Gain insights on investment clubs, closed-end funds, international trading, and more.
By Matt Blackman
Even after the late February 2007 market meltdown triggered by a 9% one-day drop in Shanghai, investors continue to seek higher returns in emerging markets. Given the much higher growth rates in places like India and China, US investors are asking how they can participate. There are a number of ways to invest in these hot markets without you or your money leaving home. One is through an American Depositary Receipt (ADR).
A way to get in the game
Like exchange-traded funds or mutual funds, ADRs trade on US exchanges and are denominated in US dollars, which means you can trade them through your brokerage account, IRA, or 401(k).
Unlike domestic stocks, ADRs are based on the underlying stock in the country of origin. This means that it will enjoy any rise (or suffer any fall) in the stock, and since the underlying is traded in a foreign currency, changes between that currency and the US dollar are also included in the calculation. If the US dollar drops compared with the origin country's currency, the ADR enjoys an added benefit.
For example, the Australian All Ordinaries Index has more than doubled since the beginning of the global bull rally in mid-March 2003. Additionally, the Australian dollar has appreciated 50% against the US dollar over the same period. The US investor who bought the Australian All Ordinaries in March 2003 would be up a total of 188% over the US investor who did nothing, or more than double the 74% gain for the investor who stayed at home and invested in the S&P 500 over the same period.
Just a matter of currency
The Australian dollar has been a strong performer over the past 4 years, gaining 50%. So let's take a look at an Australian ADR over the same period. Mineral exploration and processor BHP Billiton Group (BHP) is a great example. In mid-March 2003, it was trading just around $11. By February 26, 2007, this ADR was trading above $46 on the New York Stock Exchange with roughly half of that 330% gain thanks to appreciation in the Australian dollar.
Buying just any ADR is not a good idea. Holders of Thailand stocks found this out the hard way in December 2006, when the Thai government brought in myopic lockup rules restricting foreign investment. Thai stocks dropped 18% in one day as investors fled en masse.
Thanks to a river of liquidity flowing through global markets together with the explosion in the number of hedge funds, more dollars are chasing fewer opportunities, creating overheated markets. Even after a global correction, investor complacency remains high as measured by a number of indicators, increasing the chance of a more protracted meltdown in the future—if history is any guide. The big question is when.
It could be months or even years. Do investors sit on their hands waiting? The other option is a number of markets offering good appreciation potential, and these include those rich in commodities, such as Australia, Canada, and New Zealand. Other promising candidates include emerging economic powerhouses, such as China and India, as well as some smaller countries, such as Taiwan. And, after more than 15 years of recessions and deflation, Japan is again looking good.
With odds of US dollar weakness continuing, ADRs provide a great vehicle for diversifying your nest egg while not having to leave the safety and comfort of the stock markets at home.
, market analyst for www.TradingEducation.com, a free educational Website for traders and investors, is a technical trader, author, reviewer, and keynote speaker. He is also the host of www.electionomics.com, which is devoted to tracking the impact of the election cycle on markets. Matt is a member of the Market Technicians Association and the Technical Securities Analysts Association.
Exchange-traded funds (ETFs) may be all the rage, but savvy investors might find some hidden treasure in closed-end funds. Closed-end funds have a fixed number of shares with specialized portfolios and are traded on a stock exchange at a price determined by the number of buyers and sellers. Plagued by limitations, such as a lack of interest by research firms, a history of mediocre performance, trade discounts off net asset values, high fees, and a lack of high return, closed-end funds lack the popularity of ETFs. However, closed-end funds may offer investment opportunities for those who take a patient, yet aggressive, approach.
By anticipating shareholders losses, investors can take advantage and gain a profit. suggests that investors jump on closed-end funds when they are most vulnerable: when discounts widen due to market downturns, tax-loss selling, or rising interest rates; and, when dissident shareholders try to convert or liquidate the fund. Basically, investors can steal a deal by buying shares when the fund is vulnerable and waiting for the possible rise. It's important, however, to keep an overall diversified portfolio to limit the risk associated with closed-end funds.
Are you interested in investing but don't know where to start? Do you miss the intellectual discussions from your college days? Do you yearn to do some investing outside of your carefully structured portfolio but don't know how? If you answered "yes" to any of these questions, you may want to join an investment club.
Investment clubs have become a popular way for individuals to get together to discuss the always complex world of investing. Clubs discuss hedge funds, review investment books, and host professional lecturers. Some clubs pool together a small amount of money and decide where to best invest it. The agenda of most investment clubs, however, is to educate. It's a safe, open arena for peers to come together to learn and give each other advice. You can also start your own investment club; however, when starting such an endeavor, it's advised that the purpose of the club is clearly stated and, if fees are involved, a lawyer should be hired to draft up a member agreement. For more information about investment clubs, visit www.betterinvesting.org.
New York Magazine
Are you paid fairly? Are you sure of your answer? In a recent survey of 50 physicians from the New York region by , exactly half (n = 25) felt that physicians are paid fairly. Yet when the same physicians were asked if they personally are paid fairly, 40 answered "no." That's just one of the more amusing and interesting findings of this poll.
A physician's bottom line
Approximate physician annual salaries ran across the board: 4 made less than $50,000; 15 made between $50,000 and $99,000; 4 made between $100,000 and $149,000; 10 made between $150,000 and $249,000; 8 made between $250,000 and $499,000; 2 made between $500,000 and $999,000; and 2 made more than $2 million. Reasons given for undercompensation were listed as: "HMO policies," "I work 100 hours a week," "Residents equal slave labor," and "The money goes to insurance companies, lawyers, and pharmaceutical companies with good lobbyists."
While most physicians felt the worst parts of being a physician were the hours (n = 30) and hospital politics (n = 22), they felt the best parts were the intellectual challenge (n = 40) and helping people (n = 33); more than one answer could be chosen for this question. Money also was included as a choice for these questions, and 9 physicians included it under the "worst part of being a physician" compared with 2 including it under the "best part." Clearly, money is not a large motivating factor in the profession! In fact, the number-one choice to "Why did you become a doctor?" revealed the essentially altruistic side of medicine, with the majority (n = 44) answering, "Wanted to help people."
It's not you, it's me
Other questions, like the fair pay issue, revealed "everyone but me" mindsets. For instance, while more than half (n = 29) felt physicians in general don't spend enough time with patients, the great majority (n = 35) said they personally spend enough time; only 12 physicians admitted they didn't.
The greatest contrast was observed when the physicians were asked if those in their profession have "God complexes." While more than half of those surveyed (n = 28) said "yes, physicians fall prey to this ego condition," only 2 physicians admitted to having such a complex.
Other questions in the survey covered taboo topics. When asked if physicians ever get turned on by patients, 26 responded "never," yet 22 admitted "sometimes." Another 35 confessed that doctors and nurses "sometimes" flirt in the operating room. And when asked, "Do you ever get grossed out?" 15 of the 50 physicians answered "yes." Reasons cited were: "Bad smells," "Autopsies," "Had to remove someone's eyes because of cancer."
For the full survey, go to nymag.com/health/bestdoctors/2007/33164/. While there, be sure to also check out "The 50-Nurse Poll" for nurses' real opinions of physicians.
You're in your 20s, just graduated medical school, and have started your residency. You've got medical school loans, rent/mortgage, credit card balances, and assorted bills to pay. Why think about retirement now? Because saving now ensures you will be able to retire later.
Time is your best friend! If you start at age 25 and invest $1,000 per year in a tax-deferred account that earns 7% annually, you'll have accumulated $199,635 by age 65. The same amount invested every year starting at age 40 will only earn you $63,249 at age 65.
If a 401(k) is available to you, jump in as soon as possible and make sure to get the full company-match benefit. That's free money working for you. If you leave your company, be sure to carry that 401(k) over to an IRA, so it can continue to grow.
Most important, be proactive now. Contact an investment advisor and plan ahead. If you set aside as much as you can now, you can avoid investing more of your income later in life, when you may need it most.
Think owning an airplane is a bit out of your price range? Think again! Hedge funds, capitalizing on a trend by airlines to switch from owning to leasing their aircrafts, have bought into the airplane leasing business. Sensing that global demand for aircraft would increase, hedge funds began buying individual aircraft and storing them until they had amassed a fleet. The funds then created airplane leasing companies. Cerberus Capital Management and Fortress Investment Group have capitalized on the growing trend.
According to , Fortress leasing company, Aircastle, raised $240 million during its initial public offering in August of 2006, and 8 months later their shares were up about 30%. Cerberus bought DaimlerChrysler's stake in Debis AirFinance leasing firm when the carmaker made company cutbacks. Private-equity firms are also joining in on the plane game. In May 2007, private-equity firm Terra Firma purchased Pegasus Aviation Finance for $5.2 billion and now owns the world's third-largest plane leaser. Hedge funds and private-equity firms now own approximately 17.8% of the world's airplanes.