Twitter buys Yahoo. And other wishes for 2016

I wish a big exchange traded fund would blow up. Such an event might reveal a lot about the often opaque world of ETFs.

Of course we’re all used to hedge funds failing. Some 674 of them closed in the first nine months of this year. (Don’t fret for the hedge fund industry: 785 new hedge funds popped up in that same time frame.)

Mutual fund blow-ups are more rare and for good reason: the regulations that govern them are far more skewed toward protecting investors.

The consequences of an unexpected mutual fund closure are much graver for the fund sponsor and the portfolio managers.



ETFs, therefore, seem to be held in higher esteem. For an investor, their trading liquidity and intra-day pricing seemingly give them an advantage over a mutual fund.

But that liquidity only relates to the ETF itself; the ETF’s constituent holdings might not be as liquid, or might be unexpectedly concentrated in one or two positions.


It’s not that I want other investors to suffer. Mostly I’m just curious what’s in some of these Frankenfunds.

ETFs close all the time, usually because they no longer (or never did) have enough assets to cover their costs.

Let’s see one cracked open under duress.

I want pundits and others in the financial-media complex to not reflexively cite that bond prices always go down when interest rates go up.

Yes, all things equal, the price of a bond trading at or below par will decline if a relevant interest rate rises.

Horizon Returns

But if that bond is a solid credit, it will continue to pay its coupon and end up being redeemed at par, even if those interest rates stay at a higher level.

In fact, in that scenario (which is far more common than bonds defaulting), rising interest rates could benefit the bondholder if they choose to re-invest the coupons in similar credits with higher coupon rates.

If you doubt me, just Google “horizon return” and read carefully.

Pet Peeve

I’d like a sell-side analyst to return from “traveling with management” or attending the annual user conference and not say that she feels “incrementally more positive” about the company.

The phrase appears so frequently in Street research it no longer has any meaning. Go ahead: Google it yourself.

I’d like the person who invented auto-start video on web pages to be tickled to death by clowns.

Really big clowns laughing really loudly.


I wish snarky reporters would stop telling us hedge funds have “under-performed” since the depths of the financial crisis.

This not only cherry-picks a convenient time frame over which to judge them, but confuses “returns” with “performance.”

Yes, it’s easy for a hedge fund sponsor or manager to take outsized risks in the hope for outsized returns.

But a properly hedged hedge fund can be thought of as a mutual fund with an insurance policy.

Complaining that hedge funds have under-performed in a market where the S&P has tripled is like complaining about the expense of your homeowners insurance by whining that your house didn’t burn down.

Downside protection has a cost, one that many hedge fund investors are willing to bear.  

Judge hedge funds harshly if you’d like, but judge them over a full market cycle.

Twitter Buys Yahoo

I’d like Twitter (TWTR) to buy Yahoo (YHOO). It makes a great deal of sense.

Twitter’s market cap is about $18 billion, so issuing $2 billion to $3 billion in stock to pay for Yahoo’s Internet business is quite doable.

Twitter would be buying a company with roughly twice its own operating cash flow for a fraction of its own value, making the deal accretive, at least on a cash flow basis.

Twitter would get Yahoo’s huge reach among older PC-oriented users who aren’t interested in tweeting a lot themselves, but might be Twitter consumers; Twitter is trying to capture these people right now with its new Moments feature.

Content Reach

And Yahoo could immediately start serving its original media content (sports, finance, etc.) through a high-growth vehicle to a younger demographic used to consuming content on smart phones.

Alas, Twitter is a cool kid, and the Silicon Valley ethos means it can’t hang out with a dorky square like Yahoo, so it’ll never happen no matter how much sense it makes.

Or how much I wish it would happen.

Photo Credit: Yahoo Pressebilder via Flickr Creative Commons