Map of Le Lamentin on A vassal or political subordinate pledged fealty and military support to a political superior, his liege lord, in a ceremony that involved swearing fidelity and the performance of homage; in turn, the lord granted the vassal a fief or feudum (sometimes called a benefice in early sources), a coercive monopoly on the piece of territory he governed. The parties to this arrangement are called feudatories. The vassal could, in turn, subdivide his own fief. Thus, one individual could be a vassal to several lords. Feudalism should be seen as a complex, interlocking series of local arrangements. The vassal’s obligations might include military service, garrison or court duty, relief (a tax on the hereditary status of the fief), aid (a system of extraordinary levies for particular circumstances), and hospitality. The liege pledged protection and justice for the vassal. Map of Le Lamentin 2016.
Political maps and economy of country;
What About Options, Futures, and Gold?
Let’s look at a relatively simple options trade so you can see the action and understand what’s happening on both sides of the ledger. I’ll pick on Wal-Mart again, just because it’s a big company everyone likely knows. And I’ll explain this from the bullish and bearish viewpoints. As I write this in October 2008, Wal-Mart’s stock trades at $53.25.
The bullish case: You may expect Wal-Mart shares to surge past $60 by the end of the year. Wal-Mart’s 08 Dec $60 calls (giving you the right to buy 100 shares of Wal-Mart at $60 per share by December 20, 2008) were trading on this day at $1.50, meaning you’re paying $1.50 per share to buy that contract. Your cost, therefore, is $150 per contract to cover the 100-share count each contract represents.
The bearish case: You may expect Wal-Mart won’t get anywhere near $60 by the end of the year. So you take the opposite side of this trade, selling those call contracts to the buyer. In doing so, this buyer pays into your account that $150 for each contract. You now have an obligation to sell 100 shares of Wal-Mart if the stock closes above $60.
Potential outcome number one: Wal-Mart meets the bull’s expectations and races to $65 by the end of the year. The bull has two choices: Sell the contract, which will have increased in value to reflect the fact that Wal-Mart’s share price exceeds the contract’s $60 exercise price, or if you want to own the stock, exercise the contract directly and buy those 100 shares at $60. The purchase price goes to the bear, who sold the contract to initiate this trade in the first place. Your total cost to own Wal-Mart is the $60 per share for the stock, plus the $1.50 per share you originally paid for the option”or a total of $61.50 a share. (You might wonder why not just buy the stock at $53.25. Two reasons: First, options allow you to control more shares for fewer dollars; in this case you can spend $5,235 to control 100 shares, or $150 to control that same 100 shares. So, options provide leverage. And second, you
reduce your risk. If you’re concerned Wal-Mart might instead fall in value, then your only risk is the $150 you spent on the option, not hundreds or even thousands if the shares fall precipitously.)
The bear is a loser in this case, and has two options as well: Buy back the contract to negate his obligation of having to supply 100 shares of Wal-Mart, though the cost of the contract will be substantially higher than where he originally sold it because the stock price has risen above the exercise price; or pony up the 100 shares of Wal-Mart stock. If the bear owns the shares, they’re pulled from his account and transferred to the bull, and in return the bear receives $6,000, the $60 per share contract price for each of the 100 shares. In the worst case, the bear has to go into the market and buy those 100 shares of Wal-Mart for $65 each. The bear’s loss is the $65 price to buy the stock, minus the $61.50 the bull has paid”or a total loss of $3.50 a share.
Potential outcome number two: Wal-Mart fails to reach $60 by the expiration date. For the bull, the contract expires worthless. After all, no one’s going to spend $60 on a share of Wal-Mart when those shares are trading for less than that in the market. The bull’s loss is the $150 contract price.
The bear is the winner. He doesn’t have to supply the 100 shares of Wal-Mart. Instead, he gets to keep the $150 contract price the bull originally paid.
Identical processes are at work with put options, only in reverse. The buyer of a put is the bear betting that Wal-Mart’s stock is headed lower, and is paying for the right to sell 100 shares to a bull who thinks the stock will rally. In this case, the bear is paying to own that contract. If the stock falls below the exercise price, the bear puts those 100 shares to the bull, who is contractually obligated to pay the exercise price. If the stock rises, the contract expires worthless and the bear has lost the initial cost of buying the contract.
The bull is the seller of the contract this time around, taking in Management team: As I noted a few pages back, managers mean a lot to an actively managed mutual fund, since their decisions directly affect the portfolio’s overall returns.
Morningstar’s Snapshot page indicates how long the current manager or team has been in place. The Management page provides greater detail on the manager’s investment history.
Essentially, you want to know that the manager in charge of your fund is the manager responsible for the track record. If you find a fund with a great track record, but a spanking-new manager, you can’t be sure that the strategies that generated those returns are still in place. Best to hold off and wait for that manager to build a track record.
Fees: How much you pay to own a fund is a crucial factor. The annual fees you pay reduce the amount of return the fund generates, since the costs of running the fund come out of the returns it earns.
Funds either charge a load or are no-load. A load is the fee you pay to buy into the fund. A front-end load means you’re paying a fee up front, so that a 4 percent load on an initial $1,000 investment means that only $960 is actually going to work for you; the fund company keeps the other $40 as the fee. A back-end load, or deferred load, means you pay the fee when you exit the fund based on the amount of assets you’re drawing out. If your $1,000 investment grows to $2,000 and you have a 2 percent back-end load, you’re paying $40 again and bringing back home the remaining $1,960. A level-load fund charges an ongoing load every year.
No-load funds charge fees, too, much like a level-load fund. They’re called 12b-l fees that the fund uses for advertising and marketing purposes. This fee can’t be more than 0.25 percent of your assets under management with the fund company.
Investors have been trained by the financial media to flee load-based mutual funds in a Pavlovian rejection of fees. Some loads are certainly onerous and deserving of derision. But tarring them all
can be highly shortsighted. If a manager has proven his worth by consistently outperforming the fund’s benchmark, and has outperformed peers in the same category, then the fees are rather beside the point. The First Eagle Overseas Fund is a prime example. The fund plays in the small- and midsized foreign-company category, an area where manager expertise clearly adds value, since researching small companies overseas is a challenging process. First Eagle charges a deferred load of 1 percent of your assets. Some investors will balk at that when they can go off and find a no-load fund with a similar focus.
However, under the guidance of Jean-Marie Eveillard, a legendary international-fund manager, the First Eagle Overseas Fund has consistently outperformed its benchmark index and has routinely ranked among the very top small- and midsized foreign-company funds. Such funds can be worth the cost because the returns you earn are better than you would have received elsewhere.
What you want to pay attention to on the Morningstar site is the Fees & Expenses tab, which shows the net expense ratio. This is the total, annual cost to you, the amount of money you will pay to the fund company based on your assets under management.
Net expenses vary widely. But you can typically find good, actively managed funds with expense ratios below 1 percent. That will sneak somewhat higher with foreign-focused funds, up toward 1.5 percent or so, because of the added costs of transacting business overseas and conducting the necessary research.
Index funds will be dramatically lower, since the administrative costs are so much less. You’ll find some, particularly Vanguard and Fidelity index funds, that charge as little as 0.1 percent to 0.25 percent.
When you mix all these traits together, you are effectively looking for a fund that generates some of the most consistent long-term returns, at a cost lower than its peers, and with a management team that has been around for a while. You’ll notice I skipped
strategy. That’s up to you and your needs. Telling you to go buy a small-company stock fund because they perform well historically is pointless if you don’t want the risk and volatility inherent in small-company stocks.
Once you determine your needs (and I’ll offer some advice on asset allocation in Chapter 17), it’s just a matter of spending a little time examining the mutual fund options available to you and picking those that best meet the criteria I described above.
I will say this, though: By and large, index funds and ETFs are the most cost-effective ways to build a portfolio and are especially useful for investors who don’t want to worry about which fund manager is better than another and which fund has the best returns.
Index funds, as the name implies, track some particular index of stocks or bonds or commodities. Vanguard’s 500 Index Fund, for instance, shadows the S&P 500. Fidelity’s U.S. Bond Index Fund mimics the Lehman Brothers U.S. Aggregate Bond Index.
Index funds are typically passive, meaning no portfolio managers are making active decisions to buy Merck today and sell Microsoft tomorrow. The fund owns whatever is in the particular index it’s designed to follow. If the arbiters of the S&P 500 Index decide to replace one of the 500 component stocks, then any index fund built to perform alongside the S&P 500 will do the same inside its portfolio.
ETFs operate almost identically, but with one significant caveat. They constantly trade during the day. You can buy and sell an ETF at any moment, giving you the benefit of up-to-the-second price and instant liquidity, should you decide you want in or out during the trading day. Mutual funds, by comparison, price just once a day, after the market closes. If you want to buy or sell a mutual fund, you place your order during the day and the transaction is complete after the fund prices at the end of the day. The downside is that you aren’t sure what price you’ll get for the fund until after the transaction is compete.
These days, you have an abundance of index funds and ETFs to choose from. You can start with a basic S&P 500 fund and a generic bond-index fund as your core, and then layer on everything from an index fund tracking international real estate, to one that follows the currency movements of the Mexican peso, to funds that follow U.S. cotton prices and the comparatively prosaic S&P 600 Index of small-company U.S. stocks. And in between that narrow list are hundreds of other options. You can even find ETFs that bet on falling prices in some particular index if you happen to be bearish on the market or some narrow corner of the market.
My point is that you can build a wide-ranging and highly diversified portfolio simply owning index mutual funds and ETFs. And perhaps their strongest suit is that they’re generally cheaper than actively managed funds. Vanguard 500 Index Fund, for example, charges just 0.15 percent a year, or $1.50 a year per $1,000 under management.
The risk in owning index funds and ETFs is that you forsake any potential outperformance. After all, index funds are designed to mirror the index, not outrun it. Then again, you won’t do markedly worse than the index either in periods when the underlying assets are falling in value. Actively managed funds run the risk of doing substantially worse, and many do.
If all you seek is performance generally equal to some market as a whole, an index fund is a solid, cost-effective choice the money the bear is paying. In essence, the bull is betting Wal-Mart’s shares will rise. If it does, the contract will expire worthless, leaving the bull to keep the premium the bear paid. If the price falls, the bull is contractually obligated to buy the shares at the higher price, or, before that happens, buy back the contract at an elevated amount.
Options strategies are too numerous to detail. And while many online brokerage and options-trading firms litter the Internet these days offering ultra-low cost trades, options are best left to those who do it for a living. This isn’t an area where Main Street investors should stalk returns. While some strategies can be conservative, missteps can lead to unlimited losses in some cases.
Futures falls into the same category. Futures contracts are time-sensitive, and if the price of corn or hog bellies or gold moves opposite to your expectations, your contract is sunk and you’ve lost your capital.
But that doesn’t mean you should avoid the commodities underlying futures contracts. There’s a place for them in a balanced portfolio.
Commodities don’t necessarily move in conjunction with other assets, though sometimes they clearly do. More often commodities move based on supply and demand. A drought dries out Australia and that country’s wheat crop shrivels, affecting global supply, and demand continues rising for wheat-based products in the developed and developing world. Rising demand, falling supply”prices go up.
In broad terms, demand for all kinds of commodities is on the rise, though in periods of recession that demand can slip temporarily, as witnessed in the 2008 financial crisis when oil and gold and copper and wheat and other commodities fell in price. Step
back, though, and take a longer view of time. World population is on the rise and major nations such as India, China, Brazil, and Russia are rapidly developing their economies, a process in which their citizens are growing wealthier and increasingly moving into cities.
This combination of rising wealth and increasing urbanization puts big strains on world commodities. Wealthier people eat better and different foods, such as beef, dairy, chicken, and pork, all of which adds to the demand for grains. They shop for better clothing, increasing demand for cotton as well as for the chemicals necessary for man-made fibers like rayon and polyester. Urbanization draws ever-larger numbers of people out of rural settings and places them in metropolitan centers, where they find jobs that provide greater income, leading to those changing dietary and clothing demands, and requiring countries to construct the infrastructure needed for urban living”roads, bridges, hospitals, schools, shopping centers, office towers, train stations, airports, zoos. All that construction consumes the ores that go into steel; the minerals and metals necessary for the wiring that goes into cables and telecommunications links; the oil and coal and natural gas that fire the power plants to provide electricity.
You can’t easily buy exposure to all the various commodities that benefit from a growing world. But you should have some exposure, because commodities as an asset class are lightly correlated with stocks and bonds, meaning commodity prices generally don’t move in tandem with either. That’s good for your portfolio because it means commodities can balance out the volatility inherent in stock and bond prices.
The way to invest in commodities, however, is through a mutual fund or ETF that specifically targets this sector. I won’t give you advice on which one to buy, because books are inherently dated when you read them, and while a specific fund might make sense as I’m writing this, it may not be a good option when
you’re reading it. Instead, I encourage you to use the free research options at Morningstar.com and ETFconnect.com, both of which provide an abundance of up-to-date data on all mutual funds and ETFs.
Don’t overload your portfolio, though, with commodities. You don’t need much more than about 5 percent or 10 percent of your money in a commodities fund.
Map of Le Lamentin Holiday Map Q.