Facebook is going public with a valuation of $104 billion, although they are only selling $16 billion worth of shares. Here's a tip. At that price avoid it like the plague. In fact, short the plague. Put all your assets into shorting the stock.  The price won't last, just like the radioactive decay that was Lastminute.com. And here's why:

Capped Revenues
Facebook makes its money from selling advertising space based on the information supplied by users. And it says it has a lot of users, about 845 million. So far, so smart. Facebook is currently valued at 100 times earnings, which sounds fine for an internet startup that has been around for a few years, but not so smart for a company that claims to have 70% of internet users signed up.  There isn't much room for growth there, and certainly no way to grow the revenues to bring up the "e" in the p/e ratio so that it hits the 8 to 12 expected of a mature company. Expect the "p" to fall.

Ever growing cost base
Unlike many internet companies, Facebook does have financial data, but the picture it shows is not that great.  It is profitable and it is growing fast, but the problem is that Facebook is not like most internet companies where the fantastic profits come because of the incredible scalability of the internet. At Facebook the rapidly increasing revenues are closely followed by rapidly increasing expenses.

That is not how it is supposed to work.  The idea of an internet venture is that you invest all your money up front in development and then you sit back while your fixed cost base produces an ever increasing revenue stream.  The trouble with Facebook is that this year's cost base is higher than last years revenues.  Eventually the revenues will stop growing and this year's bright star will become next year's dog.

New Entrants
Give me $104 billion and I can build a rival product that will eat into Facebook revenues. Easy.  In fact give me $104 *million* and I can do the same. So give me $1 billion and I can build a rival product, hand over $1 to every Facebook user who switches to my system and pay them $1 in cash, which is roughly all you would have to pay to get people to switch.

Existing Competitors
Actually, you don't need to worry about any new businesses because there are plenty of other companies that can advertise in your face while online and they have better business models.

Nobody gets onto Facebook to go shopping.

Ebay, Amazon and Google know what I want to buy because I search for it on their websites.

Facebook knows my favourite colour.

Ebay, Amazon and Google know that I want a 5V micro USB power supply, solid oak gate posts, hard to find cupboard hinges and a new satnav.

Facebook knows that I like the bands whose CD's I already own, and where I went on holiday last year.

I probably want to go somewhere else this year. I will check out that somewhere else on Google, thank you very much.

The World Moves On
Facebook started as a desktop system, but the world is going mobile. The IPO prospectus mentions the word "mobile" 123 times, and 425 million of the 845 million monthly active users (MAUs) at December 31, 2011 are mobile users. Mobile users are growing faster than other users, and expect that trend to increase if Facebook breaks into China where mobile phone usage far exceeds internet connections.

Facebook do not make any money out of mobile users.  The prospectus says "We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven".  Worse still the prospectus says that the company's revenue growth could be harmed if it cannot "successfully implement monetization strategies for our mobile users".

Could? Make that will.

Crap Management
Zuckerberg. Say no more.  He actually says he doesn't really care about advertisers.  Do you really think he will care about shareholders once he has your money? Dream on.

Falling profits
To justify such a high p/e/ the company need sto be growing its profits. Sadly they fell 32% between Q4 2011 and Q1 2012. And revenues were down 6.5%.

At $104 billion this is a no-brainer. And if you want a feel for how screwed you would be, the shares on offer are "A" shares, which carry one vote per share, as is normal, but the current owners' shares are "B" shares, which carry 10 votes each. Zuckerberg will own less that 50% of the shares, but 56% of the votes. Go for it suckers.

It's been a pretty busy week here at the Financial Crimes with a lot of incoming readership from Zero Hedge, all because of a post I made a few years ago about Matt Zames, rising star at JPM.

Well it seems that not a lot of people spotted that Mr Zames was fingered in a court deposition as having suspicions about Bernie Madoff 18 months before the NY District Attorney got wind and closed him down.  Zames' suspicions were strong enough for him to mention them to a JPM risk officer, but obviously not strong enough to go to the authorities.

Anyway, the reason that Mr Zames, who incidentally is chairman of the Treasury Borrowing Advisory Committee (not bad going for a trader who worked at LTCM, the hedge fund whose failure was so large that it was bailed out to the tune of $3,625 million by US banks under the supervision of the Fed), is now in the news is that he has been but in charge of the $70 trillion derivatives book in the Central Investment Office at JPM.

Between Madoff, LTCM, the stinking carcass of the London Whale and telling the US government how much to borrow, something doesn't smell right.

Paradoxically, this post on gender stereotypes actually reinforced one perhaps unjust prejudiced stereotype I have - that female/feminist writers are apt to rely on unscientific anecdotes and focus upon trivial everyday irritations. This is unfortunate, because rigorous scientific thinking about stereotypes suggests that women have a genuine grievance.

This paper shows what I mean. Researchers got subjects to compete in a task in which it is thought that men do better - mentally rotating different shapes.

They found that women did indeed do worse than men in such tasks, but only when they knew their competitors' gender:

Information on rival’s gender affects women and men very differently. In the task that is perceived to favor men, it has a positive effect on men’s performance under competition, increasing their performance by almost 60%, but a negative effect on women’s performance when competing, reducing their performance in about 40%.

What's going on here is the stereotype threat, or the "give a dog a bad name" effect. When people are invited to believe that something is "man's work", men step up their effort whilst women become weedy girlies.

Stereotypes, then, are not just irritating generalizations. They have serious and large effects.

I find it plausible that this could have adverse effects upon women's life chances. If some jobs are perceived as "men's work" then women will be less inclined to do them, or might do them worse, even if there is no original rational basis for that perception; it's the perception that creates the reality, not vice versa.

What should be done about this? The answer might not be positive discrimination, such as having quotas for women directors. The authors say:

Affirmative action policies based on gender may in fact have counterproductive effects, since while creating advantageous conditions for women they also make gender information salient, affecting women’s performance negatively.

Instead, I suspect the solution is to challenge the original stereotypes - to show that gender differences either do not exist or, where they do, that they are the result of a social construct, rather than innate biological differences; the work of Alison Booth is relevant here.

Now, it should be obvious from that I say this not to criticize feminists. Quite the opposite. Underneath the trivial anecdotes lies a real and important issue.

I have appeared recently on Newsnight (23 minutes in), ITN News and BBC News talking about the debate over austerity v growth.

I also appeared on Robert Peston’s BBC2 programme about the Eurozone crisis - The Great Euro Crash.

These appearances were prompted by the Eurozone crisis coming back into focus, and in particular by a period of a week in which the Dutch government fell; elections in Greece failed to produce a government, and in particular failed to produce a consensus which supported the austerity measures which Greece had agreed to as part of its last bailout deal; and the socialist candidate Francois Hollande defeated the incumbent Nicholas Sarkozy to become President of France. Clearly the electorates are rejecting austerity. It has now led David Cameron to start making supportive noises about Monsieur Hollande’s call for policies to support growth. It seems strange to scramble to align oneself with a soundbite. But then I’m not a politician.

The appearances were also a result of the publication of the latest piece of research by my colleague Dr Tim Morgan – Blowing the Whistle on UK Austerity.

Tim’s research explodes the myth that the UK economy is struggling under the impact of government spending cuts. Government spending was cut by just 1.5% in 2011-12 and is only planned to fall by 5-6% by 2016-17 (so far away, who cares?). It is still over £20bn higher than government expenditure in 2008-09 under Labour. More worryingly, it is 50% higher in real terms than it was 10 years ago. As Tim succinctly puts it: what is it that the government wasn’t supplying ten years ago that we now cannot live without? The answer of course is nothing. Expenditure can be radically reduced and needs to be if there is to be any chance of closing the deficit which is currently running at over £120bn per annum and adding to the national debt which is already too high.

Such a miniscule cut did not send the UK economy back into recession-it never exited in reality (see below about the size of the stimulus which has been applied just to get it to stand still).

My stance is clear and it has been so since the onset of the financial crisis and the Eurozone crisis:

1. The debate between those who propose policies designed to promote growth and those who see the need for austerity is a sterile one for a number of reasons.

The simplest reason is that we are going to get austerity whatever people want. There is simply no source of additional money to spend to stimulate growth. The bond markets have had enough of governments who continually run unsustainable deficits. You cannot borrow your way out of a debt crisis.

Additional deficit spending funded by increased borrowing would not produce the desired result even if it were possible. So far the UK economy has been the recipient of £500bn of deficit spending, £325bn of Quantitative Easing and interest rates have been at a 300 year low for over three years. These so-called Keynesian measures (I say “so-called” because most of their proponents seem to me to have about as much grasp of Keynesian economics as they do the topography of the far side of the Moon) have not managed to get the economy growing so far, and they will not. The velocity of circulation of money has slowed-people want to pay down debt where they can. The government is also an incredibly inefficient spender (unsurprisingly as it’s not their money)-in the years prior to the recession it borrowed £2.18 for every £1 of growth. As Einstein said, to keep repeating the same actions whilst expecting a different outcome is a definition of insanity.

2. The only way to generate growth is to cut the size of public spending sufficiently to allow for tax cuts. Individuals and companies are much more efficient at spending the money they earn than the government is on their behalf, so better to leave more of it in their hands.

Yes, I do have a plan for exactly where to make the cuts.

3. With regard to the Eurozone I first predicted that Greece would leave in April 2010. I have not changed my mind.

There have been no fundamental solutions applied to correct the problems of the Eurozone. You cannot solve a problem of solvency and lack of competitiveness with liquidity and rhetoric. If you could, it would have been solved long ago.

When Greece leaves, the crisis will roll on into Portugal (I know it’s a small country but everyone seems to have forgotten them) followed by Spain, Italy, Ireland and ultimately France. Yes, the horrible truth is that financially France is a peripheral country, one of the PIIGS.

Some good reads from around the Web.

I have to use this week’s Saturday morning piece to point readers to an update to our post about Vanguard funds and Interactive Investor.

The plot thickened almost as soon as we posted that article. Initially prompted by Monevator readers’ comments, it was soon fueling even more confusion among others.

Vanguard funds that were seemingly available on Interactive Investor’s systems – and confirmed as such by staff – turned out to be part of a limited test program, not yet permanent additions to the iii stable. Please read the updated intro to the article for more on what this means.

It’s a pretty frustrating state of affairs.

I won’t go into the specifics of this SNAFU much further, since we’ve subsequently been in discussion with iii staff, who I’m pleased to say have responded with some clarity on becoming aware of the befuddlement their pilot program seems to have caused at least some customers.

But I would like to point out that it’s 2012, and no service provider can rest on its laurels.

The time is long gone when the typical investor checked his share prices in the FT on the train back to Basingstoke before joining his broker or financial adviser for a few G&Ts at the golf club.

Active investors are online, they are communicating with each other, and word gets around fast.

Yesterday we saw the IPO of Facebook, just one company revolutionising the world by capitalising on the power and appeal of community.

Blogs like Monevator have sizable communities, too – we’ve welcomed over one million unique visitors to this site since 2009. They have left thousands of comments, but more importantly they have spread links to our content across even larger discussion forums, such as The Motley Fool, Stockopedia and ADVFN. We, in turn, have spread links posted to discussions elsewhere.

This is the modern landscape that financial service providers will thrive or die in, and it’s best for everyone if the information that spreads is clear and accurate.

Consumers are wising up, sharing knowledge, and growing smarter. Tracker funds are now outselling actively managed ones. Banks are on the hook for billions in compensation partly as a result of grassroots campaigns that began on the Internet. It’s truly a hive of investment activity, as alluded to by the name of one new Web-based service, Investor Bee.

The direction of travel is clear. In my opinion, the future of financial advice and services is clearly online. Online is no longer a place for afterthoughts – it’s at the heart of how we’ll save, invest, and plan for our retirement.

I can only apologise to any readers who were excited by our post on Thursday and who are now disappointed, although I’m not sure what else we could have done, given we’d had confirmation from telephone staff that the funds were available to trade.

Still, we’d rather be contributing to the signal, not the noise.

From the money blogs

• The pleasure/pain principle – Investing Caffeine
• Europe’s depressing prospects – Michael Pettis
• First retire, and then get rich – Mr Money Mustache
• When and how to rebalance your portfolio – Can I retire yet?
• Why do economists say there is an annuity puzzle? – Wade Pfau
• Trading time for money – Get Rich Slowly
• Exploring alternative asset classes – The Digerati Life
• Become a safer investor: Get Married – The Psy-Fi blog
• What the Eurozone crisis means for you – Totally Money

Book of the week: Still befuddled by the potential of Facebook? Check out The Facebook Effect, the definitive book on the company’s first eight years.

Mainstream media money

• The endangered public company – The Economist
• Facebook co-founder Eduardo Saverin’s big tax bill – The Economist
• Banking: Same as it ever was – The Motley Fool
• How Facebook’s bankers kept the day one price above $38 – CNET
• Peston: How serious is Northern Rock’s £2 billion loss? – BBC
• Why can’t the taxman crack the tax codes? – FT
• Tracker sales soar despite the turmoil – FT
• Commemorative coins are mediocre investments – FT
• Preference shares boast yields of 7-10% – FT
• Smaller companies top returns over the long-term – FT
• How to avoid the annuity trap – Telegraph
• A good time to start a business? – Independent
• Retail bonds versus fixed-rate savings – The Guardian
• Greeks apologise with gift of huge horse – The Daily Mash

Like these links? Subscribe to get them every week!

Further reading:

1. Online financial advice in the future
2. Shock news: Asset allocation not as dull as it sounds
3. Crisis investing: Specific news events

Is there anything to be said in defence of the coalition's fiscal austerity? Martin Wolf and Jonathan Portes think not. And the Tories' usual defences of their policy seem inadequate. The idea of expansionary fiscal contraction has come as close to being refuted as any macroeconomic idea can be - at least in terms of its relevance here and now. The government's claim to be "fiscal conservatives and monetary activists" is undermined by Osborne's failure to change the inflation target. And the idea that austerity is necessary to retain the faith of bond markets is, at best, an unproveable counterfactual and at worst ("we could have been like Greece") mindless drivel.

So, what can be said for austerity? If I were a Tory, I'd try the following.

The focus of policy should be upon long-term prosperity, not the here and now.

One reason for saying this is that complaints about current high unemployment are mere crocodile tears. If Labour really were concerned about the costs of short-term downturns, it would have used its 13 years in power to improve risk-pooling - either by increasing out-of-work benefits or by encouraging the development of macro markets. It didn't do so, and voters didn't want them to. This tells us that the public behave like Lucasians (pdf), in thinking that the costs of downturns are small.

What's more, the very fact that real bond yields are low tells us that future income is very valuable, relative to present income. We should therefore try to maximize it. And austerity raises long-term growth.

This is partly because there can be a trade-off between stabilization policy and longer-term growth. One overlooked reason for this is that a counter-cyclical fiscal expansion would merely involve spending on unproductive boondoggles that burden future generations. As Britmouse says: "I doubt the Pembury road will ever get priority over the expensive white elephants."

More importantly, though, there's some evidence - not as much as Amity Shlaes pretends, but some - that lower government (pdf) spending can raise long-term growth. Granted, that evidence comes mainly from cross-country research of questionable validity. But two mechanisms make the link plausible.

One is Baumol's cost disease. Government, by its very nature, has low productivity growth. This means that having a big government condemns us to low growth by simple maths. Worse still, the rising relative cost of government over time will crowd out the private sector - and the bigger government is, the sooner it will do so.

The other is that, in the long-run, social norms matter. The persistence of big government threatens to create a norm in which young people to look for safe public sector jobs in sclerotic hierarchies, which would divert talent away from the private sector towards low-productivity-growth work. This could choke off future growth. Also, prolonged austerity now is creating low or negative real interest rates. This will encourage youngsters in future to take on more debt - because macroeconomic conditions in our formative years shape our behaviour (pdf) throughout our lifetime. In this sense, austerity today will encourage borrowing in future - maybe for consumption but maybe too to set up businesses. This too should raise future growth.

As for why we should cut now, there are two reasons. One is that it's what the public want: Labour's offer of (slightly) smaller and later spending restraint was rejected by the voters.The other is that the sooner we start cutting, the easier it will be in future - partly because the objections will be out of the way, and partly because once we get into habits, it's easier to stick to them.

Now, I suspect this sort of argument makes more sense than the standard Tory ones - though that's a low bar. As for how much sense it makes, I'm not sure.

It's pretty hard for a bank to lose a billion all of a sudden, but when, like JPM, it is hiding a hedge fund amongst its federally insured businesses, it happens very quickly as the $2 billion loss of less than a week ago seems to have doubled.  A billion here, a billion there and pretty soon you are talking serious money.  much more of this and JPM will be looking for a new CEO.

Most people assume that in order to collect art you’ve got to have millions of pounds to squander away. This assumption is entirely wrong and in actual fact it’s better to collection art from new artists in order to maintain the industry and showcase new talent. If you have a passion for art collecting it could bring you great pleasure and could be an extremely beneficial investment.

There are a couple of things you should think about, however, before you decide to start collecting art.

How do you start?

First and foremost, if you are considering investing in original art pieces you should definitely have a keen interest in art. Whether it is paintings, photography or sculpture, having a general understanding of artistic production and technique is always a start.

Before you decide to buy your first piece of art it would be worthwhile to visit art museums, fairs and potentially read a couple of art magazines. This way you can establish the kind of art pieces you’d like to invest in. During this process hopefully you will find art pieces that really draw you in and resonate with you.

Where to invest

Most collectors will buy their art directly from a dealer but if you are new to art collecting, art galleries and international art fairs might be the better option. Exhibitions such as the Royal Academy Summer Exhibition has been established for over 200 years and is the largest open submission contemporary art show in the world. Emerging and established artists exhibit their art at the show through a variety of media types including sculpture, printmaking, film and many more.

Exhibitions such as this are fantastic for people wishing to invest in art as the artists themselves are often there to talk about their work along with art dealers, and the staff and gallery curators are always very helpful and knowledgeable without being pushy.  With so many entrants showcasing their work, be prepared to see something you like. It’s a good idea to bring along a 0 interest credit card in case you see something that sparks emotion and you feel like you must have it before somebody else snaps it up. If you feel like you have to have it, it’s a good sign that this is the piece for you.

Invest in contemporary or vintage?

If you are looking to collect art on a relatively small budget it is more likely you’ll find contemporary art more approachable and attainable. When looking to collect older pieces of art it is suggested you work with an advisor or dealer, buying older pieces isn’t just about the artwork, it’s about the history, the artists intentions and the reputation that comes with the piece.

Emerging contemporary artists will approach you with enthusiasm and even established artists will be willing to compromise on price if you show interest in their work. There are now a variety of online stores where up-and-coming artists are selling their original work, Esty is very popular with contemporary art and can be a great way to find attractive, niche art pieces that you might not see in established galleries or exhibitions.

Why invest?

Finally, if you are considering investing in art you should probably know why you’re doing it. Even though collecting art is an investment, you shouldn’t think of it like that. Buying art should be personal and should be a passion, buy art that you love not that you think everybody else would love.

If you buy a piece that happens to skyrocket in value while you have it, think of it as good taste.

Have you thought about investing in art or do you own any? What advice do you have for people looking to collect? Let us know in the comment section below.

 

Previous posts suggested switching from a neutral to defensive stance on equities in response to a fall in a global leading indicator derived from the OECD’s country leading indices. The thinking was that such a decline would confirm the monetary forecast of a slowdown in global growth from the spring, implying increased headwinds for risk assets.

The signal was duly delivered last week – see here – and has been followed by a 4.3% decline in global equities, as measured by the MSCI World index in US dollars. Stocks, however, had already fallen by 6.1% from a 19 March peak, probably reflecting a reescalaton of the Eurozone crisis. Euro woes, in other words, may have advanced and exaggerated the expected risk sell-off.

This, needless to say, complicates investment decision-making. Current equity prices may already discount likely economic weakness – global real money is currently still expanding, suggesting a slowdown rather than anything worse. A full meltdown of the euro would warrant further falls but the probability of such a scenario is unknowable, depending on the psychology of Spanish and Italian bank depositors as much as, or more than, any decisions by political leaders.

Stocks look short-term oversold based on the put / call ratio and other indicators, while further monetary easing is in train: Chinese repo rates, for example, this week fell to their lowest for a year – see first and second charts. G7 12-month real narrow money growth has yet to cross beneath industrial output expansion, a development that usually precedes major bear phases. There may be a better opportunity to undertake a further defensive shift.

Footnote: An interesting curiosity is that fluctuations in US stocks so far this year resemble those 25 years ago in 1987. A spring sell-off that year bottomed on 21 May and was followed by summer strength before much greater weakness in the autumn – third chart.

 

When it comes to making your office greener, it’s the little things that count. Small changes in work habits can make big changes for the world’s environment, and doing your bit may just contribute to a healthier planet for all of us.

Although many of us would love to make our offices more environmentally-friendly sometimes it’s hard to know where to start.

Taking part in Green Office Week 2012 has been a great way get started and it feels like we’ve learned many ways to make a difference. So we’ve put together our top tips – each day of the week focusses on a different aspect of making your office greener.

Here is a rundown of the energy saving priority each day, plus some great tips for how you can contribute…

Monday

Kick off the week by focussing on energy saving. Start a campaign to turn off lights when not in use and have a light-hearted penalty for those caught disobeying the rule. Turn the radiators down a notch – perhaps you could run a ‘Most Embarrassing Jumper’ competition to keep away the chills?

Set the display on your computer monitor or office phones to switch off after several minutes of being idle – you’ll save energy without even noticing.

Tuesday

On your bike! Find a greener way to get to work and leave the car at home – make friends on public transport, up your vitamin D intake on a leisurely stroll or improve your cardio with a brisk cycle to work.

Alternatively you could arrange a car share with those who live in the same direction as you – great for the pennies, great for the environment and even better for office gossip!

Wednesday

Waste not, want not. Wednesday is all about reducing office waste, so why not start a competition to see who can come up with the most imaginative way to reuse things which would normally end up in the bin?

Take any unused furniture or office equipment down to the local charity shop too, they’ll find it a good home instead of it gathering dust in the store cupboard.

Thursday

Think about what you buy on Thursday – is it eco-friendly? Look at your current office supplies and consider which could be switched to an environmentally sound alternative, like recycled paper or refilled toner cartridges.

Friday

Get creative because Friday is the day of innovation. Divide into teams and try to find five things in your office that need changed to save energy. Invite some local art and design students to get crafty with your office junk and you could end up with a nice new piece of artwork for the reception area.

Do you have any other tips for saving energy in the office? If so it’d be great if you shared them in the comments box below.

By Eugene F. Fama and Kenneth R. French

Understanding volatility is crucial for informed investment decisions. Our paper explores the volatility of the market, size, and value premiums of the Fama-French three-factor model for US equity returns.

Volatility and Premiums in US Equity Returns (PDF)

 

In the aftermath of elections, Greece’s future as a member of the Eurozone looks doomed.

Greece’s place as a member of the euro club hinged on the country sticking with stringent austerity measures. Although no overall victor emerged from the election, the mainstream parties that had supported austerity were punished.

It is possible that another election may have to be held in a few months time if a ruling coalition can not be formed.

This political instability has led to Greeks scrambling to withdraw their money from the banks, prompting fears that the banking system in the country could be about to collapse.

While it is clear that the Greek population do not want want austerity measures, the financial markets of the world definitely do. With the increasing likelihood of a debt default the talk is not of whether Greece is going to leave the Euro but whether it is possible for it to happen in an orderly fashion.

It is not just Greece that has the markets worried, rather it is a reminder that the Eurozone as whole is on shaky ground. Spain’s fourth largest lender Bankia received a government bailout, which was also not well received. It is a sign of how negative the sentiment currently is.

According to an analysis published by Adam & Co investment management  the best guess is that the value of the Euro will once again fall as low as $1.27.

While this would be good news for British holidaymakers it would be concerning for the European Central Bank, who would likely feel the need to take measures – most likely an interest rate cut.

It is not just Greece who have elected who the markets consider to be the wrong candidates. In France the election of Francois Holland has also caused markets to wobble, perhaps not surprising given his campaign slogan being “my enemy is the world of finance”.

Are you worried about the Euro in the long term despite good news for holidaymakers? Tell me what you think in the comments below.

Is sexism partly to blame for the decline of trades unions? A new paper suggests so. It finds "a negative and statistically significant link between workplace union density and gender diversity" and says:

The increase in the labour market participation of women in the face of gender discrimination may increase friction between female and male employees within the workplace. This may, in turn, pose challenges in the way of coalition building, which unions need to achieve in order to succeed.

In other words, it might be no accident that the increase in female employment since the 70s has coincided with declining unionization; the former might be one cause (not the only one, of course) of the latter.

Intuitively, we shouldn't be too surprised at this. There's sad evidence that ethnic diversity weakens social solidarity and the building of pro-redistribution coalitions. Mightn't the same be true for gender diversity?

You can read this in two different ways.

You could say that the decline of unions is (partly) due to men's sexism, a reluctance to unionize with women.

Alternatively, you could ascribe it to the increased gender mix of workplaces.

It is, of course, the interaction of the two that does the damage.

This raises an awkward point. The decline of unions since the 70s has contributed (pdf) to rising wage inequality. If increased gender equality (in the sense of more job opportunities for women) has contributed to the decline of unions, then it follows that greater gender equality has been a cause of reduced income equality. Rick recently noted, rightly, that "We are more economically unequal but less socially unequal than we were three decades ago." But he didn't add that the latter might be a cause of the former.In this sense, there are - at least for given (sexist) norms - potential trade-offs between different types of equality.

 

In the world of investments, probably the most widespread piece of advice is to “diversify, diversify, diversify.”

And in your average investment strategy, this would be accomplished by creating a portfolio investing in a number of different industries. However, there is a lot more to the financial world than just playing the stock market.

Considering on the type of portfolio an investor is looking to build, it can also be a good idea to look into the possibility of alternative investments.

Commodities

SWAG investments, or silver, wine, art and gold, as well as coffee and oil have become popular in recent years with the unrest on the stock and property markets.

The appeal of investing in commodities mainly has to do with owning a physical proof of investment that is unlikely to completely depreciate in value.

While a stock can depreciate almost overnight depending on what the company is doing, a commodity has the benefit of usually having at least some baseline value attributed to it (except in extreme circumstances, such as a country flooding the coffee market, for instance, with a large surplus crop).

The Glorious Grape

Wine in particular is appealing because there is a good amount of diversity that can be achieved within the wine trade itself. Varying an investment in vintages, vineyards and styles can cover a number of bases, especially if trend-proofing your collection is an end-goal.

It’s Not a Tax Dodge

Also, in terms of taxation, wine in particular can be stored in a UK Customs-controlled bonded warehouse to avoid VAT and excise duty, making it a doubly appealing prospect.

Get Help

It is extremely important to get the help of a broker who knows their way around the wine trade. If you’re considering looking into wine investments, be sure to consult with a seasoned financial advisor with a track record in alternative investments first, as the market is remarkably different from other forms of investments.

For one thing, the price of a bottle can be artificially inflated at auctions when bidding gets out of hand. And the prices can be steep to begin with, check out this list of the most expensive wines on the market!

And of course, be careful not to drink your investment! Although having a bottle on hand should you, say, find yourself having a swanky dinner in a serviced apartment in London (imagine: Domaine Leflaive Montrachet Grand Cru at the Grosvenor) wouldn’t go amiss.

Do you have any stories to share about investing in wine? Share them below.

We note from the Court Pages of the national newspapers that Queen Sofia of Spain has been ordered to down turn an invitation from Queen Elizabeth to a Diamond Jubilee lunch for the world's sovereign monarchs because of Spain's persistent niggling over Gibraltar.

Queen Sofia had earlier accepted the invite to tomorrow's (Friday's) celebration at Windsor Castle, but in a last minute snub by Spain's government she has been told not to attend because it would be "inappropriate in the current circumstances".

Never mind, perhaps she would like to come back next April to celebrate the 300th anniversary of the Treaty of Utrecht.

And of course, it could all be just a ploy to divert attention from the massive cost of borrowing for the Spanish government in today's news.

Update 18 May 2012: Since this post was written, we have been informed by Interactive Investor that Vanguard funds are NO longer available on its platform. We are told that the company is piloting seven Vanguard funds to ensure its systems work, but will be removing them at the end of testing. We’re advised to inform you that “they will be not be available until further notice.”

We at Monevator are sorry for contributing to this confusion, which was prompted by the fact that readers kept telling us that the funds WERE available – reasonably enough, because they saw them there – and asked us what we thought.

Sure enough, we were informed by Interactive Investor staff that the funds were available to trade.

However, we were not told that the Vanguard funds were only available for a strictly limited period as part of a pilot scheme. 

Interactive Investor have since confirmed that any investors who have managed to buy Vanguard funds during the test period will be unaffected by the end of the pilot scheme. You will still be able to track performance and receive valuations within your Interactive Investor portfolios. However, it is unclear whether you’ll be able to add to your Vanguard holdings through the broker. 

Apparently Interactive Investor is engaged in ongoing negotiations with Vanguard about its entire range of funds, but we don’t know on what terms they will be offered, if at all. 

We’re leaving this post up as an historical artifact, and as something to point readers to when they next ask us about this subject. This is the second time we’ve been confused by iii’s systems here, so we’re backing away slowly, closing the door, and running in the opposite direction. No more updates until we get an extremely official announcement, perhaps signed in blood.

At last! Vanguard index funds are now available through a broker that doesn’t impose platform fees, annual charges, dealing costs, or any other sneaky expenses that can nobble a small investor’s returns.

The broker is Interactive Investor (iii) and this development means Britain’s cheapest trackers can now be bought for sums as low as £20, which previously would have been suicidal in the face of flat-rate fees.

Seven funds from the Vanguard index fund range are available through iii, including a few of the instant-portfolio LifeStrategy funds.

However, this is a developing situation and I recommend you ring iii to check whether the funds you require are available.

When rumours first circulated a few weeks ago that iii stocked Vanguard, I was told that only Vanguard’s FTSE UK Equity fund was available. This despite the fact that the entire Vanguard range is listed on iii’s website. That toe in the water has now become a whole leg, so the possibility remains that iii will go all in at some point in the future.

The currently available Vanguard funds are as follows:

• FTSE Developed Europe ex-U.K. Equity Index Fund

• FTSE Developed World ex-U.K. Equity Index Fund

• FTSE U.K. Equity Index Fund

• U.S. Equity Index Fund

• LifeStrategy 20 % Equity Fund

• LifeStrategy 80 % Equity Fund

• LifeStrategy 100 % Equity Fund

All funds are available in ISA accounts and are accumulation flavour.

Don’t take ‘no’ for an answer

One Monevator reader, Sam, has already reported being told a different story – that only the LifeStrategy 100% fund is available, and not in an ISA.

I have previously found with brokers that the story can change from operative to operative, depending on how au fait they are with their internal systems. So if you get a different tale, ask for a double-check and tell the rep to ignore NASDAQ listings – you are only interested in UK or Irish-domiciled OEICs.

Do let us know about your experiences in the comments section, too.

Sadly, iii’s website isn’t keeping up with events and there is currently no way to tell online which of the funds are available to buy and which are listed for information purposes only.

No doubt this situation will change in time – again many brokers often make funds available over the phone for a period before updating their website. So much for the wonderful world of instant digital gratification.

In general, if you want a fund that your broker doesn’t apparently stock, it’s always worth hounding them about it over the phone. They may well say ‘yes’.

A rare victory for the little guy

It’s taken three years for Vanguard funds to breakthrough on a no-fee platform and achieve the same no-strings-attached status as the HSBC index funds, for example.

The reason Vanguard has been resisted is that they don’t pay trail commission to platform operators (i.e. a fee deducted from the fund’s TER that makes it worth the while of your broker or fund supermarket to stock the fund).

Commission of this kind is due to be abolished by the end of the year under the FSA’s Retail Distribution Review (RDR).

The likes of Hargreaves Lansdown recoup their expenses through a platform fee, while Alliance Trust charges dealing fees for buying Vanguard funds.

Many have predicted that all low-cost online platforms will go down this route, making life extremely difficult for small investors as flat-rate fees take large bites out of modest contributions.

But iii have specifically added the following line to their charges sheet:

Charges for “non-commission paying” products – NIL.

It’s a positive sign that iii are seeking to differentiate their offering from other platforms as RDR approaches. There are no guarantees the situation won’t change, but it would surely be a PR disaster for a firm to stake out that position ahead of RDR, luring small investors in, only to move the goalposts a few months later.

So assuming the Vanguard funds aren’t being used as bait, and the website issues are sorted, this new ultra-low cost option adds up to great news for small investors.

Stop press

Before you take any big decisions, you should know that Vanguard is about to launch five physical ETFs on the London Stock Exchange. The Motley Fool has the scoop.

Apparently the FTSE 100 tracker will have a TER of 0.1%, which will make it an instant low-cost table-topper. Expect a listing in the next few weeks, and a Monevator report to boot.

Take it steady,

The Accumulator

Further reading:

1. Hargreaves Lansdown bags Vanguard funds
2. Is it worth sticking with Hargreaves Lansdown to get Vanguard funds?
3. How to lifestyle Vanguard LifeStrategy funds

The Chief Executive of Yahoo! Scott Thompson has  resigned two weeks after it was revealed that he did not have a Computer Science degree as claimed, but an accounting degree. Which is a shame, because his CV is filed as part of the corporate filings with the SEC and that is a bit bad.

His real crime of course was to have such an appalling moustache. It takes a certain panache or dress sense to carry off the modern business-suit-with-no-tie look.  It rarely works, but your chances of success with a '70s style Mexican dollop of fluff on the top lip is never going to work.


The funny bit about this story was that Mr Thompson was not alone in his misdemeanours. Patti Hart,  chief executive of International Game Technology and a Yahoo director since 2010, who was tasked with finding a new CEO, had her own qualifications come under scrutiny. An investor alleged in a letter to the Yahoo board on Monday that she had exaggerated her academic background in claiming a bachelor’s degree in marketing and economics from Illinois State University, when she had in fact gained a business administration degree.

Personally I don't see much of a difference.

Monkey strategy

Pete Comley’s new book explains why private investors do so badly in aggregate, and how understanding why can help your investment decisions. I asked him how his research influenced his own investing strategy.

There is an old joke about how to make a small fortune on the stock market (by giving a large one to a stock broker). Having spent the best part of the last year researching and writing a book called Monkey with Pin, I think I might be able to rewrite this joke as:

How to make a small fortune on the stock market? Give it to a monkey to invest.

Let me tell you why. I am a private investor just like you. I have been trading for over a decade, with a reasonable degree of success. However it struck me I never made as much as I thought I would. Therefore when I heard someone saying that 85% of well-paid fund managers couldn’t even beat the market, it set me on a quest to find out what are the average real returns for private investors like us. The result is a 250 page book with the answers based on facts and evidence and not on some of the marketing myths from the finance industry.

The average investor is probably missing 6% a year from their returns by the time you factor in all the costs, expenses, hidden charges, survivorship bias and our average investing skill level (which is negative).

The book is in to two parts, the first examines the evidence and the second what you can do about it and how better understanding the system can help you lose a lot less than 6% a year. It’s free (and I really mean free) – just go to monkeywithapin.com to download or read it.

Examining all the facts caused me to change my investing approach, which I will share with you. One important thing first; you’ll read in the book my conclusion that no one single investing system works all the time (I evaluate all the key ones). Some systems are better than others some of the time. It also shows that the best system is one you devise yourself. The key elements are a risk management strategy and that you write down a set of rules and religiously follow them, irrespective of what your emotions tell you.

I’m going to follow the "monkey strategy". It is premised on the evidence I found that the average chimp can normally beat even the best pros at stock picking. Unbelievable, but unfortunately true and backed up lots of evidence (see Chapter 3 of the book).

There at least two reasons.

By randomly throwing darts into stock listings in a newspaper, you are more likely to pick smaller companies than the average fund manager. These tend, over the long run, to have a better performance.

Secondly, the monkey is not influenced by media stories, charts, or PE ratios. It does not follow the herd and in consequence does not suffer the penalty for this. There is a nice bit of analysis that shows on average a stock a private investor buys increased by 25% in the previous year. In the year after, it goes down 3%. We are just not that clever, are we?

But before you all rush off to the garage to find your old dartboard, let me tell you how I’m going to implement the monkey strategy. Firstly, being a statistician, I know this is only going to work if I can pick stocks to get a good random sample. For risk management I also need to ensure that no stock ideally exceeds 2-3% of my portfolio, which means about 40 stocks.

The exact number will depend to some extent on how much I want to invest. In the book I suggest the costs of trading (not just commissions, but stamp duty and bid/offer spread) can become excessive if you trade in amounts of less than £1000.

The final thing I learnt in writing the book is how the price of an individual stock is determined by overall market sentiment. In fact, hardly any of the variance in the price of an average stock has anything to do with a company’s profits or performance. Therefore before you invest you need to first understand market sentiment and where it might be going. What surprised me is how those feelings follow long term cycles (as well as being affected by the 6-7 year normal business cycle).

Source: Monkeywithapin.com/Barclays Equity Study 2011

The market has for the last century or so, followed a pattern of rising for around 16-18 years and then consolidating for 13-16 years. We are currently 13 years into a consolidation phase. It therefore strikes me there are two scenarios that could happen now. One is that the market puts in a new low at some point in the next three years (i.e. FTSE below 4000) and that ends the consolidation phase. The other (and in my view less likely scenario) is that we’re already in our next secular bull market, in which case the FTSE is headed out of its trading range of 3500-7000 to 10000+.

I am going to wait to try out my "monkey strategy" until I know which of these two scenarios is going to happen. If the FTSE drops below 4000, as I think it may do one day, I’m going to do a Buffett and ensure I buy my portfolio when shares are really cheap.

If I’m wrong and we do break 7000 on the FTSE, I’m happy to buy then as I know that wall of cash out there (and money taken out of bonds) is going to pile in and drive my monkey shares even higher.

Conclusion: give your money to a monkey, not a fund manager, to invest.

You can read or download Pete’s eBook for free at http://monkeywithapin.com.