Rekenthaler Report - All Comments

Re: The Guy in the Red Shirt

M*_ScottBurns — Thu, 19 Nov 2009 18:11:37 GMT

JR -

This trend of patenting financial innovations is gaining quite a bit of steam in the ETF space. Vanguard has patented the concept of an ETF being a separate share-class of a mutual fund. Beyond that ETF providers are constantly telling us when announcing their latest innovation that the structure is either patented or the patent is pending.

Like you, I find the idea patenting these types of "innovations" a bit silly given all of the other examples of similar ideas that have popped up over the years. I'm not a patent lawyer--and I'm certainly not a Financial-Patent lawyer--but I often wonder how these patents would hold up in court.

You might be right that the patent office is indeed the guy in the red shirt, but I wonder what happens when a judge and bunch of patent lawyers get a hold of these things.

Scott

Scott Burns

Director of ETF Analysis

Morningstar, Inc.

Re: The Guy in the Red Shirt

Scott123 — Thu, 19 Nov 2009 19:41:56 GMT

Good article, John. Patent attorney here, but not one that practices in the business method arena. Interesting side note, through, the SCOTUS recently heard arguments in the Bilski case concerning the usefulness of business method patents so at some point their patentability may be reigned in some.

FYI - I took a quick look at the prosecution history of the patent you discussed. The claims were severely narrowed during examination (the name of the game is the claims) and claim 1 - the broadest claim - is a page and a half long (the more words typically less the value). Also, the examiner allowed the amended claims only after the applicant submitted inventor declarations attesting to the method being award-winning (Sharpe) to rebut the Examiner's rejections on the basis of obviousness. This is weak evidence of nonobviousness and a weak way to overcome such a rejection. As you and Scott suggest, it seems unlikely that this patent would emerge from an invalidity challenge unscathed. Who knows, if RA ever asserts this patent, the defense may ask you to be an expert witness...

Re: The Guy in the Red Shirt

jeffop — Thu, 19 Nov 2009 19:48:57 GMT

I hope Bob Arnott didn't forget to include "number of dubious patents granted to the company being indexed" in his list of criteria... sheesh!

Re: The Guy in the Red Shirt

Lengrav — Thu, 19 Nov 2009 20:04:09 GMT

I would think history would have lots of potential index fund other then cap weighted. Cap weighted index funds became dominate because of their cost advantage. Nothing need be sold each day as prices change. It would seem a lot of these indexes now being implemented would have been contemplated decades ago but rejected for cost reason. A little digging should show this is not so noval, but just something now doable thanks to technology.

Re: The Guy in the Red Shirt

globalport — Thu, 19 Nov 2009 21:47:00 GMT

I find it hard to believe the Patent Office could award Research Affiliates (RA) protection for such a wide swath of weighting schemes. Like you, I have nothing against RA. Very sharp organization. Just seems a bit over-the-top.

There's sure to be prior art (prior use) of more than a few of these schemes, including, as you point out, NW's regional weightings based on payroll amounts. And, in America, first to invent and use owns the rights. Not first to file. RA should have done the necessary research to ensure they weren't steping on anyone's (prior) toes.

Could be quite a money tree for the lawyers.

John Hauser

M* analyst wannabe

Re: Re: The Guy in the Red Shirt

Scott123 — Fri, 20 Nov 2009 13:44:06 GMT

Besides the obvious reason of protecting a worthy invention, companies such as RA often file applications defensively, i.e., to have something in their hands in case a competitor starts making accusations of infringement, some file to improve, or at least appear to improve, corporate earnings, while others develop a portfolio to leverage settlements (think nuisance suits) to supplement or drive earnings. The intended use of the patent usually determines the pre-filing research that was necessary. And it is *occasionally* more cost-effective for an applicant to leave the prior art search to the examiner.

It may or may not be a money tree for the lawyers, but if the lawyers are making the patenting decisions, RA has bigger problems than this patent and its related costs.

Re: Avoiding Avoidable Mistakes

jeffyscott — Tue, 17 Nov 2009 18:28:12 GMT

The national savings rate seems to be a pretty worthless statistic to use for purposes of determining how much the average worker might be saving.

http://seekingalpha.com/article/36867-us-savings-rate-based-on-outdated-methods-of-calculation

realclearpolitics.blogs.time.com/.../personal-saving-rate-is-a-misleading-indicator">realclearpolitics.blogs.time.com/.../personal-saving-rate-is-a-misleading-indicator

While I do not agree with the second article that changes in net worth are a better measure, given bubbles and all, it does point out that:

One academic economist has calculated that excluding retirees from the figures would add about 4 percentage points to the saving rate.

Meanwhile, during a time when the figure has probably been less distorted by the spending of appreciated assets, it appears the rate has risen to 6.9%:

caps.fool.com/.../ViewPost.aspx">caps.fool.com/.../ViewPost.aspx

Re: Avoiding Avoidable Mistakes

ccmail111 — Tue, 17 Nov 2009 19:14:00 GMT

Target funds:

are these for investors or fund managers ?

While we clearly know markets are unpredictable and cannot be timed, now adding 'timed aka target' to it just is counter-intuitive and against the rule !

Say for example 2009 was a down year - target funds blindly execute triggering unneeded losses and capital gains accordingly.

Remember:

1) Laws: By the lawyers and for the lawyers...

2) similarly: stock markets: for the makers by the makers..

Re: Avoiding Avoidable Mistakes

M*_JohnR — Tue, 17 Nov 2009 20:36:25 GMT

jeffyscott:

The national savings rate seems to be a pretty worthless statistic to use for purposes of determining how much the average worker might be saving.

Meanwhile, during a time when the figure has probably been less distorted by the spending of appreciated assets, it appears the rate has risen to 6.9%:

caps.fool.com/.../ViewPost.aspx" rel=nofollow target=_new>caps.fool.com/.../ViewPost.aspx

Hadn't thought about it -- no economist I -- but it makes sense that retirees would skew the national savings rate.

A 7% rate, now that's something, although the timing of the savings is important too. I'm guessing that the rate is minimal during the 20s (and what savings do occur, are mostly for down payment on a house), when the potential for growth via compounding is greatest.

Still, food for thought. Thanks.

Re: Avoiding Avoidable Mistakes

skipperchg — Tue, 17 Nov 2009 22:01:05 GMT

RE that national savings rate. Rembember you are talking "average", not median, with no idea of the distribution. Economists already know that the rate is heavily skewed by high savings among the better paid and lower saving rates (read "zero") among the poorer.

The PEW Center recently did a research survey of American households, asking "If you had a household emergency, could you assemble $2,000 within a week without using a credit card? You may use any other source, friends, relatives, loans, or savings."

Almost half of all households said, "No". Not even $2,000 within a week. So much for savings in the real world.

Target date funds are irrelevant. The real question is, What proportion of the population is going to hit 70 years of age with absolutely nothing saved? The rest of us will have to pay for them.

Re: Re: Avoiding Avoidable Mistakes

M*_JohnR — Wed, 18 Nov 2009 13:56:11 GMT

Average saving rates in my article serve as a prop for the point that saving at the moderate rate of 2% - 4% (i.e., the typical level of a default 401(k) program) won't get the job done.

Looking more closely at the calculation, it's really quite primitive -- just the output of a GDP estimation. It's not as if there is an attempt to do this household by household, then summarize the data. So in addition to the issue of the retirees, and of calculation concerns about GDP estimates, there is the very BIG problem as suggested by skipperchg -- the wealthier households with the higher savings rates, skewing the overall totals. If the person who makes $1 million annually saves 10% while 20 neighbors who make $50k each save nothing, that's a 5% savings rate for that 21--person nation according to the method of calculation. But of course, it's not a 5% savings rate in a meaningful sense -- it's one citizen saving heartily, and 20 others not saving at all.

Wednesday links: the risk of unemployment Abnormal Returns

Wednesday links: the risk of unemployment Abnormal Returns — Wed, 18 Nov 2009 16:27:02 GMT

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Re: Nobody Likes ETFs (and Other Tales)

yogibearbull — Wed, 11 Nov 2009 17:47:48 GMT

"In a survey of more than 400 advisors, Cerulli found that nearly 45% said they prefer using actively managed funds in their clients’ portfolios rather than primarily passive ETF products."

So, if the math still works, 100-45=55% prefer ETFs? That is a rather high % for a product with relatively short history. It seems that many mutual fund families are rushing to get into ETF business although we don't need 7000 ETFs.

I think that headline writers (who may be writers them selves) are going for cheap shots.

Re: Nobody Likes ETFs (and Other Tales)

LaughTrack — Wed, 11 Nov 2009 22:23:21 GMT

First we must sift extensively and then use our brains.

Re: Nobody Likes ETFs (and Other Tales)

M*_JohnR — Thu, 12 Nov 2009 14:52:59 GMT

The title of a spam email I received this morning -

Survey: The New Normal in Global Outsourcing Delivery