The Blunt Bean Counter makes the case for CRA adopting an IRS-like whistleblower program that pays tax snitches a fraction of recoverd tax money. Steadyhand employees show that their interests are closely-aligned with their clients by having 81% of their collective personal assets invested in their funds. Incentives matter and this says more about their commitment to achieving good long-term results than any marketing message could. Money Smarts says that the new rules for disclosing advisor trailer fees to mutual fund investors aren’t likely to make much difference. I agree that it is always possible to hide information in confusing account statements, but I’m happy to have this disclosure anyway because it will be relatively easy for honest advisor firms to comply and will complicate life for firms that choose to try to hide this information from investors. My Own Advisor gave some highlights from the 2012 Canadian Personal Finance Conference (CPFC) held recently in Toron...

In simple terms, the efficient market hypothesis says that there is no better measure of the value of a stock than its market price. In his 1988 letter to shareholders , Warren Buffett ridiculed academics who cling to efficient market theory in the face of decades of market beating returns by Buffett and his mentors, saying “apparently, a reluctance to recant, and thereby to demystify the priesthood, is not limited to theologians.” This debate rages on with one side insisting markets are efficient or nearly so, and the other side dismissing efficient market theory. However, this debate is mostly pointless. On its own, it makes little sense for the stock market to be efficient or not. It can only be efficient with respect to some observer. This means that the market can appear to be efficient to one investor, but not another. To explain what I mean by market efficiency being dependent on the observer, consider a simple example of a coin toss. To most observers, when the coin re...

With the ETF industry producing new products at a furious pace, investors can implement a wide range of investing and trading strategies using ETFs. Unfortunately, most of these strategies are a bad idea. It used to be that investing in ETFs was synonymous with widely-diversified passive investing. Investors could buy XIU for Canadian stocks, VTI for U.S. stocks, and maybe a couple of others for bonds and foreign stocks, and then go to sleep for a decade. However, new ETFs are nothing like these older products. Investors who have been unhappy with their mutual fund returns can now bring their faulty investing strategies into ETFs. Many mutual fund investors used to chase the previous year’s hot fund with disastrous results. Now they can bring new hope to the ETF domain and chase the latest hot ETFs. Investors who used to try to guess the next hot sector using mutual funds can now do the same with ETFs. Unfortunately, most of them will just buy the sector hottest in the rece...

Lenders can really stick it to you if you have to break your mortgage. Take a look at this list of some of the exciting ways that lenders pump up mortgage-breaking penalties . If you think you’re safe because you have a variable mortgage, you’d better take a look. The bottom line is that you should really understand your mortgage contract before signing. Steadyhand is one fund company with a positive view of the new disclosure rules for mutual funds coming from the Canadian Securities Administrators (CSA). Larry MacDonald makes a strong case that a lasting solution to the battle between teachers’ unions and governments is a voucher system that allows parents to bring their share of school funding to the school of their choice. I would love to see a system that subjects teacher pay to market forces. Any system that brings higher pay for good teachers and lower pay (or no pay) for poor teachers would be a big benefit. Canadian Couch Potato explains foreign withholding taxes....

“Taking investing advice from a Wall Street firm is like getting hitting tips from the opposing team’s pitcher.” – Michael James Years ago I thought I understood the mechanics of investing. You had a broker at some big financial firm who took your trades and gave you advice on trading stocks and bonds. The first time I found out that these same firms also have people who do trades with company money, I couldn’t understand how this could be anything but a huge conflict of interest. But, I assumed that I just didn’t understand some critical aspect of this relationship. Enough time has passed that I now realize that I wasn’t really missing anything; there is a conflict of interest. There may be rules or laws intended to prevent abuse, but there remains an incentive for financial firms to advise their clients to trade the opposite sides taken by their internal traders. For example, if the company is trying desperately to unload a pile of XYZ stock they believe is about to tank, ...

Recently, Drs. Zvi Bodie and Rachelle Taqqu wrote an article in the Wall Street Journal calling on investors to avoid stock market risks . In one example of a way to limit risk, they describe a method using stock options to create a “collar” to limit stock losses. I decided to back-test this idea to see how it would affect investor returns. In Bodie and Taqqu’s example, they assume an investment in the exchange-traded fund SPY which tracks the S&P 500 (stocks of the biggest companies in the U.S.). At the time of their writing, a share of SPY was trading at $136.41. You could buy a put option at $116 to limit losses to about 15% over 4 months. To avoid being out the cost of this put option, you could also sell a call option at $143. These strike prices were chosen so that the call and put had the same cost and you weren’t out any cash. The result is that if you use this collar, over the next 4 months you can’t lose more than 15% on your SPY investment and can’t make more th...

Canadian Couch Potato explains that investors concerned about ETF liquidity should focus less on daily trading volume and more on bid-ask spreads. The Blunt Bean Counter says Canadians are still running afoul of TFSA rules, and he has some suggestions for CRA and financial institutions to help Canadians avoid penalties. Rob Carrick says that if you’re in debt, your biggest risk is unemployment rather than rising interest rates. Mr. Money Mustache does a good breakdown of the cost of owning and operating an electric car. Big Cajun Man defines what he wants out of retirement. I guess the next step is to make a plan to get there. Money Smarts answers a reader’s RESP questions.

Today’s tough job market allows companies to put prospective employees through the wringer in interviews with little fear that they’ll leave in disgust. Imagine a company asking you back for 5 interviews and then rejecting you. Or imagine being asked how you would go about weighing your own head. These are a couple of the things that William Poundstone describes in his excellent book Are You Smart Enough to Work at Google ? On one level, this book is a collection of questions that interviewers ask during interviews. Some questions are difficult puzzles with an objectively correct answer. For example, suppose that eggs thrown out of a 100-story building always break when thrown from a particular floor or higher and never break when thrown from lower floors. You are given 2 eggs and may retrieve an unbroken egg after a throw, but a broken egg can no longer be used. Yo are to devise a strategy that determines the highest floor from which eggs don’t break. Your goal is to minimiz...

Wired Magazine had an interesting article recently: Raging Bulls: How Wall Street Got Addicted to Light-Speed Trading . It tells the story of how quant firms compete over fractions of a penny per share in computer algorithm trading. They go to great lengths to shave milliseconds off computer communication time to get an edge on their competitors. This article gives some insight into where your trading spread losses go. To get their trades executed as quickly as possible, high-frequency trading firms go to great expense including buying up land allowing them to install shorter fiber-optic cables, and in the future “A fleet of unmanned, solar-powered drones carrying microwave relay stations could hover at intervals across the Atlantic.” They do all this to grab fractions of pennies faster than their competitors. All this raises the question: whose pennies are these quants fighting over? To some degree they are stealing from each other, but they are also taking pennies from couch...

Canadian Couch Potato reported on Vanguard Canada’s 5 new ETFs. Finally we have a non-currency-hedged U.S. stock ETF. The Blunt Bean Counter did three short video interviews about inheritances and wills. Have a look. Big Cajun Man says you need “a pay day loan like a penguin needs a George Foreman grill.” I can just see a payday loan storefront with a picture of a penguin happily grilling dinner on a George Foreman grill. Million Dollar Journey gives another detailed net worth update. He’s over $650,000 now, but I wonder how close he would be to the magic million dollar mark if he were less conservative with the accounting values of his house and pensions.

Vanguard Investments Canada announced that they are introducing the following 5 new ETFs: 1 . Vanguard FTSE Canadian High Dividend Yield Index ETF 2 . Vanguard FTSE Canadian Capped REIT Index ETF (based on the FTSE Canada All Cap Real Estate Capped 25% Index) 3 . Vanguard Canadian Short-Term Corporate Bond Index ETF (based on Barclays Global Aggregate Canadian Credit 1-5yr Float Adjusted Bond Index) 4 . Vanguard S&P 500 Index ETF 5 . Vanguard S&P 500 Index ETF (CAD-hedged) The most interesting of these ETFs to me is number 4, the un-hedged S&P 500 index. My only question is whether there would be a 15% U.S. withholding tax on dividends when it is held in an RRSP or RRIF. Ordinarily a tax treaty between the U.S. and Canada allows RRSP and RRIF accounts to avoid U.S. dividend withholding taxes, but I’m not sure what happens when the dividends are generated within a Canadian ETF. Canadian Capitalist says that this ETF would be subject to a withholding tax.  If any...

Facebook investors aren’t happy. The company’s shares were priced at $38 for the initial public offering (IPO) but now trade around $18. One writer, Andrew Ross Sorkin, blames this “debacle” on Facebook’s chief financial officer, David Ebersman. Sorkin seems to treat IPOs as a cooperative venture among investors, offering banks, and the company going public where the goal is to set a fair price. In reality, there are competing interests. Sorkin says “it is remarkable that nobody — no bankers, no one at Nasdaq, no one at Facebook — has been fired for botching the offering.” I can’t see why Facebook would see the offering as a failure. If the offering had been at a lower price, Facebook would have received billions less in investor money. At its core, an IPO is a transaction where a company sells its shares to investors. Why is it surprising that the company would want the highest price it could get? No doubt Facebook will face some problems due to its falling share price. B...