http://www.moneyhowto.com/ ru MoneyHowTo.com Global Investors Community. Making Money Instructions DataLife Engine http://www.moneyhowto.com/2008/08/02/why_you_should_invest_in_etfs.html http://www.moneyhowto.com/2008/08/02/why_you_should_invest_in_etfs.html Exchange-traded funds, which share the design of mutual funds but trade on exchanges like stocks, are no fad in the financial world. So far in the United States, ETFs have attracted more than $600 billion in assets. That's tiny compared with the $12 trillion invested in conventional mutual funds, but ETFs are gaining fans quickly.

Tom Lydon, president of the Newport Beach, Calif., firm Global Trends Investments, is one of a growing number of financial advisers who favor ETFs over mutual funds. Lydon, coauthor of a new book, iMoney: Profitable ETF Strategies for Every Investor, and a blogger at ETF Trends, says between 80 percent and 90 percent of his firm's clients now have pure ETF portfolios. Lydon recently spoke to U.S. News about why investors are gravitating to ETFs, where the industry is headed, and which funds to buy now. Excerpts:

Why choose an ETF over a mutual fund? We're seeing more and more investors make that choice, and the big reason is that many individual investors have lost faith and trust in the mutual-fund industry. After a big run-up in the 1990s and a big decline in 2000-02, many investors felt that the fund companies were going to take care of them. But when the S&P 500 declined 47 percent and the Nasdaq declined 75 percent, these mutual funds felt the pain as well.

During this time, investors were calling their fund companies, wanting to hear what their fund manger was doing, and some would say that they're thinking about making a move. Meanwhile, people at the funds were telling them not to time the market, to take a long-term perspective, and they were very much]]> gdz Sat, 02 Aug 2008 00:15:54 -0500 http://www.moneyhowto.com/2008/06/18/peter_lynch_caught_rising_stocks.html http://www.moneyhowto.com/2008/06/18/peter_lynch_caught_rising_stocks.html Peter Lynch showed he was a money whiz with the first mutual fund he ran.

As manager of Fidelity's Magellan Fund, (NASDAQ:FMAGX - News) he turned the fund into the world's largest with $14 billion in assets and more than 1,000 holdings.

During his tenure from 1977 to 1990, a $1,000 investment reaped $28,000.

His closest competitor returned $15,000 on a $1,000 investment.

Magellan earned an average annual return of 29.3% -- nearly double the 15.2% average return of other funds in its class. It never had a losing year, despite experiencing nine corrections of more than 10% -- each deeper than the market's.

Lynch, born in 1944, started working as a golf caddy at age 11, a year after his father died. He traded golf tips for stock tips while caddying for Fidelity Investments' president and other bigwigs at the Brae Burn Country Club in his hometown, Newton, Mass.

After hearing them mention stocks, he would look up the tickers in the newspaper.

"Gee," he thought as he saw them rise, "this makes a lot of sense."

This was during the post-World War II economic boom that fueled the bull market from 1949 to 1966, so]]> gdz Wed, 18 Jun 2008 18:49:45 -0500 http://www.moneyhowto.com/2008/06/10/buffetts_bet_hedge_funds_cant_beat_the_market.html http://www.moneyhowto.com/2008/06/10/buffetts_bet_hedge_funds_cant_beat_the_market.html Will a collection of hedge funds, carefully selected by experts, return more to investors over the next 10 years than the S&P 500?

That question is now the subject of a bet between Warren Buffett, the CEO of Berkshire Hathaway, and Protege Partners LLC, a New York City money management firm that runs funds of hedge funds - in other words, a firm whose existence rests on its ability to put its clients' money into the best hedge funds and keep it out of the underperformers.

You can guess which party is taking which side.

Protege has placed its bet on five funds of hedge funds - specifically, the averaged returns that those vehicles deliver net of all fees, costs, and expenses.

On the other side, Buffett, who has long argued that the fees that such "helpers" as hedge funds and funds of funds command are onerous and to be avoided has bet that the returns from a low-cost S&P 500 index fund sold by Vanguard will beat the results delivered by the five funds that Protege has selected.

We're way past theory here. This bet, being reported for the first time in this article (whose author is both a longtime friend of Buffett's and editor of his chairman's letter in the Berkshire annual report), has been in existence since Jan. 1 of this year.

It's between Buffett (not Berkshire) and Protege (the firm, not its funds). And there's serious money at]]> gdz Tue, 10 Jun 2008 04:59:43 -0500 http://www.moneyhowto.com/2008/06/04/timeless_investing_tips_from_warren_buffett.html http://www.moneyhowto.com/2008/06/04/timeless_investing_tips_from_warren_buffett.html I was fortunate enough to be able to travel to Nebraska again this year to attend the "Woodstock for Capitalists," otherwise known as the Berkshire Hathaway (BRK-A) annual shareholders meeting. It was an enjoyable time, and a great way to remain grounded in the sound principles of investing in stocks.

Warren Buffett's and Charlie Munger's takes on current events seemed to garner a lot of the attention from the crowd and press, including Morningstar. Yet, after sitting and listening to the famous pair talk for six hours, I was struck by how much of what they were saying really hadn't changed a whole lot from year to year. And in my opinion, these unchanged insights are what held some of the greatest wisdom. Following is some of the timeless advice Buffett and Munger shared with investors in attendance.

Think Like a Business Owner
Don't view stocks as merely things that you trade among other investors. Keep in mind what a stock really is: an ownership stake in a business. You should aim to buy fantastic businesses, and hold them for a long period of time, as they grow and generate cash.

Let the Market Serve You, Not Instruct You
In other words, don't let the tail wag the dog. I take this to mean that we should focus on and anchor to the intrinsic value, or future cash-flow-generating ability, of the businesses we own, not the daily pricing being shouted by the market and the press. In other words, don't fall prey to the behavioral pitfall known as availability bias, which is paying great attention to readily available, easy-to-digest, but unimportant information (daily stock prices), while ignoring more-rare, harder-to-understand, yet much more]]> gdz Wed, 04 Jun 2008 19:10:12 -0500 http://www.moneyhowto.com/2008/05/16/is_buffett_watching_your_stock.html http://www.moneyhowto.com/2008/05/16/is_buffett_watching_your_stock.html One big reason the Berkshire Hathaway (NYSE: BRK-B) annual meeting attracts 30,000-plus shareholders and fans is that anyone who stands in line has a shot at asking the master investor a question. Want to know why Buffett has never purchased shares of his good friend Bill Gates' company? Go ahead and ask him. Want to know what he thinks of the presidential candidates? He'll answer it.

Simple question, important lesson
This year, the most interesting Q&A concerned Berkshire's big purchase of PetroChina (NYSE: PTR) a while back. According to an article in Forbes, Buffett bought the shares after minimal due diligence. And I mean minimal. In fact, it was reported that all he did was read a couple of annual reports.

A shareholder stood to ask him -- and I'm paraphrasing here -- "Dude! What's the deal with that? How could you make such a large purchase with only the annual reports, without seeing the operations or meeting management?"

That's a fair question. How could Buffett, a man who has spoken at length many times about the vital importance of good management, buy a major chunk of this Chinese national company, sight unseen?

Stories are simple when the price is right
Buffett replied that the oil business is "not that hard to understand." So, once he came to the conclusion that PetroChina was worth about $100 billion but was selling for only $35 billion, the decision pretty much]]> gdz Fri, 16 May 2008 19:06:19 -0500 http://www.moneyhowto.com/2008/05/03/warren_buffetts_priceless_investment_advice.html http://www.moneyhowto.com/2008/05/03/warren_buffetts_priceless_investment_advice.html "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

If you can grasp this simple advice from Warren Buffett, you should do well as an investor. Sure, there are other investment strategies out there, but Buffett's approach is both easy to follow and demonstrably successful over more than 50 years. Why try anything else?

Two words for the efficient market hypothesis: Warren Buffett
An interesting academic study (link opens PDF file) illustrates Buffett's amazing investment genius. From 1980 to 2003, the stock portfolio of Berkshire Hathaway (NYSE: BRK-A) beat the S&P 500 index in 20 out of 24 years. During that same period, Berkshire's average annual return from its stock portfolio outperformed the index by 12 percentage points. The efficient market theory predicts this is impossible, but the theory is clearly wrong in this case. And as Casey Stengel said, "You can look it up."

Buffett has delivered these outstanding returns by buying undervalued shares in great companies such as Gillette (now owned by Procter & Gamble (NYSE: PG)) and Coca-Cola (NYSE: KO). Over the years, Berkshire has owned household names such as Wells Fargo (NYSE: WFC) and American Express (NYSE: AXP).

While not every pick worked out, Buffett and Berkshire have, for the most part, made a mint. Indeed, his investment in Gillette increased threefold during the 1990s. Who'd have guessed you could get such]]> gdz Sat, 03 May 2008 08:14:36 -0500 http://www.moneyhowto.com/2008/05/03/buffett_goes_to_wharton.html http://www.moneyhowto.com/2008/05/03/buffett_goes_to_wharton.html (Fortune) -- In a presentation he made to students at the Wharton School earlier this month and a subsequent interview with Fortune, Warren Buffett shared his thoughts on everything from the economy to the credit crisis and the Bear Stearns bailout.

In this Web exclusive, we present further excerpts from his talk with the students, in which the megabillionaire offers his insights on judging managers, buying businesses, what metrics - if any - he relies upon, and why he views his job as similar to painting the Sistine Chapel.

Q: You said before that one of the things you look for in businesses you're buying is good managers who are honest, capable, and hard-working. To me, that's a hard judgment to make if you haven't known him for long on a personal level. How do you go about figuring that out about somebody, and how long does it take you to make that evaluation?

Warren Buffett: Well, almost always, we're buying businesses where the managers come with it, so I do have a record [I can judge]. If I had to pick out the five people in this group here who would be the best managers, I wouldn't know how to do it. I mean, you all have great IQs, you have great academic records. You've all shown the energy to get into school and push hard and all that. So you'd have all these attractive qualities.

Can I pick out the five best? I don't think I can do it. What I can do, when I've seen somebody run a business for 20 years, is decide whether they're going to keep behaving in the future as they have in the]]> gdz Sat, 03 May 2008 08:05:28 -0500 http://www.moneyhowto.com/2008/05/01/warren_buffettin_1974.html http://www.moneyhowto.com/2008/05/01/warren_buffettin_1974.html Under the 1974 headline, "Look At All Those Beautiful, Scantily Clad Girls Out There!," this profile in Forbes magazine captures Warren Buffett's personality and chronicles the singular path he cut through the investment world. Though the piece is 34 years old, it sheds light on the man behind Berkshire Hathaway as the company's shareholders meet this weekend in Omaha, Neb.

Robert Lenzner and Evelyn Rusli will be reporting from Omaha all weekend. You can find the latest on the shareholders' meeting here.

How do you contemplate the current stock market, we asked Warren Buffett, the sage of Omaha, Neb.

"Like an oversexed guy in a harem," he shot back. "This is the time to start investing."

The Dow was below 600 when he said that. Before we could get Buffett's words in print, it was up almost 15% in one of the fastest rallies ever.

We called him back and asked if he found the market as sexy at 660 as he did at 580. "I don't know what the averages are going to do next," he replied, "but there are still plenty of bargains around." He remarked that the situation reminded him of the early '50s.

Warren Buffett doesn't talk much, but when he does it's well worth listening to. His sense of timing has]]> gdz Thu, 01 May 2008 19:39:29 -0500 http://www.moneyhowto.com/2008/04/29/what_warren_thinks....html http://www.moneyhowto.com/2008/04/29/what_warren_thinks....html Buffett says he 'got a call' about Bear Stearns, but bailing out the investment bank with only two days for due diligence, he says, 'took some guts that I didn't want to match.'

(Fortune Magazine) -- If Berkshire Hathaway's annual meeting, scheduled for May 3 this year, is known as the Woodstock of Capitalism, then perhaps this is the equivalent of Bob Dylan playing a private show in his own house: Some 15 times a year Berkshire CEO Warren Buffett invites a group of business students for an intensive day of learning. The students tour one or two of the company's businesses and then proceed to Berkshire (BRKA, Fortune 500) headquarters in downtown Omaha, where Buffett opens the floor to two hours of questions and answers. Later everyone repairs to one of his favorite restaurants, where he treats them to lunch and root beer floats. Finally, each student gets the chance to pose for a photo with Buffett.

In early April the megabillionaire hosted 150 students from the University of Pennsylvania's Wharton School (which Buffett attended) and offered Fortune the rare opportunity to sit in as he expounded on everything from the Bear Stearns (BSC, Fortune 500) bailout to the prognosis for the economy to whether he'd rather be CEO of GE (GE, Fortune 500) - or a paperboy. What follows are edited excerpts from his question-and-answer session with the students, his lunchtime chat with the Whartonites over]]> gdz Tue, 29 Apr 2008 19:22:58 -0500 http://www.moneyhowto.com/2008/04/25/warren_buffett_is_a_better_investor_than_you.html http://www.moneyhowto.com/2008/04/25/warren_buffett_is_a_better_investor_than_you.html The headline here isn't newsworthy. We know Warren Buffett is a better investor than the rest of us. His incredible long-term track record at Berkshire Hathaway, and his avoidance of both the 2000 tech meltdown and the current subprime crisis, prove that.

The question is: Why?

And, perhaps, "how?"
There's one person in this world well-equipped to answer that question: Buffett's longtime friend and business partner Charlie Munger. Happily for us, Charlie likes to talk -- and he addressed this very question last year.

Munger's remarks at last year's Wesco Financial annual meeting are wide-ranging and worth reading in their entirety. But boiled down, Munger gave seven reasons why Buffett is a better investor than you:

1. He's smart, and he puts his intelligence to good use.

2. He has an unflagging interest in investing.

3. He started learning about investing early, when he was 10.

4. He's a "good learning machine," and he keeps on learning.

5. He has enormous experience in the subject and practices daily.]]> gdz Fri, 25 Apr 2008 18:41:14 -0500 http://www.moneyhowto.com/2008/04/21/how_much_risk_should_you_be_taking.html http://www.moneyhowto.com/2008/04/21/how_much_risk_should_you_be_taking.html Assessing a client's risk tolerance--an individual's own assessment of his or her ability to withstand investment losses--is standard practice in the financial-planning world. The Web is full of tools to help investors gauge how they would respond if the market dropped 10%, 20%, or even 50%, and I often hear from readers who tell me that their risk tolerance is "high" or "low."

The basic premise behind getting investors to identify their pain thresholds makes sense. After all, reams of data, including Morningstar's Investor Returns, show that investors often buy high and sell low. By identifying their ability to handle losses and avoiding those investments that will cause them to sell at the wrong time, investors should be able to improve their overall return records.

Yet relying disproportionately on your risk tolerance to shape your investments carries its own big risk: namely, that you'll end up with a portfolio that doesn't help you reach your goals because you've been too aggressive or too timid. Instead, risk tolerance should take a back seat to the really important considerations, such as the size of your current nest egg, your savings rate, the years you have until retirement, and the number of years you expect to be retired. Only after you've developed a portfolio plan based on those factors should you consider making adjustments around the margins to suit your risk tolerance.

The Risk of Being Too Aggressive

Generally speaking, I'm happy to hear from investors who rate their risk tolerance as "high." These folks']]> gdz Mon, 21 Apr 2008 18:36:05 -0500 http://www.moneyhowto.com/2008/04/09/buffett_beats_bernanke.html http://www.moneyhowto.com/2008/04/09/buffett_beats_bernanke.html Fed Chairman Ben Bernanke is in a rough spot these days. When he lowers interest rates, the specter of stagflation is raised. When he rescues Bear Stearns (NYSE: BSC) from potential bankruptcy by brokering a sale to JPMorgan Chase (NYSE: JPM), he's chided for guaranteeing billions in private subprime loans with public money.

Of course, if he did nothing, I'm sure he'd be blasted for turning a blind eye as the nation spirals into recession.

Bernanke's problem is that he's tasked with fixing long-term problems with a short-term tool kit. We folks on Main Street leveraged ourselves into homes we couldn't afford while the folks on Wall Street gladly financed us. Greed and irrational exuberance drove both sides for the better part of this decade. Now that the bubble has burst, Bernanke is forced to try to minimize the damage.

Unfortunately for Ben, no one person, even with the strength of the government behind him, has the power to elicit anything more than a temporary shrug from the U.S. economy.

Enter Buffett
Well, there's one more thing we can do: We can learn from Warren Buffett and his stewardship of Berkshire Hathaway (NYSE: BRK-A). Buffett had already learned from the mistakes of others to avoid bubbles in the first place. He was fearful when others were greedy. We should follow his lead.

Back during the Internet bubble, despite charges that he was a dinosaur who couldn't adapt his investing]]> gdz Wed, 09 Apr 2008 19:10:23 -0500 http://www.moneyhowto.com/2008/04/07/did_the_fed_vbail_outv_bear_stearns.html http://www.moneyhowto.com/2008/04/07/did_the_fed_vbail_outv_bear_stearns.html "Oh, no! Two dollars!"

So cried investors three weeks ago. The Federal Reserve had just announced that it was lowering the discount rate by a quarter of a point and had arranged for the sale of Bear Stearns to JPMorgan Chase. Stock futures jumped on news of the discount rate cut and Bear sale until investors heard the price.

The market's anxiety was justified. If a legendary Wall Street investment bank that investors valued at over $100 per share just last December was suddenly worth next to nothing, what were the other Wall Street firms, such as Goldman Sachs, Merrill, and particularly, Lehman Brothers really worth? The news sent S&P 500 futures spiraling and set the stage for a tumultuous opening that Monday morning.

Recap on Crisis

Bear Stearns, founded in 1923, has been an aggressive player in the financial markets for many years. One of the pioneers of mortgage-backed securities in the 1980s, Bear was heavily involved in the packaging of sub-prime mortgages during the housing boom. As the prices of these securities slipped last year, Bear bought not only for its own account but also for its hedge funds that it established for its wealthy investors. Bear's purchases were financed with short-term borrowings that were collateralized against these securities. But as the market continued to tumble, lenders demanded more cash to secure their loans. When Bear knew it would not have enough cash to cover the margin, it went to JPMorgan, one of its lenders. Both then turned to the Fed to arrange a $30 billion dollar loan guarantee against]]> gdz Mon, 07 Apr 2008 18:38:52 -0500 http://www.moneyhowto.com/2008/04/04/are_you_a_stock_trader_or_a_stock_investor.html http://www.moneyhowto.com/2008/04/04/are_you_a_stock_trader_or_a_stock_investor.html Trading and investing. Both sides of the same coin, right?

I wish it were that easy! Most people who own stocks ask themselves at some point, "Am I a trader, an investor, or both? And what's the difference?" I want to delve into some of the finer points of these two broad terms and allow you to choose which one fits you best.

Investing: putting your money in someone else's pocket and waiting

Let's start out by defining the terms. Investing refers to buying a stock with the hope of future gains, usually several years later. The word has its roots in the Latin "vestis," and directly relates to the idea of placing money in someone's pocket in anticipation of getting a return for the loan. The idea of having your capital or wealth working for you without any additional effort on your part comes from this classic meaning.

Investing is normally a passive activity after the initial purchase of the stock or fund.

Trading: putting your money in a bunch of pockets, and maybe a few roulette machines too

Trading, on the other hand, is an active pursuit - sometimes very active.

Trading is the buying and selling of stocks or other financial assets with the hope of making gains in a]]> gdz Fri, 04 Apr 2008 19:12:21 -0500 http://www.moneyhowto.com/2008/04/03/the_real_reason_why_stocks_are_diving.html http://www.moneyhowto.com/2008/04/03/the_real_reason_why_stocks_are_diving.html This is just my opinion... so don't be mad at me.

Alan Schwartz is full of it. There is no way, shape or form Bear Stearns can and would go out of business just because of rumors. Give me a break. You cannot go out of business unless you put yourself in the position to go out of business. Bear Stearns made HUGE BAD BETS. Case closed!

The latest pin cushions are the short sellers. Lehman is full of it. Cramer is full of it. One is just making an excuse. The other is just making an excuse for horrible stock picking and horrible market timing. Bottom line...SHORT SELLERS are a small lot. SHORT SELLERS do not cause stocks to go down. In fact, it is the opposite. If a stock wants to go up it goes up in spite of the shorts and squeezes the short sellers. If I owned a public company and I knew things were going well, I would welcome all the shorts. They cannot drive prices down like these people say. So blame the short sellers for your stock price. Don't blame:

Funds leveraging up - some over 30-1.

Lenders actually enabling these funds by giving them the money to leverage.

Lenders giving money to people who couldn't make the first payment.

Borrowers who took the money even though they knew they could not make the first payment.]]> gdz Thu, 03 Apr 2008 18:33:19 -0500