Saturday, 19 February 2011

Musings on Denmark, Compound Interest, Cambodia and FONE

via CAAI

Roger Nusbaum, On Friday February 18, 2011

Roger Nusbaum submits: A few days ago Danish bank Amagerbanken went under. This news may or may not turn out to be significant, but I think it is worth paying attention to. Back in February 2007, HSBC made news that was mostly ignored when it reported problems with subprime lending in a U.S. unit (I believe Household Finance). The stock got hit for it, but it was still early days in the unfolding of the financial crisis.

The news about Amagerbanken seems small by itself, and while it resulting in a domino effect of more failures across Europe might be a low probability, it still makes sense to be very wary in this part of the market. Surprising to me is that the bank is in Denmark, but actually there have been 10 other small Danish banks to go this same route due to solvency issues after writing down loans.
Just as investing in tech has been more complicated in the last 10 years than in the 10 years before, so too will investing in bank stocks be generally more complicated for a while.

Felix Salmon seems to have picked up on an idea I've written about many times over the years in a post he titled "The False Promise of Compound Interest." He talks about how lumpy savings rates tend to be and the importance of saving as much money as you can while spending less. Longtime readers will also know how important I think it is to find post-retirement work that you love doing and would be willing to do for free.

I make no claim of originality on this, as Nassim Taleb might say these are things your grandmother told you. But to the extent more people understand how important these steps are, and as more people communicate this (Felix obviously has a much larger audience than I do), the better the chance that people get religion here; getting religion might actually be the best way to think about this.

Here's something interesting: Every so often, Cambodia comes up as a new investment destination. I believe I've heard Mark Mobius talk about the country in past interviews. There is a Cambodian company listed in Hong Kong that traded on the U.S. pinks as recently as this week. The company is Nagacorp (the pinksheet designator is NGCRF), which operates hotels and casinos in Cambodia.

Its CEO was interviewed on CNBC Asia earlier in the week. Apparently this is a booming business in Cambodia and is a very large company there. The stock has been trading in Hong Kong with ticker 3918 for almost five years, and aside from participating in the global decline that started in 2008, the stock has not been that volatile (to be clear, I'm not saying this has been like a t-bill ETF); the PE ratio is around 10, and based on last year's dividends, the stock yields 5% -- but the dividend history is lumpy (consistently paid, but in lumpy amounts).

Lastly, IndexUniverse is reporting that the First Trust CEA Smartphone ETF will begin trading today. Some have picked on this as a concept for a fund, but there are plenty of niche funds like this. How different is this conceptually than the First Trust ISE Copper Index Fund (NasdaqGM: CU - News)? CU trades decently and has accumulated some assets. If an investor wants smart phone exposure, this fund now gives a choice between the various stocks and a fund.

Obviously there are investors who would never buy a stock, so now they will have a fund choice to evaluate and buy (or not), which I don't think is a bad thing. If the construction of the fund stinks, then the marketplace will make that clear.

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