Posts filed under “Finance”
I have been getting the Bloomberg Brief for a long time — its a very good daily subscription showing an overview of a variety of market and economic factors. Readers of the Big Picture can get a 2 month free trail subscription on the graphic below and filling out the usual forms. (No, I don’t…Read More
1. You’ve got to get along. If you don’t have good people skills, you’ll never succeed, even if you run your own business. 2. Money talks. He who has cash has leverage, and someone always has more than you do. There’s rarely a deal between equals. 3. Leverage is not always about money. I.e. if…Read More
From the Wall Street Journal: The Libor manipulation scandal has ensnared at least 17 financial institutions and 28 individuals in a wide-ranging investigation spanning 11 countries and four continents. So far, it has netted at least $5 billion in penalties, with more on the way. Below, we’ve taken the most complete list of allegedly involved…Read More
Yesterday, Business Insider posted a huge piece, wherein they ask various folks for their best idea for a decade. With the low key headlne, Wall Street’s Brightest Minds Reveal Their Best Investment Ideas For The Next Decade, here is how I responded: Financial planning: “As it turns out, that is an easy question: Our own…Read More
Here are my morning reads: • World Led by U.S. Poised for Fastest Growth Since 2010 (Bloomberg) see also David Rosenberg: U.S. economy in 2014 has more upside than many think (Financial Post) • A Noble Lie on Market Timing (Morningstar) • Bullish Sentiment is Now Officially Embarrassing (Reformed Broker) but see Risk from bubble…Read More
Here are my Friday reads to wrap up your workweek! • SURVEY: What Financial TV Network Do You Watch? (Business Insider) • An Optimistic View of the United States (Economix) but see The Most Wonderful Time of the Year May Not Be All That Wonderful for Retailers (WSJ) • Americans Recover Home Equity at Record…Read More
10 trends to watch in ﬁnance for 2013
It’s a winter ritual: Seers, prognosticators and other gurus tell us which stocks to buy for the year ahead, where they think the Dow will close in December and which momentous events will take place.
History teaches us that the majority of these charlatans will be wrong, and the ones who get it right are mostly lucky. If you have been reading my column for any length of time, you know to ignore them. (See 2011’s Forecaster Folly.)
When it comes to predictions, I do the following: Note down the forecasts made this month and look back at them in a year. Repeat every year. I use my desktop calendar and an e-mail Web service called Followupthen.com to keep me on track. I started doing this almost a decade ago, and I found it terribly liberating. It will be always be instructive, and, as with the class of 2008 forecasters, occasionally hilarious.
Doing this taught me to ignore the forecasts I see or read, as well as to keep the piehole in the middle of my face closed whenever anyone asks me for a forecast. I defer, saying, “I have no idea. No one does.” It is fun to watch the TV anchors’ heads spin like Linda Blair’s in “The Exorcist.”
A better use of your time? Discern what’s happening here and now. It’s been my experience that investors spend so much time worrying about what might come next that they miss what just happened.
To that end, let’s look at what’s driving the world of finance. Major shifts have already taken place, and if you understand what they are, it will help your financial planning. From my perspective, these are the more significant trends that will probably continue into 2013:
1. ETFs are eating everything.
The revenge of John Bogle continues apace. As investors figure out that they are not good at stock-picking or managing trades, they have also learned that most professionals are not much better. Paying high mutual fund expenses to a manager who underperforms a benchmark makes little sense. This realization has led to the rise of inexpensive exchange-traded funds and indices.
This “ETFication” has obvious advantages: low costs, transparency, one-click decision-making. ETFs are accessible through the stock market for easier execution, with no minimum investment required. Even bond giant Pimco recognized this trend and created an ETF version of Bill Gross’s flagship vehicle, the Total Return Fund. Pimco actually charged more for the ETF than its mutual fund to prevent an exodus of investors from the world’s largest bond fund. This will eventually shift.
Note that Bloomberg, Yahoo Finance and Morningstar all have robust ETF sites that are free (Morningstar charges for some data).
2. The financial sector continues to shrink; advisers continue to leave large firms for independents.
Since the financial crisis, Wall Street has shrunk considerably. According to the Bureau of Labor Statistics, there were about 7.76 million people employed in finance and insurance as of November. That’s down almost 10 percent from the pre-crisis 2007 peak of about 8.4 million workers.
Its more than the crisis: Technology and productivity gains make it easier to operate with fewer workers. My office is a perfect example: Twenty years ago, it would have taken a huge staff to manage the assets we run, handle all the administrative functions, take care of the monthly reporting and manage compliance. What would have taken two dozen people in the 1980s is easily managed by five people today. Oh, and everyone in the office is required to do research or publish commentary. That would have been impossible 30 years ago.
Over the past 40 years, the financial sector over-expanded. Much of what is happening on Wall Street now reflects the process of reversing that excess capacity.
3. Increased pressure on fees and commissions.This trend predates ETFs and Wall Street shrinkage; highly paid people are being replaced with cheap software and online services. This is likely to continue for the foreseeable future.
This is a very good thing for investors: Academic studies have shown that fees are a drag on returns, and lowering these costs is a risk-free way to improve your returns.
4. Hedge fund troubles.This was not a stellar year for the hedge fund industry. First, there was the issue of underperformance, with the hedgies getting stomped — they underperformed markets by 15 percent. Although being beaten by the market is part of the business, it must be tough explaining to clients why an $8 ETF outperformed a service for which they were being charged 2 percent plus 20 percent of the profit. Then there were the legal troubles and insider-trading indictments. A few high-profile closings also hurt the industry’s reputation.
What the industry has going for it is human nature (also known as “greed”). At the first sign of outperformance, the formerly skittish client base will come stampeding back.