Category ArchiveInvesting



Investing 30 Apr 2007 01:53 pm

Stock Options 101

Stock options are risky (unless you’re a CEO) but they can help you make money when the market goes up and down. To pull this off you need to understand what you’re buying. InvestorTrip has begun a series on trading stock options by first telling you what they are. This should be an interesting series.

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Investing 28 Feb 2007 05:02 pm

Computer Meltdown “Star” of Stock Market Plunge

Bad stock market days happen. When you get runs like we’ve been watching these last few months we shouldn’t be surprised to witness a considerable drop like yesterday’s. Two groups who have egg on their faces are the NYSE (NYE) and Dow Jones (DJ). The stock exchange couldn’t handle the massive volume leaving many trades unprocessed. Today the NYSE asked specialist firms to remain open after the closing bell to finish processing trades. Tuesday wasn’t a shining moment for the now publicly-traded exchange.

For Dow Jones their credibility to communicate vital market data took a huge hit. Tuesday, Dow Jones’ computers couldn’t keep up with the massive volume. Their index calculations fell behind what was actually happening. When technicians switched to a backup system the data caught up causing a 178-point drop. That set into motion automatic computer trades linked to the Dow Jones index.

I expect trading houses to build their own DJIA calculators on their own computers so prevent this from happening again. That will cut into Dow Jones’ subscription revenue. I also expect a few trial lawyers to launch a few suits to recoup clients’ losses.

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Investing 13 Jan 2007 08:08 pm

Hedge Funds Going Public

Fortress logo

Fortress Investment Group plans to become the first publicly traded hedge fund on an America stock exchange. Will investors buy into the dark, secret world of hedge funds? Judging by the publicly traded funds in the U.K. they’ll bite:

But as public companies, will these businesses generate attractive returns for stock market investors?
One way to measure the industry’s performance is by looking to London and elsewhere in Europe. So far, investors there have been richly rewarded for backing most of these companies.

Shares of Britain’s Man Group, the largest publicly traded hedge fund firm in the world, traded below 30 pence during the mid 1990’s. They now change hands for more than 500 pence.

RAB Capital shares have almost quadrupled since the London-based hedge-fund manager went public in early 2004.
Shares of Partners Group (CH:002460882: news, chart, profile) , a Swiss private-equity and hedge fund firm, are up 78% since they began trading on Switzerland’s stock exchange in March 2006.

BlueBay Asset Management, which has almost $3 billion in fixed-income hedge fund assets, is up more than 15% since its London IPO in November.

Absolute Capital Management and Ashmore Group, two other London-listed hedge fund business, are up roughly 65% and 30% respectively since their debuts in 2006.

Fortress isn’t a pure hedge fund play. Their website lists their work in private equity funds and “Publicly Traded Alternative Investment Vehicles” along with their hedge funds.

Publicly traded stock is a currency to tempt current and future employees. Going public also is a way for the founders to cash out of their enterprise without having to shut down. These masters of the universe with their strong egos would love to see their companies outlast them showing future investors how smart they really were. But to really last they need a business plan that is more durable than the trading talent of a few. Secrets eventually come out, and the market learns about new ways of making money which pushes down exorbitant returns. Fortress having other avenues of making money might understand this.

[As a sidenote, Democratic Presidential candidate John Edwards recently resigned from Fortress. He told CNBC (watch the video) that he didn't expect to make any money from a Fortress IPO.]

For those who lust at hedge fund’s big returns but don’t have the wealth to join the club, shy at the high fees they charge and their lack of liquidity buying their stock just might solve their problem.

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Investing 11 Jan 2007 09:50 pm

Making Money the Catholic Way

Ave Maria logo

For you good Catholic investors check out the Ave Maria Growth Fund (AVEGX). James Bashaw, manager of the socially responsible mutual fund, combs through the numbers of companies that don’t do business in contraceptives and pornography and has turned above-market returns:

Avoiding companies that don’t comport with church teachings, he says, provides a foundation. “But it doesn’t tell you which non-offending companies to choose.”

Accordingly, Bashaw likes companies with the potential to provide promising returns over a three-year period, based on factors including historical earnings growth, return on equity and price to earnings ratio. He chooses attractive securities from a 200-stock pool, with 37 stocks now in the portfolio.

Started in May 2003, the no-load fund gained 15.1% in the 12 months through Dec. 29, versus 12.8% average return for peers in its Multi-Cap Core category, according to fund tracker Lipper Inc. Its 12.2% annualized three-year return also compares favorably to its category’s 10.3% gain.

Professor Stephen Bainbridge, a Catholic, isn’t a big fan of these investments:

As an investor, I’m skeptical. In the first place, actively managed funds tend to underperform the market over time. One reason for that performance gap is that high fees actively managed funds tend to charge. Another is that even star active managers make investment mistakes. In faith-based investing, you’re adding additional expenses – to pay for the screening of investments to ensure consistency with your values – and you’re blocking off whole industry sectors (e.g., defense or tobacco), which means your portfolio inherently will be less well-balanced and less well-diversified than a broad market index fund. Taken together, there’s reason to think faith-based funds likely will underperform the market over time.

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Investing 08 Jan 2007 11:27 pm

Red Vs. Blue Investing

Red versus Blue Map 2004

For those of you who care more about political purity than the return on your investment the New York Times has a story on two politically correct mutal funds. Blue Investment Management’s small and large cap funds invest in companies that donate most of their campaign contributions to Democrats. Action Fund Management’s Free Enterprise Action fund (FEAOX) lobbies “companies in the portfolio whenever they think shareholders’ money is being wasted on social causes.”

Three professors found that socially responsible investments, which include these politically motivated funds, slightly underperform a market index. Of course the socially conscious investor is willing to accept such a cost to ease their conscience.

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Investing & Private Equity & Shopping 04 Jan 2007 07:29 am

Quick Links: 01-04-2007

  • Retail sales numbers started coming in. Christmas shoppers liked the sales which disappointing stores.
  • Toys R Us had a good 2006 making their private equity overlords happy as well as corporate bond traders.
  • Big web players like Google and Yahoo are petitioning the SEC to prevent the NYSE from charging them for real-time stock quote data. Like it’s that important for average investors. What day trader is using Yahoo Finance as their primary info source? A losing one.