Insights into the world of high- and ultra-high net worth investing
23, 2010- Vol 4, Issue 12
Help your HNW clients get the
most out of a Roth Conversion. BlackRock's upcoming webinar will help you rethink the Roth opportunity
and develop strategies for tax diversification.
Two finance professors, Edward Wolfe and Indu Chhachhi, survey the
literature on passive investing and offer their recommendations for authors
and books. Whichever side of the active-passive debate you take,
these books should be required reading.
The fixed-income team at American Century Investments doesn't foresee
sudden surges in inflation or interest rates in the immediate future, but
they are on the horizon. "Near-term inflation concerns remain low
due to lingering weak economic fundamentals," says David MacEwen,
chief investment officer for fixed income. "However, looking
long-term, the unprecedented levels of fiscal and monetary stimulus used to
fight the recession will eventually result in higher inflation."
We thank them for their sponsorship.
Accounting scandals such as HeathSouth, Chiquita, AIG, and most infamously,
Bernard Madoff Investment Securities have sent many academics and financial
professionals in search of new formulas to predict "the next
Enron." A professor and a graduate
student at Stanford recently revealed one such approach, which they dubbed Quadrophobia,
which showed that, in earnings announcements, the digit four was
underrepresented to the right of the penny's place.
One of the most reliable measures of broad market valuation
is Nobel Prize-winning economist James Tobin's Q-ratio. Data
released less than two weeks ago show that the ratio is generating a bearish
signal over the next three, five and ten years. Over the next
year, though, the signal is neutral.
A couple of weeks ago Dan Richards talked to an
investor who had recently switched advisors - and who provided an example
of the stress that investors experience when they're not sure whether
their advisor is really on top of their financial affairs.
Barry Eichengreen and Kevin H. O'Rourke offer the fourth installment
of their comparison of data from the current recession to those of the
Great Depression - A Tale of Two Depressions.
In this guest contribution, Tom Brakke of TJB Advisors updates the
status of financial reform and, in particular, the fiduciary standard.
This article is geared to clients, not advisors, and it may help
you formulate your communications with your clients.
A business page on Facebook provides you with a way to connect with
people interested in your practice without having to use your personal
profile. Kristen Luke offers three tips for improving your
Advisor Lance Paddock comments on the exchange between Wealthcare's Dave
Loeper and SCM's Roger Schreiner. Paddock lauds Loeper's focus on
managing assets based on client goals, but says Schreiner's challenge is
nonetheless fair, and urges Loeper to accept Schreiner's terms.
Lastly, we highlight submissions to Advisor Market Commentaries.
We welcome guest submissions from our readers. For more
information, here are
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The evolution through which the literature on passive
investing has gone is striking. Early writers started out with
a point to prove: that passive investing is the only way to invest that
makes sense. Today, the writing in this area has moved beyond
"proving a point" to expanding on what is a settled issue.
The Best Books on Passive Investing: The Earth Does Revolve
Around the Sun
Fixed Income Short
The threat of rising interest rates is not good news for your fixed-income
clients. With the U.S. economy transitioning from recession to recovery,
it's just a matter of time before interest rates and bond yields ratchet
further upward and bond prices slide. That's the bond market's cyclical,
predictable response to increasing issuance and inflation pressures.
Fixed Income Short Duration Bonds
Predicting the Next Enron?
Firms that intentionally engage in quadrophobia do so in order to raise their
EPS estimates to the next-highest cent by nudging up the value in the first
decimal place of EPS figures from four to five. Under standard accounting
procedures, companies may round up their EPS figures to the next-highest
cent if the value in the first decimal place is greater than or equal to
Quadrophobia: Predicting the Next Enron?
Tobin's Q: A Stone's
Throw from a Sell Signal
Its current level of 0.96 puts the Q-ratio within a "stone's
throw" of generating a sell signal, says John Mihaljevic, James
Tobin's former research assistant.
Tobin's Q: A Stone's Throw from a Sell Signal
Hard Lessons from a
"What I look for are people who are proactive and are always thinking
about my situation so that I don't have to," an investor told Dan
Richards. "That's what I look for in my accountant, that's what I look
for in my lawyer - and that's what I look for in my financial
Hard Lessons from a Lost Account
A Tale of Two
Depressions: What do the New Data Tell Us?
production continues to recover - something for which policy deserves
considerable credit. But before indulging in self-congratulation, policymakers
should note that the level of industrial production is still 6% below its
A Tale of Two Depressions: What do the New Data Tell Us?
Financial Reform and
the Fiduciary Standard
On March 15, Senator Christopher Dodd released a draft bill addressing the regulation
of the financial markets. Three years after the first cracks in the
financial system appeared and more than a year after the point of maximum
stress, are we finally going to see some real reform?
Financial Reform and the Fiduciary Standard
Three Ways to Enhance
Your Facebook Business Page
Many times advisors don't know what to do with their Facebook business
pages once they create them, says Kristen Luke. Like any other social
networking site, in order to be effective you must be active.
Three Ways to Enhance Your Facebook Business Page
"Mr. Loeper, choose the allocation of assets that you wish to compete
with, and then let Mr. Schreiner take those same assets and manage them
actively, whether it is 20% bonds or 80%, 5% REITS or 20%," says Lance
Paddock. "Pick the timeframe you feel is most appropriate and have at
Advisor Market Commentaries
The recent credit crisis did not emerge as a surprise, but was the ordinary
outcome of extraordinary recklessness. Overvaluation and reckless lending
do not always translate into near-term market weakness, but they invariably
haunt investors in the form of poor long-term returns. Significant damage
in the stock market often takes place during the "recognition
phase" where the troubling reality departs from optimistic
expectations. Fundamental measures suggest that markets are currently
overvalued, and recommend a defensive position for assets.
Ordinary Outcomes of Extraordinary Recklessness by John
Hussman of Hussman Funds
Psychology teaches us three main lessons. First, that the environment has a
large, as yet unrecognized effect on our behavior; second, that out
intuitions about what drives our behaviors are flawed; and third, that our emotions
play a large role in our decision-making. These lessons have important
implications for economics, and show us the importance of experiments and
empiricism in economic research.
Three Main Lessons of Psychology by Dan Ariely of
Successful investing involves identifying superior issuers at attractive
valuations; the nature of the issuer is extraneous. The high yield market's
record performance last year is almost certainly not repeatable in 2010. It
will more likely be a tame year for high yield investors. On the heels of
unprecedented volatility, however, investors would likely embrace a boring
year with open arms. Hotchkis is optimistic about the high yield market's
prospects, and believes there are abundant opportunities to 'lend freely
against good collateral at a penalty rate.'
High Yield Newsletter by Ray Kennedy of Hotchkis and
Wiley Capital Management
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