Archive for April, 2010

This and That: Mind Over Money, Food Inc., Goldman Sachs and more…

April 29, 2010

  1. The program Nova on PBS featured a documentary called Mind Over Markets this week. The subject: the raging battle between the proponents of efficient markets and the behavioral school that holds that markets are driven by emotions. Grab a bowl of popcorn and watch the video here. (Unfortunately, the video seems to be accessible only from US-based IP addresses).
  2. On a more depressing note, a reader wanted to highlight a documentary called Food Inc. that was recently featured on CBC’s The Passionate Eye. Let’s just say that you won’t see vegetables and meat arranged neatly in the local supermarket in the same light again. The entire movie (93 min. long) is available here. You may want to skip the popcorn for this one though.
  3. Goldman Sachs is in the hot seat over SEC allegations that the firm withheld material information from investors. Knowledge @ Wharton takes a look at the financial, legal and ethical issues raised by the SEC case.
  4. Larry MacDonald highlighted a recent report that found that the cost to prepare and file personal income tax returns works out to $215 per Canadian. On a related note, don’t forget that April 30th is the deadline to file your taxes.
  5. Canadian Couch Potato weighs in on why international index funds and ETFs have such large tracking errors. Part 2 is available here.
  6. Jon Chevreau highlighted a recent talk by Odlum Brown’s Murray Leith who believes the best stock returns for the next decade could come from the biggest and bluest U.S. companies.
  7. I use Microsoft Money to track spending but an ordinary spreadsheet should do just fine. Squawk Fox has a budget spreadsheet available for download.
  8. I keep important financial documents copied in a thumb drive in our safe deposit box. Another option for those not too worried about security is backing up data to online storage says a guest blogger on Million Dollar Journey.
  9. I once almost bought a penny stock called Valdo Technology International (VTI on the Venture Exchange), which has the same ticker symbol as Vanguard Total Market ETF (VTI on NYSE Arca). Preet says a mistake like this is called a fat finger trade.
  10. Michael James offers an unflattering thousand-foot view of hedge funds. For me, poor disclosure and limited oversight alone makes me want to stay away.

I’m unable to highlight all the articles worth checking out in my weekly roundup but you can check them out through my Twitter feed. Have a great weekend everyone!

Greek Woes: What to do now?

April 27, 2010


After more than a year of steady gains, stock markets became suddenly volatile and tumbled sharply (relative to market action over the past year, not the panic in late 2008 and early 2009) today. It is foolhardy to assert that this is the start of the new bear market that so many seem to be expecting or that stocks will continue to trend higher. Since there will be no shortage of pundits confidently stating one case or the opposite, investors might wonder what exactly they are supposed to do. Here are some suggestions:

Remember risk: While stocks can go up like a rocket, they can just as easily head in the other direction. If they do, do you have the resources to ride out a decline? If not, you may have too much allocated to stocks. Even if you have the ability to bear risk, do you have the stomach? If you experienced sleepless nights and temptation to abandon stocks altogether in the bear market of 2008-09, you may again have too much exposure to stocks.

Raise some cash: In the latest Berkshire Hathaway annual report, Warren Buffett encouraged investors to reach for a bucket instead of a thimble when it is raining gold. While I found myself investing regularly at the early stages of the 2008-09 bear market, I ran out of buckets when it really started to rain gold. So, one of my lessons from the Great Crash was to keep plenty of cash around to take full advantage of rare market opportunities.

Rebalance, if necessary: While Canadian stocks have rallied strongly over the past year, other asset classes may not have kept pace. Gains in US stocks were negated by the rise in the dollar and European stocks suffered a double whammy of Canadian dollar appreciation and a falling Euro. Increasing bond yields meant bond prices have moved in the other direction. Given all this, your portfolio allocations might have deviated from your targets and it may be time to rebalance.

Stay the course: Assuming you have assembled a portfolio that is appropriate for your circumstances and temperament, the best course of action might be to do nothing. It is tempting to constantly tweak the portfolio in the face of every little move in the markets but that is likely to be counterproductive for retail investors.

Of course, all this is easier said than done and none of this is really new but nevertheless, there is some value in reiterating the basics every now and then.

CommunityLend launches (quietly) in Ontario and Quebec

April 26, 2010


Do you remember the excitement and hoopla surrounding peer-to-peer (P2P) banking in the U.S. just three years back? Borrowers flocked to these websites to make loan requests and lenders were excited with an opportunity to play banker and earn higher returns than they could through traditional avenues. Then the credit crunch hit, default rates soared across all credit levels, lenders quickly discovered that they had seriously under priced risk in these consumer loans, experienced capital losses and loan originations just plummeted.

Against this backdrop, CommunityLend, a P2P service quietly launched in Ontario and Quebec early this year. Like Prosper and Zopa, CommunityLend operates an online market place that matches borrowers with lenders. Borrowers are charged interest on unsecured loans that CommunityLend calls competitive to that charged by banks and credit card companies. For instance, CommunityLend suggests lenders charge a minimum interest rate of 6.00 to 6.25 percent on loans to borrowers with the top credit rating — more expensive than the Prime plus 3.25% (about 5.5%) charged by the major banks on unsecured lines of credit but almost certainly much less than interest rates on credit card balances.

If you are excited about signing up as a lender with CommunityLend, you might be out of luck. Only accredited investors such as institutions and high-net worth individuals with financial assets exceeding $1 million can sign up to become lenders. CommunityLend is still tiny — just $97,000 in loan requests accepted so far but it is still early days. The accredited investor requirement is probably a huge obstacle to widespread adoption in the two provinces. This is not necessarily a bad thing because the past three years have clearly demonstrated the perils involved in retail investors trying their hands at becoming part-time bankers.