Re: Unique financial nuggets
This does not fall under unique nugget, but still something to be aware off. This week, (per Seattle Inquirer/TImes Sunday bidness section) mutual funds will be doing end of quarter window dressing. Mutual funds are required to discose their stock holdings ate the end of rach quarter. So in order to make themselves look smarter, in the last week of a quarter, they go on a buying spree and load up on stocks that have done well in the quarter. Way to buy high.
Re: Unique financial nuggets
^ Just to follow up on yesterday’s post, the markets, especially the Nasdaq exploded on the upside. Wonder if this is due to window dressing.
Re: Unique financial nuggets
Uncle chai pani choren, aap Window dressing ko sada zaban main explain karen 
Re: Unique financial nuggets
Theek hai muqawwee!
At the end of each quarter, as mentioned in post 41, mutual funds are required to disclose their holdings. That is, what percent of the assets are in each stock (or at least the top 20 stocks). In other words, they have to state it as follows:
Apple - 3%
Google-2.8%
Exxon 2.7%etc.
This quarter, Apple has gone up the most. Suppose a particular fund did not have any Apple stock in its holdings (or had very small amount of it). In order to impress current and future investors, it may go out and buy more Apple shares, so that when its holdings are released, people may get the impression the mutual fund knows what it is doing. This is known as window dressing. This results in stocks that have done well in the quarter being pumped higher. Apple yesterday was up close to 2%. It adversely impacts the finds share holders, since the fund bought stocks at a high price for the wrong reason.
Re: Unique financial nuggets
You mean they are window dressing by showing stocks / holdings at lower values?
Re: Unique financial nuggets
No - the value of stocks does not change. They just happened to add the stocks at the last minute to give the impression they were smart to hold these winning stocks. So they are kind of “dressing” up their portfolio - (like say applying deodorant without taking a shower - to kind of hide the badboo).
They do not have to disclose the average price at which the stocks were bought - so no one knows that the stocks were bought at a hig hprice.
Re: Unique financial nuggets
This week, S&P500 so far is down about 1%, while Apple stock is up about 3%. As expected, window dresssing has pumped it up relative to the market.
Re: Unique financial nuggets
About 3 months ago in another thread, there was discussion of whether housing is now attractive. The price/rent was brought up as a metric.
In the April 2012 issue of Smart Money, it was stated that when the ratio of house price to annual rent is 15 or less, that is when it is a good buy. Since 2007, housing price has gone down while rent has gone up. Thus making house prices increasingly atractive (not to mention low rates). Here are P/rent ratios for some cities:
Las Vegas - 6
Sacratomato - 8
San Antonio - 10
Miami 13
Chicago - 15
San Fransisco - 24
Noo Yawk - 36
They end the article "ask your real estate agent not about price, but trends in rent.
Re: Unique financial nuggets
Does this mean i should buy apple stock (or any other stock that has been doing well) a week before end of quarter?
Re: Unique financial nuggets
Window dressing is a big no-no and is monitored by securities regulators. If an institutional investor (really the ones that move the market) are found to be engaging in such practices, they will be penalized by the SEC or relevant regulator.
Oh and window dressing is more related to holdings of the stock by an institutional investor and the institutional investors’ quarter end.
To Cheegum’s comment, yes some securities move before their quarterly reporting dates, but it’s not exclusively a function of window dressing. Movement in price, up or down depends on whether investors believe the stock is going to meet analyst’s expexctations, will there be a dividend payment (will it be higher or lower than before), what is the scope for the company in the future - can they sustain or improve their performance or is the company going to stagnate.
Re: Unique financial nuggets
I dont do such short term trading. Because what works once may not work next quarter. But you are correct, in principle, this would make sense. But I just hate buying at high prices.
Also, this thread is not meant to promote short term trading. But just wanted to point out the shenanigans these mutual fund managers engage in
Re: Unique financial nuggets
Of course there are several factors that drive a stock’s price. Window dressing being one of them - just wanted to point that out. Goes without saying, in the short term, stock movement is a function of investor perception based on analyst expection, buyback, divident increase/decrease etc. In the long term, the stocks movement will be directly related to its earnings growth - the market is speculative in the short term and a weighing machine in the long run.
I dont tend to focus too much on analyst expectation and other short term stuff. Just analyze the balance sheet, income statment and cash flow statement, and one is good to go.
Hope you participate more actively - would ike to see you open some threads - since you know your investing
Re: Unique financial nuggets
Anyway - here is definition of window dressing from Investopedia site - nothing indicates it is illegal
"Definition of ‘Window Dressing’ A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. To window dress, the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund’s holdings.
http://i.investopedia.com/assets_v2/img/icon_inv.png
Investopedia explains ‘Window Dressing’ Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter. Another variation of window dressing is investing in stocks that don’t meet the style of the mutual fund. For example, a precious metals fund might invest in stocks that are in a hot sector at the time, disguising the fund’s holdings, so clients really have no idea what they are paying for.
Window dressing may make a fund appear more attractive, but you can’t hide poor performance for long.
Read more: Window Dressing Definition | Investopedia"
Another link from seekingalpha dated 2009 also states it is not illegal. So unless new law has been introduced since 2009…
Very difficult to enforce this - since fund managers can always justify buying or selling based on Technicals.
The Deceitful Practice of Window Dressing: Why Has the SEC Done Nothing About It? - Seeking Alpha
Re: Unique financial nuggets
Our good friend GSBot reported Alan Mulally of Ford got $30M compensation for the year 2011. Just read in todays WSJ JC Pennys CEO received ~ 52M compensation in 2011, most of which were stock options. What a joke. Will look at Penny’s earnings and see what % of earnings went to the esteemed CEO.
Re: Unique financial nuggets
This past week we had a few visitors on this thread - the unexpected traffic caused us to increase bandwidth so that we can accommodate up to 8 visitors per week.
Re: Unique financial nuggets
OK - it is that time of the week, when the anxious readers of this column get rewarded by the Saturday issue of WSJ. So here we go:
Jason Zweig Intelligent Investor column - Keynes was a great investor. (He was an economist who believed govt intervention needed to solve economic problems - lower taxes increase spednding in bbad times and vice versa). He outperformed UK stock mkt by 8% per year 1924-1946. (Graham, Lynch, Buffett, Templeton did so by 3-13%).
Keynes began as a Macro manager of monet - relied on monetary and economic signals to move from stocks to bonds to cash. Even though he was an economist, he was not good using this knowledge in his investments. His Top down approach was not successful. (This indicates it is hard to time market based on economic indicators). after the 1929 crash blindside him, Keynes made some changes. What were they? To find out, please see the next post, Hattori san!
Re: Unique financial nuggets
"He switched from to down asset allocator to bottom up stock picker. " He focused on undervalued small and midsized stocks. He also focused on undervalued industries. For example, he moved 66% of his portfolio into mining stocks by 1936 - for example gold - since he foresaw tey would benefit from drop in currency.
(Here is the rub - the article says earlier as director of Bank of England, he had access to inside info on interest rate, but “there is no evidence he traded on it”! Yeah right!)
He favored stocks when most favored bonds and vice versa- bought low, sold high. He held on to his stocks for more than 5 years (as opposed to current average of 15months!). His holdings’ deviation from market was 4X higher than todays mutual funds. Todays “weak kneed” managers dont want to deviate much from market. So article ends by stating - no need to hhire such managers - you might as well buy cheap index funds.
Re: Unique financial nuggets
Sat March 31 WSJ - Natural gas price in the US has tumnled to multi-year lows. Several causes - one of th ewarmest winters led to lower demand for heating, fracking has led to more production, and in a huge irony, as oil price increases, there is iincreased drilling for oil - and natural gas is found in plenty in these oil fields - adding to the glut in Nat gas inventory.
To give you an idea of the disparity between oil and Nat gas prices, here are some numbers. Historically, a barrel of oil trades at **11 times **the price of a million Btu of Nat gas since 1990 (OK Muqawee, I know it is wrong to use historically in this context - only 22 years - but please dont be difficult).
The oil/gas price ratio startedto climb in 2009, and reached 48.6 on March 27, 2012!!!
This ratio may head back to more reasonable levels as US and Europe tap into strategic reserves and worries abt Iran fade.
Hope this nugget was useful.
Re: Unique financial nuggets
Shahid Afridi is getting closer to 33 years of age. So emerging markets, while still young, are getting a bit older.
To borrow an expression from other members scatters Afridi seeds
Re: Unique financial nuggets
As Sehrysh so eloquently pointed out, stocks move all over the place based on several factors. In the near term, their movement is almost like noise. Apple moved up in the 1st 2-3 days of last week, and then dropped a bit in the last 2 days of trading of last quarter. Then it moved up the 1st 2 days of this quarted by about 4.5%! So if it was just window dressing, then logically it should have sold off in the new quarter. So IMO, it is very dangerous to “invest” based on individual points such as window dressing, share buyback etc. Thanks again Sehrysh for the well timed comment.