Intro to Stocks Lesson 8
Registered Investment Companies

Registered Investment Companies are basically mutual funds holding the shares of numerous other companies, sometimes diversified other times not.  The group of them styled as Exchange Traded Funds (ETFs) have become especially popular in recent years because there is more of an illusion of ownership when they appear on the statements of account of broke makers rather than being exclusively on the "computers" of mutual fund companies.  Numerous goo rues especially promote those which are "index funds" holding most or all of the stocks included in one of the widely known "stock indexes".  I'm going to talk about those index funds first because they all suffer from a fatal flaw.
      In my Note Files of the more than 5,000 stocks that I have analyzed as of 181222 minus the 162 cemunis (see Lesson 6), 182 stock ETFs, 110 Bond Funds, and 86 Debt Instruments traded under ticker symbols, there were 4,996 actual individual stocks.  Of those, 22.0% were Deficit Tangible Equity needing only to file the same papers with their friendly local Bankruptcy Courts that they have already filed with the SEC in order to wipe out the cash paid public stuckholders.  38.9% were carrying long term liabilities of an egregious weight exceeding 56.5% of their tangible capitalizations (including of course the DefTangs since negative tangible capitalization means more than all of tangible cap is debt load).  20.3% were perpetrating felony theft of the ratable property of continuing stuckholders under the euphemism "stock buybacks" which exceeded twenty percent of what little (sometimes none) remaining equity they had.  14.7% were wildly blown off (see Lesson 3) such that they had developed brutally crippling "overhead resistance" to price advancing, regardless of how sanguine any current performance might appear, which resistance tends to last for many years afterward, even decades.  8.1% were so abusive about embezzling ownership via "stock options" that their computed Bezzle Factors (see Lesson 2) were alarming, dangerous, ludicrous, or even more than the entirety of the company proposed to be gifted to empees.  11.8% are sporting Price/Revenues ratios Greater Than 7.00x, which is an overpricing which even one of the honchos of an Internet Mania company agreed that even *his* company could never earn out.  At that time, only 6.8% of all stocks in my covered universe were even potentially qualified for purchase at "some" price, typically radically lower than current market.
      What happens when you buy "some of everything" with an index fund is that you are volunteering for huge chunks of your holdings to be wiped out in bunko rapecy or reorganization when the inevitable day of reckoning comes around.  Such an approach may be aggressively encouraged by mutual fund companies since it *appears* to function, so long as markets continue to be rigged by such as Ronny Raygun's created Plunge Protection Team and other manipulators using stock index futures.  But it is an unreasonable Black Swan invitation to take on such massive percent of portfolio risks.
      While "some of everything" is inherently defective for investment, there are times when you might want to consider ETFs focused on a specific industry.  Especially popular in recent months among those already zonked out or unaware of the socially toxic nature of Marriage You Wanna are such as the ETFMG Alternative Harvest ETF traded as "MJ", a mutual fund holding a diversified group of companies involved in growing and distributing Cannabis sativa and its products.  I am reminded, every time I see such holdings touted, of the response of former Florida goofernor Jeb Bush to the ministrations of medifraud dock tore Snitter Rand Paul suggesting that since Jeb had "gotten stoned" at some point in his life he would necessarily support the poisoning of American society with that inherently criminal toxin.   Since Jeb had actual knowledge of the nature of that socially toxic chemical, he disagreed.  For good reason, as demonstrated by my own experience when I attended a stockholders meeting held in the narked out cesspool of San Diego Californicatia.  Driving back from that meeting, I could not even hear *myself* think, a symptom of those not actually consuming the toxin which explains HOW it is that the criminally abusive consumers have been able to "legalize" that still Federally felonious drug in many states of the former United States of America, now Loonie Tied Studs of Merka.
      There is a more general solution than relying on what the hype and hoop lala "financial media" are promoting as industries of interest.  For example, a young friend just beginning to acquire some "baby" holdings (literally $100 worth of each stock), expressed the conviction that "artificial intelligence" is somehow the wave of the future.  A specific company of interest was currently trading at too high a price to obtain even a solitary one share for the $100.  So I suggested searching the web for "ETFs holding" that symbol.  It turned out that the holdings of that symbol in any located ETF were quite tiny, much less than 1% of any of the funds.  But a search on "artificial intelligence ETFs" was much more productive of possibilities to consider.
      Turning now to the one set of ETFs that I have found especially useful over the years, there are quite a number of exchange traded country-specific mutual funds.  I first got involved with them during the "Asian Flu" crisis of 1998 and have continued ever since.  They solve a number of the problems of *foreign* investment including especially the lack of coherent financial reporting available on the SEC web site.  One complication that I ran into from time to time is that the manglers of such mutual funds get themselves unduly involved in *leveraging* the holdings of the fund (borrowing money to "support the market" in the country involved) and then demanding that stuckholders buy more shares, to be held in perpetuity by the criminally abusive "transfer agent" for the shares, instead of being paid the TAXABLE DISTRIBUTIONS declared and pretended to be "paid" (to their criminally facilitative agents instead of the owners).  Another complication with one such fund was the *imputation* of quite large "payments of foreign taxes" as TAXABLE INCOME to owners of the shares while there were no actual payments whatever.  So there are some special risks associated with country-specific mutual funds.  However, there is also a reasonable approach available for determining "at what price" it might make sense to buy shares.
      Despite the risks of manglers violating the property rights of share owners, there are some specific approaches that I have found helpful in determining at what price to buy any such shares of country-specific mutual fund ETFs.  In the first place, the Balance Sheet Analysis of Lesson 2 is relevant only to the extent of verifying that the fund is not *currently* overleveraged.  Since all of the "assets" are shares of other companies, only the analysis of long term liabilities in relation to net tangible equity is relevant.  There may still be some such CEFs with Debt Load Egregious.  The key to determining a price to buy is the historic pricing analysis of Lesson 3 identifying the apparent mountaintop high.  That mountaintop high, however, must be adjusted for any significant distributions which exceeded 10% of the prior single day closing price.
      To obtain the dividend history, you will need to go to the
"Dividends Only" choice in the "Historical Data" page on the Yahoo web site specify the ticker symbol of the CEF you want to analyze, change the "Time Period" column to "max", change the "Show" column to "Dividends Only", and (if you want to, it might not make any difference) change the "Frequency" column to "Monthly", then click on "Apply" to bring up the history of distributions paid by the CEF you are analyzing.  Begin a "*YYMMDD divs $#.###" line in your note file using the date of the most recent distribution paid and include its dollar amount.  Since these CEFs almost never pay the same amount twice in a row, add the "YYMMDD paid $#.###," date and amount of each prior distribution for at least five years into the past (if the CEF you're analyzing has been paying for at least that long).  In every situation where the amount paid exceeds 10% of the prior single day closing price, you will need to calculate an adjustment factor of "amount paid divided by prior close minus 1 = the negative expression of the adjustment multiplier which needs to be applied to the located mountaintop high.  Gather all such adjustment multipliers which occurred subsequent to the mountaintop high and apply them to the located mountaintop high to calculate an adjusted mountaintop high.
      Once you have the adjusted mountaintop high, divide it by 2 to arrive at the nonstandard but relevant "half level" for the CEF.  Although the half level is only one of the maximum paying prices for regularly analyzed stocks, it is a good estimate of the highest price that can reasonably be paid for shares of a specific-country CEF.  The reason is that entire *countries* tend NOT to go into bunko rapecy and having the shares reach the half level from an adjusted mountaintop high is a reasonable indication that there already is "blood in the streets" in that country.  This is not to suggest that buying at that price won't result in subsequent declines in market price.  I recently had a situation where one such CEF that I bought in 2015 for 10% less than its adjusted half level continued under the pressure of neighboring wars to fall to half again of the originally computed half level, i.e. the CEF was trading at roughly 25% of its adjusted mountaintop high.  The market price has subsequently recovered sufficiently that my total holding of the shares is now +14.3% as of 190228.  This is not the first time that I have been willing to "average down" on a country-specific CEF and the previous such effort was remarkably successful over a period of years.
      Bottom line is that, although the "Random Walk Down Wall Street" swindle system is continuing to gull the naive into buying vast percentages of brutally defective company shares, thereby manipulating the market prices of virtual garbage companies, there are some narrowly defined exceptions where the use of Registered Investment Companies a/k/a Exchange Traded Funds can be interesting or even profitable.
    Bob Grumbine    :-)##               Onward to Lesson 9               back to Bob Grumbine's Central Blogging Site