Archive for December, 2010

This and That: Happy Christmas edition

December 16, 2010


Before we dive into this week’s collection of links, a few housekeeping items. With Christmas just around the corner, it is that time of the year when I slow down to spend more time with the family and my posting frequency takes a big hit. Chances are you’ll see very little new material here over the next two weeks. Therefore, I want to take this opportunity to wish you all a Merry Christmas, Happy Holidays and a Very Happy New Year.

  1. The New York Times reported that a dying Wall Street insider offers some sensible investing advice for Main Streeters in a slim new book.
  2. We seem to hear about a new Ponzi scheme pretty much every day these days. The New York Times offers some valuable tips on how to avoid being taken in by a Ponzi scheme.
  3. So many Canadians still find TFSA contribution and withdrawal rules confusing. This post on Canadian Money Forum offers a humorous explanation of TFSA rules.
  4. If you want to move your TFSA account from one institution to another without incurring transfer fees, be sure to check out the December shuffle.
  5. Mike Holman explains he is going paperless by signing up for e-bills. As someone who has gone paperless for years, I can see how much it can reduce clutter. Just makes sure you backup your data preferably at an offsite location.
  6. The endless debate about passive versus active investing? It all stems from one side misunderstanding the other, says Michael James.
  7. If you invest in TD e-Series of Funds, Canadian Financial Stuff has an useful heads up: you may be required to keep investor profiles up to date. I’ve been caught up in this in the past as well. All it takes is a quick phone call to get it sorted out.
  8. Canadian Couch Potato finds a perfect hockey analogy for index investing in Hall-of-Famer Mike Gartner.
  9. Million Dollar Journey featured a guest post on a subject fraught with pitfalls — lending money to friends.
  10. With so many Ponzi schemes being uncovered these days Larry MacDonald asks why Canadians have to put up with a justice system that is soft on white-collar crime.
  11. With RRSP season just around the corner, we are about to be hit with a barrage of ads touting past performance of mutual funds. Jim Yih warns investors of the dangers of looking at a snapshot of performance.
  12. Most Canadians are unaware that US Estate Taxes may be applicable to them. You may have heard the news about a proposed tax deal in the works in teh US. How to Invest Online explains the implications of the tax deal on Canadians with US-located property such as real estate and securities.
  13. Beating the Index explains why he chose to pay down his mortgage over building an investment portfolio.

Interest Rates are Heading Up

December 16, 2010


As investors do not pay as much attention to bond markets as they do to equity markets, it is worth nothing that in recent weeks bond yields have been heading higher. After setting a low of just under 2 percent at the beginning of Q4 of this year, the yield on the Government of Canada 5-year bond has increased steadily to 2.58 percent.

Increasing bond yields is not exactly good news for borrowers. Banks have started increasing the interest rate on mortgages. TD Canada Trust, for instance, announced yesterday that it is hiking the rate on a 5-year closed mortgage by 20 basis points to 4.24 percent. If you are homeowner and your fixed-rate mortgage is coming up for renewal, you may want to shop around and lock in a lower rate that is still available through other lenders. Slightly higher rates are no reason to panic because the Bank of Canada expects interest rates to stay low for a long period. But note the caveat: households should make sure that they can the service their debts at normal interest rates.

Higher bond yields should offer some cheer for savers who have suffered through a period of abnormally low interest rates. However, increasing bond yields also means that existing holdings will fall in value. Bond investors may want to consider shortening the duration of their bond holdings.

Selecting Winning Managers Through Graphology

December 15, 2010


I’m currently reading No One Would Listen, a book by Harry Markopolos, the guy who blew the whistle on Bernie Madoff with this lengthy memo to the Securities and Exchange Commission. I find the book very interesting for the various colourful characters that populate the financial industry.

One of the colourful people in the book is Rene-Thierry Magon de la Villehuchet, a French nobleman who ran a hedge fund of funds called Access International. Access is said to have lost more than $1.4 billion of Thierry’s own money, his family’s fortunes and other rich and royal families of Europe in the Madoff Ponzi scheme. Sadly, after learning about the Ponzi scheme and knowing that it was not possible to get even some of the money invested back, Thierry committed suicide in his office by slitting his wrists.

What I found incredible is the due diligence Mr. Markopolos says Access employed to select hedge fund managers:

Several months later, we discovered another method Access used to conduct due diligence. When we started to work on another project, Thierry asked Frank [one of Mr. Markopolos’ colleagues] and another man to submit handwriting samples, which were then sent to a handwriting analyst in France. This analyst supposedly could determine from an individual’s handwriting whether he or she were honest. This pseudo science is called graphology, and in the United States it definitely is not admissible as evidence in the courtroom. In fact, voodoo magic probably has more credibility as a crime-fighting tool than graphology. We were never able to confirm that Madoff had submitted a handwriting sample; but as Access was very serious about it, we assumed that he did. Incredibly, that was the level of Access’ due diligence, that and the fact that a check arrived every month, every single month. And money always makes a strong statement.

We know that some investors use astrology and phases of the moon to divine market direction. But graphology? That’s certainly a new one, at least for me.