Welcome to the end of the week! Just sit back, relax, and enjoy this weeks roundup in another edition of Happy Hour.
Going Global
Staying closer to home seems to be an unwritten rule. By only picking U.S. stocks you ignore the rest of the world. You’re also betting that the U.S. will outperform the rest of the world year after year. The table of asset class returns shows it doesn’t work. That should be enough to broaden your investments.
In case you’re not convinced, here’s one more reason for owning some foreign stock funds. And a third, the simplest reason, is that index funds and ETFs make it easier and cheaper to invest overseas than ever before.
When I built the asset class table, I wanted to compare it to a well-rounded allocation. After a couple attempts at Portfolio Visualizer, here’s what I came up with:
- 15% U.S. Large Caps
- 15% Foreign Developed Stock
- 10% Emerging Markets Stock
- 10% Small Caps
- 10% REITs
- Rest in High Quality Bonds
It doesn’t need to be that complicated either. A two fund portfolio will do the job – a global stock and bond fund. It’s not the perfect allocation, but it does the job it was built for, to be a diversified global portfolio and lower long-term risk.
LMCA Spinoff
Anyone who likes to invest in spinoffs might take to look at LMCA. To be clear, this isn’t a recommendation to buy. I haven’t read through the full SEC filings, but my brief glance at it shows some interesting possibilities in a market where stocks aren’t screaming opportunity.
Liberty Media (LMCA) is the product of John Malone who is notorious for using special situations to boost value for himself and shareholders who have followed him in the past.
I’d recommend reading You Can Be A Stock Market Genius by Greenblatt. The Liberty Media Case Study (chapter 3, page 115) gives you an idea of his past history. It’s an extreme case, so don’t expect similar results. It’s one reason I’m looking into it. The other, was the last year’s STARZ spinoff from Liberty Media which worked very well for me.
Anyways, Malone does a great job of making simple things very confusing. This is a perfect example.
On top of the stock dividend of Liberty Broadband shares, a rights offering is part of the spinoff. For every five Liberty Media shares owned, shareholders get one subscription right to buy Liberty Broadband at a 20% discount to the 20 day moving average price. Rights can be traded too.
Here’s the kicker. Over subscription privilege is available. Any shares not bought (in the initial rights offering) will be available to only those shareholders who fully exercised their rights (at the same 20% discount).
There are some big players involved – Berkshire Hathaway and SAC Capital – a wild guess says both hope most shareholders don’t exercise their rights.
Even if it turns out to be not worth the trouble, it’s a good learning tool for how more complicated spinoffs work.
Last Call
- The Hard Truth: Successful Investing Involves a Lot of Luck – M. Housel
- Popular Stocks Stink – P. O’Shaughnessy
- Markets: Exuberance is Not Always ‘Irrational’ – Reuters
- Special Treat: All Things Charlie Munger – Valuewalk
- The Cost of Chasing Returns – St. Louis Fed
