Smith Manoeuvre

The key is paying off your mortgage as quickly as  possible, no matter what technique you use.  This technique may be quite a bit riskier than what most people would be able to stomach. However, it would  be an interesting way to build assets in the equity market while leveraging your house.

How about doing the same thing with your car?  My guess would be the interest on a bank car loan would be too high for any rate of return in stock to matter, and it's probably better to just run a margined account.

Comments from a Bill Cara blog reader:

As to your point about owning vs investing in the stock market, I've just done a little reading about how to do both. In Canada we can not deduct the interest on our mortgage. Fraser Smith (from Victoria, BC) has come up with a strategy called "The Smith Manoeuvre" http://www.smithman.net/home.html and has written a book on the subject. A blog that has quite a bit of information on this is: http://www.milliondollarjourney.com/the-smith-manoeuvre-a-wealth-strategy-part-1.htm

In a nutshell, you set up two mortgages - home equity line of credit (HELOC) and a regular mortgage. With every mortgage payment you increase the amount in your HELOC by your mortage amount and invest that money in income producing entities. At tax time you deduct the interest paid on your HELOC. You have to be comfortable with leverage as you will not be reducing the amount borrowed until the regular mortage is paid off. There are obviously a lot more details but no sense wasting everyone's time by giving more info.

I have not used the manoeuvre as I am fortunate to not have a mortgage so haven't really studied it. For people that are trying to decide whether to pay down their mortgage as fast as possible, or invest, this is maybe an option.

Source: Bill Cara: Bill Cara’s Saturday Report, 05/26/2007 11:48 AM

Lunch is for wimps...

 

A sequel to classic 1987 film Wall Street is to be made with Michael Douglas returning as money-crazed mogul Gordon Gekko, according to reports.

Source: BBC NEWS | Entertainment | Wall Street sequel 'to be made'

The sequel will be called Money Never Sleeps, which is odd since there is  already a 2000 documentary called this on IMDB.  Coincidentally, the documentary is about the original Wall Street movie.

Patternz -- Pattern Recognition Software

 

Patternz is a Windows based program that automatically finds chart patterns. It has these features.

• Finds 66 unique chart patterns (see Patterns Form)
• Finds 105 candlestick patterns (see Patterns Form, Candles or Patterns button)
• Allows the selection of chart patterns with the best overall performance, fewest failures, reversals, and continuations (see the Patterns form)
• Scans files to find patterns and lists results (see List Form)
• Allows up to 9 criteria to select patterns for performance (radio buttons on List Form)
• Sorts selected chart patterns to highlight most recent patterns found (see List Form)
• After finding patterns, data can be placed on the clipboard or Excel for analysis (see List Form)
• Pattern watch lists make the selection of patterns easier
• Security watch lists allow important securities to be found quickly and easily
• Highlights support and resistance (SAR button on Chart Form)
• Tells about tested chart patterns, including failure rates and performance tips (the Tell button)
• Calculates a volatility stop for both up and down breakouts and shows volatility and minor high/low stop placement (the Stop button)
• Calculates pivot points, S1, R1, S2 and R2 (see the Forecast button)
• Calculates a Fibonacci retrace for swing trading (see the Retrace button)
• Forecasts tomorrow’s closing price (see the Forecast button) with back testing capability.
• Detects tall candles which means a minor high or low 66% of the time (give or take a day).
• Has trendline support – click and drag the mouse (see the Chart Form)
• Volume ticks show pattern end points, which helps with volume trend and shape analysis.
• Supports bar or candlestick charts
• Extensive help, just press F1 or look at the black help window on each form
• Setup allows the tuning of Patternz parameters (see Setup button on Chart Form)
• Works with a variety of ASCII file formats
• Supports Windows 3.11 and more recent versions, such as XP
• Adware and spyware free
• It’s FREE

Source: Patternz -- Pattern Recognition Software

Flight to Safety

Looks like people are deciding stocks aren't the way to go today.

For those that are not into the risk factor for the summer, it may be worthwhile to check into a 30 day/1 year cancellable GIC.  At current rates of 4.15% it is much better than a savings account or bond, though probably won't keep you much past current inflation rates.

Tools For Evaluating Index ETF vs. Mutual Fund Purchases » My Money Blog

 

Tools For Evaluating Index ETF vs. Mutual Fund Purchases

Even though the expense ratio for an ETF may be slightly lower than a mutual fund, that doesn’t necessarily completely explain the cost differential between them. In addition to any commission costs, there are also the issues of bid/ask spreads and deviation from NAV. These are explained briefly below along with some useful tools to evaluate their impact.

Source: Tools For Evaluating Index ETF vs. Mutual Fund Purchases » My Money Blog

The Perplexed Investor

 

Donchian’s Trading Guides

Richard Donchian documented his trading guides in 1934. He reviewed them in 1974, noting the ones he felt were the more important, some 40 years after they were first documented. The more important rules are reproduced in bold type.

Source: The Perplexed Investor

Market Masters: Articles on Trading

 

So Why Be a Trader and/or an Investor?

The Most Efficient and Effective Path to Becoming a Profitable Trader and/or Investor

The Problems With Fundamental Analysis

Which Stocks Will I Buy?

Source: Market Masters: Articles on Trading

reportonbusiness.com: There's value out in fund land, if you're willing to hunt for it

New offering of low-MER funds, including a dividend fund worth considering. 

A cynic might say that PH&N is raising fund fees with its new B series, but what the company is actually doing is offering investors an unprecedented level of choice in low-fee investing. Other fund companies should take note because they've assiduously resisted this kind of move.

Source: reportonbusiness.com: There's value out in fund land, if you're willing to hunt for it

Flip-flopping, or consumer Credit Default Swaps

 What happens to the credit ratings of these floppers?

Many of these foreclosures were actually planned. A huge amount of fraud was going on, where a group of 5 people would each buy a house; then they would flip it to their designated "flopper", who, with the ridiculously easy lending available, would have no problem getting the $5 million in loans needed. The flopper would file for default almost immediately; he had no intention of ever making a payment. The group splits the proceeds from the 5 flips. 5 new foreclosures on the market.

Source: Bill Cara: Cara’s Daily Board, Mon., May 14, 2007, 8:29 AM

The Great Pyramid of Korea

This is the equivalent of using one credit card to pay off another credit card. Although remaining solvent, the BoK descends further into debt.
Such a scheme is also called a Ponzi scheme. Ponzi schemes eventually collapse leaving the last investors with huge losses. This is why Ponzi schemes are illegal. If any individual in Korea were to set up a similar scheme, they would be risking a prison sentence.

Source: Looming Disaster for the Bank of Korea - OhmyNews International

Fat Pitch Finder Spreadsheet Version 0.2 - Fat Pitch Financials

 

This new version of the Fat Pitch Finder Spreadsheet has been updated to address a problem with my net cash calculations that I discovered as a result of a comment I received on my analysis of the intrinsic value of Microsoft. I wasn’t including restricted cash when determining net cash on hand, so I was undervaluing some companies. In addition, I also added the following new features:

Source: Fat Pitch Finder Spreadsheet Version 0.2 - Fat Pitch Financials

Landing on B&O Railroad - Gates multiplies his cash

 

One questioner asked about a closely held belief that Munger had recently overturned. After some thinking, Munger responded that Berkshire's recent purchase of railroad stocks marked a 180 degree change in thinking about the industry. According to Munger, railroads now have a huge competitive advantage over trucking because of innovations such as double-stacked cars and computer modeling of routes. Munger said he and Buffett were too late in recognizing the changes and could have made much more money. Apparently, Bill Gates figured out it out two years ago and made "multiples of his money" with railroads.

Source: Morningstar.com - Munger Speaks on Berkshire's Success

Top 5 Hacks for Intelligent Investors - Fat Pitch Financials

 

Top 5 Hacks for Intelligent Investors

 

Source: Top 5 Hacks for Intelligent Investors - Fat Pitch Financials

CXOAG Guru Grades

 

If you believe that past forecasting performance indicates future accuracy (skill, wisdom), you might want to keep tabs on the forecasts of Ken Fisher (and his self-described analysis methodology, "Forecasting (Macro and Micro) and Future Concepts"). If you believe in reversals of fortune, you might follow Bill Fleckenstein. On the third hand, if you expect mean reversion in forecasting (pure luck), you might prefer the "cone of silence". A fourth alternative is to apply Bayesian updating and weight the predictions of experts according to their evolving track records.

Source: CXOAG Guru Grades

thepanelist.com - Charlie Munger on Gambling

 

Warren Buffett: "Gambling is a tax on ignorance.  It is a shame to see governments sponsoring money being taken from people and their social security checks."

Charlie Munger:  "You won't see a casino in Berkshire Hathaway's portfolio." 

Source: thepanelist.com - Charlie Munger on Gambling

Personally, I think my credit card is far worse than the Luxor at taking my money, and See's Candies are evil incarnate (because they're so good!) I'm not sure how Warren can eat steaks, Dairy Queen, drink a couple of coke's a day, and still look as healthy as he does for his age.  Must be something in Omaha's water...

Ultimate 2007 Berkshire Hathaway Annual Meeting Guide - Fat Pitch Financials

 

If you couldn’t make the 2007 Berkshire Hathaway (BRKa) (BRKb) annual meeting to experience Warren Buffett and Charlie Munger first hand, then I hope that the following guide can offer the next best thing to being there in person.

Source: Ultimate 2007 Berkshire Hathaway Annual Meeting Guide - Fat Pitch Financials

Top 20 Private Equity from PEI Magazine

 

Here is a list of the top 20, from PEI:

1 The Carlyle Group $32.5 billion
2 Kohlberg Kravis Roberts $31.1 billion
3 Goldman Sachs Principal Investment Area $31 billion
4 The Blackstone Group $28.36 billion
5 TPG $23.5 billion
6 Permira $21.47 billion
7 Apax Partners $18.85 billion
8 Bain Capital $17.3 billion
9 Providence Equity Partners $16.36 billion
10 CVC Capital Partners $15.65 billion
11 Cinven $15.07 billion
12 Apollo Management $13.9 billion
13 3i Group $13.37 billion
14 Warburg Pincus $13.3 billion
15 Terra Firma Capital Partners $12.9 billion
16 Hellman & Friedman $12 billion
17 CCMP Capital $11.7 billion
18 General Atlantic $11.4 billion
19 Silver Lake Partners $11 billion
20 Teachers' Private Capital $10.78 billion

Source: DealBreaker.com

No End in Sight for Patent Backlog: Financial News - Yahoo! Finance

The patent backlog is easy to see at the agency's five-building campus in Alexandria. Va. Inventors wait on average 31 months for a patent decision as examiners slog through 675,000 pending applications, a number that is expected to hit a record 800,000 by year-end.

U.S. patents are worth waiting for. They offer the world's strongest legal protection of intellectual property and easiest enforcement of claims. And they're cheaper to get and keep than patents in Europe or Japan.

Source: No End in Sight for Patent Backlog: Financial News - Yahoo! Finance