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.

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

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

Total number of U.S. billionaires.

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.