Auction Market Preferred Shares
By John Schroy, on March 30th, 2009 | 
Failures of commercial rating services to do an adequate job have been widely recognized, in the wake of the Crash of 2008. Much of the criticism, however, has been directed to the conflicts of interests that are a characteristic of these services.
This article discusses other weaknesses of commercial publishers of investment information, such as the industrial nature of their operations and their marketing focus on traders rather than long-term investors. The case of Auction Market Preferred Shares, which failed in 2008, is covered in detail.
The Efficient Market Hypothesis
By John Schroy, on March 23rd, 2009 | 
The Crash of 2008 was exacerbated by a FASB mark-to-market rule that required financial institutions to write down assets below commonsense valuation. As John Maynard Keynes remarked, the problem was an academic scribbler’s unproven theory, some forty years ago.
That ’scribbler’ was Eugene Fama and his unproven idea was called “The Efficient Market Hypothesis”. The Crash of 2008 did much to discredit this harmful musing that supported Modern Portfolio Theory, mark-to-mark accounting, and unmanaged index funds.
Morningstar ratings
By John Schroy, on May 28th, 2006 | 
Mutual funds are sold primarily on the basis of ‘performance’ measured by historical ‘total return’.
The famous Morningstar ’star’ rating system is based on ‘total return’, in this case ‘risk-adjusted total return’ relative to funds of the same asset category.
A general’s stars are a clear indication of rank. People presume that ‘five stars’ are better than ‘three stars’, just as they presume that a ‘five star general’ is higher ranked than a ‘three star general’.
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