B. Rights in a Unit: A Preliminary Analysis and Three Propositions
A modern trust deed invariably provides that the trustee will hold the unit trust assets for the unitholders ‘on and subject to the terms and conditions of the trust deed‘ and in the case of an authorized unit trust, the regulations made under section 81 of the Financial Services Act 1986.It is always possible for the trust deed or the relevant regulations to contain hundreds of covenants or terms that may alter or add to the rights in the beneficial interests of the trust assets. With the varieties of unit trusts and the varieties of units in the market today, the significance of the qualifying statement ‘on and subject to the terms and conditions of the trust deed‘ may easily be overlooked. Read the rest of this entry »
The swap terms available to the insurance company are as follows:
- Every six months the life insurance company will pay LIBOR.
- Every six months the life insurance company will receive 8.40%.
What has this interest-rate contract done for the bank and the life insurance company? Consider first the bank. For every six-month period for the life of the swap agreement, the interest-rate spread will be as follows: Read the rest of this entry »
The HHI takes into account the relative size and distribution of the firms in a market and approaches zero when a market consists of a large number of firms of relatively equal size. The HHI increases both as the number of firms in the market decreases and as the disparity in size between those firms increases. Markets in which the HHI is between 1,000 and 1,800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1,800 points are considered to be concentrated. During the 1990s, the HHI for the U.S. Mutual fund industry saw a minor decrease from 396 to 352 based on assets under management,6 indicating that the industry was, and still is, fairly unconcentrated according to this statistical measure.
Another fairly unconcentrated financial industry—domestic commercial banks (including thrifts)—has an HHI of 338, based on deposits of $3.4 trillion as of December 31, 2000. A subset of that universe—domestic money center banks— is much more concentrated, with an HHI of 1,676, based on deposits of $1.5 trillion. In comparison, the U.S. airline carrier industry has an HHI of 1,330, based on 2000 revenues. Read the rest of this entry »
The good news about this investing sin is that you have a number of ways to reduce its negative impact. Here are some steps you can take to reduce your gluttony and find a more healthy balance between active trading and watchful waiting:
A. Reserve 5 to 10 percent of your portfolio for aggressive trading.
Just as a diet isn’t designed to eliminate all food—or even all junky food—a good regimen for the investing glutton isn’t to cut trading entirely. For whatever reason, you enjoy and need the action of buying and selling. What you don’t need is for this need to eat away at your portfolio. Therefore, reserve a small percentage to feed this habit. If you only actively trade 100 shares instead of 1,000, you probably won’t do much damage.
Remember, though, that this 10 percent high-end percentage is absolute! Invariably, a time will come when the actively traded 10 percent will be performing well, and the inner glutton’s voice will say, “Don’t be a sucker; you’re a much better investor now than before; up the percentage to 20 percent?’ Do not heed this voice. It is the same voice the dieter hears after losing ten pounds, the voice that says, “Another slice of chocolate cake won’t hurt you? Read the rest of this entry »
It’s likely that most investors, at some point in their investing careers, buy and sell much too quickly. Perhaps they get caught up in a market upturn or downswing or they are going through a difficult period in their personal lives and turn to day trading as a form of escape. If overactive trading is an anomaly rather than a pattern, then you probably aren’t guilty of this sin. On the other hand, if you find that you periodically fall into the habit of overactive investing, gluttony may be a problem you need to address. Read the rest of this entry »
For all the seven sins, the goal is to keep your emotions in check when making investment decisions, but it is especially important here. Anger flares up faster than any of the other sins and it can be so powerful that before you know it, you’ve made an ill-advised investment. Besides the previous recommendations, here are some proactive steps that can keep Your anger out of the process:
- FORCE YOURSELF TO TAKE BREAKS FROM THE INVESTMENT WORLD IN GENERAL AND YOUR PORTFOLIO IN PARTICULAR
The more you immerse yourself in an investing mindset, the angrier you’re likely to get, especially if things aren’t going your way. Rubbing your nose in your own mistakes or the market’s unpleasant surprises for hours every day will just raise your hackles. As a long-term investor, you don’t need to be tracking your stocks nonstop or be up on every market development. While I strongly advocate being aware of events that have an impact on your portfolio, you can maintain this awareness by monitoring it every few days or by spending just a little time on it daily. Reducing your exposure to the investing world will reduce your aggravation. You will be less likely to blow your stack or your investment dollars from the accumulated pain associated with nonstop market monitoring. Read the rest of this entry »
Some investors experience significant losses but take counterproductive actions in the wake of these losses. Rather than becoming aware of how their sins created their investing woes, they allow sloth and pride to cloud their vision, shielding them from the truth about the mistakes they have made. Read the rest of this entry »
Some of you may have picked up this article because of some shock to your investing system. You were going along fine for a while, but some event caused you to lose a lot of money in the market and you vowed to make a change. Others may have heard about a friend or colleague who suffered a major loss, and you want to prevent the same thing from happening to you. Without experiencing these shocks or seeing how they affect someone you know, it’s easy to continue investing based on strong emotional states. If you haven’t suffered a shock yet, you are bound to experience one if you lack a disciplined, long-term strategy. Read the rest of this entry »
