Here is what I am looking for:

1. Syncs transactions with brokerage accounts.
2. Allows looking at performance on a consolidated basis across accounts. I own a few stocks across multiple accounts. I want to look at how on a consolidated basis.
3. Includes dividends and reinvested dividends intelligently into calculating performance.
4. Allows XIRR calculations by security. XIRR immediately shortens the list. Total gain/loss on a stock is not a very interesting number.
5. Ideally, I should be able to take any window of time to see how a stock has performed in that window. Also, of course, on a consolidated basis.

Schwab, of course, has nothing even close. They are so scared of making errors that they throw up a warning window every time I try to download a csv file. Can’t trust them to venture out this far.

I like mint.com for keeping track of expenses etc. but their investment management totally sucks. Pretty charts that are all horribly wrong, worthless or both.

A friend told me that Quicken takes care of all of these requirements. Unfortunately, Quicken gives the Mac platform short shrift. The last version for the Mac is from 2007 and the reviews are not good. No 30 day trial, so I passed. If someone has used this version and thinks it works, leave a comment.

iBank from iggsoft was supposed solve this very problem. The poor cousin treatment that Mac owners get on software for personal use. Tried it out. Couldn’t even set it up. No way to upload a csv! At least I couldn’t figure it out. For the transactions I could upload it seemed like it didn’t meet my criteria.

So my search continues. In the meanwhile, I put together a Google Spreadsheets solution, which meets all my criteria, except the windowing. Google allows you to call the price on a stock as a formula which is quite neat. The only problem with this is that transactions must be downloaded from the brokerage account and cut pasted into the worksheet every once in a while. I don’t trade much, so my solution works for me, kind of. At least until someone comes up with exactly what I want. But does that ever happen?

One reason, the central bank said, for the deterioration in the balance of payments was a decline in an “invisibles surplus”, caused in part by falling revenues to India’s prized outsourcing sector.

For my book I crunched some data from the RBI website. As you can see, on the Current Account, India depends a whole lot on the Offshore industry.

Without the Offshore industry being where it is today, the import regime could not have been as easy as it is today.

But I am a little confused on the timing of this. Given that last quarter was very good for most of the top companies, isn’t this now no longer a concern? Or is it that RBI data gathering and analysis lags public companies announcing their results by a quarter?

One can draw two conclusions from this:

- It is far, far better to rent than to buy real estate in India. On a 2 cr. apartment the difference between buy vs rent is 12 lakhs per annum (and the peace of mind that GoI bonds give you)

- People who buy real estate at these prices are counting on capital appreciation and definitely not rental income. How much higher can it get?

On the other hand, in So Cal, a friend who thinks it is a good time to buy real estate in California, is making 8-10% just on rent (after costs).

Maybe those Mumbai fat cats should think about investing in California real estate. A much better long term bet, good rental yields and easy to manage long-distance.

I wonder if there is the makings of a business in channeling this investment from emerging markets with super high real estate prices to developed economies where post the financial crisis, real estate is quite depressed.

But what does seem clear is that the plunge was exacerbated by the markets’ heavy reliance on computerized trades—both explicit “stop market” sell orders (that is, orders to sell a stock once it hit a certain price) and algorithmic trades that dictate buying and selling depending on different market factors.

and

I don’t think yesterday’s crash is evidence the market is irrational. It’s more that it’s a-rational: the computers aren’t panicking or herding. They’re just following simple rules. I think this is bad for the collective intelligence of the market, which really depends on diversity of thought and independence of action. But what happened yesterday isn’t, I think, quite the same as the crash of 1929 or the stock-market bubble of the late nineteen-nineties. It’s an example of the dangers of a-rationality (to coin a word) rather than irrationality.

Felix Salmon thinks this is an opportunity for a financial transaction tax

There’s a very sensible idea going around that a simple way to deal with nearly all of these problems, at a single stroke, would be to implement a tiny tax on financial transactions. Historically, people have complained that such a tax harms liquidity, which is true. But the fact is that it harms the bad kind of liquidity — the liquidity which dries up to zero just when you need it most. Liquidity, if it’s spread across multiple electronic exchanges and can disappear in a microsecond, does very little actual good, and in fact does harm during tail events like this. Let’s tax it, and raise some money for the public fisc at the same time as slowing down markets and making them think before doing a trade.

I think a financial transaction tax is a good idea. It is politically more doable at this time than any other time in the future. India already has one and it seems to do no harm to liquidity.

If you think about it, sales tax is a transaction tax. Why is it that there is no demur to a transaction tax on sales of goods (except on online commerce, which again is inexplicable), but financial transactions being taxed will bring about the end of capitalism?

.. Those who shorted the housing market shorted the country.

There were many things that went wrong with the housing market – people were being given loans who had no chance of repaying it, homeowners were outright lying and the lenders were encouraging them or looking the other way, Wall Street was concocting securities that were several layers of complexity away from the real, underlying assets and the credit rating agencies were designing their models so that they could stamp their approval on these securities. And a bunch of other stuff related to Fannie and Freddie and the absence of any regulatory checks.

But the thing that was not going wrong, enough, was that there weren’t enough people shorting the heck out of these securities. An asset bubble is created when there are too many people in the market willing to buy at higher and higher prices and not enough people betting on the prices to go down.

Goldman Sachs and Paulson & Co. made money as the sub prime market was collapsing around it. Good for them. There’s nothing wrong with that. Goldman didn’t make much since they were late in the game. Paulson made out like a bandit because he was betting against subprime when no one else was. Unless these deals involved cheating or fraud, there is nothing wrong with making money in a collapsing market.

To the common voter, this won’t make sense. It isn’t fair, it isn’t right to be able to make money off of other folks’ misery. To get huge bonuses when people are losing their houses. You can almost see the special feature on CNN – an interview with an old couple who lost their home and their savings immediately followed by some charts on average bonuses at Goldman Sachs (assuming that nobody at Goldman will be stupid enough to give an interview to CNN on this subject).

This is the narrative that is playing out across the US today. Also perhaps the UK, Iceland, Spain, Ireland and a few other countries where the housing crash was particularly severe. This makes the task of lawmakers very difficult (or very easy, depending upon how you look upon your job as a lawmaker).

If the healthcare debate involved complex issues, financial regulation is almost impenetrable to the voter. If you were a lawmaker and wanted to simply do Joe Blow thinks should be done, you’re going to end up banning short sales and capping banker compensation. Neither is useful and thankfully are unlikely to be implemented.

If lawmakers chose to ignore Joe Blow, and none of them had any scruples, Wall Street would have a field day. They can throw so much money at this thing that the lobbyists will make sure that all that comes out is a bill that sounds ground breaking, but does very little in terms of real reform.

Even if you did want to do the right thing, it is terribly difficult to regulate the market in a way that protects the good stuff while preventing the bad stuff from happening. Always assuming that our legislators really understand the issues at hand. After all, what amounts to the fog of finance for Joe Blow, at the minimum is reduced visibility driving for the Senator.

I am not very hopeful that a good bill can come out of this fog. Another thing that makes me pessimistic is that the most important consequence of this bill, the one that voters really care about, is the avoidance of the kind of crash that would need government bailouts. Whether the bill achieves that or not cannot be determined immediately. Or even in the next three years. If you assume that all politicians want is to be reelected, there is almost no incentive to make a law that really achieves that objective.

On the other hand, punishing Wall Street is popular and the payoff is immediate. So it is in Wall Street’s interest to protest, express pain and anguish and ultimately sullenly take their medicine or appear to do so. And it is in the lawmakers’ interest to appear to be combative and outraged at Wall Street’s excesses while watering down the bill. In this regard the divisions between the left and the right are almost a side show. It might be played up but only to take attention away from a weak bill. Of course there is the matter of the media and experts and what they say about the bill. It’s easy to spin the news networks, especially since they know even less about this stuff than legislators. Experts and financial bloggers are another matter. But then how many voters read Brad Delong?

I will be quite surprised if a good bill comes out of this. There is still some ways to go, and perhaps I should be more optimistic, but politicians as a class are trained to raise expectations and then disappoint.

Here are a couple of observations about the Goldman Abacus deal. All parties involved – Goldman, ACA, IKB, ABN Amro and Paulson – are financial firms. While the assets being packaged into the CDO were mortgages, they were far removed from the houses that were bought using mortgages. There was no purpose that this deal served in the “real” economy.

George Soros in an op-ed in the FT today:

Whether or not Goldman is guilty, the transaction in question clearly had no social benefit. It involved a complex synthetic security derived from existing mortgage-backed securities by cloning them into imaginary units that mimicked the originals. This synthetic collateralised debt obligation did not finance the ownership of any additional homes or allocate capital more efficiently; it merely swelled the volume of mortgage-backed securities that lost value when the housing bubble burst. The primary purpose of the transaction was to generate fees and commissions.

The deal was a complex deal. So complex that ACA and IKB didn’t understand it well enough to ask the right questions. Neither of them are bit players. ACA was happy to let Paulson pick the mortgages that went into the structured product since they thought he was long and on the same side of the deal as they were. IKB, similarly didn’t look at the underlying assets too closely because they thought Paulson was investing too.

There are many occasions in business when trust compensates for an incomplete understanding of the parameters of a deal. In such situations you prefer working with a specialist with a reputation, like say IBM for technology. But in this case, ACA and IKB, both financial firms, couldn’t deal with the complexity of the transaction and trusted (or at least ceded control to) Goldman. And they got taken to the cleaners. ACA is no more and IKB had to be bailed out by the German government. ABN Amro is now part of RBS which was bailed out by the British government.

And here’s my point. Maybe there is such a thing as too much financial innovation. Maybe too much of this innovation is to create complexity for its own sake, to keep changing stuff just to keep clients confused and uninformed. Low information clients are the most profitable clients.

In the consumer finance world complexity creates fine print. Fine print creates profits. Credit cards, banks – they don’t make money by being upfront and transparent. With financial institutions the game has to change, since they have lawyers who can read the fine print. So what do you do? You “innovate”. You create structured products that are mind-bogglingly complex. You avoid transparency. You avoid instruments that can be marked-to-market.

Besides clients and counter parties, constant financial “innovation” also keeps the regulatory bodies confused. They don’t understand these new financial instruments to effectively regulate or police them. In the meanwhile, the smart players on Wall Street are raking it in.

Which is why Wall Street doesn’t like exchange traded derivatives. Products would have to be simplified, standardized. Change would slow down. Spreads would come down and so would bonuses.

Innovation in services is hard to pin down – is it useful or is it smoke? Again, looking at credit cards business, developing a product that allows your teenage son to use your credit card at certain merchants to a certain limit – that’s useful innovation. But a product that has low APRs but gives you only 5 days to pay your bill before hitting you with late fees – that’s innovation that is designed to make more money off of customers who don’t read the fine print.

The problem is that it is very, very difficult to make rules such that the good kind of innovation is unimpeded while preventing the bad kind. That’s why we need ethical business leaders. Today, the credo in the corporate world and especially on Wall Street is – maximize your bonus without committing an unlawful act. In many cases this is stretched to “without getting caught”. Regulation can’t keep up with this. There has to be some self regulation.

We need more companies like Google. “Do no evil” might sound corny but it says that the company tries. That’s more than you can say about Goldman Sachs.

Lehman had a boatload of assets on its balance sheet supported by a thin slice of equity. To hide their huge leverage, they did deals with counterparties which were essentially short-term (like a week or two) loans against collateral (which they had plenty of). Except, that they didn’t show these as debt on the balance sheet against collateral. Instead they showed them as sale of assets so that the balance sheet at the end of the quarter wouldn’t look as leveraged as it was. Terrible, terrible stuff. The accounting magic may not have been at the scale of Enron, but the end result was the same – a once proud company, bankrupted, it’s shareholders left with nothing.

With all the noise around it, it is almost certain that Dick Fuld, the former CEO will be prosecuted. But what I am unable to fathom is why Ernst & Young gets away with it. Enron brought Arthur Andersen down. Of course they did a lot of other bad stuff like trying to shred the evidence. But does that make so much of a difference to E&Y’s culpability? If the shareholders of Lehman bring a class action lawsuit against Ernst & Young, that could be worth billions in damages.

But that doesn’t seem to be the case. If anyone has a better understanding of this, please leave a comment.

Update: I think I found the answer to my question. From the New York Observer:

Also read Felix Salmon’s post on Wall Street bankers still living on a different planet.

Well, no longer. The President in a hard hitting speech blamed Wall Street for financial crisis and the ongoing economic slump. He then laid out what he called the Volcker Rule, as a nod to Paul Volcker, former Fed chief, who has suddenly become very influential. While the details were scant, the thrust of the Volcker Rule was two-pronged.

One, separate the deposit taking banking business from risky proprietary trading, hedge funds and private equity.

If financial firms want to trade for profit, that’s something they’re free to do. Indeed, doing so responsibly is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people.

Two, limit the size of all financial firms by preventing consolidation beyond a point.

In addition, as part of our efforts to protect against future crises, I’m also proposing that we prevent the further consolidation of our financial system.

No doubt, there is politics behind this. After a very important loss in the Massachusetts senate race, the healthcare bill is in trouble. Financial reform is popular and the Republicans will find it very difficult to fillibuster it. On healthcare, he wasn’t driving, either by choice or out of necessity, Congress was. Now, he can take back the initiative on something that is popular and substantive.

There are no details yet, but needless to say, the financial media and the blogosphere are all aflutter. The Financial Times today had about a third of the paper devoted to this issue. Most commentators are saying “What took you this long?”. But there is criticism:

On thread of criticism is that the proposal doesn’t do enough. The crisis was not centered on banks. All financial players were involved. Toxic assets and leverage created the danger that there would be a systemic meltdown if one or two large financial firms went under. Separating risky businesses from deposit taking bank protects the banking customers, but that doesn’t address the systemic risk issues. Limiting the size of all financial firms by just preventing further consolidation is thought to be too weak. Although it would be difficult to think of any other practical solution.

Another problem is that proprietary trading is “in the eye of the beholder”. It is (or can be made) indistinguishable from trading for clients. So how do you separate it from the deposit taking bank?

There is also the matter of international banks who are not subject to US law in this matter but operate in the US. Finance is global now and when you talk about systemic risk it is not limited to the US only. But this may be less of an issue. The Conservative party in the UK which is expected to win the next election has already said that they favour legislation similar to what Obama has proposed.

And then there are those who say that the Volcker Rule will never see the light of day. Bills are passed in the Congress and Senators need a lot of money to get elected. And Wall Street has that money.

To top it all, yesterday the Supreme Court, struck down a 63 year old limit on corporate spending on elections. The coincidence is quite ironical. No wonder the President is gearing up for a fight

So if these folks want a fight, it’s a fight I’m ready to have.

Matt Yglesias and Maxine Udall write about how talent, like capital, has been preferentially allocated to the financial sector in the last two decades during which the financial industry has grown from about 20% to above 40% in its share of corporate profits. It dropped sharply as Wall Street bled money in 2008 but if recent earnings results are any indication, they are headed back up there quickly.

The financial sector’s average pay has steadily increased where it is now close to 200% of the national average. This of course doesn’t sound too big because it also includes consumer finance and banking, not just wholesale capital markets.

In any industry that is growing like the financial industry did, pay automatically goes up. The real question is – is the natural, unsupported share of the financial industry closer to 20% or to 40%?

Sure there has been a lot of innovation in the financial industry, and you could argue that innovation has driven the expansion of the financial industry, just like the technology industry.

But there are significant differences. The tech industry has a business model that supports super sized growth and profits. There are the entry barriers – copyrights, trademarks and patents. And the marginal costs can be pretty low. This is not to say that the tech industry isn’t hyper competitive. Not every company makes money. But it is a fact that the winners in any product-market make out like bandits.

The financial industry is not like that. Yes brand matters, and size matters but in wholesale banking and fee based services these things should matter less. Yes innovation matters but business practice innovation is not much of an entry barrier. A new derivative can be quickly copied.

Yes people matter. Other things being equal, you’d rather hire a smarter management consultant or work with a better investment banker. But price also matters.

So why did the financial industry become so big relative to the economy? Is it because that is its rightful place? That the efficient allocation of capital is so important that it rightfully occupies 40% of economic activity? Or can at least part of it be explained by the special nature of the industry?

I can think of at least two ways in which capital markets are different and which allow it to expand seemingly without any limits.

1. Preferential access to information. Trading profits come from preferential access to information. This includes the Galleon type illegal insider trading, which happens more than you think. But it also includes legal ways in which the professional trader gets information and acts upon it. In the stock market it has become increasingly difficult to make money this way but there are many other securities which are just not as regulated. Even in the stock market, most of the capital invested contributes fee-based income to the financial company. The money from principal trading is far more nimble and better-informed because this is trading income for the company.

I am not as familiar with other securities markets, but I would aver that the same principal trading vs managed money difference plays out there as well.

2. Taking a cut from capital flows is easier. Much of financial service revenues come out capital flows. They don’t appear as an expense on a company’s income statement. When a public company raises capital, the investment bank takes a 6% commission out of the public issue, that commission comes out of the hides of the shareholders. The company retains the bankers but is completely insulated from the costs of it. Competing on cost therefore becomes meaningless. [Update: the IPO bankers' fees are paid by the company and charged to the income statement. But as a one-time non-operating expense the charge is largely going to be ignored by the market. (Krishna thanks for the correction).]

Even for a retail investor, the 1% or so you pay as management fees to a mutual fund, psychologically is not an expense. It is a reduction in your capital gain (or increase in capital loss). Most consumers don’t pay it as much attention as an equivalent increase in say the price of gasoline. Although the popularity of ETFs points to the fact that retail investors are wising up.

Regulations can and do squeeze out the advantages that financial firms enjoy because of these two reasons. Take the equity markets. The SEC and other agencies have been in a constant battle against Wall Street with insider trading enforcement, Reg FD and most recently Flash Trading. But the fact that the SEC often is sleeping at the wheel and the New York DA’s office has had to take the lead points to the fact that Wall Street enjoys the benefits of the complacence, if not connivance of the SEC.

Another example. If you were to make the commission on public equity offerings to be accounted for as an expense on the income statement of the company raising money, you can bet your pension, price competition will bring that commission down in a hurry. Online dutch auctions, which have never worked, will become the rule rather than the exception. Investment banking salaries will plummet as they cease to be the Masters of the Universe.

But don’t hold your breath for that to happen. The investment banks protect their fees ferociously. As does the industry its profits. As long as they can make supersize profits for their companies, nobody can touch the bankers’ compensation. Maybe for a year, like in the UK. But no more. The order of the universe will remain unchanged.

Be Invested

The most important factor in getting a good return on your portfolio is to be invested. Leaving cash in a checking account just because you haven’t decided what to do with it, or because you are just too lazy to do some research to figure out where to invest it, can significantly erode your returns in a good year. This doesn’t mean that you can’t plan to have some part of your portfolio in cash, if that is what you intended for the cash. But if your year-end bonus comes in and sits in your bank account for 6 months before you even transfer it to the brokerage account or open a CD, that’s like overpaying for your flat screen TV at a retail store instead of buying it from Costco (I’ll bet that got your attention. For more on us cheap Indians search for Russell Peters on You Tube.)

Asset Allocation

How to allocate your money between different asset classes – stocks, bonds, real estate, commodities – is a serious, higher order question that must be answered first. The world changed for many of us in the second half of 2008. The stock market, we learnt, can be a very fickle asset class. But it is also true that many major asset classes turned out to be terribly correlated. Even so, think hard about your goals in managing your money and then decide on the right asset allocation. I have 40% of my portfolio into fixed income. Investing in bonds has become a lot simpler via ETFs and so there’s no excuse to not following a prudent asset allocation strategy.

ETFs vs mutual funds vs individual stocks

You are deceiving yourself if you think you can pick stocks to beat the index. The boasts that you and your friends make over lunch on how much money they made on Apple or Google will generally miss the important detail that you made a 200% gain on one stock which was less than 5% of your portfolio. The lunch table chatter will never be about how much money you lost on that dog that you invested in last year because you didn’t think it could go any lower. Face reality, you aren’t a stock picker. You’re just giving in to that gambling streak in you. Don’t bet your family’s future on the casino. If you must bet on individual stocks, set aside some play money to indulge yourself.

Investing in mutual funds is better but it is still a mug’s game. Do you know anybody who can beat the market consistently? I have spent a lot of time with smart money managers and I can’t say that I have. Not because the people I met weren’t smart. It’s just that beating the index consistently is just too, too difficult. Especially, net of fees. Read this if you need some convincing.

The reason I love ETFs is because they give me diversification with very low fees. And with the proliferation of ETFs, you have a vast array of investment options – stocks, bonds, commodities, different markets, even leveraged bets and shorting the index. Passively managed index funds are similar in nature though they don’t have as wide a variety.

For asset classes other than stocks, ETFs are even more compelling. ETFs are traded on a stock exchange. They are very liquid and you know what they are worth at all times. Owning bonds or commodities used to be much more involved in the past. ETFs make dead simple. ETFs also allow you to easily allocate a part of your portfolio to international markets. Owning individual international stocks or bonds is much tougher.

Emerging Markets

I have great faith in emerging markets. They will be volatile, but the long-term fundamentals are good. You can get emerging market exposure in both stocks and bonds. You can go by market or buy into all emerging markets with something like EEM. I also own EMB which is an emerging market bond ETF.

Measurement

Your broker – online or full-service is typically not going to have the tools to measure how you are doing except for the simplest of situations. I have never quite understood why. The computation and the tools required are pretty trivial. Is there like a platinum level of membership with Schwab where these tools get unlocked?

In the meanwhile, I pull down the data and compute my own XIRR. I always choose to reinvest dividends, which helps keep the computation simpler. It can get a little messy if you accumulate over time and then sell over time. But since you are doing this for yourself all you need to know if your investment is meeting the criteria you set for it or not.

Discipline

I can’t say that I have a long track record of disciplined investing. But in just this year, there has been enough temptation to break my asset allocation rules. The US markets kept climbing and here I was stuck with a self-imposed 40% allocation to bonds. But I held fast and I plan to stick it out in the future as well. Changing your asset allocation in response to an attractive investment option is exactly the kind of thing that gets you in trouble. You don’t have the dampeners in place when an asset bubble bursts.

That doesn’t mean you can’t change your asset allocation or investment strategies. But it should be done as a long-term shift in strategy rather than to spike returns in the short-term.

Next year it’s going to be tough to make a decent return in almost anything. It’ll be a good test for my new investment methodology.

In the meanwhile, I hope you find this useful. Again, I don’t mean for this to be investment advice. What will work for you depends entirely on your context.