In a lecture presented in 2004, John Bogle, founder of the Vanguard Group, documented a direct and substantial relationship between management costs and mutual fund returns. Stratifying all funds by expense ratio, from lowest to highest, he reported the following 10-year average annual returns by quartile: 10.7 percent, 9.8 percent, 9.5 percent, and 7.7 percent. A presumption of market rationality would lead one to expect that investors demanded reduced fees in response to this negative correlation. According to Bogle, however, the average equity fund’s expense ratio was on a long-run rise, which represented a gain for mutual fund operators but an aggregate loss for the consumers they served.
Effective 1 January 2011, the International Financial Reporting Standards (IFRS) became mandatory for Canadian public companies. Proponents of IFRS adoption argued that it would enhance global comparability of financial statements. The authors of Swindlers: Cons & Cheats and How to Protect Your Investments from Them argue, on the contrary, that “differences in laws, regulations, taxes, cultures, education, ethics, training, traditions, enforcement, and optimism make uniformity an opium dream.”
The trading of options is quite mysterious to many investors. Some view the use of options as nothing more than gambling. One may place small bets with the potential for very large gains. Unfortunately, just like bets at a casino, the options trader who bets on a large move in the price of an asset is rarely the winner because most such bets expire worthless. As Kerry W. Given (a.k.a. Dr. Duke), founder of Parkwood Capital, points out in No-Hype Options Trading: Myths, Realities, and Strategies That Really Work, “The casino establishes a game where the casino holds a statistical edge. . . . Your model for trading options should be the casino owner, not the player at the tables.” His goal is to teach investors how to profit from the use of options while intelligently managing the risks involved.
Although not a pioneering work, Wealth Building Strategies in Energy, Metals, and Other Markets details easily accessible and timely methods for navigating upcoming investment markets that are sure to be stormy. Author Chris Waltzek, host of a weekly broadcast on GoldSeek.com, focuses on a few economically sensitive sectors — namely, energy, metals, and real estate. The book consists of three sections: “Successful Investing,” “The Housing Bubble,” and “Banking—Super Profits.”
Emanuel Derman spent two decades at Goldman Sachs, making valuable contributions to financial modeling. Before that, as recounted in My Life as a Quant (John Wiley & Sons, 2004), he was a physicist. Today, Derman is the head of risk management at Prisma Capital Partners and directs Columbia University’s financial engineering program. He also devotes energy to combating the belief that security markets can be analyzed with the same mathematical precision as heavenly bodies and subatomic particles.
In the crisis that engulfed the global financial system in 2008, the collapse of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) inflicted the heaviest losses of all on U.S. taxpayers. The Congressional Budget Office has estimated that the cost of bailing out the government-sponsored enterprises (GSEs) could ultimately total $350 billion. Unlike the banks that received massive government loans, guarantees, and insurance, Fannie Mae and Freddie Mac have little prospect of ever repaying Uncle Sam. Notwithstanding this stark evidence of fundamental flaws in the structure and mission of the GSEs, the sweeping legislative response to the financial crisis — the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 — dealt with the GSEs only by calling for a study of how they could be reformed.
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