In this recent Bloomberg opinion piece, we’re offered a look at the possible fallout from all the drama surrounding auction-rate securities.  It’s an interesting article, but here’s the quote that jumped off the page at me (my emphasis):

It is passing strange that this disaster occurred not with stocks or bonds, but with something called auction-rate securities, that were touted – securities professionals hate the word, which connotes a gamble — as safe cash-equivalents.

Or, as Merrill Lynch & Co. put it in December 2007, “We remain convinced that auction market preferreds of closed-end funds are a conservatives’ conservative security with respect to credit risk.’‘

Risk is admittedly a very subjective matter whether regarding dot com stocks, mortgages, or auction-rate securities.  Will Wall St. ever learn from it’s own mistakes?

I’m always amused at the numerous surveys, polls and other forms of guessing the future of the investment markets — especially those cleverly disguised as “research”.

A recent example comes from Charles Schwab & Co. via an article from Marketwatch.com.

The July poll of 1,010 financial advisers by brokerage firm Charles Schwab & Co. Inc. found 58% of investment professionals expect the Standard & Poor’s 500 Index to gain ground this year, up from 46% in the previous survey in January.

The article goes on to further slice and dice the survey results in such a manner that might lead the reader to believe that maybe there is some value in this information.  There is not.  [click to continue...]

What if there were no CNBC or Bloomberg Television or MarketWatch.com?

What if your investments and their prices were only reported to you once a year?  Once every 5 years?  Once every 10 years?

What if all the financial publications’ covers were splashed with “BUY AND HOLD” or “ASSET ALLOCATION IS THE KEY TO INVESTMENT SUCCESS” or “BORING IS BEAUTIFUL WHEN INVESTING“?

What if all participants involved in the delivery of financial advice were held to a fiduciary standard and were required to put their clients’ needs before their own?

What a wonderful world that would be

However, we don’t live in such a world.  Instead, we have to contend with second-by-second updates about our investments which naturally cause us to question if they’re the right investments at this very moment.  This breeds speculation and does not foster a true investment mindset.

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From this recent Bloomberg.com story comes news of a large state pension fund electing to dump their active managers and make the smart move to passive investing.  Here’s the quote:

“We’ve determined that active managers add no value over long periods of time,” Michael Travaglini, director of the Massachusetts Pension Reserve, said in an interview.

I couldn’t agree more with Mr. Travaglini.

And Carl at BehaviorGap.com makes a great point in reference to this story:

If active management isn’t working for a large pension fund, why would it work any better for you with a much smaller margin for error?

Well said, Carl.  Well said . . .

“COPF” stands for Carnival of Personal Finance, and this week it’s hosted by Kevin at No Debt Plan.

Kevin has done a great job of assembling this week’s submissions within a College Football theme.  In fact, yours truly was awarded a Heisman Trophy (editor’s pick) for our recent post comparing the US with 17 other global markets over the last 25 years.

Check out this week’s Carnival when you get a chance.

If you listen closely, you can hear the air continuing to escape from the real estate bubble.

The pain has been particularly acute in California and has led to some creative marketing as seen below (click image to enlarge):

From the LA Times blog:

Here’s a great quote from the story:

“We thought, ‘Why does it just have to be on Pop Tarts and restaurants? Why not buy one home, get one free,’”

I’d be curious to know how many buyers took advantage of this “promo” which ended May 31st.

The following chart is commonly referred to as the “Skittles” chart within the financial services industry.  It’s also often referred to as the “Callan” chart or the “Periodic Table” chart.  (Click on image to enlarge)

This table ranks annual stock market performance in US dollar terms for seventeen different global markets (from highest to lowest) over the last twenty-five years. The colors correspond to the countries featured on the next slide (seen below).

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A big thank you to Squawkfox for hosting this week’s Carnival of Personal Finance and for including my recent post about Mint.com.

Go check out some of the other great posts and information when you have a moment.

Thanks go out to a colleague, who wishes to remain anonymous, for the following:

As stock prices have slumped around the world over the past year, investors have been confronted with a barrage of grim news—falling home prices, rising costs for food and fuel, and worries over the fragile health of the banking system. Some have concluded that the current state of affairs bears little resemblance to the past and are questioning the wisdom of maintaining consistent exposure to equities at all.

We don’t know what the future for this business cycle looks like, but we do know that on many occasions in the past, investors were confronted with “unprecedented” events that tested their willingness to maintain a diversified approach. A few examples:

“On Wall Street, the most unnerving stock market reports since the Depression 1930s became daily more dismal.”

Time, “The Economy: Crisis of Confidence,” June 1, 1970.

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