Friday, August 6, 2010

managing your personal finance

As you’ll read tomorrow (or Monday), I’ve entered a new phase in my life. After years of hard work and long hours building this blog (time that I’ve enjoyed), I’ve been shifting things around so that I have more free time. As a result, I’m going to have more time to devote to creating quality blog posts, instead of rushing around at the last minute looking for something to write about.

Because of this, it’s time yet again to take requests. I do this about once a year, and it’s a great way to get a feel for what GRS readers are interested in. I’d be grateful if you’d take the time to leave a comment below with topic suggestions or article requests. It doesn’t matter if we’ve covered the subject in the past. If you’d like me (or one of the other GRS staff) to write about it, let me know.

Have there been too many articles about credit cards? Too few articles about credit cards? Would you like to know more about individual savings accounts? Do you like the articles about the psychology of spending? Would it be helpful to have somebody come in to explain insurance concepts in plain English? Should I try to persuade my wife to share more of her recipes now and then? Let me know what you’d like to read about!

While you’re all providing feedback about the site, here are a few recent articles of note:

Over at The Simple Dollar, Trent and his readers had a thoughtful discussion about the obligations of wealth. “I think there is some inherent distrust of the rich in the mainstream of American society,” Trent writes as he describes how a wealthy person can keep from alienating his friends. There’s so much to say about this topic; I’m tempted to write an entire article about it.

GRS reader Steven writes a blog called Hundred Goals, which is about achieving your goals while managing your finances. After Sierra’s post this morning about travel, he dropped me a line to let me know that he has a recent article about how to have a great vacation.

Speaking of vacation, my pal Jason over at No Credit Needed spent time compiling day-use fees and free days for state parks across the United States. Handy page to bookmark!

And here’s more travel! At The Art of Non-Conformity, my good friend Chris Guillebeau has posted a beginner’s guide to travel hacking. I’ve been asking him to share this info for a long time; now I’ve got to take responsibility to use the knowledge he’s shared.

Finally, I’ve been giving a lot of interviews lately. I’m much more comfortable with these than I used to be. (They used to scare me to death!) Some examples:

Colleen from The Frisky interviewed me about how to save money even when you’re living paycheck to paycheck. This is a tough quandary, something I’m asked about a lot.

In an interview with BeFrugal, I discuss frugality, happiness, and conscious spending. (Note: “the ballot” should be “the balance” — I must have mumbled.)

Jeff Rose at Good Financial Cents also interviewed me. This interview is very much about the process of writing a book, which may or may not interest you.

I also spoke with Beverly Harzog from Card Ratings. We chatted about credit cards, of course, but also about other aspects of personal finance.

Finally, USA Weekend has a short piece on how to give your 401(k) a midyear check, for which author Richard Eisenberg interviewed me back in May. This is a perfect example of how much work goes into even a small newspaper article. Eisenberg spent 20-30 minutes on the phone with me, and I’m sure he did the same with the other folks he quotes. Plus, I’ll bet he spent a lot of time writing. I wouldn’t be surprised if there were 4-6 hours in this small piece.

Okay, one last thing before I go. Tim pointed me to a two-year-old New York Times series about the debt trap, which includes an interactive infographic showing average household debt loads over the past century.

That’s enough links for today. Please do leave a comment with topic requests or other feedback. Meanwhile, it’s time for me to go do some yardwork…

deals, Software, VC

Jive Software Nabs $30M in Round From Kleiner Perkins, Sequoia Capital

Thea Chard 7/21/10

Jive Software, the Palo Alto, CA-based software company started in Portland, OR, has received $30 million in Series C financing led by Kleiner Perkins Caufield & Byers.

This latest shot of cash, part of which comes from Sequoia Capital, means the company has raised more than $57 million in the last three years. Sequoia had been Jive’s sole investor up until this point, providing $12 million back in October, and $15 million in 2007.

“This is the biggest joint investment that Kleiner and Sequoia have done since they partnered up with Google,” says Bryan LeBlanc, Jive’s chief financial officer.

The investors are betting big that Jive has figured out how to harness some key elements of social media for business. Jive provides social-networking, communication, collaboration, and social media monitoring tools to more than 5,000 businesses, a group that ranges from small and mid-size companies to huge global brands. Jive’s customer roster includes Nike, Starbucks, SAP, Cisco Systems, Charles Schwab, and Intel. The company also provides social networking and collaboration software for a number of U.S. government agencies, as well as congressional members and their staffs.

“We’re the largest and fastest-growing company in this new category,” says Christopher Lochhead, Jive’s chief strategy advisor. “It’s about a $5 billion dollar market growing at about 40 percent, and we’re the clear leaders.”

The company’s biggest competitors include Microsoft and IBM. But according to Lochhead, Jive has an advantage—the support of some significant VC dollars, which he says will give Jive the ability to expand its product offerings and hire the best talent Silicon Valley has to offer in “multiple gene pools.”

As part of the deal, Kleiner Perkins managing partner Ted Schlein will be joining the Jive board of directors. The $30 million capital will be used to “accelerate Jive’s rapid growth and further drive the company’s leadership in the social business market,” according to a company statement.

What does that mean for potential clients? That the company will be expanding on its current social business software—the “doppler weather radar” of what’s going on in specific markets as Lochhead puts it. It will also allow Jive to focus on developing four strategic pillars moving forward. First is what Lochhead calls ”Jive What Matters,” a one-stop command center that encompasses “everything that you need to get your job done,” in terms of monitoring deadlines, status updates, sales numbers, all in one place. Then there’s Jive mobile apps; social widgets, such as YouTube and SalesForce, integrated into the software; and seeking out more strategic partnerships with companies like Google and Twitter.

“What social business software entails is a new way to engage with your employees, customers and the web,” Lochhead says. “Why is it so fun, effective and easy to do all of this stuff in my personal life, and yet work sucks? All of those innovations in the consumer social web, Jive is bringing to the enterprise.” He adds: “It’s a new way to do business that allows people to work together, interact, in a way that just wasn’t possible before.”

LeBlanc, the finance chief, added: “$30 million allows us to have the currency to execute that strategy.”

Though Jive, founded in Portland, OR in 2001, relocated its headquarters to Palo Alto, CA last May, it continues to maintain a growing presence in the Pacific Northwest. The company laid off one-third of its employees—around 40 people, including the vice president of engineering and vice president of sales—after the economic down turn in 2008. But Lochhead says it’s maintained profitability and is growing again, with 270 employees spread throughout the offices in Palo Alto, Portland, OR, and Boulder, CO, as well as two outposts in Europe. In January, the company posted record profits—an 85 percent increase in full-year revenue in 2009 when compared to the previous year.

And although LeBlanc could not give us exact figures on how Jive is doing this year, he did say that the financial support from Kleiner Perkins and Sequoia is a strong indication of the company’s potential.

“We do intend to build a large, relevant software company, and often when you look at large, relevant software companies, they’re $1 billion companies,” LeBlanc said. “Having that capital now—I think it’s a testament that Sequoia has been very bullish about this space…it’s unusual and we feel, frankly, very honored to have two of the titans of Sand Hill Road both behind us.”

Thea Chard is the Assistant Editor for Xconomy Seattle. You can e-mail her at tchard@xconomy.com or follow her on Twitter at http://twitter.com/theachard.

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While you’re all providing feedback about the site, here are a few recent articles of note:

Speaking of vacation, my pal Jason over at No Credit Needed spent time compiling day-use fees and free days for state parks across the United States. Handy page to bookmark!

Finally, I’ve been giving a lot of interviews lately. I’m much more comfortable with these than I used to be. (They used to scare me to death!) Some examples:

Colleen from The Frisky interviewed me about how to save money even when you’re living paycheck to paycheck. This is a tough quandary, something I’m asked about a lot.

In an interview with BeFrugal, I discuss frugality, happiness, and conscious spending. (Note: “the ballot” should be “the balance” — I must have mumbled.)

Jeff Rose at Good Financial Cents also interviewed me. This interview is very much about the process of writing a book, which may or may not interest you.

I also spoke with Beverly Harzog from Card Ratings. We chatted about credit cards, of course, but also about other aspects of personal finance.

Finally, USA Weekend has a short piece on how to give your 401(k) a midyear check, for which author Richard Eisenberg interviewed me back in May. This is a perfect example of how much work goes into even a small newspaper article. Eisenberg spent 20-30 minutes on the phone with me, and I’m sure he did the same with the other folks he quotes. Plus, I’ll bet he spent a lot of time writing. I wouldn’t be surprised if there were 4-6 hours in this small piece.

That’s enough links for today. Please do leave a comment with topic requests or other feedback. Meanwhile, it’s time for me to go do some yardwork…

deals, Software, VC

Jive Software Nabs $30M in Round From Kleiner Perkins, Sequoia Capital

Thea Chard 7/21/10

Jive Software, the Palo Alto, CA-based software company started in Portland, OR, has received $30 million in Series C financing led by Kleiner Perkins Caufield & Byers.

“This is the biggest joint investment that Kleiner and Sequoia have done since they partnered up with Google,” says Bryan LeBlanc, Jive’s chief financial officer.

LeBlanc, the finance chief, added: “$30 million allows us to have the currency to execute that strategy.”

Thea Chard is the Assistant Editor for Xconomy Seattle. You can e-mail her at tchard@xconomy.com or follow her on Twitter at http://twitter.com/theachard.

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Thursday, August 5, 2010

personal finance planning

Personal finance site for women LearnVest has had a big year. Launched last fall at TechCrunch50, the startup raised its first round of funding from Accel Partners and seed investors a few months ago ($4.5 million to be exact).

LearnVest has a simple goal: to help women organize their finances and learn how to become financially savvy. It’s kind of like an online version of financial planner Suze Orman blended with personal finance site Mint.com.

Today, the startup is launching three online programs, called ‘bootcamps,’ to educate women on various financial subjects, including a Financial Basics Bootcamp, Cut Your Costs Bootcamp, and Investing Bootcamp. Instead of creating a book-like online experience, LearnVest is making email newsletters the foundation of the educational sessions.

For example, the Investing Bootcamp, which costs users $7.99, teaches women how to make smart investing decisions and properly allocate their portfolios. For three weeks, women will receive daily emails with advice and actionable items that they can perform on LearnVest, making the newsletter interactive. For example, for the Financial Basics bootcamp, one of the daily actionable items is ‘Get Your Credit Score.’ Cut Your Costs Bootcamp topic range from Bootcamp topics range from ways to save on energy bills to exactly how to negotiate a lower cable bill. Learnvest will incorporate all of the information users complete and input in bootcamps into their LearnVest account.

Alexa von Tobel, LearnVest’s CEO and founder, tells me that the idea is to encourage women to not only learn, but also motivate them to make actionable decisions about their accounts and finances at the same time. She chose a newsletter format because the ‘LearnVest woman’ simply doesn’t have time to read the same information in a book. Women are more inclined to read a daily tidbit in an email vs. sitting down with a book, says von Tobel.

LearnVest held a pilot bootcamp in January and saw impressive results—8,000 people signed up for the basic financial bootcamp. With the new additions LearnVest expects to sign up a total of 40,000 participants. LearnVest plans to launch additional bootcamps in the future, including sessions realted to how to get a mortgage for a home.

The integration between the bootcamp educational sessions and the user’s LearnVest profile is key to the success of the initiative. As we wrote in our initial review of LearnVest, the site will ask you a series of questions about your financial health (i.e. how much credit card debt do you have), you life stages (i.e. do you rent, are you planning a family soon, do you own a house) and your financial education level and will diagnose your financial health and give you a snapshot of what you need to learn and improve. LearnVest will create customized plans for you, depending on your goals, and allow you to chart off your improvements and achievements.

Von Tobel says that LearnVest is steadily adding more female users flock to its site and is currently seeing 500K uniques per month. The next step is to take the site mobile, says von Tobel, and help women access LearnVest on the go.

photo: elycefeliz

Do you want to become rich beyond your wildest dreams? The question may seem right out of a late-night infomercial — unless you follow one strategy that may actually help you achieve it: Act poor.

If you do this, you’ll be fast on your way to having a million dollars — or more. That money can buy you a lot of stuff, of course, which would allow you to act rich and show off in no time. But if you’re smart, you’ll use it to buy freedom and give yourself options that the rest of your graduating class won’t have because they just weren’t as smart coming out of the box.

What do I mean by “act poor?” Pretty much act like you have for the past four years. Maybe even live with Mom and Dad for a year or so, promising that you’ll tell them when you’re coming home at night and help with the dishes. (As a parent, I had to say that.) The point of keeping your expenses low is to save your socks off.

Your friends probably won’t be doing this. The moment they get jobs, they’re going to want a better car; fewer roommates; dinners on the town. And that’s ever so tempting to do since you’ve likely suffered through lean years as a college student. And that new job you’re getting could allow you to pay for some luxuries, even if it doesn’t pay a lot.

But there’s a great pay off to living like a college student. If you manage to save really prodigiously for just a couple of years, you can build an emergency fund that will tide you over when times are really bad. And you can get started on long-term stock market investing at the best possible time.

How could I possibly say that this is the best possible time to be investing in the stock market, when stocks have gone nowhere for a full decade? I’m a student of the market, the author of Investing 101 and can say with some authority that the market’s miserable decade-long performance is exactly what spells huge opportunity for you.

A company called Ibbotson Associates has been compiling data on investments for decades. Let me throw a few of their statistics at you so you can understand why I’m so bullish — and particularly bullish for those of you who get to start investing now.

Average stock market returns from 1926 to the present work out to 9.6% for big company stocks and 11.67% for small company stocks. But stocks rarely hit that average in any given year. Instead, prices dive and soar, scaring out the faint of heart — and those who don’t understand why they’re investing. These price swings are often lasting, which is why you never invest short-term money in stocks. Put the rent money in the stock market, and a normal market swing might just send you back to living with Mom and Dad. But over the long run, those downswings are matched by equally rewarding upswings.

Consider: During the decade of the 1920s, big company stocks returned an average of 19.2%, according to Ibbotson — way above the long-term average. But the next decade was miserable, with returns on big company stocks dropping 0.1% over the 10 year period. In other words, if you invested $10,000, at the end of that decade, you would have a little less than $10,000 and probably feel demoralized. What happened then? In the 1940s, market returns were pretty manic — alternating between big losses and huge gains. The average return, however, ended at 9.2%. Still, because of the really rotten returns in the 1930s, investors could expect a “catch-up” decade and they got it. During the 1950s, average stock returns rose 19.4%.

Stock gains were below average in the 1960s and 70s — up 7.8% and 5.9% respectively; then way above average in the 1980s and 1990s — up 17.8% and 18.2% respectively. Are you detecting a pattern?

Okay, so the relevant decade for you was the one just completed, when stock prices fell 1% on average, according to Ibbotson. That’s the worst decade in history, which is a really good sign when you’re starting now.

It’s not clear whether your “catch up” returns will hit this year, next year or some time in the future, but the chances are great that you’ll get a stretch of above-average returns. What does that mean in dollars and cents?

For the updated version of Investing 101, I did an analysis of what would happen to somebody who put $1,000 a month into the stock market starting in January of 1970 — the last really miserable decade for stocks– and stuck with it for 30 years. The first decade was rotten (5.9% returns), but the next two decades were awesome.

At the end of 30 years, this investor had $4.03 million. If he earned just the average return over that time– or earned his returns in a different order — he would have had $1 million less — $3.08 million to be precise. Why? He had the least at stake when returns were rotten and a lot of money to compound when times got good.

I know $1,000 a month is an insane amount and feels really crazy to you now. You don’t have to save that much to get a big reward; you just have to start saving as much as you can.

But if you get a job where your employer offers a 401(k) plan, it’s not as hard as you might think to save even that stunning $1,000 a month. That’s because your contributions come out before tax, which reduces your out-of-pocket cost because it also cuts your tax withholding, and most employers match your contributions — some even at 100% on the dollar.

In other words, you contribute $500 and your employer contributes $500. And because your contribution comes out before tax, your paycheck is reduced by just $400 (assuming you pay 20% of your income in state and federal tax).

Think you can’t save that much — or even at all? Try tracking all of your expenses, suggests Danny Kofke, a special education teacher and author of How to Survive (and Perhaps Thrive) on a Teacher’s Salary.

Little things like going to lunch each day, instead of packing a sandwich, are likely to cost you about $5 bucks a day, $25 a week and $1,300 a year. The soda that you buy from a vending machine is likely $1 more than the one you bought at the store. And, of course, if you put off buying that new car and drive your junker (or take the Metro or bus), you’re likely to save $150 to $300 each month on car payments, too.

“Times are tough to get a job, but if you can start off without immediately getting used to spending how much you’re making, you can get way ahead,” Kofke said.

This is the formula that Thomas Stanley explains in The Millionaire Next Door and is, in fact, the most reliable way to get rich. If you play your cards right, you could be the youngest millionaire on your block.

Kathy Kristof is a syndicated personal finance columnist, speaker and author of three books, including the recently updated Investing 101 (Bloomberg, 2008).

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Tuesday, July 27, 2010

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Thursday, July 22, 2010

personal finance manager

I met James Montier at a value investment seminar in Italy in 2007 where he presented. We had long discussions later the day and into the evening on value investing and investment strategy.

James was kind enough to put me on his distribution list and I really looked forward to each of his articles as they always taught me something.

Unfortunately James decreased his writings since taking a position with the asset manager GMO in 2010.

I decided to put this resource page together so Eurosharelab visitors can also benefit from James’s investment wisdom.

James Montier’s Amazon Page shows all the books he has authored as well as the following short biography:

James Montier is a member of GMO’s asset allocation team.

Prior to that, he was the co-Head of Global Strategy at Société Générale and has been the top-rated strategist in the annual Thomson Extel survey for most of the last decade.

Montier is the author of four market-leading books:

• The Little Book of Behavioral Investing: How not to be your own worst enemy (Little Book, Big Profits)

• Behavioral Finance: Insights into Irrational Minds and Markets

• Behavioral Investing: A Practitioners Guide to Applying Behavioral Finance

• Value Investing: Tools and Techniques for Intelligent Investment

He is a Visiting Fellow at the University of Durham and a Fellow of the Royal Society of Arts.

2010

In this May 2010 article called I Want to Break Free, or, Strategic Asset Allocation does not equal Static Asset Allocation James Montier talks about in the beginning investing was a simpler and happier.

The essence of investment was to seek out value; to buy what was cheap with a margin of safety. Investors could move up and down the capital structure (from bonds to equities) as they saw fit. If nothing fit the criteria for investing, then cash was the default option.

But that changed with the rise of modern portfolio theory and, not coincidentally, the rise of “professional investment managers” and consultants.

In March 2010 Miguel Barbosa in his Simolean Sense blog interviewed James Montier about his book Value Investing: Tools & Techniques For Intelligent Investing.

In the second part of the interview Miguel talks to James about his other book The Little Book of Behavioral Investing – How Not To Be Your Own Worst Enemy.

In this February 2010 article, the first since joining GMO, James Montier asks Was It All Just A Bad Dream? Or, Ten Lessons Not Learnt from the financial crisis.

2009

In November 2009 article titled Only White Swans on the Road to Revulsion James Montier makes the argument that that the housing bubble and the crisis following its collapse was not an unforeseen event but rather the result of over optimism and the illusion of control, two classic human behavioural mistakes.

This article is the text of a speech called Six Impossible Things Before Breakfast, or how EMH has damaged our industry which James Montier delivered at the at the August 2009 CFA UK conference on “What ever happened to EMH”. Dedicated to Peter Bernstein (EMH = Efficient Market Hypothesis)

Here is the video recording of the above mentioned speech by James Montier: Six Impossible Things Before Breakfast. The video is 42 minutes long, but well worth watching.

The financial times in this 24 June 2009 article EMH, AMH: Edwards and Montier ride again motions James Montier leaving Societe Generale to join US investment manager Grantham Mayo Van Otterloo & Co, just after he and Albert Edwards won the Thomson Extel European analysts award in May 2009 as the top global strategy team.

In this 2 June 2009 research paper Forever blowing bubbles: moral hazard and melt-up James Montier explored the bubble phenomenon and what happens in the future after a bubble pops. He explores the possibility that all the government rescue packages initiated in 2008 have the possibility to again inflate a substantial bubble.

In this 24 June 2009 Financial Times article called Insight: Efficient markets theory is dead. James Montier explains why the efficient markets theory is dead but still lives because of academic inertia.

In June 2009 James Montier’s published this list of his Favorite Investment Books as well as a Summer reading list of more recent titles.

In May 2009 shortly after the market started its recovery from its March 9 2009 lows James Montier in this article titled Sucker’s rally or the birth of a bull? asks if this is a suckers rally and if so what investors could do to protect themselves. He also gives a few short ideas from his shorting screen.

In this 27 January 2009 article Clear and present danger: the trinity of risk, James Montier writes about the three primary and interrelated sources of investment risk; Valuation risk, business or earnings risk and balance sheet or financial risk.

2008

In this excellent review of James Montier’s book – Behavioral Investing: A Practitioner’s Guide to Applying Behavioral Finance, Bruce Grantier summarises the main points of the book with emphasis on mistakes and biases followed by a discussion of number of behavioral phenomena.

In the article The psychology of bear markets published in December 2009, during the brunt of the bear market James Montier writes about that the mental barriers to effective decision-making in bear markets are as many and varied as those that plague rationality during bull markets but that they more pronounced as fear and shock limits logical analysis.

In this 25 Nov 2008 article called The road to revulsion and the creation of value, James Montier argues that the road to revulsion – sharply declining prices – ends in an investment nirvana with unambiguously cheap assets.

In this 25 November 2008 Bloomberg article Montier Has ‘Never Been More Bullish’ on Stocks James Montier makes the cast that stocks are “distinctly cheap” because they trade at 15.4 times the 10-year moving average of its companies’ profits, compared with an average of 18 for the U.S. market since 1881.James wrote that fifteen stocks in the U.S. index, pass his test for “deep value,” while a tenth of shares in Europe and a fifth in Asia qualify.

In this 27 October 2008 article – An admission of ignorance: a humble approach to investing James Montier details his investment strategy.

It makes no sense to forecast, the importance of a margin of safety, avoid trying to time the market and buy cheap insurance. But most importantly, humility should be the central theme of a good investment process.

In this October 22nd, 2008 Financial Times blog post by Paul Murphy summarises an article Analysts are rubbish by James Montier about the bullish bias built in to the investment industry by the analysts and that analysts are exceptionally good at one thing and one thing only – telling you what has just happened.

In this 9 September 2008 article – The dangers of DCF James Montier writes about the dangers Of Discount cash flow (DCF) saying its implementation is riddled with problems but the good news is that several alternatives exist.

In this 23 June 2008 article – You are still wasting your time, or, are analysts just overpaid secretaries? James Montier writes about the whether company visits are useful for fund managers. The answer in general is no but they can be improved by learning to look for evidence that disagrees with us, and seek to disprove our ideas, rather than illustrate them with supportive evidence.

In this article The Road To Revulsion 16 June 2008 James Montier writes about bubbles, that bubbles are a by-product of human behaviour, and that human behaviour is sadly all too predictable.

The details of each bubble are different but the general patterns remain very similar. He also touches on the propensity for commentators to continually proclaim the end of the problem and a resumption of business as usual.

In the 30 May 2008 article Inflation Not The Problem Albert Edwards and James Montier explain why they are sceptical of all the market commentators saying that the worse market decline of the recession was over. How right they were, but it’s the way they arrived at their conclusion that makes the article worthwhile reading.

If you have any interest at all in short selling this is an article for you. On 26 May 2008, with the markets particularly overvalued James Montier turned his thinking to short selling writing Joining The Dark Side: Pirates, Spies and Short Sellers.

In the article he explains a simple short screen with surprising results shown through back testing in the USA and Europe.

In the article with the catchy title Asleep at the wheel, or, How I learned to stop worrying and love the bomb published on 7 April 2008 James Montier points out that company management and analysts are unwilling to revise their profit estimates in spite of the looming recession as everyone thinks their business is recession resistant. He points out that this is why they are all overoptimistic and how you can avoid falling into the same trap.

In this 13 March 2008 research article called Remember, Cassandra was right! James Montier makes a strong argument that the mess in the US economy and housing market was not caused by a black swan event (unpredictable) but rather was sadly predictable.

It follows the standard pattern of a bubble deflating, some thing that we have seen a thousand times before.

On 12 January 2008 James made the last post on his blog called Behavioural Investing – The application of psychology to finance and the home of an investing sceptic.

The articles he wrote is luckily all still there and it’s a real treasure trove of information.

In this 15 January 2008 article The Dash To Trash And The Grab For Growth James Montier wrote just shortly after the absolute peak in the 2008 bull market he suggests that if you cannot move to cash because of career risk then invest in large dividend paying companies as what is going to happen to growth stocks at already high valuations is not going to be pretty. How right he was.

2007

In this blog post called The Sources of Value, written in October 2007 James Montier analyses which of the component sources of return leads to value, over reasonable periods of time, to outperform growth?

On 3 October 2007 James Montier posted a blog article titled Sector rotation: an investment dead end? He argues that investors focusing on sectors rather than stocks are barking up the wrong tree.

James Montier’s book Behavioural investing: a practitioner’s guide to applying behavioural finance was published in September 2007. At the link above you can read parts of the book at Google Books.

In this 24 September 2007 blog post called The myth of exogenous risk and the recent quant problems James Montier argues that many aspect of investment risk are endogenous (like a gambler playing poker, where the actions of the other plays are integral to the game) to the way in which we invest.

The problems experienced by the quant funds in August may help highlight some of these issues.

In this 10 September 2007 blog post Yet more evidence on the folly of forecasting, or why we don’t need economists! James Montier presents even more evidence that humans cannot forecast and why you should avoid listening to anyone who says he can as well as avoid it yourself.

On 21 August 2007 James Montier posted a blog article titled Earnings manipulation as a source of short ideas. He identifies shorting candidates through a measurement called the M score. Past results are impressive in identifying under-performing companies.

On 15 March 2007 James Montier posted a Macro Research article titled Global Equity Strategy . Investing 101: A reading list. Here he comes up with a collection of his best books in different categories (classics, modern, psychological and hidden gems) that is arguably the best reading list for any aspiring investor.

In the 30 January 2007 article by James Montier CAPM is CRAP James says that the capital asset pricing model (CAPM) is insidious. It creeps into almost every discussion on finance. And them he goes on to systematically take the model apart with real life examples and evidence.

In his 10 January 2007 research paper Contrarian or conformist? James Montier, in his usual style puts himself against the common view saying that the then biggest consensus portfolio bets to him seemed to be small cap and low quality however large cap, high quality looks like the better bet to him. To emphasise he quotes Sir John Templeton once observed, “It is impossible to produce a superior performance unless you do something different from the majority”.

2006

In this 30 November 2006 article with the enticing title Improving returns using inside information James Montier explains the results of a unknown but interesting research paper on share buybacks and how they, when implemented, are a powerful indicator for positive returns.

In this July 2006 research note titled Come out of the closet, or, show me the alpha James features a study that suggests

closet indexing accounts for nearly one third of the US mutual fund industry. Stock pickers account for less than 30% of the market, yet they have real investment skill. A fascinating read.

The article Prophet Among Pinstripes in the April 2006 issue of Fastcompany magazine features James Montier where he gives his five laws about investing bias, evolution, and true happiness.

In March 2006 shortly after the release of Joel Greenblatt’s book The Little Book That Beats the Market James tested the strategy worldwide and in this article called The little note that beats the markets found that on average the Little Book strategy

beats the markets by around 7% p.a. between 1993-2005, and with lower risk than the market! Value plus quality seems to make sense.

In the article Behaving Badly published in February 2006 James Montier features a short test you can take after which you will also become a strong believer in behavioural finance. Give it a try!

2005

In November 2005 James Montier wrote the article Seven Sins of Fund Management – A behavioural critique where he explores some of the more obvious behavioural weaknesses inherent in the ‘average’ investment process.

For example he writes that the first sin was placing forecasting at the very heart of the investment process. An enormous amount of evidence suggests that investors are generally hopeless at forecasting. So using forecasts as an integral part of the investment process is like tying one hand behind your back before you start.

In this 31 March 2005 article called Bargain Hunter James Montier confesses that he is an unabashed value investor. He adds that if the reader does not share this viewpoint, or isn’t open to be persuaded of the merits of such an approach, he should stop reading now for what follows will only distress his.

James teams up with Rui Antunes his “usual accomplice and compatriot in adventures involving large amounts of data” and embarked upon an investigation of value strategies.

In the article Abu Ghraib: Lessons from behavioural finance and for corporate governance, wrote at the end of January 2005 James Montier says even though it is tempting to believe bad behaviour is the result of a few rotten individuals. However, the overwhelming psychological evidence suggests that if you put good people into bad situations they usually turn bad.

2004

In the June 2004 paper If it makes you happy James Montier leaves investment advice aside and explores one of Adam Smith’s obsessions: what it means to be happy.

He also discusses why that’s important to investors, and how we can seek to improve our own levels of happiness. The article further lists

James’s top ten suggestions for improving happiness.

In the article Who’s a Pretty Boy Then? Or Beauty Contests, Rationality and Greater Fools James Montier in February 2004 played a classic Keynes’ beauty contest with over 1000 professional investors.

He found that on average professional investors are using between one and two steps of strategic thinking in forming their expectations. He also found that many investors suffer the curse of knowledge and end up either picking zero or severely underestimating the irrationality of other players.

These results speak directly to the ability of investors to exit the market before the mass exodus. He found, unsurprisingly, that only a very small minority shows the required level of strategic thinking to beat the gun.

In this 76 page presentation Insights into irrational minds and market Applied Behavioural Finance: Insights into irrational minds and market James Montier gave in 2004 he in great detail described the behavioural biases investors are prone to. Its a great summary of a lot of his previous work in a presentation format, summarised in bullet points and graphs.

2003

This November 2003 issue of welling@weeden James Montier offers a reality and earnings checks.

In this January 2003 research paper Running with the Devil: The Advent of A Cynical Bubble James Montier explores the nature and underlying psychology of four different kinds of bubbles. To assess which comes closest to describing the current market.

To us, the current market environment is largely a greater fool market. Because such markets lack fundamental support, they are liable to precipitous declines.

2002

In Darwin’s Mind: The Evolutionary Foundations of Heuristics and Biases James Montier in December 2002 writes that a catalogue of biases that cognitive psychologists have built up over the last three decades seem to have stem from one of three roots – self-deception, heuristic simplification (including affect), and social interaction.

In this paper James explores the evolutionary basis of each of these roots. The simple truth is that we aren’t adapted to face the world as it is today. We evolved in a very different environment, and it is that ancestral evolutionary environment that governs the way in which we think and feel.

In 22 November 2002 James Montier wrote in Part man, part monkey that leaving the trees could have been our first mistake. Our minds are suited for solving problems related to our survival, rather than being optimised for investment decisions. We all make mistakes when we make decisions. The list below gives a top ten list for avoiding the most common investment mental pitfalls.

You know less than you think you do

Be less certain in your views, aim for timid forecasts and bold choices

Don’t get hung up on one technique, tool, approach or view flexibility and pragmatism are the order of the day

Listen to those who don’t agree with you

You didn’t know it all along, you just think you did

Forget relative valuation, forget market price, work out what the stock is worth (use reverse DCFs)

Don’t take information at face value, think carefully about how it was presented to you

Don’t confuse good firms with good investments, or good earnings growth with good returns

Vivid, easy to recall events are less likely than you think they are, subtle causes are underestimated

Sell your losers and ride your winners

Last August there was much criticism over the fact that President Obama agreed to give Brazilian Owned Oil Company Petrobras up to $10 Billion Dollars to look for Oil off the Brazil Coast. At the time it was especially disturbing because the Administration objected to the US Drilling off its own coast, which would have worked toward keeping the price of oil low and help wean us off foreign oil.

Today it is even more disconcerting, Obama's drilling moratorium may have been blocked by a judge today, but Secretary of Interior Salazar intends to announce a new one tomorrow. And the longer this "moratorium" lasts, the more likely we are to see the Oil Rigs in the gulf move down to Brazil where they are planning to drill for oil in seas twice as deep as the Deepwater Horizon site.

Why would the POTUS pay for a foreign country to drill for oil but object to his own country taking advantage of his own country's resources? And worse why would he fund the oil drilling of another country for it to "steal away" drilling resources from the Gulf sites? Payback.

Last August Ed Morrissey at Hot Air discovered that "coincidentally" just a few days before the announcement of the US Oil Exploration Aid, George Soros the presidential puppet-master, set himself up to make a lot more money from Brazilian Oil Exploration:

His New York-based hedge-fund firm, Soros Fund Management LLC, sold 22 million U.S.-listed common shares of Petrobras, as the Brazilian oil company is known, according to a filing today with the U.S. Securities and Exchange Commission. Soros bought 5.8 million of the company’s U.S.-traded preferred shares.

Soros is taking advantage of the spread between the two types of U.S.-listed Petrobras shares, said Luis Maizel, president of LM Capital Group LLC, which manages about $4 billion. The common shares were 21 percent more expensive than preferred today, according to data compiled by Bloomberg. …

Petrobras preferred shares have also a 10 percent additional dividend, said William Landers, a senior portfolio manager for Latin America at Blackrock Inc.

“Given that there will most likely never be a change in control in the company, I see no reason to pay a higher price for the common shares.” Brazil’s government controls Petrobras and has a majority stake of voting shares.

NICE! Making money on the spread, and putting himself in a position to make more money from higher dividends just before all the big bucks "donation" from President Obama. Soros must be master of the deal or Obama is the master of the quid quo pro.

According to Front Page Magazine, this Petrobras deal was put in place by the President as a nice way to say thank you to Mr Soros.

Now it’s time for Soros to collect on his investment. The Wall Street Journal recently reported that the Obama administration has committed up to $10 billion to Brazil’s state-owned oil company Petrobras to finance oil exploration off of Brazil’s coast.

Yet Obama historically has opposed expanded oil drilling. This was not only a strategic decision, aimed at pleasing the environmental Left, but also a personal choice, since Obama sincerely believes that drilling is deeply destructive to the natural environment. Thus, as a Senator, Obama voted against permitting the U.S. to drill for oil and natural gas in the Arctic National Wildlife Refuge on the grounds that it would be a crime to despoil such “beautiful real estate.” Similarly, during last year’s presidential campaign, he warned of the “environmental consequences” of oil drilling, and insisted that “we cannot drill our way out of the problem.”

But apparently George Soros can. The president has elected to help another nation with the same type of drilling that he opposes so vehemently for this country, and the reason seems to be Soros’s $811-millon investment in Petrobras. The company just happens to be the largest holding in Soros’s investment fund. Soros’s connection to the company is no secret; he has been investing in Petrobras since 2007. A profitable venture, Petrobras has estimated recoverable reserves for the so-called Tupi oil field of between 5 and 8 billion barrels. With his billion-dollar loan, Obama has taken patronage politics to striking new level.

The Petrobras loan may be a windfall for Soros and Brazil, but it is a bad deal for the US. The administration is prepared to lend up to $10 billion to a foreign company to drill off its coast, when it could bring in $1.7 trillion in government revenue, as well as create thousands of new jobs, by allowing drilling off the coast of the United States.

....The oil deal stinks for other reasons, as well. For instance, there is the rank hypocrisy of Soros – an enthusiastic proponent of global warming theory and environmental liberalism – investing in the fossil fuels whose use he otherwise condemns – and doing so in part with the aid of taxpayer funds. For years, Soros has urged the adoption of a global carbon tax that would punish companies that contribute to global warming. But that didn’t prevent him from plowing money into Petrobras.

The cozy Soros-Obama alliance goes beyond favorable oil deals. It’s also playing a role in the health care debate. Huge demonstrations dedicated to enacting Obama’s universal health care are largely a Soros-financed operation. When tens of thousands of people rallied in the nation’s capital in support of Obama’s health care plan, the demonstrations were organized by Health Care for America Now! (HCAN), a new national grassroots movement of more than 1,000 organizations in 46 states encompassing 30 million people dedicated to winning health reform now.

The “grassroots” organization appears to be more like a gang of interconnected ultra-liberal pressure groups. Among the 21 members of its steering committee are such Soros-funded groups as ACORN, MoveOn.org, and the Center for American Progress (CAP), headed by Clinton former chief of staff John Podesta, who also has been a key adviser to Obama. Soros’s charity, the Open Society Institute, in 2007 gave CAP $1.75 million and approved added grants of $1.25 million.

Obama’s collusion with Soros and his agenda-driven squadrons is an unfortunate turn from an administration that entered office promising unprecedented transparency in the White House. Soros certainly did his share for Obama. Now, with his backing for a billion-dollar oil loan to a Brazilian company, the president has proven more generous to Soros than to the American voters who put him in office.

There is that Old Saying, Payback's a bitch. Obama's ten billion dollar gift to Petrobras along with the drilling moratorium designed to give the Brazil-based company partially owned by his good friend George Soros, proves that sometimes payback is not a bitch, its a wallet fatten-er.

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Rachel Maddow's Mega-Takedown Of Fox News' 'Scare White People ...

Watch Rachel Maddow document the history of the "scare white people" tactic among politicians, and more recently, Fox News.

Tina Dupuy: Of Junk Food and Junk News

Watch your average for-profit 24-hour station for one hour. It's all high-fructose hyperbole all the time.

Keith Olbermann Blasts Fox News Over Shirley Sherrod, Begs Obama ...

Keith Olbermann suspended his vacation Wednesday night to return to "Countdown" with a Special Comment on the Shirley Sherrod scandal. Olbermann blasted Fox News and right-wing media while at the same time calling upon President Obama ...

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Rachel Maddow's Mega-Takedown Of Fox News' 'Scare White People ...

Watch Rachel Maddow document the history of the "scare white people" tactic among politicians, and more recently, Fox News.

Tina Dupuy: Of Junk Food and Junk News

Watch your average for-profit 24-hour station for one hour. It's all high-fructose hyperbole all the time.

Keith Olbermann Blasts Fox News Over Shirley Sherrod, Begs Obama ...

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Monday, July 19, 2010

personal finance manager

Seven secrets of coupon pros [Consumer Reports] "Nancy Niemeyer, an IT project manager from Seattle, says she feeds her family of four for about $10 a week."

5 cheap places to retire in the US [MSN Money] "An expert offers his top picks, taking costs, culture and access to medical care into consideration."

How 5 money blunders ding your credit [Smart Spending] "FICO calls them 'damage points,' and, boy, can they pull down your credit score."

10 Things Funeral Directors Won't Tell You [Smart Money] "The best defense? Shop around, or have someone who is up to it do it for you."

7 Lessons the World Cup Offers on the Stock Market [Wall Street Journal] "Here are seven lessons that 'the beautiful game' can teach you about the money game."

— FREE MONEY FINANCE

I met James Montier at a value investment seminar in Italy in 2007 where he presented. We had long discussions later the day and into the evening on value investing and investment strategy.

James was kind enough to put me on his distribution list and I really looked forward to each of his articles as they always taught me something.

Unfortunately James decreased his writings since taking a position with the asset manager GMO in 2010.

I decided to put this resource page together so Eurosharelab visitors can also benefit from James’s investment wisdom.

James Montier’s Amazon Page shows all the books he has authored as well as the following short biography:

James Montier is a member of GMO’s asset allocation team.

Prior to that, he was the co-Head of Global Strategy at Société Générale and has been the top-rated strategist in the annual Thomson Extel survey for most of the last decade.

Montier is the author of four market-leading books:

• The Little Book of Behavioral Investing: How not to be your own worst enemy (Little Book, Big Profits)

• Behavioral Finance: Insights into Irrational Minds and Markets

• Behavioral Investing: A Practitioners Guide to Applying Behavioral Finance

• Value Investing: Tools and Techniques for Intelligent Investment

He is a Visiting Fellow at the University of Durham and a Fellow of the Royal Society of Arts.

2010

But that changed with the rise of modern portfolio theory and, not coincidentally, the rise of “professional investment managers” and consultants.

In March 2010 Miguel Barbosa in his Simolean Sense blog interviewed James Montier about his book Value Investing: Tools & Techniques For Intelligent Investing.

In the second part of the interview Miguel talks to James about his other book The Little Book of Behavioral Investing – How Not To Be Your Own Worst Enemy.

In this February 2010 article, the first since joining GMO, James Montier asks Was It All Just A Bad Dream? Or, Ten Lessons Not Learnt from the financial crisis.

2009

Here is the video recording of the above mentioned speech by James Montier: Six Impossible Things Before Breakfast. The video is 42 minutes long, but well worth watching.

In June 2009 James Montier’s published this list of his Favorite Investment Books as well as a Summer reading list of more recent titles.

2008

In this 27 October 2008 article – An admission of ignorance: a humble approach to investing James Montier details his investment strategy.

In this article The Road To Revulsion 16 June 2008 James Montier writes about bubbles, that bubbles are a by-product of human behaviour, and that human behaviour is sadly all too predictable.

In the article he explains a simple short screen with surprising results shown through back testing in the USA and Europe.

It follows the standard pattern of a bubble deflating, some thing that we have seen a thousand times before.

On 12 January 2008 James made the last post on his blog called Behavioural Investing – The application of psychology to finance and the home of an investing sceptic.

The articles he wrote is luckily all still there and it’s a real treasure trove of information.

2007

The problems experienced by the quant funds in August may help highlight some of these issues.

2006

The article Prophet Among Pinstripes in the April 2006 issue of Fastcompany magazine features James Montier where he gives his five laws about investing bias, evolution, and true happiness.

In the article Behaving Badly published in February 2006 James Montier features a short test you can take after which you will also become a strong believer in behavioural finance. Give it a try!

2005

James teams up with Rui Antunes his “usual accomplice and compatriot in adventures involving large amounts of data” and embarked upon an investigation of value strategies.

2004

In the June 2004 paper If it makes you happy James Montier leaves investment advice aside and explores one of Adam Smith’s obsessions: what it means to be happy.

He also discusses why that’s important to investors, and how we can seek to improve our own levels of happiness. The article further lists

James’s top ten suggestions for improving happiness.

2003

This November 2003 issue of welling@weeden James Montier offers a reality and earnings checks.

To us, the current market environment is largely a greater fool market. Because such markets lack fundamental support, they are liable to precipitous declines.

2002

You know less than you think you do

Be less certain in your views, aim for timid forecasts and bold choices

Don’t get hung up on one technique, tool, approach or view flexibility and pragmatism are the order of the day

Listen to those who don’t agree with you

You didn’t know it all along, you just think you did

Forget relative valuation, forget market price, work out what the stock is worth (use reverse DCFs)

Don’t take information at face value, think carefully about how it was presented to you

Don’t confuse good firms with good investments, or good earnings growth with good returns

Vivid, easy to recall events are less likely than you think they are, subtle causes are underestimated

Sell your losers and ride your winners

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The pre-Halloween opening of "Hillary Uncensored" may be the scariest thing that the former First Lady and New York Senator has had to face: allegations with some name recognition behind them.

The documentary about the lawsuit filed in California courts by media mogul Peter Paul. It challenges the fund raising practices Clinton used in her 2000 Senate campaign.

The 12-minute long trailer for the documentary has been the number one video on many websites including the top news/political video category at YouTube. Preview screenings of the entire documentary began at Harvard University on Friday.

The accusations in the documentary center on a California fundraiser held while Bill Clinton was still in the White House. The fundraiser was coordinated by Paul and then business partner comic book genius Stan Lee. The accusation comes down to what did Mrs. Clinton know and whether they prove it.

Paul claims Clinton actively participated in the development and planning of the fundraiser, including making arrangement for Cher to be a part of the program. His claims appear to be substantiated by a video purporting to be of a telephone call between Clinton, Paul and Lee. Paul claims the video was shot in his office just prior to the fundraiser when Clinton called to thank him and Lee for their work on the program.

The trailer for the film includes the video in which Mrs. Clinton is clearly heard speaking to Paul and Lee.

Paul begins the trailer by explaining why he conducted the fundraiser and is subsequently suing Clinton, her senate campaign finance committee and others. He makes no bones about his bias. Paul claims that at the time of the fundraiser, he was courting President Clinton in an attempt to get him to join Stan Lee Media after he left the White House.

Shortly thereafter, the accusations begin. Paul claims that a member of the Clinton entourage, Jim Levin, courted a man who had been set to invest in Stan Lee Media and convinced him to invest in Levin's company instead. And, Bill Clinton decided to throw his hat in with Levin instead of Paul and Lee as well.

And, in the midst of it all, newspaper reports came out indicating the Paul had a 20-year-old criminal record.

That, he said, is when things got really ugly. Paul says Mrs. Clinton denied any affiliation with him and publicly stated her campaign had never and would never accept money from Paul. He claims that is simply not true. Paul produces documents he says he received from the Clinton campaign asking for a $100,000 donation and claims he has cancelled checks showing his contributions to Mrs. Clinton's senate campaign.

He brought to the attention of the Federal Elections Commission discrepancies in the funds reportedly received by the Clinton campaign from his fundraiser and his receipts. A campaign finance manager for Mrs. Clinton was prosecuted for the "misreporting", but throughout the court proceedings Mrs. Clinton was said to have known nothing about the errors.

Paul claims that too is just not true.

The documentary argues that the federal court judge overseeing the trial was appointed by President Clinton and went overboard in keeping Mrs. Clinton's name out of the trial. He also claims that the Clintons may have had a hand in his imprisonment in a Brazilian jail during portions of the conflict.

After he returned from, Brazil, Paul reinitiated a lawsuit against the Clintons, Levin and Mrs. Clinton's campaign fund seeking to recoup his investment. The entire purpose of the fundraiser was to court Bill Clinton, he said. He acted on the belief that he would be rewarded later.

When Mrs. Clinton told papers that she had never taken money from him, she lied and violated election laws, Paul claims. He further argues that she knew why he was making the contributions and breached the agreement he had made. He alleges that Levin stole his potential business partner and caused the collapse of Stan lee Media.

The case against Mrs. Clinton was dismissed in 2006, but an appeal to reverse that ruling is pending before a California appeals court. Mrs. Clinton's campaign finance manager was acquitted and her campaign committee has agreed to pay $35,000 in fines for misreporting donations related to the gala and was instructed to file corrected documents.

Paul does not deny that he seeking revenge against the Clintons or that he had only invested in the gala in hopes of personal financial gain. He is claiming that they outfoxed him, took his money and his future investor, and left him holding the bag.

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Muhammad Cartoon Activist Molly Norris Lands on al-Qaida Hit List

(July 12) -- Molly Norris, the American cartoonist who started Everybody Draw Mohammad Day, has been placed on the hit list of radical Muslim cleric Anwar al-Awlaki.

Apple iPhone 4 News: Apple Sets Up Cots For Engineers Solving Flaw

At Apple Inc., "working our butts off" means cots in the engineering department and cars in the parking lot at all hours of the night. Seeking a solution to the antenna flaw that is dropping calls for some iPhone 4 users, ...

The Taiwanese News Animates the iPhone 4 Antenna Saga (With Very ...

The same Taiwanese outlet that does those Sims-style animations to better illustrate the news has done it again for Steve Jobs and the iPhone 4 antenna saga. No spoilers, but there's a very special guest this time. [Thanks Michael!]

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Monday, June 21, 2010

bank foreclosure

You know when I was growing up, foreclosure was a scandal. And in the early days of the burst housing bubble, most people still thought that it was. The people losing their homes were treated by courts, press, and society at large like deadbeats and ne’er-do-wells.

Then we began to learn the truth about predatory lending practices that steered homeowners away from conventional mortgages and into subprime mortgages. We began to learn that mortgage originators wrote loans with no assessment of whether or not the homeowner could actually make the monthly payment, because the originators were making their money on the fees, not on the loan repayment.

We learned that Too Big To Fail banks got paid 100 cents on the dollar in federal bailout money for the toxic assets supposedly backed by these mortgages. Doesn’t that mean the mortgage debt has been paid in full by the feds? Doesn’t the federal government own those mortgages now? Still, the banks and their servicers continue to file foreclosure actions on houses for which the debt has already been paid by the government.

Is it any wonder that people who thought they were entering into a legitimate business transaction and faithfully paid their mortgage for as long as they could found out that their lenders were not dealing with them in good faith on mortgage modifications? And this is despite the fact the government mandated and paid the lenders to do such modifications under HAMP and HARP. Is it any wonder they feel that the social contract between them and the bank has been broken?

So, it’s not surprising that homeowners no longer feel a stigma attached to foreclosure. It’s no wonder they now feel free to just turn in the keys and walk away. The social contract that is a part of every contract—a meeting of the minds and a basic level of fair dealing—has been broken by the banking industry. And that trust, once broken, can have a devastating long term effect on those banks. HuffPo even recommended that depositors move their money out of TBTF banks and into local community banks.

I think that Bank of America has sniffed the wind and realized that they have to start dealing in good faith on mortgage modifications pretty damn soon.

From a report emailed to me over the weekend:

At the core of the foreclosure-prevention strategy is ignoring delinquencies. The percentage of older delinquent loans not yet in foreclosure is startling: 60% have at least 12 missed payments, and 35% have at least 18 missed payments. Add to this that three-fourths of delinquent loans are not in foreclosure, and we see that hidden losses well exceed those in the open.

Uh, they're not being "ignored" - this is systemic and intentional fraud.

Remember, these loans are either being held by someone or securitized into some sort of package. When you have a loan that has no chance of "curing" (to cure a loan with 12 missed payments the borrower would have to come up with the 12 payments to bring it current!) that loan should be carried at its recovery value - that is, the value of the collateral that can be seized and sold, LESS the cost of eviction, remediation and resale.

Does anyone recall all the entries I've written about getting competent legal and accounting (tax) advice before proceeding with any sort of action regarding walking away, short sales or foreclosure? This same report says:

Many homeowners would be better off going into foreclosure, than doing a short sale. Short sales are fraught with potential legal, credit, and complicated tax issues. For example, someone who refinanced could owe capital gains taxes, which are not forgiven under federal and California temporary debt relief acts. In the foreclosure route, borrowers can live in their house mortgage-free for at least one year, maybe two years. Both short sales and foreclosures are reported as “account not paid in full”, and are equally damaging to a credit score. An exception exists if short sellers can negotiate better terms with their lender on recourse liens. The other possible advantage to a short sale is the ability to get a mortgage again in 2 years (Fannie, Freddie), rather than having to wait 3-5 years after a foreclosure.

Homeowners pursue short sales, unaware of the problems they are creating for themselves. Their agents never warned them of deficiencies, ruined credit, taxes due on forgiven debt, or legal consequences. Agents made flowery promises to get listings, and now the lawsuits are starting.

No, really? You mean that people in the real estate business are less than truthful with their clients? That would never, ever happen with licensed professionals, right?

Then there's this, which I also have written about:

Another gray area is junior lien holders asking buyers for additional payments. As the market improved, juniors were no longer content with $3k thrown to them from the senior. They now want 10% of the junior note. They argue the additional payment is legal practice because the payment is made to escrow and appears on the HUD-1. However, they are actually hoping the senior lien holder does not read the HUD-1. The California Association of REALTORS® position is that all payments made by the buyer or agent in the purchase of a short sale must be part of the written short sale agreement signed by the senior lien holder. Concealing payments from seniors is loan fraud, and omitting these payments from the HUD-1 closing statement may violate RESPA. Some seniors reinstate their security interests because of the fraud. It’s surprising that the biggest banks are responding, when pressed on the fraud of their request, “just do it if you want the deal done”.

Right. Big banks saying "just do it"? Why would they do that? Is it so they can re-instate their security interests? No, nobody would ever do anything that hoses the consumer, would they? Naw.....

Few people understand that the bank that gave them their mortgage turned around and sold it into a mortgage bond, and the “bank” on their mortgage statement is actually a servicer.

Actually, it's a bit more complicated than that.

As I've been working on (and writing on) for a long time, and as a few attorneys are now starting to understand, the entirety of this process was corrupted and is rife with outright fraud from top to bottom.

Let's go through a (partial) list of the problems:

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You know when I was growing up, foreclosure was a scandal. And in the early days of the burst housing bubble, most people still thought that it was. The people losing their homes were treated by courts, press, and society at large like deadbeats and ne’er-do-wells.

Then we began to learn the truth about predatory lending practices that steered homeowners away from conventional mortgages and into subprime mortgages. We began to learn that mortgage originators wrote loans with no assessment of whether or not the homeowner could actually make the monthly payment, because the originators were making their money on the fees, not on the loan repayment.

We learned that Too Big To Fail banks got paid 100 cents on the dollar in federal bailout money for the toxic assets supposedly backed by these mortgages. Doesn’t that mean the mortgage debt has been paid in full by the feds? Doesn’t the federal government own those mortgages now? Still, the banks and their servicers continue to file foreclosure actions on houses for which the debt has already been paid by the government.

Is it any wonder that people who thought they were entering into a legitimate business transaction and faithfully paid their mortgage for as long as they could found out that their lenders were not dealing with them in good faith on mortgage modifications? And this is despite the fact the government mandated and paid the lenders to do such modifications under HAMP and HARP. Is it any wonder they feel that the social contract between them and the bank has been broken?

So, it’s not surprising that homeowners no longer feel a stigma attached to foreclosure. It’s no wonder they now feel free to just turn in the keys and walk away. The social contract that is a part of every contract—a meeting of the minds and a basic level of fair dealing—has been broken by the banking industry. And that trust, once broken, can have a devastating long term effect on those banks. HuffPo even recommended that depositors move their money out of TBTF banks and into local community banks.

I think that Bank of America has sniffed the wind and realized that they have to start dealing in good faith on mortgage modifications pretty damn soon.

From a report emailed to me over the weekend:

At the core of the foreclosure-prevention strategy is ignoring delinquencies. The percentage of older delinquent loans not yet in foreclosure is startling: 60% have at least 12 missed payments, and 35% have at least 18 missed payments. Add to this that three-fourths of delinquent loans are not in foreclosure, and we see that hidden losses well exceed those in the open.

Uh, they're not being "ignored" - this is systemic and intentional fraud.

Remember, these loans are either being held by someone or securitized into some sort of package. When you have a loan that has no chance of "curing" (to cure a loan with 12 missed payments the borrower would have to come up with the 12 payments to bring it current!) that loan should be carried at its recovery value - that is, the value of the collateral that can be seized and sold, LESS the cost of eviction, remediation and resale.

Does anyone recall all the entries I've written about getting competent legal and accounting (tax) advice before proceeding with any sort of action regarding walking away, short sales or foreclosure? This same report says:

Many homeowners would be better off going into foreclosure, than doing a short sale. Short sales are fraught with potential legal, credit, and complicated tax issues. For example, someone who refinanced could owe capital gains taxes, which are not forgiven under federal and California temporary debt relief acts. In the foreclosure route, borrowers can live in their house mortgage-free for at least one year, maybe two years. Both short sales and foreclosures are reported as “account not paid in full”, and are equally damaging to a credit score. An exception exists if short sellers can negotiate better terms with their lender on recourse liens. The other possible advantage to a short sale is the ability to get a mortgage again in 2 years (Fannie, Freddie), rather than having to wait 3-5 years after a foreclosure.

Homeowners pursue short sales, unaware of the problems they are creating for themselves. Their agents never warned them of deficiencies, ruined credit, taxes due on forgiven debt, or legal consequences. Agents made flowery promises to get listings, and now the lawsuits are starting.

No, really? You mean that people in the real estate business are less than truthful with their clients? That would never, ever happen with licensed professionals, right?

Then there's this, which I also have written about:

Another gray area is junior lien holders asking buyers for additional payments. As the market improved, juniors were no longer content with $3k thrown to them from the senior. They now want 10% of the junior note. They argue the additional payment is legal practice because the payment is made to escrow and appears on the HUD-1. However, they are actually hoping the senior lien holder does not read the HUD-1. The California Association of REALTORS® position is that all payments made by the buyer or agent in the purchase of a short sale must be part of the written short sale agreement signed by the senior lien holder. Concealing payments from seniors is loan fraud, and omitting these payments from the HUD-1 closing statement may violate RESPA. Some seniors reinstate their security interests because of the fraud. It’s surprising that the biggest banks are responding, when pressed on the fraud of their request, “just do it if you want the deal done”.

Right. Big banks saying "just do it"? Why would they do that? Is it so they can re-instate their security interests? No, nobody would ever do anything that hoses the consumer, would they? Naw.....

Few people understand that the bank that gave them their mortgage turned around and sold it into a mortgage bond, and the “bank” on their mortgage statement is actually a servicer.

Actually, it's a bit more complicated than that.

As I've been working on (and writing on) for a long time, and as a few attorneys are now starting to understand, the entirety of this process was corrupted and is rife with outright fraud from top to bottom.

Let's go through a (partial) list of the problems:

Friday, August 6, 2010

deals, Software, VC

Jive Software Nabs $30M in Round From Kleiner Perkins, Sequoia Capital

Thea Chard 7/21/10

deals, Software, VC

Jive Software Nabs $30M in Round From Kleiner Perkins, Sequoia Capital

Thea Chard 7/21/10

Thursday, August 5, 2010

Tuesday, July 27, 2010

Thursday, July 22, 2010

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Monday, July 19, 2010

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Monday, June 21, 2010

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