Posts Tagged asset
When Average Earnings Are Not Representative
Posted by Tetyana Matychak in Business on September 3rd, 2010
For various reasons, value investors are encouraged to use an average of several years worth of earnings as an estimate of a company’s earnings power. But when a company grows quickly (e.g. through the acquisition of a competitor), average earnings are no longer representative of earnings power. In such cases, other methods of estimating a company’s earnings may be more useful.
Consider Canam Group (CAM), a company that has gone on a buying spree in the last year or so. As competitors have been shutting down units to conserve cash, Canam has been strategically purchasing competitor plants at attractive prices. As many industries are currently at overcapacity, the benefits of these acquisitions won’t be seen for years. But the costs of these acquisitions (i.e. the cash used to finance the purchases) are seen immediately. How does one value the fact that future earnings will be higher than past earnings?
One method applicable to manufacturing companies is based on a company’s historical return on its fixed assets. If similar assets to the company’s current assets have been purchased, the company may be expected to generate the same type of returns on those fixed assets that it generated over the last business cycle. Of course, this exercise only results in a starting point for estimating future earnings. Adjustments may have to be made based on the age of the assets acquired, their quality, and a whole slew of other factors (e.g. geography).
When times are good, companies will often fall over themselves in bidding wars to acquire potential targets or business units. Value investors realize, however, that the best time for companies to acquire such assets is when business conditions are poor (financing in general is hard to come by, there is overcapacity in many industries, and sellers are desperate to raise cash), due to the great price discounts that are available. Read the rest of this entry »
4 Investment Ideas That Provide Income
Posted by Tetyana Matychak in Investing on July 1st, 2010
As of this moment, the S&P/TSX Composite index is down 384.58 point or -3.27% year to date. The S&P 500 is down 67.32 or -6.04% year to date. That is your market update. When the global economic outlook appears uncertain and on the brink of another recession, equity markets reflect this reality in terms of greater than normal volatility. In markets like these, what we should be looking for are non-correlated assets and managers that have demonstrated the expertise to preserve capital during uncertain times like today.
In addition, one should also be focusing their efforts on receiving some form of income while the economic climate sorts itself. The following 4 ideas should hopefully accomplish both those goals. While we cant speak to the best/worst time to buy/sell particular securities, as that depends on one’s personal circumstances, the approach we usually take, especially with closed end funds, is to purchase them when they are trading at the steeper than normal discount to their Net Asset Value (NAV). The only other thing we would like to add is that you should do you own due diligence.
Trident Performance Corp.
This closed end fund is managed by CI Investments. Its investment objective is to provide tax-efficient risk-adjusted long term rates of return by obtaining exposure to a Global Macroeconomic Portfolio, advised by Trident Investment Management. Co-Founded in 1998, by Nandu Narayanan, Trident Investment Management seeks to exploit macroeconomic trends to generate attractive risk-adjusted rates of return with low or negative correlation to traditional ‘long’ investments. This is exactly what Mr. Narayanan did during the financial crisis, when the CI Global Opportunities Fund recorded positive performance of 109% in 2007 and 42.6% in 2008. Since inception in March 1995, the fund has averaged 19.69% as of the end of May 31, 2010. Read the rest of this entry »
Bank Issues, Jobs Data Drives Euro To 4-Year Low
Posted by Tetyana Matychak in Currency on June 8th, 2010
After holding steady for a few days, the Euro plunged through the recent bottom to post a 4-year low. This morning’s move came as a surprise to many traders who had expected the single-currency to hold its range until after the release of the employment number.
Traders are saying that this morning’s sharp break was a reaction to new concerns about the health of European banks. Investors are concerned that mounting debt issues across the Euro Zone will erode investor confidence in the Euro and slow down the rebound in the global economy. Many traders were surprised by this morning’s move which caught traders off guard as they awaited the release of the important U.S. jobs data report.
The GBP USD is also under pressure because of the drop in risk appetite. The charts indicate that a test of 1.4499 to 1.4435 is likely over the near-term.
Plunging equity markets are triggering a possible reversal top in the USD JPY. Traders are dumping risky assets following the plunge in the Euro and the weaker than expected U.S. jobs data report. The Dollar/Yen is trading back under a .618 retracement level at 92.41 which makes 91.61 a new downside target.
Falling demand for higher risk assets is helping to drive the USD CAD higher. The main trend is down, but upside momentum is building which could trigger a reversal of this trend on a breakout over the last swing top at 1.0573. Read the rest of this entry »
Whistle-Blowers Become Investment Option for Hedge Funds
Posted by Tetyana Matychak in Fund Markets on May 21st, 2010
Hedge funds have found a new market to invest in: whistle-blowers.
Informants who turn in tax cheats have to wait years to get their share of any reward from the I.R.S.’s recently expanded whistle-blower program. So hedge funds, private equity groups and other big investors are offering an alternative. They are essentially agreeing to buy a percentage of those future payouts in exchange for a smaller amount upfront to the whistle-blowers.
The surging size of the potential awards is driving all the interest. Three years ago, the I.R.S. began offering bigger rewards — 15 percent to 30 percent of whatever money the government recovered — in a move that has turbocharged the agency’s whistle-blower program.
Where it once handled only a trickle of tips, often involving relatively small amounts of unpaid taxes, I.R.S. offices now receive a torrent of big money claims. Accountants and company employees have taken to trooping in bearing computer records and boxes of documents to back up their claims of underpayment by big companies.
In what is believed to be the first of these structured tax payouts, an I.R.S. informant who reported that an overseas multinational corporation had underpaid its taxes by billions of dollars received $4 million last month from a private equity firm. In exchange, the firm will receive a portion of the award the informant expects to collect eventually. Read the rest of this entry »
Winfrey Hires a Star Manager
Posted by Tetyana Matychak in Budget on May 20th, 2010
Oprah Winfrey has made a fortune in television, magazines and movies. Now she has hired someone to manage it.
Ms. Winfrey, one of the most powerful brands in media, has begun setting up a so-called family office to handle her personal investments, according to people familiar with the situation. Her first hire: Peter Adamson, a well-regarded investor who currently serves as chief investment officer for Eli Broad, the Los Angeles billionaire and philanthropist.
The move comes as Ms. Winfrey begins a new chapter in her professional life. In January she plans to launch her own channel, the Oprah Winfrey Network, a joint venture between Ms. Winfrey’s Harpo Inc. and Discovery Communications Inc. that aims to reach 80 million homes in the U.S.
A spokeswoman for Ms. Winfrey confirmed the hire but declined to elaborate. Mr. Adamson didn’t return emails and telephone calls seeking comment.
Ms. Winfrey historically has been private about her financial affairs, but this is believed to be the first time she has established a full investment organization around her fortune.
Wealthy investors typically hire managers at banks and brokerage firms to handle their financial affairs. A family office is considered a step up from such an arrangement, with a team of advisers working exclusively, and directly, for the client. Read the rest of this entry »
Active money management or buy and hold?
Posted by Tetyana Matychak in Investing on May 10th, 2010
With so much volatility in the stock market, investors saving for retirement must decide what investment approach may work best over the long term. Some market players question the wisdom of a “buy and hold” investment strategy, embracing active management instead.
The debate is not new, but perhaps it’s become more heated after the roller coaster ride of the past decade.
Before making fundamental changes to your investment approach, here’s what you need to know about active money management versus buy and hold.
The argument for active management
Supporters of active money management say that buy and hold is not a good long-term investment strategy for the small investor. They note that the most recent decade was not the only period of time that stocks — the assets favored in buy-and-hold portfolios — underperformed other, less risky, assets.
For example, from 1966 to 1982, the S&P 500 produced no real return (meaning it did not keep up with inflation), underperforming one-month Treasury bills by 0.2 percent per year. From 1966 to 1988, U.S. large growth stocks consistently underperformed one-month CDs. Read the rest of this entry »
Europe’s Debt Crisis Is About to End
Posted by Tetyana Matychak in Favourites, Trading Markets on May 6th, 2010
With the likes Nouriel Roubini, Jim Rogers and George Soros predicting a disastrous default by Greece and others in the euro zone, the contrarian in me has to ask if they could be very wrong. Sources from the City of London who would not go on the record have told me this week that Greek debt is currently a screaming buy.
They believe huge profits will be made for those holding Greek paper when Germany, the IMF and ECB outline a new rescue package that will convince investors they are serious about drawing a line in the sand on the sovereign debt crisis.
Rumors of a European TARP moment could yet be unfounded but with Merkel now serious about getting to grips with the crisis, investors who stay short Greek debt over the weekend could be scrambling to reverse their positions on Monday morning.
Officials at Greece’s debt agency did not respond to CNBC requests for comments. Fears over the long-term health of the euro zone remain high and it is difficult to argue with those who see the possibility of some members exiting the euro on a long term view.
Adam Cole, the Global Head of FX Strategy at RBC Capital Markets, is a euro bear and thinks we could hit $1.10 or $1.15 versus the dollar over the medium term but suggests an announcement on Greece this weekend could offer temporary respite for the market. Read the rest of this entry »
Eight do’s and don’ts for your 401(k)
Posted by Tetyana Matychak in Investing on April 12th, 2010
When it comes to saving for retirement and building a portfolio to last a lifetime, most Americans are way behind the eight-ball, the nine-ball and all the other balls on the pool table.
More than 54% of Americans report that the total value of their household’s savings and investments, excluding the value of their primary home and any defined-benefit plans, is less than $25,000, according to the Employee Benefit Research Institute’s annual Retirement Confidence survey. What’s worse, 27% have less than $1,000 in assets. Just 11% have more than $250,000 set aside.
Yes, those figures include Americans young and old, those just starting in the work world as well as those about to check out, but in the main many Americans need to modify their savings and spending patterns to have any hope of enjoying a standard of living to which, rightly or wrongly, they’ve become accustomed.
And it’s not rocket science. At least, it’s not according to some experts. Here are some nest egg do’s and don’ts, according to Hewitt Associates and Merrill Lynch. Read the rest of this entry »
High Yields Aren’t Always a Good Thing
Posted by Tetyana Matychak in Investing on March 1st, 2010
In the parched landscape of income investing, dozens of closed-end funds yield more than 10%.
Just as wanderers in the desert shouldn’t mistake a mirage for an oasis, investors shouldn’t regard these funds as salvation. Often, the income you earn in the short run mightn’t be worth the principal you lose in the long run.
Like mutual funds, closed-ends are baskets of stocks or bonds. Unlike a mutual fund, a closed-end trades like a stock; you can buy shares only from other investors. Thus the price isn’t set merely by the value of a closed-end’s investments, but by the whims of those who trade its shares. When investors pay more than the portfolio’s net asset value, that is called a “premium.” When the shares trade at less than NAV, that is a “discount.”
As of last week, 11 of the roughly 650 closed-ends tracked by Lipper Inc. traded for at least 20% more than their portfolios are worth. In many cases, investors are paying those big premiums in pursuit of high yields.
Buy such a fund, and you may double-dose on risk. A yield that looks stable can crumble; then the premium may collapse as panicked investors dump the fund. That leaves you with less income than you expected—and a big market loss to boot. Read the rest of this entry »
The worst is yet to come
Posted by Tetyana Matychak in Budget, Favourites on February 17th, 2010
Over the next few years, a wave of commercial real estate loan failures could threaten America’s already-weakened financial system. So warns a new report from the Congressional Oversight Panel as part of its oversight of the Troubled Asset Relief Program, highlighting yet one more hurdle for this country’s fragile economy.
The panel, chaired by Harvard law professor Elizabeth Warren, says it remains “deeply concerned” that commercial loan losses could jeopardize the stability of many banks, particularly the nation’s mid-size and smaller banks. Read the 183-page report for yourself here.
Worries about CRE loans — those loans taken out by developers to purchase and maintain shopping malls, offices, hotels, and apartments — have been simmering for months, as we noted in an October article. See “How Banks Will Fare in a Commercial Real Estate Crash.”
The problems now plaguing commercial real estate have no single cause, and the panel notes that the loans most likely to fail were made at the height of the real estate bubble when commercial real estate values had been driven above sustainable levels and loans.
“[M]any were made carelessly in a rush for profit,” the panel said. Read the rest of this entry »
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