On the Investment Writing blog during October

Here's what I covered on my InvestmentWriting blog during the previous month:

• Lessons from “Presentation Skills for Investment Professionals”
• Six tips for snaring reporters with your market commentary
• Guest post: “What’s a tomato got to do with getting your fund discovered?”
• Guest post: “Investment analysts and social media”
• ISI’s Straszheim: China’s interest rate hike is “tapping the brakes”
• Cautious optimism on emerging market stocks from SSgA’s Hoguet
• Bubble? — Emerging markets scrutinized by CFA Institute conference
• Notable quotes from the CFA Institute’s emerging markets conference
• LinkedIn’s fatal flaw for financial advisor compliance
• Do the robin, the reindeer, and the building sing the same song?

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Copyright 2010 by Susan B. Weiner All rights reserved

October updates to the Investment Writing blog

If you’re not visiting my InvestmentWriting blog in its new location, you’ve missed the following posts over the last month:

• Should the Morningstar style box go 3-D? Quality counts, says Atlanta Capital
• Poll: “Investable” or “investible”–which spelling is correct?
• My five favorite reference books for writers
• no, No, NO: My business card shouldn’t add me to your e-newsletter list
• Guest post: "How Seeking Alpha Can Build Your Professional Reputation"
• Your spell checker doesn’t work, so you must proofread
• Effective writing and blogging is faster with a plan
• Four lessons from Wasatch Funds on reporting underperformance
• Guest post: “Would you like to know how financial advisors are choosing products?
• Blogging buddies: Financial bloggers’ secret weapons

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Copyright 2010 by Susan B. Weiner All rights reserved

New posts on my NEW Investment Writing blog

If you’re not visiting my InvestmentWriting blog in its new location, you’ve missed the following posts over the last month:

• Should the Morningstar style box go 3-D? Quality counts, says Atlanta Capital
• Guide to e-newsletters
• Guest post: “Generate Quality, Low Cost Leads with Facebook Ads”
• Great blog posts don't matter...
• E-newsletters: Great marketing tool for financial advisors and writers
• “CFA credential implies a standard of care not always upheld,” says Forbes opinion piece
• A top technique of financial advisors who blog successfully
• Introverts, steal this idea for your next conference!
• Poll: Should you make investment predictions that can backfire?

Also, you still have time to sign up for "How to Write Blog Posts People Will Read: A 5-Week Teleclass for Financial Advisors" starting Sept. 23.
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Copyright 2010 by Susan B. Weiner All rights reserved

"Where Are We Heading? The Future of Investment Management in Boston"

The future of investment management in Boston was the focus of a panel presentation to the Boston Security Analysts Society's annual meeting on June 24. The view that Boston is being left behind made the greatest impact on me, but I'll report some of the opinions of all four speakers.


Reamer: Emphasis on actively managed equities hurts Boston
The investment world is shifting toward aggressive hedge funds and passive quantitative funds, said Norton Reamer, vice-chairman and founder, Asset Management Finance LLC. There's also currently an emphasis on fixed income. This is because the public has been discouraged by the stock market returns of the past two years. They want defensive, safe investments. On a related note, large pension funds are moving more toward indexing.


These trends don't favor Boston, the home of the original mutual fund, because local firms emphasize actively managed mutual funds. At least these trends don't bode well in the immediate future.


For Boston to prosper, it must attract assets from around the world, said Reamer. However, he sees the action shifting to New York, London, and even Philadelphia and California. Boston has only one of the 10 largest hedge funds and three of the 30 largest. While Boston has a history of venture capital, venture capital is less important than private equity, which is concentrated elsewhere, said Reamer.


One of Reamer's comments held a glimmer of hope. Universities--along with arbitrage groups, traders, and others--are the source of the new ideas that are changing the investment world. Boston has some great universities. Perhaps the universities can fuel the region's resurgence as an investment center. I'm happy to note that the Boston Security Analysts Society's program committee has a subcommittee devoting to inviting speakers from academia.


Putnam: Four trends will create many losers, few winners 
Investment management is a craft, said Don Putnam, managing partner of Grail Partners, who moderated the panel. He emphasized the need to avoid losing sight of the craft before he described the four trends that he believes are changing the industry.


As a result of these trends, there will be many losers and few winners, said Putnam. The winners will be global firms as well as small cadres of capable people. The big challenge for money management will be to connect these two groups.


Trend 1: The long, complicated supply chain is reordering. For example, people are seeing the problems with "the slices taken off for people who deliver golf balls." I assume Putnam was referring to wholesalers and the broader issue of 12b-1 fees and the like, though he said that he was not making a case for fee-only advisors. Changes are coming as a result of regulatory pressures, client demands, and "better mousetraps," such as ETFs and active ETFs. Putnam said he's sceptical about growth opportunities for the mutual fund industry.


Trend 2: The relevance of specialization is declining. Why? Because the efficient frontier--and the need to diversify into many slices of the market--has been challenged. "It has been proven to be nonsense for the client," said Putnam. Clients' "true utility equation" can be delivered more efficiently with quantitative solutions, he added.


Trend 3: The arithmetic of the investment business is changing with the rising importance of asset allocation. As the utility of money management has declined, fees have risen, said Putnam. This can't last. While clients have bought the "myth of comfort and control," the past three years have increased client dissatisfaction.


Trend 4: Technology is increasing in importance. Technology should be woven into every aspect of money management, said Putnam. Technology's influence on money management has barely begun.


Manning: Structure your firm to have an edge over your competition 
You must deliver great results to keep assets, said Robert J. Manning, who spoke as CEO of MFS Investment Management, but is scheduled to become the firm's chairman on July 1. This means you must structure your firm to have an edge over your competition. Manning discussed three key elements of MFS' structure.


1. Follow a long-term investment philosophy. The world is preoccupied with short-term investment returns. However, MFS believes that you need a culture of long-term investing backed by an appropriate compensation structure. When MFS conducts performance reviews, it only considers periods of three years or longer.


2. Create a global footprint. If your people are only in Boston, you can't be a winner, said Manning. For example, if you don't have staff in Europe, you can't respond quickly enough when credit default swaps widen in Europe. As part of the global footprint discussion, Manning emphasized the need to integrate the firm's fixed income and equity teams.


3. Analysts are more important than portfolio managers. The old model is broken, said Manning. The most important employees are career analysts who have expertise in specific sectors. MFS has eight global sector heads. These are the people who, if they "see a storm coming" get the entire firm out before it hits.


The increased importance of analysts has been driven partly by the fact that clients want to buy "specialized sleeves of alpha." This is reflected in analysts' compensation. At MFS, analysts earn more than portfolio managers.


We sell the global research platform, not the portfolio manager, said Manning. The portfolio manager simply assembles the alpha streams from the analysts the way that clients want.


Hughes: Confident in Boston's future 
Larry Hughes, CEO of BNY Mellon Wealth Management, said that Boston's talent and innovation makes his firm feel confident about Boston's future.


Still, the next decade will pose challenges for wealth managers in terms of how to protect clients against continued market volatility and how to capture the related opportunities. Hughes suggested three areas for focus.


1. Investment innovation--The "set it and forget it" ways of the past won't work any more, said Hughes. It's important to capture trends that develop--and disappear--in months, or perhaps even just weeks.


2. Seamless and dynamic planning--Wealth managers must "plan across silos," considering all aspects of clients' lives, including taxes, estate planning, health care, and more.


3. Better manager-client engagement--It's important to speak in your clients' terms. Clients don't talk about the efficient frontier, standard deviation, or r-squared, said Hughes. So neither should wealth managers. Instead, wealth managers should present issues in straightforward terms, such as "helping you maintain your lifestyle."

Related posts:
* Investment management career advice from industry pros
* "Have mutual fund fees gone up or down?"
* GMO's Jeremy Grantham on "The Ethical Hole in Finance" at #CFA2010
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Copyright 2010 by Susan B. Weiner All rights reserved

Guest post: "Making Research Readable"

Investment research analysts can learn to write better. In his guest post, Joe Polidoro gives directors of research his advice on how to make this happen.

I'm delighted to have met another advocate of good investment writing thanks to Twitter, where Joe tweets as @joepolidoro.

Making Research Readable

By Joe Polidoro 

Is it worthwhile, or even possible, to improve the quality of your research analysts’ writing? Yes and yes, and I’ll tell you how. First, the business case.

It seems reasonable that good writing—clear, engaging, memorable—should be more effective than sub-par writing at reaching your audience. But let’s see the numbers. 

One of the best proofs I’ve come across is courtesy of Dame Marjorie Scardino, CEO of Pearson PLC and former CEO of the Economist Group (hat tip: Vicki Cobb and I.N.K.)

Scardino located a study in which three groups—linguists, writing professors, and journalists –were asked to improve passages taken from a history textbook. Students were then asked to read the original passages and the rewrites and immediately record as much as they could remember.

Recall of the journalists’ rewrites beat recall of the other groups’ rewrites and of the original text by a whopping 40%. Good writing matters.

And I think average writers, including research analysts, can measurably improve their writing—with the right help.

First, look for a writer
In your quest for a writing coach, avoid anyone who doesn’t make a living—and a decent one—by writing. As Stephen King said, anyone who is paid to write knows how to write effectively. Professional writers “get the story told memorably … and quickly,” says Scardino. Those who make their living doing other things, including the teaching of writing, usually can’t.

Hire a writer/coach
A writing pro isn’t necessarily a good writing teacher, however. Aside from references, here’s how to tell. Effective teaching is less about charisma, more about preparation, perseverance, and a passion for the work. So ask questions: What are you going to teach my analysts? What are your goals? What’s your plan? How will you deal with indifference or egomania?

Your writer/coach should be quick with confidence-inspiring answers.  Look for someone who emphasizes telling a story (yes, even in a research report), clarity, and effective editing. Steer clear of those who get deep into grammar and theory. Good writer/coaches use real examples and show how it’s done.

Follow through with your swing
No writer/coach worth hiring will promise to improve your analysts’ writing in one session. A golfer won’t significantly improve her game with a 3-hour lesson. If she’s serious, she’ll take a series of lessons over the season. And writing well is harder than golfing well.

It doesn’t have to be extensive—even three 45-minute sessions over four to eight weeks with your most problematic analysts will work. But set aside budget for this. It’ll show you’re serious. And it will make whoever you hire that much more effective.

Joe Polidoro spent over a year improving the equity research reports at Bear Stearns, where he worked with past and future research stars including Lee Seidler, Lincoln Anderson, Larry Kudlow, Joe Buckley, Jami Rubin, and Steve Binder. Joe now co-heads Triplestop LLC, a marketing agency specializing in asset management and related industries.

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Copyright 2010 by Susan B. Weiner All rights reserved

Six lessons from the CFA Institute’s conference tweets

You can learn some lessons for how to tweet a conference from the CFA Institute. It has done things right as it timed its Twitter debut to coincide with its annual conference. But there’s still room for improvement.

Lesson 1:  Deploy a team. The CFA Institute mobilized a team of 14 people to report on its three-day conference. One person will burn out if she or he tries to cover every session. Plus, it’s impossible for one person to cover concurrent sessions.

Lesson 2: Use a hashtag. The hashtag #CFA2010 allowed people to find conference tweets by both official and unofficial sources.

Lesson 3: Complement your tweets with blog posts. You can’t say much of substance in a line of 140 characters or less. You’ll engage your conference attendees more deeply when some of your tweets lead them to blog posts. Tweets may be the sizzle that leads some reader to the steak. Read the CFA Institute's 2010 conference blog.

Lesson 4: Decide on a strategy for engaging with fellow Twitter users.  The CFA Institute included non-staff #CFA2010 tweets in the Twitter feed. It might also have engaged with other people tweeting about the conference.

I may have overlooked something, but I didn’t see any CFA Institute Twitter users getting into conversations on Twitter. On the other hand, there aren’t many CFA charterholders on--or even knowledgeable about--Twitter. “You can tweet, although I don’t know what that means,” joked John Rogers, the CFA Institute’s President and CEO, to widespread laughter when he introduced the conference’s Monday morning sessions.

Lesson 5: Monitor the back channel. This isn’t an issue for the CFA Institute yet, but it’s becoming more of an issue, as reflected in the publication of The Back Channel: How Audiences Are Using Twitter and Social Media and Changing Presentations Forever by Cliff Atkinson. The CFA Institute kept its eyes on the back channel by featuring #CFA2010 tweets on its conference blog and on screens at the conference. 

Lesson 6: Go multimedia. Some folks like to take in their information in written form. Others prefer audio and video. The CFA Institute did a great job of getting its headline speakers interviewed on camera by reporters and tweeting the interviews as they became available online. It has also gradually fed the interviews onto its blog.

Congratulations CFA Institute on a conference well-tweeted!

Related posts:
* My blog posts related to #CFA2010
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Copyright 2010 by Susan B. Weiner All rights reserved

Pull your white papers into the year 2010

Investment and wealth managers, you can get a lot more mileage out of your white papers today.

How's that?

Don't forget about the content once it's up on your website. Reuse it using social media.

Recycle as blog posts
White paper content can be recycled into blog posts. In some cases, you can pluck a few paragraphs and drop them into your blog "as is." However, most of the time, you'll need to frame and re-write the content. I've been doing this recently for a white paper client.  

Another possibility: Send your white paper to a blogger whom you respect. Offer to answer questions about your topic on the other person's blog. Check out "How to guest-blog on personal finance or investments," if you'd like to explore this option

Tweet it--and don't forget LinkedIn
It's a no-brainer to tweet the availability of your white paper. Smart marketers go beyond this. They tweet intriguing excerpts, keeping them short enough to be retweetable. Pithy quotes are popular on Twitter.

Remember, tweets are also great fodder for LinkedIn updates. While you're over at LinkedIn, you may also want to raise a question in a Group related to your white paper topic.

Go multimedia
Different members of your audience prefer to take in content in different ways. So, also consider turning your white papers into podcasts, videos, or interactive webinars.

Related posts

• How I've benefited from Twitter
• Reader question: How can I share my investment commentary on LinkedIn?
• The LinkedIn status update is your friend

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Copyright 2010 by Susan B. Weiner All rights reserved

Guest post: "Talking to clients about social investing"

Socially responsible investing can make for a difficult conversation between investment managers and their clients. But it doesn't have to be that way if you follow the tips provided by my friend Annie Logue, the author of Socially Responsible Investing for Dummies.

Talking to clients about social investing
By Ann C. Logue

Often, an individual client will walk into an office with a list of industries and companies that he or she does not want to own. Some clients have well-thought out objections or religious obligations that set the tone, but others have a vague idea of the goodness or badness of an industry without any real reasoning behind it.
 
How do you deal with such a customer?
 
Social criteria can be legitimate investment constraints, so one tactic is to approach it as a constraint. Get the client to identify the real issues, ideally in writing. Are they religious? Well, you can’t argue with religion! If they are more vague, then use some good questioning to get them onto paper, or ask the client to do some research. Some good sources are CSR Wire and Triple Pundit.
 
The real conversation is about what your client would rather invest in. Social investing doesn’t have to have lesser performance than traditional investing; the KLD Social Select 400 Index has minimal tracking error to the S&P 500 and, right now, outperforms it slightly. The secret is making sure that the companies you do invest in have a similar risk and return profile. If your client wants to sell BP, then you’d better find a company with similar characteristics. Replace BP with a speculative green tech company, and you're changing the portfolio’s nature. Replace it with a large multinational food company with responsible business practices, paying a high dividend, and subject to commodity price fluctuations, and you’re getting closer to the portfolio contribution of BP without the oil exposure.

Keep holding the conversation, too. BP had a great reputation for its social responsibility right up until April of 2010. Social investing is still investing, and you still take on company risk. Just as there is no perfect job and no perfect boyfriend, there is no perfect investment. Remind your client of the long-term goals. Many clients prefer to separate their investing from their philanthropy, figuring that the more money they make, the more money they can donate and the more time they have to volunteer.
 
Finally, turn your clients into activists. Talk to them about proxies. They can vote their proxies and have an influence on companies even if they do not change their ownership positions. That gives the client power without disrupting an investment position.
 
Social investing doesn’t have to underperform, and it doesn’t have to be a wedge between you and your client. You can use a client’s interest as an opportunity to educate them and to show how you can add value to their portfolio.
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Copyright 2010 by Susan B. Weiner All rights reserved

My May blog posts by category: Blogging, economy/investments/wealth management, marketing, social media, writing

Did you notice that I went wild in May, posting every day as part of the Word Count Blogathon? For your convenience, I'm listing my May posts by category.


Blogging

• The two most important words are...
• Financial bloggers' posts may violate copyright law
• Spice up your blog with free or low-cost photos
• Setting myself a challenge: A May Blogathon

Economy, investments, and wealth management

• "Have mutual fund fees gone up or down?"
• Poll: Which should investors fear most? Which #CFA2010 speakers were right?
• R Koo, "Lessons from Japan: Fighting a Balance Sheet Recession" from #CFA2010
• GMO's Jeremy Grantham on "The Ethical Hole in Finance" at #CFA2010
• Dan Ariely says disclosure may hurt investors: Report from his #CFA201 talk
• Roger Ibbotson attacks asset allocation "folklore"
• Hear Roger Ibbotson on asset allocation
• Morgan Creek Capital's Yusko riles up Tweeters with comments on investment fees
• Morgan Creek Capital's Yusko on investing
• Small-cap investing opportunities according to Artio's Dedio

Marketing

• My Boston-area networking suggestions
• Tip for how to connect with your workshop attendees 
• If you enjoy my #CFA2010 tweets
• Top four email mistakes to avoid when you've got a referral
• Timely, creative financial ad from Northwestern Mutual
• How to improve your financial planning client relationships
• Your customers, your inspiration

Social media

• Using CFP in your Twitter name--Read the CFP Board's position
• The compliance-constrained advisor's guide to LinkedIn, Part II: Status updates
• Can you help with my Facebook dilemma?
• How I've benefited from Twitter

Writing

• Plain English can bring your financial topic to life
• How to write subheads that command attention
• Executive's lesson for your communications with clients and prospects
• Start with a good lead, or lose your reader
• Guest post: "Correct Grammar Errors in Your Writing Quickly and Easily"
• 10 blogs I can't live without: Writer's edition
• Financial advisor poll: How do you sign your business emails?
• Whoa, insurance=spam?

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Copyright 2010 by Susan B. Weiner All rights reserved

Poll: Which should investors fear more? Which #CFA2010 speakers were right?

CFA Institute Annual Conference speakers raised many concerns about the future during the conference, which ran from May 16 to May 19 in Boston. But they didn't always agree with one another. Their mixed opinions inspired this month's poll.

Which do you fear more? 
* Inflation or deflation? 
* Continued fiscal stimulus or spending cuts to focus on deficit reduction?

Please answer the poll in the right-hand column of this blog. I'll report on the results in the July issue of my e-newsletter.

For a sampling of the mixed opinions, see
* Memo from Van Hoisington: Inflation Won't Be a Problem for Some Time to Come on the CFA Institute's conference blog
* Why Niall Ferguson's Forbidden FT Headline is the Key to Understanding Sovereign Risk on the CFA Institute's conference blog
* Harvard Professor Kenneth Rogoff Offers a Historical Perspective on Financial Crises on the CFA Institute's conference blog
* R Koo, "Lessons from Japan: Fighting a Balance Sheet Recession"
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Copyright 2010 by Susan B. Weiner All rights reserved

If you enjoy my #CFA2010 tweets...

...you may also enjoy my free monthly e-newsletter with practical tips for your client communications. You'll also find at least one investment or wealth management article. 

I often report on presentations to the Boston Security Analysts Society, so you know you'll see topics of interest to CFA charterholders.

Topics in the May 2010 issue included

• Watch out for inflation, says veteran value investor, Jean-Marie Eveillard
  Treasurys vs. Treasuries--Which is the right spelling? 
• How to guest-blog on personal finance or investing 
• Poll: How do you sign your business emails? 
• Last month's reader poll about ghostbloggers 
• Morgan Creek Capital's Yusko on investing

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Copyright 2010 by Susan B. Weiner All rights reserved

Small-cap investing opportunities according to Artio's Dedio

"Opportunities in Smallcap Investing" was the title of the presentation that Samuel Dedio, head of US equities for Artio Global Management, delivered to the 2010 annual conference of the Financial Planning Association of Massachusetts. The growth of options trading was his most interesting theme, in my opinion. By the way, if you don't recognize the name Artio Global Management, it was formerly Julius Baer. 

Where the opportunities lie 
Dedio identified opportunities in financials sector, including regional banks, online brokerage companies, and insurance. He figures that "industry consolidation and stimulus spending may potentially benefit this area." 

Industrials and materials stocks will benefit from emerging markets' demand. For example, Dedio likes silver, where supply is not keeping up with demand. Compared with gold, silver has many more industrial applications, yet it trades at a discount to gold.

In healthcare, Dedio likes companies that can help implement cost savings. This means companies in diagnostics, medical technology, pharmaceuticals, and home healthcare providers.

The survivors of the 2009 shakeout in retailers will benefit in 2010. "We expect margins (and earnings) to recover more rapidly than in prior cycles," wrote Dedio in the consumer discretionary section of his handout.

Finally, in technology, Dedio focused on the undervalued importance of semiconductors. 


Options: Why online brokerage may thrive 
Dedio particularly likes online brokerage companies with exposure to options trading as a play on demographics and rising interest in making money through options. 

"The younger generation eats it up," said Dedio, referring to options trading. This is apparently tied to younger investors growing up with computers and to educational efforts by companies such as Think or Swim.

"Don't 85% of options expire worthless?" asked an audience member. That's exactly what makes options a great business, according to Dedio. Investors have to buy more options on an ongoing basis. 

Dedio displayed a graph showing that total monthly equity option trading volume has more than doubled since the year 2000. Monthly trading volume, which was under 100 million until January 2004, has been  200 million--and sometimes exceeded 350 million--during the period January 2008 to September 2009.

Dedio's one concern about options trading is pricing pressure. However, cost cutters are at a disadvantage in the options arena, where education remains critical. Education requires more robust margins than cost cutters manage.
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Copyright 2010 by Susan B. Weiner All rights reserved

Morgan Creek Capital's Yusko on investing

"Alternative Thinking About Investments" was the topic addressed by Mark Yusko, CEO and chief investment officer, Morgan Creek Capital Management, when he spoke at the annual conference of the Financial Planning Association of Massachusetts on May 7. Yusko's wide-ranging talk was provocative and entertaining, with some great one-liners that became tweets that I quote below.


Alternatives deserve more attention

Yusko thinks investors should put more into alternative strategies. A small allocation simply cannot have a big enough impact.

This is a lesson that target date fund (TDF) managers should consider, suggested Ryan Alfred, co-founder and president of BrightScope, in response to my tweet. As he explained,

Going back to Yusko, he also suggested that your clients should have at least one-third of their assets in illiquid investments because such investments "win" after recessions. He's assuming that your clients have plenty of money that they plan to pass on to others in their wills. Yusko didn't specify which illiquid assets he was talking about.


Provocative 
Yusko isn't fond of mainstream media. "Cancel your subscriptions to The Wall Street Journal and The New York Times. It's all wrong, it's all biased." He used the example of the war between Russia and Georgia to make his case, mentioning that Morgan Creek pays someone to read Russian newspapers for them. 

Yusko also spoke in favor of high fees. He seemed to suggest that fees rise along with the investment manager's ability to deliver performance.

Humorous Yusko 
In closing, here is some Yusko humor.

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Copyright 2010 by Susan B. Weiner All rights reserved

Roger Ibbotson attacks asset allocation "folklore"

"The time has come for folklore to be replaced with reality" says Roger Ibbotson in "The Importance of Asset Allocation" in CFA Institute's Financial Analysts Journal (March/April).

Folklore means "the idea that asset allocation policy explains more than 90 percent of performance," which is a misinterpretation of the classic 1986 article, "Determinants of Portfolio Performance" by Gary Brinson, Randolph Hood, and Gilbert Beebower, says Ibbotson. 

"Asset allocation is very important, but nowhere near the 90 percent of the variation in return is caused by the specific asset allocation mix," writes Ibbotson. Rather, active management plays a role equal to that of asset allocation, as shown by "The Equal Importance of Asset Allocation and Active Management," an article co-authored by Ibbotson with James Xiong, Thomas Idzorek, and Peng Chen in the same issue of the Financial Analysts Journal.

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Copyright 2010 by Susan B. Weiner All rights reserved

Watch out for inflation, says veteran value manager Jean-Marie Eveillard

Value investing was the focus of the presentation by Jean-Marie Eveillard, senior adviser and board trustee to the First Eagle Funds and senior vice president of First Eagle Investment Management, LLC, to the Boston Security Analysts Society (BSAS) on April 13. Eveillard also opined on the world economic outlook.

Three economic scenarios
Eveillard thinks there are three potential directions for the U.S. from here.
1. A typical post-WWII expansion-- In this scenario, the authorities lever up the system again, so we get a three- to five-year expansion, Eveillard said. This would mean that we are still in a post-World War II environment. Eveillard is concerned about the short-term, even speculative orientation of investors in an environment in which equity mutual funds average 100% annual turnover.
2. Japanese-style stagflation--As the private sector continues to deleverage, the U.S. might fall into stagflation similar to that experienced in Japan for the past 20 years. This would happen if lenders don't want to lend and borrowers don't want to borrow, despite the government's efforts to combat their resistance. Eveillard considers this unlikely because, unlike the Japanese, Americans are not resigned to economic stagnation. We'll act.
3. Negative, unintended consequences including inflation--Eveillard is concerned about the unprecedented scale of the U.S. government's intervention. This includes a gigantic budget deficit, zero interest rates, and the ballooning of the federal balance sheet.

The third scenario is most likely, said Eveillard, who spoke about the lessons of the Austrian school of economists. The main lesson: If you're stupid enough to get into a really bad credit boom, you'll have a bad credit bust. However, the Austrians also say not to do a short-term patch after a bust because you'll compromise the medium-term and long-term recovery. This seems to be one of the roots of Eveillard's fear of the third scenario.

But Eveillard's inflation fears haven't made him give up on stocks. People make the mistake of thinking that inflation is all bad for stocks, he said. He believes in owning the stocks of companies that are able to raise prices as their costs rise. For example, that's something that newspapers were able to do back in the 1970s.

Eveillard did not comment on specific stocks that he favors now. "If I knew what my five best ideas were, that's all I would own," he quipped.

Benjamin Graham and The Intelligent Investor
Eveillard spent most of his time with the BSAS talking about the history of value investing. For him, the two big names are Benjamin Graham, author of The Intelligent Investor, and well-known investor Warren Buffett.

Graham's emphasis on the role of humility, caution, and order in investing make sense to Eveillard. He illustrated Graham's approach to investing as finding a business with an intrinsic value of $50 per share, buying it at $30-$35 per share, and starting to sell it at $40. This is what Warren Buffett called the cigar butt--one puff and it's over, said Eveillard.

Although Eveillard conceded that Graham's approach to investing is static and balance sheet-oriented, it still offers opportunities. There are "Ben Graham-type stocks" in Japan, especially among small caps, he said. Because "net cash is greater than market cash...you get the business for less than nothing," he said.

Warren Buffett added qualitative to quantitative
Benjamin Graham was "all about numbers." Even today,  value investors all start with companies' publicly available financial information, and then move on only if they're satisfied with the public numbers, said Eveillard.

Warren Buffett added qualitative analysis on top of Graham's quantitative analysis, said Eveillard. For example, Buffett likes companies that have a "moat," a sustainable competitive advantage.

Comparing Graham and Buffett, Eveillard said that the Graham approach is much less time-consuming, though potentially less rewarding, than the Buffett approach. The First Eagle Funds started out in Graham style, then switched to Buffett's style after adding the analysts that enabled them to do the necessary research, said Eveillard.

The case for value investing
Eveillard gave two reasons for pursuing value investing. First, it makes sense. Second, it works over time. He doesn't buy the argument that value investing works only in the U.S. In fact, First Eagle has never opened offices overseas because it doesn't want to be influenced by how the locals think. Still, he noted, "There are few genuine value investors in the U.S., but even fewer outside the U.S."

Why so few value investors? For starters, it's hard work. "Sell-side research is seldom useful" because of its six- to 12-month time horizon, said Eveillard. When your time horizon is five years, it makes a big difference in how you look at a business. That's why First Eagle's 11 analysts are "the true heart of our operation," he said.

The psychological hurdle to value investing is even higher than the research hurdle. It's not easy sticking with value investing's long-term time horizon. That's especially true when it means your investment performance may lag its benchmark in the short-term. First Eagle lost seven out of 10 investors during the period when its performance lagged from Fall 1997 to Spring 2000, said Eveillard.

To be a value investor, "there has to be a willingness on the part of the investor to take the short-term pain." In addition, you have to be willing to move away from the herd when it's nearing the cliff, said Eveillard, citing Warren Buffett. Value investing takes a temperament that many lack.

If you'd like to learn more about Eveillard's views, he's scheduled to appear on Bloomberg TV on Wed., April 14 April 14 at 5 p.m. EST, according to the First Eagle Funds website.
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The next session of "How to Write Blog Posts People Will Read: A Five-Week Teleclass for Financial Advisors" starts April 22. Sign up to receive my free monthly newsletter.Copyright 2010 by Susan B. Weiner All rights reserved

Question re: client portals--is there a way to capture your emails to clients?

It's tough to separate investment communications from technology, especially given the strict retention guidelines of the SEC and FINRA. That's why my ears pricked when an investment manager said that client portals can't retain emails sent through them. I took that as a challenge.

I discovered that at least one client portal, FamilyOfficeNetwork (FON), satisfies this retention need. 

"FamilyOfficeNetwork does retain messages sent within our portal and they meet the SEC's retention requirements. We can also have any notification email sent from our system BCC to any email address a firm desires," wrote FON's Aaron Pickett in response to my inquiry.

Bill Winterberg, I must thank you again for helping me find an answer to a technology question.

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The next session of "How to Write Blog Posts People Will Read: A Five-Week Teleclass for Financial Advisors" will start in April. For more information, sign up to receive "Information on upcoming classes, workshops, and other events" as well as my free monthly newsletter.
Copyright 2010 by Susan B. Weiner All rights reserved

Fidelity's head of technical research addresses "Where will the stock market go from here?"

Will the bull market continue? 

Investment professionals are always curious. So naturally the question came up during a Q&A session with David Keller, who oversees technical analysis as a managing director of research for Fidelity Investments. The question followed Keller's March 23 presentation to the Boston Security Analysts Society on "Applying Technical Analysis to a Fundamental Investment Strategy."

The bottom line: It appears that the market is in an uptrend and the offensive sectors will outperform their defensive peers. 

However, Keller framed his comments cautiously, saying that there is little evidence that the stock market is not in a sustained uptrend. Nor does he see evidence that the market is overbought.

"I can't say," replied Keller, when asked to identify his favorite sector. He's looking at groups that are traditionally considering offensive. "But it's not as clear cut as in the past," he said.


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The next session of "How to Write Blog Posts People Will Read: A Five-Week Teleclass for Financial Advisors" will start in April. For more information, sign up to receive "Information on upcoming classes, workshops, and other events" as well as my free monthly newsletter.
Copyright 2010 by Susan B. Weiner All rights reserved

Institutional equity research job hunters, check out this site!

If you're an analyst looking for a job in institutional equity research, you should read the ResearchWatch blog published by Integrity Research.

The blog will help you stay current on trends and players--especially independent research firms--in institutional equity research. Some recent topics included 

• Mutual Funds Value Small Cap Research Most
• Kroll for Sale
• Firm Profile – Precipio Research
• Track.com – A new Research Ideas Platform
• Hedge Fund Rebound Is Mixed Blessing

You can subscribe to ResearchWatch by email or RSS feed.
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Susan B. Weiner, CFA
Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.
Copyright 2010 by Susan B. Weiner All rights reserved

Some ammo for job-hunting -- and client-seeking -- CFA charterholders

Employers--and potential investment management clients--don't understand why they should hire a CFA charterholder instead of a non-charterholder. That's the lament of some job-hunting and client-seeking colleagues of mine in the Boston Security Analysts Society.

"Fund managers with CFAs take fewer risks than those with MBAs, study says," an article by Ian McGugan in Canada's The National Post, provides one reason for choosing a CFA charterholder. Charterholders are going to take fewer risks in portfolios compared to MBAs.

"This result is surprising and may have something to do with the ethics instruction that is part of the CFA course but not most MBA programs," writes McGugan.

This newspaper article is based on research by Oguzhan C. Dincer of Illinois State University, Russell B. Gregory of Allen Massey University - Department of Commerce, and Hany A. Shawky of SUNY at Albany - School of Business and Center for Institutional Investment Management.

You can download "Are You Smarter than a CFA'er?"  from the SSRN website, where registration may be required. 

Thank you, Matthew Andrade, member of the Calgary CFA Society, for bringing the National Post article to my attention!
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Susan B. Weiner, CFA
If you're struggling to pump out a steady flow of good blog posts, check out my five-week teleclass for financial advisors, "How to Write Blog Posts People Will Read," and sign up for my free monthly
Copyright 2010 by Susan B. Weiner All rights reserved

Strong words from editor of Financial Analysts Journal

"...I hereby consign the shibboleth of 'uncorrelated return' to the scrap heap of asset allocation lingo, where it shall be available only to unscrupulous sellers, credulous buyers, and unschooled investment analysts."

-- Richard M. Ennis, executive editor, Financial Analysts Journal

These strong words from Ennis appeared in in his "Editor's Corner" entitled "The Uncorrelated Return Myth," Financial Analysts Journal (Nov./Dec. 2009). 

Ennis asserts that "The notion of the existence of 'uncorrelated return' assets with handsome risk premiums flies in the face of financial theory and conflicts with empirical evidence." 

When he says "financial theory," Ennis is referring to the capital asset pricing model, which accords positive risk premiums to market-correlated assets. He also says that evidence shows that so-called uncorrelated assets such as real estate, hedge funds, and private equity are actually highly correlated with the stock market.

What do YOU think about this topic?


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Susan B. Weiner, CFA
Check out my website at www.InvestmentWriting.com or sign up for my free monthly e-newsletter.
Copyright 2010 by Susan B. Weiner All rights reserved