Login status: You are not logged in.
- Do you want to Log in
- Create a new account?
- If you forgot your username or password, get a new password emailed to you.
- Need help?
Vivian Lewis is editor and founder of Global-Investing.com, the daily blog newsletter for Americans and others seeking to internationalize their portfolios. She brings unique experience and competence to the business of picking foreign stocks.
Read More >>
You can receive my daily posts by email. Sign up here.
Purchase my latest special report: ETFs.
US$49.95
Buy now
My Stamp Collection and A Gold Fund
Two readers asked the same question from Atlanta and Albuquerque.
One wrote: Picking so many stocks means you're just trying to get lucky and hit a few big winners. It reminds me of playing roulette, hardly a science.
And the other wrote: I'd like to hear your thoughts on how many different stocks an individual investor should have. It's an issue I wrestle with. There's the discipline argument. Limiting the number of companies forces you to be more selective. I have many things I want to buy, but I worry about having too many. I believe there is an important discipline in limiting the number of companies you own. By setting a maximum, you force yourself to identify investments that are less good that the alternative and shed them.
Everything you own is something else you don't own. There's an opportunity cost in every investment decision, even after we have made it. Every day we hold a stock is a day we miss out on putting our money somewhere else. Since we have a tendency to become emotionally attached to stocks, I think this is a good antidote.
The other argument against excessive diversification is that you end up essentially owning home-made index fund.
Vivian replied:
Good questions. How many stock to own? as many as you or your staff can track and follow. I am a big believer in diversification. Mayri Voûte, a money manager friend in Paris, says I have not a portfolio but a stamp collection. A Russian, she likes to gamble at roulette tables; I am a petite bourgeoise American and don't.
I also do not believe in rebalancing, hooey put out by brokers to get business. I also do not believe in target prices for trades although I use them mentally when watching. You may have noticed there are no targets in global investing except from Frida Ghitis.
When you invest in a couple of dozen different markets in stocks with different personalities (yield, speculative, or boring) in different industries you are not creating an index because you are focused on performance one by one not on tracking a market index. I hate indexes, a lazy way to invest.
My main reason for not rebalancing is that I own gobs of my best ideas.. I did not take money off the table because it was there. I only sell if I can think of a reason to. Many share traders suffer from sellers' remorse, even good ones. Last week I had to comfort Maurice, an Italo-Briton, for his having sold Berkshire Hathaway about a year ago and now having to buy it back for more cash. He sold because he made so much money with it. And so he paid part of that back, sob sob.
Another thing I do is trim my bets, buying and selling in little chunks until I am surer of things. My late great-uncle Jack Oppenheim, my first broker, used to say: "Vivian, fish or cut bait". But that was when commissions (to him) were high and taxes also. This no longer is true. See below.
I violate the theology of investing preached by brokers, ETF promoters, and fund managers. I break their rules in real life and in Global Investing. They want you to trade a lot, rebalance, buy indexes, and leave it to their brilliant managers to manage your money. Fuggedaboutit.
*Deutsche Bank just launched a new Exchange Traded Commodities fund family which will appeal to the most mistrustful, nay paranoid, gold bugs. The “db ETC” investment platform will offer new index products initially on the Xetra (Frankfurt) Exchange and initially for gold.
Later it will offer ETCs for silver, platinum, and palladium there and on other European markets. It will also price future ETCs in euros (although precious metals markets are priced in dollars and always incur exchange risks for euro investors.)
Recent Deutsche research reports that total assets in ETCs across Europe grew by 145% in 2009, vs only 43% more in equities and 17% more in fixed income. ETCs are a popular way for investors to gain exposure to commodities without trading futures contracts or taking physical delivery of the commodities tracked. Deutsche fully collateralizes the Gold ETC using physical gold, with fully liquid trading by Deutsche acting as market maker.
db ETC also can provide access to Deutsche's own “Optimum Yield” indexes to commodity investors seeking to minimize losses from the "rolling" of commodity futures contracts (contango, where the future price is higher than the spot).
Head of db x-trackers Thorsten Michalik said: "We expect to launch more than 30 products before June across Europe. We are also planning to launch db ETC on the underlying physical asset class for silver, the first product of its type brought to market."
Deutsche's ETC products are transparent and fully collateralized (with the actual commodities) and trade on regulated exchanges. The commodity indexes will have annual product management fees of 0.45%. while platform product fees are said to be low. Other costs may arise from products, underlyings, or collateral and will be made known to investors who monitor www.etc.db.com.
More for paid subscribers from India, Britain, Australia, Israel, China, and Brazil follows.
Anniversary News
Today is the first anniversary of the bottom of the global stock markets on March 9, 2009. Here is what I wrote that day:
The main optimistic view is that because the U.S. was first into the mess, it will be first out. FIFO in fact.
Since we never have been in a comparable economic downturn in my lifetime, I hesitate to make predictions. But I am sure of one thing: the stock market will not sink to zero. And the U.S. will come back.
I then segued into a recommendation to buy GE which many readers teased me about forever after.
Today's newsletter is short because I am going to a lunchtime concert. But we have news from Germany, Israel, Britain, Canada, and Brazil.
Monday Trades
Today we did some trading. We sold Stada Arzneimittel (STDAF) at $39.35/sh and also EZU at $35.51/sh. I had not noted that we also got a 2.941% dividend on that ETF last year which enhances our return. Read more »
A Departure for Paid Subscribers
Today's newsletter is a new departure. We run for paid subscribers a pair of article by... paid subscribers, each about his or her favorite stock in the Global Investing universe which we have not written about yet.
This violates one of our rules. Normally Vivian and the editorial team do not buy the shares we write about before the issue has gone out. On the other hand, both of these long-term readers are not managing money for anyone but themselves. Naturally I took the liberty of making editorial comments.
The companies our paid subscribers wrote up come from India and Britain. Read more »
Automated Mindless Censorship
Here is my final rebuttal to Tom McClellan's taste for charting. It is a news item from today's Bloomberg about a Singapore gambling stock:
Genting Singapore Plc, the worst performing stock on the Straits Times Index this year, may extend declines should key moving averages intersect in a 'dead cross' pattern, according to DMG & Partners Securities Pte.
If that is not a self-fulfilling prophesy, what is?
Today's blog is about sex and hard liqueur. But first a bit of help with the Internet.
Yesterday I was too clever by half. I headlined my daily blog "Eurodollars and Female Viagra" and many did not receive it because it triggered spamblockers. Our webmaster sent those whose bounced emails hit him a new version headlined: “Eurodollars and Female Prescriptions.”
If you are a paid subscriber, you can view either version on the website without Mrs. Gundy stopping you. If you are not a paid subscriber, become one to avoid automated brain-dead censorship..
Internet ain't easy. We were subject to a phish attack from Paypal, a service that we occasionally used in the past. Most subscription credit card orders now come via our authorize.net merchant account which links our website to our bank.
Because of the phish attack, with their tech support, we locked down the paypal acccount. Subscribers who had expected to renew automatically with paypal are warned that it will not work. You will receive notification from our website to renew and you should click to it. There are no automatic renewals with our merchant account although these were possible with the now unsafe paypal.
For all matters of subscription and renewal please visit www.global-investing.com where you can log on with a password you set, or get a new log on. This way, you can even read about female V1@gr@, which of course was a perfectly legitimate part of yesterday's blog.
Eurodollars and Female V1@gr@
"1. You misstated my assertions about the meaning of the eurodollar COT data. It shows an important top due in mid-March, and not an upswing at the end of March as you stated. Furthermore, you should already know that eurodollar futures don't have anything (directly) to do with FOREX. It is an interest rate instrument, not a currency instrument. They are not the same thing as euro currency futures as you implied. (VL: My error first on the timing, which I think is likely to be variable and vague with a new overlay; on the rest, please see below.)
"2. You misidentified the name of my service. Mcoscillator.com is the domain name of my web site. The publication from which you were (incorrectly) paraphrasing is the Daily Edition of the McClellan Market Report. (VL: I was just trying to help those who want to learn more find you. It does. Sorry.)
"3. You hypothesized that charts only 'work' because of a self-fulfilling prophecy, i.e. people see what the chart says should
happen, and respond accordingly making it work. That is an interesting hypothesis, and it is also a testable one. All one needs to do is to look at stock price or other data from years when charts were not in common (or any) usage, and see if the "rules" of price behavior that one is interested worked back before people could know about them.
It turns out that chart analysis became popular between the 1930s and 1970s IN SPITE OF a multitude of assertions that it was akin to voodoo. I know people who got fired from banking jobs for being caught in possession of chart books. But over time, analysts realized that there was merit to technical analysis, and that realization continues to grow which is why the ranks of the Market Technicians Association are growing so quickly. People are finding out that the "school way" of analyzing the market does not work so well, and so they are migrating to things that do work.(VL: That is exactly my point. The degree of predictability will rise as the number of chartists does.)
"The bigotry against technical analysis is finally starting to die down because people are seeing for themselves that it works, just as the objections to black people being admitted to Harvard eventually died down when it was proven that they could do just as well as white students despite what the "experts" said. Sadly, such bigotry still exists in pockets, against both racial minorities and chartists. (VL: Okay Tom, take it easy. And the civil rights analogy is overstated, I think. W.E.B.DuBois was admitted to my old college in 1890-something.)
"Signed: Tom McClellan"
Vivian replies. Chartism is not proven by the fact that backtesting charts into the antedeluvian era before they were widely used seems to confirm the theory. True, when certain levels of pricing are breached upwards or downwards, the stocks rise or fall further. That is simply a reflection of human nature.
Momentum works because people like to buy a winner and sell a loser.A proof that you don't need charts for people to subconsciously use them is shown by how stocks which have split 2:1 tend double to prior levels more quickly than stocks which did not split. Investors have a recollection of what price a share commands and this pushes split stocks up.
As for the link Tom alleges between the eurodollar rate and the stock market, this really is voodoo. The eurodollar rate serves a bunch of functions besides being a way for foreigners to buy dollars (which despite what Tom wrote, has foreign exchange implications.) Offshore buyers buy offshore unregulated dollars because they get a better yield thanks to the absence of Fed reserve requirements and other regulations applying to normal dollars here.
Then too check accounts for corporations "sweep" surplus money into eurodollars because yields are higher. You set this up with your bank or have a smart CFO do this, but it only pays off for megabucks.
The eurodollar market is also used, as Tom notes, to lock in yields for large players planning to borrow or lend later. This is a pure interest rate measure although because the eurodollar pays out interest in advance and is leveraged, it is also a cool way to do interest rate speculation.
And finally the eurodollar is part of the TED spread, a way to benefit from market complacency or panic by buying T-bills and selling eurodollars, or the reverse. If there is panic, deposits flow to T-bills. T-bills pay less than eurodollars but are perceived as safer and then in demand. This pushes their yields even lower so eurodollar yield spreads become more profitable. In periods of calm, more funds go into eurodollars for the extra yield, and the spread in prices shrinks.
A supposed link between this large market in offshore dollars and any S&P movement is voodoo (despite Tom McClellan's charts). The reason: I cannot figure out how the two markets are linked in the real world. While we can't quantify it, we know pumping more carbon into the atmosphere increases global temperatures. I can see why a huge shift in tectonic plates off the west coast of Chile can wiggle the earth's axis a few mini-seconds from the prior balance.
But apart from the chart itself, I cannot explain why the eurodollar price 14 months ago will affect the stock market this month.
We reported (mistakenly along with everyone else) that China had cut its purchases of US T-bills in Dec. In fact, the latest wizard analysis says China is buying as much US debt as before, channelled via London and Hong Kong. Fund flow analysis is not easily grasped and even charts miss stuff.
Value destruction via mergers continues. The latest victim is AmBev which we sold over concern over its gulping down Anheuser Busch. It missed its targets for Q4 (except in the old InBev pre-merger heartland of Brazil) and forecast further sales erosion. Cheers.
While the Euro (not the same crittur as the eurodollar) fell today on news than Angela Merkel does not want German ants to help fund profligate Greek grasshoppers, Greece in fact is moving toward a 10-yr bond issue. It will be at something like 310 basis points over the euro mid-swap level (down nicely from the 365 bp spoken of a week ago.) The amount is uncertain, around euros 5 bn to 10 bn, so there will be more issues. This one will pay on my birthday, June 19, and run to 2020. Any reader wanting to buy me a chunk should accept that the value of the euro may even go up over the next decade as tightening comes, however belatedly, to euroland. So the payoff to me will be even higher. By 2020 I will have retired in any case and I will show my gratitude by consulting for the donor.
*More for paid subscribers follows from Israel, Australia, Germany, Chile, Switzerland, and Lincolnville.
I Wander Through Each Chartist Street to Where the Chartist Pound Does Flow
Today I wander through each chartist street to where the chartist pound does flow, with apologies to Blake. I am quoting a report on one of our hard-to follow stocks a subscriber sent me from a chartist service in Cambridge England, so I thought it might be a good idea to share with you all my view of charts (technical analysis.) As the subscriber, Maurice F. explains, the Cambridge service dates back to when they had to insert the numbers into a page of graph paper by hand. I might add that the outfit does not use advanced Japanese candlesticks because they go back too far.
Charts work because they are a self-fulfilling prophesy. If enough investors follow charts showing, for example the 200-day and 50-day averages, and one of these positions is above or below the trend-line, they will all either buy or sell. If the two charts produce a so-called golden cross the push in or out will be greater, buyers above the cross or sellers below.
Compared to what is happening to sterling, chartism is sensible. The British currency had been on a downtrend because of worries that its budget deficit was as bad as that of Greece, fed by concern that the coming election will produce a “hung” parliament with Labour and Tories both lacking a majority. Then the Prudential plc bid to buy AIG's Asian assets got currency traders all heated about about the impact on sterling of the huge deal. Then the hedgies piled on.
Today the situation reversed because the price of Pru shares has fallen so low that the takeover may not take place.
And hedge funds' invincibility has been tarnished by the Athens govt's decision to cut deficits by euros 4.8 bn (about $6.6 bn) with tax increases, tax enforecement, caps on bonuses, and a higher retirement age. So the euro rose.
The impact of these moves has been to punish the Greenback. That none of this has anything to do with our own economy is self-evident. You could post hoc argue that the latest jiggling at the Fed means low interest rates will prevail for months, as some analysts have done. After all, they are paid for analyzing.
But in my view, forex exists in its own little box and huge sums of money move on perceptions that are not even justified by the 200-day moving average crossing the 50-day. Today, once the euro and the pound started to strengthen, so did another 13 other international currencies. There are only 17 international currencies you can trade on the Chicago Board of Trade, our leading currency market.
Today chartist Tom McClellan notes in the latest issue of his mcoscillator.com that while imperfect, the eurodollar futures net postion of commercial traders predicts the trend of the S&P 500 54 weeks later. So Wall St. will go up at the end of next March, maybe. (He said it was imperfect.)
Now for news you can act on for paid subscribers, starting with Chile and then moving on to China, Britain, Israel, Canada, South Africa, Australia, India, and Omaha.
Wen and Wowkadaw
Here is the latest from Bill Gross, CEO of Pimco:
He begins with the usual conundrum of sovereign debt rating ceilings. This means that a country, however badly managed, gets a higher or equal bond rating than the bonds of companies located there. The reason is that a sovereign is assumed to be more creditworthy than its “serfs” (Gross's term). He explains: Read more »
Latest Purchase
This morning I am in deep contract negotiations and will not be filing an additional blog beyond what went out last night. I was wrong about the short-euro short-Greek bond trade unrolling fast. It is unrolling slowly maybe because some hedge fund investors already pulled back before the weekend.
My article last night began with a long quotation from John Stuart Mill which did not go out in the blue type I wrote it in. The blue marks a quotation. The reasoning behind quoting Mill was to tell you all that Global Investing is not just about making money (although we do that too.) It is also aiming at enlightening and entertaining the readers with information on what fellow humans are up to in foreign lands. The quirks and insights this provides can help us make money or increase our happiness.
I was inspired to this comment by notes emailed to me by two paid subscribers of Irish and Hong Kong nationality who were reacting to what I had to say about those places. The Irishman withdrew his charge that my calling the language of the country Erse was pejorative after I cited chapter and verse from the almost-new dictionary I used. The Hong Kong lady liked my take on Little Sweetie, an heiress who can inspire us both.
Night Wire
The economical advantages of commerce are surpassed in importance by those of its effects, which are intellectual and moral. It is hardly possible to overrate the value, in the present low state of human improvement, of placing human beings in contact with persons dissimilar to themselves, and with modes of thought and action unlike those with which they are familiar.
There is no nation which does not need to borrow from others, not merely particular arts or practices, but essential points of character in which its own type is inferior.
It may be said without exaggeration that the great extent and rapid increase in international trade, in being the principal guarantee of the peace of the world, is the great permanent security for the uninterrupted progress of the ideas, the institutions, and the character of the human race.
(John Stuart Mill, Principles of Political Economy, 1848; Thanks to Columbia University Prof. of Economics and Law, Jadish Bhagwati, for directing me to the quotation.)
Two things are going to happen early Mar. 1, while most of us are sleeping. The first is that a bear trap will be sprung on the hedge funds and other speculators who have been shorting the euro and buying credit default swaps on Greek debt. Many of those who took short positions in the currency and the Greek bond market were copy-cats with no real experience of euro realities.
At 9:15 Monday morning (Athens time) the Finnish EU finance commissioner will meet with President Papandreou and close a deal providing finance in return for a further 4% cut in the Greek deficit. The money will come not from the state coffers of northern Europe, but from para-state entities like the Caisse des Dépôts et des Consignations of France and the Kreditanstalt fuer Wiederaufbau of Germany. The Dutch, who have no government (it fell last week), apparently are not participating. About half of Greek financing needs would be provided, about euros 24 bn.
The way I know this is that the BBC, Reuters, Bloomberg, and the Business Week, and Wall St. Journal websites all hint at the same outcome without citing sources. If any of you are hedge fund managers please set your alarm clock. If you own hedge fund shares, set your alarm clock and contact the managers