The Investment Scientist

Archive for May 2011

I was called a “wing nut” by a commenter for pointing out all the malpractices of insurance companies. Indeed, I could go nuts seeing how they mislead their customers into financial peril. They know full well that their customers are not going to read beyond the first few pages of their hundred-page contract, so they put all the goodies on the first page and keep the disclaimers on the back pages.

The following is an actual annuity contract a client of mine purchased a few years ago, much to his regret now.

On the first page of the contract, all the warm and fuzzy keywords are used: “GUARANTEE”, “fixed”, “annualized interest rate of 5.75%”. Pay attention to the following line though: This rate is subject to change each month.

Annuity Contract Front Page

Annuity Contract Front Page

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Linkedin IPO

LinkedIn IPO

[Repost from my contribution to Morningstar Advisor] LinkedIn LNKD rallied more than 100% in its first day of trading. The market is buzzing about its spectacular performance. Even I, a known advocate of passive investment among my friends and clients, got calls asking if it’s a good time to invest in this stock. It’s not, emphatically. Here are three reasons:

Insider Advantage
LinkedIn has been in business since 2003. Who decided that it should go public now, as opposed to March 2009? Surprise! It’s the management of the company, acting in the interest of its shareholders. In LinkedIn’s case, it’s Reid Hoffman, who is both CEO and a major shareholder. Did Reid do that so that you could buy his shares at an undervalued price? I bet not. And for that matter, he was willing to sell shares at a pricing range of $32 to $35. The pricing range was only raised to $42 to $45 after popular demand from investment bankers.

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[Guest Post by Jeremy Bendler, CPA] As we plan our first of many charitable volunteer events of the summer I wanted to remind your which volunteer expenses and items are deductible.

If you are a volunteer worker for a charity, you should be aware that your generosity may entitle you to some tax breaks.

Although no tax deduction is allowed for the value of services you perform for a charitable organization, some deductions are permitted for out-of-pocket costs you incur while performing the services (subject to the deduction limit that generally applies to charitable contributions). This includes items such as:

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Stock Market Seasonality

By now, you may have heard the stock market folklore: “Sell in May and Go Away.”

Well, let’s look at the statistics, shall we? Most stock market returns are delivered during the winter season from November to May. In the summer (June to October), however, the market seems to take a vacation. Not only does it not deliver much return, it is also more volatile.

It’s not just the US market; some European markets manifest this tendency as well. See the chart below based on market data from the US, the UK, Germany, the Netherlands, and Belgium.

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[Guest Post by Jeremy Bendler, CPA] Businesses with cash reserves sitting on the sidelines are being encouraged to invest some of those funds in equipment and improvements in 2011. Congress has passed a number of favorable tax breaks for the treatment of business purchases of equipment and leasehold improvements including expanded section 179 expensing of assets, bonus depreciation, and relaxed auto depreciation rules. These incentives to spend and invest are hoped to help push the economy forward by giving businesses an incentive to invest!

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[Guest Post by Christopher Guest] Many people I work with to plan their estate want to make some type of charitable gift. Charitable giving through a person’s estate plan falls into three categories: a simple bequest through a will, a charitable remainder trust or a charitable lead trust1. Most people want to make an altruistic donation to some cause that holds a special place in their heart. However, for the more sophisticated estates, charitable giving can be a valuable estate tax planning tool.

The simplest and most popular form of charitable giving is a bequest through a will. Basically, there will be a clause in the will that says “I give X amount of money to charity Y.” If the estate plan is more sophisticated, the bequest could be based on a percentage of the estate’s value or a part of the residue of the estate2. Like all charitable bequests, it is tax deductible.

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MZ Capital 60/40 Portfolio Model

This report shows the construct and performance of a 60/40 model portfolio.

Asset Classes and Fund Selection

There are six asset classes in this portfolio model. The asset allocation is implemented using DFA funds, as shown in the table 1. I explained why DFA funds are superior here.  Read the rest of this entry »


Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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