New Money

Got $75,000 lying around? Shares of Warren Buffett's Berkshire Hathaway are currently trading in that range. You might ask, "How is that a deal?"

By late morning today, the stock was trading around $77,000, down 8 percent from yesterday's close of $84,000. Wednesday, it fell $11,550, or more than 12 percent--its biggest one-day percentage drop since 1987's Black Monday. And get this: Since the stock's all-time closing high of $149,200 on December 10, 2007, Berkshire's shares are down roughly 50 percent.

For the thrifty, Berkshire's B shares are currently trading around $2,500. They're down about 8 percent so far today, and 45 percent from $4,550 a year ago.

Continue reading »

Anyone who once thought of value investing as a low-risk way to ride out a bear market got a wake-up call this year. Value funds may have held up relatively well during the 2000-02 bear market, but their 2008 performance so far ranks at the bottom of Morningstar's categories of diversified stock funds.

Even more surprising to some, the kings of value--including Marty Whitman, Bill Miller, and the gang at Dodge & Cox--have fallen farther than most of their peers. Third Avenue Value, Legg Mason Value, and Dodge & Cox Stock have all lost more than half of their value this year (Miller's Legg Mason Value is down 62 percent!)

There are a couple of explanations for this. Miller, who awed the investing world by beating the S&P 500 for 15 consecutive years (1991 to 2005), may have lost his mojo. Keith Fitz-Gerald at Money Morning says he--along with the Dodge & Cox team--"simply underestimated the depth and severity of the challenges facing their investments. Adding insult to injury, they concentrated their investments in a relatively small number of core holdings they thought they 'knew.'

Continue reading »

Young investors: Forget all the conventional advice you've heard about paying down high-interest debt before you invest. A much better plan is to get a loan pronto and pile into the stock market now; you'll be able to pay the money back later.

That's what the contrarians over at Slate are telling 20-year-olds this week. Author Tim Harford's argument hinges on "generational risk": When investors are young, they have little money, therefore almost no exposure to the stock market. In middle age, they're on the hunt for high returns, but as retirement approaches, they become conservative again.

Slate's solution:

"The logical way to fight generational risk is to borrow money to make large, regular investments in stocks while young, then use a proportion of later savings to pay back the loan rather than to pile into the stock market in middle age. That sounds risky, but it is, in fact, exactly what people do in the housing market. Knowing they will need a place to live all their lives, then tend to buy a small house and gradually trade up to a bigger one, paying off their mortgages only later in life...Most of us need a retirement fund as well as a place to live; there is nothing intrinsically risky about regular borrowing to get that fund off to an early start."

Continue reading »

The old investing wisdom was that adding international--and especially emerging markets--to your portfolio would result in some zig zagging in volatile markets.

But the reality of this market is that stocks around the globe are moving more in step. Lately, they've converged aggressively to the downside, says the staff of Standard & Poor's "The Outlook."

"Specifically, the MSCI-EAFE index, a developed international equity benchmark, is now moving in unison with the S&P 500 index 89% of the time, up from 80% on August 31. Similarly, the MSCI Emerging Markets index's correlation to the 500 has jumped to 81% from only 68% two months ago. Worse yet, the MSCI Frontier Market index, long touted for its ability to 'zig' when the 500 'zags,' has seen its 500 correlation surge to 63 percent from a mere 9 percent on August 31."ot even small and midsize stocks have offered refuge, says S&P, as they're now moving with the S&P 87 percent of the time, up from 74 percent two months ago.

Continue reading »