Posts filed under “Apprenticed Investor”

Might “Fiduciary Standard” = A Blow to CEFs?

There’s still great uncertainty about what direction financial regulation is going to take, particularly in view of Republicans’ newfound control of the House of Representatives.  Back in July, headlines like this one, trumpeting replacing a “suitability” standard with a fiduciary standard, were a dime a dozen.  (I won’t go into the differences between the two standards here.)

I believe one unintended consequence of setting the broker/dealer bar at “fiduciary” instead of “suitable” might well be a significant hit to the closed end fund (CEF) business, and here’s why:

Take a look at this graphic, straight off the cover of a recent CEF (no names, as it really doesn’t matter), and let’s reconvene immediately below:

Every single financial advisor who committed clients’ funds to this CEF IPO plunked down $25 in cash in exchange for $23.875 in cash – which will remain in cash until the fund begins to scale into its investments under whatever its mandate might be.  It is exactly for this reason that stablizing bids are used by underwriters for some period of time (usually up to 90 days) to support the price.  That said, it’s just about a lock that once the stabilizing bid is removed, the price is going to drift down toward the Net Asset Value (NAV).  Rare indeed is the CEF that does not break its issue price when the stabilization is removed. Which begs the questions:  Why buy CEFs on the offering?  Knowing it’s virtual certainty that a CEF will break its issue price, why not wait until it does so?  Would/could buying a CEF on the offering be considered a breach of an advisor’s fiduciary duty?  What compelling reason would there be to participate in the offering?  Whatever the CEF investment, it may well be suitable for a given investor — of that there can be no doubt.  But if the bar is raised to fiduciary, committing a client’s funds on the offering becomes, in my very humble opinion, less defensible, particularly given what we know about how the vast majority of CEFs trade in the short-term aftermarket.

Is anyone aware of a CEF that did not break its issue price in the first 2 – 4 months of trading?  I’d be very interested in knowing.

What say ye?  What am I missing?

Category: Apprenticed Investor, Investing, Legal, Regulation

Percentage of Stocks Over an Index’ Moving Average as an Oscillator

I was discussing with a group of traders the other day how to use various oscillators with a moving average. Percentage of NYSE stocks over the 200 day MA, percent of SPX stocks over 50 day, etc. Someone complained that when they didn’t have access to their Bloomberg terminal, they could not pull up those…Read More

Category: Apprenticed Investor, Technical Analysis

Politics and Selective Perception

Source: Red State > A friend writes: “What do you do when presented with a chart such as the one above?” My answer was simply that it depended upon who is showing you the chart: • If it comes from a hard core partisan, you laugh at the flaws in their wetware and say nothing….Read More

Category: Apprenticed Investor, Data Analysis, Employment, Politics, Psychology, Really, really bad calls

Investor Advisors: Buy High, Sell Low

Jason Zweig has an interesting piece in the Saturday WSJ about the bad advice investment advisors give: “Investment professionals are supposed to exercise independent judgment; in Warren Buffett’s words, they should be fearful when others are greedy and be greedy only when others are fearful. It doesn’t always work that way. Corporate pension funds had…Read More

Category: Apprenticed Investor, Investing, Really, really bad calls

15 Inviolable Rules for Dealing with Wall Street

The never ending parade of stock scandals seems to continue unabated, the stock lending scam being only the most recent. As history has shown us — from Mexico to Orange County to analyst banking crisis to Derivatives to etc., when the Street comes aknockin, best for you to hide your wallets. For reasons we are…Read More

Category: Apprenticed Investor, Corporate Management, Investing, Really, really bad calls, Rules

Do You Wanna Be Right, or Do You Wanna Make Money?

My inbox is deluged with rants and demands from people who are insisting that This. Rally. Must. End. NOW! A composite of their emails would read something like this: “How can you sit there so blithely while the Fed debases the world’s reserve currency? Why haven’t you commented on POMO?!? The entire game is rigged,…Read More

Category: Apprenticed Investor, Investing, Markets, Psychology, Really, really bad calls, Trading

Six Rules of Michael Steinhardt

Michael Steinhardt was one of the most successful hedge fund managers of all time. A dollar invested with Steinhardt Partners LP in 1967 was worth $481 when Steinhardt retired in 1995. The following six rules were pulled out from a speech he gave: 1. Make all your mistakes early in life: The more tough lessons…Read More

Category: Apprenticed Investor, Investing, Rules

10 Habits of Mind for Investors

This comes from a math blog by a teacher called WITHOUT GEOMETRY, LIFE IS POINTLESS (get it?).

There is a recent post I wanted to reference — Habits of Mind — that was originally written for math students. With a few small changes, it can be readily adapted to thinking about markets, risk, investing, etc.

Have a go at it:

Habits of mind

1. Pattern Sniff
. . .A. On the lookout for patterns
. . .B. On the lookout for shortcuts

2. Experiment, Guess and Conjecture
. . .A. Can begin to work on a problem independently
. . .B. Estimates
. . .C. Conjectures
. . .D. Healthy skepticism of experimental results
. . .E. Determines lower and upper bounds
. . .F. Looks at small or large cases to find and test conjectures
. . .G. Is thoughtful and purposeful about which case(s) to explore
. . .H. Keeps all but one variable fixed
. . .I. Varies parameters in regular and useful ways
. . .J. Works backwards (guesses at a solution and see if it makes sense)

3. Organize and Simplify
. . .A. Records results in a useful way
. . .B. Process, solutions and answers are detailed and easy to follow
. . .C. Looks at information about the problem or solution in different ways
. . .D. Determine whether the problem can be broken up into simpler pieces
. . .E. Considers the form of data (deciding when, e.g., 1+2 is more helpful than 3)
. . .F. Uses parity and other methods to simplify and classify cases

4. Describe
. . .A. Verbal/visual articulation of thoughts, results, conjectures, arguments, etc.
. . .B. Written articulation of arguments, process, proofs, questions, opinions, etc.
. . .C. Can explain both how and why
. . .D. Creates precise problems
. . .E. Invents notation and language when helpful
. . .F. Ensures that this invented notation and language is precise

Read More

Category: Apprenticed Investor, Investing, Mathematics, Psychology, Rules

Ever listen to how people speak? I don’t mean their verbal tics or habits (“um”), I refer specifically to the words and phrases they choose to use. The way they deploy language can be quite revealing about their beliefs, training, and thought process. Consider, as an example, the bond market. The discussion of late have…Read More

Category: Apprenticed Investor, Contrary Indicators, Markets, Psychology, Trading

Seeking the Truth — Or Obscuring It?

Over the past few weeks, I have posted on an eclectic assortment of items. That is keeping with the blog’s sub-title: Macro Perspectives on Capital Markets, Economy, Technology, and Digital Media. A few of you have commented (here and here) or emailed about this recently. I want to take a few moments to explain the…Read More

Category: Apprenticed Investor, Investing, Psychology, Weblogs