• Buffett-Style Financial Advice

    This infographic summarizes financial advice from Warren Buffett that we would all be wise to heed. Originally appeared on bestfinanceschools.net and reposted on Business Insider.

    10 Financial Lessons We Can Learn From Warren Buffett
    Source: Best Finance Schools

    For discussion:

    Warren Buffett has been described as a value investor. What is the difference between growth investing and value investing? What are the characteristics of Buffett's style that can be categorized as value investing?

  • What Not to Invest In

    According to this CNBC article by Ric Edelman, founder and CEO of Edelman Financial Services, you will not hear his firm recommending the following list of 15 investments.

    From the article:

    That's why I sometimes say that the advice we don't give is important—that clients should pay the same attention to what we're not saying as they do to what we say. With that in mind, here are 15 investment products and strategies (in no particular order) that you would never hear my colleagues or me recommend:

    1. Variable life insurance policies
    2. Non-traded real estate investment trusts
    3. Hedge funds
    4. Commodities trading
    5. Options and futures trading
    6. Derivatives
    7. PIPES (Private Investments in Public Equity)
    8. Alternative investments
    9. Viatical settlements (buying insurance on someone else's life and waiting for that person to die)
    10. Master limited partnerships investing in oil and gas
    11. Fixed annuities
    12. Equity-indexed annuities
    13. Lottery tickets (seriously?)
    14. Actively managed funds
    15. Retail mutual funds (we prefer exchange-traded funds and institutional-grade mutual funds, both of which are far lower in cost.)

    A similar list from Kiplinger's Personal Finance (Ody, June 2013) names some of these same investments as ones to avoid. For example, non-traded REITs are included because of their illiquidity and lack of transparency.

    For discussion:

    What do the items on the two lists have in common?

    Are there any investors for whom these investments are appropriate?

  • Common Sense Strategies For Your Year-End Bonus

    The suggestions in this CNBC video are common sense ways to spend your year-end bonus, but they are worth repeating. When windfall cash shows up unexpectedly, the temptation is to spend, spend, spend. And while it is OK to spend some portion of the bonus, the wise thing to do is limit that spending to about 10% of the total cash.

    For discussion:

    Can you suggest other advice for saving, investing, and spending your bonus?

  • Back to Basics Investment Advice

    Great investment advice from Barry Ritholtz in his recent Washington Post column:

    "Even when you understand what you are supposed to do, it is very, very hard to actually do it. Since we are approaching the time of year when new year’s resolutions get made, think about how many people vow to stop smoking, exercise and lose weight. Then consider how many achieve those goals. The same gulf appears between people’s financial intentions and how they actually behave."

    In his column,  he lists 10 simple truths that investors ignore, and I've listed just a few here. You can read the full column here. (http://www.washingtonpost.com/business/get-there/for-investors-its-a-perfect-time-to-go-back-to-the-basics/2014/12/18/2db0ecce-847e-11e4-b9b7-b8632ae73d25_story.html)

    1. Stock picking is a sucker’s game.

    The idea here is that most of us are no good at timing the purchase and sale of individual securities. This is consistent with investment advice from Charles Ellis and others who suggest that active investing is a costly loser's game that most investors can't win.

    2. Turnover, fees and taxes exert a huge drag on 

    Keeping costs low is one of the secrets to success

    3. You are an error machine, a mess of biases and emotions

    Knowing your own biases is the first step towards managing your investing process.

    For Discussion

    Which of the 10 truths are you most guilty of ignoring?

  • New Risk in Mortgage Market

    Source: http://us.spindices.com/indices/real-estate/sp-case-shiller-us-national-home-price-index


    Credit standards for mortgages come and go. At one time, a prospective homebuyer would have been asked to document every dollar in his/her account and prove every source of income. Then came the days of loose standards where banks accepted nothing but a borrower's good word as promise of repayment. 

    The pendulum swings from tight to loose credit standards, and according to housing market expert Robert Shiller, some evidence exists to suggest that the market may be getting a little too lax in its credit standards.

    From this CNBC article (Gillies, 14 Dec 2014):

    Borrowing criteria tightened after the housing market crashed, but in recent days some of those strictures have been loosened. Lack of a big cash down payment has been cited by some as keeping many possible buyers from becoming homeowners.

    According to Fannie Mae and Freddie Mac, to get a mortgage with just 3 percent down, borrowers must have a credit score of at least 620. They must also be able to able to prove income, assets and job status, and purchase private mortgage insurance.

    However, Shiller still cast doubt on whether that would be the best course of action. "Because it's only a 3 percent margin, if somebody defaults and they have to sell the house, they might not get all the money back." 

    For discussion:

    How could easy lending standards lead to a new bubble in housing prices?


  • Equity Analysts and Conflicts of Interest



    Photo credit: "4.28.11ToysRUsTimesSquareByLuigiNovi" by Nightscream - Own work. Licensed under CC BY 3.0 via Wikimedia Commons -


    Once upon a time--well, about 10 years ago really--banks were accused of trading positive equity analyst recommendations in exchange for their clients' underwriting business. In other words, the analysts at an investment bank who issue buy/sell/hold recommendations on a company's stock were being influenced by the relationship that company had with the other departments of the investment bank.

    That problem was resolved, and ever since, investment banks have been careful to separate their underwriting business from their equity analysis. And they all lived happily ever after.

    Sort of.

    This week, the Financial Industry Regulatory Authority (FINRA) fined 10 investment banks of conflict of interest in a case they thought was long gone: the case of the IPO for Toys"R"Us. From a recent Bloomberg article (Campbell, 11 Dec 14):

    The investment banks promised favorable research to Toys “R” Us Inc. and its private-equity owners in 2010 to win roles in its initial public offering, the Financial Industry Regulatory Authority said today in a statement. The regulator fined the firms a total of $43.5 million, faulting them for “implicitly or explicitly” making promises that their analysts would give positive coverage. Six of the 10 firms didn’t have adequate supervisory procedures to prevent the practice.

    Also from the article:

    "The firms’ rush to assure the issuer and its sponsors that research was in synch with the pitch being made by their investment bankers caused them to overstep the prohibitions against analyst solicitation and the promise of favorable research,” Brad Bennett, Finra’s chief of enforcement, said in the statement.

    For discussion:

    In what ways could equity analysts face a conflict of interest?

  • Should You Invest in Samsung or Qualcomm?

    In the technology sector, what stock is worth buying? This video discusses Samsung and Qualcomm as possible investments. Sounds like the the same qualities that made a stock a winner in the past continue today, no matter what the sector. These qualities include:

    (1) Good ideas - is the company innovative?

    (2) Cash flow - is the company liquid?

    (3) Growth - will profits continue to grow or will they stagnate?

    For discussion:

    Would you buy Samsung or Qualcomm? Why or why not?

  • Investing the Same Old, Same Old Way

    Apparently investing in boring stocks works. That's what millionaires do, anyway.

    According to CNBC and the Millionaire Survey (Rosenbaum and Schoen, 11 Dec 2014):

    Millionaires make and grow their money the conservative way: by investing in established brand names from within the market's largest sectors and by using broadly diversified mutual funds. That's the overriding message from the CNBC Millionaire Survey.

    "They accumulate their wealth by hitting a lot of singles and doubles," said Tom Wynn, director of affluent research at Spectrem Group, which polled 500 affluent Americans with more than $1 million in investable assets in November for CNBC. "And to do that," Wynn added, "they need to have a broad base of mutual funds to capture all of the sectors. In many ways, they are traditional with their investments."

  • What is Uber Worth?

    Uber, the taxi-alternative car service, has been in the news quite a bit lately. Some of the press is not so good, and yet, the money keeps flowing in.

    According to this recent NY Times article (Isaac and de la Merced, 4 Dec 2014):

    The start-up closed a new $1.2 billion round of financing on Thursday, with investors valuing the company at a staggering $40 billion.

    That puts a new mountain of cash on top of the $1.5 billion that Uber had already raised. And it may collect even more: Uber may eventually sell an additional $600 million in stock, and it is working with Goldman Sachs to sell, potentially, another $1 billion in debt to some of the Wall Street firm’s wealthy private clients.

    This video from the Financial Times explains some of the factors that go into valuing this company:

    For discussion:

    What financial factors should you consider in valuing Uber?

    What are the strengths, weaknesses, opportunities, and threats facing Uber?

    Would you invest in Uber? Why or why not?

  • Best Collectible Investment in 2014

    The best collectible investment in 2014 was classic cars with a 25% return, beating out art and coins. This investment offered the lowest volatility too, making it the most attractive in its asset class.

    But the entry fee? Not for the faint of heart. We're talking about vintage Ferraris, Porsches, and Mercedes with price tags in the multi-millions.

    For discussion:

    Given the global demand for luxury products, what is the expected impact of a strong U.S. dollar on sales of collectible luxury cars?

    What is the annualized return on the Ferrari GTO if it was worth $4.2 million in 1994 and was sold for $38.1 million in 2013?

  • Betting on the Buck

    Source: oanda.com graph of the USD-EUR exchange rate quoted in EUR per USD terms.

    The U.S. dollar is the currency of choice for investors today. From this recent CNBC article (Eisen, 5 Dec 2014):

    Hedge funds and other large speculators have been boosting their long dollar positions. It's now a $48 billion bet, the largest since 2008, according to weekly data from the Commodities Futures Trading Commission.

    But new highs and crowded positions aren't keeping top strategists from betting on the buck in the new year.

    Dollar strength has been fueled by better economic data in the U.S. relative to weaker numbers and trends in Europe, Japan, China and elsewhere. That's created an interest rate gap in the dollar's favor, as the market positions itself for a interest rate hike from the Fed in 2015 and easier policies elsewhere.

    For discussion:

    What are the factors driving the strength in the U.S. dollar?

    What impact does the interest rate gap play in the strengthening U.S. dollar?


  • Americans Have A Lot to Learn

    (Photo credit : Flickr (Creative Commons)) www.aag.com per these terms: www.aag.com/retirement-reverse-mortgage-pictures

    According to a recent survey, Americans think they know more about retirement planning than they actually do. From this Forbes article (Hopkins, 3 Dec 2014):

    This mismatch of knowledge and confidence is a serious problem according to David Littell, the Director of the New York Life Center for Retirement Income, as it can lead to uninformed retirement planning decisions. Littell notes that Americans struggled to answer basic retirement planning questions in key areas such as Social Security benefits, annuities, retirement investments, longevity, and long-term care planning. The RICP® survey found that only half of the respondents knew that Social Security benefits increased each year the benefits were deferred after full retirement age until age 70.

    For discussion:

    How much do you believe you know about retirement planning? How confident are you that you're planning correctly?

    Go to the Social Security Administration website and determine your retirement benefits here http://www.ssa.gov/retire2/


  • IMF Managing Director Speaks About Falling Oil Prices

    This WSJ interview with Christine Lagarde, Managing Director of the International Monetary Fund (IMF), Ms. Lagarde explains the effect of falling oil prices on the aggregate economy.

    For discussion:

    Based on the interview, is the decline in oil prices mostly driven by the supply or demand for oil?

    What is the aggregate effect of this decline in oil prices?