Nov 14, 2010

Jeremy Grantham on Asset Management


On the importance of Asset Allocation:

…That incredible discrepancy…says the main event in investing should be getting the big picture right. It’s nice to pick stocks, but how many good stocks do you have to pick in a whole portfolio to equal that incredible move between the biggest asset class in the world, US equities, and the third or fourth biggest asset class, emerging markets? It’s these movements between the big asset classes that make you money.

On his current view of blue chips as the best investing opportunity at the moment given the general over-valuation of bonds and equities.

Being (still) British, this is likely to be my nth opportunity to show a stiff upper lip. There is, though, one quite friendly influence lurking around that may help us lovers of quality stocks. They are getting so cheap relative to the market that a wider range of buyers is finally noticing them. In the third quarter, in a market up a significant 12%, quality stocks held the market. To say the least, this has not been the law of nature recently: for the past eight years, quality stocks usually won in down quarters and usually lost badly in extreme up quarters.

On his current view on emerging markets

Everyone and his dog are now overweight emerging equities, and most stated intentions are to go higher and higher. Emerging markets are admittedly fully priced, but they still sell at a decent discount to the 75% of the S&P 500 that are not quality stocks – a particularly strange quirk in a strange market. With their high commodity exposure, their strong finances, and their strong GDP growth especially, I believe that they will sell at a premium to the S&P, perhaps a big one.

Jun 15, 2010

Escenario Macro

En abril la banca griega ha perdido depósitos por 5.7 bn. sumando ya un descenso de 15.6 bn. en el año, más de 10.5 bn. desde depósitos de familias. La asistencia en liquidez desde el ECB es básica para la banca griega en estos momentos, donde los mercados de financiación internacional están cerrados despues de que las agencias le hayan retirado el rating de "inversion" a Grecia.

Provocara la salida de capitales una crisis ? o el BCE cubrira el descubierto??

May 23, 2010

Choosing a broker

... choosing one is not an easy task. It seems there is no good broker in this world.
After struggling to find rankings and reviews of brokers that met my requirements (which included good price-low comission fees & broad portfolio of products, leaving aside the a chart station) I came up with a final list of candidates, which are:
  • FXCM
  • MB Trading
  • TradeStation, and
  • Interactive Brokers.
These were the sources of information I found more valuable:
  • Global Finance at GFMAG.com - Awards: World’s Best Foreign Exchange Providers
  • Reviews at ForexPeaceArmy.com
  • ranking - Barrons
  • ranking - TickerPedia ?? ... I know, they are nobody, furthermore some of their scales are inverted some other not. I would't even bet they reverse those before getting the final score.
... and the winner is:
  • Interactive Brokers.
So I'll switch from my current Spanish discount broker (interdin) to IB during July 2010.
I'll post my trades here; which hopefully will reduce the number of stupid decision I'll make, and who knows... we may even make mone:y!

Other options evaluated were:
- FXall.com and 360 Trading Networks.

Apr 28, 2010

Spain vs Euro

... Zapatero: "ya se esta notando la recuperacion"
Standard & Poor's baja la calificacion de "AA+" a "AA"

la rebaja de la calificacion de la deuda estaba anunciada, pero lo que me parece que va a traer juego, es que la mayor parte de la deuda espanyola es a corto plazo. Desde un punto de vista empresario-gubernamental, tenian que haber aprovechado estos meses atras que el mercado estaba valiente para emitir deuda a LARGO PLAZO!
...y endosarla a unos niveles de riesgo que todavia eran aceptables.

Ahora cuando quieran hacer roll-over de la deuda que tienen, va a salir mucho mas caro. Lo cual es malo para las finanzas del gobierno (que somos todos).

Pero mirando un pasito mas alla... igual nos vendra bien que la barra libre se haya acabado. Esa mayor dificultad para el gobierno de endeudarse, es el toque de atencion de los mercados financieros que necesitamos los espanyoles para pararle el carro al gobierno inconsciente y derrochador que tenemos.

Con el euro tenemos juego para rato ... (lease las tensiones entre la competitividad de alemania y holanda vs PIGS al jugar todos con una misma moneda.

Yo creo que o se toman decisiones muy serias (y creo que la talla de los politicos no es tanta) o al final estamos condenados al fracaso. O bien deshacer el euro y volver a nacer con peseta, o sufrir un "periodo correctivo" de ... diez, veinte ... treinta? anyos. Hasta que tengamos un presi con lo que se tiene que tener, que baje la deuda a cero, y despues los impuestos a las empresas (y volver a empezar aqui tambien:)

saludos!
... Zapatero: "ya se esta notando la recuperacion"
Standard & Poor's baja la calificacion de "AA+" a "AA"

la rebaja de la calificacion de la deuda estaba anunciada, pero lo que me parece que va a traer juego, es que la mayor parte de la deuda espanyola es a corto plazo. Desde un punto de vista empresario-gubernamental, tenian que haber aprovechado estos meses atras que el mercado estaba valiente para emitir deuda a LARGO PLAZO!
...y endosarla a unos niveles de riesgo que todavia eran aceptables.

Ahora cuando quieran hacer roll-over de la deuda que tienen, va a salir mucho mas caro. Lo cual es malo para las finanzas del gobierno (que somos todos).

Pero mirando un pasito mas alla... igual nos vendra bien que la barra libre se haya acabado. Esa mayor dificultad para el gobierno de endeudarse, es el toque de atencion de los mercados financieros que necesitamos los espanyoles para pararle el carro al gobierno inconsciente y derrochador que tenemos.

Con el euro tenemos juego para rato ... (lease las tensiones entre la competitividad de alemania y holanda vs PIGS al jugar todos con una misma moneda.

Yo creo que o se toman decisiones muy serias (y creo que la talla de los politicos no es tanta) o al final estamos condenados al fracaso. O bien deshacer el euro y volver a nacer con peseta, o sufrir un "periodo correctivo" de ... diez, veinte ... treinta? anyos. Hasta que tengamos un presi con lo que se tiene que tener, que baje la deuda a cero, y despues los impuestos a las empresas (y volver a empezar aqui tambien:)

saludos!

Mar 27, 2010

IPOs - Winner’s curse effect in Valuations

Winner’s curse is the effect of incomplete information on the investors when an auction takes place. The winner of the auction, blinded by that lack of information, generally overpays and is worse off in general terms.

When valuating a company before the IPO takes place, in benefit of the objectivity it is good to move the growth ratios of the company towards the sector mean.

Otherwise the valuation may be biased towards overpricing, as the managers choose their “best suit for the luncheon”.

Managers and insiders are good at timing the market, and in an IPO scenario, they will time both the financial markets (taking advantage of “hot issue markets”, i.e.: when people is more willing to invest in IPOs, -period characterized both by higher frequency of offerings and by higher IPOs initial undervaluation) and their own company’s economic situation (IPOs generally take place after a very good economic performance of the company, coming to market with higher P/E and price to book ratios than the average of the sector.

Individual investors suffer also from betting on trends, and are prone to extrapolate that performance into the future. Failing to recognize a reversion to the sector mean for the issuing company, which is the most probable scenario. That is the bias valuators should bear in mind when assessing the value of the company.

Mar 20, 2010

Money supply, banks and the economy

The banking sector is configured to be very conservative: not only in its origins, where people left their gold for a receipt, and received nothing in exchange except the feeling that their gold was secure and well kept, but also currently by all the government regulation. In the very same moment the public institutions are setting limits to the elasticity of the money, they are pushing all the industry to that edge.

Otherwise we would expect a more diverse range of strategies by the banks in their natural competition, i.e.: some more risk averse and less profitable for its customers, and others less risk averse and capable of offering better conditions* in response to the riskier situation for its customers –those different strategies as normal ways for individuals to compete in a society that Darwin describes holds perfectly for companies in a market with competition.

In that Darwinian scenario, the interest rate would be the price at which supply and demand meet each other (much tighter than current conditions), thus, a deflationary trend would be the standard situation for the economy, (e.g.: Smith describes it so some hundred of years ago.

The current conditions are pretty different. Maybe we are more intelligent and can obtain more profits for society and the banking sector thanks to ... Maths 2.0 or thanks to the backing support of the governments, or maybe .... It is only that we have too much money around, too cheap to borrow, and too low banking requirements.

That would better explain the great benefits of the banks ... and the skyscraper in Dubai.

The problem though, is that with this configuration, the banks shrink at the same time as the economy does. They are not neutral, but pro-cyclical, digging deeper into the economic pain. So, what should be changed in order to avoid messy situations like the current? What to change so that the financial sector doesn’t make the problems worse?

The thing that I am not an economist may help make clear I am not going to solve it, but the fact that I don't understand the subterfuges of the government’s agencies, should help to understand that there is something wrong when the system is that complicated.

How is possible that the government can do it all: borrow money (government per se), and lend it to himself (through the SEC? From my point of view, the government should only be able to borrow money (and that is another topic, in politics, but... somehow it should be limited by an international agency: it is too cheap for any current "x" government to borrow money, win elections today, and even get some dark money extra), and leave the bill for the next government...

A first step (the libertarian step) should drive us to sounder money, therefore we would avoid expensive excesses of the system (dot com bubble, Real Estate bubble, Dubai, etc. That solution sounds good to “gold bugs” and “austrians”.

A second step (the keynesian’s) could intend to have the government helping the economy. Of course not spending what they don’t have as it’s common strategy for ex post crisis situations, but spending the money (when the aggregate demand shrinks or when the economy enters recession) they have previously saved.

That strategy would be twofold beneficially:
Saving in the good times and getting that money out of the stream, helps to cool down the peace of the economy. Even better, you can diversify and invest it abroad (as SWFs already do).

Then, when the economy is overheated and starts to fall (recessions are natural in economics, and they even have a good side too), that money that has been saved by the government can be invested better: getting it back to work in infrastructures, in IT projects and hardware to improve the technology of the public workers, etc.* -> Bearing in mind that it is a recession, and the government will face higher spending (e.g. unemployment subsidies) and lower incomes (e.g. less taxes from consumer spending, from companies profits, etc.

Regarding the financial regulation, William Wild has a good paper about the topic, advocating for a high-cost, low-return form of capital.link.
... that may get the banks out of the stock markets (a truly conservative banking strategy is not able to cope with the equity risk premium of the stock markets.