A rash of early earnings reports
STOCKTAKE:WHAT’S with the early earnings reports? Ten days ago, Google plunged after it accidentally released results in the middle of the trading day. Telenor released earnings last Tuesday night instead of Wednesday morning and Dow Chemical, to report last Thursday, inadvertently issued a news release on Tuesday revealing 2,400 job cuts and plant closures. The full earnings report had to be promptly issued.
Daimler was due to report in Germany last Thursday morning only for details to be accidentally emailed to US journalists on Wednesday. Another email immediately followed – “PLEASE IGNORE EMAIL I SENT JUST NOW!!!!” – but it was too late.
Poor earnings end winning streak
THE Dow recently ended a streak of 81 trading days without a 1 per cent decline – the longest such streak since 2006, Bespoke Investment Group noted. Days later, US markets suffered their biggest decline in four months, and are now down almost 5 per cent. Nothing strange there. There have been 16 declines of at least 5 per cent since the bull market began in 2009.
Yet earnings disappoint. So far, 17 of the 30 Dow stocks have reported, and 15 declined on the same day. Disappointing earnings from Google, IBM, Intel and Microsoft resulted in the Nasdaq last week falling to its 200-day moving average for the first time since June.
The costly active management myth
LAST week’s report into Irish pension charges confirmed the importance of fees. The easiest way of cutting costs is by opting for cheap index funds rather than actively managed funds, which invariably underperform – last year, 79 per cent of US large-cap funds trailed the SP 500. Over the 23 years ending in 2009, managed funds trailed benchmarks by an average of 1 per cent a year. But only 13 per cent of assets in US mutual funds holding stocks were in index funds in 2008, one report found. The active management myth is similarly prevalent in the US.
Learn lessons to cure trading sins
“IT WAS never our intention to own 25 per cent of the bank [Anglo] but, as it got cheaper, we just seemed to buy more and we got sucked in,” Sean Quinn told the Financial Times recently.
Averaging down to lower one’s break-even point is a trading sin often referred to in Jack Schwager’s iconic Market Wizards books. The latest, Hedge Funds Market Wizards, interviews 15 serial outperformers. It’s a great read, unlike Maneet Ahuja’s The Alpha Masters, another recent book of trader interviews undermined by the sycophantic tone.
One of Schwager’s best interviews is with British trader Steve Clark who, despite his success, disparages the trading lifestyle: “You have built nothing. You have achieved nothing.”
Trading rules? “If you wake up thinking about a position, it’s too big.” And don’t average down – “just cut it, cut it, cut it”.
No sign of AIG chief toning down
IN 2009, Fortune magazine designated AIG chief executive Bob Benmosche as “the country’s most tone-deaf CEO”. Not long after the US taxpayer’s $182bn rescue of AIG, he demanded a big bonus package and use of a corporate jet. His people skills haven’t improved. Earlier this year, Bloomberg interviewed him at his luxury villa in Dubrovnik, where he was pictured sipping wine from his vineyard and telling viewers that retirement ages “will have to move to 70, 80 years”.
Last week, he told New York Magazine that America needed a leader who “recognises that there’s no free lunch anywhere”. He added: “If it was up to the government, we wouldn’t be here today.” Furthermore, AIG had repaid almost all of its loans to the Federal Reserve and US Treasury, “and do you know, neither of them have ever said ‘Thank you’?” Ingrates.