Tuesday, July 29, 2014

Recommended Reading


How well do you understand financial talk? In this elite dialect . . .

"Credit" means debt

"Bail out" means putting money in

"Synergy" means sacking people

"Noncore assets" means garbage.

Monday, July 28, 2014

You're No Apple, You're a Bank

Happened on Heather Landy's last column for American Banker. Financial-services folks, she notes, seem fixated on emulating the success of Apple and Amazon.  That's not easy.
For example, while a focus on cross-selling makes perfectly good sense as a general business strategy, it doesn't hold up very well in an Apple business model context. Notice how when you visit an Apple store, nobody ever says, "Well, sir/ma'am, I see you have one of our phones. Have you considered trying one of our tablets?" There's no need to push products on us because we already know that we want them. We'll even line up around the block to get them. (Whereas a line around the block is never a good sign for a bank.)
Can banks develop a cross-buying culture? Can they give us new conveniences even more welcome than those smart credit cards the Europeans enjoy?

Can they create true wealth-management centers, units so innovative and quality-obsessed that customers clamor for the privilege of a referral?

We'll see.
Landy is leaving her post as editor in chief of American Banker Magazine to join Quartz as global news editor.

Friday, July 25, 2014

Repeal the Estate Tax, Again?

Republicans in the House may vote to eliminate the federal estate tax this fall, it says here. (Curiously, the bill would keep the gift tax.) Purpose: to position repeal as an issue with heft when the subject of serious tax reform finally comes up. 2017, maybe?

Who would benefit from repeal 2.0, other than techie billionaires and hedge fund managers? Farmers. 

"[W]e’ve seen farmers in Iowa or Illinois get $15,000 an acre for their farm," says Paul Neiffer, The Farm CPA. "If the farm is 1,000 acres, they are looking at owing taxes."

Thursday, July 24, 2014

From Ladies of Leisure to Women CEO’s

Sallie Krawcheck, in partnership with Pax World Management, is launching a fund to invest in enterprises with a better-than-average proportion of women in key positions.

What a difference half a century makes. Ladies of leisure like the ones depicted in these 1964 ads certainly didn't expect their daughters or granddaughters to be CEOs of major companies.


Wednesday, July 23, 2014

Philip Seymour Hoffman Didn't Want “Trust Fund Kids”

The actor rejected suggestions that he set aside funds for his children because he didn't want them to become spoiled brats.

He did want them exposed to art and culture, as suggested by an unusual instruction to the guardian of his eldest child:
“It is my strong desire [that] my son, Cooper Hoffman, be raised and reside in or near the borough of Manhattan [or] Chicago, Illinois, or San Francisco, California,” he said in the will.

Can Three-Second Trades Produce Long-Term Capital Gain?

With a ploy called "basket options," a hypertrading hedge fund claimed billions of dollars in tax savings. The Senate Permanent Subcommittee on Investigations seems impressed.

Thursday, July 17, 2014

What Do Women Want?

"I never met a SRI investor who wasn't a woman," said a broker quoted somewhere recently. An exaggeration, of course.

More generally, the question of how women approach investing remains perplexing, especially to men. We know that women, on average, tend to be more conservative than male investors. And because they don't believe they know it all, women investors tend to be more successful.

M. J. Dunleavey, remembered on this blog from her years with The New York Times, tries to offer clues to what women want in her WSJ column. For instance, women like to ask questions of their investment advisers, but they also feel under time constraints. Lots of questions but no time for answers?

Wall Street will continue to wrestle with the question of how to relate to women. Funny thing, though – none of the women trust officers, brokers and investment advisers I've met over the years ever felt it necessary to ask me what men want.

Tuesday, July 15, 2014

In Deluge of Funds, Investors Sink or Swim

No wonder people find investing bewildering. The mid-year report on mutual funds in The New York Times contains page after page after page – ten pages in all – of mutual fund listings. If printed in type big enough to read, the listings would have covered 12 or 15 pages.

For the would-be investor, this sea of funds must be a daunting sight.

Yet it used to be even scarier. After cresting above 8,000 before the Great Recession, the number of mutual funds has eased off. Jack Bogle estimates that 7 percent of equity mutual funds gave up the ghost each year from 2001 to 1012.

Even so, more than 7,000 mutual funds are still operating.

And that's not all. Joining the thousands of conventional load and no-load funds are about 1,600 exchange-traded products, primarily ETFs.

In part the deluge of funds is an optical illusion. Sizable segments of the mutual fund listings consist of house funds – products intended for customers of a bank, brokerage or insurance company. Other funds may be moribund relics of faded hopes or failed algorithms.

Likewise, most exchange traded funds (or "products," to use the umbrella term) are lucky to get their names in the paper. Of 1,600 funds, a mere 241 hold almost 90 percent of the assets.

Perhaps the deluge of funds indicates the need for investment advisers, although fund-picking is no easier than stock-picking.

Or perhaps the deluge is driving bewildered investors toward online services that offer simple portfolios of a few basic ETFs.

What do you think?

Tuesday, July 08, 2014

Happy 125th Birthday, WSJ!

The Wall Street Journal was first published July 8, 1889. The first issue reported the average daily price movement of twelve active stocks, the original Dow Jones Industrial Average. (Update: I wrote in haste; this predecessor average led to the first DJIA in 1896. Only one charter member of the Dow remains: GE.)

Monday, July 07, 2014

Chase Nest Egg Ads: the Cliche and the Exotica

Imagine you're a Mad Man in Sterling Cooper's early days, the 1950s. Your client needs photos of individuals engaged in off-duty pursuits that appeal to the monied class.

"Golf, of course," you say.

"Forget golf. Too obvious. Think of something that's not a cliché."

Most likely, that's why none of the Chase Manhattan nest egg ads we've shown you over the years has included a golf club.

By 1964 the ads were in their post-classic phase. Most every upscale pastime involving wind, water or wildlife had been portrayed. So we come to the last resort:


A more characteristic nest egg ad from 1964 was this, featuring a Charolais calf. Imports of this prized French breed had been banned since the 1940s for fear of hoof and mouth disease.


Triumph of the Target-Date Funds

You read it here, five summers ago: Because needs and intentions differ for people reaching retirement age, target-date funds may not find much of a market.

Ha! Needs and intentions do differ, but target-date funds are on a roll. These auto-managed portfolios already hold about 20 percent of 401(k) money, and they're attracting more than 40 percent of the new funds flowing into 401(k) plans.

Target funds will maintain their momentum, Barron's predicts (subscription required, but I accessed the article via a Google search).
Looking out five years, target-date funds may be the only investment that most Americans have in their 401(k) plans. That would be quite an achievement for a product that was barely known just a decade ago. 

Sunday, June 29, 2014

Supreme Court Gives Active Investing a Boost?

Companies that issue significant "misstatements" may claim "no harm, no foul" because the stock market isn't always efficient.

In reaching this conclusion, Jeff Sommer of The New York Times notes, the Supreme Court was influenced by Robert Shiller, Yale's Nobel Prize economist.
Investors may continue to rely on the efficient-markets hypothesis in forming class-action groups, and may assume that share prices reflect corporate misstatements. But corporate defendants may now try to prove in specific cases that there was no connection between their statements and price movements. 
Perhaps active investing, a pointless activity were the market truly efficient, isn't dead yet.

Saturday, June 28, 2014

Indexing 2.0: Smart Beta

On average, monkeys throwing darts at the stock listings could outperform most investment managers. Actually, Barron's notes, they can do even better. They can beat the S&P 500.

Reason: the monkeys are assumed to invest an equal number of dollars in each stock they hit upon, regardless of market capitalization. Equal weighting seems to produce better returns. 
[T]he S&P 500 Equal Weight index has returned 9.1% a year over the past 15 years, beating the S&P 500 cap-weighted index by a whopping 4.6 percentage points a year.
Inspired by the monkeys, so-called smart beta investing has produced an expanding list of quasi-index funds not weighted by market capitalization. The more sophisticated models sound a lot like automated stock picking.

Does smart beta investing have legs? Whether passing fad or significant trend, Paul Sullivan's renaming seems appropriate:
[A] better, if less marketable way to think about smart beta might be to call it “lazy alpha”….

Friday, June 27, 2014

Cornelius Freel’s Will

Why did C. E. Freel leave Long Island for Paris in 1892? Why did he leave his estate to an English bishop? We don't know. We only know this item appeared on the front page of the January 1, 1893 issue of the Brooklyn Daily Eagle.


Thursday, June 26, 2014

The Greatest Generation: Tax Division

Headlines such as IRS Official Sought Audit of GOP Senator suggest the potential of tax audits as a political weapon. It certainly isn't a new idea. In 1971 President Nixon tried to turn the IRS loose on his political enemies. When the IRS Commissioner, Randolph W. Thrower, refused, he was fired.

Thanks to those famous White House tapes, we know exactly the characteristics Nixon desired in Thrower's replacement:

“I want to be sure he is a ruthless son of a bitch, that he will do what he’s told, that every income-tax return I want to see I see, that he will go after our enemies and not go after our friends."

The man chosen, recommended by Attorney General John MItchell, was Johnnie M. Walters, a World War II Air Force navigator who had flown over 50 combat missions, then serving as assistant attorney general for tax policy.

Walters moment of truth arrived on September 11, 1972. John Dean handed him Nixon's "enemies list," with instructions to make the 200 names IRS targets. My boss, Dean told Walters, doesn't like somebody to say "no."

Walters did not obey and, like Thrower, he was fired. 

Johnnie Walters died this week at age 94. Read his New York Times obituary here.

Saturday, June 21, 2014

My Inheritance From the U.S. Treasury

From today's e-mail:


As usual, English is not the scammer's first language. The copyright symbols are a novel touch.

Speaking of attempts to defraud your obedient blogger and other elders, the New Hampshire legislature has just voted to criminalize elder financial abuse.

Sunday, June 15, 2014

1964: The Ladies Who Invest



Of all the ads The Merrill Anderson Company created for U.S. Trust, this message from half a century ago probably was the most off beat.

Does the headline strike you as sexist or condescending? Remember that Betty Friedan's The Feminine Mystique had appeared only a year earlier, in 1963.

U.S. Trust was entitled to boast about advertising to women back in 1864. At that time married women in New York State had been allowed to own and control property for less than 20 years. (More on the evolution of laws granting property rights to female U.S. citizens here.) Most likely, women during The Civil War were compelled to take on more responsibility for family wealth.
For all his copywriting skills, the founder of The Merrill Anderson Co. was not noted for his sense of humor. Wish I knew whose idea it was to sneak the dozing businessman into the illustration. 

Friday, June 13, 2014

Bill for Settling Leona Helmsley's Estate: $100 Million

Settling the $5.4 billion estate left by Leona Helmsley had its challenges, according to this Daily News dispatch:
The four executors who filed their request in Manhattan Surrogate's Court were two Helmsley grandsons, Walter and David Panzirer, her longtime attorney Sandor Frankel and friend John Codey. [A fifth executor was Leona's brother, now deceased.] 
According to court papers, the executors quietly sold off $2 billion in government bonds, handled her interests in more than 80 properties — including the Empire State Building — and dealt with her financial stake in five corporations and 27 businesses. 
In addition, they convinced a judge to trim the $12 million bequest from Helmsley to her dog Trouble to $2 million and sorted out a dicey challenge to her will by a pair of disinherited grandkids.
For completing those tasks and more, the executors request a fee of $100 million.

“Don't I have to leave my children equal shares?”

Of course not.  A parent may leave one child more than other children, or less, or nothing.

In real life, that estate-planning fact strikes many people as unfair. As this blog post points out, an educated person may not even realize she can leave one child more than she leaves to another.

Holland & Hart's  Fiduciary Law Blog is cleanly designed and clearly written. Admirable. (Must be the mountain air!)

Thursday, June 12, 2014

Good Night, Poor Harvard

As an investment manager, are you just average, maybe a bit below average? Take heart. You still beat Harvard.

For the five years ending last June 30, the annualized investment return for Harvard's endowment was 1.7%. No Ivy League institution did worse.

Jane L. Medillo, the endowment's manager, will leave at the end of the year. She once worked at Yale, where David Swensen for many years achieved remarkable investment results. Lately, not so much. For the five years ending last June, Yale's endowment had an annualized return of 3.3%.

Wednesday, June 11, 2014

From the Databank: Millionaires and Billionaires


1.1 Million
Number of new millionaire households in the U.S. last year, as estimated by Boston Consulting Group.

7.1 Million
Total number of millionaire households in the U.S.

16.3 Million
Total millionaire households worldwide.

32
Percentage of wealth that Americans with more than $1 million are holding in cash, according to State Street's Center for Applied Research.

50
Number of new names on Forbes latest list of U.S. billionaires.

492
Total number of U.S. billionaires.

1,645
Total number of billionaires worldwide.

Tuesday, June 10, 2014

The Biology of Risk

This Sunday Times column got a lot of attention by revealing why investment advisers can't truly measure their clients' risk tolerance … and why the Fed might do Wall Street a favor by becoming less transparent.

Sunday, June 08, 2014

The Great Divider: Student Loan Debt

Young (and not so young) Americans now labor under $1 trillion in student loan debt. As the Washington Post's Michelle Singletary writes, a good start in adult life now seems a privilege of the debt free:
The burden is so heavy that many households headed by young adults with student loans lag significantly behind their peers in wealth accumulation, according to an analysis by the Pew Research Center. The gap is wide. College-educated young adults with no education loans have about seven times the net worth ($64,700) than households carrying debt ($8,700).
Thirty-seven percent of households headed by an adult younger than 40 have some student debt — the highest share on record, Pew found.
Give a shout-out to parents and grandparents who dig deep to help students graduate debt free. And add a nod of appreciation to the wealth managers who help them do it. 

Tuesday, June 03, 2014

Philanthropy First, Family Estate Planning Later

H/T to Gerry Beyer for sending me to Estate Planning for the Young, Rich and Childless.

Rich young techies aren't so concerned with conserving their millions as family legacies, Reuters suggests. Future kids and grandkids will be well provided for, no doubt. Meantime the young rich are willing and eager to set something aside for philanthropy. Through donor-advised funds, for example.

Fewer millions for younger branches of the family tree isn't necessarily a bad thing. The continuing Disney family feud, summarized here a few years ago and now here, suggests that leaving grandkids $1 million a year can be counterproductive. They or their relatives get hungrier and hungrier to devour the goose that lays those golden eggs.

Thursday, May 29, 2014

Interesting times

Even as the S&P 500 touches new highs, the Commerce Department has just reported that the economy shrank 1% in the first quarter.

How can stock market prices grow so much faster than the economy?  In the long run, they can't.

Bad winter weather has been identified as the culprit behind the contraction, the first in three years. Unusual cold through most of the country was attributed to global warming.  Inventory adjustments were also fingered as a contributing factor.

Another quarter like the first, and we're back in a recession—which many Americans believe we never left.

Wednesday, May 28, 2014

Trust and Investment Ads From 25 Years Ago

This blog has displayed numerous financial ads from the 1960s, the Mad Men era. Here are three from just 25 years ago.

Buy a mutual fund from Xerox? In 1989 you could. (Van Kampen's founder pioneered insurance coverage for tax-exempt bond funds.)


How do you appeal to he-man investors yet gain cultural creds? In 1989 Merrill Lynch pulled off the double play by sponsoring a Frederick Remington exhibit.


US Trust was struggling in the 1980s, but the trust company wasn't going to let people forget its impressive heritage. "Multi-generational financial counselling is nothing new at U.S. Trust. We've been doing it for nearly seven generations."


Great changes have reshaped financial services in the last quarter century. Each of the three advertisers above has changed hands. US Trust was acquired by Charles Schwab, then sold to Bank of America. Merrill Lynch, of course, also became a Bank of America brand. Van Kampen eventually passed to Morgan Stanley and was sold to Invesco in 2009.

Monday, May 26, 2014

Understanding Taxes In Three to Five Minutes

Microsoft co-founder Paul Allen and filmmaker Morgan Spurlock ("Supersize Me") have teamed up to produce 20 short films on the economy. Intended to reduce Americans' economic illiteracy, the three-to-five-minute films will be released via the Internet and on-demand services this fall.
“Accessible and digestible, that’s what we’re going for here — a very creative, informative short film about taxes, for example,” Mr. Spurlock said.
Fortunately, taxes really aren't that complicated, as Will Rogers explained:

"The only difference between death and taxes is that death doesn't get worse every time Congress meets."

Friday, May 23, 2014

The Money-Managing Prince Who Made the Rolling Stones Rich

Keith Richards described Prince Rupert zu Loewenstein-Wertheim-Freudenberg, Count of Loewenstein-
Scharffeneck, this way: “He is a great financial mind for the market. He plays that like I play guitar."

The unlikely money manager to rock-and-roll royalty died at age 80 last Tuesday in London. Read a Brit tabloid tribute. The New York Times obit is here

Thursday, May 22, 2014

What's the Estate Tax on a “$4.8 Million” Madoff Account?

Many Madoff investors lost their shirts. Some didn't. As you'll read here, death has led to tricky estate tax questions.

Through a personal pension plan, in 1992 Bernard Kessell started investing millions with Bernie Madoff. Kessell died in 2006. Madoff's firm told Kessel's executor that the date of death value of the account was more than $4.8 million. That value was reported on Kessel's federal estate tax return.

After Madoff's massive Ponzi scheme was exposed in 2008, Kessel's estate filed an amended return valuing the Madoff account at zero and claiming a refund. The IRS balked. Now the question of value has gone to Tax Court.

In a way, Kessel and his heirs were lucky. Before the roof fell in, they were able to withdraw more than he had invested. But not really so lucky. The Madoff trustee has sought to claw back such faux profits, using them to reimburse Bernie's less lucky investors.

What was the true value of Kessel's Madoff account? Apparently the Tax Count will have to decide.

Sunday, May 18, 2014

Retirement Investing is Personal

From Dueling Strategies for Your Retirement Funds:
For anyone approaching retirement, an important investing question is: Should your strategy be "to" or "through"? *** 
The "to" refers to preserving savings for an expected retirement date; the goal is to get "to" that date without last-minute harm to your nest egg. Generally this means cutting back sharply on riskier investments—namely stocks *** 
A "through" strategy means tilting a portfolio to keep increasing savings well into, or "through," retirement. That means higher allocations to stocks and other riskier investments despite a bigger risk of losses.
The strategies aren't dueling. As we discussed five years ago, different retirees have different goals. See The Trouble With Target Date Funds.

Thursday, May 15, 2014

Thomas Jefferson Considers Gifts to His Grandchildren

Poplar Forest, a plantation Jefferson inherited at his wife's death, was a significant source of income. In 1805 he wrote to his Poplar Forest estate manager:

“The time is now approaching when I shall wish to be parceling off some of my lands to my grandchildren. This renders it necessary that I should understand the separate value of each portion of them distinctly. As no person is so well acquainted with them as yourself, I must ask a favor of you to consider the questions on the paper enclosed, and to write at the end of each the answer in figures, and to send me the same paper to Monticello, by the first post.”

The previously unknown letter is now for sale.

In that same year of 1805, Jefferson began work on this octagonal house.

 Poplar Forest
Photo via Wikimedia Commons

Photos of Huguette Clark

Published by Huffington Post, taken from a new biography of her.

Tuesday, May 13, 2014

Monday, May 12, 2014

Merrill Lynch Ponders “Sustainable” Wealth

Sustainable farming, sustainable energy sources, sustainable forests…Merrill Lynch goes with the flow and surveys Sustainable Wealth.

The survey – conducted last December among investors with $5-million and up  – deals mostly with the "values" side of family wealth but did include a question on trusts.

Two-thirds of respondents believed assets should be held in trust for the lifetime of their heirs.

Three quarters of respondents under age 56, who presumably have younger children, said lifetime trusts were a good idea.

But…more than half the respondents also said that heirs should be handed full control of their inheritances at a certain age, usually under 35. That's surveys for you.
In targeting the $5 million and up market for legacy planning, how well does Merrill Lynch Private Bank get along with its BofA sibling, US Trust? Just asking.