Entries in Investments (8)


Investing in Professional Poker Players

Comstock Images/ThinkStock(LAS VEGAS) – Professional poker players are now drumming up finances from hedge fund managers, real estate moguls and wealthy businessmen, according to the Wall Street Journal.

For example, Noah Schwartz, 28, raised $900,000 to play at The One Drop Poker Tournament. His investors will receive a proportional amount of his winnings if he places minus 10%. The jackpot for the tournament could reach as much as $18.3 million.

Although top pros do not usually seek out investors, there is a growing group of poker players that are betting investors will take a gamble on them.

Copyright 2012 ABC News Radio


JPMorgan Faces New Lawsuits Over Bets Gone 'Horribly Wrong'

Chris Hondros/Getty Images(NEW YORK) -- JPMorgan Chase now faces two new lawsuits from shareholders angry over the bank’s two billion dollar trading loss.  The suits, filed in federal court in New York, allege JPMorgan misled investors about the bet that went bad.

“Defendants misrepresented the losses and risk of loss to the Company arising from massive bets on derivative contracts,” plaintiff Saratoga Advantage Trust said in court papers.  “These derivative bets went horribly wrong.”

Chief Executive Jamie Dimon has said the bank made “egregious” and “self-inflicted” mistakes, words that may come back to haunt him in court.  

“We believe that he made false and misleading statements and omissions quite frankly,” Bruce Ventimiglia, CEO of Saratoga Advantage Trust, told ABC News.

The lawsuit names Dimon and Chief Financial Officer Douglas Braunstein.  

Dimon and Braunstein knew, or could not reasonably have been unaware of, the magnitude of losses being incurred by JPMorgan,” court records said.
When JPMorgan disclosed the loss last week the bank said it resulted from a failed hedging strategy meant to insulate its portfolio from losses.  Ventimiglia does not buy it.

“They have mislabeled what they were doing.  They describe what they were doing as hedging strategies.  We think they were outright bets,” he said.  

JPMorgan Chase declined to comment on the lawsuits.  The bank has also declined to give specifics about the trades, but Saratoga Advantage Trust believes “these wagers may have reached close to $100 billion dollars in size.”  

“These types of derivatives trades are at the center of the 2008 financial crisis,” Ventimiglia said.  “The proper disclosure of what these banks are doing is critical to investors.”

Copyright 2012 ABC News Radio


Tax Tip: Calculating Investment Income

Comstock/Thinkstock(NEW YORK) --  If you had investment income from stocks last year, its important that you get your numbers right in time to file your tax returns.

As Eric Smith of the IRS explains, "People often make mistakes in calculating the gains and losses on the sale of stock."

Smith says taxpayers will need two forms: "With the form 8949, you're going to seperate your short-term activity, your long-term activity.  You're going to separate transactions where you have basis reported to you on the form 1099."  This involves the cost basis rule.

Kathy Pickering, who runs the H&R Block Tax Institute, adds that there's a change this year.

"Brokers and financial agencies are issuing those forms that show your stock transactions.  This year they have to report the basis on those transactions," she says.

In past years they didn't have to report as much information about stock values.

"For those who've had to file this in the past, you know, it can be a little bit tough to try to calculate the basis that will make it easier," Pickering says.´╗┐

Copyright 2012 ABC News Radio


Dodge & Cox Tops List of Best Mutual Funds

Comstock Images/Thinkstock(CHICAGO) -- Morningstar is out with its latest ranking of the best and worst mutual fund families, with Dodge & Cox and T. Rowe Price ranking best and second-best, respectively, and Hartford, BlackRock and Alliance Bernstein hugging the bottom.

Asked if anything in this year's rankings surprised him, Russel Kinnel, Morningstar's director of research, says yes: that fund giant Fidelity placed only 22nd.

"I was surprised Fidelity came in that low," he says. "Their foreign stock funds aren't performing very well. Their muni funds, though, are good." Any other surprises? "Yes, that Hartford was so far down." Hartford ranked 29th, one notch above bottom anchorman ING Retirement Funds.

Morningstar's Top 10 mutual fund companies:

1. Dodge & Cox

2. T. Rowe Price

3. American Funds

4. Franklin Templeton Investment

5. MFS

6. Thornburg

7. Vanguard

8. Harbor

9. JPMorgan

10. Legg Mason/Western

Kinnel says Morningstar's analysis takes into account a variety of metrics for each company: "We take data on all their individual funds and roll them up to see the big picture. All share classes are included, but we exclude funds-of-funds to avoid double counting." Also factored in is each firm's return (its five-year relative performance), its ability to retain top managers and how much of their own money managers have invested in the funds they oversee.

Focusing on companies, rather than on funds, says Kinnel, makes sense. "It tells you something about the firm's expertise, its culture and ethics; how good or bad they are at retaining talent." All that matters, he says, because, "when you buy a fund, you're getting the company -- its analysts and traders."

The metric for manager-retention, in his view, speaks volumes. "Management retention tells you a lot about a firm's culture," writes Kinnel in his report. "If those who know the company best are fleeing, you probably should not be buying." Top-rated Dodge & Cox gets high marks for manager-retention, with a five-year retention rate of over 96 percent. Its managers have an average of 21 years with the firm.

Dodge & Cox also rates highly, too, in manager investment (how much of a manager's own money is invested in his or her fund), with the average being $1,000,000, up from $860,000 in 2010. The average at BlackRock, by comparison, is a little over $76,000. More than two-thirds of BlackRock's U.S. funds, says Morningstar, have zero manager ownership. The firm placed 26th out of 30 in the overall rankings.

Copyright 2011 ABC News Radio


Big Inflow of Deposits for US Banks; Savers, Investors in for Disappointment?

Adam Gault/Thinkstock(NEW YORK) -- Experts say it's not 2008, and consumers shouldn't lose sleep over the safety of their money in the bank. They should, though, expect lean years ahead both for investors and account holders.

"Our banks are still a safe place to keep your money, you're just not going to get much interest. The bank stocks might not be such a safe place to keep your money," says Mike Mayo, managing director, banks, for CSLA.

Stocks of the biggest U.S. banks showed modest gains Friday, continuing their rebound from Wednesday's nosedive. By late morning all the following were up: Bank of America (2.3 percent), Citigroup (2.74 percent), Wells Fargo (0.8 percent) and HSBC (1.4 percent). J.P. Morgan Chase declined 0.1 percent.

Richard Bove, an analyst with Rochdale Securities, says big banks have been benefitting from a massive infusion of money in recent weeks. Corporations and individuals pumped some $100 billion into bank deposits in the last week of July. He expects to see as great or greater an amount for the first week of August. Where's the money coming from? In large part from people selling bank stocks.

"It's ironic that at the same time people are selling bank stocks like crazy, because the're worried about issues X,Y and Z, that they're putting the money from those sales into the very same banks, as deposits," says Bove. Of the $100 billion amount, he says: "That's never happened before. In the week after 9/11, $120 billion was deposited, but it came right back out very rapidly."

He says that except for that deposit, there's been nothing comparable since 1975. "All of it," he says, "is concentrated in bank checking accounts."

"It's a massive contradiction: Selling bank stocks, and then putting the money in the bank." But it's a contradiction he thinks will not persist: This gesture of confidence by depositors cannot help but redound, eventually, to the banks' share prices. "Ultimately, it will filter back into the stocks."

As for bank safety, he says, "No market is going to collapse with this much liquidity."

"One word -- volatile -- is the only word you need to know when it comes to bank stocks," Mayo said.

Major bank stocks had nosedived Wednesday and then bounced back Thursday, with Bank of America up seven percent after declining 10.9 percent on Wednesday, and Morgan Stanley up 10.7 percent following the previous day's 9.6 percent tumble. The sharp dive Wednesday was largely tied to rumors that French bank Societe Generale was in trouble.

Despite the bounceback Thursday, analysts said there are still long-term underlying worries about banks big and small, in part because of their ties to troubled European financial institutions. "In the U.S., five or six banks are directly affected by Europe; 7,000 never loaned a dime to Europe but are tied in through agreements with the big banks," says Rochedale's Bove.

He said sovereign debt woes in Europe will affect the ability of our banks to generate earnings. "The banks in the U.S. will lack the ability to fund growth in the U.S. economy. We're making it a fortress," Bove said of the banking system. "It's not going to go under, but it's not going to make a lot of money."

Copyright 2011 ABC News Radio


Debt Crisis Survival Guide for Investors

Comstock/Thinkstock(WASHINGTON) -- As the Treasury Department's Aug. 2 deadline to raise the debt ceiling draws near, the fear is that if a deal is not struck in the next few days, the U.S. could default on its debt.

But even if a compromise is reached, many analysts believe that credit agencies could still downgrade the country's AAA rating.

A short-term solution would likely result in a downgrade, according to Citibank, which warned its customers that "the kick the can down the road path ... would not impress the ratings agencies."

If a downgrade occurs, it could cost more to borrow, and there could be a negative effect on the markets.  Analysts forecast up to a 10 percent drop in the stock market as a result of a downgrade.

How does this translate?  An average 401(k) of $140,000 would lose $9,000.  Mortgage rates would likely rise at least a half point.  The average home loan of $172,000 would see a hike of $19,000.

ABC News spoke with four financial experts, and here are their recommendations on how to survive the debt crisis:

What advice do you have for investors?

"Investors should stay the course and not let their emotions get the better of them.  Keep saving, pouring money into your IRAs and 401(k)s, and stay invested in stocks.  Invest for the long-term, not the next week," said Joe Magyer, senior analyst at the Motley Fool.

"You have to give some emphasis for being prepared for difficulty.  That means diversification.  You shouldn't bet heavily on one scenario.  Don't invest heavily in situations where it's a coin toss of win or loss, big winner or big loser.  Rather, invest in things that will do OK in a variety of scenarios," said Howard Marks, chairman of Oaktree Capital Management.  "Invest in companies that are not highly cyclical or highly levered.  Food/beverage/drugs, for instance, are inherently noncyclical industries.  Auto/heavy manufacturing/paper/steel, for example, are highly cyclical industries with their fates tied to the economy."

"Nobody has a crystal ball and can predict market movements with precision.  We are encouraging investors to maintain a balanced, diversified portfolio and keep a long-term perspective," advises Vanguard, America's largest 401(k) manager.

What advice do you have for investors who can't take a 10 percent hit?

"Investors can always go to cash if they're looking to avoid taking a big hit.  And if you think you can't sustain more than a 10 percent loss with your assets, then you probably shouldn't be in anything where that can happen, namely the stock market," said Magyer.  "I think selling now is reasonable if you can't sustain more than a 10 percent loss in the market. ... I understand why some people are concerned, the threat of a downgrade let alone a default is real and the impact will be painful, but I don't think the best play is to go completely conservative. ... I do think that blue chip stocks are the best play over the long-term for patient investors, particularly for retirees. ... The last place I'd want to be right now is a lot of the high-flying IPOs that have been out, so LinkedIn, Pandora, Zillow, each of those are ridiculously priced."

"If you are a small investor, there is absolutely nothing wrong with moving to the sidelines on a short-term basis to wait till the dust settles," said Hugh Johnson, chief economist at Johnson Advisors.

"We believe that market movements should not dictate your investment strategy.  If you are nervous about the stock market and are unable to withstand a severe decline, consider selling down to your sleeping point.  In other words, adjust your stock position to a level that enables you to sleep at night, but it should be a modest (not dramatic) adjustment.  But to re-emphasize, most investors should stay the course," said Vanguard.

Copyright 2011 ABC News Radio


Beware of 'Get Rich Quick' Investment Scams

Ciaran Griffin/Stockbyte/Thinkstock(NEW YORK) -- Many companies prey on consumers, promising them a means to make money fast.  But as a scam involving a telemarketing firm shows, people need to be aware of these "get rich quick" investment schemes.

The Federal Trade Commission says many people were duped by a firm called American Precious Metals, which deals with gold, silver, and other precious metals.

Dama Brown, an attorney for the FTC, says the firm was "calling up consumers, generally cold calling consumers and promising them very high profits with very low risk in these leveraged precious metals transactions."

The firm, which has since been court ordered to shut down, ran its leveraged schemes by using borrowed money, putting consumers at great risk.

"Consumers have been induced to borrow money against their homes, take money out of their IRA accounts, borrow money from home equity lines, life insurance policies," says Brown.

She advises consumers to get on a "Do Not Call" list to cut their risk of being targeted.

Copyright 2011 ABC News Radio


Facebook Raises $1.5 Billion in Goldman Sachs Oversees Offering

Photo Courtesy - Getty Images(PALO ALTO, Calif.) -- Facebook announced Friday that it has raised U.S. $1.5 billion in an oversees offering from Goldman Sachs.  In December of last year, Goldman, along with Digital Sky Technologies, invested $500 million into the social networking company.

Though execs at Facebook have not made immediate plans for these funds, the company will continue investing, building and expanding its operations. 

"Our business continues to perform well, and we are pleased to be able to bolster our cash position with this new financing," said David Ebersman, Facebook's chief financial officer.  "With this investment completed, we now have greater financial flexibility to explore whatever opportunities lie ahead."

Copyright 2011 ABC News Radio´╗┐

ABC News Radio