Tuesday, May 17, 2011

Lessons From the Galleon Insider-Trading Case

Edited By CRISTINA LOUROSA-RICARDO

Many ordinary investors, on hearing the guilty verdict in the insider-trading case of Raj Rajaratnam, manager of the Galleon hedge fund, will probably say it's another black eye for Wall Street and another reason to shun the stock market.
But it's not my take.
On the contrary, the verdict in the case carries some valuable positive lessons for anyone hoping to invest profitably.
[SJ-15STA]
Lesson 1: You can save the hedge-fund envy. Worried that big hedge funds won't let you in? Don't be. Most of them have underperformed a simple balanced portfolio of index funds over the past five or 10 years. And turns out even some of those who did produce good returns relied on illegal activities to do so.
Lesson 2: For investors, fund fees really matter. Hedge-fund managers like Mr. Rajaratnam have an incredibly high hurdle to beat. Most typically charge 2% of assets under management every year, and 20% of any profits. The higher the fees, the harder it is to generate great returns. No wonder some cut corners.
Lesson 3: Be deeply skeptical of anyone promising fabulous returns. Almost no one produces them. Hardly anyone produces them consistently. There really aren't any shortcuts to wealth. Trying to get rich quickly in the stock market is a project doomed to fail.
Lesson 4: Anyone investing in a stock should first ask themselves the following set of questions: "What do I know that the market doesn't? What's my edge? Why is the current market price wrong?"
Mr. Rajaratnam was making money because he knew things the rest of the market didn't. He came by that information illegally. But not all such information is illegal. You may have an edge on a stock because you know the industry better, or you've done your homework.
I am not an efficient-market cultist: I don't think the market is always right, all the time. But it's usually more right than wrong. So what's your edge?
—Brett Arends
WSJ.com
More for Your Used Car
The current trend with used cars has car owners and dealers scratching their heads: Many used cars have stopped losing value and, in some cases, they're actually worth more now than they were a year ago.
Used-car values spiked 16% in April from a year earlier, according to RVI Group's Used Car Price Index. A 2008 Ford Focus S sedan with 35,000 miles would have sold for $7,525 in May 2010, according to Kelley Blue Book; this month, a seller could reasonably expect $9,600.
One of the main reasons: During the recession, car sales sank, so today there are fewer late-model used cars to sell.
Here are three options for making the most of your car's value.
Work the private market. Consumers who sell their car to a private party have the best shot at unloading it near or at its current market value; trading in a car at a dealership often knocks 5% to 10% off the price, says Jesse Toprak, vice president of industry trends for TrueCar.com.
Sellers should ask potential buyers whether they're planning to pay in full with cash. If not, they should ask buyers if they've been preapproved for a car loan and if they can provide a preapproval letter.
Trade it in for a new car. While car owners will probably get less than they would in the private market, they'll still likely receive more than they would have a year ago, says Alec Gutierrez, manager of vehicle valuation at Kelley Blue Book.
For drivers about to come out of a lease, in many cases the so-called residual value -- the amount a dealership estimated the car would be worth after the leasing period -- is lower than the current market value, says Mr. Gutierrez. So consumers can visit competing dealerships to find out how much they're willing to pay for the car.
Keep the car. If it's a relatively recent model, it may be a decent car. There's been a 5% average annual decline in reported car problems between 2006 and 2009, according to a 2010 study by J.D. Power and Associates. Another advantage is that you avoid financing.
—AnnaMaria Andriotis
SmartMoney.com
Not-So-Boring Bonds
You might think savings bonds are boring, but right now compared to other types of fixed-income investments they're looking pretty good -- especially when factoring in their tax advantages.
Series I bonds: Series I bonds are inflation-adjusted. A fixed rate is determined upon issuance and that applies for the entire 30-year life of the bond; in addition, a variable rate based on the current inflation rate is reset twice a year.
These bonds earn interest for up to 30 years or until redemption, whichever comes first. And they receive favorable tax treatment: You don't owe any taxes for the accrued interest until the year the Series I bonds mature or you cash them in.
The maximum amount of paper Series I bonds you can buy for yourself is $5,000 annually. But you can buy up to another $5,000 of electronic bonds each year. You can also buy up to $5,000 of paper Series I bonds and up to another $5,000 of electronic bonds annually for another individual.
Series EE bonds: These bonds don't adjust for inflation. But like Series I bonds, they earn interest for up to 30 years or until redemption, and the interest income receives the same favorable tax treatment. They also are subject to the same annual purchase limits.
With both types of bonds, accumulated interest redeemed to pay college tuition and fees can be free of federal income tax. But there are income and age limits.
—Bill Bischoff
SmartMoney.com —The Aggregator features news and commentary from The Wall Street Journal and other publications. Email: cristina.lourosa@wsj.com

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Getting to the gist of the GST

The government has argued that the impact of the tax is not that high as it is essentially to replace the current sales and service tax. That consumption tax is a regressive tax.
THE income tax filing season is just over. I am sure it is one of the most dreaded times for tax payers.
The Government has been considering introducing the Goods and Services Tax (GST).
No doubt there are strong reasons to do so, as the Government’s hands are tied because of our narrow tax base. Roughly only 15% of the population pays income tax.
However, holistically, I am not convinced about GST.
In feudal times, you pay taxes in return for protection from the king. Even now, we have heard of protection money by gangsters.
In a democratic country i.e. a government of the people, by the people, for the people, taxation is an income distribution tool as well as a capacity building tool.
You tax those who have the money, or the means and skills and opportunity to make money, and use it, (not to give it to the poor; Robin Hood style), but to provide for government infrastructure development and economic framework to allow for more money to be made. A virtuous cycle.
Historically taxation is largely based on income. i.e. the higher your income, the more tax you pay.
This applies to both individual as well as corporate income/profits.
To me it balances things up, mitigate income disparity and promote inclusiveness, social justice and peace.
In the 1980s some smart guy, probably a rich one decided that it was not that fair. Why should I have to pay more than 50% of my hard earn money to the Government who then squandered it on big government and welfare programmes? Why should I be penalised for being hardworking and smart?
Why should I be discouraged to work harder to generate more profit and hence more growth for the country?
More growth for the country would mean that more people will have the opportunity to make money.
So they convince governments worldwide to slash corporate tax and income tax drastically so much so that corporate tax is on the average of 20% to 30% compared to 40% to 60% 30 years ago.
This is based on the belief that big corporations will provide job opportunities to more people who will then pay taxes and thus, less people are dependent on government handouts.
But you know what, despite economic growth, income disparity has grown and this is more so in low income tax regime countries than higher ones — the US, Singapore. Hong Kong versus Australia, Scandinavia and Europe.
Latest figures indicate that despite the surge in corporate profits and huge cash reserves, corporate America is not hiring people.
HSBC, Europe’s biggest bank, despite increase in profit by 58% to US$4.15bil from US$2.63bil for three months (i.e US$12bil a year) finds this insufficient and the bank wants to cut cost and shed thousands of jobs.
With lower corporate and income tax, the Government needs to look elsewhere to boost revenue.
Those same rich people came out with another brilliant idea. Instead of income tax, have a consumption tax like VAT or GST. The more you consume, the more you pay.
A fair system, no? After all the rich will consume more so he pays more taxes. He will eat out more. He will buy more expensive cars and buy a Rolex instead of a Casio watch so he pays more tax than a poor guy.
However, most GST has a tourist escape clause i.e. only residents pay GST. Tourists can claim refunds. And since the rich travel more, they will just buy their Rolex in another country and don’t have to pay tax on their Rolex while the poor still have to pay the GST for his Casio.
Thus, GST will dampen domestic consumption, an engine of economic growth.
The government has argued that the impact of GST is not that high as it is essentially to replace the current sales and service tax.
That consumption tax, like the GST, is a regressive tax — a more pronounced effect on lower income earners, meaning that the tax consumes a much higher proportion of their income, compared to those earning large incomes.
And the irony is that in its argument that Malaysian households actually end up paying less tax under GST than the current Sales and Service Tax (SST), the case for GST to increase revenue and tax base falls apart.
I am also not convinced at all that lower production cost due to abolishment of SST will be passed on to consumers.
Claims that there will be a price reduction instead of increase is based on the assumption that businesses fully pass down their savings when sales tax and service tax are abolished.
Hello! This is Malaysia when a 20 sen increase in price of sugar translates to an immediate increase in price of a cup of coffee by 20 sen. You do not need one kilo of sugar to make one cup of coffee.
Consumerism in Malaysia is exceedingly weak, protest against price increase or higher wages are seen as a threat to national security. Even the Anti-Profiteering Act will be toothless as enforcement is dismal. We cannot even enforce 17 million traffic summons.
I was a credit clerk in my early days at a bank.
Part of my job is to collate audited accounts from companies that applied for credit facilities.
My boss always reminded me to make sure that I got the correct accounts. He used to say, some companies have four sets of accounts — one for the bank, one for the tax, one for himself and one for the wife.
So how sure are we that businesses that collect GST will remit them to the government?

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Grandfather's advice still resonates 52 years later

Home > New Orleans Living > parents and children

Grandfather's advice still resonates 52 years later

Published: Sunday, May 15, 2011, 5:00 AM
Sheila Stroup, The Times-Picayune By Sheila Stroup, The Times-Picayune
In May of 1959, Billy Marchal received a letter from his grandfather, John W. Moore. As he recalls, his grampa handed it to him when his family went to his grandparents’ house for dinner one night.
bill marchal grandfather.jpgJohn W. Moore
“I think I just told him, ‘Thank you’ and put it away to read later,” Marchal says.
The New Orleanian had finished his junior year at Isidore Newman School and was about to begin his first job -- as an office boy with Standard Supply & Hardware Company, an offshore industrial supply company on Tchoupitoulas Street. It was a minimum wage position that involved such duties as running errands, sorting mail and making copies on the mimeograph machine.
“Dear Billy,” the letter began. “You are going to work, and I am so anxious that you get the right start.”
In a three-page single-spaced letter, Moore -- who had never mastered the electric typewriter -- painstakingly typed up his ideas for getting that “right start.” The letter included lessons he had learned in 69 years of living and five decades of working -- first as a farmhand, then as a railroad man and finally as a business owner in New Orleans.
High school and college students heading to summer jobs might want to consider Moore’s advice from 52 years ago.

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Here are some excerpts from his letter:
“Work can be fun. Even if it takes a lifetime to prove it to you, earning money is more fun than spending it.”
“I want you to look at this job as a place to learn how business is done and be happy that you have a part in it, not sorry you have to work.”
“If I understood you right, you get $1.10 an hour, or $44 a week. I am a little sorry about that because you will simply have to earn that $1.10 an hour. If they paid you 50 cents an hour, they would likely expect about half as much work, and you could easily do it, but you must keep mighty busy to earn $1.10. And don’t forget this: If you do not earn it, they will not keep you on the payroll for long.”

“When you are ‘out of a job,’ ask someone, anyone in the office, ‘Isn’t there something I can do for you?’ Pretty soon you should know things you can do between errands to keep busy. Do them.”
“Begin at the very beginning to see how USEFUL you can be.”
“You will probably have to punch a clock to show what time you got to work and what time you left, but there is no law against your getting there five or 10 minutes early or leaving five or 10 minutes late, at least occasionally. You will find most of those who have executive jobs get there early, and many of them work till way after quitting time. That is the reason they are executives. If they weren’t willing to do this in years gone by and keep on doing it, they would not have an executive position.”
“Don’t be fooled. Every executive in the business will know, without looking at the clock card, whether you are a clock watcher or not, and clock watchers are not promoted. They are dismissed at the first opportunity.”
“Maybe you will not work for Standard more than this one summer, but how well you learn to work this summer will have a lot to do with how you work for somebody else in later years, and if you are good there, their recommendations would be worth a lot anywhere you might apply for a job.”
“If you have to make an outside delivery and are gone an hour, it has cost the company $1.10 to deliver that item. Many times this will be more than the item sells for. So wherever you go, go and come as quickly as possible.”
“Remember this. You were hired because they, the executives, need someone to help run the company. You are not working for them, but with them, and you must do your share. And remember this. The company could hardly get along without a president or head supervisor, but neither could it get along without an office boy. . . It ought to be fun, joining a good, big successful organization like Standard to help run the works.”

“No one can promote you but you. The only way you can even hope for a promotion is to do your work well and know how to do the other fellow’s work also. Then and then only can you be promoted to his desk or his work.”
“You will always get paid for the service you render. Little service, little pay. Much service, much pay. It is as inevitable as the rising sun. It is not how much you get but how much service you render that counts.”
He closed the letter to his grandson by writing, “Through it all you will need the blessing of God. Every and any life which does not take him into consideration is a hard one, so -- God bless you.”
Marchal never got to tell his grampa how much that letter meant to him. Moore died less than four years later, when Marchal was a junior in college, studying engineering at Georgia Tech. That was long before he came to fully appreciate his grandfather’s words.
Later, though, when he was a father of sons embarking on their first jobs, Marchal passed the letter along to them.
He first shared the letter with Bear, his older son, when Bear got a job working at a concession stand at Audubon Zoo. He was surprised, earlier this year, to receive a letter from Bear, 37, father of Will, almost 3.
Bear wrote to say that he had just come across his great-grandfather’s letter and that it had had “a much more profound impact” than it had when he’d read it all those years ago.
“Perhaps I’ve worked long enough at this point to know ‘first hand’ just how wise his words are,” Bear wrote. “Maybe it’s because it makes me think of guidance that I will be giving Will one day. I hope to be able to capture and communicate these lessons as well as your grandfather did. (I’ll probably do as you and give him the letter.)
Bear went on to say that he realized the lessons his great-grandfather offered still resonate today.
“Work ethic, value of a dollar earned, responsibility, integrity, taking charge of one’s own development/career, and going beyond the minimum job expectation to be successful are the main lessons that stand out to me,” he wrote.
He thanked his dad for passing along his grandfather’s wisdom.
“Reading the letter has helped me step back and get refocused on the core things needed to be successful,” he wrote. “Everything is built on this foundation.”
A foundation as solid as it was more than half a century ago.
Sheila Stroup's column appears Sunday, Tuesday and Thursday in Living. Contact her at sstroup@timespicayune.com or 985.898.4831.


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Earn money with Facebook

Facebook introduced a program Thursday that offers consumers a financial incentive to watch ads on the site.

Facebook will now reward users who watch certain ads with Facebook Credits, which can be redeemed to purchase goods on Facebook Deals, the company’s new Groupon-like daily deals service. The incentive, however, is not huge. Initially, the average ad will yield one credit, which is equivalent to 10 cents.
The ads will mostly be in games. CrowdStar, Digital Chocolate and Zynga are among the participating game publishers. Facebook is working with Sharethrough, SocialVibe, Epic Media and SupersonicAds to serve ads on the program as well as TrialPay, which will provide analytics.
Dan Greenberg, CEO of Sharethrough, says Facebook’s move represents “a step away from interruptive advertising.” Greenberg, whose clients include Microsoft and Nestle, says his network won’t deliver traditional advertising but rather branded entertainment, which consumers will want to watch and share with friends.
Incentivizing consumers to watch ads is one solution for Facebook’s low banner click-through rates. The move comes after Facebook expanded its Credits program last week to let consumers use the Credits to buy real-world goods advertised in Deals. Previously, the credits, which were awarded for consumers who signed up for various programs (like magazine subscriptions) or bought outright could only buy virtual goods
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