Happy Friday! There are more good news articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Here are eight fascinating ones I read this week.
Good work if you can get it
Bason Asset Management discusses the curious fees of financial advisors:
The business of investment advice is a strange one. The leading model of advisor fees results in high net worth investors paying high fees simply based on their ability to pay, and not related to the services they receive. An investor with $5,000,000 who meets with his advisor once a year will pay ten times as much as a demanding investor with $500,000 who sees an advisor every quarter.
Josh Brown shares his notes from a conference with Mohamed El-Erian of Pimco:
When you watch CNBC, what you hear most of the day is to buy this investment because relatively speaking it is cheaper than that one." Everyone seems to be playing this same relative game and "you almost never hear someone recommending something because it is strong on its own."
[El-Erian] talks about the central bank liquidity trade as though it's a massive wave that everyone is surfing...
"As investors, there are two types of mistakes we can make. Type 1 is we wait in the water for the perfect wave, which never appears and we miss a lot of other waves go by without us. Type 2 is jump on this central bank wave and we don't think about what happens when this wave breaks or crashes over us." PIMCO is more comfortable making the Type 1 error is the point.
Barry Ritholtz analyzes investor biases around market moves:
- Bears see the intraday reversal such as Wednesday as a very significant change in tone; Bulls see a comeback such as Thursday as proof of a Japanese overreaction to weak China economic news, that was not applicable to the U.S. ...
- My key takeaway is that the cognitive bias is immense. Most of the attempts we see to interpret short or even intermediate term market action are often overwhelmingly filled with rationalizations of existing positions.
- Be aware of the tendency to let Narratives obscure the data.
Friends in the right places
The Financial Times breaks down Apple's (NASDAQ:AAPL) tax structure:
One of Apple's Irish subsidiaries paid a tax rate of just 0.05 per cent in 2011, according to the committee. Yet other offshore entities did not even pay that much. A unit called Apple Operations International, which has had no employees in its 30-year history and funnelled $30bn of payments between Apple units in 2009-2012, filed no corporation tax returns at all over the past five years.
The anomaly was due to a loophole that enabled it to claim not to be resident in any country for tax purposes, since it was incorporated in Ireland but managed from the US, avoiding the need to file in either country.
We don't need no education
The Wall Street Journal looks at the sad state of public education:
U.S. public-education spending per student fell in 2011 for the first time in more than three decades, according to new U.S. Census Bureau data issued Tuesday.
Spending for elementary and high schools across the 50 states and Washington, D.C. averaged $10,560 per pupil in the fiscal year ended June 30, 2011. That was down 0.4% from 2010, the first drop since the bureau began collecting the data on an annual basis in 1977, the agency said Tuesday.
Fed chairman Ben Bernanke talks about the future:
First, innovation, almost by definition, involves ideas that no one has yet had, which means that forecasts of future technological change can be, and often are, wildly wrong. A safe prediction, I think, is that human innovation and creativity will continue; it is part of our very nature. Another prediction, just as safe, is that people will nevertheless continue to forecast the end of innovation.
The famous British economist John Maynard Keynes observed as much in the midst of the Great Depression more than 80 years ago. He wrote then, "We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterised the 19th century is over; that the rapid improvement in the standard of life is now going to slow down." Sound familiar?
The Economist surveys the Cyprus economy months after its banking collapse:
With access to bank accounts still restricted and capital controls in place, Cypriots are hoarding money. Trade credit has dried up, choking business activity.
New-car sales plunged by 59% in the year to March. Sunseekers tend to shun crisis-stricken countries: the number of tourists in the first quarter was 10% down on the same period of 2012. And this is just the beginning. An economy already in recession -- GDP fell by 2.4% last year -- is about to nosedive, undermining the assumptions on which the bail-out was based.
The best of value investing
Here's a great video with advice and wisdom from some of the world's greatest investors:
Enjoy your weekend.