An Index for Any Asset: The Historic Stocks Market (HSTM) Index

By Jeremy Monk, AKRO investiční společnost, a.s.
The plethora of investment indices continues to grow. Whatever the asset class, there is an index to accommodate it, whether its stocks, bonds, commodities, property, art, fine wine, etc.
But what about an index that tracks the market value of a basket of historic bond and share certificates? A group of scripophily experts joined forces recently to develop one. The traded securities don’t have any “intrinsic” value, they are just financial esoterica that, for various reasons, have significant historical or decorative value.
The Historic Stocks Market (HSTM) Index tracks the auction prices of 100 “representative” share and bond certificates and is updated every six months to incorporate the latest realized sale values. Since its inception in late 2012, the index has risen by approximately 25%.
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Drahé kovy nemusejí být dobrou investicí


Pohyby na trzích aktiv jsou běžným jevem. Investoři mají v zásadě na výběr mezi vyššími očekávanými výnosy a nižším rizikem. Preference výnosnosti je spojena s vyšší rizikovostí investičních instrumentů, a naopak, rizikově averzní investoři by měli očekávat nižší výnosnost. Obecně jsou za riziková aktiva považovány především akcie. Oproti tomu, za „bezpečný přístav“ bývají považovány drahé kovy, a to jak z pohledu rizika, tak výnosnosti. Následující analýza prokazuje, že to může být omyl.
Zaměřujeme se na srovnání investic do zlata a stříbra, a cenných papírů v podobě akcií – v tomto případě využijeme jeden z akciových indexů, Dow Jones Industrial Average, DJIA. Údaje z americké ekonomiky lze, vzhledem k vyspělosti akciového trhu, považovat za reprezentativní. Začátek analyzovaného období (4. Q 2005) je spojen s předkrizovým stavem amerických (a dalších) trhů.
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Prague Should Dance the BREXIT Fandango


Would You Care to Dance?
Prague is that shy girl sitting in the corner. She doesn’t realise she’s the prettiest girl in the room. As Paris, Frankfurt and Madrid strut their stuff and even Dublin, Warsaw and tiny Luxemburg show their moves; Prague has thus far refused to dance. The other European cities are, of course, all dancing the Brexit fandango: Seductively putting forward their credentials as a safe harbour for firms, especially professional service firms, relocating activities from London in response to Britain’s decision to leave the European Union (EU).
But what of Prague? Prague has so far been noticeably absent in putting itself forward as a destination. That is a mistake. It is the author’s opinion, and an opinion shared by many fellow Brits, that Prague has a lot to offer. The Czech government, CzechInvest and the City of Prague, shouldn’t be shy in outlining the case for relocation to the Czech Republic.
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Partner and family life as a challenge for women on their way to become a CFA Charterholder



When I look back at my studies, female students were always in majority compared to their male colleagues. What is the reason why women are a minority among CFA charterholders and candidates? Are they less willing to study further, less committed to their careers or what are the biggest obstacles for women to become a CFA charterholder?
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How To Cut Your Dependency on Mr. Market

Investors spend enormous amount of time analysing companies, industries, trends and simply try to understand how the business works. That is of course very much needed and at least basic understanding is absolutely essential for correct asset valuation. However, in the very end of the valuation process one deeply subjective variable may enter into the calculation. And it may change everything.
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Discussion Paper: Are Analysts Providing Measurable ‘Added-Value’?

Once companies have provided financial guidance: Are analysts’ forecasts able to add any extra value? If so, how often and by how much?
A study by AKRO investiční společnost, comparing the accuracy of analyst forecasts and management forecasts, shows that so called ‘post event’ analyst forecasts, i.e. those made post recent results/management guidance, are in general more accurate than management forecasts. Both the frequency and magnitude of the greater accuracy prove significant, a somewhat reassuring conclusion for research analysts.
If analysts are able to provide insights with regard to tangible measures of value, it seems logical to assume analysts are also able to provide insights with regard to less tangible measures of value, e.g. management quality, industry outlook. At a time when the ‘active’ asset management industry is getting a bad press, and many research departments are being downsized[i], the results should give pause for thought.
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Do cen a do melounů se nevidí


Michal Mareš, CFA

Úvaha o oceňování kapitálových aktiv.  Přiměřená tržní hodnota a cena: přesnost a relevance.
Parafráze italského přísloví – zde pro oblast oceňování kapitálových aktiv – je výstižnější než původní verze[1].  A je politicky korektní.  Finanční analytici denně pracují s informacemi o obchodovaných cenných papírech nebo cílových investicích a porovnávají pozorované tržní ceny a kalkulované investiční hodnoty.  Stanovení přiměřené tržní hodnoty naráží na schopnost dostupná data adekvátně zpracovat a správně interpretovat.  Ale i na schopnost najít vstupní parametry, které jsou předpokladem pro uplatnění relevantních teorií. 
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Is the Czech Republic ‘Good for its Word’?



Jeremy Monk, AKRO investiční společnost, a.s.
The Mysterious Case of the Czech Pre-War Bonds and the ‘Secret’ 1984/1986 Agreements

 Scripophily isn’t without its own controversies. The recent discovery of the original signed 1984 and 1986 agreements between the Bondholders Protective Council and the Czechoslovak State, in the archives at Stanford University Libraries, calls into question the transparency and integrity of the Czech State; both past and present.
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Friday Article Pick for CFA Candidates and CFA Charterholders: Daniel Kahneman, Amos Tversky (Econometrica, 1979) – Prospect Theory: An Analysis of Decision under Risk


Following on the article pick from 20 May “Judgment under Uncertainty: Heuristics and Biases (1974)”, “Prospect Theory: An Analysis of Decision under Risk” is the second groundbreaking and most famous academic paper of Kahneman and Tversky. This text is in fact among the most cited academic papers of all time laying core foundations of behavioral economics, having integrated insights from cognitive psychology into economic science.
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Czech Scripophily: A Story of Love, Beer and Broken Promises



More than Just a Pretty Picture!

Scripophily isn’t the name of some rare disease, but rather a specialised branch of numismatics focused on the study and collection of old stocks and bonds. The word is derived from the English word "scrip" which represents an ownership right and the Greek word "philos" which means to love. At AKRO, we have adorned the walls of our offices not with photos or paintings but with old stock and bond certificates. Such furnishings seem particularly fitting for a mutual fund group whose activities are focused on such investments.
Over the years, thousands of companies have at one time or another issued share and/or bond certificates. It is therefore possible to focus on almost any theme to start a collection. The railway and automotive industries are particular favourites amongst Scripophilists. Thematic collections can include anything from corporate scandals (Enron, Global Crossing,) to erotica (Nevada brothels, Playboy Inc., Beate Uhse). I will confess that my collection at AKRO, and at home, is rather eclectic in nature; a mixture of the decorative and the historically interesting. It includes some lavishly illustrated foreign certificates issued by Louis Bleriot, Claridges Hotels, The Port of Bruges, and Societe Paris-France S.A. The majority of the collection is however focused on old Czech certificates.
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The Success Equation - Untangling Skill and Luck in Business, Sports, and Investing by Michael J. Mauboussin (CFA Institute, 2013)



Michael J. Mauboussin - Head of Global Financial Strategies at Credit Suisse in New York - holds a strong view that demonstrating investment skill by investment managers requires persistent and predictable performance. Expectations investing is a process for identifying attractively priced stocks by first estimating the market’s expectations of key value drivers and then determining the likelihood that the company can or cannot meet those expectations.

This paper is a transcript of Michael's presentation at the Equity Research and Valuation Conference 2012 held in Philadelphia on 6–7 December 2012 in partnership with CFA Society Philadelphia.
For more, please see this link: http://www.cfapubs.org/doi/pdf/10.2469/cp.v30.n3.1
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McKinsey on Finance Quarterly Magazine - Winter 2016


McKinsey published a new issue of its legendary quarterly "McKinsey on Finance" several weeks ago with the following four thought-provoking articles: Valuing high-tech companies; M&A 2015: New highs, and a new tone; How the best acquirers excel at integration and Pharma M&A: Agile shouldn’t mean ad hoc. It is a superb study source, which can help you integrate your knowledge from the CFA Curriculum to real business world. On top of that, the charts included might be an interesting inspiration source for your own analysis and presentations.


http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/mckinsey-on-finance/mckinsey-on-finance-number-57
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Speculative Half-Cycles Tend To Be Completed Badly by John Hussman, (22 February 2016)


http://www.hussmanfunds.com/wmc/wmc160222.htm

Excerpt from the article: „Last week, the Cleveland Fed Financial Stress Index climbed to 1.92 (measured as standard deviations from the mean); a level associated with severe financial distress, and previously observed only during the 2011 market retreat, the 2008-2009 financial crisis, and the Asian crisis of 1998. This spike has been driven by widening credit spreads and other measures of systemic market-perceived risk. In 1998, a similar spike shortly preceded the collapse of Long Term Capital Management. In 2008, the spike shortly preceded the failure of Bear Stearns and Lehman Brothers. In 2011, the spike was followed by the failure and restructuring of Greek government debt… Presently, a further 40-50% collapse in the S&P 500 over the completion of this market cycle would not represent a worst-case scenario, but rather a run-of-the-mill outcome from current valuations. That prospect is coupled with an expectation of a U.S. recession, and the likelihood that Fed easing will be wholly ineffective in preventing either…. 
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Has the Index Fairy Lost Her Powers?


The Index Valuation Premium
It is accepted wisdom that the addition of a company in a major index leads to a rise in its share price and a subsequently higher valuation of the company on the stock market.

A study of the impact of S&P500 index additions and deletions, between 1990 and 2005, found average abnormal share price returns of +8.8% for additions and -15.1% for deletions¹. Another study focusing on the valuation of premium of S&P500 constituents, found that, in 1997, measured in terms of Tobin’s q ratio, S&P500 firms enjoyed a whopping 40% higher valuation than equivalent companies not in the index². As recently as June 2015, a study by S&P capital IQ, comparing stocks in the Russell2000 index against non-Russell2000 index members found, when comparing the Price/book valuation of companies, a large 62% premium valuation for index members versus non-index members³. It’s as if there’s an Index Fairy whose magic wand has the power to dramatically increase (or decrease) the value of a company.
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Game Theory Primer for Macro Investors written by Brian Singer, CFA, the key-note speaker at the CFA Society Forecasting Dinner 2016 on 16 February


This Tuesday we had a pleasure to host Brian Singer, CFA, the Partner and Head of Dynamic Allocation Strategies Team at William Blair & Company, L.L.C, as the key-note speaker at the CFA Society Forecasting Dinner 2016. His thought-provoking lecture with the title "The Macro Asset Allocation "Game" - Is Game Theory Overtaking Finance?"unequivocally confirmed once again that economics is a social science as he was stressing many themes and key words which are not the prime focus for the great majority of finance and investment professionals, such as complex adaptive systems, geopolitics, strategic negotiations, game theory or time-series cointegration. Based on Brian's lecture it is totally obvious that to become a successful economist, investor or financial advisor in the long-term perspective it is by no means enough to be a master of Excel spread sheets. On the contrary you must abound also with a solid background in history, geopolitics, sociology and international relations. In his short paper from March 2013 Brian summarizes the game theory framework applied within the investment process of his Dynamic Allocation Strategies (DAS) team. 


Enjoy the reading and let us know your comments! We wish you a nice weekend. 

https://www.williamblair.com/~/media/Downloads/Insights/DAS-Assets/Game-Theory-Primer-April-2013.pdf
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Do you like a simple P/E ratio?


If you do, then according to the valuation and corporate finance guru Aswath Damodaran you should beware in case of high net cash companies in particular. 

Read more at: http://aswathdamodaran.blogspot.cz/2015/06/debt-cash-and-pe-why-cash-is-upper-and.html?m=1 

Today we kick off a regular weekly post "Friday Article Pick for CFA Candidates and CFA Charterholders". Hope you will appreciate this initiative and become our regular readers. We will appreciate a lot your comments, thoughts and feedback below the articles. 
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Long-term Interest Rates Lower Than At any time Since the South Sea Bubble of 1720!


Another Sign of Bond Market Madness?
It’s not just short-term interest rates that are at historic lows. There is now tangible evidence that long-term interest rates have touched new historic lows (Exhibit 1). Surprisingly few people took notice of the UK Debt Management Office’s (DMO) recent repayment of ‘undated’ debt, some originating from as far back to the 1720’s, and subsequent issue of new 50 year bonds. These transactions do, however, send a powerful signal. They should be seen as a warning that interest rates, both short and long-term, are not only low in absolute and real (inflation adjusted) terms. But they are now lower than at any time in the last 300 years!!!
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GIPS and Alternatives: CalPERS Takes Notice, Others Likely to Follow


With over 30 country sponsors and broad support from the industry, the Global Investment Performance Standards (GIPS®) are seen by many investors as a required way of doing business for any investment managers they hire. However, alternatives managers have lagged behind traditional managers in claiming compliance with the GIPS standards. Some of the reasons we’ve heard in the past are that alternatives are too complex, GIPS doesn’t cover these kinds of strategies, and our clients are not demanding it.
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Shadow Banking - Policy Frameworks and Investor Perspectives on Markets-Based Finance


Shadow banking refers to the process of credit intermediation that is conducted outside the regular banking system. It represents a diverse ecosystem spanning wholesale markets–based credit intermediation and alternative lending channels and includes a broad range of entities, activities, and interconnections among financial institutions.

At its core, the shadow bank credit intermediation process typically involves short-term funding or borrowing to facilitate longer-term lending or investment in less liquid assets, resulting in maturity transformation, liquidity transformation, credit risk transfer, or leverage.
In this report, we examine the scope of the shadow banking system, evaluate the policy frameworks applicable to different shadow banking entities and activities, and survey the perspectives of investment professionals on key shadow banking issues. The purpose is to inform the development of shadow banking policy initiatives from the perspective of investors.

Examples of shadow banking entities in economies with advanced financial sectors, such as the United States and Europe, include money market funds, which have deposit-like funding characteristics and invest in money market instruments with different maturities; hedge funds, which may use leverage to finance their trading positions in securities or financial instruments with differing liquidity profiles; and securitisation vehicles, such as asset-backed securities, which transfer credit risk among different investors. Shadow banking also includes securities financing transactions and the reuse of collateral for further financing.


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LIBOR Lessons, Corp Market Responsibility: Cosgrove Prize Winners Foster Ethics in Finance


Though both young investment professionals were based largely in London in 2012, chances are Rafael ARP Gomes of Portugal, and Prabhay Joshi of the UK didn’t know one another. The same would not be true come 14 November 2013, the day they found themselves side by side at a ceremony in Geneva being honored with the top prize in an international competition aimed at making the finance world a better place.

A year earlier, they, along with some 400 others worldwide, had entered the Ethics in Finance-Robin Cosgrove Prize competition, for which CFA Institute is a sponsor. Participants submit their innovative thoughts to promote trust and ethical behavior in the financial sector in the form of a 5,000-word paper. After clearing a number of evaluations, Gomes’ and Joshi’s papers were declared the global edition winners of the prize, which carries with it $10,000 for each recipient.
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