Wednesday, March 31, 2010


Added 6:30 P.M 3/31: The WSJ dividend page does show MKN going ex interest tomorrow, April 1st, with a $1.8006 interest payment per share (top of the page). So YF was signaling the wrong information today.

The first annual period for MKN closed yesterday. It is possible that the security is ex interest today for its annual payment, judging by the fact that is up $1.45 to $11. MKN: Summary for Citigroup Inc. Principal Protected Notes. In any event, the payment will be made on April 7th which is next Wednesday. Since the percentage increase in the commodity index was greater than the guarantee of 3%, and there was no closing price during the annual period which exceeded the maximum, the interest payable for the first annual period will be the percentage increase in the commodity index from the starting value of 112.43. Item # 6 Bought 100 MKN at 9.85 Pricing Supplement No. 2009- I do not have access to a Bloomberg terminal so I can only use the closing price for the DJ UBS Commodity index given at the for March 30, 2010. This will be subject to further check, but the number shown is 132.67. That number would also be the starting value for the next annual period. The percentage increased based on that closing value would be 18%. Okay, that works for me. If my calculations are correct, I will receive $180 on 4/7 for my 100 shares of MKN as an annual interest payment on its $10 par value.

If anyone sees an error please let me know. If I receive some sum more or less than that $180, I will need to check my computations, which would not be unusual for an OG who is mathematically challenged and who decided to attend Tulane in 1969 due solely to that school's then existing policy of allowing students to substitute philosophy for calculus.

Added 12:30 P. M. 3/31: The Fidelity detailed quote page does not agree with the percentage change shown at Yahoo Finance for MKN today. The Fidelity page shows ex dividend on 4/1/2010 and a 12 cent decline today. It also shows the penny rate at $1.8006 which is the precise number that I calculated earlier, except I rounded it off to $1.8. So the bottom line, I do not know now whether the ex interest date is today, based on YF, or tomorrow. The WSJ dividend page has not shown anything yet. The ex interest date, today or tomorrow, is irrelevant to me since I plan to keep the security and I will be paid on 4/7.

Added 50 COP at $51.22/Sold 50 of 100 GLW at $21.22/More on GDO

Once the link between the market price for round and odd lots is broken, a customer has no assurance of the price the broker will fill an odd lot market order. It could literally be at any price, no matter how absurd. NYSE Rule 124 (C) seems clear to me, possibly there is a unique meaning to "national best offer" that I can not comprehend, only those admitted to a secret society who know the special hand shake will be told its true meaning. And I would find it hard to believe that their representatives are unfamiliar with Fidelity's odd lot policy when I was told that the match on the odd lot was to be best available odd lot offer, which is truly scary for someone who enters a large number of odd lot orders. Item # 4 Fidelity Brokerage and Odd Lot Orders This is what the Fidelity representative told me when I pointed out that round lots were trading at $18.49 when I placed my order: "It is important to remember that the inside Bid/Ask that is reported is only for round lots. The next best offer for an odd lot was $18.85." In other words, the round lot trading is meaningless for the odd lot according to Fidelity. Odd lots match up with other odd lots.

It will take some time to get alternative accounts fully funded with assets currently at Fidelity, and I may have to wait until I finish preparing my tax return before implementing the switch. I was thinking about using Bank of America securities for most of the assets currently at Fidelity. If I keep $25,000 in a savings or checking account, it appears that I will receive up to 30 trades a month free of charge. RB just the Old Goat does not need another savings account. I have not used Schwab for a long time, and would be interested in anyone's recent experience on odd lot fills with other brokerage firms. Please send me an email on this or any other issue. The email address can be found by clicking "View my complete Profile" to the right. I do not want to jump out of the frying pan into the fire so to speak.

I am using another brokerage firm to fill the odd lots discussed below.

1. Bought 50 COP at $51.22 and Sold 50 of the 100 GLW at $20.21 Yesterday (see Disclaimer): This brings me to a round lot of 100 shares of Conoco (COP). I do not have a negative opinion of Corning. Instead I am just going for the better dividend paid by COP, and using some of the GLW proceeds to fund the COP purchase in a satellite brokerage account. The GLW shares were bought at $19.6 last January. Bought 100 GLW at 19.6

The dividend yield at a total cost of $51.22 for those COP shares is around 4.3%. In the current low interest rate environment, this affords me with compensation to wait for an appreciation in the share price, where I hopefully can capture a good total return on the shares. I do not know when that will happen. If COP shares rose 10% after a 2 year holding period, the price would be just $56.35. Assuming I captured 8 quarterly dividends by that time, my total return would be over 9% in the shares. The dividend yield pays me to wait for the opportunity to realize a profit on the shares. I do not have a target price on my COP position now, but a price in the range of $60-$65, realized within the next two years, would at least start the wheels turning. A $65 price in 2 years, assuming 8 dividends, would bring the total return close to 30%. The downside is always hard to evaluate. A return to the level of $38.6, where I bought shares in March 2009, is currently viewed as remote.

Conoco shares sold off after its announced its share buyback, 10% dividend hike, and disposal of assets including 1/2 of its stake in Lukoil. Bought 50 COP at 51.35 I much prefer the new strategy where there will be more of a profit focus. This article in Investopedia contains a general discussion of ConocoPhillips' upstream assets.

2. ATLANTIC POWER (owned): ATP:TO announced its 4th quarter results yesterday. The company says in its press release that the results were at the high end of its guidance. ATP reaffirmed its intention to maintain the dividend into 2015. The payout ratio however is estimated to be near 100% in 2010 due to an anticipated decrease in distributions from Atlantic's plants in 2010.

3. Jobs: The latest ADP shows that jobs are still being lost in the U.S., though at a slower pace. ADP reported that private employers shed 23 thousand jobs in March, compared to expectations of a 40,000 increase. This was the smallest number of jobs lost during a months since employment started to fall in February 2008. The government reports its monthly unemployment numbers on Friday. Since the census workers are being hired now, the Labor Department may have a more positive number than ADP, which looks at private payrolls, but the market will disregard the temporary hiring of census workers and look at the underlying employment trends for non-temporary workers.

4. GDO: A reader asked me the other day my opinion about whether the rewards outweighed the risks for the closed end fund GDO, which invests in mostly investment grade corporate bonds on a worldwide basis. I think that it is important for investors to evaluate and identity all known risks for a security, and to carefully examine the downside with every investment. GDO has its own risk/reward profile that needs to be assessed by each individual, based on their own particular circumstances. I thought that I would copy my response and then add a few more comments:

" How is this for an answer? It is all relative, which is something that your grandmother might have said.

GDO would have less interest rate risk than a similar bond fund with no liquidation date in a rising rate environment.

It is also relative to the individual. There could easily be a period between now and 2024 where intermediate term bonds lose a lot of value due to a spike in interest rates. If an individual has to sell GDO, or panics and sells, during that period, then there is more interest rate risk under those circumstances than for another individual who holds until the liquidation date. The liquidation date in 2024 will reduce but not eliminate interest rate risk.

You still have credit risk, which would be present in any investment grade bond fund. Credit risk may ultimately be more important in a bond fund with a 14 year life than interest rate risk, for those holding for the entire term which I may do.

You also have some foreign exchange currency risk with GDO in that it holds some foreign bonds.

Lastly, for us nerds, there is always the risk of lost opportunity. If your funds are tied up in any kind of bond fund which is going down in value due to interest rates rising, you lose the opportunity of investing in the higher interest rate environment for more yield.

However, assuming the fund is managed competently with the liquidation date in mind, keeping most bond maturities within that 14 year window, this cuts down on interest rate risk compared to an open ended bond fund with no termination date. The later fund will be losing value during a long period of rising interest rates (a long term secular bear market in bonds) with no out for the investor."

I currently own 370 shares of GDO. What do I hope to gain from it? I do not expect much, which is fine, since I am not trying to shoot the lights out with this buy. Actually, I rarely try to hit a home run, focusing more on bunts, singles, walks and my on base percentage, to use a baseball analogy.

I would hope to receive at the time of the liquidation date in 2024 something at or slightly higher than my original investment. So, I would be pleased with a break even on the shares in 14 years. I am after the monthly dividend payment, currently averaging around 8.3% per annum at my cost. The Old Geezer views that as an acceptable annualized return from a bond investment. However, I would also expect the dividend yield to fall some as the liquidation date approaches, since I would anticipate the manager keeping maturities for any new investments short term.

The risk of lost opportunity is one of those difficult to evaluate risks. If I buy this fund, I no longer have those funds available to buy shares at a better price. The price is slightly better now, on a discount to NAV basis, than when I bought shares a few days ago. And, in a period of rising rates and declining bond prices, the discount of this fund may widen as the value of the bonds decline presenting another better opportunity to buy with those funds already committed, and for an investor willing to hold until the liquidation date. I attempt to evaluate this risk, which is one reason that I have sold my TIP ETF and will not buy U.S. treasuries at their current low yields. Unlike those investments, however, GDO is paying me a good yield now, on a favorable monthly schedule, and the yield is better than the alternative of money market yields. I discuss the risk of lost opportunity in several prior posts in relation to specific securities and asset classes: Long Term Stock Risks and Situational Risk/Managing Lost Opportunity Risk in a Long Term Secular Bull and Bear Markets ;

Another issue is that the relationship between market price and net asset value will fluctuate, which happens with all closed end funds. The discount to net asset value has expanded slightly on GDO since my original purchases, closing yesterday at a 4.43% discount to net asset value. This number will expand and contract continually. I would not be unnerved by an expansion to a 10% discount, and would view that as a possible opportunity to add shares. Conversely, if the price rose to say a 5 to 10% premium, I would view that as an opportunity to trim my stake some and then look for a better price relative to NAV to buy those shares back. So, I would be managing the position somewhat based on the movement of the market price relative GDO's net asset value.

I mentioned that GDO does have some currency risk which I am willing to assume. Over a 14 year period, I would suspect the value of the foreign bonds contained in GDO to rise and fall based solely on currency movements. No one knows whether the end result of that ebb and flow will be positive and negative for a U.S. holder of GDO when 2024 finally arrives. But, the U.S. has a lot of fiscal problems, and I do not really want all of my bond exposure to be in my own currency anyway. The web site for the fund says that at least 40% of the fund will be invested in foreign issuers including those from emerging market countries, at least under normal market conditions. Legg Mason - GDO - Western Asset Global Corporate Defined Opportunity Fund Inc. The distribution rate at yesterday's closing price is shown as 8.41% at this page from the sponsor.

And lastly, I would add this caveat. When an investor decides to take their money out of FDIC insured savings accounts and short term T Bills to invest in stocks and bonds, then they have entered the world of risk evaluation. If the investor says that they only want safe stocks, or want to know if a particular corporate bond maturing in 2017 like OSM is safe, then they have not even entered the batter's box in their ability to assess risk and probably need to reevaluate what they are doing. The correct inquiry in my opinion is to identify the risks and potential rewards, and then weigh them in light of your particular circumstances including the investor's time horizon, objectives, needs, and risk tolerance.

Tuesday, March 30, 2010

Case Shiller/Canadian Trusts Converting to Regular Corporations/Sold 50 HTGC at 10.74/AT & T & the IPhone/

1. Case Shiller Index: This index of home prices in major U.S. metropolitan areas rose .3% in January from December, and has now risen almost 4% since hitting bottom in May 2009. / .pdf
Compared to a year ago, the ten city index is unchanged and the 20 city index is down .7% compared to January 2009. The Chart of these indexes, available at the above referenced web site, does show a pronounced recovery in housing prices following the plunge which started in 2006.

2. AT & T (owned stock and bonds): I noticed that AT & T stock was falling in after hours trading on Monday. There were unconfirmed reports that Apple was working on an IPhone that would be compatible with the CDMA networks operated by both Verizon and Sprint. This would not be surprising. I was expecting AT & T to lose exclusivity on the IPhone sometime this year. MarketWatch The story is based on some original reporting by the WSJ who discussed it with sources allegedly familiar with Apple's plans. WSJ

3. Sold 50 HTGC at 10.74 (See Disclaimer): This odd lot was routed through Knight Trading and filled properly at the market for round lot trades. I mentioned in a post from yesterday Rule 124 (C) and how some of my odd lot trades were not being filled at or anywhere near the market price for round lot trades. In my trading history, which will encompass anywhere from 500 to 1000 trades a year, many of which are odd lot market orders where there is active round lot trading and a narrow spread, this practice of matching odd lot orders, rather than filling an odd lot order at the market price for round lots, has been confined to Fidelity via Knight Trading. Fidelity Brokerage and Odd Lot Orders-Maybe Fidelity Needs to Read NYSE Rule No 124 (c) The RB just said that the LB needs to quit being so judgmental and harsh, not everybody is at the same level of geekdome.

My main reason for selling HTGC is that I will not tolerate a dividend reduction for a security owned in a retirement account. While I certainly understand why it was necessary for Hercules to reduce its dividend payout, I have decided that no company that cuts its dividend will be allowed to stay in the conservatively managed retirement accounts. A few will be allowed in the taxable accounts based on considerations fitting within one of my ongoing strategies. I have several purchases of banks made pursuant to the Regional Bank Stocks strategy that have cut their dividends for example. Those would be taboo in a retirement account.

4. Canadian Energy Trusts Converting to Regular Corporations: I described in a previous post the almost comical reporting by Fidelity of the tax impact to a U.S. taxpayer resulting from a Canadian energy trust converting to a regular corporation before the 2011 tax changes take effect. I owned one in 2009 that completed the conversion in July 2009, a company now called Advantage Oil and Gas. Warnings on Canadian Trusts Converting to Corporations I did recently read the tax information about this conversion at Advantages web site: For nerds who want to deal with this problem in the future, this is the applicable language provided by Advantage Oil:

"The receipt of Common Shares pursuant to the Arrangement by a United States Holder will be a "taxable event" for United States federal income tax purposes, and a United States Holder will recognize gain or loss equal to the difference between (i) the fair market value of the Common Shares received and (ii) such holder's adjusted tax basis in its Trust Units surrendered therefor. Any gain or loss recognized by a United States Holder upon the receipt of Common Shares pursuant to the Arrangement will generally be capital gain or loss, and will be long-term capital gain or loss if such United States Holder's holding period in its Trust Units exceeds one year as of the date of the completion of the Arrangement." (page 18)

I hate these kind of issues and there is nothing so special about Provident (PVX) or Enerplus (ERF) that will cause me to keep those shares when and if those companies undergo a similar conversion into a regular corporation. And I have no idea whether or not Advantage is correctly interpreting the U.S. tax code. So, as I understand the quoted language highlighted above, when I received the shares of Advantage Oil and Gas in July 2009 on a 1 for 1 basis in July for the trust units, this was treated as a sale for tax purposes with the "proceeds" realized calculated by determining the fair market value of the regular corporations share on the date of their receipt by me, which was $479.

Since ERF and PVX will likely face headwinds on maintaining their dividends when the tax change takes effect, that is another factor justifying their replacement in my portfolio with other energy companies, including Canadian companies, that are already regular corporations. My approach will simply be to monitor the news daily on both PVX and ERF to determine when and if they plan to convert to regular corporations, and then I will sell my positions in both of them. I might sell PVX before that time, however.

5. Student Loan Bill Signed into Law (own OSM): Shortly before the House adopted the Senate's bill on welfare for health insurance, the student loan bill which was having trouble passing the Senate got mixed up in the health insurance welfare legislation. While I do not pretend to understand this legislative legerdemain, Obama and the House of Representatives believed that ending subsidies to private companies to originate student loans would save the federal government money and those savings could be used to offset some of the cost of providing insurance welfare along with the usual redistributions of wealth. Some of this is explained in this recent article published in the WSJ and the NYT, with my own characterizations of the health bill added for color. Maybe I am being harsh in calling the health bill welfare insurance financed in part by a redistribution of wealth from those who have the funds to pay for their own. That is just the way that I look at it. Ask me if I don't mind paying for other people's health insurance?

For owners of Sallie Mae bonds, it does not matter how the sausage was made by Congress. SLM will not be able to compete with the federal government's originations of student loans. It remains to be seen whether the federal government will provide all the funding necessary for students, or what service role SLM and other private companies will play in the origination process. At a minimum, this change, which has concerned me for almost a year, will keep me from buying any SLM bonds now. I am on the fence concerning what I will do with the 150 shares of OSM currently owned, and the smallness of the position does not require me to do anything now other than dither and kick the can a few weeks down the road. The OSM bond matures in 2017, less than seven years from now, and is selling at a significant discount to its $25 par value. If the trades were now occurring at $22, this would be a no brainer. At less than $18, I am going to dither for now.

6. LINK TO BARRON'S COLUMNIST BLOG ON ODD LOTS: Thomas Carey, author of the Electronic Investor for Barron's discusses the exchanges dislike of odd lot orders in one of his blogs: Investor Brain He confirms my understanding of Rule 124 (C). But there has to be a special rule for Old Geezers residing in the SUV Capital of the World written in invisible ink in that rule somewhere. To entertain himself today, the OG entered a order to buy 50 shares of STDPRB at TD Ameritrade when the bid was 18.56 and the ask was 18.58. Now, did Ameritrade go looking for that 50 share odd lot to match that 50 share market order, maybe there was one hanging around at $10,309 trying to take advantage of the addled and rattled aged brain of the OG. No, it was filled immediately in the way it is supposed to be filled, at $18.58 (see Disclaimer). I wonder if I enter a GTC order at Fidelity to sell 50 of STDPRB at say $1000, will it get filled when and if it is the best odd lot match for some schmucks 50 share market order. Even the LB is too kind to do that to even the most incomprehensible True Believer.

7. Sold 3 of the 4 Remaining Fidelity Mutual Funds: Mutual fund managers are paid extremely well for mediocrity, or for desiring to achieve mediocrity occasionally as a brief hiatus from worse than average performance. I am moving totally away from mutual funds and will gradually substitute stock ETFs to achieve broader diversification for a portfolio that is already absurdly over diversified. As far as I am concerned, those Fidelity funds that I sold were at best mediocre. Going nowhere for a decade is not how I define success.

I made some other trades in accounts other than Fidelity which I hopefully will remember to discuss tomorrow, though nothing is for certain when the mind is turning to mush.

NYSE Rule 124 (C)

Updated 4/9/2010: NYSE ARCA told me today that the fill was a legal fill for the reasons summarized in NYSE ARCA Responds to My Inquiry About Odd Lot Fills

I have had some interest in the NYSE rule on odd lots orders. My link in the prior post takes the reader to rule 123 rather than 124 and I can not get it to work properly. For anyone interested, just navigate to Rule 124 in the left pane. For convenience I have copied Rule 124 (C) in its entirety below. I only enter odd lot market orders for securities where there is a lot of volume and frequent round lot trading within a narrow bid/ask spread. If Rule 124 had been followed on STDPRB the other day, I believe that my order should have been filled at $18.49 which is the ask price that round lots were then trading. Instead, as readers can see from Fidelity's response to me, they believe to the contrary, that my odd lot market order has to be matched with another odd lot for sell and that is the market price for my odd lot purchase order. I thought that I might kick the problem upstairs at Fidelity by sending them a recent email referring to this NYSE RULE:

"(c) Market and Marketable Limit Orders.— Odd-lot market orders and odd-lot limit orders that are marketable upon receipt by the System (hereinafter collectively referred to as "marketable odd-lot orders") shall begin automatic execution only following the first round-lot transaction on the Exchange in the subject security. Marketable odd-lot orders will be executed in time priority of receipt by the System at the price of the next round-lot transaction on the Exchange in the subject security following receipt of the orders by the System, subject to the following:

(i) Marketable odd-lot buy orders and odd-lot sell orders will be executed at the price of such round-lot transaction on the Exchange with the DMM as the contra side to the extent that such odd-lot orders total an equal number of shares bought and sold, except that a marketable odd-lot order that would otherwise receive a partial execution shall be executed in full.

(ii) Marketable odd-lot orders that do not receive an execution pursuant to paragraph (c)(i), shall be executed in time priority of receipt by the System at the price of the National best bid (in the case of marketable odd-lot orders to sell), or the National best offer (in the case of marketable odd-lot orders to buy), with the DMM as the contra party to all such executions.

(iii) The total number of additional shares of marketable odd-lot orders executed at the price of the NBBO as set forth in paragraph (c)(ii), shall not exceed the number of shares of the lesser of either the last round-lot Exchange transaction or the National best bid (in the case of marketable odd-lot orders to sell), or the National best offer (in the case of marketable odd-lot orders to buy), except that a marketable odd-lot order that would otherwise receive a partial execution shall be executed in full.

(iv) Marketable odd-lot orders not executed pursuant to paragraphs (c)(i), (ii), (iii) or (v) below shall be executed, in time priority order, following subsequent round-lot transactions on the Exchange, subject to the same procedures stated in paragraph (c)(i), (ii), (iii) and (v).

(v) Any marketable odd-lot order not executed within 30 seconds of receipt by the System pursuant to paragraphs (c)(i), (ii), (iii) or (iv) above shall be executed, in the case of an order to buy, at the price of the National best offer after 30 seconds, and in the case of an order to sell, at the price of the National best bid after 30 seconds, subject to the volume restrictions stated in paragraph (c)(iii).

(vi) Odd-lot orders entered before the opening transaction of the subject security that are eligible to receive an execution pursuant to paragraph (b) above, based on the opening price, shall be executed at the price of the opening transaction.

(vii) Odd-lot orders entered prior to and during a halt in trading on the Exchange in the subject security that are eligible to receive an execution pursuant to paragraph (b) above based on the reopening price, shall be executed at the price of the re-opening transaction.

(viii) Marketable odd-lot orders that remain unexecuted prior to the close of trading shall be executed in time priority of receipt at the price of the closing transaction to the extent that such marketable odd-lot orders total an equal number of shares bought and sold. The total number of additional shares of marketable odd-lot orders executed at the price of the closing transaction shall not exceed the number of shares of such closing transaction, except that a marketable odd lot order which would otherwise receive a partial execution shall be executed in full."

So admittedly, this reads like the IRS code. My odd lot order was filled at 18.85, the "best" price available for the ask side for an odd lot order and 36 cents above the then existing market price for round lots.

Monday, March 29, 2010

St. Joe/Bought 50 NRIM/Husky Energy/ Fidelity Brokerage and Odd Lot Orders-Maybe Fidelity Needs to Read NYSE Rule No 124 (c)

I post this table whenever I make an addition to it. As the readers of this post know, I build these baskets with odd lots. For the reasons discussed in the post, I can no longer use Fidelity to build these baskets with either odd lot limit or market orders. Most, though not all of this regional bank basket is held at Fidelity. I do use other brokers without having a problem.

1. ST JOE (owned): In an interview with Bruce Berkowitz in this week's Barron's, he references St Joe (JOE) as a deep value play. One possible catalyst long term is the May opening of a new international airport near Panama City. About 75,000 of those acres are located around Panama City. See Item 1 JOE St Joe owns close to 580,000 acres in northwest Florida and 405,000 of those acres are within 15 miles of the Gulf of Mexico.

Still, this is a long term story since the real estate market in Florida will take some time to fully recover from the meltdown. My shares were purchased at $15.69 in March 2009. At that time, I mentioned the airport as a potential catalyst and made a ballpark valuation of its land holdings. The shares have turned recently into an unrealized long term capital gain, more than doubling in price. JOE does not pay a dividend which is important to the OG. I have decided to let this one run, and to take another look at it when and if it starts to trade over $35. Other posts discussing JOE include the following: Forbes Article on Land Rich Companies:FCE/A JOE and TRC & Item # JOE

2. Bought 50 Northrim BanCorp at $16.66 (NRIM) (Category 2- Regional Bank Stocks)(See Disclaimer): Northrim is based in Alaska with 11 branches. Locations Northrim Bank Yes, there is even a branch in Sarah's hometown of Wasilla.

S & P does have an analyst report on NRIM but does not give the stock a rating or make earnings projections. According to YF, only 2 analysts cover this bank. Their current consensus estimate is for an E.P.S. of $1.25 in 2010 and $1.43 in 2011. NRIM: Analyst Estimates for Northrim BanCorp

The recently filed annual report shows a net interest margin of 5.3% as of 12/31/2009 ( page 21: e10vk)

The bank remained profitable during the Near Depression earning 95 cents in 2008 and $1.20 in 2009, per diluted share (page 46 e10vk)

The capital ratios increased in 2009 compared to 2008 and are in excess of ratios for well capitalized banks. As of 12/31/2009, for the bank on a consolidated basis, the Tier 1 capital to risk-weighted assets was 13.98 and 6% is considered well capitalized by the FDIC. Tier 1 capital to average assets was 12.13%, well above the 5% number for well capitalized. (see page 72). The numbers are slightly lower for just Northrim Bank. (13.05% and 11.33% as of 12/31/2009 respectively).

Book value was $17.42, with tangible book at 16.01. Allowance for loan losses was at 2% of gross loans. EX-99.1

The bank is currently paying a 10 cent per quarter cash dividend. This translates into a 2.4% yield at a total cost of $16.66. The dividend was raised every year from 2001, when it was at a 16 cent annual rate, to 66 cents in 2008. At some point the bank cut the dividend back to a 40 cents annual rate.

Prior to the onset of the Near Depression, the stock was trading in a narrow channel between $25 to $28: Northrim BanCorp Inc Share Price Chart The stock had enjoyed a good run from around $6 in June 2000 to $28 in June 2007, and it was downhill from that point until a bottom was hit at $6.86 on 3/9/2009: NRIM: Historical Prices

Northrim refused to participate in TARP, saying that it did not need any assistance from the federal government. EX-99.1

I entered a limit order on NRIM which was not sent to Knight Trading and was properly filled. I had not received Fidelity's response, discussed below, prior to entering this order. Otherwise, I would have used a different broker.

3. Husky Energy (HSE.TO)(owned-commodity strategy): UBS upgraded Husky to buy today, causing a 3%+ rise in the price. According to Reuters, the analyst noted that Husky had underperforming other Canadian energy companies and "could" play "catch-up" over the short term.

4. FIDELITY FILLS OF ODD LOT ORDERS: Last Friday, I placed an odd lot order to buy 50 shares of STDPRB which was then trading at below $18.50. It did not trade above $18.5 after I placed the order, except for my 50 share market order which was filled at $18.85 by Knight Trading. It did not trade above $18.54 on Monday. STD-PB: Summary for Santander Finance Preferred SA While the amount of money is insignificant, I have had several issues with Fidelity and Knight on these type of fills which have never been experienced by me since I started using discount brokers in 1982. I have only raised the issue with Fidelity when the fill was well outside any reasonable bounds, with no success. I use other brokerage firms now, and in the past, and have never had a single bad fill from them on odd lot orders. I know that at least one of my readers has had a bad experience with another broker which I have not used.

This is Fidelity's response to my request to look into the fill on STDPRB: "I have received confirmation from our order room that your order received a valid fill at $18.85 per share. No adjustments will be made to the order. It is important to remember that the inside Bid/Ask that is reported is only for round lots. The next best offer for an odd lot was $18.85. " COMPARE TO RULE 124 (C) OF THE NYSE RULES.

This is always their response so I am wasting my time even bringing the matter up to Fidelity. Their explanation is that the $18.85 price, then 36 cents above the market price, was the best odd lot match for my 50 share odd lot. Everyone needs to think about that one for a second. If the best match had been say $459 or $21.40, then that would be okay even though there is active trading in a narrow spread between $18.45 and $18.50.

I have been trading for 40 years so I really appreciated the advice that Fidelity gave me. Their representative pointed me to their information on how to enter a limit order. What can I say? I did enter some odd lot limit orders, and I received a fill from Knight of 1 share out of fifty on a $24 stock. I wonder who unloaded that one share on me?

The bottom line is that I can not use Fidelity to enter odd lot orders. I know that many of my readers consider an odd lot for them to be 1,000 or 2,000 shares. I am not quite to that point yet, and prefer to build positions in 50 and 100 share lots. I simply can no longer do that with Fidelity.

Another question is what happens on these larger positions such as a General Electric where I have an oddball number of shares. If I enter a market order on 461 shares, for example, can I have any confidence whatsoever in the fill of a stock trading with a one cent spread and several million shares a day? I do not know.

I am going to sell tomorrow one position in one of my two Fidelity IRAs, before I transfer it to another brokerage, which is a odd lot with some fractional shares attached to it, just to see how it is routed, and what happens. That will most likely be my last odd lot sale made via Fidelity. As seen from the chart attached above, I build baskets with odd lot orders. Fidelity will lose about five thousand a year just in commissions when I finally move all of my accounts, though I will keep some round lots positions where trading will be practically non-existent and where I can use "all or none" orders to protect myself.

Prior to opening a brokerage account at Fidelity, I never did experience on one single occasion anything remotely resembling these kind of fills on odd lot orders. In every case where there has been a problem, it has been Knight Trading doing the fill. I would emphasize however that most of my odd lot orders have no problem, including several sent to Knight. In fact, I never had a problem with Madoff Securities acting as a market maker for my odd lot trades.

This is a link to rule 124 (C) of the NYSE rules: NYSE Rules: "Marketable odd-lot orders will be executed in time priority of receipt by the System at the price of the next round-lot transaction on the Exchange"

Efficient Market Hypothesis as Hokum/WBS NYX/Historical Perspective on S & P Gain Since March 2009

1. Webster Financial (WBS)-And the Efficient Market Hypothesis: My 50 shares position in WBS, bought at $4.58 turned into an unrealized long term capital gain last Friday. The stock closed Friday at $17.99 and is trading over $18 this morning. WBS is part of the basket of stocks contained in the Regional Bank Stocks strategy. The most recent table of those positions can be found at this update.

My purpose for bringing up my WBS quandary is to discuss my view of the Efficient Market Hypothesis (EMH) promulgated by Eugene Fama and others who are evidently unable to learn anything from the past 11 years, starting with the bubble in stock prices in the late 1990s. EMH is just hokum in my opinion, a form of academic snake oil. Efficient-market hypothesis

Notwithstanding lengthy periods of price inefficiency and irrationality, for both the market and individual stocks, the EMH thesis postulates the existence of a rational market that rapidly and accurately digests all relevant information. Markets are informationally efficient under this view, even though individuals, the ones making the market decisions, are palpably inefficient and prone to making irrational and frequently idiotic decisions. So, somehow, when you combine a very large number of frequently irrational humans into a decision making process, the result is both rational and efficient. Consequently, under this EMH theory, it is impossible to outperform the market on a consistent basis by acting on information that the market has already digested and reflected in a stock's price. This would be true for all information deemed material from both a fundamental and a technical perspective. Part of the proof of the EMH thesis is that virtually no one can outperform the market on a consistent basis.

There are a multitude of reasons why individuals can not outperform the market on a consistent basis that have nothing to do with the market being efficient or inefficient. I would not confuse the failure to outperform and the market's efficiency in pricing.

In the real world, I have to make literally thousands of decisions per day about my investments. The sheer multitude of decisions that have to be made correctly will cause a compounding effect which will result in most underperforming a stock index fund which makes no decisions. So, in that sense, most would be better off not making any decisions.

The S & P 400 rode WBS down to $4.5 and now back up to $18. I did not ride it down to $4.5 but I have managed to be on the up escalator. The same phenomenon is at work in a large number of stocks that I bought during the meltdown. Was I right and rational on those occasions or was the market right and rational?

How many decisions to I have to get right each day to beat the S & P 500 or the a total stock market index? I would say a lot but nowhere near all decisions have to be correct based on the subsequent history. In 2008 and 2009, and so far at least in 2010, I have beaten the market while making a multitude of mistakes. The sheer volume of mistakes is just staggering, mostly selling positions too early or failing to buy a reasonable number of shares in securities that multiplied in value because they were so obviously mispriced by the the market. And, to compound the errors, I recognized the mispricing when I bought an inadequate number of shares. Was AEB at $2.62 on 3/6/09 a rational price for example? AEB: Historical Prices Aegon Hybrids: Gateway Post No, it was extremely irrational. Having recognized that the pricing was a matter of irrational mob psychology, why did I buy just 350 shares, and not 500 or a 1000? Yet, the decision to buy AEB is one of the multitude of decisions that led to a 42% gain last year.

The reason that I outperformed or underperformed the market in prior years was not based on luck, or a lack thereof, which is how Fama or Taleb would describe it. Instead, it was the result of literally tens of thousands of correct decisions outweighing the ones which later proved to be wrong. I was successful last year and in many years prior to then. But I may end up faltering this year for reasons having nothing to do with the purported efficient and rational market. I underperformed the market in 1999 but I view the reasons for my underperformance to be rational whereas the market was the irrational and inefficient one. In my view, I was the rational one for refusing to buy securities being irrationally priced by the market, not for a day or two, but for over a year.

Take the 50 shares of Webster which have tripled in value since I bought them a year ago. How many decisions have I made on that one security? I have had to make a multitude of decisions which are unfortunately still continuing in a never ending cycle. I had to decide to buy it, how much to buy, and whether or not to sell it as it rose in value. I thought about selling it when it doubled in price but correctly decided to hold it until now. Now, I have another decision to make, do I sell now? If I sold I would want to invest in another regional bank that pays a higher dividend, certainly more than the penny a quarter that WBS is paying now. There are several pros and cons for selling and holding, all are rational, and have to be considered before dealing with any psychological issues which inevitably enter the decision making process even for the most rational of investors. One of the reasons for holding Webster is discussed in this post: /More on Regional Bank Strategy

Webster is just one immaterial position in a portfolio of 350+ securities (which includes a number of mutual funds). The reason that an individual fails to outperform the market on a consistent basis has nothing to do with the market being efficient or inefficient, but in the sheer number of decisions that have to be made by investors causing error creep. When that problem is compounded by a failure to perform research, or to process relevant information without information bias in order to make an informed rational judgment, the potential for errors increases dramatically. The more decisions that have to be made, the greater the potential for errors to accumulate and to cause underperformance. The failure to perform a rational investment process prior to making a decision simply increases the number of likely erroneous decisions. It certainly does not help that the decisions have to be made by fallible human beings who are far from omniscient about the future and who have a bevy of psychological factors pulling and tugging in a variety of frequently disparate directions. In short, most people, including the so called professionals, are not wired to be good investors. Part of that wiring is the willingness to spend the time researching and assessing the material and relevant information.

Even if I reduced my position to five stocks, I am making thousands of decisions on which to include and to exclude from that list, and a constant series of decisions on whether or not to keep them or to make a substitution. If I had Home Depot, why not TJX or Macy's or why have a retailer at all in my list of 5? All of those decisions have an impact on whether or not the investor will beat the market averages. If the investor underperforms the market with 5 securities or 100, it will not have anything to do with the market being rational or efficient, but in their own mistakes as an investor. The market can be without question inefficient and irrational and that can provide opportunities. However, since it is so difficult to make so many decisions correctly as a fallible human being year after year, this explains why so many fail at beating the market on a consistent basis.

Admittedly, some stocks are priced rationally most of the time. An example would be Proctor & Gamble. Still, there are periods, lasting for several months, where the price of even the most rationally priced stocks become inefficient and irrational. Those periods are intermittent, both on the high and low sides. At most, the inefficient pricing on the low side for a stock like PG will last a few months or weeks, most likely during a bear market or a period of market stress like the October 1987 crash. The high price period can last longer, maybe for several years. Coca Cola is an example of an irrationally high price when it was trading at over $80 in 1998, and the most irrationally low price was when I made my purchase at less than $39 in March 2009. I would view KO to be less rationally priced now than PG. The most inefficient and irrational markets during the recent bear market involved Trust Certificates and preferred stocks (both equity and trust preferred), starting around October 2008 and extending for several months into 2009.

2. NYSE Euronext (NYX) (Owned): Similarly, I have a decision to make about NYX. I bought shares on March 6, 2009 at $14.76 Buys of JWF KSA DIS and NYX That was certainly a better decision than Cramer made about this security. See Item # 12: NYX I want to sell the position. It has almost doubled in price, and I have not been impressed with the recent earnings reports. Earnings have been declining year over year.

While the dividend is currently good at my cost, it has not being raised since the June 2008 quarter, and I am concerned about the possibility of a dividend cut at some point. This distinguishes NYX from Webster, where I would anticipate a growing dividend in years to come , possibility returning years into the future to the level from 2007 which would give me a tremendous yield at my constant cost for Webster's shares.

The return on equity for NYX is far from inspiring.

Then there is the issue with competition in NYX's business. The following are just statements about competition made in NYX's recently filed annual report: "As a result of increasing competition, our share of trading on a matched basis in NYSE-listed securities has declined from approximately 45.6% in 2008 to 38.4% in 2009. . . . In Europe, MiFID, which went into effect in November 2007, promoted competition from alternative trading platforms, or MTFs. Subsequently, a number of MTFs have been launched, or will be launched during 2010. These platforms offer trading in the securities listed on Euronext and other European regulated markets and compete directly with us for market share. In 2009, our market share of our listed securities declined, and although we are taking steps to stabilize this decline, it may continue in 2010. If our trading share continues to decrease relative to our competitors, we may be less attractive to market participants as a source of liquidity. This could further accelerate our loss of trading volume." (page 25: e10vk)

A case for continuing to hold the shares was made by Michael Santoli in his Barrons column based on an increasing amount of revenue coming from derivative trading. Santoli summarizes the opinion of a Sandler O'Neill analyst who has a $34 target price on the stock. The stock is trading near book value. And the consensus analyst estimate is an E.P.S. of $2.33 for 2010 rising to $2.72 in 2011. A six month or a one year target of $34 appears reasonable to me, provided the economy continues to improve along with investor confidence.

So, that is a lot of information to process in order to make a judgment on whether or not to sell this stock today, lock in that long term gain, or to wait. I am inclined to wait, though I view the negatives as sufficiently persuasive that I would likely sell those shares at somewhere in the $32 to $34 area. Was the price of $14.86 a year ago rational? Was it the result of an efficient processing of all available information? Did Cramer process all relevant and available information when he recommended it as his growth stock of the year?

3. Interest Rate Changes Impact on Bond Prices: This month's T.Rowe Price Investor magazine has a chart that shows the impact on the value of bonds by maturity resulting from a 1% increase and decrease in interest rates. (pages 1213: T. Rowe Price Investor - March 2010 - Page 12-13) For a 30 year maturity, a 1% increase would cause a $1000 bond to fall to $856 and to $921 for a ten year maturity.

I think that it is important for bond investors to understand that there is a great deal of interest rate risk to bonds and bond funds at this present time.

4. Percentage Gains in the S & P 500-A Time Perspective: I noted this morning that the S & P 500 has risen 72.4% off its March 2009 low, gleaning that number from As you would expect, there are a number of articles being written that the market needs to correct after such a jaunt, the latest being The Trader column in this week's Barron's. I even saw that David Rosenberg was quoted in a article as saying the market is now overvalued as much as it was undervalued in March 2009, suggesting that he was bullish in March 2009 when he was expecting further carnage in the market.

If you take a different time reference than March 9.2009, the market's rise does take on a different appearance. On March 10,2008, the S & P 500 was at 1,273.37. ^GSPC: Historical Prices for S&P 500 So, rather than being up 72.4%, the S & P has fallen by 8.39% in a little over two years. Or, I could look at it by staring on March 9, 2000, which for us math challenged individuals is more than ten years ago. The S & P 500 closed that day at 1401.69: ^GSPC: Historical Prices for S&P 500 The S & P 500 closed last Friday at 1,166.59, (^GSPC) representing a 16.77% decline over that ten year period. That does not make me feel so giddy.

When you look at that kind of data, I would simply reach two conclusions about the 72.4% move off the March 2009 low. From a long term perspective, the percentage gain is a historically typical cyclical bull move within the confines of a long term bear market, similar to the movement off the 1932 and 1974 lows. By itself, it does not presage the start of a new long term bull cycle or a continuation of the long term bear market which I start in 1997. It is actually consistent with both. 1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? There was a 72% gain from the low in October 1974 to September 1976, yet the long term secular bear market continued for almost another six years. Second, I view these kind of moves to be primarily a correction of the catastrophic phase of the long term secular bear market. In other words, the market went too far down based on conditions actually prevailing or reasonably anticipated future conditions.

A possible third conclusion is that a move of 72% over a relatively short period of time will require a lengthy period of digestion, irrespective of whether a new long term bull market started in March 2009. The most recent parallel would be with the launch of the long term bull market which started in August 1982 and ended in October 1997. On August 12, 1982, which in retrospect was the start of a 15+ year bull cycle, the S & P 500 closed at 102.42. ^GSPC: Historical Prices for S&P 500 INDEX On June 22, 1983, the S & P closed at 170.99, roughly a 67% gain in less than a year. The market then went into a lengthy congestion phase. It did not go up or down much. By 1/14/1985, the S & P 500 closed at 170.51, almost a 1 1/2 years of going nowhere, yet the long term secular bull market had without question commenced in August 1982. The market then resumed a rise that culminated in the downdraft of October 1987.

As an aside, while reading the book "The Quants" over the weekend, I saw a reference to a study that was done many years after the October 1987 crash which established mathematically that the crash could not have happened.