Bill Gross: Rating Agencies – No Common Sense or Intelligence

Thursday, May 6th, 2010

Bill Gross, co-founder and co-CIO of PIMCO, is to my mind one of the shrewdest money men around. His monthly newsletter, this month entitled “Lovin’ Spoonful”, therefore always makes for thought-provoking reading.

The following are a few excerpts from the report:

“ … if a chef were to concoct a gourmet investment recipe, he would likely blend a teaspoon of intelligence with a tablespoon of common sense …

“No one or no one company has a monopoly on investment or ratings expertise. Second grade intelligence and a high Common Sense Quotient (CQ) are a rare combination for an individual rating agency or an investment management firm as well. Still, the rating agencies in recent years have displayed little of either. In addition, they have brazenly sold their reputations for unbiased judgment to the very companies they were standing in judgment upon. Don’t bury them however; like vampires in the dead of the night they will outlast us all. Those looking to profit at their expense, however, will dismiss them. They no longer serve a valid purpose for investment companies free of regulatory mandates that can think with a teaspoon of IQ and a tablespoon of CQ.”

Click here for the full article.

Source: Bill Gross, PIMCO – Investment Outlook, May 2010.

Tags: Article Source, Bill Gross, Co Founder, Common Sense, Cq, Gross Co, Intelligence Bill, Investment Companies, Investment Management Firm, Investment Outlook, Lovin Spoonful, Money Men, PIMCO, Quotient, Rare Combination, Regulatory Mandates, Reputations, Tablespoon, Valid Purpose, Vampires
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John Bogle: Old Fashioned Investing Advice Still Applies

Tuesday, April 6th, 2010

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John Bogle, founder of Vanguard Funds, the dean of passive investing,  is no ordinary expert on investing, and recently he updated his classic tome on investing, Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition, and shared his thoughts on investing with the LA Times.

Here are some highlights:

“You should start when you get your first job and put money into your account every month,” he said. “If you did that and didn’t look until you started withdrawing money 40 or 50 years later, you wouldn’t believe how rich you were.”

“We are our own worst enemies,” Bogle said. “We buy at the highs and sell at the lows.”

“Who was talking about buying gold a decade ago? Nobody,” said Bogle. At the time, the investment had been much maligned and long disappeared from most portfolios. Today the metal has had a decadelong run and soared to record highs. “Who is talking about buying gold now? Everybody.”

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Bogle thinks gold is now the wrong place to invest. Most investors should stick with the chocolate and vanilla of the investment world — U.S. stocks and bonds, he said. And, frankly, he thinks stocks (which make some investors queasy because of the last decade of rotten returns) have about twice the potential of bonds, even though bonds have done beautifully in that time too.

He doesn’t recommend that people load up on stocks, though, because stocks are volatile. And he knows that investors will peek at their portfolios and react to what they see — even if what they’re seeing is a temporary blip on the investment horizon.

“Stocks should do about twice as well as bonds over the coming decade,” Bogle said. “But what good is that going to do you if, when stocks drop 50% as they are likely to do at some point, you say: I’m out of here?”

…Bonds, meanwhile, promise a set return on your investment via the bond’s “coupon” or yield. If your promised return is 4.5%, the long-term return on that investment is likely to be 4.5%.

How does Bogle suggest you play this market? The same way you should have played it a decade ago — or a decade from now. Invest your age in bonds, he suggests, and the rest in stocks.

As usual, he recommends index funds, saying that the odds favour them over actively managed funds.

Source: Old-fashioned investing advice still applies, March 28, 2010

Tags: 10th Anniversary, Anniversary Edition, Blip, Chocolate, Classic Tome, Common Sense, Dean, Enemies, ETF, First Job, Investing Advice, Investment Horizon, Investment World, Investors, John Bogle, La Times, Last Decade, Lows, Mutual Funds, Peek, Portfolios, Stocks And Bonds, Vanguard Funds, Vanilla
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The Secret To Happiness According To Kids | Seven Ways to Create More Time In Your Day | Secrets to Long Life | How to Get Rid of Cold Sores

Friday, November 20th, 2009

For this weekend here are four articles you might find interesting. Enjoy and Have a Great Weekend!

Melina Bellows: The Secret To Happiness According To Kids
November-19-09, 11:29 AM

As the New York Times recently pointed out, many parents have found themselves out of work and at home–and it ain’t good. “For many families across the country, the greatest damage inflicted by this recession has not necessarily been financial, but emotional and psychological,” reports Michael Luo. “Children, especially, have become hidden casualties, often absorbing more than their parents are fully aware of.”

Seven Ways to Create More Time In Your Day
November-19-09, 11:41 AM

Do you ever feel like you have way too much time on your hands, and far too little work and life to fit into it? Unless you’re a teen on summer break, I reckon it’s unlikely! Most of us would love to have an extra couple of hours in each day. With two more hours, we could find time to exercise, to read some of the books that are gathering dust on our shelves, to spend time with the kids…

Don’t Overeat – Secrets to Long Life
November-20-099:36 AM

Ask Walter Breuning his secret for living as long as he has, and he’ll reply modestly, “There is no secret about it.” Breuning, who became the world’s oldest living man on his 113th birthday September 21, adds that kindness and common sense have played a crucial part to his longevity. Learn the six things that have allowed him to lead a long and happy life.

How to Get Rid of Cold Sores – Nutrition
November-20-0910:13 AM

Q: Are there any foods I can eat-or avoid-to help prevent cold sores?

Tags: Bellows, Common Sense, Gathering Dust, Happiness, Hidden Casualties, How To Get Rid Of Cold Sores, Kindness, Long And Happy Life, Longevity, Michael Luo, New York Times, Nutrition, Oldest Living Man, Parents, Psychological Reports, Read Books, Recession, Seven Ways, Shelves, Summer Break
Posted in DXD, Emerging Markets, Markets | No Comments »

Bill Gross: Investment Outlook (August 2009)

Thursday, July 30th, 2009

Bill Gross shares his latest take on markets, the economy and investing in his August 2009 investment outlook, “Investment Potions.”

Here are a few excerpts:

On price vs. performance – getting the potion you paid for…

But my point is that those who sell investment “potions” must wrap their product with an extra large ribbon because history is not on their side. Common sense would dictate that the industry as a whole cannot outperform the market because they are the market, and long-term statistics revealing negative alpha for the class of active managers confirms it. Yet, what a price investors are willing to pay! A recent Barron’s article pointed out that stock funds extract an average 99 basis points or virtually 1% a year in fees from an investor’s portfolio. Bond managers are more benevolent (or less pretentious) at 75 basis points, and many money market funds manage to subsist at a miserly 38. Still, those 38 basis points are as deceptive as the pea that disappears beneath the shell of a street-side con game.

What investors need to do in this new normal market…

Investors looking for love potions or successful investment strategies in this new normal economy dominated by deleveraging and reregulation must focus on some very macro-oriented ingredients as opposed to typical news-dominated minutiae. The latest quarterly earnings report from Goldman Sachs may be an indicator that the financial sector is getting some color in its cheeks, but it doesn’t really let you know what needs to happen in order for the real economy to stabilize as well.

Read the whole newsletter here, or click on the image below.

Source: PIMCO, August 2009 Investment Outlook

Tags: Barron, Basis Points, Bill Gross, Common Sense, Con Game, Financial Sector, Goldman Sachs, Gross Investment, Investment Outlook, Investment Strategies, Looking For Love, Love Potions, Market Investors, Minutiae, Money Market Funds, Portfolio Bond, Potion, Quarterly Earnings Report, Stock Funds, Term Statistics
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Technical talk: Buying power not tapped out yet

Monday, April 13th, 2009

The comments below were provided by Kevin Lane of Fusion IQ.

Another stellar day for the markets on Thursday as up to down volume ratios on the NASDAQ and NYSE were 12.36 to 1 and 14.78 to 1 respectively, while their advance to decline ratios were also correspondingly bullish at 5.10 to 1 and 7.28 to 1 respectively. We always say these metrics are the best gauges of confidence and conviction behind the markets move and help to better handicap a rally’s likely staying power as it reflects more participation and commitment by the market largest aggregate buyers – institutions.

When a market is up but these metrics aren’t as positively skewed it is typically more a sign of short covering, which is not a long lasting liquidity event (buying) to drive stocks markedly higher. However, days with internal readings like Thursday’s or the ones we highlighted back in early March (when the index was about 17% lower), are signs of significant buying and commitment which suggest a good (i.e. durable) rally is at hand.

For the last few days we have been saying the obvious and easy call was to say the market would stall as the S&P 500 approached resistance. From a common sense as well as a technical perspective even we had to respect that this resistance may be a factor after a 26% gain from the lows.

Playing devil’s advocate in our head and knowing nothing is certain or has to act a certain way we did hold out an alternative and equally likely thesis – a continuation of the rally. We also suggested several blueprints on how to navigate this call of stall or rally. We suggested that being prepared and then executing a game plan makes one less emotional and makes for better results. Along the vein of being open to the idea that the game changes constantly and like a good coach, a trader/investor needs to adapt (or change) their game plan as new wrinkles occur. In this case the wrinkle was that the market could possibly move higher and evidence was growing to suggest that.

That evidence we suggested that was altering the original game plan of a likely stall near 850 (after we suggested investor buy just above S&P 500 at 700) was growing anecdotal observations of everyone echoing disbelief in this rally’s staying power. We suggested it was pervasive and growing louder and as more and more naysayers and doubters said things such as: “I am in cash and can sleep.” or my favourite: “I am not worried that I am missing this up move it’s not a real move.” Pardon my naiveté (lol!), but the last time I checked a 26% rally in several weeks is pretty damn real.

Hearing those “safe in cash” comments now, not after the first 20% or 30% correction but after a 50% correction from the peak and then adding to the equation negative sentiment towards equities, individual investors and fund managers with lots of cash on the sidelines, a ton of bad news discounted into prices and a global push to aggressively stimulate, made for a pretty compelling backdrop to buy stocks (if not for the long haul at least for a good cyclical rally).

As further supportive evidence to a rally extension theme being likely, on Thursday we highlighted that sentiment had not become excessively bullish yet (typically a rally killer), even after the aggressive move off the lows. Therefore we suggested stocks weren’t in danger because liquidity (buying power) was not tapped out yet. Techs, high beta and growth style investing outpaced the market for the duration of the rally and continue to be the place and style bias producing the best returns.

Source: Kevin Lane, Fusion IQ, April 13, 2009.

Tags: Blueprints, Common Sense, Continuation, Conviction, Devil S Advocate, Down Volume, Game Changes, Game Plan, Handicap, Liquidity Event, Lows, Metrics, Nasdaq, Nyse, Short Covering, Staying Power, Technical Perspective, Trader Investor, Volume Ratios, Wrinkles
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Investing in Crude Oil via ETFs & ETNs

Wednesday, February 11th, 2009

This comprehensive overview on investing in oil using ETFs and ETNs was contributed by MarketFolly.com.

‘tradefast‘ is the nickname of an independent equity trader who has more than 20 years of market experience at a major financial institution and 2 hedge funds. He now trades for a private investment fund, using a combination of both fundamentals and technicals. (He’s our kinda guy).

Last week, he sat down to explain how contango affects the crude oil ETF’s and ETN’s that many investors and traders usually play, including USO, OIL, & DBO. This next piece is a follow-up post to that topic. So, before beginning, make sure you check out: How Contango Affects Crude Oil ETFs & ETNs.

Next, he takes a look at how to play crude oil using those same ETFs & ETNs. He writes,

Objective

This article provides some straightforward insight as to how a retail trader/investor can implement a directional play on the price of crude oil. Included is a discussion of the manner in which the forward market for crude oil can cause crude oil ETF returns to deviate from spot market returns. This article is not intended to be authoritative, comprehensive, or highly technical. It is simply a compilation of previous discussions on the topic (with some added elbow grease and my version of common sense). Readers should be aware that much of the material in this article has been discussed previously here and here. Certain elements of this article are pulled directly from these sources.

Note:

When I first wrote about the effects of forward curves on crude oil ETFs, the crude market was in steep contango and the discussion attracted widespread attention. More recently, the crude curve has flattened somewhat and it may appear to some individuals that the curve shape has become less of an issue to retail speculators. I have a different view. I believe that sharp volatility in the shape of the curve makes it imperative that retail crude speculators understand how curve adjustments can affect their positions. This topic is not dying, but rather garnering added importance.

Introduction – Retail Investors Cannot Trade Spot Crude Oil

I have a friend with fairly extensive stock trading experience who generates most of his technical market analysis using the S&P 500 futures contract. When it comes time to transact, however, he will swing over to the cash market and trade an ETF such as SPY (S&P 500) or a leveraged ETF such as SSO (2x the S&P 500) or SDS (2x the inverse of the S&P 500 – a double short). Although he and I share the same trading objectives (to capture a directional movement in the S&P 500), I choose to generate my technical analysis using the precise instrument which I expect to trade. In my case, SPY (or SSO or SDS if I desire leverage). I am confident in my approach because I know the instrument I am trading exhibits an extremely tight relationship to movement in the S&P 500 cash market. Simply put, I trade SPY because is a highly dependable proxy for replicating the spot market of the S&P 500.

Unfortunately, traders or investors wishing to implement a directional play on crude oil lack access to a tradeable instrument which tracks spot crude oil in the same manner that SPY tracks the S&P 500. Instead, we must choose from an array of instruments which are structured with the intent of tracking crude prices, but with flaws relating to the fact that crude oil (unlike the S&P 500) is a physical commodity for which spot trading is limited to those who can transport, store, or produce crude oil.

Crude Oil Futures – The Curve

Fortunately, despite our lack of access to the crude oil spot market, there is a highly liquid market for futures contracts which reference crude oil. And, the price of these contracts exhibits volatility which generally resembles the movements in the spot market. Many traders transact directly in crude oil futures contracts, electronically or in the futures pit. These traders rely on the fact that they will never have to physically handle the commodity itself. They can simply close out their futures positions prior to expiration and net out the difference between their entry and exit price.

The fact is that trading in crude oil futures (which expire monthly) is spread out over several months, even years. And, the price of crude for delivery at future expiration often varies substantially from month to month. At times, prices in future delivery months are progressively higher than in the nearest delivery month (contango). And, more often than not, the opposite is true (backwardation). Many futures traders have specialized knowledge of the day-to-day shifts in supply and demand fundamentals and they are comfortable projecting price movements at specific points along the forward curve. The typical retail investors probably lacks the skill-set needed to profitably exploit forward curves in a sophisticated manner.

Introducing Crude Oil ETFs/ETNs

For the retail crude oil speculator who is incapable of trading crude oil futures, there are tradeable ETFs (Exchange Traded Funds) and ETNs (Exchange Traded Notes) which employ futures contracts in pursuit of the general objective of “tracking the price of crude oil”. A typical crude oil ETF will hold long positions in WTI (West Texas Intermediate) crude oil futures contracts. As with most futures traders, these funds employ leverage, putting up a small portion of the capital to buy the contracts. The rest of the fund’s assets are invested in money market instruments which generate a modest amount of interest income for the fund.

ETFs – The Roll

In theory, the existence of crude oil ETFs enable individuals to implement a single equity trade to express a view that crude oil prices will either rise or fall in the future. Unfortunately, this objective is compromised by the existence of a forward curve in the crude oil futures market.

Because of the forward Curve, any ETF referencing crude oil cannot simply rely on ownership of the existing front month (closest to expiration) futures contract. To remain invested at all times, it must periodically sell its existing futures holdings and roll its exposure to a futures contract expiring in a more distant month.

ETFs – Return Components

With crude oil ETFs, the technical result of utilizing crude oil futures for the NAV (net asset value) return is dependent on three variables: 1) changes in the spot price of crude oil, 2) interest earned on un-invested cash, and 3) the ‘roll yield’ – which is a function of the spread between the price of the contract being sold and the price of the contract being entered. In contango markets, the roll yield will be negative because the fund must pay up to enter the more distant contract, and the opposite is true in backwardated markets. Furthermore, the precise timing of the forward roll can have a material impact due to the propensity of the expiring contract to experience high volatility in the days immediately prior to expiration.

Roll Yield – ETF Return Illustration

Let us consider the case of a hypothetical crude oil ETF which provides exposure to the front month crude oil futures contract, with the exposures rolled forward as expiration approaches.

To illustrate the concept of the roll yield, assume that the 2009 spot return on crude oil is +20%. But, assume that persistent contango in the market results in a cumulative roll yield of -15 %. In these circumstances, the combined return of a crude oil based ETF might be in the ballpark of +5%, a far cry from the +20% return generated in the crude oil spot market.

As illustrated, contango in the crude oil market may cause ETF returns to lag spot market returns. Not surprisingly, a flat/stable forward curve would result in a minimal roll effect. On the other hand, a backwardated curve may cause the ETF to outperform the spot market.

Roll Yields – A Source of Tracking Error

The variability of roll yields coupled with the shifting slope of the forward curve should dispel any notion that the return on crude oil ETFs will track the spot market of crude oil in a predictable manner. The managers of the crude oil ETFs and ETNs are fully aware of this issue and they make no claims regarding their ability to replicate spot crude returns. They merely claim to attempt to track a return benchmark that is comprised of crude oil futures contracts, thereby providing traders/investors with some ability to participate in directional movements in the price of crude oil. (Note: This situation is analogous to an issue which exists with certain leveraged (non-oil) ETFs which have proven to be extremely deficient in terms of tracking their benchmark indices in volatile markets. These instruments have strictly adhered to their stated strategies and objectives, but have failed to achieve the imaginary objectives of many careless traders.)

ETFs/ETNs – Examining the Fine Print

Included below is some language directly out of the prospectuses of some of the more popular crude oil ETFs and ETNs. Notice that the managers willingly acknowledge the issues related to forward curvature and the roll yield impacts on returns. This segment of analysis will focus on the three most popular crude oil instruments in existence today: an ETN (OIL) and two ETFs (USO & DBO). Many of the issues raised herein are applicable to all crude oil ETFs and ETNs, although leveraged ETNs (such as DXO) involve complications which are not analyzed here.

ETF versus ETN – Counterparty Risk

No discussion of crude oil ETFs would be complete without some mention of the important difference between an ETF (Exchange Traded Fund) and an ETN (Exchange Traded Note). With an ETF, holders are secured by the assets of the fund, so the credit worthiness of the fund manager firm is not a relevant consideration. If the manager collapsed into insolvency, the ETF would be unaffected, except for the possibility of a change in management (which is not an important consideration in the case of a fund which is passively managed to match a specific benchmark). In contrast, owners of an ETN are unsecured creditors who receive a mere ‘promise to pay’ equivalent to the value of the underlying assets. Let’s simplify this distinction: If a given ETF and a given ETN have the same exact net asset value (NAV), it is conceivable that the ETN could be worth less than the ETF if the manager of the ETN asset pool experienced a level of financial distress which resulted in a material downgrade of the credit quality of the manager’s bonds. Given that most ETN managers are financial institutions with challenging balance sheets, this risk is worthy of consideration.

In a worst case scenario, the ETN manager could face an abrupt insolvency and default on the ETN. This risk, often referred to as counter party risk, is similar to the risk that credit default swap (CDS) holders faced when Lehman Brothers and AIG encountered insolvency. We, as rational individuals, do not buy insurance from high risk insurers. And, as such, we should think similarly about owning ETNs issued by high risk managers.

US Oil Fund (USO)

USO is a standard crude oil tracking ETF that utilizes a strategy resembling the hypothetical ETF analyzed earlier in this article. Accordingly, USO entails all of the risk factors related to the use of crude oil futures as a tracking mechanism for crude oil prices. As with all ETFs, the objectives, the portfolio structure, and the major risk factors are clearly disclosed in the prospectus.

From the ‘risk factors’ section of the USO prospectus,

“in the event of a crude oil futures market where near month contracts trade at a lower price than next month contracts, a situation described as ‘‘contango” in the futures market, then absent the impact of the overall movement in crude oil prices the value of the benchmark contract would tend to decline as it approaches expiration. As a result the total return of the Benchmark Oil Futures Contract would tend to track lower. When compared to total return of other price indices, such as the spot price of crude oil, the impact of backwardation and contango may lead the total return of USOF’s NAV to vary significantly. In the event of a prolonged period of contango, and absent the impact of rising or falling oil prices, this could have a significant negative impact on USOF’s NAV and total return.”

Notice how they warn that USO may experience a negative roll yield which may cause the NAV of USO to deviate significantly from the spot price of crude oil. Is there historical precedence for USO deviating from spot oil by a material amount? As it turns out, the answer is ‘yes.’

“During the past two years, including 2006, these markets have experienced contango. This has impacted the total return on an investment in USOF units during the past year relative to a hypothetical direct investment in crude oil. For example an investment made in USOF units on April 10 and held to December 31, 2006 decreased, based upon the changes in the closing market prices for USOF units on those days, by 23.03%, while the spot price of crude oil for immediate delivery during the same period decreased 11.18%.”

The only logical conclusion is that USO is not a direct play on the spot price of crude oil. It is, instead, a play on the spot price, forward prices, and the relationship between spot and forward (or, the slope of the futures curve).

Power Shares DB Oil Fund (DBO)

DBO is different from USO in that its managers utilize specialized strategies intended to mitigate the effect of roll yields on returns. As with USO, the prospectus for DBO directly addresses the issue of roll risk. In the case of DBO, however, the manager is not passive about accepting a negative roll yield in a contango market. In the words of the manager,

“Rather than select a new futures contract based on a predetermined schedule (e.g., monthly), each Index Commodity rolls to the futures contract which generates the best possible ‘implied roll yield.’… [The manager] is able to potentially maximize the roll benefits in backwardated markets and minimize the losses from rolling in contangoed markets.”

I think it is fair to point out that the active approach being utilized by DBO presents both opportunities and risks in relation to the more passive rule-based approach used by USO. It is certainly conceivable that, by employing their optimization model, DBO will exhibit improved roll yields and better returns than USO. But, as with all things financial, the DBO model may backfire due to faultiness of imbedded assumptions. If DBO’s approach were full-proof, it is probably fair to conclude that an arbitrage opportunity might exist whereby profits could be generated by pairing a long position in DBO with a short position in USO. At this juncture, I am extremely hesitant to advocate such a strategy. Advanced readers wishing to gain a better understanding of DBO’s optimization approach may benefit from this link.

iPath S&P GSCI Crude Total Return ETN (OIL)

OIL is structured as an ETN issued as an uncollateralized obligation by Barclays Bank PLC. It is a financial institution that can be regarded as vulnerable to rising default risk in the current environment. As with USO and DBO, OIL is managed with the objective of tracking WTI crude oil prices by trading in crude oil futures (rather than the physical commodity).

OIL uses a specific benchmark to guide its futures trading activity: a crude oil index devised by Goldman Sachs. As with most index funds, OIL’s objective is to minimize the performance tracking error in relation to the index. OIL is not intended to perform better or worse than the index. The composition of the index, by design, can include any of the crude oil futures contracts which expire within three months. At present, however, the only contract used to calculate the index is the front month contract (which expires three business days prior to the 25th of the next calendar month).

OIL’s roll strategy is formulated and it is unique from that of DBO and USO. But, the differences in relation to USO probably do not have a material economic effect. In particular, holdings of the front month futures contract are rolled over a five day period commencing on the fifth business day of the month. Essentially, this means that OIL will have completed its roll approximately two weeks before front month expiration. (Note: USO rolls two weeks prior to expiration).

In essence, OIL is more similar to USO because the roll strategy is formulaic, and not intended to minimize the effects of negative carry in a contango futures market (or maximize the benefits of backwardation). But, this similarity is also offset by the fact that OIL carries material counterparty risk since it is an ETN, while USO and DBO do not (since they are ETFs).

USO Versus DBO Versus OIL – Expenses and Liquidity

The volatility of these instruments is so high that expenses have a relatively minimal impact. But, for frugal and/or longer term investors, the following information may be relevant:

Annualized expense ratios:

•USO 0.86%
•DBO 0.54%
•OIL 0.75%

Empirical Data – Historical Price Returns

It is unwise to draw any specific conclusions from this information, but a quick examination of the recent market returns of USO, DBO, and OIL reveal the following facts:

Year-to-date price returns (thru 1/24/09):

•USO -2.9%
•DBO +1.1%
•OIL – 7.9%

Although inconclusive, the material disparity between the return of USO and OIL is potentially due to the fact that OIL is an ETN issued by Barclays – a Bank that has suffered from extensive credit quality impairment in recent days.

Returns, 2008 peak to current:

•USO -72%
•DBO -65%
•OIL -75%

Further assessment of the relative returns of these instruments can be found here.

Conclusion

Considering the following factors:

1.Counterparty risk
2.Futures roll strategy (and roll yield)
3.Liquidity and expenses

USO has no counterparty risk and no active management risk. DBO has no counterparty risk but has inherent risks and opportunity related to the active management of the roll. Lastly, OIL has material counterparty risk. I currently favor USO as the instrument to express my directional views on crude oil over the other two instruments DBO and OIL.

Thanks to ‘tradefast’ for the excellent in-depth overview of crude oil ETFs & ETNs. We think he has highlighted some excellent points that any trader or investor should know before using these vehicles to speculate on crude oil. If you haven’t already, make sure you check out: How Contango Affects Crude Oil ETFs & ETNs. For additional coverage on crude oil, check out the recent slide presentation: Cheap Oil = Over. Also, we’ve commented on cheap oil, and have covered energy trader Eric Bolling’s latest oil trades and thoughts here.Lastly, you can follow tradefast on Twitter, and catch his thoughts on his blog.

The above article was a contribution from MarketFolly.com.

Tags: Common Sense, Compilation, contango, Curve, Dbo, Elbow Grease, Equity Trader, ETF, ETFs, Etn, Forward Curves, Forward Market, Hedge Funds, Investing In Oil, Major Financial Institution, Market Experience, oil, Oil Etf, Price Of Crude Oil, Private Investment Fund, Speculators, Trader Investor, Volatility
Posted in Bonds, Credit Markets, Gold, Markets, Oil and Gas | No Comments »

Doug Kass’ 12 Sound Investment Principles

Sunday, January 20th, 2008

Jan. 20, 2008 – Doug Kass writes in RealMoney.com recent article for investors looking into the abyss, however, the advice is good anytime. 

1. Err on the side of conservatism.

2. Learn from the best, in classic investing books or through conversations with trustworthy individuals.

3. Avoid advice from those who lack flexibility and are dogmatic.

4. Be more concerned with return of capital than return on capital.

5. Trade/invest with below-average positions in order to take advantage of the market’s volatility and opportunity.

6. Take a base on balls, hit a single, but don’t go for the fences.

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7. Buy straw hats in the winter (meaning, but out of favor items).

8. Buy only the best of breed in periods of economic/market uncertainty.

9. Always leg into a position.

10. Be patient.

11. Buy when your hands are shaking; sell when you become overconfident and complacent.

12. Always remember investing is about common sense.

Source:
12 Investment Principles for the Abyss
Doug Kass
RealMoney Silver, 1/17/2008 11:40 AM EST

Tags: Abyss, Base On Balls, Common Sense, Conservatism, Conversations, DOG, Doug Kass, Economic Market, Fences, Flexibility, Investing Books, Investment, Investment Strategy, Investment Wisdom, Market Uncertainty, Periods, Realmoney, Recent Article, Return Of Capital, Return On Capital, risk, Silver, Silver 1, Sound Investment Principles, Straw Hats, Volatility
Posted in Markets | No Comments »