Conspiracy Theories about Investment Managers on TV

Posted by Preet on Dec 30, 2008 | 3 comments

Following yesterday’s post about the great website Stockchase.com in which I mentioned that a cynic might suspect an investment manager might give away free stock picks for dubious reasons… Here’s a conspiracy theorist’s short list of some strategies one might use:

1. Pound the table on a stock because they already bought it and it’s been going down and they want to pump the price up before dumping it. A case of hot potato.
2. Espouse staying away from a stock at all costs, recommend selling it if you have it. Why? So they can pick it up more cheaply.
3. Scream the sky is falling – because they have many short positions.

On another note – if your fund manager got up there and starting giving away his top picks for free, wouldn’t you be inclined to ask for a discount? You might be paying an arm and a leg for active management, but viewers who don’t hold units of his/her fund are getting some of his/her best ideas for free. :)

Mind you, if you look at some of the calls as listed on stockchase.com that might be more in line with the value. Thank You! I’m here all week… try the fish. :)

How Good Are The Guests on BNN?

Posted by Preet on Dec 29, 2008 | 8 comments

BNN, the Business News Network, is Canada’s flagship investment channel. There is a seemingly non-stop supply of guests appearing on the show sounding incredibly smart and well-researched, providing free commentary and recommendations on stocks to the channel’s faithful callers.

They Sure Look Smart

It would be hard to find people more well versed in many of the stocks they comment on, but you have to ask yourself a few questions as to if and how you should act on the information that is being doled out. A cynic would suggest that if they are giving away free information, it’s either not that valuable or they are hoping people will act on their comments which in turn benefit the speaker (example: a fund manager buys a position the day before and then proclaims it to be the next big thing, viewers buy it over time and the manager sells it after riding the price up).

Are Looks Deceiving?

Well, the good news is that there is a site out there that keeps track of pretty much EVERYTHING that is said by visiting guests. It includes the guest’s name, the stock’s price at the time of the recommendation, the date and any comments (in point form). You can search by stock (to see all the various guests’ opinions and recommendations on that one stock over time), or you can search by guest (to see all of their recommendations they have made over the years on various stocks).

www.stockchase.com – I’ve set the link to point to the list of guests whose last names start with A to E. Feel free to check out this great site and feel free to let us know if you can find anyone who is consistently right.

Boxing Day Sales Don't Seem Cheap After Returning From India

Posted by Preet on Dec 28, 2008 | 0 comments

Fiona and I returned from India on Boxing Day and we had a fantastic time. I will probably miss the food the most – I ate like a king and had some of the most amazing food I’ve ever had. Our cab took us past Yorkdale mall on the way through Toronto and as you can imagine the parking lot was full, there was even a backlog on the offramps to get to the mall parking lots from the highway! Of course, the increased mall traffic is due to all the Boxing Week sales when many retailers are trying to clear stock to make way for the 2009 lineups – deals are a-plenty and there are a lot of good deals to be had…

…unless you’ve just  been to India where your dollar goes a LONG way. Here are some examples:

• We had a chauffeur service and as an example, for one leg of the trip he drove us around 800km between cities (return) and before, during and after was at our beck and call if we wanted to go out for lunch, go sight-seeing or shopping, etc. He would just sit in the car and wait for us to finish. For this particular three day stretch the total cost was $162 CAD. Our cab ride from Pearson to Ajax was $83.
• Two lattes from the local version of Starbucks was $4, instead of $3.xx for one which is what we pay in Canada.
• We picked up a 100% cotton table runner and 8 cotton napkins for $8. They were labelled as Pier 1 products. Similar items from Peir 1′s website would be over $60 all together.
• Fiona had some henna applied to one of her hands, took the artist about 20 minutes and cost about $1.25.

I miss India already!!!

Happy Holidays

Posted by Preet on Dec 22, 2008 | 2 comments

Just a quick note to wish everyone a happy holiday season. I’m travelling to Delhi tomorrow and will be there for the next 5 days and then it’s back to Canada. I don’t know if I’ll have access to a computer or not, so just in case I don’t I’ll mention now that I will take a break from blogging until I return to Canada. If I happen to get to a computer, then I might throw up some more quick posts but no promises… :)

Thanks for reading and welcome to all the new subscribers in 2008! I hope you stick around in 2009 because it should get a lot more exciting with more giveaways (and bigger ones too!)… oh yeah, and hopefully you enjoy the content. :P

Quadruple Witching Days on The Stock Markets

Posted by Preet on Dec 21, 2008 | 0 comments

Quadruple Witching Days occur four times every year and are thought to have the potential of causing higher than normal volatility. Of course, these days “higher than normal volatility” takes on a special meaning. Mark Wolfinger pointed out earlier on his blog that the market (US market) had 22 days where there was a 5% swing in price during the two months of October and November alone. To put this into perspective, this only happened 27 times between 1950 and 2000, a span of 50 years. Mark sourced the information in turn from a blog on Time Magazine’s site.

But I digress. A quadruple witching day is when you have a number of exchange traded derivatives expiring all at the same time. In this case we are talking about:

1. Index Futures
2. Index Options
3. Options on individual Stocks
4. Futures on individual Stocks

Each set has their own schedule of expiry dates, and it so happens that all four have expiry dates on the following four dates of every year – the third Friday of the following months:

• March, June, September and December

So this past Friday was a Quadruple Witching Day, but could anyone tell? Normally, the higher experienced volatility would be reflective of positions being closed out for futures, and hedges being extended for those who wish to keep hedging, and all the other things that happen with derivatives trading.

An Example of How Performance Chasing Damages Wealth

Posted by Preet on Dec 20, 2008 | 0 comments

Yesterday’s post explained the difference between time-weighted returns and dollar-weighted returns. If you read between the lines you’ll have noticed that negative excess returns of dollar-weighted returns over time-weighted returns would indicate a proclivity to performance chase by investors. Some interesting data comes from Russel Kinnel who examined both the time-weighted returns and dollar-weighted returns of various mutual fund categories (US data), through April 2005:

Source: Russel Kinnel from Morningstar, Inc. as cited in “The Fundamental Index” by Robert Arnott.

Time-Weighted vs Dollar-Weighted Returns

Posted by Preet on Dec 19, 2008 | 8 comments

Still in India, but I have access to a computer ever now and then so it thought I would keep writing! Unfortunately, Fiona has been a bit ill  – I think we both got a bit of food-poisoning, but it’s hit her harder than me. The rest of the family are off to Ranthambore on a tiger safari, but Fiona and I are still in Jaipur – not to worry though, as I’m getting some quality time with my aunts! :)

Time Weighted Returns

When you see the return of mutual funds, it’s important to make a distinction between the time weighted return which is similar to what is reported on performance charts and the dollar-weighted returns, which represents what the average investor actually earned – the two can be dramatically different. If we have a fund that has an average annual return of 20% for three years, it can attract a lot of new investors (performance chasers). Let’s suppose that the fund had $100 million invested at the beginning of this spectacular three year run. Now let’s further suppose that $1 billion of new money gets added to the fund due to the great performance, but that the NEXT three year period results in a flat performance of 0% each year. The time-weighted average return over the 6 years is 10% – still sounds great.

Dollar Weighted Returns

The dollar weighted returns tells you what the average investor experienced since it links the performance to the amount invested in the fund at the time. From above we see that only $100 million earned a great rate of return, but the $1 billion that followed after the first three years earned nothing. On a dollar weighted basis the average investor earned less than 2% – a far cry from the 6 year average of 10%.