Tag Archives: Jason Zweig

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

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

Tackling Tactical Asset Allocation

Since the market turbulence of the late 2000′s shot investors’ faith in more traditional investing, there’s been quite a lot of discussion of Tactical Asset Allocation.

This form of investing focuses on allocating certain portions of your portfolio to different asset classes, and then ramping up or pulling back on any one of those classes depending on certain factors. The most common of those factors is valuation: if stocks, for example, start to look very cheap based on historical metrics (like price to earnings ratios) you might load up on those. World events might drive some sector rotation as well. Uncertainty in the oil producing regions of the world might convince an investor that there could be an economic slowdown brewing and push them to put more into cash.

Doubts About Tactical Asset Allocation

In a way, it’s a middle ground between trying to pick individual winning stocks and hands-off investing, which focuses on the long term and minimal trading. The problem is, it’s hard to consistently do well. Continue reading