How Safe Is Your Money Market?

For an asset class with almost $3 trillion in assets, you would think that investors would pay more attention to the holdings in their money market fund. We have found little information or analysis on the holdings of money market funds. While your money market mutual fund is certainly safer than it was in 2007-’08, if you think that recent proposals by the Securities and Exchange Commission (SEC) make your fund completely safe, you have not been paying attention.

Since 1999, I have advised friends and family to invest in “treasury-only” money market funds. After reading the following three documents, I find no reason to change that recommendation. While the SEC proposals are carefully crafted and do appear to solve some of the more troubling issues, they remain incomplete. First, let’s discuss the interesting points found in the reports and then consider the unresolved issues.

SEC Money Market Reform Proposed Rules

Response to Questions Posed by Commissioners Aguilar, Paredes and Gallagher

Financial Stability Oversight Council 2013 Annual Report

 

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Intriguing Ideas From The Las Vegas Value Investing Congress Part 1.

We attended the Value Investing Congress in Vegas last week, and instead of listing all the presentations and giving a brief summary, which can be found many places on the internet (herehere and here), we thought we would look at some of the ideas that warrant further analysis. Developing a strong process and sticking to it is much more important that the outcome of any particular investment idea. Over the long run, the correct process with produce the desired results. In this sense, investing is like playing Texas Hold’em. If you had a pair of Aces and raised pre-flop almost every time, you would made money in the long term (maybe not the “optimal” strategy for you hardcore players). But you would also have times where your hand would lose to a far inferior hand. That did not mean that your methodology was invalidated, just that other factors impacted the desired outcome.  Most of the ideas presented have some investment merit and were well thought out and presented. While Peter Lynch always said you should be able to present your investment case in three minutes or less, 25-35 minutes to present some of the ideas weren’t enough to cover all the factors involved in certain ideas — and that is as it should be. There was something for every kind of value investor. Finding ideas with markets and most stocks at or near all-time highs means it is not the easiest time to find lots of profitable value ideas.

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Why We Have So Little Respect For Wall Street Buy/Sell Recommendations

Understanding the next few paragraphs is one key to understanding our investment strategy.

Wall Street analysts have an immense amount or knowledge about the companies and industries they follow.  We learn a lot when we read their reports.

Wall Street analysts are very well educated, generally good neighbors, and very nice to their families and pets.

Wall Street analysts believe in almost none of the value investment principles we believe in.  Therefore, it is not surprising that their recommendations are of little value to us.

Wall Street analysts get paid to write buy recommendations.  Buy recommendations generate trades, and it is trades that generate revenue.

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“Free your mind and the rest will follow.” En Vogue

Warren Buffett’s wisdom is all over the Internet. Type the name “Warren Buffett” into the search engine at Amazon.com and a list of over 2,500 books comes up. Type in the phrase “Warren Buffett’s investment advice” in Google and over 1 million entries show up. So what can we possibly add to all that information about Warren Buffett’s investment advice? The honest answer is not much if anything. So why are we going to write this post then? Because sometimes the advice given by someone is so true and powerful that even endless repetition doesn’t reduce its relevance or wisdom. One such piece of advice given by Warren Buffett is “think like an owner” when contemplating investing in a stock. We believe that more investors would be successful if their investment process and analysis incorporated those sage words. What follows is a discussion as to why we feel this way.

In the Internet Age, the concept of investing and investment analysis has been reduced to sound bites and instant commentary (yes we did not use the word “analysis”) from financial TV talking heads, to financial and investment bloggers (no offense to our colleagues, there are a lot of good ones and we try and link to as many as we can), to web sites that aggregate investment information and news, to Stocktwitters, to virtually any other website even remotely connected to “investing”. When you throw in High Frequency Trading, ETFs and Discount Brokerage Trading Platforms, buying, selling or shorting a security has become nothing more than reacting to “new news” or an “investment theme”. When a “buy and hold” investment product like the SPY ETF can trade over 250 million shares in a day, something is seriously wrong with the capital allocation system called the “stock market”.

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