish signal as sales by insiders can mean that they need the money to purchase a new home , car etc not indicative of stock moves to the downside entirely.
What kinds of stocks should i buy a longside the insiders?
One should buy stocks with insider purchases focused on small cap companies. On average, insiders earn 6.2% in small companies as opposed to 1.7% in large caps. Ahmet of Okumus capital has been getting astounding returns of 33% per annum. In fact in his earlier years, he had been doing way better and the reason for it i feel is that he focuses on beaten down small caps with insider purchases.
Does insider purchases predict dividend hikes or initiations?
No there is no correlation.
Does insider trading predict an upside in the coming earnings quater or upside surprises?
No there is absolutely no correlation.
Does insider trading predict the success of a merger or acquisition?
Nope it does not. Prices of target firms rise due to institutional participation and not insider purchases. Besides trading on information which have a material effect on price before it is disclosed is illegal.
One point to note is that although insider purchases are normally followed by stock moves to the upside, it is of my opinion that these stock moves are a "psychological" market phenomenon and not necessarily mean that the stock is undervalued. The market would reason it this way: since the insiders are buying it must mean that something good must be happening so lets hop on and join the band wagon. I feel that there are flaws inherent in such surfacial thinking to say the least and i do beg to differ. Firstly, insider buying may not necessarily mean that the company is priced at a discount to its intrinsic value. For example, i came across an alternative energy company(ener). it was trading at a forward PE of 60 and the insiders were scooping it up. I thought to myself that this guy surely does not know what he is doing and is going beyond logical reasoning. Hence, it is always important to combine insider trading with fundamental analysis to gauge the true value of a company before buying into one. Do not do it blindly!
Feel free to pose me and manpreet any questions regarding this.
Better and better,
Lucas
Wednesday, November 07, 2007
Putting your money where your mouth is!
In my recent post, I quoted Barry diller. He claimed that he was confident of the company's future. Besides owning a considerable stake in expedia itself, he has also excercised options to get a larger stake in the company.
All in all, he bought 9,500,000 shares at a price of $8.59. Altogether, he spent approximately 81 million dollars in the company. Barry diller alone is worth 1.3 billion. To me, he just invested 6.2% of his net worth acquiring these shares.
Actions speak louder than words and it seems that he just means what he says. Do refer to my previous article on expedia. http://valueinvestorhaven.blogspot.com/search?q=expedia
Better and better,
Lucas
All in all, he bought 9,500,000 shares at a price of $8.59. Altogether, he spent approximately 81 million dollars in the company. Barry diller alone is worth 1.3 billion. To me, he just invested 6.2% of his net worth acquiring these shares.
Actions speak louder than words and it seems that he just means what he says. Do refer to my previous article on expedia. http://valueinvestorhaven.blogspot.com/search?q=expedia
Better and better,
Lucas
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