Thursday, August 31, 2006

Implications of Goldcorp (GG) Proposed Merger

With Goldcorp's (GG) recent bid for Glamis (GLG) everybody is looking for the next takeover target. Mining has never been much of a growth industry except through price appreciation of the underlying commodity or acquisition. Harmony (HMY), Kinross (KGC), and Meridian (MDG) all look like takeover candidates. Silver Wheaton (SLW) could benefit from the Goldcorp-Glamis deal if they are allowed to sell Glamis' 25 million ounces of annual silver production. Goldcorp own 57% of Silver Wheaton.

Also keep an eye on energy stocks. If you are looking for energy exposure, you should look at Marathon (MRO) at these levels.

Note: I am long SLW


Blogger Moderm Theory of Mutual Fund Selections said...

Modern Portfolio Theory :The Precursor of Modern Mutual Funds Selection Theory

The Markowitz Modern Portfolio Theory (MPT) published in 1952 and the Nobel Prize in Economic Sciences awarded to him in 1990 was an important step in the development of portfolio management. It used science to discourage the then prevailing risky buy - hold of a single stock in a typical portfolio. The introduction of diversification and reduced risk in portfolio, management proved efficacious for the next half century.

However since 1952, the investment markets have seen drastic changes, not the least of which, is the exponential growth of mutual funds from about 100 to currently almost 13,000. Funds have eclipsed stocks in most portfolios. Mutual funds now offer more than 200 million investors the allure of diversification with less risk and greater average investor returns.

This has not altogether happened.

Investors were the recipients of diversification with less risk but not improvement in net return levels.


It is generally agreed mutual fund portfolios do create diversification and in so doing reduce risk but what has been the net effect on improving returns. Investor returns since Markowitz work in 1952 and since the emergence of mutual funds in the mid-1920’s have remained the same producing a sub zero sum game.

What would explain the difference between the S&P 500 Stock Index gross return of 11-12% over the last quarter of a century and average investor gross returns of 7.5% annually? Going from gross to net returns, taxes explain 3.5%, inflation 3.0 -3.5%, costs/expenses another 2.0% for a total difference of 8.5 - 9.0% annually. If an investor were fortunate enough to win the 5% chance of selecting funds whose performance equaled the S&P 500 annual return of 11 - 12%, it would be reduced by 8.5 - 9.0% leaving a net return of 2.5 - 3.0%. The average selection skilled investor would, of course, do worse with a net return of minus 1.0 -1.5% annually.

Since it is practically impossible to effect significant reductions in taxes, inflation and cost/expenses over time, the use of the Modern Theory of Mutual Fund Selection represents an unpredicted viable opportunity to significantly improve the net returns of the fund investor.

11/02/2006 9:51 AM  
Blogger Moderm Theory of Mutual Fund Selections said...

The Anxiety of Randomness

Randomness is associated with data overload and noise.

Data overload exists when the investor is confronted by sheer volume of data. Much of these data have little or nothing to do with providing clues to expected outcomes. An example would be to follow the increase in the loads and expense ratios of mutual funds to escape the inevitability of a zero sum game outcome. The financial press supported by industry pundits regularly refer to these statistics even though they do not explain fund persistency. The same would be true of trying to find “hot hands” fund managers through years of tenure to explain outcomes. It does not work.

Investors following these and other data do so in the belief that some additional market insights can be gleaned even though 97% of all outcomes can be explained by past performance - the third rail of the industry. Then why is so much energy exerted in the quest to find the superfluous 3%?

Data noise and randomness produce anxiety by exerting undue influence on investor decisions by over-emphasizing the importance short time fluctuations.
Looking at net asset values too frequently leads to the confusion between “meaningless” random and “more convincing” smoothed data .This leads to producing too many wrong “buy-sell” decisions that are emotionally driven.

One way to lessen the effect of anxiety requires the belief
that the value of data increases, to a point, with the passage of time. Let’s take mutual fund total return data, for example. Weekly is more revealing than daily data. Monthly is more revealing than weekly data. Quarterly is more revealing than monthly data. Semi-annual (hardly ever published for some strange reason) is more revealing than quarterly data. Yearly might be more revealing than semi-annually data. Three years might be more revealing than yearly data. Five years might be more revealing than three year data. Ten years or more would be less revealing than shorter time interval data because it probably describes more than one market cycle.

Depending on the part of the market continuum, no “one” time frame is revealing but a “combination” of several would be.

In an attempt to lessen anxiety too many investors also use the “ostrich” approach by not monitoring performance for many years. This leads to delayed but severe anxiety if the performance is strongly negative. This is usually associated with investment behavior without the benefit of concrete facts, goals and a way to measure progress against goals on a periodic basis.

Another anxiety ridden behavior is to invest based on the publicized opinions of well-known advisers, managers, writers or others without the benefit of supporting facts and considering personal issues of suitability, risk ,cash flow… can be injurious to financial health. The analogy to this would be in the field of health care : taking someone else’s Rx with the expectation of a speedy, complete recovery.

Arthur Regen

11/05/2006 6:53 AM  
Blogger RegenAssociates said...

Question: Why is there such a disparity between the net real returns of 8-9% produced by our Mutual Fund Winners Spreadsheet (MFWS) since 1994 compared to the average investor’s net real returns of 1-2% after fees, expenses, taxes and inflation?

Rather than bemoan this sad state of affairs and since it is unrealistic to expect expenses, taxes and inflation to be drastically reduced any time soon, the investigation’s approach was to find out what controllable factor(s) are responsible for this corrosive drag on performance.

Since fees are controllable, the MFWS is confined only to no-load,no-fee funds. These funds incur no additional acquisition costs giving the fund investor an initial, but limited, boost in returns. While this was a valuable contribution, the investigation was not satisfied and probed further and deeper into the problem.

After 15 years of research using over 200 million data cells and some luck, we found the culprit. It was adverse selection, which is the systematic selection of more losers than winners usually on a 75:25 ratio basis. By reversing these odds, mathematically, many times more winners than losers are now easily and consistently picked.
A winner is defined as a fund whose performance consistently outperforms the Standard & Poor’s 500 Stock Index over time.
A loser is defined as a fund whose performance consistently under performs the Standard & Poor’s 500 Stock Index over time.

The MFWS was designed in 1994 to enable investors with no previous fund investment experience (or with loads of it) to pick winners, to overcome adverse selection, to become successful investors and take control of their financial lives.

Isn’t it time the mutual fund industry stop relying on empty slogans, shibboleths, canards, anecdotes… and begin using science to help 90 million fund investors achieve financial independence?

Arthur Regen

11/28/2009 1:52 AM  

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