Hottest links for Monday, 23rd December, the late edition (see weekend’s edition of hottest links). Get our free daily newsletter (which HAS BEEN RECENTLY UPDATED) and never miss a single linkfest. Also, now if you sign up you will get our new e-book on value investing.

Top stories for today are below. Today we’ve got several good ones, including a fascinating report about how incentives built into the system could make it tempting for hedge fund managers to systematically misreport, James Grant equating the global economic situation to living in a hall of mirrors, and Goldman finding a way around the Volcker Rule.  Well, that didn’t take long.

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Value Investing

Valuation, Profit Margins and Stock Market Returns: Adventures in Curve Fitting

In this piece, I’m going to do four things.  First, I’m going to challenge the entire business of making “valuation vs. future return” charts.  These charts are tenuous, unreliable ways of estimating future returns and of attempting to resolve debates about market valuation. [Philosophical Economics]

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Strategic commodity investments: the round-trip

Remember when a strategic investment to commodities was pitched as the ultimate portfolio diversifier: low correlations and equity-like returns? We sure do. Back in 2006 near the outset of this blog we wrote about the topic and asked.. [Tadas Viskanta, Abnormal Returns]

Persistence is a Killer

Anyway, of all the arguments against betting on (and paying up for) active managers, the one where I had him stumped was Persistence. It’s a killer. It’s even harder to overcome than that old “70% of managers underperform their benchmarks” stat that always gets tossed around. [Joshua M Brown, The Reformed Broker]

James Grant: “We Live In A Hall Of Mirrors”

Interview of James Grant* in a Swiss finance journal .. the wording appears to be a translation into English from French or German, so it reads a bit choppy but still understandable .. [Cliff Kule]


Goldman Real-Estate Play Skirts Volcker Ban

Goldman Sachs Group Inc (NYSE:GS) also is making direct investments in real-estate assets, according to people familiar with the matter. Last year, it formed a partnership to purchase and upgrade a Chicago office building. [Craig Karmin and Justin Baer, The Wall Street Journal]

Goldman Sachs

Do Investors Recognise the Conflicts and Incentives in IPOs?

The process for initial public offerings (IPOs) is one of the most opaque areas of the market and is ripe for reform. The current IPO boom mirrors the excesses of the tech bubble a decade ago. That bubble resulted in fines and new rules, but it’s still not fixed. [Colin McLean, CFA Institute]

Activist hedge fund managers get board welcome

Activist hedge fund managers are sitting on a record amount of money to deploy against underperforming companies. [Stephen Foley, FT]

Hedge Fund Has No Plans to Participate in Tender Offer for Celesio

Elliott Management, the New York-based hedge fund company founded by Paul Singer, reiterated Monday that it had no plans to participate in a tender offer by the McKesson Corporation for the German pharmaceutical wholesaler Celesio AG-ADR (OTCMKTS:CAKFY) (ETR:CLS1) unless the deal were sweetened. [Chad Bray, NYTimes]

Record Activity in Dark Pools Boosts European Equity Volumes

Trading volumes in European equities are likely to have risen by nearly a fifth this year, with record levels of activity taking place in off-exchange venues called dark pools as institutional investors rediscovered an appetite for European stocks. [Tim Cave, MoneyBeat]

Cerulli on the Zombie Apocalypse in China

The funds are called “zombie funds”  and the infusions are known as “help money.” The managers don’t see any real turnaround potential but they can’t bring themselves to arrange the death of these undead funds. [Christopher Faille,]

Are Hedge Fund Managers Systematically Misreporting? Or Not?

This incentive system, however, could also motivate some managers to manipulate net asset values or commit outright fraud. Due to the light regulatory environment hedge funds operate in and their secretive nature, monitoring managers is generally difficult for investors and regulators. [R. Christopher Small, HLS Forum on Corporate Governance and Financial Regulation]

Under the radar approach works well for hedge fund activists

After an ugly, public battle to win a seat on a corporate board, victory can be pyrrhic for an activist hedge fund manager. [Stephen Foley, FT]


Will Bitcoin Replace The Australian Dollar?

“Bitcoin” has entered the popular lexicon, challenging our idea of what makes a currency, currency. The definition of currency above does not mention the physical characteristics of the same but that it must be generally accepted. [Cliff Kule]

Austerity is not a policy

Each review begins with a highly personalized account of my efforts to get through another year of investing, which is followed by an overview of 34 years of investing. I thought maybe I would drop the former, but I couldn’t because one of my two losing years was this year. [David Collum, PeakProsperity]

Sears Valuation

Sears Holdings Corp (NASDAQ:SHLD) has struggle written all over it from its connection with the struggling retail business. Sears Holdings Corp has many great businesses and brands that contribute to the sales of the company. [Nomcow, Reddit]

Ex-Wells Fargo employee: ‘We were constantly told we’d be working for McDonald’s’: Report

To meet high quotas, the paper said, employees have opened unneeded accounts for customers, ordered credit cards without customers’ permission and forged signatures. “We were constantly told we would end up working for McDonald’s Corporation (NYSE:MCD),” said one former branch manager. [Christina Rexrode, MarketWatch]

Hottest Links: Not the Onion

DEA agent leaves job for Seattle marijuana investment firm

A Portland DEA agent has left his position to join a Seattle firm that invests in the marijuana industry, joining a small but emerging industry that projects to keep growing with legal pot in Colorado and Washington state. [King5]