Friday, February 27, 2009

Short Takes: CEO Pay and Mutual Fund Returns and Fees

1. Larry MacDonald pointed to some interesting articles including a brilliant piece by Eliot Spitzer on CEO pay. Companies are supposed to be controlled by their shareholders. CEOs are employees. A company’s board of directors is supposed to represent the interests of the shareholders. However, CEOs have too much control over who serves on their boards of directors, and they also have too much control over the choice of compensation consultants who make recommendations on CEO pay. It’s time that we fixed the system to represent shareholder interest rather than continue to complain about unethical CEOs. Who among us wouldn’t line our own pockets with millions of dollars if we could do so legally? This doesn't excuse CEOs, but the solution is to take away their opportunity to line their pockets unfairly.

2. A guest post by Neal Frankle explains why the 10-year returns of mutual funds are going to start looking very bad. Obviously, recent poor stock market returns are a big factor, but some past good returns are about to drop off the 10-year record as well. Even if you’re smart enough to find funds with low expenses, your mutual funds’ return history will make you look foolish in the eyes of those who pay attention to past performance.

3. Rob Carrick discusses the possibility that mutual funds will increase their fees to make up for having less money to manage. Now that they have lost so much investor money, mutual funds will collect smaller fees if the MER percentage remains the same. MERs would have to rise for the funds to maintain their revenues.

4. Patrick has some strong opinions about the auto bailout plans.

5. Canadian Capitalist draws some lessons from Japanese stocks. It sounds like he is making a case for market timing in special circumstances where a bubble causes valuations to get out of control. Of course, the existence of a bubble depends on most people not recognizing that it is a bubble. Nobody said that investing is easy.

6. Big Cajun Man points us to an amusing cartoon about the Mississippi bubble. It seems that financial bubbles aren’t just a modern phenomenon.

7. Million Dollar Journey had a guest post by Kathryn on the cost of dog ownership. This should be an eye-opener for anyone whose ideas of pet costs are a decade or more old.

8. Preet explains the advantages and disadvantages of a dividend capture strategy.

13 comments:

  1. Thanks for the mention. Remember the Tulip scandals of the 1700s as well, at least folks could eat those!

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  2. Thanks for the mention Michael - have a great weekend!

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  3. Thanks for the mention. I doubt market timing is a viable strategy but what is possible is to turn cautious when investors are enthusiastic about something "hot". That doesn't mean hitting the sell button on everything. But it is certainly about being wary of putting new money in or rebalancing back to the target if the proportion becomes out of whack.

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  4. Just wanted to make sure you know that Berkshire Hathaway's annual report comes out tomorrow on berkshirehathaway.com, about 8AM Eastern. I won't be reading it that early, but I'll get to it.

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  5. Gene: Thanks. I'll be waiting until Monday to say anything about it. I see myself as someone who analyzes information rather than as a real reporter who reports the news. I prefer to wait until I have some insight that seems useful to me.

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  6. No love for the log transform? I thought it would have been right up your alley...

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  7. Potato: I like your log transform post. My problem is that I can't seem to subscribe to your blog. I get errors no matter how I try to get it into my Google Reader. I don't always remember to make a special trip to your blog.

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  8. Joy! :)

    Ah, that's a good point. I don't have it set up with any of the syndicators like feedburner or delicious or what have you, but might get around to that when I have some free time.

    The link is correct for now though, it's just that it's meant to be read by your RSS2 reader rather than your webbrowser :) I just go right-click, copy link location, then go to my feed reader (google, thunderbird, etc), click add feed, then paste the URL in.

    I also don't make it easy to link to posts with how I have my server set up. Any year now, I'll get around to fixing that... :)

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  9. Michael James,

    Sorry if I implied you should read Berkshire's report and blog on your observations. Just thought you'd find it a fun weekend read. That might just be my bias as a shareholder though. :-)

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  10. Thanks for the link! Also, that Neal Frankle article is interesting, although I expect that, rather than report bad returns, the fund managers might start to play games to make their numbers look better. Of course, that would only fool people whose money isn't already invested with them...

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  11. Potato: OK, you're instructions worked ... mostly. The feed I see has your Jan 19th post as the most recent. So, I'm missing about 5 weeks. Isn't technology wonderful?

    Gene: I didn't think you implied anything. I just didn't want to give the impression of promising anything about Buffett's letter (although I probably will have something to say about it). I've been a shareholder for 10 years now. I actually read all the old letters shortly after buying stock. I credit Buffett with getting me started understanding money matters.

    Patrick: I think you're likely right about fiddling the numbers. As they say, there are lies, damned lies, and statistics.

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  12. I think I fixed it now.

    The problem with self-hosting is it's hard to pass the blame when things go wrong.

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  13. Bookmarked this. Show one's gratitude you after sharing. Unequivocally worth my time.

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