SOX, bonds, etfs and covered calls

[Nords]

The theory was that as the funds grew bigger, they could be elminated because economies of scale would allow it.

Hunh, that seems very similar to the theory that as funds grew bigger that they'd be able to reduce their expense ratios...

... oh, wait, I forgot that Sarbanes-Oxley made it impossible for any fund families to do that. Unless they're trying to compete with Vanguard.

 

[eridanus]

Re: So much for ER in 2010... (longish)

Keep in mind companies like Vanguard and Fidelity PAY their 12b-1's to marketplace firms like Schwab and others to get distribution.

Vanguard doesn't have 12b-1 fees, at least on their index funds. This is why Schwab charges a commission to invest in Vanguard funds.

 

[Texas Proud]

Re: So much for ER in 2010... (longish)

Vanguard doesn't have 12b-1 fees, at least on their index funds. This is why Schwab charges a commission to invest in Vanguard funds.

I don't think Vanguard has any in ANY fund... it is not something they need.

 

[FinanceDude]

Re: So much for ER in 2010... (longish)

... oh, wait, I forgot that Sarbanes-Oxley made it impossible for any fund families to do that.  Unless they're trying to compete with Vanguard.

Not exactly true..........American Fund reduced fees on their funds in 2005................. [url]https://www.americanfunds.com/resources/news/reduce-management-fees.htm?r=s [/url]

Other than mandated by settlements with Elliot Spitzer, I don't know of anyone else who did that...............

My wife works a lot with Sarbanes-Oxley.........the cost of implementing it at her company is $500,000....................

 

[brewer12345]

Re: So much for ER in 2010... (longish)

My wife works a lot with Sarbanes-Oxley.........the cost of implementing it at her company is $500,000....................

My impression as an analyst and shareholder of several small companies that have spent a LOT of money on SOx compliance is that I have received very little value for the money. Does that jibe with your wife's experience?

 

[FinanceDude]

Re: So much for ER in 2010... (longish)

My impression as an analyst and shareholder of several small companies that have spent a LOT of money on SOx compliance is that I have received very little value for the money.  Does that jibe with your wife's experience?

Definitely...........it's a big hassle...........there's few "experts" out there that you can send your people to so they can learn.........it's a big mess..........

Thanks, Enron and Arthur Andersen!!

 

[brewer12345]

Re: So much for ER in 2010... (longish)

Definitely...........it's a big hassle...........there's few "experts" out there that you can send your people to so they can learn.........it's a big mess..........

Thanks, Enron and Arthur Andersen!! 

Yeah. I am somewhat surprised that more of the stuff I own hasn't gone private to avoid the requirements. For small companies, SOx is a really big burden.

 

[MasterBlaster]

Re: So much for ER in 2010... (longish)

My wife works a lot with Sarbanes-Oxley.........the cost of implementing it at her company is $500,000....................

That is money well spend as far as I am concerned. Before S-A the accountants and CEO's at some companies were in bed together to rip-off the shareholders.

 

[FinanceDude]

Re: So much for ER in 2010... (longish)

That is money well spend as far as I am concerned. Before S-A the accountants and CEO's at some LARGE companies were in bed together to rip-off the shareholders.

Sorry.............a little edit..............

I haven't heard about the small publicly held biotech firm fleecing shareholders........

 

[Scrooge]

Re: So much for ER in 2010... (longish)

Yeah. I am somewhat surprised that more of the stuff I own hasn't gone private to avoid the requirements.  For small companies, SOx is a really big burden.

Yep. Just recently the (smallish) company that I worked for went private and its bottom line changed colors (red to black) pretty much overnight.

 

[Lena]

Re: So much for ER in 2010... (longish)

That is money well spend as far as I am concerned. Before S-A the accountants and CEO's at some companies were in bed together to rip-off the shareholders

.

I work in a accounting dept of a middle size co that went public 2 yrs ago. All SOX has done, is it created tremendous amount of extra paperwork. There are so many processes and procedures for every little process and a procedure that I have no idea how real "accounting" work gets done. Also, everything has to be reviewed and signed many many times.

I think SOX and similar acts do nothing but create more unnessary bureacracy. People who want to cheat and steal will do so anyway.

Lena

 

[FinanceDude]

Re: So much for ER in 2010... (longish)

Actually.............WHEN was the last time that Congress made legislation that STREAMLINED things for businesses?

Ok..............NEVER wasn't the word I was looking for.................

 

[Lena]

Re: So much for ER in 2010... (longish)

Not to get off topic, but Finance Dude - can you please elaborate on mutual funds fees you were talking about

thanks

Lena

 

[MasterBlaster]

Re: So much for ER in 2010... (longish)

Lena:

here is a couple of links to read about fees in mutual funds. Some of them are readily disclosed and some are not.

http://www.fool.com/News/mft/2006/mft06012001.htm?ref=foolwatch

http://www.sec.gov/answers/mffees.htm

Also, mutual funds often pay way more than you would think to trade stocks. The higher fees then are often offset by kickback arrangements with the mutual fund company.

 

[Lena]

Re: So much for ER in 2010... (longish)

Thanks MB.

Speaking of trading stocks, does anyone have any good reading suggestions on writing covered calls?

Lena

 

[brewer12345]

Re: So much for ER in 2010... (longish)

Thanks MB.

Speaking of trading stocks, does anyone have any good reading suggestions on writing covered calls?

Lena

Depends. I'm sure that there are lots of popular books that keep it pretty shallow. Then there are the hard quant books that teach you how to actually value derivatives. Why not keep it simple and either skip covered calls, or only start writing them when the stock has drifted close to your sell target?

 

[Lena]

Re: So much for ER in 2010... (longish)

Brewer,

I am very ignorant about the world of investing. A friend of mine was trading options and it sounded way too complicated for me. Then she mentioned covered calls and the idea seemed to fit: less risk and less involment. It also seemed less involved then trading stocks Or, I could be wrong and misunderstoond the whole thing.

So, I figured I'll do some reading on it. Doesn't hurts to have some knowledge (Well, unless you are a spy or something and can be killed for it)

Lena

 

[brewer12345]

Re: So much for ER in 2010... (longish)

In that case, lots of good material here: http://www.cboe.com/LearnCenter/OptionsInstitute1.aspx

A rule of thumb: stick to writing covered calls and maybe buying some calls and puts. That way you can only do limited damage to yourself if you get it wrong.

 

[peggy]

Re: So much for ER in 2010... (longish)

I am very ignorant about the world of investing.   A friend of mine was trading options and it sounded way too complicated for me.  Then she mentioned covered calls and the idea seemed to fit:  less risk and less involment.   

I mean no insult to you when I say this, but IMO writing covered calls is NOT a good way to start for someone who is "very ignorant" about investing.

If I were you, I'd start with basic stuff -- stocks, bonds, and mutual funds.  When I say basic, I mean that you can explain the concept in simple terms.  

The posters here have some good recommendations, and of course you'll supplement that with your own reading.  For something basic, you might try PERSONAL FINANCE FOR DUMMIES (in whatever edition is the most recent) by Eric Tyson.  It's a good, comprehensive introduction to the topic.  (I think there's also INVESTING FOR DUMMIES, but I haven't read that and so can't recommend it.)

 

[eridanus]

Re: So much for ER in 2010... (longish)

I am very ignorant about the world of investing. A friend of mine was trading options and it sounded way too complicated for me. Then she mentioned covered calls and the idea seemed to fit: less risk and less involment. It also seemed less involved then trading stocks Or, I could be wrong and misunderstoond the whole thing.

Covered calls are like Vegas. Everyone's a winner!

A CC strategy only works in certain market conditions when compared to a Buy & Hold strategy. Similar to how daytrading was profitable and easy...until about March 2001 and 99% of daytraders blew out.

 

[Lena]

Re: So much for ER in 2010... (longish)

Brewer,

thanks for the link.

Peggy, I am not insulted at all. Somewhere (may be in my dreams) I got the idea that CC are easier then trading stocks. I have a few mutual funds and don't know much about bonds either. Did I mention the whole ignorance thing? I love to read, so I at least have that going for me.

A CC strategy only works in certain market conditions when compared to a Buy & Hold strategy
Would you elaborate?

Lena

 

[eridanus]

Re: So much for ER in 2010... (longish)

Would you elaborate?

CC works poorly if the stock moves up too quickly. This is because selling a call on a stock you own limits your upside potential. If the company gets a buy-out offer, the stock may jump by 20-40% in a day. If you've sold a call on the stock, you're limited to 5% or so.

CC works poorly if the stock declines rapidly. Imagine selling calls on an airline stock right before 9/11. Yes, the calls reduce your cost basis but not enough if the company goes belly up or has profit problems.

CC works best on a market that has low volatility. In other words, the market doesn't move up or down too quickly from month-to-month. The problem comes when you have to predict this low volatile time period. It didn't move last month; will it continue to be stagnant this month?


In the end, it's a trading strategy that works well. Until it doesn't. It requires a very, very, good crystal ball.

 

[brewer12345]

Re: So much for ER in 2010... (longish)

Peggy, I am not insulted at all.  Somewhere (may be in my dreams) I got the idea that CC are easier then trading stocks.  I have a few mutual funds and don't know much about bonds either.  Did I mention the whole ignorance thing?  I love to read, so I at least have that going for me.

Suggestion: Start with bonds first. They are relatively simple and if you can understand simple math (calculator/computer will actually do it for you), you can easily understand bonds. Then read up on stocks. Then move on to options and other derivatives. I have a finance MBA and I am a Chartered Financial Analyst. I only dabble in options ocasionally because it is much easier to blow yourself up.

 

[Lena]

Re: So much for ER in 2010... (longish)

Brewer,

I sure hope I can understand simple math, otherwise my BS in accounting could be slightly useless. Believe it or not, I deal with some of the derivatives thingies at work. But I do accounting for it, our Secondary Marketing Dept deals with their trading aspect.

OK. Bonds it is. Any good books on that? I don't think there are Bonds for Dummies, is there?

Lena

 

[dumpster56]

Re: So much for ER in 2010... (longish)

I'll be 42 in 2010; DH will be 49.

I will; the detailed breakdown of subcategories is on the computer at home, not here at work, so I'll post it as soon as I get home tonight. Nitpicks are welcome, honestly. We're overloaded in stock funds (about 80%, IIRC), and had planned to shift over to a more balanced portfolio (60-40) about two years before ER.

To answer a couple of other posters, yes we are invested through a brokerage firm (AG Edwards), and the fees are higher than a Vanguard fund. The largest fee we have, though, is 1.8%, so I haven't felt any real urgency to switch over to no-fee funds. (You may now commence beating me about the head and shoulders for this statement, LOL.)

And when I said "flat" I was imprecise. There's been a slow uptrend, but not more than about 3%.

On preview:

Mickeyd - yes, exactly.

Hey hey hey what are you doing on this website at WORK! 8)