Private Equity getting less 'Private'

I always argued that Private Equity was anything but private. The funds were managed on behalf of the Public who was invested in the funds via fiduciaries in the large pension funds, insurance companies and private banks. That the industry is only now paid more attention (Enter the Secret Garden of Private Equity, NY Times) by the regulators is indicative of the fact that no investor should ever rely on bureaucrats to protect his interests. So the blame should really be laid at the door of the supposed 'fiduciaries' who were - and to a large extent - still are asleep on the watch. Should they not have long ago raised all the points about expenses, fees, performance calculations, conflicts of interest etc.?

You are not a 'Client' but 'Strategic Money'

If ever you were called a 'client' by your financial 'adviser' at BankAmerica's Merrill Lynch unit you should think about this for a moment: how can you be a 'client' and 'Strategic Money' at the same time? The word client means that you should be protected by the adviser. But if this Adviser is acting as a commissioned salesman it is difficult to think that he will always put your best interests ahead of a sales commission he or she can earn by proposing a financial product or transaction.

Are IPO's more than Get-Rich Scheme for the Promoters?

Looking at valuations imputed by the pricing of new issues one can only wonder if saving to invest in Equities can really ever provide a solution to the looming retirement crisis or the widening wealth gap between the rich and the rest of the population. What is really sad is the willingness of the media to be nothing but a marketing platform for the promoters of new issues. Case in point: The listing of Fever-Tree, a producer of drinks. This company sports a turnover of £28 million on an annualised basis but the IPO values the company at £154 million. This may or may not be the right valuation for this company (the backers had even hoped for £200 million!) but it is beyond me why respectable publications abstain from giving an opinion on the merits of this valuation. If anything, that is the most important piece of information that readers would deserve to find. More than 5 times revenues needs more justification than a homely write-up about how the founders started the business.

Are you paying for Broker Junkets in Hawaii?

A clear sign that the Brokers (as well as Private Bankers) are above all else supposed to generate commissions. That is how they are measured, not how well they manage their clients' portfolios. Have you ever tried to get a clear performance statement before engaging someone to run your money? It compares with having your teeth pulled out. If you get a decent performance for your portfolio you should also check whether it was pure luck or real skill that was behind the numbers.

For Top Brokers, Junkets are back, Hello Hawaii (Wall Street Journal)

The bad guys are after your Money!

It just so happens that the bad guys are (in no particular order) regulators, politicians and bankers. All the people that you think are employed to look after your interests! But in reality they need someone to pay for the bankruptcy of their policies while at the same time receiving generous pay from the taxpayer/customer.

Different types of Financial Advisers

This article may not be all that helpful for anyone who is not a finance professional but it contains some useful pointers that shed some light on the choices that investors have when selecting a financial adviser. (NY Times)

14 Questions to ask your Financial Adviser

Not all of these questions can be answered easily and detailed analysis may be required, but they are a useful start when looking for an Adviser.

S&P Studies on Investment Fund Performance

http://us.spindices.com/resource-center/thought-leadership/spiva/

http://www.spindices.com/resource-center/thought-leadership/research/

Picking the right Fund nearly as tricky as picking the right Stock

It might be even more difficult as there are more (mutual, hedge) funds as there are listed companies!
Regular Mutual Fund Outperformance Is Highly Rare (New York Times)

Does your Adviser put your interests first?

For anyone other than a professional investor - and even then it is sometimes difficult - it can be near impossible to know if their financial adviser puts their interest first.(MarketWatch)

Online Advice - nice if you know how to use it

Robo Advisers - automated on line investment advisory based on questionnaires filled in by investors - may appeal at first sight. But do not be seduced by low cost and ease of access. If you would sit in the cockpit of an air plane you would also be able to push all the buttons in front of you - but the trick is in knowing which one and at what time. Robo Advisers may offer more safeguards and could be the right choice 80 per cent of the time but do not rely blindly on them.

9 financial risks everyone should understand

Useful summary of key risks that every investor must bear in mind when devising an investment strategy (MarketWatch)

IPO - don't play the sucker's game

New Share Issues and IPO's are usually coming to the market when it is advantageous for the Sellers and not for the Buyers. On top of it the allocation process is less than transparent in most cases - the 'good' clients are favoured by the issuing houses, and I don't even want to imagine what 'inducements' are sometimes given behind the scenes. All this in an age where computerised auction systems could easily be created to ensure that there is a fair process to strike an issuing price that is acceptable to buyer and seller and gives every investor - big and small - a fair shot to get the paper they wish to subscribe for.

European Bond Markets have come full Circle

A few years ago (2005) we warned that anyone continuing to hold Italian government bonds yielding a measly 15 basis points more then German Bunds would be reckless. Now it is time to put out the warning again. While conditions may not yet be as extreme as in those days it is only prudent to consider an exit and take what is effectively a free option. Unless you believe in full political and fiscal union in the Eurozone this prepares you for the next (inevitable?) economic and financial storm.

Beware Insiders offering IPO's

Naturally the controlling shareholders want to cash out for the highest possible price when they graciously offer shares to the great unwashed public (and their often not-so-smart professional advisers and money managers). When one prospective IPO candidate refers to the London property market as 'super-hot' alarm bells should start to ring and any potential subscriber should have a really good look before signing on the dotted line.

30 reasons to fall in love with Index Funds

Index Funds are not the answer to all investment problems but they are an important - and simple to use - building bloc. You find a few useful thoughts here.

Do you rely on 'models' to predict market moves?

You should if you think that a model that is able to explain 36% of price moves is a useful tool. I for my part would be sceptical. Remember, investing is part science, part art otherwise we would all be millionaires (or billionaires to bring this up-to-date). As the author of this particular model was a long-serving staffer at the Value Line Investment Service let me mention that I think that publication is the best value product in the market for investment services. Not perfect but for the price it beats all expensive 'research' departments that are housed in Brokerage and Fund Management firms.

In Defense of Stock Picking

Stock Pickers are as good as a monkey with a dartboard. This often repeated cliche may at first seem plausible when one looks at the performance achieved by the average portfolio manager. But what would happen if all investors decide to invest in index funds? Who would cause shifts in relative valuation in the universe of investable shares? The answer is that there will always be investors who - rightly or wrongly - will try to pick the right shares. The rewards are huge in this real-world poker game. And like in the card game the winners take (absolute or relative) performance gains from the losers. And like in Poker anyone who is cognizant of his lack of relative skill is well advised to stay away from the game, unless he enjoys the thrill of the chase.

Do you really understand your funds?

Looking at some Investment Agreements that were leaked one has to wonder how many investors really are able - or willing - to understand the nitty gritty contained in these lengthy documents. As the agreements referred to in this link cover investments by professional investors in Private Equity Funds they are drawn up by expensive lawyers in order to be read by expensive lawyers. But even where professional investors are involved we doubt that their ultimate paymasters - the trustees in pension funds for example - really bother to read the agreements from end to end. So any private investor has to be extra careful before handing over his hard-earned money to any investment adviser, however nice the offices are, however impressive his or her credentials or the brochures and presentations that are offered.

A 90/10 rule that protects all us two-brain investors

How to avoid being tempted into reckless investment decision (MarketWatch).

Can your ‘money-losing behavior’ be cured?

Lessons from a new study on why investors make bad decisions (MarketWatch).

Dollar-cost averaging - useful in combination with index funds

Dollar-cost averaging may not be a 'sexy' investment strategy but it may suit conservative long-term investors that realise that they will never be able to 'time' the market perfectly. As equities (hopefully) have an upward bias an investor should be able to generate a satisfactory return - especially if he does not focus on stock-picking (this could lead to pick the wrong stocks that do not participate in the overall market trend). The same strategy can be applied to bond investments. The main difference would be that the investor could in addition vary the maturity term of his bond investments, i.e. longer maturities in high interest environments and vice versa.

Stock Market - Ponzi Scheme or Engine for Growth?

When the share price of the likes of Facebook climbs to levels that appear to be absurd when compared to traditional yardsticks of value one has to wonder what the function of a stock market is supposed to be. What happens in cases such as Facebook etal is that the saving public (via the services of momentum-chasing fiduciaries in the fund and private banking industry) hands their hard-earned money to the insiders who can cash in their chips and bank immense amounts of money. Has any value been created by this casino-like activity? Only if you believe that the transfer of money from losers to winners at the poker table creates value. The huge transfer of wealth - especially in the USA, but to a lesser extent in all stock markets - not only concentrates wealth in the hands of the few ultimate winners (remember the poker table!), it also creates a drag on economic and income growth as the few tend to hoard most of their gains - how many steaks can you eat? not mentioning how many monster yachts or ostentatious holiday homes can even the Super rich acquire? Stock markets are a useful and necessary tool to share risk and finance long-term investment but at present they are not serving the interests of the wider investment public. Only those that can avoid the hype - or get of the roller coaster at the right time - benefit from investing in shares in the present market structure.

What happens if your Financial Adviser goes bust?

The Credit Crisis and ensuing market crash might already be a distant memory. But one of the key lessons that could be learned was the fact that even financial firms with a century-old pedigree could go under. So investors are well-advised to check their financial arrangements and ask themselves if they are protected in the case their financial advisory firm goes out of business.

How and how much to pay for Financial Advice

Some suggest financial advice can be provided for free, some advisers now charge a fixed fee...all these schedules have their advantages and disadvantages and selecting the right package will potentially have a significant impact on your investment outcomes.

How are Investment Bubbles created?

Highly paid 'experts' working for Brokerage firms or Investment Managers tend to be chasing price momentum when making investment recommendations or investment decisions. No one blames them for being wrong as a consequence of following consensus opinions but missing the boat is a big career risk for these experts. In addition their actions can deviate from what a reasonable private investor would do as their own money is usually not at risk.

Fund Manager Selection

When You Evaluate a Fund Manager, Look Beyond Results
New York Times

Management Fees - critical for your Investment Survival

4 big reasons to invest on your own to increase profits (MarketWatch)

Problems of the Rich - if careless when choosing financial advisors

Anyone who thinks that being rich do not also mean that one has more responsibilities should read this court document with details about the relationship between a wealth author and her advisors.

Safe Deposit Boxes are not 'safe'

Most ordinary and law-abiding citizens have no idea how much an unaccountable clique of professional politicians has already undermined all notions of justice and freedom. So just consider a few facts about a raid on safe deposit boxes that took place in London in 2008. Given that Britain is still a country whose legal system is held in high regard you may just imagine how your assets may be treated in other countries.

Aside from those three dozen or so people found guilty, the vast majority of the 3,500-plus box owners have turned out to be innocent. Yet their money was confiscated, and in many cases is still being held, by the Metropolitan Police or the Inland Revenue. The owners have spent nearly three years and thousands of pounds in uncompensated legal fees having to justify why they kept their personal belongings in safety deposit boxes and how they came by them in the first place. Worse still, when people have had their belongings returned, in some cases cash and jewellery has been missing. (London Evening Standard)

So readers should be careful about where they keep their wealth. We always advise to diversify holdings as much as possible with respect to geographical location and custodian.

Have no illusion about investing in IPO's

Investors often think that IPO's allow them to invest in the company at the start. But the reality is that they are at the very end of the food chain, after founders, venture-capitalists and investment bankers have cashed in by buying their stakes at much lower prices early on in the history of the company.

Keep your Investment Approach simple!

While this article is written with institutional investors in mind the lessons that can be learned from it apply to the Individual Investor as well. Keep your investments simple, make sure your risks are properly monitored and your management fees are kept as low as possible.

Buyer beware! Investor beware!

Any situation where investment advice and investment execution are in the hands of the same firm an investor deals with creates conflicts of interest. If an investor wants to follow his own opinions he should do business through an 'execution-only' broker, preferably an online broker. Alternatively, the investor should give full discretionary authority to the investment manager of his/her choice and let them get on with it. Careful scrutiny of past performance records (documented and fully audited) is essential as is regular monitoring and benchmarking or performance.

Expert Watch - Stating the Obvious

Readers know that I am sceptical with regard to the value of market opinions pronounced by 'experts'. While some predictions are invariably turning out to be correct this should surprise no-one. Usually expert opinion is split and by definition that means that some forecasts will be in the right direction.

Useless Economists - IMF, Reinhart and Rogoff

Crazed Economists and their supporters in Politics and Economists have successfully promoted theft as a major policy tool by promoting the ideology of 'Quantitative Easing' (Money Printing to you and me). Now two proponents of this useless guild (as Nassim Taleb would describe economists) go one step further and promote outright theft by direct expropriation of bank account balances. And all this under the auspices of that empire of bureaucratic excess and lavish perks, the taxpayer funded IMF. Urgent and drastic measures to preserve one's wealth should now priority for any rational investor.