In Search of the Perfect Investment

Apple is targeted for $650, $850 and $1000 — depending on which report you read or analyst you listen to.

The blue line is the stock.  I drew two simple lines to try to get some feeling for the bubbliness. The second black line is steeper than the first, suggesting this rate of growth is not sustainable. The stock is also way above it 50 and 200 day moving average — known by Fidelity as SMA, which stands for simple moving average.

Gold’s rocky road. Nice steady rise for many years. Then lately horrible.

I wonder if it’s all over for gold, at least for now?

Gold doesn’t have a dividend. That’s a real negative. I did buy a little more on the big dip yesterday. But catching a falling knife is stupid. We’ll see this morning how stupid.

Your thoughts?

From the latest Economist:

PIMCO’s new exchange-traded fund
Cheaper Bill:A splashy new active ETF will help investors but hurt distributors

WITH $250 billion in assets, PIMCO Total Return is the world’s biggest mutual fund. Morningstar, a research firm, named Bill Gross, who oversees it, its bond manager of the 2000s. He struggled last year but has begun 2012 better.

Unless you have the $1m required for the institutional shares, the fund isn’t cheap. PIMCO charges 0.6% a year for its standard “A” share. Investors must pay a further 0.25% in annual distribution and marketing costs and 3.75% upfront to their brokers.

The price is about to go down. On March 1st PIMCO will launch the portfolio as an exchange-traded fund (ETF). Unlike mutual funds, ETFs change hands on public markets. PIMCO will charge just 0.55% a year for the ETF. And investors will incur far lower brokerage costs. Buying an ETF costs a trivial commission of $10 or so, plus the gap between a marketmaker’s bid and ask prices. For heavily traded funds, this can be a mere penny a share.

If the fund repeats its average return over the past decade, then an investor buying $10,000-worth of “A” shares would lose 76% of his profits to expenses during the first year of ownership. The ETF’s costs would eat up just 12%.

PIMCO’s move is striking not just because of the fund’s size and fame but also because the ETF is actively managed. Most ETFs are passive index-trackers which report their positions every day. But mutual funds disclose their holdings only four times a year, and their managers often say such secrecy is necessary. If they had to reveal trades in progress, they say, nimbler buyers might snap up the shares first and raise the cost.

That worry is less of a concern for the Total Return fund: Mr Gross buys very liquid bonds, which are less vulnerable to such “front-running”, and announces many positions publicly. And for PIMCO the ETF offers new ways to build the fund by attracting more price-conscious investors and opening it up to non-Americans, who cannot buy mutual funds in the United States.

For mutual-fund middlemen, however, the product is a threat. Armies of brokers and salespeople depend on purchase and distribution fees. And others are interested in the idea of active ETFs, too. BlackRock, a big fund manager, has already asked the government to approve “non-transparent” ETFs with looser disclosure rules. Watch this space.

Great technology. Lousy management. Remember what I wrote yesterday about falling in love with companies’ technology? I loved Viasat’s fast satellite Internet service,  when I tested it as the Consumer Electronics Show in January in Las Vegas. I recommended the service to my readers —  $50 a month for 12 megs down and a couple up. They now report that the company’s response has been apathetic, at best.

The company’s stock price has also dropped. At least one analyst has downgraded it.

One gets the impression that the whole CES announcement was a mild version of “pump and dump.” Sad, because their technology is so great. Fortunately, when I wrote about the company, I thought it was overpriced and said so. I should have sold it short — that’s a leap that’s hard to make as an investor, when as a technologist you really love the technology.

Under Armour is overpriced, and overhyped.

After I wrote about Cramer and his hyping of Under Armour’s great new technology, I was jumped on. Nike and others have had the same technology for years, say my friends. It’s just a gigantic hype by Under Armour. Fortunately, I wrote that I thought the stock overpriced at its nosebleed price. P/E is a hefty 48.2, compared with Nike’s 23.1. Should I short UA?

Happy percentage of fund managements whose returns don’t shine. From the latest issue of Money:

They may dress better than average, but they usually don’t invest that way: Last year 79% of large-cap fund managers trailed the Standard & Poor’s 500-stock index, says Morningstar — the worst showing since 1997. Why?

Annual expenses — averaging 1.3% of assets for actively managed big-stock funds vs. 0.69% for index funds — hampered returns. Plus, besting the S&P is harder in years like 2011, when the biggest stocks in the index outperform the smaller ones managers tend to load up on.

The art of serving tea in India. Amazing feat. Wonderful video. Click here.

The FDA warns on statins, i.e. cholesterol drugs. Worth reading if you’re taking Lipitor, Zocor, Crestor of Vytorin. Click here and here.

Bert Stratton in The New York Times on the life of a landlord, Click here.

Great multitasking video. Funny. Click here: Men

A video poking fun at portfolio managers. Some people think the video is hilarious. Others are saddened because it’s too close to reality. Click here.

Incredible pool/billiard tricks. The best video I’ve ever seen of pool tricks. And I’ve played this game for years. Click here.

Harry Newton who’s off today for his annual 30-day sojourn in sunny La Quinta, Coachella Valley, California. We’re renting a house which is on the property (sort of)  of the gorgeous La Quinta Resort and Club. (Click here.) The hotel is in bankruptcy, a function of it changing hands so many times in the mid-2000s boom times and being overloaded with debt which it could never afford. It’s a beautiful place serving southern California admirably — 2 1/2 hours drive to LA. But dreams of it becoming a resort attracting a national crowd are shattered on the misery of the pricey Palm Springs Airport, which few airlines fly into — and none directly from the east coast. While it’s beautiful now in the desert, come summer the temperatures rise to 120 and all the tourists flee. At one stage, La Quinta Resort’s new owners wanted to build a water park, featuring a several hundred foot water slide. A gigantic eyesore. They seriously thought the slide  would mitigate the heat and attract thousands. The locals opposed  the idea. But what it killed it was the bankruptcy. There was no money for insanity. I will be here tomorrow.