Thursday, May 31, 2012

CHK: A Little Help From Your "Friends"

Chesapeake Energy Is Being Forced To Straighten Up, Like It Or Not

As I mentioned in the past ( ) and has been extensively detailed in the press, Chesapeake Energy (CHK) has finally been taken to task for abominably bad corporate governance and risky management of the company's balance sheet.  The shares have plummeted, the CEO has been stripped of his Chairman role, the company has taken a hastily arranged $4 billion bank loan, and efforts at the sale of some major assets are in progress.  More importantly, CHK's largest shareholder has turned activist and last week Carl Icahn disclosed that he is now the company's third largest shareholder and has some very specific ideas on how to improve things at CHK.  The stock (and even the bonds) have become very volatile lately and a large short interest has built in this name.  How will things play out from here?

Thursday, May 17, 2012

The Importance of Intestinal Fortitude

Making Money Requires A Strong Stomach

One of the hardest things to do as an investor is to stick your hand out and buy when the market is falling.  Most likely, whatever you buy will be offered to you at a lower price within minutes to days making you feel foolish for buying and filling you with regret.  Yet you will likely still have to make decisions and keep putting funds to work.  There are bags of behavioral finance research pieces showing that we feel the pain of losing money far more than we feel the pleasure of making money and anyone who did not just fall off the proverbial turnip truck knows that emotionally-charged decisions are often poorly made decisions.  There is also ample evidence that most retail investors are very good at underperforming the market.  For example, the most recent DALBAR study indicates as follows:

"The average equity-fund investor saw annual returns of only 3.49% in the 20 years through 2011, according to the latest analysis from Dalbar. Compare that with the average 7.81% annual return of the S&P 500."

- Source:

So what should an investor do to avoid sabotaging themselves?

Monday, May 14, 2012

Safe Money Yield Alert!

TIAA Direct Offering a 1.25% APY Online Savings Account

Many investors keep a chunk of their funds in "safe" investments, generally defined as things that have little or no prospect of losing you part of your principal.  This might be an emergency fund, a dedicated portion of one's portfolio, or merely a parking place for funds that you hope to profitably invest in the future.  Whatever the reason, such funds have become a bit of a problem because the very low interest rate environment makes it tough to even break even against the ravages of inflation.  Among a number of options is a savings or checking account, although at most banks you will receive an annual yield well under 1%.  However, savings and checking accounts have a certain appeal for at least a portion of your safe money as they are backed by the FDIC and generally offer pretty much instant liquidity with no penalties for doing so.

TIAA Direct, a banking subsidiary of TIAA-CREF, is currently offering a 1.25% APR yield on savings accounts with as little as $25 on deposit:  Although this rate can change at any time, it is one of the highest (if not the highest) on offer at the moment.  As long as this rate lasts, it appears to be an attractive option for investors wanting a highly liquid spot to park funds.  Of course, if the bank lowers their rate you can always go elsewhere.

Disclosure: I have no interest whatsoever in TIAA Direct and do not receive referral fees.

Friday, May 4, 2012

Sixteen Tons

A Brief Guide To the Coal Industry

"You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store"
- "Sixteen Tons" by Tennessee Ernie Ford

One of the industries that consistently pops up in my daily scan for attractive high yield bonds is the coal mining industry.  The coal industry has a number of peculiarities which investors should be aware of if they wish to dabble in these bonds, some of which offer double digit yields (Patriot Coal and James River Coal show up regularly in my daily screens with low teens yields).  Although I will have nothing to do with the industry due to personal ethical concerns, I have spent some time following the industry and will attempt to offer a brief guide to the basic economics of the industry, supply and demand drivers, and how to differentiate among the public issuers in the industry that investors might be looking at.

Wednesday, May 2, 2012


I don't know what happened on Schwab's website.  Perhaps the programmers were having a bit of fun or this was just some sort of glitch, but I never even thought to shoot for an infinity % gain in any investment:

Tuesday, May 1, 2012

Life Lessons

The Importance of Saving and Why We Invest

I was recently reminded by the good folks at the estimable (thanks for the compliments, guys) that this blog has been pretty much entirely about investing since its start despite the title of "Life, Investments and Everything."  I have wanted to establish this place as a source of useful information for investors that goes beyond the usual "soundbite" level of detail that is typical a lot of personal finance and investing online content.  Judging by the posts that get the most hits, I have succeeded in providing some insight and (more or less) plain language  explanations of some of the more neglected areas on investing (like junk bonds, merger arbitrage funds and equity indexed annuities).  But I have neglected the other topics I meant to focus on, especially some of the "life" stuff.  In the interest of providing useful information rather than babbling on about personal details nobody will care about, I thought it would be appropriate to talk about why it is important to save and learn to invest well.  Given that it is May Day and people in many parts of the world are out there celebrating freedom and the personal dignity of earning a living, this seems like exactly the right time.