What an Ugly June that was!

It's July 1st and the headlines are pretty much dominated by news of how badly the second quarter closed. From the horrible IPO market performance, to the worst June recorded for the Dow Jones Industrial Average since 1930; that's right, we're talking about numbers we haven't seen since the great depression. From stocks to bonds, everyone is losing money. Well... not everyone.

Energy is the sole sector that's making money. Mining too, but the fact that that's spurred-on by coal mining predominantly, let's just call it energy. I suppose that that's not too surprising since everyone seems to agree that the rising energy costs, along with the weaker dollar, are responsible for the slowing economy. The question is, where do we go from here.

Banks want us to believe that we're approaching (or have hit) a bottom and that things will turn around soon. Brokers and traders are beginning to encourage people to get into the market to take advantage of the declines and prepare to reap the profits that will come from the market's climb. Personally, I believe that this is still quite premature. The credit crisis is widely seen as having caused the initial turmoil and from Buffett to Greenspan, the consensus is that we've yet to see the worst as far as the reported write-downs are concerned. Furthermore, the housing market has not yet recovered. Sure, the media is shining a bright spotlight on the nice markets in Florida and California that are seeing moderate recoveries, but this is likely more the result of foreigners entering the real estate market to take advantage of some deep discounts than it is a sign of a recover in the domestic market. The reality is that the U.S. is still slowing and that will have a domino affect on the rest of the world that is only beginning to show.

Unfortunately, the ugly June and Q2 is just the tip of the iceberg; this is a sign of what the near future holds and not a marker for the bottom that many would like us believe we've just hit. If you're looking for a silver lining, then consider this: wealth is not created or destroyed on the whole. If someone is loosing money, then someone else is making money. With so many loosing money, that should only mean that there are a whole lot more opportunities to cash-in. Happy hunting!

More Information Is Always Better

There's a lot of talk about the SEC and its persisting investigation of the ratings agencies. The good news is that, at least it appears at this point, investors will be winners now matter what the outcome.

I wrote earlier about the SEC's consideration of a plan to require the ratings agencies to make their research material available to others. This, of course, would allow others (hopefully individual investors as well) will be able to assess risk-and-reward profile for a given investment - just as the credit ratings agencies do. The advantage is that investors could become less reliant on the AAA-ratings and could review the actual data that goes into such a rating. With the agencies being blamed for having rated mortgage-backed securities as tripple-A (the highest investment-grade rating) that subsequently defaulted and resulted in hundreds of billions of dollars in losses and write-downs.

Now, there's news that the SEC will offer the ratings agencies a choice between two possible outcomes. The first, will be a disclosure of the underlying information as I described above; the second will introduce a new rating scale that would help identify mortgage-backed securities and distinguish them from corporate bonds. While certainly not providing as much information, this too would work to make investors more aware of where they were placing their money and that's never a bad thing. So, no matter what happens, at least its comforting to know that we, lowly investors, will ultimately win.

Stock analysts lose 17% for Investors

Just because it's such a powerful sentence, let me start with a quote from the article that I just finished reading...

Investors who followed the advice of analysts who say when to buy and sell shares of brokerage firms and banks lost 17 percent in the past year, twice the decline of the Standard & Poor's 500 Index.

From the perspective of someone studying toward their CFA (Charterd Financial Analyst) designation, this isn't exactly the most rosy news. What's even more worrying is the sector within which these analysts' recommendations performed the worst - their own: financials. The question is why?

I can't help but wonder what techniques are being used to analyze these companies that analysts track ...if they do use a consistent technique at all, that is. In preparing for my own career as an analyst, it is precisely on this skill that I spend most of my time working: designing my own style and set of tools used to determine what makes a good investment and what does not. The MBA Association, www.MBAAssociation.Org, just launched their Intrinsic Stock Analysis Tool on which I collaborated and I think that this is a great starting point for anyone interested in the field or anyone interested in investing their own money and having the desire to truly understand the fundamentals behind a stock's price.

What I find interesting is that analysts measure their performance based on their 'Buy' recommendations alone; but what about their 'Hold' or 'Sell' recommendations. If you were to buy the stocks they suggested that you buy, you would be up by 17%, but if you were to do everything that they suggested you do, then you would be down by about the same amount. This implies that the money you would lose would be roughly double what you would gain on the up-side. That's a hell of a lot of volatility!

I find it a little frustrating to follow CNBC's latest stock market game with prize money of $1 million for the traders that generate the greatest returns within the few weeks over which the game runs. While it's great to see such games entice new people to the field of finance, it's worrying to see the style of investment that is encourage: trading, not investing. Everyone wants a quick buck, and it seems no one is willing to spend the time to analyze and develop sound investment decisions.

Team Icahn & The Continuing MS-Yahoo! Saga

Following the collapse of the Microsoft buyout of Yahoo! there were a lot of puzzled faces walking the streets of Wall. Likely no more puzzled than the faces of the investors in Yahoo! who stood to make a pretty premium over the now deflated stock price. Some notable investors, however, aren't taking this sitting down, standing-up or any other way.

Carl Icahn, the activist investor, has brought together a powerhouse team that he's threatening to run for Yahoo! board if Jerry Yang doesn't get his act, and team, together and resume talks with the big-M. The latest name added to Mr. Icahn's roster is none other than Mark Cuban who previously sold his video start-up company to Yahoo for a cool $5.7 billion in stock - yes, stock - making him a considerable addition.

With prices, as at the writing of this post, sitting at $27.5 per share, shareholders have see more than 15% of their possible take slip through their hands when Mr. Yang walked away form Microsoft's offer of more than $31.

Mark Cuban, irrespective of his financial might as an investor, is a powerful force in bringing further attention on the apparent missed opportunity at Yahoo! With consensus now that Microsoft and Mr. Ballmer have moved-on to bigger an better things, more attention may be too late. That said, there is equally strong consensus that the deal makes as much sense today as it did weeks ago and that Microsoft could be arm-twisted to returning to the table should it be greeted by a board that is more welcoming. With any deal this large, there is little doubt that Microsoft spent months planning its strategy and ultimate attack. While certainly not weeping at the loss of that investment, I for one would feel confident in saying that its management would welcome the opportunity to feel vindicated.