Sequoia Fund Redemptions Give Departing Shareholders Stock Instead of Cash

The holders of the Sequoia Fund are adding insult to injury.  The large Valeant Pharmaceuticals position held by the fund can’t be liquidated in an orderly manner so  the fund holders who would like to exit are receiving shares of other holdings instead of cash.

Valeant Pharmaceuticals has gone from darling to pariah in less than a year.  They’ve finally jettisoned the CEO, but are now facing off with bondholders over a technical default for not filing timely financials.

Investors can learn a great deal from the lesson.  Financial engineering, serial acquisitions, and an aggressive management leads to disaster.   Throw in a healthy dose of debt to pay for the growth and you have a powder keg ready to explode at the first sign of downturn.

Source: Sequoia fund gives departing shareholders stock instead of cash

First Quarter 2016 Asset Class Returns

Asset Class Index Performance Q1 2016
Emerging Markets MSCI EM 5.8%
REITs NAREIT Equity REIT Index 5.8%
High Yield Bonds Barclays Global HY Index 4.1%
US Bonds Barclays Aggregate 3.0%
US Large Cap S&P 500 2.0%
Commodities Bloombery Commodity Index 0.4%
Developed Intl. Markets MSCI EAFE -0.4%
US Small Cap Russell 2000 -1.5%

Stock exchanges are devouring each other because no one buys individual stocks anymore – Quartz

Stock exchanges are devouring each other because no one buys individual stocks anymore

Source: Stock exchanges are devouring each other because no one buys individual stocks anymore – Quartz

Cliché – Bull Markets vs. Bear Markets

In a bull market you’re not as smart as you think you are and in a bear market you’re not as dumb as you think you are.

Source: Bull Markets vs. Bear Markets

Chief Investment Officer – High Yield’s Liquidity Conundrum

Liquidity in the biggest individual high-yield fixed income funds varies significantly from one portfolio to the next, according to an analysis by Fitch Ratings.

Source: Chief Investment Officer – High Yield’s Liquidity Conundrum

Short Selling as an Investment Strategy

A great post on Jim Chanos of Kynikos Associates and how he views short selling versus being net long.  The quote below from Charlie Munger mentioned in the article sums up the art of short selling and why most investors should steer clear of the investment strategy.

I’ve experienced the irrational exuberance of these type of promoters all too often when being short.  Even being right on your thesis is not enough to be a successful short seller.  Shortly after the 2007 iPhone launch, Palm announced that it would be coming out with a competing smartphone (the Pre) that was going to blow away the competitors.  Backed by Elevation Partners the managing partner would go on TV every chance he could get to promote the coming phone and how great the sales were going to be.  The stock rose until the eventual launch of the phone, once sales were seen as disappointing the stock began to drop, but Elevation engineered a sale to HP and managed to save their investment and make short sellers lives miserable.

“It’s dangerous to short stocks.” “Being short and seeing a promoter take the stock up is very irritating. It’s not worth it to have that much irritation in your life.” “It would be one of the most irritating experiences in the world to do a lot of work to uncover a fraud and then at have it go from X to 3X and at h the crooks happily partying with your money while you’re meeting margin calls. Why would you want to go within hailing distance of that?  We don’t like trading agony for money.”

Source: A Dozen Things I’ve Learned about Investing from Jim Chanos

How the Pundits Damage Your Long-term Plans

Great post by Josh Brown at The Reformed Broker about how listening to the market pundits can lead investors to abandon their investment plans to their detriment.

Let me wrap this up: 401(k) accounts are sacred, but they are not magic. They require a thoughtful person making decisions and behaving logically in order to work. The 401(k) users who have persevered through the large drawdowns of 15 and 7 years ago, while continuing to plug away with fresh contributions, are doing better than ever.

Source: The Farce Awakens

Spoofing and Front Running

This type of trading now represents 70% of the volume –  but it adds liquidity!  (Yeah right)

That the firm took matters into its own hands shows how deeply the electronic bait-and-switch scheme has penetrated the global marketplace—and how slow regulators have been to root it out. The firm’s efforts, disclosed in a court filing in November, enabled Citadel to detect suspicious orders and, in a blink, pull back from trading.

Source: Spoofing fight draws Chicago’s Citadel, Vertex – Finance News – Crain’s Chicago Business

It’s Not Easy to Hold Winners

One of the many seductions of dabbling in the stock market is the potential for lottery winners. Look at the returns these stocks have generated since going public:

Source: Totally Absorbed | The Irrelevant Investor