Among my clients’ ten corporate exposures is a gambling-related company (and it’s also a spinoff) and a defense-related company (a spinoff)–the “bets and bombs” components of the “butts, booze, bets and bombs”. PAR previously invested in the butts (UVV) and booze (TAP) and other bomb (NOC) components. It is much easier to find a Margin of Safety in these areas. Enjoy:

http://blogs.wsj.com/moneybeat/2015/02/13/sin-vestors-can-reap-smoking-hot-returns/?mod=djintinvestor_t

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“Brokers, like those at the Toffels’ bank, are technically known as registered representatives. They are required only to recommend “suitable” investments based on an investor’s personal situation — their age, investment goals, time horizon and appetite for risk, among other things. “Suitable” may sound like an adequate standard, but there’s a hitch: It can mean that a broker isn’t required to put a customer’s interests before his own…“

“There are some specific situations when brokers must act as fiduciaries — for example, when they collect a percentage of total assets to manage an investment account, or when they are given full control of an investor’s account. But under current rules, a broker can take off his fiduciary hat and recommend merely “suitable” investments for the same customer’s other buckets of money…”

“It may be less confusing for consumers to simply pay for advice through “fee-only” independent financial planners who are fiduciaries.”

http://www.nytimes.com/2014/10/12/business/mutfund/before-the-advice-check-out-the-adviser.html?ref=your-money

The Washington Post has also jumped on this confusion.

http://www.washingtonpost.com/business/get-there/find-a-financial-adviser-who-will-put-your-interests-first/2014/10/23/21f3a898-596f-11e4-bd61-346aee66ba29_story.html

H/T: Mark Ukrainskyj on LinkedIn

Of course, the Wall Street Journal has covered this issue for a long time, so it is interesting to note the NYT and WaPo’s recent interest.

http://blogs.wsj.com/moneybeat/2013/08/09/look-whos-locking-horns-over-retirement-accounts/

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Readers of my blog know that I respect Jason’s ideas, books, and columns on portfolio and wealth management, especially given his connection with the Graham/Buffet/Klarman approach to investing. Jason’s weekly column, which appears on the front page of the Business & Finance section of the WSJ every Saturday, is a must read for me and I hope you, too.

http://blogs.wsj.com/totalreturn/2014/09/06/read-em-and-reap-smart-people-for-investors-to-follow/

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“For decades, the name of the game for investors has been to make as much money as possible. From now on, Mr. LeBaron thinks, the prime directive will be to “lose as little money as possible…

In Mr. LeBaron’s view, the easy-money policies of central banks, including the Fed, have created what he calls ‘administrative markets’–in which prices are set at least partly by government policy rather than by market forces.

But, he worries, that can’t last forever. ‘In complex systems, the dynamics are predictable but the timing isn’t,’ he says. ‘It’s like adding a grain of sand one at a time to a pile: You can’t tell when it will collapse, but you know it will.’”

Dean offers great advice: “Look for the questions that are not being asked?” I try to think of these at least once per day.

http://blogs.wsj.com/moneybeat/2014/01/17/new-warnings-from-an-investing-pioneer/

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If you aren’t willing to tie yourself to the mast, you almost certainly don’t belong in stocks at all at this point—since the course may well be far rougher in the future than it recently has been. And your willpower, no matter how firm you think it is, will probably fail you when the market takes a bad drop.

As “Adam Smith” said of the stock market in his classic book “The Money Game”: ‘If you don’t know who you are, this is an expensive place to find out.’”

http://blogs.wsj.com/moneybeat/2013/08/02/can-you-be-bound-for-glory/

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I cannot say that it was the first time that this law partner heard that question, but I know his answer was not a canned speech; he thought about it for some time, but his conclusion was that in most cases the law is on account holders’ side. Honestly, I expected him to point me to a specific and unambiguous statute that protected the account holders’ assets, so I was a little surprised by his answer. However, he did walk me through the recent instance when investors were not protected: Lehman Brothers’ British account holders.

Jason Zweig asks the same question in this week’s Intelligent Investor column and learns that it has not been a problem in over 400 bank failures.

http://online.wsj.com/article/SB10001424127887324392804578362391140337804.html?KEYWORDS=Intelligent+Investor

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In his latest column (3/2/13), Jason refers to a paper about to be published by the University of Rochester’s Robert Novy-Marx (RNV). The column:

http://online.wsj.com/article/SB10001424127887323293704578334491900368844.html

RNV has written often on the value premium–the item that my investment firm has been trying (with some success) to capture. He has been trying to understand why and where it exists, such as in the following paper that I read a few years ago that relates the value premium to operating leverage (Note: the draft of the operating leverage paper that I read was dated May 18, 2007):

http://rof.oxfordjournals.org/content/early/2010/08/16/rof.rfq019.abstract

In RNV’s latest paper, which was the impetus for Jason’s column, RNV introduces a quality formula to improve the value premium. It seems to be generating a lot of buzz because Jason wrote that DFA’s founder David Booth and AQR’s Cliff Asness are planning to create funds based on RNV’s quality paper. Booth even called it one of those investing ideas that only come along once every twenty years or so.

But, RNV compares his measures with several tools that my firm has used since day one, including those with a quality component, specifically value investing tools based on the work of Fama, French, Lakonishok, Shleifer, Vishny (see F&F and LSV tab above), Haugen, Piotroski, and Greenblatt.

Fama and French (F&F) were not the first to point out that high book-to-market (BtM) stocks (value) trounced low BtM stocks (glamour) in generating returns, but their 1992 paper brought the issue to the forefront because they are staunch defenders of the Efficient Market Hypothesis (EMH), which their paper seemed to discredit. F&F swiped that cognitive dissonance aside by claiming (“hoping” actually) that the extra returns were compensation for risk (that they did not quantify).

LSV and Haugen later showed that value’s better performance was earned with less risk than the market leaving F&F with only hope. In 2000, Piotroski showed that the performance of the F&F model could be further improved with a nine-point measure of quality based on nine financial statement metrics. Piotroski called it an F score. And Greenblatt used a two factor joint measure of quality and price.

When executing its strategy, my firm has leaned on F&F’s BtM research and on Piotroski’s F score in addition to the research from the others mentioned above. I have always thought of our process as a joint value/quality approach, so I find it interesting that many feel as if this is something new. It may be new in that the research is presented in a new way with data through 2011, but this approach has been practiced by many value investors for a while and RNV’s results are not very different from the results of other Value/Quality practitioners. In addition, I have called my process a sorting process and not a screening process, because we sort rather than screen for the best investment ideas. RNV used a similar sorting process.

In the end, however, most of a practitioner’s ability to capture the value premium is going to be determined by whether they have the stomach to enter the order and buy some temporarily ugly looking businesses at the height of their grotesqueness (when their prices are dropping) and to sell those businesses when those prices bounce back to intrinsic value. As cliff Asness once said, a model never loses its nerve. I would add that a model never gets greedy. The ability to manage fear and greed are paramount.

Here is a draft of RNV’s paper to which Jason refers in his column:

http://rnm.simon.rochester.edu/research/QDoVI.pdf

It’s good stuff if only to help explain why so many value investors have beaten the market for so long.

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http://online.wsj.com/article/SB10001424127887324432004578306153331261978.html

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“Individual investors who avoid ‘doing things you know too little about’ still stand a decent chance of outperforming professional investors.”

How true.
http://online.wsj.com/article/SB10001424127887324731304578193323337104806.html

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Enjoy

http://online.wsj.com/article/SB10001424052702304821304577438511630586748.html?KEYWORDS=zweig#articleTabs%3Darticle

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