Month: May 2014

Industry Ranks May 2014

Industry Ranks May 2014

Industry Ranks 6_1521_image002

My main industry model is illustrated in the graphic. Green industries are cold. Red industries are hot. If you like to play momentum, look at the red zone, and ask the question, ?Where are trends under-discounted?? Price momentum tends to persist, but look for areas where it might be even better in the near term.

If you are a value player, look at the green zone, and ask where trends are over-discounted. Yes, things are bad, but are they all that bad? Perhaps the is room for mean reversion.

My candidates from both categories are in the column labeled ?Dig through.?

You might notice that I have no industries from the red zone. That is because the market is so high. I only want to play in cold industries. They won?t get so badly hit in a decline, and they might have some positive surprises.

If you use any of this, choose what you use off of your own trading style. If you trade frequently, stay in the red zone. Trading infrequently, play in the green zone ? don?t look for momentum, look for mean reversion. I generally play in the green zone because I hold stocks for 3 years on average.

Whatever you do, be consistent in your methods regarding momentum/mean-reversion, and only change methods if your current method is working well.

Huh? Why change if things are working well? I?m not saying to change if things are working well. I?m saying don?t change if things are working badly. Price momentum and mean-reversion are cyclical, and we tend to make changes at the worst possible moments, just before the pattern changes. Maximum pain drives changes for most people, which is why average investors don?t make much money.

Maximum pleasure when things are going right leaves investors fat, dumb, and happy ? no one thinks of changing then. This is why a disciplined approach that forces changes on a portfolio is useful, as I do 3-4 times a year. It forces me to be bloodless and sell stocks with less potential for those with more potential over the next 1-5 years.

I like some technology stocks here, some industrials, some retail?stocks, particularly those that are strongly capitalized.

I?m looking for undervalued industries. I?m not saying that there is always a bull market out there, and I will find it for you. But there are places that are relatively better, and I have done relatively well in finding them.

At present, I am trying to be defensive. I don?t have a lot of faith in the market as a whole, so I am biased toward the green zone, looking for mean-reversion, rather than momentum persisting. The red zone is pretty cyclical at present. I will be very happy hanging out in dull stocks for a while.

That said, some dull companies are fetching some pricey valuations these days, particularly those with above average dividends. This is an overbought area of the market, and it is just a matter of time before the flight to relative safety reverses.

The Red Zone has a Lot of Financials; be wary of those. I have been paring back my reinsurers, but I have been adding to P&C insurers. What I find fascinating about the red momentum zone now, is that it is loaded with cyclical companies.

In the green zone, I picked almost all of the industries. If the companies are sufficiently well-capitalized, and the valuation is low, it can still be an rewarding place to do due diligence.

Will cyclical companies continue to do well? Will the economy continue to limp along, or might it be better or worse?

But what would the model suggest?

Ah, there I have something for you, and so long as Value Line does not object, I will provide that for you. I looked for companies in the industries listed, but in the top 5 of 9 balance sheet safety categories, and with returns estimated over 12%/year over the next 3-5 years. The latter category does the value/growth tradeoff automatically. I don?t care if returns come from mean reversion or growth.

But anyway, as a bonus here are the names that are candidates for purchase given this screen. Remember, this is a launching pad for due diligence, not hot names to buy.

I’ve tightened my criteria a little because the number of stocks passing last quarter’s screen was much higher, which was likely an artifact of earnings expectations rolling forward another year.

Anyway, enjoy the list of purchase candidates — I know that I will:

Industry Ranks 6_19997_image002

Full Disclosure: long SYMC

Sorted Weekly Tweets

Sorted Weekly Tweets

Market Dynamics

?

  • Yellen Comments Boost Demand for Treasury Bonds?http://t.co/2lzFhL97br?Carry trade rescued, grows larger 4a later day of reckoning $$ $TLT?May 10, 2014
  • One of the Best Retirement Deals 9 of 10 People Ignore?http://t.co/oYw4xRjEdc?Contribute 2a Roth 401(k) & save big on future taxes $$ $TROW?May 10, 2014
  • NYSE to Curtail Order Types Amid Debate Over Their Fairness?http://t.co/JOlTvX7sie?Will b interesting 2c what they curtail $$ Affects my biz?May 10, 2014
  • What Baby Boomers? Retirement Means For the US Economy?http://t.co/GuECsqqWHA?Cheer up, the US is in better shape than rest of the world $$?May 10, 2014
  • I’m worried about a crisis bigger than 2008: Faber?http://t.co/JwpcvxA53o?”For the next six months, maybe cash is the most attractive.” $$?May 10, 2014
  • When Stocks and Bonds Disagree?http://t.co/BGbY9Y0C2L?@reformedbroker points out anomaly. Bond mkt bigger than stock mkt, should b right $$?May 07, 2014
  • research puzzle pix by tom brakke?http://t.co/xtPUCU7PDj?Bloat, which I would measure by number of days to trade away the portfolio $$ $SPY?May 07, 2014
  • Ten Surefire Trading Rules To Make You Rich?http://t.co/fHqVJkaVuj?@reformedbroker tongue-in-cheek way of telling you what not to do $$ $SPY?May 06, 2014
  • Early Tap of 401(k) Replaces Homes as American Piggy Bank?http://t.co/x16yXooOSx?If you don’t have an “out” door 4 $$, less will go “in”?May 06, 2014
  • The bond market is giving the stock market angst?http://t.co/rfuGqyaPTK?2 many long bond shorts, economic weakness, low govt-measured inf $$?May 06, 2014
  • Free Life-Insurance Offer Scrutinized?http://t.co/EZz4zbJsXS?Nothing is free; this will come out of the life insurer dumb enough 2sell it $$?May 06, 2014
  • Bond Returns Post Global Records as Warnings Go Unheeded?http://t.co/t0aXCtsu8T?Long bond buyers need to fund long liabilities & momentum $$?May 06, 2014
  • Borrowing Cash to Buy Complex Assets Is In Vogue Again?http://t.co/8urmZjge1i?Borrowed $$ is mostly being used 2buy AAA CLOs; 10x lev ~ 8%yd?May 06, 2014
  • Can?t Find Enough 30-Year Treasuries to Buy? Here?s Why?http://t.co/tmFjBQ4emS?Fed buying, also pensions, life insurers & speculators $$?May 05, 2014

?

Banks

 

  • Covered Bond Talks Intensify as Bank Liquidity Rules in Play?http://t.co/aM7LuzeXIK?Denmark needs bank capital concessions 4covered bonds $$?May 10, 2014
  • Bitcoin Breakthroughs Studied by Banks the Currency Is Out to Replace?http://t.co/Frls6s04am?May not be a currency, but a payment system $$?May 10, 2014
  • JPMorgan Joins Wells Fargo in Rolling Out Jumbo Offerings?http://t.co/9mJFfYArs2?High end of residential housing market is hot $$ $JPM $WFC?May 10, 2014
  • Fed 2 Bank Giants: Don’t Get Bigger Via Mergers?http://t.co/fjw4dDAAIZ?Have >10% of total financial system liabs can’t merge $$ $BAC $C $JPM?May 10, 2014
  • The Real Reason Big Banks Stay Big?http://t.co/GRvSHhDAUx?The larger the bank, the larger the management pay packets $$ $C $BAC $WFC $JPM?May 06, 2014

 

Rest of the World

 

  • Russian Aggression Prompts Finnish-Swedish Military Pact?http://t.co/K9amWYRP0F?It’s not an expansion of NATO yet, but reaction 2 Russia $$?May 10, 2014
  • China Property Slump Adds Danger to Local Finances?http://t.co/WXdGmStbU5?Local govts rely on selling property 4 revenue; now what to do? $$?May 10, 2014
  • Ukraine’s Arms Industry Is Both Prize and Problem for Putin?http://t.co/1RNJMzBvQ6?Has many arms joint ventures w/ Ukraine $$ #irony $MACRO?May 10, 2014
  • Panama Can School US on Immigration?http://t.co/2UYhldzlPJ?”Panama is the kind of country the US once was: quick to embrace workers.” $$?May 10, 2014
  • Draghi?s Euro Angst Rising as Rally to $1.40 Pummels?http://t.co/nLzHP74nYE?What will he do? Sell Euros & buy Dollars? Has 2 many $$ now.?May 10, 2014
  • Accident Leads to Scrutiny of Oil Sand Production?http://t.co/DHVJukJNVR?Little damage, but made regulators think of other bad scenarios $$?May 06, 2014
  • British Coins Pass Test in 800-Year-Old Ritual?http://t.co/GKfA1KhXKO?Trial of the Pyx, 1 of Britain?s oldest&strangest legal procedures $$?May 06, 2014

 

Global Economy

 

  • US Ready to Join 6-Nation Tax Alliance?http://t.co/PVRpUJ1ShZ?Members Will Share Information 2Fight Multinational Corporate Tax Avoidance $$?May 10, 2014
  • Ron Wyden: We Must Stop Driving Businesses Out of the Country?http://t.co/ypwwGbrWlM?Cutting corporate taxes to 24% would be a start $$ $SPY?May 10, 2014
  • Corporate Tax Planners Vexed by New International Tax Guidelines?http://t.co/LcCyHgfDc7?If elites agree, can limit tax leakages 2 havens $$?May 10, 2014
  • Decoding Dollar Turns Into Wall Street?s Parlor Game?http://t.co/PeI1wrlq4v?Bad speculation on strengthening $$ fails, trade gets reversed?May 10, 2014
  • World Economy Stabilizes in Great Moderation 2.0?http://t.co/yCIRqXpF9h?Really seems 2 early 2b trotting out an idea like this $$ $SPY $TLT?May 10, 2014
  • How Russia Inc. Moves Billions Offshore & a Handful of Tax Havens May Hold Key to Sanctions?http://t.co/ylIL6w66EF?Expropriation risk $$?May 05, 2014
  • Tax Break ?Blarney?: U.S. Companies Beat the System With Irish Addresses?http://t.co/Ia2cM1brCS?Maybe a “Value Added Tax” could fix this $$?May 05, 2014

 

Companies & Industries

?

  • Fat-Destroying Machine Doubted by Stock Traders?http://t.co/2Klv4c4ozG?$ELOS uses ultrasound 2 heat up & destroy fat cells. Does it work? $$?May 10, 2014
  • Son Makes $58B on Alibaba With Buffett-Type Return?http://t.co/uywgbnCaxg?Masayoshi Son had insight into Alibaba when invested $20M $$?May 10, 2014
  • US Shale Boom Keeps Global Oil Prices From Soaring?http://t.co/ipDZdMke1o?Oil Majors have 2 invest more 2 get less http://t.co/9u5lRnolmh $$?May 10, 2014
  • Lenovo Targets Mobile as Tech Empire Grows on Castoff Businesses?http://t.co/sXSytLozjV?Squeezing good $$ out of mature tech businesses?May 10, 2014
  • Pitney Bowes changing stripes: Cramer?http://t.co/QzDuxGLZjT?Talks about their partnership w/ $EBAY to seamlessly estimate shipping $$ $PBI?May 10, 2014
  • 5 quality stocks that are missing out on the bull run?http://t.co/8GTmjMt46J?Quality often misses out when credit spreads r tight $$ 2005-7??May 10, 2014
  • Alibaba Partners Keep Control After Shunning Hong Kong for US?http://t.co/4XvRaqoUM5?A partnership will govern, limiting takeover efforts $$?May 10, 2014
  • Wal-Mart Notches Web Win Against Rival Amazon?http://t.co/3f9chtgyME?Still $AMZN is 6x larger than $WMT in online sales, long way to go $$?May 06, 2014
  • IBM’s Watson supercomputer can help settle your debates?http://t.co/cFmXZXmEV6?Ask Watson a question, will give top 3 args for & against $$?May 06, 2014
  • Symantec Develops New Attack on Cyberhacking?http://t.co/xbeAQgcnab?Declaring Antivirus Dead, Firm Turns2Minimizing Damage From Breaches $$?May 06, 2014
  • Buffett Phase Two Means Seeking Deals More Enduring Than Stocks?http://t.co/FyERjB7YO5?Trying to build the best long-term conglomerate $$?May 05, 2014

?

US Politics & Policies

 

  • Benghazi Isn’t Iran-Contra?http://t.co/otSpoLR38P?But the comparison reflects poorly on the Obama administration $$?May 10, 2014
  • SEC Finds Illegal or Bogus Fees Majority of Buyout Firms?http://t.co/TwU954gwzm?Who pays what expenses? How r fees & returns calculated? $$?May 10, 2014
  • What Timothy Geithner Really Thinks?http://t.co/CxMmqJF18b?Just don’t blame him, didn’t want the job & wanted 2 leave it sooner, Really? $$?May 10, 2014
  • Railroad: Federal order won’t affect oil shipments?http://t.co/9nFXjxRTcP?BNSF carries most of the oil coming from Bakken FD: + $BRK.B $$?May 10, 2014
  • Why Nonbank SIFI Designations Put the Cart Before the Horse?http://t.co/oRQCv7r5jf?FSOC & Fed don’t get systemic risk & designating SIFIs $$?May 10, 2014
  • Massachusetts Scraps Its Health Insurance Exchange?http://t.co/nVB3C17iVg?Fascinating how many states had to scrap their healthcare sites $$?May 06, 2014
  • Why Weather Could Determine Who Wins a Race To Measure Inflation?http://t.co/2PTidHexu6?Billion Prices Project inflation measure 1%>CPI $$?May 06, 2014
  • The End of the Permissionless Web?http://t.co/MWyAraGxUT?Regulators want 2 become the gatekeepers for Internet innovation. It ain’t broke $$?May 06, 2014
  • Toilet Bowl Kills Fan in Violence at World Cup Host Brazil?http://t.co/Qx0HSiv0dB?Soccer hooliganism hits a new low, death by toilet $$ $EWZ?May 05, 2014

 

 

Other

 

  • Woman With Printer Shows the Digital Ease of Bogus Cash?http://t.co/kN4Ua9zZl0?Fascinating 2c how easy it is to convert $5s into $100s $$?May 10, 2014
  • Career Advice for Managers: Learn to Execute Strategy?http://t.co/jI85DW4Itj?Strategy should come b4 reaction to the problems of the day $$?May 10, 2014
  • Growing Number of Hispanics in US Leave Catholic Church?http://t.co/0jXt2caYjl?Most of those leaving go evangelical protestant $$ #readbible?May 10, 2014
  • Economics students call for shakeup of the way their subject is taught?http://t.co/vv8OL1xq9m?Right diagnosis, wrong cure, need Austrian $$?May 07, 2014
  • Rethink The Word ‘Cancer,’ Panel Says?http://t.co/jiuSNLF4JM?Cancer comes in many different forms; with some, early treatment is needed $$?May 06, 2014
  • Virtual reality preps 4 impact in healthcare, manufacturing, finance?http://t.co/taBVd2dFy1?Retirement planning, worker safety, training $$?May 06, 2014
  • MLB: The Year That No One Got Caught Stealing?http://t.co/Pn3itlbi36?Catchers now spend more time practicing hitting than throwing $$ $SPY?May 06, 2014
  • Elite Colleges Don’t Buy Happiness for Graduates?http://t.co/H2S5hTml6g?Happiness stems more from personal attitudes than college type $$?May 06, 2014

 

US Economy

 

  • Cancer Doctors Join Insurers in US Drug-Cost Revolt?http://t.co/OrqflkeN32?Drug costs reflect price 4 successes but paying 4 failures $$?May 10, 2014
  • Later Easter Drives Retail Sales in April?http://t.co/VAuXPhVGR7?Never thought Easter was that big of an economic factor $$?May 10, 2014
  • Record Meat Costs Mean Pricey Barbecues?http://t.co/tNr7vcb11K?Herds r smaller, as ranchers shake off past water & feed problems $$ $TSN?May 10, 2014

?

Wrong

?

  • Wrong: Happy Hedge Fund Managers Earn Money for Nothing?http://t.co/pOSYH3SSXO?Wrong benchmark S&P 500 4 hedgie comparison s/b t-bills $$?May 10, 2014
  • Wrong: Blackstone?s Schwarzman Says Individuals Need More Alternatives?http://t.co/Mnp0cjlXZ5?He’s just trolling 4 dumb $$ folks. Ignore him?May 10, 2014

?

?

Comments, Replies & Retweets

?

  • If the treatment is cheap enough, & has no harmful side-effects, investors will benefit from fat returns ;)?http://t.co/ROAQUU6Rpu?$$ $ELOS?May 07, 2014
  • “He might be comparing IRRs on PE to total returns on stocks. Trouble with that one is that capital?” ? D. Merkel?http://t.co/MhXU9vLCvG?$$?May 07, 2014

?

Book Review: The 52-Week Low Formula

Book Review: The 52-Week Low Formula

52wk I usually don’t like reviewing books that say, “Follow this formula, and you will make lotsa money. ?Thus it was with some hesitance that I requested this book. ?I did it partly off of Tweedy, Browne’s study, which is aptly titled, “What Has Worked in Investing.” ?For those reading at Amazon, Google “Tweedy Browne What has Worked” for the link. ?Stocks that hit new 52-week lows on average are ready to rebound. ?So why don’t people buy them?

Are you kidding? ?Look at that chart! ?Do you really want to catch a falling knife?! ?You want to throw good money after bad!? ?Why do you want to buy that dog, anyway…

Shhh. ?The competition is gone. ?There are no friends of failure. ?But made some companies get unfairly tarred as losers, when it is simply a good company that made a few mistakes.

That is the idea behind this book. ?Analyze companies from which?most market players ?have fled. ?Look for those with ?the following characteristics:

  1. They must have a durable competitive advantage.
  2. They must must a strong free cash flow yield.
  3. They must have a return on invested capital that exceeds the cost of that capital.
  4. They must not have too much debt relative to free cash flow.

I Had Troubles Getting to Solla Sollew

But here’s the big problem, and advantage, of the book. ?He does not give you the “secret sauce.” ?He gives you the principles. ?Indeed he can’t give a formula, because many of his criteria don’t admit an easy formula. ?You can’t calculate free cash flow from looking at GAAP accounting — you would need to know what portion of capital expenditure is to maintain existing assets, and that is nowhere disclosed. ?Typically, when you see free cash flow in screening software, all capital expenditure is deducted from cash flow from operations, producing too conservative of a figure.

Thus we can’t replicate points 2 & 4. ?What about 1 & 3? ?Companies do not comes with tags saying “Durable Competitive Advantage” and “No Durable Competitive Advantage.” ?That is a judgment call. ?You could use Morningstar’s Moat Ratings, or Gross Margins as a fraction of assets. ?The author does not give explicit guidance. ?As to point 3, the main problem is that we don’t know what a company’s cost of capital is. ?There are a lot of assumptions lying behind that, and they matter a great deal.

The easiest?of his five criteria to calculate is the price vs the 52-week low. ?Still, he doesn’t give us a threshold.

So What Good is This Book?!

Unless you are an expert, not much good, unless you simply want to play the 52-week low anomaly. ?That said, actionable strategy would be to review the 52-week lows, and analyze companies with low debt and high past profitability that seem to have a franchise that is not easily attacked. ?I think the theory is solid. ?That said, it does no give a lot of the details, not that most readers would understand it if they did.

This book is good, in that it is realistic. ?Though not explicit, it informs you that it is very difficult to choose superior stocks, and it it does not give you a cut-and-dried method.

So If You Can’t Do It Yourself, Then What Is This Book?!

Though the disclosure at the end says otherwise, this book is an advertisement for the author’s method of money management. ?In none of his five criteria does he get sharp. ?The general principles are correct, but you aren’t given the tools to use them. ?That means if you want to use them, you must go through the author.

Verification

They have a website –?52weeklow.com, but it is not laden with data as the book intimates, as of the day that I write this. ?That would be worth seeing.

Quibbles

On pages 74-75 he gives a strained view of margin of safety,?comparing free cash flow yields to the 10-year Treasury yield. ?Margin of safety is more of a balance sheet construct, asking how likely is is that a company will get into financial stress. ?What he is actually measuring here is valuation. ?What he is doing is not wrong, but it is mislabeled. ?Also remember, you can estimate free cash flow, but you never know for sure.

Also, as mentioned before, we have no idea of what his thresholds are and how he actually implements the strategy.

Thus after this article are two attempts to work out the strategy. ?What should not be surprising is that there are no companies on both lists.

Summary

This is a good book, but average investors should not buy it, because they can’t implement it.??If you still want that, you can buy it here:?The 52-Week Low Formula: A Contrarian Strategy that Lowers Risk, Beats the Market, and Overcomes Human Emotion.

Full disclosure: The PR flack asked me if I wanted the book, and I said “yes.”

If you enter Amazon through my site, and you buy anything, I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.? Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.? Whether you buy at Amazon directly or enter via my site, your prices don?t change.

Application Attempt One

These were the companies selected — Morningstar Wide Moat, 5% Free Cash Flow Yield, Less than 20% above the 52-week low.

one

And here is the second try: Gross margins as a ratio of Assets over 13%, free cash flow yield over 5%, Long-term debt as a ratio of free cash flow greater than five,?less than 20% above the 52-week low.

two

Not one alike on the two lists. ?Tells you that his book would be very difficult to implement. ?*I* don’t know how I would implement it.

A Letter From a Reader with a New Investing Website

A Letter From a Reader with a New Investing Website

Okay, here goes… this is an experiment. ?I received the following letter:

David,

?You know investing inside and out. Given your expertise (as well as your ability to translate from financial speak to something that readers can really understand), I was hoping to get your opinion of the Market Power Indicator app from Stocks for the Week (http://stocksfortheweek.com/).

?We?re not pitching for coverage ? currently, we?re looking for feedback to make sure we?re creating a financial tool that will be really useful for people.

?We?re both looking for your insight as a financial expert, but also as a writer with an audience that looks for in-depth information in order to make financial decisions.

?In particular, we?re looking for answers to these three questions:

  • How do you look up stock information now?
  • How does Market Power Indicator compare to how you typically look up stocks now?
  • What would help you trust the Safety Score and other information in Market Power Indicator?
  • What features or changes would convince you to use our app on a regular basis?

If you?re willing to help us out, we?ve tried to keep things simple.

Sign up is really easy: if you go to http://stocksfortheweek.com/ and click the ?Sign Up? button, you can just click to create an account with a social media account like Twitter or Facebook. You should wind up at a page to create a stock watchlist.

From there, click around and see what you think. Just hit reply and let us know what you think through email.

We appreciate any time you can give us.

I did find it easy to create the account, and in general the site seems pretty well organized. ?I took all of my portfolio, and put it into the watchlist. ?28 of 38 companies were accepted. ?Those that weren’t accepted were small cap or foreign. ?Your coverage is spotty.

On the page where I could look at my watchlist, I tried sorting it by recommendation date, and it did not sort well.

I could not figure out what your algorithm was for investment-worthiness. ?My portfolio scored highly on your safety rankings, but 2 were “buy,” 35 were “hold,” and 1 was “sell.” ?If so much of my portfolio was hold, it does not make much sense. ?My portfolio is very strongly a “value” portfolio.

You need to be explicit as to what the holding period is for your recommendations. ?What time period are these over? ?How frequently do you expect people to turn their portfolios over? ?And if you do show performance on your recommendations, whether long or short, you should compare it to the S&P 500 or Russell 1000 over the same period.

If your recommendations have an aggregate performance, that should be revealed. ?Even with individual stocks, my initial test was?Leucadia National — the trades suggested by your model regularly lost. ?I suppose I could go through your universe, but I don’t have time. ?So, what proof do you have that your selection methods work?

To my readers, this site is worth trying out, ?but I do not give it a full endorsement. ?If you manager your own stocks, give it a try, and see what you think.

An Alternative to the Efficient Markets Hypothesis

An Alternative to the Efficient Markets Hypothesis

I read an article today, The Fallibility of the Efficient Market?Theory: A New Paradigm.?? Good article, made me look through a major article cited:?An Institutional Theory of Momentum and Reversal.

The former article explains in basic terms what the authors have illustrated. ?The latter article, provides all of the complex math. ?I get 50%+ of ?it, and I think it is right. ?This explains value, momentum, and mean-reversion, the largest anomalies that trouble the?Efficient Markets Hypothesis.

This article deserves more attention from quants and academics. ?The only thing that troubles me about it is that they assume a normal distribution for security returns.

Have a read, and for those that can understand the math, if you disagree with it, let me know.

Yet Another Letter from a Reader

Yet Another Letter from a Reader

I get a lot of interesting letters — here is another one:

First, let me say how much I appreciate your blog. I started my career in sellside research covering life insurers (after interning in insurance M&A). Your posts on insurance investing were invaluable in developing my understanding of the industry. My superiors did not have time to teach me the basics – I would have had a hard time getting started without your blog.?

?I’m now in equity research at a large mutual fund company, also covering insurers (and asset managers). However, I do not have an actuarial background. So I am very interested in why you think financial & mortgage insurers don’t have an actuarially sound business models.?

?And as a former life insurance analyst, I am curious what aspect of life insurance reserving you view as liberal – I’m guessing secondary guarantees on VAs??

?Finally, to digress, do you have any views on medical malpractice insurance? I’ve been looking at PRA, and find it pretty compelling at first glance: massive excess capital, consistently conservative and profitable underwriting, and a relatively reasonable valuation. 90% of policies are claims made. There are headwinds: Obamacare, the reserve releases from mid-2000s accident years rolling off, and a diversifying business model (although PRA has historically proven competent at M&A). My only concerns are management continuing to underwrite at too low a level (currently writing at 0.32x NPW / Equity; regulators would be fine with up to 1.0x), and potentially squandering that capital.?

In the interest of full disclosure, I own no insurance stocks personally for compliance reasons.

Thanks for writing. ?Let’s start with mortgage and financial insurance. ?It’s not that there isn’t a good way to calculate the risk (in most cases), it is that they do not choose to use those models. ?The regulators do not subscribe to contingent claims theory. ?They do not look at default as an option, even if it is not efficiently exercised. ?They should use those models, and assume efficient execution of default risk.

Even if they use approximations, the recent crisis should have forced reserves higher for mortgage credit, and other credit exposures.

Credit and mortgage insurers are bull market stocks. ?When I was a bond manager, I sold away my few financial insurer bonds from MBIA and Ambac, and avoided the mortgage insurers. ?The possibility of default was far higher than he market believed.

With respect to Life Insurers, it is secondary guarantees of all sorts, especially with variable products. ?Options that have a long duration are hard to price. ?Options?that have a long duration, and involve significant contingencies where insureds may make choice hurting the insurer are impossible to price.

On Medmal, I have always liked PRA, but it has never been cheap enough for me to buy it. ?Always thought they were the best of the pure plays. ?They have survived many other companies by their clever management. ?I would not begrudge them their conservatism, Medmal is volatile, and it pays to be conservative in volatile businesses.

Book Review: Clash of the Financial Pundits

Book Review: Clash of the Financial Pundits

A1X8PvGOgyL

Josh Brown?s last book, Backstage Wall Street, was four books in one.? This book, Clash of the Financial Pundits, is three books in one.? The authors cover three things:

  • Punditry in history
  • How to understand modern pundits
  • Interviewing modern pundits

I will take them in that order:

Punditry in history

The book covers the following eras in punditry:

  • The Crash that Started the Great Depression
  • The South Sea Bubble
  • Joe Granville
  • Harry Dent, Charles Kadlec, Dow 36,000
  • Martin Zweig
  • Jim Cramer was right during the 2008 crash

Roger Babson warned people about how high the stock market was, while Irving Fisher talked about stocks hitting a ?permanently high plateau.?? The South Sea Bubble had many in the 1700s media stoking the flames of speculation.? Joe Granville was hot stuff in the late ?70s and early ?80s, but was dead wrong the rest of the time.

Harry Dent, Charles Kadlec, and the crew that put together Dow 36,000 created their own sensational predictions which proved to be controversial and very wrong.? Martin Zweig was right about the 1987 crash, while Jim Cramer controversially was right during much of the 2008 crash.

How to understand modern pundits

Then comes the basic advice to help us weather the storm of advice that floods the media.? The main topics are:

  • How to use financial media intelligently?
  • Need for humility
  • Hedge fund managers that talk to the public
  • People who act certain attract belief
  • Wall Street maxims often contradict each other
  • Making predictions that are squishy (surprises lists)
  • There are no experts

Using financial media intelligently means limiting the intake, and limiting its effect on you.? We must be humble in what we understand and accept, and we should listen to those that are humble in what they say.

When hedge fund managers speak publicly, realize that they are speaking their own interests.? They may not be right.? Also, those who speak with certainty on TV tend to attract more belief than those who are more humble and nuanced.

There are many soundbites in financial television, radio and writing.? For every maxim, there is a counter-maxim.

There is an art to making predictions that can?t be falsified, such as surprise lists.? It would help us all if we all realized there are no experts in investing, and that even includes me.

Interviewing modern pundits

Jeff Macke, Josh?s Co-author interviews the following pundits:

  • Jim Rogers ? former manager of the Quantum Fund, author of many books.
  • Ben Stein ? speechwriter for Nixon, written a scad of books, etc.
  • Karen Finerman ? founder, owner & head of Metropolitan Capital, on CNBC?s Fast Money
  • Henry Blodget ? Internet stock analyst 1998-2002, and now the editor and CEO of?The Business Insider, a business news and analysis site, and a host of Yahoo Daily Ticker, a finance show on Yahoo.
  • Herb Greenberg ? wrote for the San Francisco Chronicle?s business section, for theStreet.com, and has appeared on CNBC many times.
  • James Altucher ? Entrepreneur and blogger.? He contributes content in many journalistic outlets.
  • Barry Ritholtz ? Writes for Bloomberg.com and his own popular blog.? Also writer of the excellent and early crisis book Bailout Nation.? Josh Brown works with him at their firm.
  • Jim Cramer ? Former hedge fund manager, founder of theStreet.com, host of the show Mad Money which appears on CNBC.
  • Jeff Macke ? Josh?s co-author, currently working for Yahoo Finance, who relates a tale of when he screwed up badly as a pundit.

These are good interviews, and it gives the readers an internal look as to what it is like to be in front of the media, particularly amid controversy.? Each of the nine interviews sheds light on being a pundit, but in different ways.

Jim Rogers has talked about macro issues, and with a varied track record in the short-run.? Ben Stein has said many controversial things over time.? Karen Finerman has the story of being invited onto CNBC?s Fast Money, and taking a sip from the firehose as the first woman, one with no TV experience, and surviving.

Henry Blodget goes through his errors in the Internet Bubble, and how he has found redemption in writing about finance.? Herb Greenberg, the consummate skeptic, describes what it is like to take unpopular positions versus popular stocks.? James Altucher oozes blood over much of what he writes, telling of his own failures and successes in excruciating detail.

Barry Ritholtz, skeptic par excellence, describes the attitudes of interviewers, and the limited range of thought they have.? He delights in giving them answers that trouble them, like, ?I don?t know.?

Jim Cramer is perhaps the most controversial of all.? I have known him, albeit distantly for 15 years.? He is very bright, but falls into the trouble of making too many predictions.

And so it is for most pundits.? Amount of predictions is inversely proportional to their quality.

The last ?interview? is where Jeff Macke relates a failure of his on CNBC, tells a story of how pundits are human.? They have stresses in their lives.? They make mistakes.? They are people, humans, like you and me.

Summary

This is a good book, and will educate average people regarding financial media.? You will see the financial media from an insider?s view.?If you want that, you can buy it here:?Clash of the Financial Pundits.

Full disclosure: I received an advance copy of the book via NetGalley.

If you enter Amazon through my site, and you buy anything, I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.? Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.? Whether you buy at Amazon directly or enter via my site, your prices don?t change.

Book Review: GDP: A Brief but Affectionate History

Book Review: GDP: A Brief but Affectionate History

81euvVMFKxL._SL1500_ This is a short book. It should be judged by short book rules.

1) The book is aimed at giving a general understanding to readers not familiar with all of the assumptions that go into the calculation of GDP.

2) The book uses no math to explain what is a highly mathematical topic, and yet gets the main points across.

3) The book explains the controversies surrounding GDP in a simple way that most people could understand, and does not make you head spin with economic gibberish.

4) ?The book explains many of the important strengths and weaknesses of the GDP calculation. ?Maybe that should read — what GDP can measure, and what it does not measure.

5) It explains in simple terms the difference between “real” (inflation-adjusted), and “nominal” (unadjusted) GDP. ?It could have spent more time on that topic, I think, because the issues around price indexes (including the implicit price deflator, which was not mentioned) are significant.

6) The book motivates the history of how GDP calculations come to be, morphing from a way to figure out taxation capacity in wartime, to a figure that guides the economic policies of bureaucrats that tinker with something bigger than themselves, and they do not understand it (but won’t admit it).

7) The book drives home the idea that much helpful human action is *not* captured in GDP, and likely *can’t* be captured in GDP. ?Also it shows how many harmful actions (i.e. pollution, etc.) are not captured in GDP.

Now some will criticize some omissions of this book, and minor inaccuracies, but I am not going to beat on those, because this is a short book, and not meant to be deep for experts to contemplate. ?At 140 small pages, it packs a lot in!

After all, there is an alternative. ?You could go an buy an intermediate macroeconomics textbook used by many universities. ?It will be in many ways more technically precise. ?There will be a lot more math, and esoteric discussions. ?It will lose average people, who will say “I’m glad I am not an economist.”

This book will not provoke that response. ?It is meant for average people, not experts, who need to get a basic grip on what GDP means and does not mean.

My Main Misgiving

If I were writing this book, I would recast this book into the need to estimate a balance sheet of the US, complete with liabilities ?and intangible assets. ?After all, the income statement describes the change in balance sheets across two periods. ?Imperfectly, that could help us deal with intangibles that don’t get counted (E.g. all of the book reviews that get written for free, but give people a better idea of what to buy). ?Even though the estimates will remain very imperfect, and maybe worse if we try this with intangibles, it might give us a sense of how much good we do as a society. ?It would also make the financial sector net out for the most part, the value of which is difficult to measure.

Summary

If you want a basic book that teaches you in a non-technical way how and why one of our most basic economic statistics is calculated, this book will give you that. ?And if you want that, you can buy it here:?GDP: A Brief but Affectionate History.

Full disclosure: The PR people asked me if I wanted a copy of the ?book, and I said “yes” and they sent it.

If you enter Amazon through my site, and you buy anything, I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.? Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.? Whether you buy at Amazon directly or enter via my site, your prices don?t change.

Sorted Weekly Tweets

Sorted Weekly Tweets

US Politics & Policy

  • The Potential Bubble the Federal Reserve Cares Most About http://t.co/tp1Ug7YcaR?Worrying about a bubble in the bond mkt $$?May 03, 2014
  • The Weekend Interview: The Investors at War With Political Power?http://t.co/MuEvV0DQcC?Courts protect our liberties from bureaucracies $$?May 03, 2014
  • Detroit Homeowners Gun Down Burglars as Police Wait for Cars?http://t.co/Dkg7YEct4g?This is the future of many US cities w/tight budgets $$?May 03, 2014
  • Railway exec: Keystone debate not about rail versus pipes?http://t.co/bVKjkcvnq0?Aiming 4 safer tank cars & separating out natgas liquids $$?May 02, 2014
  • Xerox CIO Fixing Nevada Health Exchange, as Tough Decisions Loom?http://t.co/brbP5LD0Ru?Bad job by $XRX but at least they trying 2 fix it $$?May 02, 2014
  • For Now, Justice Ginsburg’s ‘Pathmarking’ Doesn’t Include Retirement?http://t.co/xduXEt5OUV?Interesting piece on liberal SCOTUS leader $$?May 02, 2014
  • The Supreme Court’s EPA Ruling Dims Lights on Coal Power Plants?http://t.co/eAIlagHyqe?This will eventually be reversed when shale fails $$?May 02, 2014
  • The Coming Two-Tier Health System?http://t.co/xpIMjPnvhc?The longer PPACA goes on the more people will c benefits limited & costs rise $$?May 02, 2014
  • California City of Torrance Grapples With Toyota Relocation to Texas?http://t.co/OljCzROHlq?Despite denials this happened b/c hi CA taxes $$?May 01, 2014
  • The Missing Benghazi Email?http://t.co/amNnz6KAWT?New evidence that Ben Rhodes told Susan Rice and Hillary Clinton to blame the video $$?May 01, 2014
  • Shifting Demographics Tilt Presidential Races in US Burbs $$?http://t.co/Ut6WAHwu91?Demographic effect politics will shift when OASDI chokes?May 01, 2014
  • Half of people living in Illinois and Connecticut want to get out?http://t.co/ewsu2wu8HT?Maryland #3 b/c of high taxes $$ $SPY $TLT?May 01, 2014
  • Yellen Concerned Fed Model Fails to Predict Price Moves?http://t.co/P1NXGaHY6w?Been true 4 a long time; Neoclassical Macroeconomics fails $$?May 01, 2014
  • U.S. on Highway to Flunking Out?http://t.co/yvRybDP3Bp?@Ritholtz Maybe US gasoline taxes could b dedicated to infrastructure & fix this $$?May 01, 2014
  • Property-Tax Collections Rising at Fastest Pace Since US Crash?http://t.co/GoC12zZltE?My, but that was a short respite from hi prop taxes $$?May 01, 2014
  • Student-Debt Forgiveness Plans Skyrocket, Raising Fears Over Higher Tuition?http://t.co/ZaHVqZG6ft?Forgiveness programs abused 2milk Govt $$?May 01, 2014
  • Lawyers Sue Stock Market for Being Rigged?http://t.co/ntCxkptCw8?@matt_levine tells us about a plaintiff suing every broker & exchange $$?Apr 30, 2014
  • Will the Fed s Capital Rules Interfere with Monetary Policy??http://t.co/UpWnLNwIff?Leverage affects banks short-run-> margins adjust up $$?Apr 30, 2014
  • The Economic and Environmental Costs of Wasted Food?http://t.co/3YqsPbZzJv?Difficult to avoid; need for inventories, transport costs high $$?Apr 23, 2014

?

Financials

  • Treasuries Irresistible to America?s Banks Awash in Cash?http://t.co/wHjk3cRPn2?Clip a small interest margin, take little risk $$?May 03, 2014
  • Big US Banks Make Swaps a Foreign Affair?http://t.co/5DD7en8pBG 5 banks intermediate 95% of derivatives $$?May 03, 2014
  • Fidelity Reaps Rewards as Banks Lose Bond Muscle?http://t.co/mSTelgwh0d?If the sell side does not provide liquidity, the buy side will $$?May 03, 2014
  • Bank of America Lost $2.7B in a Maze of Accounting?http://t.co/K05aIQBhQE?Acctg gets screwy when you mix fair value & book value elements $$?May 02, 2014
  • Traders Join Exodus as Forex Probes Add Pressure on Costs?http://t.co/Aqlsb6vElW?Difficult to dominate such a big mkt, but maybe they did $$?May 02, 2014
  • Warren Buffett Does Not Understand the J.P. Morgan Derivatives Positions?http://t.co/poMfOnAhOS?He acts to protect Berkshire vs bad debts $$?May 02, 2014
  • Fed Citing Wall Street Lapses Leads Drive on Bonds as Pay?http://t.co/Ad2DOnjZYl?Light version of the old “double liability” regime $$ $XLF?May 02, 2014
  • Stress Tests Forecast $190B in Losses at $FNMA, $FMCC in Severe Downturn?http://t.co/UA9S5Jj13a?also this article http://t.co/Wh2QlFzqZh $$?May 02, 2014
  • Traders Denied M&A Payday as Firms Use Cash?http://t.co/hSw2BGNjWh?Global firms buy assets in native currency, thus don’t need FX traders $$?May 01, 2014
  • Fixed-income houses double down?http://t.co/1rm6QHbjgc?Less yield to fight over makes the fight all the tougher $$ $TLT?May 01, 2014
  • Easier Homeowner Credit Compelling $WFC?http://t.co/AzcGHepiJJ?Cut min credit score 4borrowers of $FNMA & $FMCC loans 660->620 $$ FD: + $WFC?May 01, 2014
  • Wall Street Bond Dealers Whipsawed on Bearish Treasuries Bet?http://t.co/S6X2QhUgRV?Caught leaning the wrong way as US economy weakens $$?Apr 30, 2014

?

China

  • Chinese Bad-Loan Ratio Rises ?Significantly,? Huarong Says?http://t.co/Eu5AAeyGp5?Costs of prior malinvestment weigh on China $$?May 03, 2014
  • Xi?s Squeeze Leaves China?s Heartland Missing Boom?http://t.co/Bt0L96guqH?Efforts to constrain bad bank loans slows Chinese economy $$ $FXI?May 03, 2014
  • Wealthy Chinese replace Russians as top apartment buyers?http://t.co/zEWVg7dOOC?Better to buy in NYC than Shanghai, Hong Kong, Singapore? $$?May 02, 2014
  • How Women Lost as Out China’s Property Market Boomed?http://t.co/MXkG2udq0t?China lacks law protecting married women’s property interests $$?May 02, 2014
  • Green Batteries? Graphite Adds to China Pollution?http://t.co/rxZufzpj9H?Buy a $TSLA or a $HMC Prius, send polluted rain to China $$ $SPY?May 01, 2014

 

Rest of the World

  • Poland?s Tusk Proposes Energy Union 2 Break Russian Hold on Gas?http://t.co/CzDr3evIhe?Wishful thinking as infrastructure 2 deliver lacks $$?May 03, 2014
  • More Italian Women Are Choosing to Have No Children?http://t.co/fSghk0oKwP?A nation that does not have children is irrelevant $$?May 03, 2014
  • Portugal Grabs Cheap Bond Deal With Eye on Bailout Exit?http://t.co/9gEDWEIuYh?Debt problems r not resolved, but mkts feel better 4 now $$?May 03, 2014
  • German Ship Captain Swamped in Debt Underscores Bank Risk?http://t.co/eP7Xhvj67X?Current EU economic policies hide bad debt risks $$?May 03, 2014
  • GoldenTree Goes Bold in Buying Russian Corporate Bonds?http://t.co/d0nvYJ7Ah2??Russia, it?s a strong credit in a difficult environment,? $$?May 03, 2014
  • One Missing Jet, One Sunken Ferry, Two Responses?http://t.co/I1ZgkwQyLo?@WilliamPesek compares Malaysia & S. Korea & responses 2 disaster $$?May 02, 2014
  • Turkey’s Erdogan: 1 of the World’s Most Determined Internet Censors?http://t.co/12ALhoW2i3?#twitterisblockedinTurkey $$ #internetchangesall?May 02, 2014
  • German Businesses Urge Halt on Sanctions Against Russia?http://t.co/bJho1CvvIP?Is business so global that major wars can’t be fought? $$?May 02, 2014
  • How Canada?s Flirtation w/a China Oil Market Soured?http://t.co/h5HPS7pnM8?Why Canada will NEVER ship crude to China via a Pacific port $$?May 02, 2014
  • Georgia Pushes for Fast Path 2 NATO on Russian Threat?http://t.co/bYY8LK1pla?Is Georgia worth annoying Russia? Avoid entangling alliances $$?May 02, 2014
  • US sanctions raise concerns for foreign investors?http://t.co/XWbwvPXyir?Or, maybe not: http://t.co/rhsqIHCafl $$?May 02, 2014
  • Google Warning on Russia Prescient as Putin Squeezes Web?http://t.co/pVedAtqcAx?Social Media has its downsides if Govt uses it against u $$?May 02, 2014
  • Liquidity Trap Hitting AAA Bonds Has ATP CEO Sounding Alarm?http://t.co/bhWlb1EjxQ?Curbing speculation has led 2 decreased bond liquidity $$?May 02, 2014
  • Israelis Without ABCs Unready2Power Startup Nation?s Economy?http://t.co/q2V1IwGrIZ?He that doesn’t teach his son a trade teaches him2rob $$?May 01, 2014
  • Tokyo Inflation Quickens to Fastest Since 1992?http://t.co/khjhBvHgWT?Worth watching, as inflation is not the friend of Japan ultimately $$?May 01, 2014

 

US Economy?

  • Colleges, Employers Rethink Internship Policies?http://t.co/RMievOB82U?Unpaid internships often don’t lead to jobs, just use your time $$?May 03, 2014
  • Apprenticeships Help Close the Skills Gap. So Why Are They in Decline??http://t.co/pCnZCgXqAr?If they weren’t tied 2 labor unions… $$?May 03, 2014
  • Calculated Risk: Ranking Economic Data?http://t.co/l4X9wcjrEw) Bill McBride gives his opinions on what economic data is most important $$?May 03, 2014
  • Union Blasts Staples-Run Postal Outlets?http://t.co/qmmc4iXhIS?Of course, they don’t want the competition $$?May 03, 2014

?

Energy

  • Energy Future Junior Creditors Test Bid for Fast Bankruptcy Deal?http://t.co/ZFgWCteuh0?A warning to those doing big LBO deals in a boom $$?May 03, 2014
  • Shale Drillers Feast on Junk Debt to Stay on Treadmill?http://t.co/qG9WwN63V0?Fascinating look many junk-rated E&P companies paying 5.4% $$?May 02, 2014
  • Valero to Suncor Shun Overseas Imports in Eastern Canada?http://t.co/dco5QQdox4?Oil imports falling in Eastern N.America, Brent spd eases $$?May 02, 2014
  • Berkshire Hathaway Energy Buys AltaLink Power-Transmission Company?http://t.co/K95RDCbYM8?Buffett wants long-lived infrastructure assets $$?May 02, 2014
  • Shale Revolution Lures Trading Houses 2US Energy Assets?http://t.co/6WTGDZNLzl?If u can understand physical flows, there?s a value chain $$?May 01, 2014
  • Drones Are Becoming Energy?s New Roustabouts?http://t.co/e2OBYmeV48?Can cover more area and c things that a person could not c & record $$?May 01, 2014
  • Challenges Lie Ahead for North American Oil Production?http://t.co/m7vvemlw6m?We’re running out of cheap crude oil $$?Apr 22, 2014


Market Impact

  • Defensive Value ETF Races to New Highs?http://t.co/KOKo14nkDk?This isn’t defense; many people throw $$ at stocks that offer dividends?May 03, 2014
  • Chile CEF?s Premium a Case of Yield Lover?s Mirage?http://t.co/blhZjCHLzN?Be wary: not all distributions indicate recurring yield $$?May 03, 2014
  • Hedge Funds Short Small Caps Most Since ?04?http://t.co/2hLYbzM521?Dangerous trade, b/c mkt can b insane longer than u remain solvent $$?May 03, 2014
  • Howard Marks’ Brilliant Observation On What It Takes To Be A Great Investor?http://t.co/yeJnpION8s?Be different, & right often enough $$?May 02, 2014
  • Junk Loans Pulled as Buyers Say No After Fed Voices Worry?http://t.co/lCDRdfFvV6?Junk-loan MFs had their 1st outflow in week ended 4/16 $$?May 02, 2014
  • Why This Bull Market Feels Familiar?http://t.co/8JXl7JGwMe?Low earnings in tech IPOs, momentum & loose monetary policy $$ $SPY?May 01, 2014
  • Why Investors Love Hedge Funds?http://t.co/uFjN76R9KT?@Ritholtz teaches us about high fees, & decrasing effectiveness as they grow large $$?Apr 30, 2014

?

Companies

  • Ballmer Becomes Largest Individual Microsoft Shareholder?http://t.co/DvWSRZAb1Z?Bill Gates always had an exit strategy from $MSFT $$?May 03, 2014
  • Apple Sells $12B of Bonds to Keep Cash Overseas?http://t.co/FiSK8eJS5C?Avoiding the tax hit is more important leverage across borders $$?May 03, 2014
  • Berkshire Meeting, Now ?Woodstock for Capitalists,? Had Humble Start?http://t.co/wbYCcKc8yr?Nobody goes there anymore; it’s too crowded $$?May 02, 2014
  • Buffett Wants Tough Questions? How About These??http://t.co/m36vBV6VIe?Ask him about the Harney Investment Trust, his shadowy creation $$?May 02, 2014
  • Verizon Loses Cellphone Customers for First Time?http://t.co/6DbXOm993W?Interesting, wonder if it is a trend… $$ $VZ?May 01, 2014
  • IBM End to Buyback Splurge Pressures CEO to Boost Revenue?http://t.co/D657Dc27mX?Buybacks can only do so much; organic growth needed $$ $IBM?May 01, 2014
  • FM Global CFO: Know Your Supply Chain?http://t.co/dBTc6MYXXY?Real disasters happen when multiple things go wrong at the same time $$ $SPY?May 01, 2014
  • ‘I Think Google’s Pretty Dangerous and Thuggish. I?ve Always Said That.’?http://t.co/jYZBaewNjZ?Trying 2 defend yourself; not saying much $$?Apr 28, 2014

 

Personal Finance

  • Does Anyone Play It Straight in Markets??http://t.co/MRZY1ro2as?@ritholtz warns u that many in the mkts r trying to separate u & your $$?May 03, 2014
  • Feeling Cool About A Hot Personal Finance Book?http://t.co/hwFULepE8v?When someone tries to sell u insurance 4 a savings need, go away $$?May 03, 2014
  • 4 Alternatives to Reverse Mortgages?http://t.co/6Wmd2kYQmz?Refinance, Home Equity Loan, Sell the Home (maybe to your kids) $$ #sell?May 02, 2014
  • Work and Live, Retire and Die @Ritholtz?http://t.co/t1YWHoG6NO?People plan to retire later than they actually do & life interferes $$ $SPY?May 02, 2014
  • How to Choose the Right Mutual Fund?http://t.co/4kvyh8rZZK?Omits active share, good mutual funds typically look un-indexlike $$?May 01, 2014
  • If You’re Not Saving, You’re Losing Out?http://t.co/QtG87rNHPF?It’s not the money u make, it’s the money u keep that counts $$ $SPY $TLT?May 01, 2014

 

Other

  • The Questionable Link Between Saturated Fat and Heart Disease?http://t.co/32pwYj4Z6i?There has never been more disagreement over food $$?May 03, 2014
  • Will That Golfer Choke? New Field of Mental Analytics Tees Up Answer?http://t.co/B8dxIYL1Jf?Can analytics make u think better in sports $$?May 03, 2014
  • Cyber security: business is in the front line?http://t.co/RXkfEDaPu0?This isn’t a soft cost anymore; the need to secure IT is vital $$?May 03, 2014
  • Remember Life Before Antibiotics? No? Wait, It’ll Come to You?http://t.co/g9uQajBJJL?Antibiotic resistance grows, obsoleting some drugs $$?May 02, 2014
  • How the ‘Jesus’ Wife’ Hoax Fell Apart?http://t.co/Kdswi39oZr?Hoaxes & apochrypha have circulated since the Apostles. They always crumble $$?May 02, 2014
  • Why Some MBAs Are Reading Plato?http://t.co/ltj9Y8QYyV?Schools Try Philosophy to Get B-School Students Thinking Beyond the Bottom Line $$?May 01, 2014
  • Does Baseball Have to Be So Slow??http://t.co/8PRcoei9Ua?Dawdling by batters & pitchers, & an increase in strikeouts makes games drag $$?May 01, 2014
  • The world’s smallest magazine cover is 2,000 times smaller than a grain of salt?http://t.co/o4H7mfHCDE?Nanotech: we do it because we can $$?May 01, 2014
  • Why Militaries Mess Up So Often?http://t.co/39NKx6YPUn?Officers trained during peacetime tend not to take the risks necessary in wartime $$?May 01, 2014

 

Wrong?

  • Wrong:Nontraded REIT returns: Where to put cash now??http://t.co/EPykRK8e7S?Avoid illiquidity unless u r paid 4 it. Avoid big commissions $$?May 03, 2014
  • Wrong: China’s Century Starts Now @BloombergView?http://t.co/UUziinXlqJ?Wait until after the banking crash & recovery, then write this $$?May 01, 2014
  • Wrong: Money-Market Funds As Safe as Banks, Except When They’re Not?http://t.co/7S2TEDpk7Q?Banks fail more often & losses r more severe $$?May 01, 2014

?

Retweets, Replies, and Comments?

  • “Ask Buffett about the Harney Investment Trust:http://t.co/KUHnslWBFv…” ? David_Merkel http://t.co/bLVAj6OY7O $$?May 02, 2014
  • Commented on StockTwits: Whoops, and I should have gotten that one right?http://t.co/nB9lRK14kb?May 01, 2014
  • “Paul, try valuing BRK off of increase in book value per share, and the metric comes out to a more?” ? DavidMerkel?http://t.co/cm2Rdhkzfn?$$?May 01, 2014
  • “Now try to explain how long yields fell the last time the Fed tightened.” ? David_Merkel?http://t.co/MwJL3d6KQX?$$ FD: + $TLT?May 01, 2014
  • “If citizens are not created/educated by 18, you won’t have good citizens.” ? David_Merkel?http://t.co/TzfQsJULED?$$ http://t.co/eiOLPqNuub?Apr 29, 2014
  • “This may be a game of “Who has the stronger balance sheet?” $HLF or Ackman?” ? David_Merkel?http://t.co/2QCjheaJjd?$$?Apr 29, 2014
  • @Peter_Atwater @Minyanville @Socionomics Thanks, Peter. Means a lot coming from you.?Apr 28, 2014
  • @ReformedBroker @ritholtz feel free to repost it (w/credit to me) if you like?Apr 28, 2014
  • RT @felixsalmon: For the record, I never said, nor do I believe, that text is over. I?m still going to be writing lots of text!?Apr 28, 2014
  • RT @victorricciardi: @researchpuzzler @AlephBlog @jciesielski @tobyshute Tom Great meeting you Thanks for your ideas for promoting my new b??Apr 25, 2014
  • RT @researchpuzzler: thanks to CFA Society Baltimore @AlephBlog @victorricciardi @jciesielski @tobyshute for the great exchange of ideas?Apr 25, 2014
  • RT @ppearlman: summer must read – “@reformedbroker: CLASH OF THE FINANCIAL PUNDITS: COUNTDOWN BEGINS NOW!?http://t.co/iZqYTs8OFt“?Apr 25, 2014
  • RT @abnormalreturns: Had to Google ?cable network Fusion??RT @felixsalmon: It?s out: I?m going to Fusion?http://t.co/B1EK0eJmc8?Apr 24, 2014
  • RT @ChemistryVines: Mercury(II) thiocyanate (Hg(SCN)2)?https://t.co/Ar2yhIlOwo?Apr 23, 2014
  • @Calvinn_Hobbes I don’t know. We all want to grow up, until we do grow up. Only the foolish regret growing up.?Apr 22, 2014
I Have My Doubts

I Have My Doubts

I try my best at Aleph Blog to phrase things in a way that conveys my level level of certainty. ?But I have my doubts. ?Learning to live or deal with doubts is a hallmark of a good investor.

So as the stock price drops, drops, and drops again, what do I do? ?I reread the fundamental data to see what I might have missed. ?I read contrary opinions. ?Then I ask the question: knowing what you know now, would this qualify to be in the portfolio? ?If not, I sell it. ?In rare cases, if I think it is unfairly trashed, I will make it a double-weight. ?So far, I have not lost on anything I made a double-weight.

All investing involves doubt. ?We don’t know the future; we are making educated guesses at best. ?Am I sure about future earnings? ?No. ?Do I know what industries will outperform? ?No. ?In general I have done well with both, but it is an art, not a science.

I like my methods, partly because they are designed to live in a world of uncertainty. ? Why do I diversify? ?Uncertainty. ?Why do I do rebalancing trades? ?Uncertainty. ?Why do I limit my ability to trade, except at mid-quarter? ?Uncertainty. ?Why do I focus on value and use of free cash flow? Uncertainty.

I could go on and give the same answer: “Uncertainty.” ?My methods attempt to thrive in uncertainty by choosing factors and companies that seem to be able to do well given uncertainty.

I don’t always win, but my wins have exceeded my losses versus the market over the last 13 years. ?Does that mean I will do as well over the next 13 years? ?No. ?I mean, I hope I do as well, ?but there is no guarantee. ?The math on investor performance is such that Bill Gross and Warren Buffett could be random flukes. ?I don’t think they were lucky — I think they were skilled. ?But the statistics won’t prove it.

I also have my doubts about the US economy. ?Is it growing? ?Is the labor market healthy? ?I don’t know. ?Short-term data is volatile. ?Wise investors will wait and see, unless they have a differential insight that most others do not have.

I lean toward the idea that things are weak,but I don’t know that for sure. ?Thus I seek for contrary data.

This is the life of the investor who has ideas, but knows they might be wrong. ? What will happen to my overweight in Energy? ?Am I overexposed in Tech and Insurance?

In the end, doubts are a part of investing. ?You can’t avoid them, despite hard work in analysis, because you can never know what you missed.

That said, when my doubts grow, and the price has not fallen in tandem, I sell. ?My quarterly purge of a few companies lets me express my doubts, but in a reasoned way, not merely responding to a fall in the stock price.

Therefore, be reasoned in your decisions in stock investing, and always be forward-looking, because you can’t change the past.

Theme: Overlay by Kaira