Finally, the structure of the currency markets may work against elimination of the forward rate bias. Note that the forward rates depend only on the spot rate and the difference in interest rates. For arbitrage reasons, the forward rate cannot depend on anything else (see the discussion of interest rate parity in “Description,” above). However, an exchange rate between two currencies reflects the relative state of the two economies. If the U.S. economy is expected to do better than the Japanese economy, then the spot exchange rate will reflect that. Any changes in growth expectations will promptly cause a change in the spot exchange rate and thereby in the forward exchange rate. For example, the dollar strengthened from 1995 to 2000 because of the relative strength of the U.S. economy. During 2002 and early part of 2003, when expectations about U.S. economic growth were constantly revised downward, the dollar kept losing ground to other currencies. Read the rest of this entry »
1. Lose Money
Like Maria, most gluttons rationalize their investing behaviors. They equate action with money: You’ve got to play if you want it to pay. This may be true if you are a trader in Chicago Board of Trade, but for the rest of us, frenetic investing usually results in losses rather than in wins. Gluttons invest burdened by four weaknesses that they may be unaware of or that they may discount. Let’s examine these four vulnerabilities and why they should not be discounted: Read the rest of this entry »
Lazy and indifferent investors need to force themselves to pay attention to their investments. If they just tell themselves that they’ll try and pay more attention, they are likely to fail. Typically, a slothful investor will experience an investing loss and vow to pay more attention and become more diligent. He may even make an effort to do so for a while, but the odds are that he’ll slip back into his old behaviors if his investments return to their normal performance. Investing laziness is a habit that’s tough to break, which is why my recommendation is to establish a new routine.
Here are the behaviors that you should incorporate into this routine:
1. SET UP AN E-MAIL ALERT
If you are managing your money yourself and buying individual stocks, this e-mail alert will automatically and regularly provide you with the earnings release of the companies you own. I monitor my personal holdings through a Yahoo! Finance page that tracks all my stocks and allows me to view headlines and news stories from the Wall Street Journal, Dow Jones, and other financial publications. Read the rest of this entry »
BACKGROUND AND PURPOSE
The primary purpose of regulations is to protect investors, and the roots of governmental regulation of mutual funds in the longer-established markets are often associated with major scandals and market crashes.
In the USA, the stock market crash of 1929 prompted an extensive investigation by Congress into the securities industry. It revealed that overselling, or ‘ramming’ of shares, particularly radio company shares, had created unrealistic expectations and false, overvalued markets. The investigation resulted finally in the Investment Company Act 1940, which established the Securities and Exchange Commission (SEC) - this Act remains the cornerstone of US mutual fund regulation - and the Investment Advisers Act 1940. Along with two Acts passed into Federal law in the 1930s - the Securities Act 1933 and the Securities Exchange Act 2934 - these four Acts provide the bulk of federal powers over the activities of US investment companies. In fact, the only addition to US legislation affecting all companies since 1940 is the Sarbanes-Oxley Act of 2002 and that has only an indirect bearing on mutual funds themselves, being more concerned with accounting, auditing and disclosure practices of trading companies, following the Enron and Worldcom scandals. Read the rest of this entry »
In most countries, the regulations stipulate an important safeguard, whereby a fund’s individual holdings are to be registered in the name of an independent custodian or trustee, to ensure that investment in mutual funds is safe, in the sense that the assets cannot be misappropriated by the manager or by the investment adviser. However, this does not prevent fund prices fluctuating, reflecting the value of the underlying investments, and therefore, although ownership is secure, the value of an investment in mutual funds can fall as well as rise.
As with any investment portfolio, a mutual fund can be used for all or any of the following: Read the rest of this entry »
