Money and Investing (formerly Pfizer Stock prices)

[trader1]

I don't know about you or the securities worth of some of the traders (from what I read the ones who were shorting the stock were hedge funds, traders associated somehow with those HFs and other (and I use the term loosely) professionals, but I have a lot more than 220K in my portfolio that could be used to collateralize shorts. Even if they didn't have 220K they could still loose everything else in their portfolio used to cover the shorts. No?

No such problem for those buying on margin (unless caught in a large dip - trading was very volatile).

I don't intend to look up the various rules on this stuff as I never intend to trade that way and really don't care. I'm just putting some ideas out there and maybe some experts here can clarify.

My inquiry to my FA was e mail based and I did not ask for further clarification when told they do not maintain a position in the stock therefore I was unable to short it. I did not give it much thought thereafter.

My interest has been piqued though after I read about the “anti-establishment” who are now making headlines and causing this disarray.

I do think this is the beginning of something that unfortunately is going to lead to extreme volatility and uncertainty in many of the markets

 

[genius]

My inquiry to my FA was e mail based and I did not ask for further clarification when told they do not maintain a position in the stock therefore I was unable to short it. I did not give it much thought thereafter.

My interest has been piqued though after I read about the “anti-establishment” who are now making headlines and causing this disarray.

I do think this is the beginning of something that unfortunately is going to lead to extreme volatility and uncertainty in many of the markets

Maybe.

Keep in mind that the extreme rise in the price of GameStop et al, was partly (and some argue almost completely) fueled by the shorting and then badmouthing of the stock by the hedge funds causing an extreme demand for stock to cover the shorts. It got so bad for two of the hedge funds that they had to be bailed out by others. According to various legit and respectable sources I’ve read, the technique of shorting and then badmouthing a stock is a modus operandi of the hedge funds allowing them to make billions for nothing — these guys get rich not by providing anything useful or creating anything of value — but by gaming the system.

Well, ya know, they just got gamed themselves by a bunch of amateurs. No tears shed by genius.

 

[trader1]

I’d like to circle back on performance when managed by a FA...

When dealing with a respectable firm.. Understanding the FA has the fiduciary responsibility to the client..

How is the performance of the FA measured by their respective firm.?

Assets managed, compliance, is a given, but what about performance vs. indicies the portfolio is supposed to mirror? My question is based upon what I feel is slight underperformance over the past couple of years..

I have voiced my concern- My FA has repeatedly emphasized that my returns are actually better then the models based on my risk/reward tolerances.

Just want to be sure he is not blowing smoke uma -Who is watching him?

 

[pokler]

I don't know about you or the securities worth of some of the traders (from what I read the ones who were shorting the stock were hedge funds, traders associated somehow with those HFs and other (and I use the term loosely) professionals, but I have a lot more than 220K in my portfolio that could be used to collateralize shorts. Even if they didn't have 220K they could still loose everything else in their portfolio used to cover the shorts. No?

No such problem for those buying on margin (unless caught in a large dip - trading was very volatile).

I don't intend to look up the various rules on this stuff as I never intend to trade that way and really don't care. I'm just putting some ideas out there and maybe some experts here can clarify.

As the stock rises you have to post more collateral or buy it to cover. If you post all eligible collateral and it still rises they will force a buy back. Each asset collateralized has a release rate typicality 75%. So 1mm will allow 750k to be shorted. In swift trading like GME by the time you cover with a buy the price may of gone up another 25% wiping you out .
Same on the long side buying on margin but in reverse .

 

[OSMonger]

I’d like to circle back on performance when managed by a FA...

When dealing with a respectable firm.. Understanding the FA has the fiduciary responsibility to the client..

How is the performance of the FA measured by their respective firm.?

Assets managed, compliance, is a given, but what about performance vs. indicies the portfolio is supposed to mirror? My question is based upon what I feel is slight underperformance over the past couple of years..

I have voiced my concern- My FA has repeatedly emphasized that my returns are actually better then the models based on my risk/reward tolerances.

Just want to be sure he is not blowing smoke uma -Who is watching him?

There is no oversight. All the big firms have the ability to track FA performance but little is done with it. Morgan Stanley did go through an exercise several years ago where they encouraged FAs that ran discretionary portfolios that underperformed the firm run models to move client assets. No idea if it went anywhere. The reality is, on a risk adjusted basis, over a 5-10 year basis, a single FA will (almost) never be able to beat a well developed team of professionals. What I mean is, if my firm has a team of 200-300 CFAs, PhDs, etc etc building and running models based on risk parameters, for me to think that I as an individual can beat them long term, risk adjusted, net of fees is ridiculous. So if the FA isn’t doing ALL the other financial planning components for you, you’d be better off not paying them fees.

 

[genius]

I’d like to circle back on performance when managed by a FA...
When dealing with a respectable firm.. Understanding the FA has the fiduciary responsibility to the client..
How is the performance of the FA measured by their respective firm.?
Assets managed, compliance, is a given, but what about performance vs. indicies the portfolio is supposed to mirror? My question is based upon what I feel is slight underperformance over the past couple of years..

I have voiced my concern- My FA has repeatedly emphasized that my returns are actually better then the models based on my risk/reward tolerances.

Just want to be sure he is not blowing smoke uma -Who is watching him?

The bolding of some text in your post is made by me.

A Random Walk Down Wall Street, written by Burton Gordon Malkiel (now in something like it's 12th ed — I buy a copy every couple of years — a really good read) and also the late Jack Bogle, founder of Vanguard, state that the performance of active managers, with very, very few exceptions, must always return to the mean of their appropriate index less the management fees they charge, i.e., a slight underperformance. I followed this advice starting in the early '80's and did quite well thank you.

So may I ask how your FA charged you? And what makes you think that a "slight underperformance", or a slight over performance for that matter, is not statistically to be expected over a couple of years?

After saying all this I still have a portion, albeit small, of my portfolio is some specific stocks, that thru my professional experiences with the companies ( I will not go into what my profession was), would have a high growth ahead of them. And the 8 out 10 I had greatly did swamping the 2 that were mediocre.

 

[trader1]

There is no oversight. All the big firms have the ability to track FA performance but little is done with it. Morgan Stanley did go through an exercise several years ago where they encouraged FAs that ran discretionary portfolios that underperformed the firm run models to move client assets. No idea if it went anywhere. The reality is, on a risk adjusted basis, over a 5-10 year basis, a single FA will (almost) never be able to beat a well developed team of professionals. What I mean is, if my firm has a team of 200-300 CFAs, PhDs, etc etc building and running models based on risk parameters, for me to think that I as an individual can beat them long term, risk adjusted, net of fees is ridiculous. So if the FA isn’t doing ALL the other financial planning components for you, you’d be better off not paying them fees.

Ty
Not to take away the knowledge needed and complexities of financial planning...
I often find myself second guessing FA’s decisions ( or lack of them) when looking at the short/ long term adjustments to my portfolio...I’ll get fixated on the flavor of the month bets without looking at long term goals.

Annual reviews always emphasize a conservative 4-6 percent return over the long haul which I am good with, but am I setting my goals short.

My needs are more disciplinary in nature and I question the thousands of dollars I pay in fees worth it

 

[trader1]

The bolding of some text in your post is made by me.

A Random Walk Down Wall Street, written by Burton Gordon Malkiel (now in something like it's 12th ed — I buy a copy every couple of years — a really good read) and also the late Jack Bogle, founder of Vanguard, state that the performance of active managers, with very, very few exceptions, must always return to the mean of their appropriate index less the management fees they charge, i.e., a slight underperformance. I followed this advice starting in the early '80's and did quite well thank you.

So may I ask how your FA charged you? And what makes you think that a "slight underperformance", or a slight over performance for that matter, is not statistically to be expected over a couple of years?

After saying all this I still have a portion, albeit small, of my portfolio is some specific stocks, that thru my professional experiences with the companies ( I will not go into what my profession was), would have a high growth ahead of them. And the 8 out 10 I had greatly did swamping the 2 that were mediocre.

AND TY for those comments-
I will grab the book...

My FA charges a flat 1% of assets managed which I believe is close to industry standards. What I do realize that slight under or over performance is certainly to be expected, but my questions arise from measurement of the right indicies..
For example,
We will have our annual review and he is forthcoming in pointing out that one of my accounts outperformed the Russel 1000 /MSCI/ S&P by x- Some of the other accounts underperformed some other respective index-
The question remains what index should a “ balanced portfolio “ measure”

 

[OSMonger]

AND TY for those comments-
I will grab the book...

My FA charges a flat 1% of assets managed which I believe is close to industry standards. What I do realize that slight under or over performance is certainly to be expected, but my questions arise from measurement of the right indicies..
For example,
We will have our annual review and he is forthcoming in pointing out that one of my accounts outperformed the Russel 1000 /MSCI/ S&P by x- Some of the other accounts underperformed some other respective index-
The question remains what index should a “ balanced portfolio “ measure”

Simple index for a 60%stock/40%bond in an IRA would be 60% S&P500/40% Barclays Agg. For taxable accounts you could use the same but might want to use a muni index. For me personally, I look at the percent invested in equities and multiply the S&P 500 by that percentage to get a very rough risk adjusted expectation. There are reams of research around proper indexing and you can use R Square to see if the benchmark you’re using is the right one, but I try and keep it simple. The S&P 500 returned 18.4% in 2020, and If my client was 52% invested in stocks, net of fees they better have returned at minimum 9.6% or I did a bad job.

 

[trader1]

As quoted from an article on CNBC


“Investors are concerned that if GameStop continues to rise in such a volatile fashion, it may ripple through the financial markets, causing losses at brokers like Robinhood and forcing hedge funds who bet against the stock to sell other securities to raise cash. “

I think a 5-10 percent correction is coming...

 

[genius]

Simple index for a 60%stock/40%bond in an IRA would be 60% S&P500/40% Barclays Agg. For taxable accounts you could use the same but might want to use a muni index. For me personally, I look at the percent invested in equities and multiply the S&P 500 by that percentage to get a very rough risk adjusted expectation. There are reams of research around proper indexing and you can use R Square to see if the benchmark you’re using is the right one, but I try and keep it simple. The S&P 500 returned 18.4% in 2020, and If my client was 52% invested in stocks, net of fees they better have returned at minimum 9.6% or I did a bad job.

I will try and keep it simple also.

If the 60%stock/40%bond is, as you posted, can be represented as 60% S&P500/40% Barclays Agg, and the ETF's for these indexes have a 0.04% expense cost and your fee is 1.00% then the return for your client would have to beat by 0.96% an investor's portfolio who simply had the ETF's over, say, a 10 year period w/o a FA.

Am I correct?

 

[pokler]

Simple index for a 60%stock/40%bond in an IRA would be 60% S&P500/40% Barclays Agg. For taxable accounts you could use the same but might want to use a muni index. For me personally, I look at the percent invested in equities and multiply the S&P 500 by that percentage to get a very rough risk adjusted expectation. There are reams of research around proper indexing and you can use R Square to see if the benchmark you’re using is the right one, but I try and keep it simple. The S&P 500 returned 18.4% in 2020, and If my client was 52% invested in stocks, net of fees they better have returned at minimum 9.6% or I did a bad job.

You are Ignoring the portion not in the market so this is not correct. 40% is a big piece to ignore! And it's tracking error you need to find correct benchmark not R2. This is the standard deviations of excess returns btw you and potential benchmarks. Lowest tracking error wins .

 

[trader1]

You are Ignoring the portion not in the market so this is not correct. 40% is a big piece to ignore! And it's tracking error you need to find correct benchmark not R2. This is the standard deviations of excess returns btw you and potential benchmarks. Lowest tracking error wins .

Please explain further?

 

[pokler]

I will try and keep it simple also.

If the 60%stock/40%bond is, as you posted, can be represented as 60% S&P500/40% Barclays Agg, and the ETF's for these indexes have a 0.04% expense cost and your fee is 1.00% then the return for your client would have to beat by 0.96% an investor's portfolio who simply had the ETF's over, say, a 10 year period w/o a FA.

Am I correct?

In a vacuum yes but not in the real world.

For 10 yrs ended 12/20 SP500 did about 13.70%.
If your stock fund did 15% did you beat market ? Not necessarily ! If you have a growth fund you underperformed the market since the Russell 1000 Growth index did 17%.
This gets back to the point that asset allocating is bigger factor in performance.
And style factors are huge part of that .

 

[trader1]

In a vacuum yes but not in the real world.

For 10 yrs ended 12/20 SP500 did about 13.70%.
If your stock fund did 15% did you beat market ? Not necessarily ! If you have a growth fund you underperformed the market since the Russell 1000 Growth index did 17%.
This gets back to the point that asset allocating is bigger factor in performance.
And style factors are huge part of that .

Exactly!!
That’s what I have been trying to decipher—
Paying a FA a fee, I want their expertise on allocation when investing for the long term...

 

[pokler]

Exactly!!
That’s what I have been trying to decipher—
Paying a FA a fee, I want their expertise on allocation when investing for the long term...

How do you know he's not doing that now ?

 

[genius]

Correct,
which is why in addition to most of my investments in S&P 500indx and Total stock market index (btw - they both tracked pretty close to each other every year — to within a fraction of a %).

I also have international and tech ones. Plus instead of bond funds (that I don't believe are a good idea) I have . laddered target bond ETF's , e.g. a 2023 investment grade bond etf all bonds in the etf maturing around Dec 2023, a 2024, etc.

I did have 10yr treasury strips @close to 4% (I forget exact %) that I sold when treasury interest rates dropped to close to 0, took the profits (as LT cap gains) bought more total stock etfs (did both in April) and reinvested principle in my bond ladder at much lower rates.

I'm about to buy some value ETF's as I believe the S&P is actually a growth fund (due to all the FANG in it) and value turn is about to shine.
I have no (and probably never will) bitcoin, GameStop and the like.

 

[Slinky Bender]

It's one thing to suspend trading on a stock, but how do you suspend BUYING ONLY and not be guilty of market manipulation when the stock price crashes?

 

[trader1]

Simple index for a 60%stock/40%bond in an IRA would be 60% S&P500/40% Barclays Agg. For taxable accounts you could use the same but might want to use a muni index. For me personally, I look at the percent invested in equities and multiply the S&P 500 by that percentage to get a very rough risk adjusted expectation. There are reams of research around proper indexing and you can use R Square to see if the benchmark you’re using is the right one, but I try and keep it simple. The S&P 500 returned 18.4% in 2020, and If my client was 52% invested in stocks, net of fees they better have returned at minimum 9.6% or I did a bad job.

Ty
Let me ask another question
Customer comes to you with 1mm
He wants to retire
30 year life expectancy, drawing 2700 per month, which draws down 1mm over the 30 years— Inflation and tax liability aside, would you have the client exposed in equities-
I know it’s a very general question and difficult to answer without looking other variables-
tia

 

[genius]

It's one thing to suspend trading on a stock, but how do you suspend BUYING ONLY and not be guilty of market manipulation when the stock price crashes?

IMHO, this is the very definition of market manipulation.
So to answer your question (bold in your post is made by me): you can't.