Tuesday, April 29, 2008

Longleaf Partners (LLPFX) and Dodge and Cox Stock (DODGX)

These two Kiplinger 25 funds only recently reopened to investors. These are both the kind of large cap value funds that you can feel comfortable recommending to relatives. My own preference, however, is for funds that are more bold and distinct. Morningstar compares them (along with the recently reopened Sequoia SEQIX) in a 04/28/08 article by Dan Culloten, "Fund Junkies' Dilemma: Which Reopened Fund Do I Buy?" Unfortunately, he doesn't really address the issue of how weak these funds have performed over the past five years. You don't want to jump from hot fund to hot fund but you also don't want to rely on past glory (which may be a particular issue with Sequoia).

Sunday, April 27, 2008

Senior Market Credentials and Designations

"Bill targets scammers who victimize the elderly" by Kathy Kristof, 04/27/08 Los Angeles Times
In the past several years, a virtual alphabet soup of "professional designations" have cropped up purporting to signal that the bearer has some specialized training and expertise in investment planning for retirees.
This article addresses the confusing proliferation of professional designations, particularly those that purport to indicate a specialty in working with senior citizens. Professional credentials and designations can be an important tool both for the consumer (to help differentiate between one professional and the next) and the professional (as the pursuit of such a credential or designation typically requires a significant amount of study).

With regard to a senior specialization, however, I wouldn't put too much weight on any that is currently available. This isn't to say that none of them are valid. The Chartered Advisor for Senior Living from the American College is probably the most rigorous of the currently available designations. I just think that the more generalized (with respect to age) designations (such as the CFP for financial planning, CLU for life insurance, and RHU for health insurance) are more useful at this time.

CGM Focus (CGMFX)

CGM Focus is another Kiplinger 25 fund and another one of my favorites. It's one of the more volatile funds that I like but the long term returns are very impressive. The 04/28/08 issue of Fortune magazine has an article by Jon Birger on "Where to put your money now" that talks about fund manager Ken Heebner's latest big bet - steel.
For Heebner, steel is essentially a proxy for infrastructure - a bet that developing nations like China, India, Brazil, and Saudi Arabia will continue to build new hospitals, roads, bridges, and power plants. "We've never had a global steel shortage before, but all the ingredients for one are present today," he says. Heebner thinks heightened demand could eventually push steel prices up to $2,000 a ton from $800 today.

Saturday, April 26, 2008

Bond Rating Services and the Mortgage Meltdown

There's an important article in this week's New York Times Magazine explaining the role of bond ratings services like Moody's in the current mortgage mess. As "Triple-A Failure" by Roger Lowenstein, 04/27/08 New York Times Magazine, explains:
By providing the mortgage industry with an entree to Wall Street, the agencies also transformed what had been among the sleepiest corners of finance. No longer did mortgage banks have to wait 10 or 20 or 30 years to get their money back from homeowners. Now they sold their loans into securitized pools and — their capital thus replenished — wrote new loans at a much quicker pace.
The article concludes:
This leaves an awkward question, with respect to insanely complex structured securities: What can they rely on? The agencies seem utterly too involved to serve as a neutral arbiter, and the banks are sure to invent new and equally hard-to-assess vehicles in the future. Vickie Tillman, the executive vice president of S.&P., told Congress last fall that in addition to the housing slump, “ahistorical behavorial modes” by homeowners were to blame for the wave of downgrades. She cited S.&P.’s data going back to the 1970s, as if consumers were at fault for not living up to the past. The real problem is that the agencies’ mathematical formulas look backward while life is lived forward. That is unlikely to change.

Friday, April 25, 2008

Fairholme (FAIRX)

One of the Kiplinger 25 funds is Fairholme (FAIRX). This is a fund that I like a lot. Morningstar (where I always do further research on funds) gives it five stars and says "This mutual fund is one of the very best." If you take a look at the top five holdings you get a very good idea of what they're up to (their holdings are very concentrated). On the one hand, you have smart money bets like Berkshire Hathaway (18.42% of assets), Sears Holdings (6.04% of assets), and Leucadia National (4.54% of assets). These are largely bets on very smart people like Warren Buffett and Eddie Lampert. On the other hand you have story bets like Canadian Natural Resources (15.12% of assets) and EchoStar Communications (8.70% of assets). I don't think you need to agree with these bets to like the fund. Let's face it, Sears Holdings is a very scary holding right now - it's roughly half of what it was a year ago and it could clearly be half of what it is now (I'm not saying necessarily or even probably but clearly possibly). I like that Fairholme goes for where the opportunities are and isn't just a closet index fund.

Sunday, April 20, 2008

Kiplinger's 25 Best Funds

The May 2008 issue of Kiplinger has their list of the 25 best mutual funds. I think most people should invest in mutual funds and Kiplinger's list is one of the better mass media places to start. I like that they're willing to commit to a list short enough to show they mean it but long enough to offer you choices. Of course, I wouldn't recommend adding any of these to your portfolio without additional due diligence.

Friday, April 18, 2008

Being a Tax Preparer at H&R Block

"A Worker's Life Under H&R Block" by Steve Koppman is an entertaining article in the 04/16/08 issue of the East Bay Express (a local free weekly) about working at H&R Block.

Central to its strategy is obscuring what its "tax professionals" are paid. Far more people go through Block classes than would if they had realistic information up-front. And imagine how much credibility customers would give such "tax pros" if they knew we were being paid eight or nine dollars an hour to handle their returns.

Long-Term Care Insurance in Money Magazine

"Long-Term Care Insurance: When It Makes Sense" by Justin Martin in the May 2008 issue of Money Magazine is typical of the poor job mass media does when discussing long-term care insurance (LTCI). It says that "Among Americans who reach their 65th birthday, 45% will have to pay for some kind of long-term-care services" but that "Only 9% of 65-year-olds can expect a lengthy nursing-home stay" although "another 18% will need long-term assisted living care". The author never explains how those numbers add up. What's really annoying is the way the risks are minimized. It says that "even a long-term stay could be a matter of months, not years" but elsewhere in the article it states that the "the average stay [in a nursing home] is 2 1/2 years." Likewise, it suggests that the odds are very low (9% for the nursing home stay) but for something financially catastrophic that strikes me as a very high risk. LTCI is a challenging subject but articles like this just cloud the waters further.