DavidMerkel

In my life, I have been a mortgage bond manager, and a corporate bond manager.  I have enough overall experience that I have played in most bond and loan categories, including municipal bonds. Municipal bonds are one place where the competition level is low, and additional knowledge can pay off.  This is particularly true in an era where municipal bond insurance is less prevalent, and as such credit analysis has more value.   This book gives you the basics on municipal bonds.  The most basic idea is economic necessity.  Who will be harmed if the municipality in question can’t perform?  If the the answer is “few,” that might not be a good municipal bond to buy, unless there are significant covenants requiring a municipality to raise taxes to pay for the debt service. Municipal bonds are an unusual market because there are many issuers, purposes, and bond styles.  The dominant non-taxable bonds are only bought by Americans, and sometimes only by those in a given state. Municipal bonds are also different because most of the bonds issued have long maturity dates.  Municipalities want predictability in borrowing costs; they also match the borrowing term to the length of what is funded,
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This is a book that gets everything right in broad, but is too insistent on the details.  How should you approach value investing from a purely quantitative standpoint?  Easy: Screen out stocks that have relatively high accruals Avoid companies that may go bankrupt Margin of safety: choose companies with strong balance sheets and profits Look for long-term strength in profits. Buy them cheap. Buy when informed investors are buying. But here’s the problem.  Like the book What Works on Wall Street, Quantitative Value suffers from over-optimization.  You pass through the data too many times, and you show great returns from the past, should someone have done it that way.  But how much of the result is signal, and how much is an accident? The broad principles are unavoidably true.  Even the measure of quality, Gross Profits as a fraction of Assets, was new to me, but when I read it, I realized that it was a proxy for having a moat, a sustainable competitive advantage.  I added it to my screening framework. With all of that said, I have simple advice to the readers.  Follow the broad outlines of what the book teaches, but don’t follow it in detail.  It is
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Several months ago, I was walking in my bedroom, and in a stack of books that we frequently give as gifts, I saw the book Value Investing: From Graham to Buffett and Beyond.  I said to myself, where did this come from?  I looked at it, and realized that hadn’t read it.  I looked at the copyright date, and realized that 2001 is a relatively old book. So I read the first chapter, decided it was good stuff, and added it to the reading pile.  As some might know, I am a value investor, and recently I wrote an article called “Value Investing Flavors.”  In it, I took a broad view of value investing, because there are many common principles to value investing employed by all, but many variations on implementation. The book begins with unified principles of value investing: margin of safety, buy ing an asset cheap, etc., but moves on to different ways to implement value investing, depending on the types of companiesthe investor wants to analyze. There are three ways to
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To my readers: if you like this review, please vote it up here at Amazon.  Thanks a lot. Personal finance has issues. This is because there are many things that are true on average that will not always prove true in the short run.  Here are some examples: Those that save more and spend less for personal needs will usually do better in the long run than those that spend a higher proportion of their income. Those that take moderate risks in investing tend to beat both those that take low risks, and those that take high risks.  But over short periods of time, who can tell? Over the long run “buy and hold” tends to work.  In the short run, who can tell? Good investing is boring.  It is not entertaining.  An average person looking at the portfolio that I own for my clients would only recognize 10 of the 36 companies that I hold.  The best stocks are those of neglected companies that do their boring business and make money quietly. In general, it is wise to have as little debt as possible.  When you do have debt, pay it off rapidly, or make sure that the debt
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Sometimes, when I see an insurance article that could be big, relevant, and tough to explain, I say to myself, “Dave, you’re going to have to write about that.”  But now, I get requests via email to write about it. So tonight I write about the New York Department of Insurance’s attempt to rein in captive insurers.    My first question to the department would be: “What took you so long?  These issues have been known for years.” I write this as one that in general admires the New York Department of Insurance.  They are the toughest regulator of insurance in the US.  If I could have my way, I would replace the Federal Insurance Office (“FIO”) with the New York Department of Insurance, and let New York regulate the country.  But that can’t happen.  Insurance is regulated by the states.  As a result, if some states are liberal with respect to reserving practices, companies can set up reinsurers there, and shed reserves to a state that allow the reserves to be lower. Now, why does this happen with respect to life insurance, and not other insurance?  There are complexities in the regulatory reserving where the statutory reserving does
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Okay, here’s the promoted stock scoreboard:   Ticker Date of Article Price @ Article Price @ 6/11/13 Decline Annualized Splits GTXO 5/27/2008 2.45 0.011 -99.6% -65.8% BONZ 10/22/2009 0.35 0.004 -98.9% -71.2% BONU 10/22/2009 0.89 0.010 -98.9% -71.2% UTOG 3/30/2011 1.55 0.004 -99.7% -93.3% OBJE 4/29/2011 116.00 0.554 -99.5% -92.0% 1:40 LSTG 10/5/2011 1.12 0.031 -97.2% -88.1% AERN 10/5/2011 0.0770 0.0002 -99.7% -97.1% IRYS 3/15/2012 0.261 0.003 -98.9% -97.4% NVMN 3/22/2012 1.47 0.080 -94.6% -90.8% STVF 3/28/2012 3.24 0.390 -88.0% -82.8% CRCL 5/1/2012 2.22 0.059 -97.3% -96.2% ORYN 5/30/2012 0.93 0.175 -81.2% -80.2% BRFH 5/30/2012 1.16 0.300 -74.1% -73.0% LUXR 6/12/2012 1.59 0.023 -98.6% -98.6% IMSC 7/9/2012 1.5 1.066 -28.9% -30.9% DIDG 7/18/2012 0.65 0.070 -89.2% -91.6% GRPH 11/30/2012 0.8715 0.180 -79.3% -94.9% IMNG 12/4/2012 0.76 0.180 -76.3% -93.8% ECAU 1/24/2013 1.42 0.420 -70.4% -96.0% DPHS 6/3/2013 0.59 0.107 -81.8% -100.0% 6/11/2013 Median -95.9% -91.8% Dephasium has fallen almost 82% in 6 days.  It is a definite over-achiever in losing money. I promise this is not going to become an “all promoted stocks, all the time” blog.  I limit it to when I receive promotions.  I got another one today, this time to my e-mail.  The future loser is Norstra
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I’m not going to run the promoted stock scoreboard again so soon, but let it be known that Dephasium has fallen ~75% in the 5 days since I wrote about it.  Put on your peril-sensitive sunglasses, here is the chart: Yes, my article was written at the peak.  In this case the “dump” was rather violent. But why I am I writing about promoted stocks this evening?  This morning in my e-mail, I received this . But who sent it to me?  The Washington Times.  After receiving it, I sent someone in their web area this letter: YYY, I don’t know if you handle this aspect of Washington Times advertising, but today I received a promoted stock ad for a fraudulent company from the Washington Times via e-mail. The company’s name is Polar Petroleum Corp (OTCBB:POLR),  a company which: Has never earned a penny of revenue. Was a “technology company” until last year, “Post Data.” From its last 10K: “The Company intends to market a service of decommissioning electronic data storage devices, making them inoperable and thereby making the electronic data contained therein or on permanently un-recoverable.“ Is likely being used by the promoters to do
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  When it comes to business books, I occasionally get skittish.  It’s just the same old stuff over and over, so I often refuse to review such books.  This book was a rare gem for me; it even made me wish that I had worked for the author. There are two classic models for maximizing value in enterprises: 1) low cost, high volume, and 2) high quality, reasonable cost.  My Dad ran a business that was the latter, and on a far larger level, so did Morton Mandel. Customer service was what he focused on, and listened to customers in order to see what problems they might have that his firm might solve.  More, he created a culture that would focus on the customer.  That required hiring good businessmen — men who could run almost any business, once they understood the industry. Such men could do people management, project management, financial management, and have a strong ethical slant.  You are managing for the long-run, not the short run.  You do not want management that cuts corners. When I was 17-18 years old, I was the student representative to the School Board from my high school for two years.  In the
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Let me admit my bias at the start.  Physics is the wrong model for financial markets and economics.  The better models are ecological or biological, because people adapt to conditions that change.  Perhaps we are predictable on average, but there is a wide variation in specific behaviors. Economics and ecology deal with scarcity and plenty.  Physics does not.  Physics is exact, aside from the quantum and universal scales.  Economics and ecology are never exact, and prediction is fraught with error. But what of financial instruments where the math of physics might have application?  Perhaps physics has some application there? Okay, sort of.  Even something as pervasive as option modeling does not truly have a simple model, but implied volatility has to be re-estimated regularly for the Black-Scholes Model.  A true model does not require re-estimation of a parameter, particularly when it varies by time and strike price. What I liked  about the book I liked reading about the mathematicians who applied analogies from physics to economics. Even though the models had their flaws, they improved the explanatory power. I also appreciated how the author kept explanations simple.  He could have gone into a lot more detail, and a lot more
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Note to readers: I plan on doing a series of book reviews over the next few weeks.  I may do more than a dozen.  I hope you enjoy them. I am a value investor.  That’s what I do for a living, and I do it well.  One month ago. I wrote a piece called “Value Investing Flavors.”  In it, I took a broad view of value investing, because there are many common principles to value investing employed by all, but many variations on implementation.
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What does it take to create a global or national financial crisis?  Not just a few defaults here and there, but a real crisis, where you wonder whether the system is going to hold together or not. I will tell you what it takes.  It takes a significant minority of financial players that have financed long-dated risky assets (which are typically illiquid), with short-dated financing. The short-dated financing needs to be rolled over frequently, and during a time of financial stress, that financing disappears, particularly when creditors distrust the value of the assets.  It typically happens to all of the firms with weak liability structures at the same time. During good times financing short is cheap. Locking in long funding is costly, but safe.  That is why many financial firms accept the asset-liability mismatch — they want to make more money in the short-run in the bull phase of the market.  But when many parties have financed long risky assets with loans that need to be renewed in the short-term, the effect on the markets is multiplied.  The value of the risky assets falls more because many of the holders have a weak ability to hold the assets.  Where will
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