Individual Small Company Stocks Versus Index Funds

It is often said that mutual funds that invest in smaller companies can do better than index funds which specialize in similar, so-called smaller cap stocks. At times they have  done relatively well, when trying to outperform the indexes of such companies.

But there is a fallacy here. Few managers can truly evaluate smaller companies, even less than they can evaluate larger companies. Smaller companies are more erratic than those larger, and their corporate fortunes are more difficult to anticipate.

Note:Smaller public companies may do better than larger companies for shorter periods but are more susceptible to business hazards and cycles. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

If You Bother to Read a Prospectus

Most investors never bother to read a corporate  prospectus. That’s one of the reasons why I suggest they don’t  buy individual stocks, but that they instead choose low-cost mutual funds that invest in securities indexes.

But in the event that they do decide to invest in an individual security, the least they can do is look at the company’s 10-K report.

One item of importance is the section called Risk Factors. (It comes after the description of the business.) These are often the points that may negatively affect the company's business. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

If The Dollar Is No Longer a Convertible Currency

What would actually happen if the U.S. Dollar would no longer be convertible into other currencies, as it is today?

Foreign counties would simply not accept it as part of commerce, as they do. They would insist on more stable currencies, such as the British Pound, the French or Swiss franc, the Russian ruble, or the Chinese yuan.

Some currencies, such as the Japanese yen, have not been used widely as international convertible currency, so they matter to a lesser extent. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Importance of the Dollar as a Reserve Currency

The potential loss of the dollar as a reserve international currency is possible. The ability to protect U.S. global interests in the future will be diminished in this process.

Therefore, do not treat unlimited government spending lightly. The repercussions can be extremely serious, in matters of our economic and national security.

Think budget control: The debt ceiling question. Spending below that ceiling resolves the problem.

A budget deficit that cannot be overcome without massive taxation is guaranteed to stifle economic growth, to prevent deficit reduction is thus the major difficulty. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

The Media’s Failure to Fully Understand Free Markets

Few general media reporters, columnists and editors have free market views and, certainly, a full background on financial subjects.

In addition to what basics journalists are ever taught, they receive a modicum of economic and financial training in school.

And certainly not of theory from free-market economists such as Friedrich Hayek, Milton Friedman, Thomas Sowell, Walter E. Williams, among others.Thus you get left-leaning slants in many financial articles. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Our Kids” Constitution Ignorance

I often write about our inefficient schools and how they prove to be a waste of so much of our educational funds. They appear to do more for the welfare of the teachers than they do  kids being taught.

As an example I refer to Prof. Walter E. Williams, in one of his enlightening columns. Professor Williams, is now retired as head of the Economics Dept.of George Mason University but still actively writes and comments about his specialty.

According to one survey, Dr. Williams reports that only 28% of students could identify the Constitution as the supreme law of the land. And that fewer than 25% of students knew that George Washington was the first president of the United States. And that only 26% of students knew that the first ten amendments to the Constitution are called the Bill of Rights.

Years ago, kids did better, when they sat, 30 and 40 to a class, and in one-room school houses. And so did the taxpayers funding their education. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Health-Care Malpractice Solutions

We have special courts for bankruptcies where judges handle creditor and debtor claims, tax liens, and workers compensation..

One of the complications that requires change, and proves costly in health care, is malpractice cost. The problems are primarily due to the huge amounts of lawsuits against providers. And fraud that permeates the system.

The result: The high outlays due to defensive medicine and doctor malpractice insurance premiums.

Yet ObamaCare does nothing to stop this menace.

The practical solution: Arbitration courts made up of judges, trained in science and medicine. That would eliminate awards because of “junk science.”

The courts could eliminate attorney’s cuts of the award proceeds and put a cap on outsized sums that ordinarily come from ignorant jurists. While seeing that patients are compensated for actual malpractice. Courts would be financed from doctor insurance premiums. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Central Bank Political Leanings

Central banks are supposed to be completely independent, The European Central Bank or ECB took this position until recent years. Going back to the Greece, Irish, and related European Union bailouts, the central bank no longer is an independent vehicle.

In Great Britain, the Bank of England is a centuries older counterpart. The BOE, too, has always been entrusted with being an independent, non-political, overseer of the British pound. But the BOE now is also in  management activity.

Americans are no better off. The Federal Reserve slowly but surely lost its independence, as I have commented over recent years. These days, it’s become political, arm-in-arm with administration fiscal policy. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Poor College-Bred Jobs

I often revisit college problems and see whether many students actually ought to be attending.

I suggest reading "Going Broke by Degree: Why College Costs Too Much," by Richard Vedder and "Faculty Lounges and Other Reasons and also Why You Won't Get the College Education You Paid For." by Naomi Schafer Riley. They have been around a Couple of years but should be constantly reread.

In the Vedder book, for instance, you learn that two out of five students entering four-year study programs don't achieve a bachelor's degree after the sixth year. And that colleges accept these students because of the money they bring, usually government-guaranteed loans.

Comments are quite instructive; you will learn why it appears so many of our Ivy-League graduates appear to be far dumber than ordinary plain-vanilla grads of the not-so-distant past.

Another example of college being useless: Vedder states there are 80,000 bartenders in the U. S. with bachelor's degrees, and17% of baggage porters and bellhops have college degrees, along with 15% of taxi/ limo drivers. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Government-Style Economic Growth?

There is a major difference between a dollar “invested” by government and a dollar invested by private industry.

Liberal-leaning politicians believe that they’re the same. That it’s better if government makes the decision to spend. Or as the administration says, “invest,” as opposed to private enterprise doing the function.

The government allocation is made by a political decision. That is often subject to pressures which have nothing to do with supply and demand. Rationing and corruption are bound to follow. The other, privately imposed decision is, however, more likely to conform to what the public wants.

Moreover, private industry investment has a multiplier effect, while government spending does not. Government jobs have no leverage impact on the economy. Their purpose often has mere political, social and environmental intentions.

Governments do not innovate and create new companies and multiples of jobs. Nor do they enervate the needed psychology of a booming economy. Psychological effect is most important. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Misleading Unemployment Reports

We keep getting unemployment reports that have little to do with true unemployment. It’s yet another case of the government getting away with chicanery that the executives of a private enterprise would be arrested for.

Right now the unemployment rate  supposedly hovers around 6%. The media tells us so, and they are out to report on all the dirt they can find, or so they say.

But if you look deeper,  U-6 unemployment, which includes folks who are underemployed and seeking full-time jobs that they can't find, that unemployment rate is much beyond that reported, and is growing.

Furthermore, the  number doesn't include those who have given up seeking work.The fewer seeking jobs, the rosier the stated unemployment figure (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Economic Politics that the Media Generally Overlooks

When one political side says it will severely cut spending a few years in the future but in the meantime takes current funds from taxes or keeps on spending, you just know that one of the two bargainers has just gotten ripped off.

Why? No politician has ever followed through on promises made years earlier to cut budgets. Never.

So all negotiated deals of this kind have always been decided in favor of the big government spenders and taxers.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Contrived Polls to Suit the Poll Sponsor

Before you believe a political, business or scientific poll, ask yourself: Who pays or sponsors it? They can affect the results.

The samples can be selected to give different results. Questions an be posed to produce preferred answers. Demographics can be altered to assure outcomes.

And  interpretations can be subjective.

Sponsorship, for that matter, can also influence the results of research. The Food and Drug Administration critiques about that. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Worth Repeating: Union Pension Fantasies

One reason why most state budgets are out of control is attributed to union-contracted, public employees pensions.

Unfortunately, the unions continue to feel optimistic about the ability of their pensions to accommodate their coming obligations by earning more on their investments than in the recent past, and as most experts envision.

Unions find it easy to be optimistic about the future return on investments, far much higher than what market observers consider possible in the light of our budget deficits and their effects on investment markets. And prospective future inflation.

Government union pension bigwigs entertain lots of false optimism. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Inept Dodd-Frank Regulators

I  take particular aim at the Dodd-Frank Act with its hundreds of provisions still to be completed, and which has had so many countless unforeseen negative effects.

Such as forcing the banks “too big to fail” to keep adding to capital. This makes them less profitable, when they must be able to attract necessary capital, in order to finance a thriving economy.

Moreover, this is foolish when capital cushions can be wiped out overnight, whenever you mark-to-market the bank’s assets in poor markets, as in 2008. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

The Essentials of a Job Resume

 

Job resume suggestions generally involve what not to mention. So many job applicants add superfluous information which helps impede the essential message.

It’s important that everything, particularly your educational background, be truthful.

Topics such as the salary you’re seeking ought to be left off the resume. That question should come up only if the interviewer decides to ask about the subject during the first interview.

Your hobbies can be listed only if they specifically apply to the work you’re to do.

Your photo is not required and is generally left out unless your appearance is a prime aspect of the job.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Government-Style Business Management

According to some, government can outperform corrupt “capitalists.”

We have the perfect example of how government manages to handle politics when General Motors decided to close dealerships after the government took it over.

Closed dealers contacted their congressmen and senators, and the orders were then mostly rescinded, by political influence.

Valid business decisions became arbitrary. The exact opposite the administration promised would never happen, when it took over GM control.

Politicians need voters; they cater to voter pressures. That means private industry employees will lose out to political influences over time.

Business people need profits and do what they must to get them, or they go bankrupt. Bankruptcy resolves problems. Otherwise those difficulties fester for years at taxpayer expense, as they do under government control.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

A Better, Cheaper Way to Teach Kids

It is beyond me why we must today have about 20 kids, not 40 kids in a class, as it was in my youth.

And the kids were then smarter and better behaved.

The larger class size with astute teachers would save sufficient educational  outlays, while keeping cops, firemen, and criminal vigilance intact.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

How Politicians Cut Spending Under Pressure

Politicians, mostly those on the left who are beholden to government unions for political funding and patronage, have a way of cutting spending.

It’s a favorite resort if you are going to spite those greedy taxpayers who refuse to keep paying salaries and benefits to those who earn more than they do.

The political payback device of the leftists: Lay off or fire the cops and firemen or let the prisoners out of jail.

In a society where the kids are getting dumber each year and only a third are educationally prepared to go to college, why do average class sizes have to remain at about 20 or so students? The small classes are still not working.

But cutting the number of cops and fireman teach greedy taxpayers a political lesson. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

MBA Degree Emphasis on Ethics

   

Graduate schools who produce  MBAs go out of their way to be politically correct and fashionable. To do so, and be PC while, charging exorbitant fees, they teach ethics these days.

In fact, MBA schools are going out of their way to teach ethics in return for the obscenely, unconscionably high tuition they charge.

Why not teach the subject in high school and undergraduate college? It’s too late to bother if the graduate student has to be taught ethics.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

State Illegal Immigration Differences

You find illegals in states such as New Jersey, New York and Illinois, yet not heavily in states that surround them. Pennsylvania, Ohio, Missouri and Michigan have undocumented immigrants, though not heavily. Nor are they heavily populated in North and South Dakota or Montana. You do not find them concentrated in Mississippi. But next door in Alabama, Louisiana and Arkansas, there are larger percentages.

Would it be because of differences in social benefits or schooling or legislation?

.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Should European Country Economic Disasters Finally Go Bankrupt?

European economic-disabled country bankruptcies would probably be the best solution for themselves and their general populations, along with the rest of Europe and the United States.

It would actually be the best medicine for the world, despite the gloom and doom portents being given. The pain would be severe but short lived. Not much more than what is still festering after current efforts.

The result would have been the lesson Europe and the U. S. desperately need; that you cannot avoid living forever on air or the productive energy of other taxpayers. Debtors would learn to tighten their belts today, not down the road, tomorrow.

Bailouts always fail except for politicians in office who keep kicking the solution-can down that road.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Prospective Journalists Should Learn Economics

The Dow Jones Economic Sentiment Indicator tries to gauge the U.S. economy by weighing the balance of sentiment in articles published by fifteen major American newspapers. The Indicator analyzes published stories. They look for key words that indicate changes in economic sentiment.

Journalism schools do not teach enough economics. If they have any real economic study at all. Because that would entail a balance of conservative as well as liberal thinking on the subject. The results of the work of their graduates show a deficiency.

About 50,000 newspaper journalists work in the U.S., with thousands of published articles daily, Economics are integral to the news, particularly finance and its relation to politics.

Unfortunately, schools don’t teach news balance. Journalists do not know enough to screen what has worked and not worked economically in the past.

And to avoid passing along political nonsense without critical oversight. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Worthless Safety Standards For Banks

The regulators always attempt to bulk up bank capital in the event of financial meltdowns.

How important are so-called stress tests for banks? Much of what comes from the regulators in Washington can be taken with a grain of salt after the politics are removed. Particularly with passage of the Dodd-Frank Act.

Stress tests are actually a combination of individual financial evaluations. They can entail bank loss estimates, measured as percentages of holdings on first-lien and second-lien mortgages, or credit cards, or commercial real estate loans. Estimated bank earnings are also considered.

Added to the hodgepodge of risk percentages is the reserve status of each bank. The level of what is referred to as Tier 1 capital is important.

To complicate matters more, some unrealized losses on assets could become losses in the future, so the Tier 1 weightings may have to be adjusted. Obviously, stress tests are not fixed; their results can give varying interpretations.

That is the basic fallacy behind stress test talk, or regulation upon regulation imposition from Washington. It is too much about subjective, theoretical nothingness.

And it is the reason why the administration is running what was a minor recession into  major stagflation. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

The Financial Random Matrix Theory

This is a fancy term for an application of mathematical science used for securities evaluation. I have discussed it in past blogs with regard to how different types of securities act in various markets; how they are “correlated.” Or how different stocks within the S&P 500 relate. The idea is to improve an investment portfolio’s risk management.

In general, practical terms, and to give a simple example, when stocks go down, bonds are usually supposed to go up. This supposedly mitigates market risk. Or when domestic stocks drop, overseas stocks rise. Or the opposite.

Of course, this doesn’t always happen. Both sectors in each instance can go down or up at the same time. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

College Should Teach Practical Economics

The more college students we have, the less apparent knowledge the American public has about basics. Take fundamental economics.

College does not appear to educate its students to the dangers from politicians in office, and ensuing problems that will engulf them when the students leave school.

If youth were truly aware of the effects of the monetary inflation we are setting up for them and future generations, they would be up in arms at the government, to stop the economic mess.

Budget-busting spending at all government levels will have dire consequences for the present and coming American job future.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

The Expanded U.S. Money Supply

The average increase in our monetary base has risen about over 5% since 1961. For the supposed Y2K emergency and the 9/11 catastrophe, it rose 10%.

These days the increase is well over 100% and rapidly rising. Yet, we listen to  administration and Federal Reserve officials who keep telling us all this will be taken care of.

The U. S. Treasury issues bonds to pay for its debts but those bonds will not easily be refunded. Also, there is little likelihood the economy will sharply expand to soak up any of that paper the government is printing through the Federal Reserve system. Inflation will show up sharply as soon as the economy starts to fully recover.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Never Use the Oil Reserve to Temporarily Cut Oil Prices

The oil reserve we have is expressly for emergencies, and never should be used to countervail price movements. That’s because tapping it is useless in combating the OPEC monopoly which can adjust its supply to demand whenever it desires,

The best way for America to help cut oil prices and assure ample supplies is to use its domestic oil fields and related energy supplies.

But its leftist energy political influences prevent this. For political reasons and the fact that leftists have little knowledge of how the economic laws of supply and demand work.(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

Pros and Cons of 529 College-Savings Plans

State 529 college-savings plans vary; not all states issue them. Plans differ, depending on the options available in each state. As you know, I like only low cost index funds as investments, So your choice ought to be made on any overall, net advantages your state plan may give you.

Another consideration should be the advantage or disadvantage for a student when seeking a scholarship, in having a 529. Is its tax benefit worth having, in view of the scholarship determination by the school? .(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)

The Majority of Advisory Misconceptions

Advisers keep making the same portfolio errors. They keep suggesting more stock holdings than corporate bonds in the investor’s earlier years, in the assumption that stocks will earn more.

This with the further hypothesis that there will be no heavy future inflation and that past high stock return records were accurate.

They also never utilize or even consider the principles of duration, and that bonds will return higher income with future inflation. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)