I was perusing E*trade's mutual fund screener the other day - I don't know why, since I always invest in index funds anyway - but all of a sudden I was struck by an irresistible urge to search for some really horrible funds. I mean, I wanted to find some mutual funds that belong in the mutual fund hall of shame or some investor horror movie. I am talking Horrible with a capital H.
To participate in my experiment, funds had to meet several key criteria: an expense ratio above 2%; three year annual returns below -5%; and performance relative to their peer group that placed them at the bottom 20%. For good measure, I also specified that the funds screened had to carry a load... wow, that's pretty bad. Just to finish off the picture, I insisted that each fund carry a Morning Star rating of 1 star.
Would you invest in such funds? Well, apparently some people would. My search criteria yielded 175 results. I did not stop there. I then sorted the resulting list by expense ratios. The fund that rose to the top (or the bottom, really) was American Growth B (MUTF:AMRBX ). Here are the performance characteristics of this amazing fund according to E*trade: since inception in 1996 the fund returned -5.51% annually (yes, that's a negative 5.5%)... the fund charges a 5% load and has an expense ratio of 4.39%. Do people invest in this fund? Not many, but apparently some people just love pain... the fund manages about $5M in assets (the good news is that at this performance level the assets under management keep diminishing on a daily basis, but not for the right reason).
To be perfectly fair, the fund received a major blow following the dotcom bubble, and it did have positive (if meagre) returns over the past 5 years (2.34%), but how can fund management justify expense ratios of over 4.4% AND a load of 5% with such horrendous performance? If I were managing that fund, I would give up my keys to the executive suite, crawl under a suitably shaped rock and make sounds like a particularly small ant.
Just for the hell of it, I decided to run another experiment. My goal: to find the fund with the worst 10 year performance. Boy, did I find it. Here it is, ladies and gentlemen, the fund that would completely cripple your portfolio if you were unlucky enough to put your money into it: VAN WAGONER EMERGING GROWTH (VWEGX). This fund, which was started in 1995, has average annualized returns over 10 years of.... wait for it... -9.34% (yes, MINUS 9.3%). This is compared to an E*trade reported category average of 5.99%. You gotta give this guy some credit - it takes some major talent to blow it this big. Oh yeah, one more thing: this fund carries a gross expense ratio of no less than 5.88%. Truly, we have a hall of famer on our hands here.
That's right people, there is a sucker born every minute.
Monday, June 30, 2008
Thursday, June 26, 2008
Foreign Workers Wanted!
The NY Times ran an article the other day, comparing various U.S. metro areas by the number of high-tech jobs that they offer. Turns out that New York is number one in the nation and Silicon Valley is number... five... To be honest, I don't really know the high-tech market in New York, but I have a sneaking suspicion that there is something fishy about the count.
Never mind that, what I really wanted to write about is the section in the article that deals with the fact that the U.S. may be losing its high-tech edge due to the very tough restrictions on getting H1B visas that allow foreign citizens to come and work in the U.S. and student visas that allow some of the best and brightest from around the globe to come here and join the U.S. economy.
I can absolutely, positively, and from personal experience tell you that this is exactly right. Let me share this example with you. My company has been desperately searching for engineers with some unique talents. We require these individuals to complete the development of our product, after a key person left our company to launch his own start-up. Money is not an issue - we are willing to offer extremely good pay for the right individuals, it's just that these folks are very specialized and very tough to lure away once you do find them. For months, we have been unable to find these key engineers in the U.S. We have found a number of them internationally, but have been unable to offer them a job in this country because of visa restrictions. So what do you think we are planning to do? In a few weeks I will be traveling to Israel to interview some key personnel. We are seriously considering opening up a development center in that country.
Now, if anybody can explain to me how forcing us to open a development center overseas helps the U.S. economy, I will be much obliged. We would like to hire American, but can't. We would like to hire international professionals to join our office in California, but are prohibited by law. The U.S. government is basically forcing our hand - it is making us relocate some of our business overseas. This is not some hypothetical story about some company I heard of. This is a decision that my CEO and I have been struggling with for months.
In my mind, this is a clear case of Washington idiocy, that in the name of saving American jobs is costing American jobs, big time. How does this help anybody?
Never mind that, what I really wanted to write about is the section in the article that deals with the fact that the U.S. may be losing its high-tech edge due to the very tough restrictions on getting H1B visas that allow foreign citizens to come and work in the U.S. and student visas that allow some of the best and brightest from around the globe to come here and join the U.S. economy.
I can absolutely, positively, and from personal experience tell you that this is exactly right. Let me share this example with you. My company has been desperately searching for engineers with some unique talents. We require these individuals to complete the development of our product, after a key person left our company to launch his own start-up. Money is not an issue - we are willing to offer extremely good pay for the right individuals, it's just that these folks are very specialized and very tough to lure away once you do find them. For months, we have been unable to find these key engineers in the U.S. We have found a number of them internationally, but have been unable to offer them a job in this country because of visa restrictions. So what do you think we are planning to do? In a few weeks I will be traveling to Israel to interview some key personnel. We are seriously considering opening up a development center in that country.
Now, if anybody can explain to me how forcing us to open a development center overseas helps the U.S. economy, I will be much obliged. We would like to hire American, but can't. We would like to hire international professionals to join our office in California, but are prohibited by law. The U.S. government is basically forcing our hand - it is making us relocate some of our business overseas. This is not some hypothetical story about some company I heard of. This is a decision that my CEO and I have been struggling with for months.
In my mind, this is a clear case of Washington idiocy, that in the name of saving American jobs is costing American jobs, big time. How does this help anybody?
Wednesday, June 25, 2008
Good News on the Jobs Front
Yesterday we had a double good news day on the jobs front. As I previously wrote, my wife recently lost her job. Yesterday, she accepted an offer to join a venture backed, fast growing, profitable, private start-up. These are all the adjectives you want attached to the term "start-up". This is very cool indeed. The position itself is pretty similar to her previous position, and I think that the growth opportunities in this new role are phenomenal. It took two months but she is back in the game. Start date to be determined shortly.
On another front altogether, my CEO called me into his office late in the afternoon and without pomp and circumstance handed me an envelope. When I opened it, in his presence, the letter congratulated me on my formal promotion to Vice President in the company, and stated that the Board's compensation committee will take up the matter of my increased compensation in its next scheduled meeting (July 23). As my regular readers will remember, I just started with my company three months ago, and while I was previously a member of the executive staff and reported to the CEO, I was not awarded the title of VP. This latest announcement is a very solid pat on the back and a vote of confidence in my agenda and performance.
Now that's what I call a good day.
On another front altogether, my CEO called me into his office late in the afternoon and without pomp and circumstance handed me an envelope. When I opened it, in his presence, the letter congratulated me on my formal promotion to Vice President in the company, and stated that the Board's compensation committee will take up the matter of my increased compensation in its next scheduled meeting (July 23). As my regular readers will remember, I just started with my company three months ago, and while I was previously a member of the executive staff and reported to the CEO, I was not awarded the title of VP. This latest announcement is a very solid pat on the back and a vote of confidence in my agenda and performance.
Now that's what I call a good day.
Wednesday, June 11, 2008
Oil Price Speculation? So What?
These days its very fashionable to scream "foul play" whenever the price of crude oil (or other commodities) comes up in conversation. The Commodities Futures Trading Commission last week announced that it is probing possible manipulation of energy commodity prices. Does this mean that the dramatic run up in oil prices is simply the result of evil speculators holding us all to ransom?
Don't you believe it for a second. Here is reality. For sure, folks are trying to protect their portfolios against run away commodity price increases by investing in commodities, including oil. I have, in fact, contemplated doing the same myself in past (and even wrote a couple of pieces on the subject). However, such moves by investors cannot be causing the price increases we have been seeing. Why? The answer is very simple. Nobody is actually taking any oil off the market.
Investors like myself have absolutely no intention of taking possession of actual barrels of crude. For one thing, I know that my wife would take a dim view of my trying to store the filthy stuff in our closets, and our storage space by the car port is filled with all manner of other junk. When simpletons like me invest in commodities, we do so through taking a position in the futures market. However, we better sell the stuff before it's time to take delivery of the actual commodity or else that whole spouse thing comes into play. So what do we do? We sell, and by selling we return the commodity back into the market. If you (reasonably) claim that purchases of crude futures make the price go up, you must accept that selling those same positions makes the price go back down. So, how exactly are speculators causing the commodity price inflation?
Another take on the subject from a "slightly" more reliable source than your humble blogger, comes from a story titled "Recoil" published by The Economist on May 31 (BTW, I highly recommend that magazine to anyone interested in economics, business or world affairs):
By the way, the argument presented above is probably not as valid for speculation in some other commodities, specifically precious metals. The reason for this is that there are mutual funds that actually take such precious metals permanently off the market by storing them for safe keeping as actual gold and silver bars on behalf of their customers. The difference? I suspect it has something to do with the volume required for storage and the ease of maintenance.
Don't you believe it for a second. Here is reality. For sure, folks are trying to protect their portfolios against run away commodity price increases by investing in commodities, including oil. I have, in fact, contemplated doing the same myself in past (and even wrote a couple of pieces on the subject). However, such moves by investors cannot be causing the price increases we have been seeing. Why? The answer is very simple. Nobody is actually taking any oil off the market.
Investors like myself have absolutely no intention of taking possession of actual barrels of crude. For one thing, I know that my wife would take a dim view of my trying to store the filthy stuff in our closets, and our storage space by the car port is filled with all manner of other junk. When simpletons like me invest in commodities, we do so through taking a position in the futures market. However, we better sell the stuff before it's time to take delivery of the actual commodity or else that whole spouse thing comes into play. So what do we do? We sell, and by selling we return the commodity back into the market. If you (reasonably) claim that purchases of crude futures make the price go up, you must accept that selling those same positions makes the price go back down. So, how exactly are speculators causing the commodity price inflation?
Another take on the subject from a "slightly" more reliable source than your humble blogger, comes from a story titled "Recoil" published by The Economist on May 31 (BTW, I highly recommend that magazine to anyone interested in economics, business or world affairs):
Where does all this leave us? With no simple answers. It appears that we need to either get used to the high price of oil or - gasp - learn to do without or with less... rejoice! Economics may save our planet from CO2 poisoning yet!"Stuck for answers, politicians have been looking for scapegoats. Top of the list are the speculators profiting from other people's hardship. Some $260 billion is invested in commodity funds, 20 times the level of 2003. Surely all that hot money has supercharged the demand for oil? But that is plain wrong. Such speculators do not own real oil. Every barrel they buy in the futures markets they sell back again before the contract ends. That may raise the price of “paper barrels”, but not of the black stuff refiners turn into petrol. It is true that high futures prices could lead someone to hoard oil today in the hope of a higher price tomorrow. But inventories are not especially full just now and there are few signs of hoarding.
If the speculators are not to blame, what about the oil companies, which have failed to increase output in spite of record profits? Profiteering, say some. However, that accusation doesn't stand up to much scrutiny either. The oil price is set in a market. For Shell, Exxon et al to hoard oil underground would be to leave billions of dollars of investment languishing unused."
By the way, the argument presented above is probably not as valid for speculation in some other commodities, specifically precious metals. The reason for this is that there are mutual funds that actually take such precious metals permanently off the market by storing them for safe keeping as actual gold and silver bars on behalf of their customers. The difference? I suspect it has something to do with the volume required for storage and the ease of maintenance.
Tuesday, June 10, 2008
Live from Asia...
Shadox is coming to you this week live from Asia. Hong-Kong and Taipei, to be exact. I made the 14 hour trans-pacific crossing from San-Francisco yesterday, arriving in Hong-Kong around 6PM.
My hotel is really fancy and located about 5 minutes from the airport. From my 17th floor window I have a nice view of the mountains and what appear to be high-priced, high-rise apartment buildings. The hotel is connected to a large shopping mall, so after checking in and taking a very much needed shower, I went to check out the mall. What can I tell you, I am not one to go to sleep when I get to a new city, and in any case going to sleep would probably have earned me a nasty case of jet-lag.
So, what can one learn by strolling around a Hong-Kong mall? For one thing, this specific HK mall is just like any mall in any major city in the U.S. Shops ranged from Calvin-Klein to Lenscrafters. Apparently, children here are also big fans of Thomas the Tank Engine, and nag their parents for happy meals from McDonald's. Clearly, this single mall is not a representative sample of Hong-Kong, but I have a strong hunch that the rest of this city, like most other major cosmopolitan cities around the globe is being taken over by the American shopping mono-culture. If that's the case, that's a pity. What can I tell you, if you are going to travel to the other side of the world, it would be nice if things looked a little different than they do back in California...
Tomorrow I will be crossing over into main land China (Shenzhen, to be exact), and maybe things there look different. We'll see. Still, travelling internationally is always a blast for me.
The thing I noticed is that prices at this particular mall are pretty expensive. Said Thomas the Tank Engine toys cost as much as they do in the U.S., brand name clothing is at least as expensive, but food seemed to cost less than it does back home. I didn't check the cost of a Big Mac - but that would be an interesting comparison (per the famous Economist price index). The decline in the value of the Dollar is apparently not a factor here. The exchange rate chart I found on Yahoo! shows that the Hong-Kong Dollar has been largely unchanged against the greenback over the past few years. Well, at least our national currency is holding firm against one currency - is the HKD pegged to the Dollar or something?
Unfortunately, I will not get a chance to see much beyond what I have already seen of Hong-Kong. My business meetings start at 10:00 AM tomorrow and last throughout the day and into dinner. Wednesday morning I am off to Taiwan for my next set of meetings. Such is the life of the traveling business executive... doomed to see the world through conference room windows and business dinners. Well, it's still worth it, and don't let anyone tell you otherwise.
My hotel is really fancy and located about 5 minutes from the airport. From my 17th floor window I have a nice view of the mountains and what appear to be high-priced, high-rise apartment buildings. The hotel is connected to a large shopping mall, so after checking in and taking a very much needed shower, I went to check out the mall. What can I tell you, I am not one to go to sleep when I get to a new city, and in any case going to sleep would probably have earned me a nasty case of jet-lag.
So, what can one learn by strolling around a Hong-Kong mall? For one thing, this specific HK mall is just like any mall in any major city in the U.S. Shops ranged from Calvin-Klein to Lenscrafters. Apparently, children here are also big fans of Thomas the Tank Engine, and nag their parents for happy meals from McDonald's. Clearly, this single mall is not a representative sample of Hong-Kong, but I have a strong hunch that the rest of this city, like most other major cosmopolitan cities around the globe is being taken over by the American shopping mono-culture. If that's the case, that's a pity. What can I tell you, if you are going to travel to the other side of the world, it would be nice if things looked a little different than they do back in California...
Tomorrow I will be crossing over into main land China (Shenzhen, to be exact), and maybe things there look different. We'll see. Still, travelling internationally is always a blast for me.
The thing I noticed is that prices at this particular mall are pretty expensive. Said Thomas the Tank Engine toys cost as much as they do in the U.S., brand name clothing is at least as expensive, but food seemed to cost less than it does back home. I didn't check the cost of a Big Mac - but that would be an interesting comparison (per the famous Economist price index). The decline in the value of the Dollar is apparently not a factor here. The exchange rate chart I found on Yahoo! shows that the Hong-Kong Dollar has been largely unchanged against the greenback over the past few years. Well, at least our national currency is holding firm against one currency - is the HKD pegged to the Dollar or something?
Unfortunately, I will not get a chance to see much beyond what I have already seen of Hong-Kong. My business meetings start at 10:00 AM tomorrow and last throughout the day and into dinner. Wednesday morning I am off to Taiwan for my next set of meetings. Such is the life of the traveling business executive... doomed to see the world through conference room windows and business dinners. Well, it's still worth it, and don't let anyone tell you otherwise.
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