Investment Article Critiques - Annotated Bibliography Example

Running Head: INVESTMENT ARTICLE CRITIQUES Investment Article Critiques Investment Article Critiques Kalwarski, Tara. (2009). How Three Funds Hope To Crawl Back. Business Week. New York:: 4115; pg. 56 As we have seen through the other article, the sentiment of investors at the current time is that cash is king and they would prefer to let their money idle in institutional accounts earning minimal interest instead of being stung by falling stock prices an loosing their investments. Tar Kalwarski asked several professional financial advisors and fund mangers how they plan on getting investors sitting on their cash to reinvest it back into the market. “John Rogers of Ariel Fund, David Herro of Oakmark International Fund, and Tom Marsico of Marsico Focus Fund are among the managers tackling that challenge.” (Kalwarski, 2009, p. 56) These managers are looking down a long-term road when consumers begin to spend again, whenever that will be. Their strategies include investing in this undervalued market hedging that consumers will begin spending and return these stocks to more worthy values. As Russel Kinnel, Morningstars director of mutual fund research states "Even the most skeptical, bearish managers are saying this is one of the best buying opportunities theyve ever seen." (Kalwarski, 2009, p. 56) While this certainly stating the obvious, gun shy investors are resistant to moving into any kind of market strategy at the moment. According to Herro one company to invest in using this strategy is Signet Jewelers. "Its gaining share [in areas] where a lot of mom-and-pop shops are closing." (Kalwarski, 2009, p. 56) Apparently it looks good on the balance sheets, although, of course, the prediction is that the smaller business will be closing in order to make way for the boon that these fund mangers are looking for. Somehow this seems anathema to the economic stimulus package that the present administration is trying to achieve. Goldstein, Matthew. (2009) Out The Door, But Still On The Hook. Business Week. New York: 4115; pg. 25 Matthew Goldstien reviews the ongoing ramifications of the Madoff Ponsy scheme that has also plagued the minds of investors, as well as the SEC and FINRA who seemed to have no idea what was going on. He begins with an analysis of the Fort Worth Retirement fund, an investment member of the Madoff group of funds that just a few month before the scheme collapsed, had pulled $10 million out and recouped their investment and earnings. However, thinking they had miraculously dodged the bullet, Goldstein states that bankruptcy law can go back to prior investors to recoup earnings profits as well as their principal at the time. This process is appropriately known as clawback. The surprisingly altruistic legal theory behind it is that the scheme was the scheme all along and the, “…investors who stick around to the bitter end shouldnt bear all the pain.” Goldstein, 2009, p. 25) In the Madoff case however it may not be so easy. Apparently the investors did not all directly invest with the Madoff firm but instead had their funs funneled through “feeder-units” that put many of the transactions at arms length for Madoff, even though most of the money was handed off to him at the end. A Ponsy and money-laundering scheme rolled into one. The author also notes that the Fort Worth Retirement fund had done some due diligence in early 2008 and hired Albourne Partners, a London due diligence firm to evaluate their portfolio and the Madoff investment sent up red flags immediately. The managers of the fund state that this we the reason they had escaped the final downfall of the fund in late 08-09. But speaking of due diligence, Albourne Partners must have reported their findings not only to their employer but to the governing bodies as well. Yet somehow the warning did not come up until it was too late for the other investors in this hedge fund scheme. Robert Klausner, a lawyer for the Fort Worth fund states that if you had no knowledge of wrongdoing you should not be punished. Yet did anyone who invested with Madoff have any knowledge of wrongdoing, obviously not. Bhide, Amar. (2009) Why Bankers Got So Reckless. Business Week. New York: 4118; pg. 30 In speaking to congress some time after he retired, Alan Greenspan said that he has discovered a very disturbing flaw in his economic theory. A flaw that could seriously affect any possible financial forecasting, “I made a mistake in presuming that the self-interest of organizations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms.” (“Testimony of Alan Greenspan,” 2008) In other words, they would not purposefully shoot themselves in the foot. Judging from the current mortgage fiasco, this is certainly not the case. But what is the real culprit in this tsunami-like financial meltdown? According to Amar Bhide, it may just be the diversification craze stemming from the 1960’s and 1970’s that became the benchmark for financial market and gave banks the idea they could create mortgage backed securities. Bhide feels that it is too much of a good thing at this point he feels it is time to reel in the freewheeling, “Lets tightly limit bank activity to taking deposits and making loans--loans that bankers and regulators who arent theoretical mathematicians can monitor. (Simple hedging to reduce the risks of making long-term loans with short-term deposits would be allowed.)” (2009, p. 30) He refers back to The Glass-Steagall Act of 1933, which kept banks from investing in stock as well as created the FDIC. This seemed prudent at the time since the market had crashed and investors needed to feel safe about banks again. However, when the act was repealed in 1999, this began the further diversification of banks into dangerous waters. But once the floodgates are open, how do you get back to basics? Bhide does not believe that President Obama’s plan of more and more government oversight is actually the answer. He feels that the Fed has too much to do as it is trying to figure out just what a global economy is supposed to look like to try and run the bank and monitor new financial derivatives and investments. Instead he believes we need to redo The Glass-Steagall Act and make banks behave. But is that realistic? Would banks be content with that small portion of the pie again, I think not. Goldstein, Matthew & Burrows Peter. (2009). Fee Upon Fee To Feed Madoff. Business Week. New York. 4117; pg. 30 In this article written with Peter Burrows, Matthew Golstein further elaborates on the concept of feeder-units, which he touched on in his previous writing. Apparently one of the reasons that this ponsy scheme was so hard to pin down was that there were thousands of players, some who knew about the scheme, but most who did not. This ranged from fund manger even down to golf caddies. “A caddie in the Jupiter (Fla.) area purportedly referred golfers for a fee to firms that invested with Madoff.” (Goldstein & Burrows, 2009, p. 30) Referrals created fees upon fees that changed hand and moved up and down a distribution line that Madoff is probably the only one who knew it all. But somehow he had distanced his firm from much of the actual financial money management. This system setup actually allowed smaller investors, only millionaires instead of billionaires, to get to the Madoff playing field. This created a mass market, so to speak, of investors pouring money into the scheme. It would have worked well if it was not for the financial meltdown that had investors looking to liquidate their funds. That is the telltale end of any ponsy scheme, since the actual principal investments have really gone to line the pocket of the fund mangers and not in the actual investments. “The sprawling network of individuals and tiny funds, which operates across the entire hedge fund industry, presents a challenge for securities regulators as they consider crafting new rules for this huge slice of the investment world.” (Goldstein & Burrows, 2009, p. 30) While this brief article certainly points out some of the surface detail of this nightmare, it belies the tremendous about of confidence that was lost in the area of financial planning and investments. While investors wait on the sideline for the market to stabilize and possibly reinvest, now they have to also consider the advice they are getting and perform their own due diligence with even the most moderate of investments. Marcial, Gene. (2009) A Recession Special At Buffetts Buffet? Business Week. New York: 4116; pg. 60 In the ongoing search for stocks and investments that meet the new criteria of the current environment, that is ones which have lost less than the average, Gene Marcail has pointed out Billionaire Warren Buffetts Berkshire Hathaway. “Berkshire doesnt suffer the leverage, credit, and quality concerns that plague other financial outfits.” (Marcial, 2009, p. 60) Since December of 2007 it has only lost 35% of its value on the market while many others are down as much as 60% from that longer time frame. Marcail cites John Maloney, president of M&R Capital Management as saying , “‘By investing in Berkshire, an investor gets not only an undervalued quality stock but also the guidance and advice of Buffett, the premier investment manager in the world, who controls the company as its chairman and CEO.’” This is sounding eerily familiar in the wake of the Madoff Ponsy scheme. While certainly a well researched and well thought out forecast by both the author and Maloney, investors are probably more leery than ever of taking the advice, no less investing in the company of, another financial guru of wall street, who by the way was also a billionaire. However, a psychological fear aside, there is another risk in this particular investment. Mr. Buffett is approaching eighty years of age and one has to wonder, as does “Joshua Shanker of Citigroup, who rates Berkshire a hold,” (Marcial, 2009, p. 60) who will replace Buffett? This is always a fear in more than just funds and stocks that are closely associated with gurus. President Clinton was once paraphrased as saying that if Alan Greenspan passed away while he was in office he would have had him stuffed and mounted on a chair at the Federal Reserve board so no one would find out until he left office. There is, of course, this sobering disclaimer at the bottom of the article, “Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.” (Marcial, 2009, p. 60) Just in case you were wondering. References Bhide, Amar. (2009) Why Bankers Got So Reckless. Business Week. New York: 4118; pg. 30 Goldstein, Matthew. (2009) Out The Door, But Still On The Hook. Business Week. New York: 4115; pg. 25 Goldstein, Matthew & Burrows Peter. (2009). Fee Upon Fee To Feed Madoff. Business Week. New York. 4117; pg. 30 Kalwarski, Tara. (2009). How Three Funds Hope To Crawl Back. Business Week. New York:: 4115; pg. 56 Marcial, Gene. (2009) A Recession Special At Buffetts Buffet? Business Week. New York: 4116; pg. 60 “Testimony of Alan Greenspan” (2008) Committee on Oversight and Government Reform. Retrieved on March 3, 2009 from http://oversight.house.gov/story.asp?ID=2256 Read More