Category Archives: Scams

The Strange Case of Apple Stock and Structured Products

Jason Zweig at the Wall Street Journal published a disturbing article that deserves more attention.  The basic story is this.  A number of banks sold a complex financial product to retail investors who have subsequently lost quite a bit of money.  Here is the basic pitch that was apparently made to individual investors in 2012.  You are going to buy an investment product that is currently invested in bonds and is producing 8% in income per year.  The performance of this product is tied to the stock price of Apple, however.  In exchange for the high income, you take on the risk of a decline in Apple’s stock price.  These products were sold when Apple stock was soaring, so a fair number of people apparently saw this as a favorable bet.  With the stock down more than 30% from its peak, many of these investors have lost a considerable amount of money.  Read Zweig’s piece for more details.  These products have a number of variations and he discusses one specific structure.  Here is another.  The title of Zweig’s article, How Apple Bit Bondholders, Too, gives the impression that bonds were responsible for these losses.  This is not the case, but the title serves to illustrate the subtlety of the problem.  Continue reading

Asset Allocation: An Alternative View

In a recent article, I analyzed a model portfolio designed by Money magazine, in conjunction with analysts at Morningstar.  The focus of my piece was whether I could reconcile the projections of risk and return for this portfolio with my own calculations.  I was pleasantly surprised that the results seemed very consistent.

As a follow-up to that piece, I wanted to see whether I could improve this portfolio in terms of the projected performance. Continue reading

Hedge Funds: The Emperor’s New Clothes?

Brett Arends recently wrote a piece for MarketWatch in which he expressed the opinion that hedge funds are a sucker’s bet.  He bases his argument on a fascinating  study called Higher Risk, Lower Returns: What Hedge Fund Investors Really Earn that was published in 2009.  The authors of the study, professors from Emory University and Harvard, came to the conclusion that hedge fund investors would have (on average) been better off buying an S&P500 Index fund. So, if hedge funds have performed as badly as this academic study suggests, why have assets invested in hedge funds skyrocketed over the past 20 years?  Continue reading

Do Performance Claims Really Add Up?

Jason Zweig, well-known author of “The Intelligent Investor” column at The Wall Street Journal, recently checked out the claims of market-beating performance in marketing materials from a range of market commentators.

For example, Jim Cramer’s newsletter was reported by Zweig as stating that his stock picks generated returns more than twice the performance of the S&P 500 Index from Jan 1, 2002 to April 1, 2011. Over this period, the newsletter described Mr. Cramer’s performance as generating 39.2% vs.15.5% for the S&P 500.

Mr. Zweig noticed, however, that in Mr. Cramer’s performance comparison, the returns cited for his stock picks included dividends, while the returns cited for the S&P 500 Index (over the same period) did not. Continue reading

10 Investor Traps

Affinity schemes, complex leveraged investments and gold bullion scams are among the investor pitfalls highlighted by  The North American Securities Administrators in their annual list of “10 Investor Traps” published today. Continue reading