2014 Stock Markets – a new Bubble?

If you listen to financial news today, most TV anchors to journalists comment on how the market is in a new high and that correction is bound to happen. They are comparing this to the 2000s bubble.

Most value investing gurus comment that they are selling most of their portfolios to turn defensive on equities. What is the fact? It is very true that stock market are on a all time high and American economy is not producing enough jobs. The Quantitative easing and low interest rates are making the stock markets go high. The economy’s growth is not as robust as the stock market.

Canada is living on a high on Real Estate. The highs will eventually tamper and Canada will face a hangover.  The only truth is that no one knows when it will be and how bad it will be.

What should you do as a main street investor whose only goal is to save for retirement or for children’s education.

The good news is don’t worry.  If you buy stocks thinking they are fine businesses, they will certainly do fine over a long period of time. If you are into the facebooks and the twitters of the world, then you better tighten your belt.

 

Aligned Interests – Real Estate Investments

As most of you know, my circle of competence in investing does not include Real Estate.  I’ve rented most of my life and I don’t know squat about buying and selling homes. Nor do I know about appreciation value. I am a good handy man and can fix things around a home.

But I do know about a few things on aligning interests. We always want the CEO’s of companies to have interests aligned with the company. If not they would be making money and the company’s shareholders would be losing a lot.

Personally, I’ve used real estate agents before and often not successfully.

Watch this video about interests alignments of Real Estate Agents.

Since you have watched this video and you can see how interest alignment can really make a big difference.

Most people have something called sellers’ remorse after selling their home. They often end up buying bigger homes using the same real estate agent to feel good about it.

Are you one?

Here are some quips from some of my favorite philosophers including Charlie Munger.

  • Many years ago, a Pasadena friend of mine made fishing tackle. I looked at this fishing tackle – it was green and purple and blue – I don’t think I’d ever seen anything like them. I asked him “God! Do fish bite these lures?” He said to me, “Charlie, I don’t sell to fish.”
  • An old saying goes  - ” Never ask the village barber if you need a haircut. “
  • As American actor Walther Matthau said, “My doctor gave me six months to live. When I told him I couldn’t pay the bill, he gave me six more months.”

 

Sad News: IRS can’t regulate tax preparers

We spoke about how tax preparers are often bad in preparing your returns. We were hoping that IRS would regulate them eventually and it would be better for everyone filing taxes.

But apparently a US appeals court struck down the law today and IRS cannot regulate tax preparers anymore. Sad news for common people but again Congress will have to act to ensure people are protected. Given today’s political bickering this will never happen.

See the news about US appeals court decision on US Tax Preparers.

Free Kindle Book: Henry Paulson’s On the Brink

Henry Paulson was the treasury secretary during the financial crisis of 2008. He used to be the CEO of Goldman Sachs.

He along with Timothy Geithner and Ben Bernanke were single handedly responsible for ensuring that the 2008 Recession didn’t become a Great Depression.

The best part of it is he wrote a book about it and it is one of the great books to read apart from Too Big To Fail and all books on Lehman Brothers.

Here is the icing – Today it is free on Amazon Kindle. Go grab them as they last.

FIVE YEARS LATER: On the Brink — THE NEW PROLOGUE: A Look Back Five Years Later on What Happened, Why it Did, and Could it Happen Again?

If you still have any doubts whether this book is worth a read, then look at his interview with Amazon.com

Henry Paulson’s interview with Amazon.com

More up selling on Henry Paulson -

Here are Henry Paulson’s interviews with

  1. Warren Buffett
  2. At the Columbia University

The most essential thing is reading this book is to understand how government thinks and works during a crisis. As value investors, if we assimilate this, we can of course make some decent investments during the next recession.

The above sentence may sound a bit unsettling but unfortunately fortune favors the brave.

Mutual Funds: Intro to Oakmark and Bill Nygren

Bill Nygren grew up as a  baseball fanatic but lucky for us, his baseball skills were not pro-like. So he picked up stock picking.  When asked why he replied -

That’s because they ran next to the baseball box scores in his local newspaper.

Baseball is full of statistics and his love with math and numbers brought him to value investing. Reading books from the local library about  Buffett, Benjamin Graham and Sir John Templeton, he started picking stocks the value way. Bill was hired by Harris Associates, adviser to the value-oriented Oakmark fund family in 1983 and he felt home.

Like any true value investor, we hear that he has invested a bulk of his personal savings in his own funds.

Now let us look at the funds he runs in Oakmark.

1. Oakmark Fund (OAKMX)

This is run by Bill and Kevin Grant.  Let us look at the historical performance of the fund.

Oakmark Fund Performance

Oakmark Fund Performance

As you can clearly see he has beaten S&P 500 over a long duration of time. Bill, I hear has the uncanny ability to smell a great value stock and hold on to it until it realizes complete value. Today, some of the fund’s largest holdings include Bank of America (BAC), FedEx(FDX), Oracle (ORCL), JP Morgan Chase (JPM).  With almost 50% of his holdings in Financials and Information Technology, one would always wonder why has he stacked all the cards against industries that are not doing well. But in reality, that is what all value investors do. They try to find industries that are depressed and find value among them.

2. Oakmark Select Fund (OAKLX)

The prospectus states the following -

The Oakmark Select Fund seeks capital appreciation by investing in mid- and large-cap companies based in the U.S. The Fund is non-diversified, so it will concentrate its assets in fewer individual securities (approximately 20 companies) than a diversified fund.

If you remember reading about Bruce Berkowitz, you will realize this is his motto too. Let us look at the performance of Oakmark Select.

Oakmark Select Fund Performance

Oakmark Select Fund Performance

This fund has beaten S&P500 over a long period of time. The fund is run by Bill Nygren along with Win Murray and Anthony Coniaris.

Largest holdings include TRW Automotive Holdings , Bank of America and a whole lot of financials.

3. Oakmark Global Select (OAKWX)

The goal in this fund is to invest globally in select top-tier companies.

Here is the fund performance over the years.

Oakmark Global Select Performance

Oakmark Global Select Performance

This is another fund that beat the index.

Given the today’s economic growth potential around the world, I won’t be surprised if this fund beats other funds in Oakmark.

There are other funds in Oakmark, but the above three are the ones run by Bill Nygren. Nevertheless, the other funds are good to if it matches your return style, especially if you are interested in income or other categories.

Summary:

  1. Oakmark Website
  2. Performance Summary of the funds
  3. Annual Reports and Forms

 

 

 

 

Many Tax preparers file incorrect taxes

Tax season has begun. Most of you must be receiving tax slips from your employer, savings accounts, investments and all other places where you made money for the last year.

What I am here to warn you is that if you are using a tax preparer i.e) a person who will do all the accounting and file taxes for you, there is a chance that your tax filing may be incorrect. Not surprising ! National Consumer Law Center reports that many tax preparers are not qualified enough to file taxes correctly. Interesting is that you lose lot of money by choosing a wrong tax preparer.

I used to use a tax software when filing in the US. After being in Canada, I use a CPA for all my tax filings.  Let me know how you file taxes. Note that often the cheapest fees for filing taxes might not be the best place to get you correct and better refunds.

Here is the complete story about Riddled Returns.

Why Long Term Investing is not like your office work

I want to share some amazing articles that will help to understand how investing philosophy works. These are written by great folks and will help us become better investors.

I ran into this today while I was researching about Tweedy Browne. The article is called as

99% of Long Term Investing Is Doing Nothing; the Other 1% Will Change Your Life.

I tend to agree a lot on the title but there is lot more behind the scenes than doing nothing. I will certainly talk about it in the coming months, weeks.

But for now, enjoy this wonderful writeup by Morgan Housel.

 

Mutual Funds: Intro to Tweedy Browne

Founded in 1920, Tweedy Browne started their investment operations in the late 50s and started taking client’s money in the 70s.

Tweedy Browne Inc ( their previous name was Tweedy & Co) began working with the father of value investing – Benjamin Graham and then began working with Warren Buffett and Tom Knapp as brokers before turning their organization into an investment firm. Tweedy Browne has been there when the seeds of value investing were sown.

Today they manage about $20 billion for investors in four mutual funds. So here is one of their key selling point for their funds -

No Managing Director or former general partner has ever left Tweedy, Browne to join another investment firm.

How about that for attrition rate?

Now let us look at their four funds.

1. Global Value Fund (TBGVX)

Started in 1993, as the name suggests, Global Value Fund invests wherever they find value opportunities around the world. This fund has over $839 million of Tweedy Browne Founders/Employee’s own money. This is classic “eating your own dog food” style.

Here are the returns over the years.

The first column is the fund’s return. The 2nd column and third column represents the MSCI EAFE return with hedging and without hedging.

Tweedy Browne Global Value Fund

Tweedy Browne Global Value Fund

2. Global Value Fund II — Currency Unhedged (TBCUX)

Founded in 2009, this is a currency unhedged mutual fund and very similar to the regular Global Value Fund except the currency is unhedged.

For normal people like us, what this mean is that the fund may go up and down based on the conversion rate of US dollar into Euro or any other currency in which they buy stocks.

Here is their returns over the few years they are active.

Tweedy Browne Global Value Fund II - Currency Unhedged

Tweedy Browne Global Value Fund II – Currency Unhedged

As you can notice, the returns are higher than the hedged US dollar fund. The reason is the US currency has been devalued significantly over other currencies in the past few years and that brings a better return.

3. Value Fund (TWEBX)

I like the way Tweedy Browne folks name their funds. This one does not have “Global” so it means most of their money is invested in the US.  This fund began its inception in 1993 and has been returning good results over the years. Here is their performance summary.

Tweedy Browne Value Fund

Tweedy Browne Value Fund

You will notice that majority of the funds are in US stocks, but they also invest in foreign equities.

4. Worldwide High Dividend Yield Value Fund (TBHDX)

The last fund which is very descriptive and as it explains this fund tries to bring more dividends to investors. This is more opted for people who are retired or plans to retire soon. This fund was begun in 2007, so there is not a lot of history to do with their operations, but again a good, solid, dividend fund.

Here are the returns.

Worldwide High Dividend Yield Value Fund (TBHDX)

Worldwide High Dividend Yield Value Fund (TBHDX)

Remember, these funds also send you dividends apart from their growth in NAV.

Tweedy Browne is another good old time Mutual Funds that generates you money.

Summary:

  1. Website of Tweedy Browne
  2. Global Value Fund Information
  3. Global Value Fund II Information
  4. Value Fund Information
  5. Worldwide High Dividend Yield Value Fund
  6. Annual and Semi Annual Reports

 

 

 

Mutual Funds: Intro to Francis Chou and Chou Funds

Francis Chou immigrated to Canada in the 70s and was working as a Bell repairman in his early 20s. Story goes that he never attended college, and self learnt everything about Value Investing from Security Analysis, Buffett et al.

His foray into investments started as an investment club with his Bell Co-workers with $51,000. He turned that to $1.5 million in 5 years. He later ran into Prem Watsa of Fairfax Financial and worked with him during the early days of the company. So Chou is a legendary investor but rather not well known like his American counterparts.

Funds and Performance

Francis runs 5 funds and he is pretty much an one man army managing the portfolios.

  1. Chou Associates Fund:

Here is a summary of the fund’s performance over the years.

June 30, 2013 (Series A)

1 Year

3 Years

5 Years

10 Years

15 Years

Chou Associates ($CAN)

40.4%

14.6%

8.1%

7.2%

8.7%

S&P 500 ($CAN)

24.6%

18.1%

7.7%

4.6%

1.9%

Chou Associates ($US)1

36.0%

15.0%

7.4%

9.9%

11.2%

S&P 500 ($US)

20.7%

18.5%

7.0%

7.3%

4.2%

His returns are nice, although not Berkowitz nice, Francis Chou has the ability to perform over long periods of time. The part I like about Francis is that he writes detailed information about his purchases and his rationale behind buying the stocks. This is a rare among Mutual Fund Managers. Another thing I like about his letters are that when he finds out an incorrect investment, he calls it out that he was wrong and explains in detail why his thesis was wrong. This is even rarer.

Here are some words about Canadian Real Estate from his recent June 2013 letter.

Canadian Real Estate

We continue to worry about Canadian real estate. As we said before, of the G8 nations, Canada has performed best since the Great Recession of 2008 and has been widely lauded for its fiscal and economic performance. Its real estate prices have reflected that positive opinion. But therein lies the problem. In most countries, real estate prices have declined substantially, while in most of Canada, especially in the big cities, prices have actually increased. Based on ratios such as rent-to-house- price, disposable-income-to-house-price, Canadian house prices are out of line with historical standards. In addition, household debt as a percentage of disposable income is unprecedentedly high. This does not mean that real estate prices will decline soon, but it does indicate that valuations are stretched.

We all know what happens when we over stretch a rubber band or blow too much air into a balloon.

2. Chou Asia Fund

As the name suggest this fund primarily invests its money in Asia. Returns are average because of the demographic restriction and personally I am not in favor of restricting an investment because of demographic reasons unless it is regulatory.

3. Chou Europe Fund

Just like the Asia fund, the Europe fund invests its money in Europe. Unlike Asia, Europe has a very mature business environment and its legal and business formalities are very similar to North America. Again Chou’s returns are not spectacular compared to the associates fund.

4. Chou Bond Fund

I am not a big fan of bonds unless they are in distressed state and that they are misunderstood because of some market forces. For example – Lehman Brothers bond prices after their bankruptcy was a great buy. Chou’s Bond Fund is mainly working towards generating income and I am not a great fan of such a fund. Equities (stocks) provide better rewards in a long run compared to Bonds.

But that said, Chou Bond Fund made 26.6% last year. But just as I said earlier from inception the average return on this bond fund is 7.6% which is not bad but not that great.

5. Chou RRSP Fund

RRSP is the Canadian IRA. You put money in this for your retirement. I like this fund purely because, it goes in autopilot building you wealth. Francis Chou’ returns are not that bad – 37.6 % last year and 13.7% in past 3 years. The investment thesis is similar to the Associates Fund which I like.

Francis Chou is a great investor and your money will grow over the time if you invest with him. There are of course some gotchas that are built into investing with him. One is that you pay a penalty if you withdraw the money within two years of putting it in. This is natural as it takes over 3-5 years for an investment to realize. Expecting it to turnaround much earlier is foolish and Francis keeps away the day traders by this rule.

Chou is also very vocal about ups and downs with his investments. If you even go to his website, he might very well scare you saying your investments may go up on down on a daily basis. So if you are a guy looking at NAV on a daily basis, Chou is not your friend.

Summary:

  1. Website – http://www.choufunds.com/
  2. Annual Reports
  3. Semi-Annual Reports
  4. Letters to Investors
  5. Forgot to mention – He was named Morningstar Fund Manager of the decade in 2004

RBI to cut interest rates on NRI Deposits

You have seen me earlier make a hue and cry about NRI Fixed deposits in India. These NRI Deposits do give a great return in the long run.

After the mild tremors in the Indian Financial markets, RBI ( Reserve Bank of India) had started this new policy to bring more Foreign currency to India. Which started the rise in interest rates on NRI Fixed Deposits. What I am seeing now is the next phase of the cycle where RBI is happy with what they have brought in and are trying to reduce the interest rates.

Here is an NDTV news item talking about the same. This reduction in 1% ( they call 1% 100 basis points) is a trend that will eventually curb money flows to India for Fixed Deposits.

So, if you plan to take any action on investment in Fixed Deposits in India, do it soon before the March 1st change arrives.