ASIC Lifts Ban on Covered Short Selling

From today covered short selling of non-financial stocks is allowed again on Australian stock markets. Obviously if you are a short seller you’ve known this for a week. What does it mean to us?

The disclosure and reporting details are in this Market Advice. Australian Securities and Investments Commission – Requirements for disclosure and reporting of short sales from 19 November 2008.

So naked shorts are still banned. Naked shorts means the seller has not yet borrowed the shares before placing the sell order. The seller expects to borrow or buy the shares in order to deliver on the trade.

Covered shorts are allowed for non-financial stocks. Covered shorts means the seller must actually borrow the shares before placing the sell order.

The financial stocks that are still banned from covered short sales are listed at the end of this post. But of course there are some exemptions to that ban

From today all sell orders must be identified as either long sale, short sale (for non-financial stocks) or Covered short sale exempt (you knew there would be an exemption somewhere for financial stocks). Sellers are required to indicate which category their order matches.

Ticker Name
ABP Abacus Property Group
AMP AMP Ltd
ASX ASX Ltd
ALZ Australand Property Group
ANZ Australia & New Zealand Banking Group Ltd
AUW Australian Wealth Management Ltd
AXA AXA Asia Pacific Holdings Ltd
BCM Babcock & Brown Capital Ltd
BJT Babcock & Brown Japan Property Trust
BNB Babcock & Brown Ltd
BOQ Bank of Queensland Ltd
BEN Bendigo and Adelaide Bank Ltd
BWP Bunnings Warehouse Property Trust
CER Centro Retail Group
CFX CFS Retail Property Trust
CGF Challenger Financial Services Group Ltd
CBA Commonwealth Bank of Australia
CPA Commonwealth Property Office Fund
DXS Dexus Property Group
FKP FKP Property Group
GMG Goodman Group
GPT GPT Group
HGG Henderson Group PLC
HFA HFA Holdings Ltd
IIF ING Industrial Fund
IOF ING Office Fund
IAG Insurance Australia Group Ltd
IFL IOOF Holdings Ltd
LLC Lend Lease Corp Ltd
MCW Macquarie CountryWide Trust
MDT Macquarie DDR Trust
MQG Macquarie Group Ltd
MOF Macquarie Office Trust
MGR Mirvac Group
NAB National Australia Bank Ltd
PPT Perpetual Ltd
PTM Platinum Asset Management Ltd
QBE QBE Insurance Group Ltd
SGB St George Bank Ltd
SGP Stockland
SUN Suncorp-Metway Ltd
SDG Sunland Group Ltd
TSO Tishman Speyer Office Fund
TAL Tower Australia Group Ltd
VPG Valad Property Group
WDC Westfield Group
WBC Westpac Banking Corp
Five additional Securities (being APRA regulated businesses)
WES Wesfarmers Limited
ROK The Rock Building Society Limited
WBB Wide Bay Australia Ltd
FCL Futuris Corporation Limited
CIX Calliden Group Limited

Calculate the Beta Coefficient of a stock

Beta CoefficientAs part of the Corporate Finance subject of my MBA we have to calculate the beta coefficient (aka Beta) of a company’s share price. The is applied economics and market mathematics, but it simply is a number which indicates how closely (or not) a company’s share price moves in relation to a broader market (or an index like the S&P ASX200 or the Dow Jones Industrial Average).

Anyway, part of the process is to create an excel format spreadsheet to aid with the calculation. I’ve done it and thought I share it with you. It will work with any spreadsheet program that can open .xls files

Update 1: 31 July 2009 the new version is available for testing by requesting it in a comment below. Once the testing is complete I’ll make it freely available to registered users.

Update 2: 7 July 2011 For a limited time you can get the Beta Coefficient Calculator without registering. Enter a valid email address in this form to receive a link to download the file. You’ll also get an email about new versions and bug fixes (with an opt-out link).

Update 3: 23 July 2011 If the form doesn’t work for you, please comment below and I’ll email it to you. The form is quicker but some people can’t get the download.

[download file=”Beta-Coefficient-Calculator-Wealth-Esteem-v0.9b8.zip” title=”Beta Coefficient Calculator by Wealth Esteem”]

Version 0.9 beta_8
* Enabled automatic download via web form
* Added French and German to Translation tab (alpha code there)

Version 0.9 beta_7
* Fixed bug in date text description
* Updated sample data to 6 Jun 2011
* Changed sample data to BHP Billiton
* Made Instructions tab text translatable
* Cosmetic fixes

Version 0.9 beta_6
* Explained Translation tab in instructions and asked for volunteers
* Updated sample data to 2011
* Updated copyright date to 2011

Version 0.9 beta_5
* Added Change Log tab
* Moved text of index symbol & stock symbol to translation tab

Version 0.9 beta_4
* Added explanation of index and stock symbol fields on Beta Coefficient tab
* Updated copyright date to 2010

Version 0.9 beta_3
* Added email address to instructions tab

Version 0.9 beta_2
* Added logic to translate number of periods to a date range and show that range to users in Beta Coefficient tab at C11
* Swapped order of Security and Index tabs
* Fixed bug in coefficient calculation
* Introduced version numbering and control

Version 0.9 beta_1
* Updated instructions tab

Version 0.9 beta
* Initial public version

Support and feedback via the comments below.

Porsche Fleece Hedge Funds for 12 Billion Euro in Volkswagen Sting

Porsche There is No Substitute!

The background:

  • In September 2005 Porsche bought 20% of its larger but less profitable German rival Volkswagen.
  • In March 2007 Porsche bought another 19.9% (to 39.9%) and launched a takeover bid.
  • In October 2007 the law preventing the takeover of Volkswagen was scrapped.
  • On 20 October 2008 Volkswagen’s share price fell 23% on short selling by global hedge funds who bet the price of Volkswagen was too high and Porsche could not economically acquire more stock.
  • On 26 October 2008 Porsche announced it controlled Volkswagen through 42.6% direct holding and call options exercised over the another 32.4% (=75% !). As most of the balance is owned by the state or index funds, that left only about 5% on market to cover the shorts the hedge funds sold.
  • On Tuesday 28 October Volkwagen became the biggest company in the world momentarily when the hedge funds had to buy “at any cost” driving the price to €1,005 (from below €200 a year ago)
  • Late Tuesday Porsche agreed to release an addition 5% of stock to the market to maintain liquidity
  • The hedge funds then complained to the regulators that Porsche built a stake without their knowledge.

The sheer arrogance of Hedge Funds crying foul over this should offend me, but it’s their modus operandi to bully, lie and sneak around to make a buck. They have been accused for years of selling naked shorts. Normally you or I must first borrow the stock we plan to sell short before we are allowed to sell it. We’d pay a fee to the lender of the shares. If you sell without borrowing the shares first you are naked. It’s riskier but often more profitable if you can buy the stock on-market after sentiment has turned against a company. Nothing turns sentiment against a company like a huge overhang of stock on the offer line of the quote screen.

So if you can sell a naked short because you think German Automobile Manufacturers are in for a tough time in this economy, it is in your interests to get that story out after you’ve sold. Short sellers told everyone they could that Lehman Brothers was in trouble after they’d sold.

Now naked short sellers represent a counter-party risk of failure to deliver the stock at Trade plus 3 days (T+3).

Take a look at the failure to deliver reports produced by various exchanges. Some companies are consistently targeted by naked short sellers and the sellers regularly fail to deliver stock without serious penalty.

Finally someone with the clout to take on Hedge Funds called their bluff and made a bundle. So the hedge funds cried to the regulators.

These are the same hedge funds ignoring T+3 delivery dates on equities. Imagine what happens if you or I fail to deliver.

What makes me assert these were naked shorts? If the Volkswagen volume was mainly covered shorts it is unlikely the hedge funds would all need to return their borrowed shares on Tuesday 28 October. The borrowing would all be on a normal distribution. So there would not be a spike on 28 October intraday to €1,005. The price would be elevated but it would shake sellers out to the market.

Similarly any index funds or active investor should have been reweighing their portfolio, so the impact should be relatively minor compared to the recent overall market malaise.

Sadly there is a cost to the punters of this lesson. Most hedge funds do not take retail investments from small investors. Instead our retirement and superannuation funds place some of our pooled funds into them. So a hedge fund’s loss does come home to its small investors.

It still felt good to see hedge funds take a hit.

Credit Crisis Explained

A number of people have asked me if there is a simple explanation of the financial crisis. It is difficult to give a simple explanation that doesn’t paint the exclusive cause as naive greed. The credit crisis is one contributing factor to the financial crisis (I see these as two different issues).

I see four major factors as contributing to the credit crisis.

  1. Poor quality loans on high risk mortgages and lending practices
  2. Securitized high risk loans tainted asset pools that investors purchased
  3. Easy money to avoid a recession since dot crash
  4. Unchecked naked short selling in the market (allegedly by hedge funds)

When the asset inflation driving US housing bubble stopped, it’s like the music stopped in musical chairs. The scramble to get out drove prices further does and undermined asset prices further.

Here is a funny and slide show that explains the first point

Credit Crisis Pictualized

View SlideShare presentation or Upload your own. (tags: presentation comic)

Warren Buffet: Buy American. I Am.

As part of my Corporate Finance class, Warren Buffet and Berkshire Hathaway came up. Nobody had checked its stock price recently so I volunteered to do it. In doing so I came across the following op-ed piece Warren Buffet wrote in the New York Times.

For the record BERKSHIRE HATH HLD A (NYSE: BRK-A) closed on 23 October 2008 at $115,100.00 USD per share with a 52 week range of $105,300.00 – $151,650.00 USD. The company does not pay dividends.

Anyway on to the Sage of Omaha’s words

Buy American. I Am.

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month (or a year) from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Update 10:50am ET 24 October 2008 Of course just after I post this, the Dow takes a bath as Wall Street panics. BERKSHIRE HATH HLD A (NYSE: BRK-A) Real-time: 110,903.00 Down 4,197.00 (3.65%)

MBA Term 2 course result

Wow I passed the Data Analysis and Statistical Modelling exam I wrote about in August. My term result was a solid Credit grade, so I didn’t do too badly given my inability to study for the exam.

One of Corporate Finance lecturers said my trade-off of limited study time for family and a new job was rational and utility-maximising 😀 Nice economist words those.

On with Corporate Finance which is mainly math. There is an optional workshop tomorrow for those who need to brush up on their high-school math skills.

Nicely the trick to this Corporate Finance course is not about the calculations. Any monkey can push buttons on a calculator or type numbers into excel. It’s knowing when and what kind of formulas apply to various similar problems when valuing a cash flow.

My inner geek is beaming again.

URGEN MESSAGE FROM NIGERIA, ER, AMERICA

I received this overnight – what a hoot!

Dear American:

I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.

I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.

I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transactin is 100% safe.

This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.

Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.

Yours Faithfully Minister of Treasury Paulson

Snaps to whoever thought this one up.

Update 21 October 2008 Sorry for the error that made this post unreadable to my IE readers. All fixed now

People+Company Connections

I’ve been playing around with the social web for a while now. One of the things I’m interested in is how people are connected through organisations. For examply take the Australian Stock Exchange, there are about 1800 companies listed on the ASX all of which have a board of directors. Many directors sit on more than one board. So how do I find out who sits on what board?

I’ve maintained a private database in the past but I’m thinking of making it publicly available, in which case I should then wiki-fy it so that people can update it.

One place to build it is Cogmap which lets you create and share organization charts in a wiki-like manner. Alternatively there is Jigsaw a collaborative people and business directory with social media elements (invites and points).

I’m not sure which way to jump, but I want to seed my data and then let the users improve it. Then open the data further with to allow interesting and unplanned uses to emerge – like draw a map of 500 most powerful/influential board members in a country ranked by the market capitalization of their companies. This is sort of like They Rule without the Marxist-Leninist slant. They Rule allows you to create maps of the interlocking directories of the top companies in the US in 2004.

I definitely will build this. If you have suggestions I’m all ears.

Fee split etiquette

I am an active networker and I see many requests from recruiters to find a suitable candidate for a role. Sometimes someone replies with a request to split the fee.

Can we talk about good etiquette for a fee split?

If you work as a recruiter then it is quite reasonable to accept a fee split of some sort. However if recruiting is not the finder’s profession should they charge a fee for helping out a friend/acquaintance?
Will the finder participate in the guarantees the recruiter provides? Will we consider sharing expenses? Overhead charge?

What about the friend of the finder who is suitable for the role? Would you not refer a friend to what might be a great role because the recruiter will not split a fee?

Take this beyond recruiting and consider your professional skills or requests for assistance. If you put out a request for an introduction for some new business, how would you feel if an intermediary hit you up for a commission?

We share of ourselves not because there is something in it for us in this transaction. It’s the goodwill generated across a range of favours.

Let me know what you think.