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Sigmund Freud the portfolio manager
Lifestyle, 4:01
<p>Byron Wien, former investment strategist at Morgan Stanley (NYSE:MS) (MS) and current Vice Chairman at The Blackstone Group L.P. (NYSE:BX) Advisory Partners (BX), traveled to Austria 25 years ago and used Sigmund Freud’s success in psychoanalytical theory development as a framework to apply it to the investment management field.</p> <p>This is how Wien describes Freud’s triumphs in the field of psychology:</p> <p>“He accomplished much because he successfully anticipated the next step in his developing theories, and he did that by analyzing everything that had gone before carefully. This is the antithesis of the way portfolio managers approach their work.”</p> <p>Wien attempts to reconcile the historical shortcomings of investment managers by airing out his dirty mistakes for others to view.</p> <p>“I think most of us have developed patterns of mistake-making, which, if analyzed carefully, would lead to better performance in the future…In an effort to encourage investment professionals to determine their error patterns, I have gathered the data and analyzed my own follies, and I have decided to let at least some of my weaknesses hang out. Perhaps this will inspire you to collect the information on your own decisions over the past several years to see if there aren’t some errors that you could make less frequently in the future.”</p> <p>Here are the recurring investment mistakes Wien shares in his analysis:</p> <p>Selling Too Early: Wien argues that “profit-taking” alone is not reason enough to sell. Precious performance points can be lost, especially if trading activity is done for the sole purpose of looking busy.</p> <p>The Turnaround with the Heart of Gold: Sympathy for laggard groups and stocks is inherent in the contrarian bone that most humans use to root for the underdog. Wien highlights the typical underestimation investors attribute to turnaround situations – reality is usually a much more difficult path than hoped.<br /> Overstaying a Winner: Round-trip stocks – those positions that go for long price appreciation trips but return over time to the same stock price of the initial purchase – were common occurrences for Mr. Wien in the past. Wien blames complacency, neglect, and infatuation with new stock ideas for these overextended stays.<br /> Underestimating the Seriousness of a Problem: More often than not, the first bad quarter is rarely the last. Investors are quick to recall the rare instance of the quick snapback, even if odds would dictate there are more cockroaches lurking after an initial sighting. As Wien says, “If you’re going to stay around for things to really improve, you’d better have plenty of other good stocks and very tolerant clients.”</p> <p>It may have been 1986 when Byron Wien related the shortcomings in investing with Sigmund Freud’s process of psychoanalysis, but the analysis of common age-old mistakes made back then are just as relevant today, whether looking at a brain or a stock.</p> <p>&nbsp;</p> <p>Wade W. Slome, CFA, CFP®, Investing Caffeine<br /> DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in MS, BX, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be reli</p>
$1billion plus hedge funds show strongest average returns
Hedge Funds
<p>&nbsp;</p> <p>The latest research by Preqin into hedge fund performance finds that as of the end of August, large Hedge Funds – those with AUM of $1bn or more* – posted the greatest returns of any size category. They outperformed emerging, small and medium funds for the month (with -1.49% returns), as well as across the 12-month (+4.30%), 3-year annualized (+9.06%), and 5-year annualized (+8.52%) horizons. They also had the lowest 3-year volatility of any size class, of only 3.29%. Emerging hedge funds, those with AUM of less than $100mn, had the lowest returns across all horizons, as well as the highest volatility.</p> <p>Other Key Hedge Fund Performance Facts:</p> <p>Sharpe Ratios: The rolling 3-year Sharpe ratios for all size classes have been rising since mid-2014. As of the end of June, large funds had the highest ratio of 2.84. Strong performance in the past 12 months has seen their ratio overtake those of small and medium funds.</p> <p>Interquartile Range: While all fund sizes show a similar median performance, the interquartile range for emerging funds is 12.82%, compared to only 9.87% for large funds. The smaller number of large funds, as well as their lower volatility, mean that their performance is more concentrated around the median.</p> <p>Concentrated Capital: Although large hedge funds comprise only 9% of the total number of funds in the industry, they manage 82% of institutional investor capital committed to hedge funds. Small and emerging funds, which total 85% of hedge fund numbers, only contain 11% of capital commitments.<br /> Investor Thresholds: Of those investors that specify a minimum AUM requirement for hedge funds, only 22% will consider funds in the emerging bracket. These investors tend to be those with larger and more sophisticated hedge fund allocations. However, 52% of investors set their minimum AUM requirements in the small bracket, while 11% will only consider committing to large funds.<br /> Fees &amp; Redemption Periods: Small and emerging funds have lower mean management and performance fees than large and medium funds. While emerging funds charge an average of 1.55% and 18.84% respectively, that number rises to 1.63% and 19.70% in large funds. The average redemption frequency for large funds is 104 days, more than twice the average of 51 days for emerging funds.</p> <p>“The release of the Preqin’s new fund size benchmarks allows hedge funds to be compared more accurately with their peers. While benchmarking funds by geography or strategy can provide insight into macro-trends in the industry, the performance of the smallest and largest funds within those categories can differ wildly. Large funds, those with $1bn or more in assets under management, have consistently generated outperformance in both the short and long term when compared to smaller sized hedge funds. Furthermore, these funds have posted superior average returns while also maintaining lower volatility and higher Sharpe ratios over multiple time horizons. However, the highest performing funds of smaller sizes can generate returns greater than their larger counterparts, which means that smaller hedge funds can still hold much appeal for investors. ” Amy Bensted – Head of Hedge Fund Products, Preqin</p> <p>* Preqin’s definition of fund size classifications is based on AUM of funds: Emerging, &lt;$100mn; Small, $100-499mn; Medium, $500-999mn; Larg</p>
Logical song: what to make of record buybacks
Capital Markets
<p>A common question I’ve been getting at client events lately is about stock buybacks and the effect they’re having on earnings-per-share (EPS); as well as what they say about the economy overall and investor/business psychology.<br /> First, the numbers<br /> Birinyi Associates does a monthly tracking of authorized and executed stock buybacks. There were $47 billion of buyback authorizations in August, a 15% increase year-over-year. Year-to-date buyback authorizations, at 146, have eclipsed full year totals from 2008 through 2012, and are up 40% year-over-year. Based on the data year-to-date, buybacks are at a run-rate to a record $897 billion of announced buybacks in 2015—this would be the largest of all-time, as you can see in the table below.</p> <p>Source: Birinyi Associates, Inc., as of August 31, 2015.</p> <p>*Executed figures are full-year. Authorized is year-to-date for all periods.</p> <p>Critics of stock buybacks argue they are manipulating EPS, and therefore stock prices; are depressing job growth; and/or are hurting the US economy overall. As per the first argument, it’s also the critics’ contention that companies buying back their own stock are sacrificing longer-term capital investments for the benefit of returning cash to shorter-term oriented hedge funds and other investors. I don’t happen to be one of those critics.</p> <p>Let’s distinguish what a stock buyback is—it’s the other side of the stock sales coin. Companies sell shares of equity to raise capital. They buy back shares of equity to retire capital. Those decisions are part of the process known as “capital allocation,” which is essential in a capitalistic economy in that it directs money to areas where it’s most productive.</p> <p>There are generally two primary reasons why companies buy back their own stock: 1) they believe their stock is undervalued and a cheaper place to deploy capital than other alternatives, like capital spending or mergers/acquisitions; 2) they have amassed more capital than their company can spend/invest profitably. Remember, over-capitalization can be just as problematic as under-capitalization. The effect of a buyback is to increase EPS, since the company’s future profits will be divided among fewer shares.<br /> Tie in to Fed policy<br /> Many argue that excess Fed liquidity, zero interest rate policy (ZIRP), and the ability of companies to leverage both, have led to a manipulation of earnings. But Strategas Research Partners looked at the growth rate of revenues and earnings on both a notional dollar and a per-share basis and found that share buybacks have had little to do with the rapid rebound in earnings. Operating EPS are up 119% since the market’s low in March 2009; while operating earnings in notional dollars are up an even greater 122%. It appears that lower interest expense and the ability of companies to restrain labor costs have had a much bigger impact on profits.</p> <p>Indeed, ZIRP has made it extremely cheap for companies to borrow money to buy back their shares; with several of the world’s most well-known investors recently warning about this—including BlackRock’s Larry Fink and GMO’s Jeremy Grantham. It’s arguably one of the distortions that has arisen from the still-emergency level of interest rates and accommodation—a can that was kicked down the road yet again last week when the Fed maintained ZIRP.<br /> Buybacks suggest weak investment?<br /> Stock buybacks don’t necessarily indicate weak investment, especially when capital is abundant, like today. According to Thomson Reuters, global companies have about $7</p>
Cava Grill reports second multimillion dollar funding round
Venture Capital
<p>Cava Grill is serving up funding rounds and venture capitalists can't eat it fast enough.</p> <p>The fast-casual Mediterranean restaurant chain just raised $45 million in venture funding, reports the Washington Business Journal. This is the second multimillion dollar funding round Cava has had in just a few months. The group announced a $16 million raise in April.</p> <p>Previous investors The Invus Group and Swan &amp; Legend Ventures led the Series B funding. AOL founder Steve Case's Revolution Growth also participated.</p> <p>Cava Grill is primarily located in the D.C. area, but is expanding to Los Angeles and possibly other locations. The company says it isn't committing to specific numbers for restaurant openings to give themselves more flexibility.<br /> Photo: Steven Depolo</p>
Soros steps into the fintech arena
FinTech
<p>George Soros, the original posterboy of the swashbuckling global macro arena, isn’t exactly the first person who comes to mind when you think about fintech.</p> <p>He just joined the space though, and as always, his bet looks like a winner.</p> <p>According to Business Insider, Soros Fund Management has just backed TruMid, an electronic corporate bond marketplace which aims to provide superior liquidity for its users via “swarms.” What are swarms? Here’s what TruMid says about them on their website:<br /> Trading occurs in “swarms” - well-publicized trading sessions that are focused on a specific set of related or topical securities. We will attract a critical mass of traders and investors to our swarms. This robust forum will generate superior liquidity and pricing efficiency for everyone.<br /> And it plans to do this – and more – all under “a shield of anonymity with zero information leakage.”</p> <p>Soros’ bet could not have come at a better time. Years upon years of zero interest rates have led asset managers to snap up all the corporate bonds they could get, and now that the Fed is about lift rates, people are having a lot of problems trying to move them.</p> <p>Industry heavies such as Jamie Dimon, Steve Schwarzman, and Bill Gross meanwhile have all sounded the alarm on bond market liquidity. If they’re right, the man who broke the Bank of England just make another killing again.<br /> Photo: International Monetary Fund</p>
For ETF investors, BRIC is really just India
Asset Management
<p>This year's failings of the Brazil, Russia, India and China quartet – commonly known as “BRIC” – are well documented.</p> <p>Of the four major single-country BRIC ETFs, the average 90-day return entering Friday was a loss of over 21 percent, more than enough to qualify as a bear market.</p> <p>Down 11 percent over the past three months, the WisdomTree India Earnings Fund (ETF) EPI 0.16% is not innocent in all this, but a drop of 11 percent is just a third of the decline experienced by the iShares MSCI Brazil Index (ETF) EWZ 0.6% and less than half the drop notched by the iShares FTSE/Xinhua China 25 Index (ETF) FXI 0.34% over the same period.</p> <p>While EPI's showing is not awe-inspiring, it is clearly less bad than equivalent BRIC ETFs, which could be a sign that the least bad offender could regain the leadership status it held last year. Fundamentals confirm as much.</p> <p>Read more at Benzinga, here.<br /> Photo: Kirill Tropin</p>
I don’t always drink liqueur, but when I do, I prefer Unicorn Tears
Lifestyle, 4:01
<p>With Silicon Valley dreaming up more mythological horsies than Deckard did in Bladerunner, you’d almost think the VC space would want to take things back a notch.</p> <p>Nope.</p> <p>As of August 25, Fortune counted over 120 unicorns currently in operation, ranging from humble single-horns such as GrabTaxi and Tinder, to decacorns like Spotify and Xiaomi, all the way up to the monstrous quinquagintacorn that is Uber. That’s an almost 50% bump from its previous count in January.</p> <p>For those of you who thinks this is all getting a little out of hand however, here’s a little something for you.</p> <p>U.K.-based Firebox is currently selling Unicorn Tears, an “enchantingly scrumptious Gin Liqueur” they amusingly subtitled a “Magical Mother's Ruin.”</p> <p>It’s currently priced at £39.99, a seemingly reasonable amount given the creature’s rarity, though I do suspect that it’s more gin than the majestic beast’s tears. It is sprinkled with “sparkling, 100% edible real silver pieces” though, which the young’ns might think as “baller.”</p> <p>With dead unicorn lists rumored to be spreading and unicorpse figures currently piling, this might be the best thing for you to imbibe as the whole thing goes crashing down. Cheers.<br /> Photo: Wiki</p>
Video: Behold L.A.’s last trophy property, and it can all be yours for $1 billion
Lifestyle, 4:01
<p>Remember Villa La Leopolda at Villefranche-Sur-Mer? It was – and still is – one of the trophy properties in the south of France.</p> <p>Built by the noted architect Ogden Codman Jr. during the late 20’s, the villa stands on a vast tract of land once owned by King Leopold of Belgium, and passed through several illustrious owners including Gianni Agnelli, Izaak Killam, and Edmond Safra, with Safra’s widow making headlines back in 2008 as she tried to unload the place for a mind-blowing $750 million. Well, here’s something more expensive.</p> <p>Boasting 157 acres of prime, prime land on top of the city of angels with views from Malibu all the way to the San Gabriel Mountains, “The Vineyard” in Beverly Hills has entranced more than a few of Hollywood’s elite into trying to buy it, and it comes with a great story to boot. A story which, as Hollywood Reporter puts it, “could be torn from the pages of a Coen brothers script:”</p> <p>It’s currently marketed at $1 billion. There’s still no house on the property but you do get a driveway, a couple fountains, a helipad, and unrivaled views over L.A. Check out the rest of “The Vineyard’s” story here.<br /> Photo: Michael</p>
NexAsia Week Ahead: Jobs report; China PMI coming up
Capital Markets
<p>Good morning everyone. With the Fed decision – and Yellen’s presser – out of the way, you’d almost think we’d get a breather from Fed speak this week. Wrong. All eyes shift to the Fed again as Bill Dudley, Stanley Fischer, Charles Evans, Lael Brainard, and Janet Yellen herself speak at various gatherings scheduled over the next few days. The week won’t all be about the Fed though, we’ve got big manufacturing data coming out of China and Japan, and the all-important jobs report is set to come out as well.</p> <p>Here’s what else you need to know:</p> <p>Monday:</p> <p>1:45 pm – Bank of Japan Governor Haruhiko Kuroda speaks</p> <p>4:00 pm – Italy September business confidence – Forecast: 102.8 from 102.5</p> <p>4:00 pm – Italy September consumer confidence – Forecast: 108.97 from 109</p> <p>7:45 pm – New York Fed President Bill Dudley speaks</p> <p>8:30 pm – U.S. August MoM personal income – Forecast: 0.31% from 0.4%</p> <p>10:00 pm – U.S. August MoM pending home sales – Forecast: 0.4% from 0.5%</p> <p>Tuesday:</p> <p>1:30 am – Chicago Fed President Charles Evans speaks</p> <p>5:00 am – San Francisco Fed President John Williams speaks</p> <p>1:30 pm – Reserve Bank of India interest rate decision – Forecast: 7% from 7.25%</p> <p>3:00 pm – Spain August YoY retail sales – Forecast: 2.97% from 4.01%</p> <p>8:00 pm – Germany September preliminary YoY inflation rate – Forecast: 0.1% from 0.2%</p> <p>10:00 pm – U.S. September CB consumer confidence</p> <p>Wednesday:</p> <p>7:50 am – Japan August preliminary MoM industrial production – Forecast: 0.1% from -0.8%</p> <p>7:50 am – Japan August YoY retail sales – Forecast: 0.53% from 1.6%</p> <p>8:00 am – New Zealand September ANZ business confidence</p> <p>9:30 am – Australia August MoM building permits – Forecast: 0.25% from 4.2%</p> <p>10:00 am – Singapore August bank lending</p> <p>1:00 pm – Japan August YoY housing starts – Forecast: 5% from 7.4%</p> <p>3:55 pm – Germany September unemployment change – Forecast: -5.4K from -6K</p> <p>3:55 pm – Germany September unemployment rate – Forecast: unchanged at 6.4%</p> <p>4:30 pm – U.K. Q2 final QoQ GDP growth rate – Forecast: 0.7% from 0.4%</p> <p>5:00 pm – Eurozone September flash YoY inflation rate – Forecast: unchanged at 0.1%</p> <p>5:00 pm – Eurozone August unemployment rate – Forecast: unchanged at 10.9%</p> <p>8:15 pm – U.S. September Adp employment change – Forecast: 200K from 190K</p> <p>8:30 pm – Canada July MoM GDP</p> <p>9:45 pm – U.S. September Chicago PMI – Forecast: 53.2 from 54.4</p> <p>Thursday:</p> <p>2:00 am – Fed Chair Janet Yellen speaks</p> <p>7:00 am – Fed Board of Governors member Lael Brainard speaks</p> <p>7:30 am – Australia September AIG Manufacturing Index – Forecast: 51.1 from 51.7</p> <p>7:50 am – Japan Q3 Tankan Large Manufacturing Index – Forecast: 13 from 15</p> <p>9:00 am – China September NBS Manufacturing PMI – Forecast: 49.8 from 49.7</p> <p>9:45 am – China September final Caixin Manufacturing PMI – Forecast: 47 from 47.3</p> <p>9:45 am – China September Caixin General Services PMI – Forecast: 51 from 51.5</p> <p>8:30 pm – U.S. September/26 initial jobless claims – Forecast: 272K from 267K</p> <p>9:30 pm – ECB President Mario Draghi speaks</p> <p>10:00 pm – U.S. September ISM Manufacturing PMI – Forecast: 51 from 51.1</p> <p>Friday:</p> <p>12:30 am – San Francisco Fed President John Williams speaks</p> <p>7:30 am – Japan August unemployment rate – Forecast: unchanged at 3.3%</p> <p>9:30 am – Australia August MoM retail sales – Forecast: 0.68% from -0.1%</p> <p>4:30 pm – Hong Kong August YoY retail sales – Forecast: 6.94% from 1.9%</p> <p>8:30 pm – U.S. September non-farm payrolls – Forecast: 202.8K from 173K</p> <p>8:30 pm – U.S. September unemployment rate – Forecast: unchanged at 5.1%</p> <p>Saturday:</p> <p>12:00 am – Fed Vice Chair Stanley Fischer speaks<br /> Photo: flazingo</p>
Barron's weekend roundup: Financial planning faces new hurdles
Capital Markets
<p>In this week's cover story, Barron's writes about the need to plan about how to care for aging parents. Older parents are now taking as much financial priority as children's college tuition or retirement planning. Private banks are being forced to adapt to meeting these new financial and emotional needs of maintaining two generations of retirees in the same family at the same time.</p> <p>Car makers are dirtier than we thought. Barron's feature story examines the Volkswagen scandal and how it's blowing apart the auto industry.</p> <p>There's more than one way to make money. Hedge fund Harvest Small Cap Partners invests "scared," Barron's writes. Jeff Osher uses his background working through the Asian financial crisis and the dot-com bubble to learn to sense danger, and invest accordingly.</p> <p>&nbsp;<br /> Photo: spatz_2011 </p>