6/3/98
- Have you ever seen a news story headline like: Class Action Commenced by So and
So Against XYZ Corp. The story goes on to say that during a certain period
the company's officers
and directors sold millions of shares of their own company stock at artificially
inflated prices. Then they tell you that if you purchased XYZ company stock between
such and such a time, you may be included in the shareholder class action suit if
you choose. Another such headline may be: Such and Such a Law Firm Commenced
Shareholder Suit Against ABC Company and Certain Officers and Directors. The
story goes on to say that the class action is on behalf of purchasers of ABC
Company common stock during such
and such a period. The complaint charges ABC and certain of its officers with
violations of the federal securities laws.
I have always wondered if the case is won by those that started the shareholder suit
where does the money come from to pay off the damages? Do those individuals
responsible, that is, those certain officers and directors pay out of their
own pockets, or is the company being sued responsible financially? Every time I have
seen, it's always been the company. So instead of those actually responsible having
to pay, the company pays, which means the shareholders pay.
When you look at the whole process you will see that what happens is certain officers
and directors (the affluent) violate securities laws, they are sued by certain
shareholders (the affluent ones) and if they win the case are paid off by the company
which means the shareholders (the ones that aren't the affluent ones, the little
guys left holding the rest of the company's stock). What a system.
1/12/98
- Have you ever heard of fair-value pricing? At certain times a
mutual
fund company may use this method when figuring the NAV for a mutual fund
at
end of the day. Instead of using the exact closing value of each stock in
the
mutual fund, the company may "estimate" the closing value of a stock if
one is not available to them at the end of the day. Companies may use
fair-value pricing without notice to investors. As an investor what does
this
mean
to you? If you owned a fund in a certain sector or area and that sector
or
area had a bad day, the mutual fund company could use fair-value pricing
to
smooth over the bad results. If you compared the fund that used
fair-value
pricing to one that didn't, the one that did use fair-value may not show
as
big as drop as the other one, giving you the impression that fund
performed better than the other one. The only thing that really happened
was the fund that used fair-value used estimated closing prices that
were
actually higher than the true closing prices of the stocks giving their
mutual
fund a higher closing NAV.
Another thing to watch out for with fair-value pricing is buying a
mutual
fund on the same day that the fund uses fair-value pricing when
calculating
the NAV. If you are an investor and a sector or area falls by a large
percentage in one day causing prices to fall in the funds specializing in
that
sector or area you may think this is a good time to buy because you think
that
the next day the sector or area will recover. This could be a quick way
to
make a profit depending on how good the recover is. However, if the
mutual
fund company uses fair-value pricing you may buy the fund at an NAV that
is
much higher than the true NAV of the fund. If that's the case you may
not
realize a profit the next day when the fund's NAV is calculated using
true
prices, and you actually could lose money if the recovery is not as big
as you
initially thought.
1/9/98
- About 10 years ago "America" started to imply that Social Security
may not be there for the baby boomers when they retire. Now in 1998 it
is
pretty much taken for granted that the Social Security system is screwed
up
and you had better be saving money, on your own, for your retirement (To
reinforce the fact that the SS is screwed up, you only have to look at
the
fact that they have already changed my full retirement age to 67 and I am
over 20 years away from retirement, can you imagine what my true
retirement
age will be when I actually do retire in 2020? Also, it is obvious that
Americans are taking the problem with SS seriously, much of the fueling
of
the stock market is due to 401ks and the overall retirement savings
boom.)
It seems like the crowd in Washington doesn't want to do anything about
the
problem either. If the government can't guarantee me a retirement
package
at
65, fine. But at least give me the 15% social security tax (7.5% from me
and 7.5% from
the company I work for) that is
suppose
to be going to my retirement and let me invest it on my own. Yes, you
can keep
the money that I have contributed in the past 25 years, but don't make me
and
my company keep paying this tax for nothing.
I think it is ironic that Americans are believers of the fact that
Social
Security, most likely, won't be there for them because the government has
let
them down, but now, for whatever reason, they think that the mutual fund
companies and stock market will. There is no reason to believe that the
mutual fund companies and stock market will be there for you either. The
only
real difference is they may have an excuse for their failure: Past
performance
is no guarantee of the future and we have been warning you about this for
the
past several years. The mutual fund industry is already starting to use
the
same tatics the government did with Social Security a decade back.
That
is, the government sent out a message in the Eighties: Social Security is
in
trouble and may not be there for you and the American thing to do is let
the
government slide and start saving on your own. Americans did just that.
Now
the mutual fund companies, knowing that there is going to be a big drain
on
the stock market when the baby boomers retire are starting their own
campaign:
"Keep your money working for you in retirement" and "How do you give them
more
than memories." What this is all about is that the mutual fund companies
and
the stock market know that the baby boomers are the bread and butter of
the
savers in America and if they (the baby boomers) have the notion in 2010
that
they have worked hard all through their lives and now at 65 it's time to
have
some fun and start spending the money they have saved, could spell
trouble for
them. They are setting you up. By the time it's time for the baby
boomers
to retire, the boomers are going to be thinking that they will all live
to be
a 108 so you had better keep your money in the stock market and that when
you
do
finally pass away at 108, it is much better to leave millions to your
heirs
than to
have spent any of it on yourself.
The remaining "Did You Knows" were the first ones that I started
the
article with. I don't have an exact date for each one, but they were all
made prior to early 1997.
- The stock market is earnings driven. That is, the market is
very dependent on companies reporting good earnings. Good
earnings depend on a good economy. However, many of the sheep
(the fund managers) feel the market is interest rate driven. That is,
the market will be strong just as long as interest rates are low.
Wrong, if indeed the economy is slowing so to will the stock market.
- The yield on the 30 year bond is below 6.5%. That means the
10 year yield is a little bit less than that, the 1 year yield a little
bit less than the 10 year, and so on until you get to the rates that
banks
pay on deposits which is currently about 1-2%. How can long rates
get much lower than where they are now? They can't. I'm not
saying they can't go lower a little bit, but not much lower. However,
the upside potential is very high.
- The investment community and media would like you to
believe that CEOs are fairly compensated. Start reading the Notice of
Annual Meeting to Shareholder reports and you will get the true
story. Most CEOs are paid bonuses even when the company is not
performing well. Most CEOs are given 10-20% raises when you and I
are lucky if we get 2-3%. Stock options granted to top executive are
only icing on the cake. For example, let's say that the strike price on
an option for a CEO is $60 and the current price of the stock is $50.
For the next year the company performs poorly and the stock drops
to $25 a share. What will the board of directors most likely do for
the CEO the next year? They will simply change the strike price from
$60 to $30. Now let's say that the next year the company stock does
well and moves back up to $50. The investors have made nothing in
2 years, but the CEO now exercises their options and reaps a 100%
gain, not bad when you note the company's stock is at the same price
it was two years ago and unlike the small investor who put his money
at risk the CEO risked nothing.
- Many professionals tell you to buy gold as an inflation hedge.
10 years ago gold was over $500 an ounce, now it is less than $400.
An inflation hedge, no. Gold is nothing more than a speculative
investment at best.
- Michael Metz of Oppenheimer is one of the most quoted
investment gurus. CNN likes him. Business Week likes him,
Nightly
Business Report like him. Well last December 1995, Mr. Metz
predicted a peak of the Dow at 5300 in January of 1996 and then
ending the 1996 year at 4860. Maybe the investors at CNN, Business
Week and Wall Street Week have 9 lives, but I don't. They can
spend
their time listening to Metz, but I'm not going to.