Work Until 100, Just Warren Buffett Plans, and other Weekend Reads

Friday, October 19th, 2012

Here are this week’s reading diversions for your personal enlightenment. Have an excellent weekend!

Types Of Crohn’s Disease | LIVESTRONG.COM

Crohn’s disease is an autoimmune disorder that causes inflammation of the digestive tract. The disease usually affects people between the ages of 15 to 35, but it can start at any age. Risk factors include smoking, Jewish ancestry and a family history of Crohn’s disease. Crohn’s disease can affect the gastrointestinal tract from the mouth to the anus, and is categorized by what parts it impacts. According to the Crohn’s & Colitis Foundation of America, there are five types of Crohn’s disease with varying symptoms.

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5 Daily Habits For Living Longer | LIVESTRONG.COM

People who eat a wide assortment of fruits and vegetables consistently have the lowest rates of chronic disease. They maintain healthier body weights, and they live longer.

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What is osteoporosis? | Osteoporosis Explained | HealthandBone.ca

Osteoporosis is a disease that affects your bones, thinning and weakening them, making them more likely to break or fracture. Up to 80% of fractures that occur in women 50+ are fragility fractures. Fragility fractures are those caused by a fall from standing height (or less) that would not ordinarily cause a fracture in a healthy adult.

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Work Until 100, Just Like Warren Buffett Plans – US News and World Report

Longevity has taken up residence in the corner office. Many business leaders routinely work beyond age 65. That’s not new. But increasingly, they’re keeping the lights on for decades after reaching what used to be the traditional retirement age.

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Where the Jobs Will Be in 2020 – US News and World Report

We know which kinds of jobs will be most plentiful over the next eight years until 2020. The U.S. Bureau of Labor Statistics (BLS) projects that positions in healthcare and social assistance, professional and business services, and construction will represent more than half of the 20.5 million new jobs it expects to be created by 2020.

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Mark Chimsky: The Retirement Balance Sheet That Will Change Your Life

Know your “life portfolio.” One of the ways to do this is to build a diversified “Life Portfolio Program®,” a concept developed by New Directions, a nationally recognized company that is a leader in the field of helping senior-level executives with career transitions and retirement.

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Women’s Middle-Age Spread Linked to Health at 70

Weight at midlife — especially pounds put on after age 18 — appears to determine a woman’s health in old age.

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Can drinking coffee make you go blind? – Health News – NHS Choices

Switching to decaf could save your sight, claims the Daily Mail. The newspaper reports that drinking three or more cups of coffee a day is linked with vision loss and blindness.

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Healthy lifestyle in your 70s can ‘add six years’ to lifespan – Health News – NHS Choices

The story is based on a large Swedish study of people aged 75 and over, which found that those with a healthy lifestyle (such as not smoking and taking regular exercise) lived, on average, more than five years longer than those with unhealthy lifestyles.

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Health Benefits – Vitamins and Minerals in Chestnuts | Healthism

The best part is that they are free of any cholesterol and are almost fat-free. They are also gluten-free. They have a white and crispy flesh and small, rounded corms that can also be eaten raw. Water chestnuts are a popular ingredient in the Chinese cuisine. This article comes up with some amazing health benefits of water chestnuts.Interestingly, chestnut trees can live up to five hundred years, but usually do not begin to produce fruit until they are forty years old.

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10 Ways Soft Drinks May Affect Your Health | Healthism

But have we ever thought what goes into these drinks. I believe not, neither have I to be honest. But when all of a sudden my tooth started decaying my fears were confirmed. It was in fact the consumption of these soft drinks and coke. Following are some points on how your health is affected. These sure opened my eyes, before any permanent damage.

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Memory Worries | 5 Signs Your Memory Problems Are Serious | Caring.com

Almost all of us of a certain age — say, anywhere north of 40 — worry at some point about memory glitches. No wonder. Our brains begin to deteriorate by our late 20s. But some memory troubles are signs that there may be something more seriously amiss than normal aging.

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Multivitamins May Reduce Men’s Total Cancer Risk

Men who take a daily multivitamin over the long term may help reduce their risk of cancer, a large new U.S. study concludes.

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Get Up. Get Out. Don’t Sit. – NYTimes.com

Along with questions about general health, disease status, exercise regimens, smoking, diet and so on, the survey asked respondents how many hours per day in the previous week they had spent sitting in front of the television.

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Canadian Advisors Expect Stock Rally to Continue in Q4

Friday, October 19th, 2012

CANADIAN ADVISORS EXPECT STOCK RALLY TO CONTINUE IN Q4

TORONTO, October 19, 2012 – The strong rally in global stock markets has bolstered the confidence of Canadian  investment advisors who are substantially more bullish in their outlook for stocks than they were in third quarter (“Q3”), according to the Q4 Advisor Sentiment Survey (the “Q4 Survey”) conducted by Horizons Exchange Traded Funds Inc. (“Horizons ETFs”).

The Q4 Survey asked Canadian investment advisors to give their outlook on 16 distinct asset classes. Advisers responded whether they were bullish, bearish or neutral on the anticipated returns for these asset classes over the next quarter.

The majority of the almost 200 advisors who responded to the Q4 Survey are very bullish on stocks.  Bullish sentiment on the S&P/TSX 60™ Index increased from 54% in Q3 to 68% for Q4 Survey after a 5.9% return on that index last quarter.  A similar uptick in confidence was observed with the S&P 500® Index after it returned 5.8% last quarter, with 63% of advisors now bullish on the benchmark U.S. index.  Bullish sentiment on the technology heavy NASDAQ 100® Index also increased from 59% to 62% after a 7.0% gain on the quarter.

Even certain stock sub-sectors received strong votes of confidence, such as the S&P/TSX Capped Financial Index™, which saw bullish sentiment rise 13 percentage points from 40% in Q3 to 53% for the Q4 Survey.  Also gold stocks, where bullish sentiment increased even higher, by 16 percentage points to 71%, after the S&P/TSX Global Gold Stock Index™ delivered a 14.8% return in Q3.

Only the MSCI Emerging Markets Index saw a decline in advisor confidence where bullish sentiment dropped from 48% in Q3 to 45% for the Q4 Survey even though the index generated a 7.0% return in Q3.

“The vast majority of Canadian advisors expect the rally in North American stocks we saw in the third quarter to continue through until the end of the year,” said Howard Atkinson, CEO of Horizons Exchange Traded Funds. “The exception being emerging market stocks which, despite strong returns last quarter, Canadian advisors clearly expect to underperform North American stocks.”

The bullish sentiment on stocks paled in comparison to the glimmer coming from precious metals. High levels of bullish sentiment in the Q4 Survey were seen with gold and silver bullion where both were at 69%. Gold bullion delivered a 10.9% return in Q3, while Silver bullion delivered a huge 25.7% return.

“The announcement last quarter by the U.S. Federal Reserve to engage in another round of quantitative easing, known as ‘QE3’, has, in my view, bolstered expectations that precious metals will rise as the U.S. Federal Reserve effectively prints more money,” said Mr. Atkinson. “The returns of both asset classes last quarter certainly support that assertion.”

Bullish sentiment on Natural Gas actually moved into majority territory, increasing from 48% in Q3 to 55% for the Q4 Survey. This comes on the heels of a 17.6% return in Q3.  Similarly, sentiment on Crude Oil also increased from 55% to 57%, after delivering an 8.5% return in Q3. However, bullish sentiment on energy stocks represented by the S&P/TSX Capped Energy Index™ dropped slightly from 58% in Q3 to 56% for the Q4 Survey.

“Energy commodity prices keep ticking along upward, and so too does advisor’s sentiment on natural gas and crude oil,” said Mr. Atkinson. “It’s remarkable to note that the majority of advisors are now bullish on natural gas – we have not seen that for a long time. Natural gas was such a poor performer for so long, but it does look like its turning a corner in both sentiment and return.”

After decent gains against the U.S. dollar (3.3%) in Q3, bearish sentiment on the Canadian dollar dropped from 34% to 24%. More advisors (39%) now have a neutral outlook for the Canadian dollar versus the bulls and bears.  Interestingly, for the first time since engaging the opinion of advisors on the Australian dollar, there is movement to the bullish side on the Aussie dollar versus the Canadian dollar, as neutral sentiment dropped 10 percentage points from 80% in Q3 to 70% for the Q4 Survey and bullish sentiment increased from 9% to 19%.

“As the loonie trades at or near par, advisors have tended to be neutral on its direction,” said Mr. Atkinson. “It’s interesting to highlight the slight shift in sentiment on the Australian dollar. The loonie and the Aussie dollar historically move in tandem, more advisors are expressing a view that this relationship is changing, with a slight edge to going to the Aussie dollar which currently offers higher interest rates on deposits and money markets.”

Advisors accurately predicted the direction of 14 out of the 16 asset classes surveyed last quarter, which is in line with their historical trend of making accurate predictions.

“Advisors were back to their winning ways this quarter. If they were baseball players, they batted over .850, which is an almost unbelievable batting average and shows a phenomenal level of accuracy,” Mr. Atkinson said.

About the Sentiment Survey

Horizons Exchange Traded Funds Inc. conducts the only quarterly sentiment survey of Canadian investment advisors. The survey quantitatively measures advisors’ quarterly outlook as it relates to key benchmarks covering equities, bonds, currencies and commodities. Full survey results are available at http://www.horizonsetfs.com/sentimentSurvey.asp.

About Horizons Exchange Traded Funds Inc. (www.horizonsetfs.com)

Horizons ETFs is an innovative financial services company offering the Horizons ETFs family of ETFs. The Horizons ETFs family includes a broadly diversified range of investment tools with solutions for investors of all experience levels to meet their investment objectives in a variety of market conditions. With approximately $3.5 billion in assets under management and 79 ETFs listed on the Toronto Stock Exchange, the Horizons ETFs family makes up one of the largest families of ETFs in Canada. Horizons ETFs is a subsidiary of Horizons ETFs Management (Canada) Inc. and a member of the Mirae Asset Financial Group.

For further information:
Howard Atkinson, CEO, Horizons Exchange Traded Funds Inc., (416) 777-5167 hatkinson@horizonsetfs.com

Tags: Canadian, Canadian Market, ETF, ETFs
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The Abominable No Man

Friday, October 19th, 2012

by Jamie Hyndman, Mawer Investment Management

I wonder how many investment ideas start optimistically, perhaps with a phrase like, “wow, this stock looks very exciting.” I’m guessing most. However, analyzing a prospective investment with a positive bias is dangerous. This is because of a behavioural finance error known as confirmation bias, which is the tendency to seek out and favour information that confirms one’s initial beliefs.

As a risk conscious investment manager, we (like the “Abominable No Man” himself, Charlie Munger) try very hard not to think of a potential new investment this way. In fact, we take quite a different tack and believe the best approach includes actively looking for holes in a given investment thesis to try and disprove it. This thought process helps identify risks that may have been overlooked or understated.

So how do we do this? One way is to search for sources of information that have a negative view on a given company. This could be from a sell-side analyst for example, or a competitor of the company that we’re examining. We may also seek out completely independent sources of information from areas such as an industry trade union or a governing body. We often go as far as to assign someone from our research team to play devil’s advocate and try to discredit a potential investment.

The benefit of this approach is that it results in a cautious, almost skeptical manner of investing where the “Abominable No Man” can be found at every turn, ready to pounce on a weak investment idea at any time.

Jamie Hyndman

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The Day the Dow Dropped 3,116 Points

Friday, October 19th, 2012

by Jeff Matthews, JeffMatthewsIsNotMakingThisUp.com

25 years ago today the stock market collapsed—and I mean collapsed in the full sense of the word: on Monday October 19, 1987 the Dow Jones Industrial Average fell 23%, or 600 points.

And while 600 points may not sound like much these days, 23% into today’s equivalent is 3,116 points.

3,116 points. Get your mind around that, as Warren Buffett would say.

In any event, I was on Wall Street (figuratively speaking—I worked mid-town) that day, at a money management firm of which I have very fond memories. It was a great shop, with a great client base (families mainly—this was in the days before fund-of-funds, ETFs and all manner of dis-intermediaries between investors and investments) and money managers with a real eye for investing in companies (as opposed to buying stocks, which is an entirely different mindset).

Every time I pitched an idea—I was an analyst—one of the portfolio managers would start nodding and say, “Oh, I have a client who used to compete with them,” or “One of my clients sold out to those guys”…and then I would get a lesson in how that particular company actually managed itself behind the façade of quarterly earnings and black-and-white SEC filings.

It was a great shop.

Anyway, by the time Black Monday came, we’d been getting strange vibes about the stresses building up in the market—not because our clients were day-trading types who had been caught up in the pre-Crash mania, but because they weren’t day-trading types, and yet here we were a week or so before the collapse getting hit with all manner of redemption requests.

The pressure built so quickly that the Friday before Black Monday I heard we were selling stocks overnight in Japan to raise liquidity for somebody. And we weren’t a “sell overnight in Japan”-type place.

I thought “Well if it’s this bad for our clients, Fidelity must be a basket case.”

So Friday afternoon I sat at the Quotron machine (look it up, kids) and began hunting for the highest-multiple, most consumer-sensitive stock I could find. It turned out to be Home Depot, which was sort of the Lululemon of its day.

And I shorted Home Depot. Not alot, but just enough to hedge my own investment portfolio. Then I went home for the weekend, which is when everything came unglued.

What I remember about Black Monday mainly was how quiet it was (this was pre-CNBC, pre-Internet, pre-cell phones). The trading room (not a big one—we only had three traders) was like a funeral parlor. Portfolio managers drifted in, arms crossed, and looked over Roger or Donna or Mary’s shoulder at the screens, shook their heads, muttered something like “What is going on” and left the room to get back to the calls from their clients who were asking the same thing.

I had lunch with another analyst at a Japanese sushi place in mid-town—it was a nice break from what seemed like the end of our world as we knew it—and tried to think through the implications, secure in the knowledge that, however badly it all ended, I had shorted Home Depot, so my own portfolio was hedged.

Otherwise, that day and the days after Black Monday are a blur. NASDAQ broke down—quotes didn’t mean anything—and the shock to the system seemed irreparable. All manner of strategists came through our offices over the next few weeks and months, trying to explain what had happened and what it all meant.

The only one I remember—the only one who made any sense—was Larry Kudlow. Yes, the CNBC Larry Kudlow. In those days he was an economist, and quite a good one. And Larry sat at the head of our conference table with a group of still-stunned portfolio managers and analysts, and he said, and I quote, because the sentence was the only crisp, clear thing anybody said at the time: “What we had was a good, old-fashioned liquidity crisis. It started with the Fed tightening and was precipitated by portfolio insurance…”

And he then explained why the Fed was doing the right thing (easing like crazy) and the world would come out in good shape. He was the only strategist who said that, and he was the only strategist who was dead right.

In any case, our firm did remarkably well coming out of Black Monday. The day after the crash the principles had called a meeting and said to all the analysts, “Give us your single best company.” And they went out and bought stock for the firm when everyone else was too scared to buy.

Me, I closed out my Home Depot short, feeling pretty good about it. The stock fell 25% on Black Monday and bottomed 30% off the price where I’d shorted it. I bought the stock back some time that week, feeling pretty slick that I’d had the foresight to hedge myself by shorting one of the most popular stocks of that era.

Of course, Home Depot has come a long way since then. Last night it closed at $61.80.

Where did I short it way back in October of 1987?

Well, I shorted it at the split-adjusted equivalent of $0.70 a share, and bought it back at around $0.50 a share.

Which means, genius that I am, I sold Home Depot for less than today’s annual dividend of $1.16 a share.

And that’s why, when I tell my grandchildren the story of Black Monday, I’ll be leaving out the part about Home Depot.

Jeff Matthews

Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”

(eBooks on Investing, 2012) Available now at Amazon.com

© 2012 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. And if you think Mr. Matthews is kidding about that, he is not. The content herein is intended solely for the entertainment of the reader, and the author.

Tags: ETF, ETFs
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Why The Market Ignored GOOG’s Plunge (If Only Briefly)

Friday, October 19th, 2012

Via Michael Faso of FBN Securities,

GOOG’s ill timed oops in the early afternoon dumped the S&P 500 approximately 12 handles from what been shaping up previously as a fourth straight “checkmark” session.  The technology behemoth provided another example of a non-financial firm’s missing earnings expectations by a country mile such that companies in aggregate have fallen short of bottom line and revenue estimates for the quarter when factoring out the figures from big banks.  With large broker-dealer announcements mostly in the rearview mirror, the prospects for the rest of the reporting season appear dim.

Despite the shocking nature of the disappointment, the TICK never registered a print worse than –925 in the immediate wake of the surprise headline, a highly unusual phenomenon given the aggressiveness of the downward move.

Here is a chart showing an adjusted TRIN vs the S&P futures – no broad-based selling pressure as the index fell and recovered…

This suggests large institutions stayed with their VWAP buy programs (as in the chart below) out of confusion or necessity.

I can envision only two scenarios for such adherence to purchasing in the face of clear extremely negative news on, what was at the time, the third biggest stock in America.

First, in anticipation of this morning’s expiry, the baskets could have reflected a desire to add to share positions to the balance sheet and/or to protect the very important 1450 strike price for the S&P 500.  Furthermore, the buying could have arisen simply from the need to put money to work especially in light of the standard October fiscal year end window dressing for many mutual funds.  Regardless of the reason, both of these impetuses are transient as the momentum may tail off as early as today with the arrival of the “double witch.”  This puts equities in a very tenuous state especially considering the huge increase in open interest for the futures after Wednesday’s third consecutive session of solid gains hinting that managers are still trying to expand their portfolio beta.

The economic data continues to improve aggressively with the Philly Fed easily outdistancing consensus despite its two most important components, Employment and New Orders, ticking down sequentially.  Some bulls were encouraged by the 1% increase in Leading Indicators versus the August numbers; however, the data series historically has offered nothing of predictive value, save that of a contrarian indicator.  For example, the previous instance of such a leap occurred arrived three days ahead of the April, 2010 top that spawned a 17% selloff for the blue chip index.  Although the survey did increase with similar magnitude in April, 2009, it produced several encouraging readings near the apex of both the Dot Com bubble and financial crisis.

Regardless of how I spin these numbers, I am forced to concede that the recovery has appeared to accelerate in September.  This optimism conflicts with what corporations are saying via their earnings releases, preannouncements, and conference calls.  I had argued through the fall of 2011 that in the case of such a divergence, I always will defer to what companies have projected as opposed to the typically stale figures the government has released.  Thus, I subsequently remained steadfastly bullish at the time. This dynamic currently has flipped such that I do not expect a trough in earnings growth, but rather a peak in economic strength.  Overseas weakness, fiscal uncertainty, and a central bank that has fired its last bullet by signaling the launch of the QE3 only gives me comfort for this thesis.

Other warning signs remain intact as the small caps continue to lag as the Russell 2000 underperformed the S&P 500 again yesterday despite the heavy weighting of GOOG and AAPL for the latter.  The average intraday range for the blue chip index continues to calculate to approximately 12 handles, a dangerously skittish level that consistently has led to significant pullbacks*** as many managers step aside during selloffs for fear of taking heavy losses soon after entering or adding to a position.  Finally, as we inch closer to the Election in the face of a tight race, the probability of an exogenous negative shock on November 6 and in the intermediate aftermath rises daily.  Moreover, with Congress scheduled to go on vacation on December 14, the window available to solve the fiscal cliff will shut quickly in the wake of a bitter campaign season.

Copyright © FBN Securities

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An Inside Look at Google’s Data Centres

Friday, October 19th, 2012

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Thus Far Lack of New Highs in Indexes

Friday, October 19th, 2012

by Mark Hanna, Market Montage

While there has been a substantial move up in the indexes this week, to offset last week’s “worst week since June” there are still a lack of highs in the indexes.  The S&P 500 is by the far the best acting group, while the NASDAQ and Russell 2000 struggle.  This reminds of the behavior in March/April of this year when the S&P index (and at that time NASDAQ due to Apple) were holding up while the Russell lagged big time.  This time its even more narrow.

In order from worst to best…

Copyright © Market Montage

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