Photo Credit: Matthias Ripp

Photo Credit: Matthias Ripp || Some bad ideas should be locked away…

Dan Primack of Fortune wrote in his daily email:

Saving unicorns from themselves? There was an interesting piece last week from Martin Peers in The Information (sub req), arguing that the private markets need some sort of shorting mechanism so that there is a check on unreasonable valuation inflation. It would make the market more efficient, Peers argues, even though implementation would require several structural changes (particularly to stock transfer rules). He writes:

“Private companies will probably resist the development of a short-selling market, given it would hurt valuations, which in turn can undermine the value of employee option programs, and give them less control over their shareholder group. But those risks are likely to be outweighed by the long term benefits of bringing more buyers into the market and ensuring the company’s valuation can be sustained outside of the constraints of the private market.”

Leaving out the technical difficulties — including the lack of ongoing price discovery — one big counter could be that shorts didn’t so much to stop the earlier dotcom bubble (which largely took place in the public markets).

Adam D’Augelli of True Ventures pointed me to a 2002 academic paper (Princeton/London Biz School) that found “hedge funds during the time of the technology bubble on the Nasdaq… were heavily tilted towards overpriced technology stocks.” They add that “arbitrageurs are concerned about attacking the bubble too early without support from their peers,” and that they’re more likely to ride the bubble until just a few months before the end.

That would seem to be too late to impose price discipline in private markets, but I’m curious in your thoughts. Does some sort of private shorting system make sense? And, if so, how would it be structured?

I’m going to take a stab at answering the final questions.  There is often a reason why the financial world is set up the way it is, and why truly helpful financial innovations are rare.  The answer is “no, we should not have any way of shorting private companies, and it is not a flaw in the system that we don’t have any easy way to do it.”

Two notes before I start: 1) I haven’t read the paper at The Information, because it is behind a paywall, but I don’t think I need to do so.  I think the answer is obvious.  2) I ran into this question answered at Quora.  The answers are pretty good in aggregate, but what exists here are my own thoughts to present the answer in what I hope is a simple manner.

What is required to have an effective means of shorting assets

  1. An asset must be capable of being easily transferred from one entity to another.
  2. Entities willing to lend the asset in exchange for some compensation over a given lending term.
  3. Entities willing to borrow the asset, put up collateral adequate to secure the asset, and then sell the asset to another entity.
  4. An entity or entities to oversee the transaction, provide custody of the collateral, transmit payments, assure return of the asset at the end of the lending term, and gauge the adequacy of collateral relative to the value of the asset.

Here’s the best diagram I saw on the internet to help describe it (credit to this Latvian website):

short selling

I’m leaving aside the concept of naked shorting, because there are a lot of bad implications to allowing a third party to create ownership interests in a firm, a power which is reserved for the firm itself.

The Troubles Associated with Shorting Private Assets

I can think of four troubles.  Here they are:

  1. The ability to sell, lend, or buy shares in a private company are limited by the private company.
  2. Lending over long terms with no continuous price mechanism to aid in the gradual adjustment of collateral could lead to losses for the lender if the borrower can’t put up additional capital.
  3. The asset lender can decide only to lend over lending terms that will likely be disadvantageous to the borrower.  Getting the asset returned at the end of the lending term could be problematic.
  4. It is difficult enough shorting relatively illiquid publicly traded assets.  Liquidity is required for any regular shorting to happen.

The first one is the killer.  There are no advantages to a private company to allow for the mechanisms needed to allow for shorting. That is one of the advantages of being private.  Information is not shared openly, and you can use the secrecy to aid your competitive edge.  Skeptical short-sellers would not be welcome.

The second problem is tough, because sometimes successive capital rounds are at considerably higher prices.  The borrower will likely not have enough slack assets to increase his collateral, and he will be forced to buy shares in the round to cover his short because of that.  The lender could find that the borrower cannot make good on the loan, and so the lender loses a portion of the value his ownership stake.

But imagining the first two problems away, problem three would still be significant.  If the term for lending were not all the way to the IPO, next capital round or dissolution/sale, at the end of the term, the borrower would have to look for someone to sell shares to him.  It is quite possible that no one would sell them at any reasonable price.  They know they have a forced buyer on their hands, and there could be informal collusion on the price of a sale.

Perhaps another way to put it is don’t play in a game where the other team has significant control over the rules of the game.  One of the reasons I say this is from my days of a bond manager.  There were a lot of games played in securities lending, and bonds are not the most liquid place to short assets.  I remember it being very difficult to get a bond back from an entity that borrowed it, and the custodian and trustee did not help much.  I also remember how we used to gauge the liquidity of bonds we lent out, and if one was particularly illiquid, we would always recall the bond before selling it, which would often make the price of the bond rise.  Games, games, games…

What Might Be Better

Perhaps using collateralized options or another type of derivative could allow bets to be taken, if the term extended all the way to the IPO, the next capital round, or dissolution/sale of the company.  The options would have to be limited to the posted collateral being the most the seller of the option could lose.  Some of the above four issues would still be in play at various points, but aside from issue one, this would minimize the troubles.

What Might Be Better Still

The value of the shorts is that they share information with the rest of the market that there is a bearish opinion on an asset.  Short-sellers are nice to have around, but not necessary for the asset pricing function.  It is not unreasonable to live with the problem that some assets will be overvalued in the intermediate-term, rather than set up a complex method to try to enable shorting.  As Ben Graham said:

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

The weighing machine will do its job soon enough, showing that the overvalued asset will never produce free cash adequate to justify its current high price.  Is it a trouble to wait for that to happen?  If you don’t own it, you shouldn’t care much.

If you want to short it, I’m not sure that will hasten the price adjustment process that much, unless you can convince the existing owners of the asset that it isn’t worth even the current price.  Given that buyers have convinced themselves to own the asset, because they think it will be worth more in the future, intellectually, convincing them that it is worth less is a tough sell.

In the end, only asset and liability cash flows count, regardless of what secondary buyers and sellers do.  Secondary trading does not affect the value of assets, though it may affect the perception of value in the short run.  Thus, you don’t need short sellers to aid in setting secondary market prices, but they are an aid there.  In the primary markets, where whole companies are bought and sold, the perceived cash return is all that matters.

Conclusion

Ergo, live with short run overvaluation in private markets.  It is a high quality problem.  Sell overvalued assets if you own them.  Watch if you don’t own them.  Shorting, even if possible, is not worth the bother.

Photo Credit: Alcino || What is the sound of negative one hand clapping?

Photo Credit: Alcino || What is the sound of negative one hand clapping?

As with many of my articles, this one starts with a personal story from my insurance business career (skip down four paragraphs to the end of the story if you want):

25 years ago, when it was still uncommon, I wanted to go to an executive course at the Wharton School for actuaries that wanted to better understand investment math and markets.  I went to my boss at AIG (a notably tight-fisted firm on expenses) and asked if the company would pay for me to go… it was an exclusive course, and very expensive compared to any other conference that I would ever go to again in my life.  I tried not to get my hopes up.

Lo, and behold!  AIG went for it!

A month later, I was with a bunch of bright actuaries at the Wharton School.  The first thing I noticed was aside from the compound interest math, and maybe some bond knowledge, the actuaries were rather light on investment knowledge, and I would bet that all of them had passed the Society of Actuaries investment course.  The second thing I noticed were some of the odd investments described in the syllabus: it was probably my first taste of derivative instruments.  At the ripe old age of 29, I was learning a lot, and possibly more than the rest of my classmates, because I had spent a lot of time studying investments already, both on an academic and practical basis.

I had already studied the pricing of stock options in school, so I was familiar with Black-Scholes.  (Trivia note: an actuary developed the same formula for valuing optionally terminable reinsurance treaties six years ahead of Black, Scholes and Merton.  That doesn’t even take into account Bachelier, who derived it 73 years earlier, but no one knew about it, because it was written in French.)  At this point, the professor left, and a grad student came in to teach us about the pricing of bond options.  At the end of his lesson, it was time for the class to have a break.  I went down to make a comment, and it went like this:

Me: You said that we have to adjust for the fact that interest rates can’t go negative.

Grad student: Of course.

Me: But interest rates could go negative.

GS: That’s ridiculous!  Why would you ever lend money and accept back less than you gave them, and lose the time value of money?!

Me: Almost of the time, you wouldn’t.  But imagine a scenario where the demand for loanable funds leaves interest rates near zero, but the times are insecure and violent, leaving you uncertain that if you stored your cash privately, you would run too large of a risk of having it stolen.  You need your cash in the future for a given project.  In this case, you would pay the bank to store your money.

GS: That’s an absurd scenario!  That could never happen!

Me: It’s unlikely, I admit, but I wouldn’t say that you can never have negative interest rates.

GS: I will say it again: You can NEVER have negative interest rates.

Me: Thanks, I guess.

Well, so much for the distant past.  Here is why I am writing this: yesterday, a friend of mine wrote me the following note:

Good evening.  I trust you had a blessed Lord’s Day in the new building. 

Talking bonds today with my Econ class.  Here’s our question. Other than playing a currency angle why would anyone buy European debt with a negative yield?  The Swiss and at least one other county sold 10 year notes with a negative yield.  Can you explain that?  No interest and less principle [sic] at the end.

Now, I didn’t quite get it perfectly right with the grad student at Wharton, but most of it comes down to:

  • Low demand for loanable funds, with low measured inflation, and
  • Security and illiquidity of the funds invested

The first one everyone gets — inflation is low, and few want to borrow, so interest rates are very low.  But that doesn’t explain how it can go negative.

Things are different for middle class individuals and large financial institutions.  Someone in the middle class facing negative interest rates from a checking or savings account could say: “Forget it.  I’m taking most of my money out of the bank, and storing it at home.”  Leaving aside the inconvenience of currency transaction reports if the amount is over $10,000, and worries over theft, he could take his money home and store it.  Note that he does have to run a risk of theft, though, so bringing the money home is not costless.

The bank has the same problem, but far larger.  If you don’t invest the money, where would you store it?  Could you even get enough currency delivered to do it?  if you had a vault large enough to store it, could you trust the guards?  Why make yourself a target?  If you don’t have a vault large enough to store it, you’re in the same set of problems that exist for those that warehouse precious metals, but with a far more liquid commodity.

Thus in a weak economic environment like this, with low inflation, banks and other financial institutions that want certainty of payment in the future are willing to pay interest to get their money back later.

Part of the problem here is that the fiat currencies of the world exist only to be units of account, and not stores of value.  Thus in this unusual environment, they behave like any other commodity, where the prices for futures are often higher than the current spot price, which is known as backwardation.  (Corrected from initial posting — i.e. it costs more to receive a given cash flow in the future than today, thus backwardation, not contango.)  The rates can’t get too negative, though, or some institutions will bite the bullet and store as much cash as they can, just as other commodities get stored.

To use another analogy, a while ago, some market observers couldn’t get why anyone would accept a negative yield on Treasury Inflation Protected Securities [TIPS].  They did so because they had few other choices for transferring money to the future while still having inflation protection.  Some people argued that they were locking in a loss.  My comment at the time was, “They’re trying to avoid a larger loss.”

Thus the difficulty of managing cash outside of the bond/loan markets in a depressed economy leads to negative interest rates.  The financial institutions may lose money in the process, but they are losing less money than if they tried to store and protect the money, if that could even be done.

Photo Credit: Roscoe Ellis

Photo Credit: Roscoe Ellis

I was reading an occasional blast email from my friend Tom Brakke, when he mentioned a free publication from Redington, a UK asset management firm that employs actuaries, among others. I was very impressed with what I read in the 32-page publication, and highly recommend it to those who select investment managers or create asset allocations, subject to some caveats that I will list later in this article.

In the UK, actuaries are trained to a higher degree to deal with investments than they are in the US. The Society of Actuaries could learn a lot from the Institute of Actuaries in that regard. As a former Fellow in the Society of Actuaries, I was in the vanguard of those trying to apply actuarial principles to risk management, both when I managed risks for insurance companies, worked for non-insurance organizations, and manage money for upper middle class individuals and small institutions. Redington’s thoughts are very much like mine in most ways. As I see it, the best things about their investment reasoning are:

  • Risk management must be both quantitative and qualitative.
  • Risk is measured relative to client needs and thus the risk of an investment is different for clients with different needs.  Universal measures of risk like Sharpe ratios, beta and standard deviation of asset returns are generally inferior measures of risk.  (DM: But they allow the academics to publish!  That’s why they exist!  Please fire consultants that use them.)
  • Risk control methods must be implemented by clients, and not countermanded if they want the risk control to work.
  • Shorting requires greater certainty than going long (DM: or going levered long).
  • Margin of safety is paramount in investing.
  • Risk control is more important when things are going well.
  • It is better to think of alternatives in terms of the specific risks that they pose, and likely future compensation, rather than look at track records.
  • Illiquidity should be taken on with caution, and with more than enough compensation for the loss of flexibility in future asset allocation decisions and cash flow needs.
  • Don’t merely avoid risk, but take risks where there is more than fair compensation for the risks undertaken.
  • And more… read the 32-page publication from Redington if you are interested.  You will have to register for emails if you do so, but they seem to be a classy firm that would honor a future unsubscribe request.  Me?  I’m looking forward to the next missive.

Now, here are a few places where I differ with them:

Caveats

  • Aside from pacifying clients with lower volatility, selling puts and setting stop-losses will probably lower returns for investors with long liabilities to fund, who can bear the added volatility.  Better to try to educate the client that they are likely leaving money on the table.  (An aside: selling short-duration at-the-money puts makes money on average, and the opposite for buying them.  Investors with long funding needs could dedicate 1% of their assets to that when the payment to do so is high — it’s another way of profiting from offering insurance in of for a crisis.)
  • Risk parity strategies are overrated (my arguments against it here: one, two).
  • I think that reducing allocations to risky assets when volatility gets high is the wrong way to do it.  Once volatility is high, most of the time the disaster has already happened.  If risky asset valuations show that the market is offering you significant deals, take the deals, even if volatility is high.  If volatility is high and valuations indicate that your opportunities are average to poor at best, yeah, get out if you can.  But focus on valuations relative to the risk of significant loss.
  • In general, many of their asset class articles give you a good taste of the issues at hand, but I would have preferred more depth at the cost of a longer publication.

But aside from those caveats, the publication is highly recommended.  Enjoy!

1. Recently I appeared on RT Boom/Bust again.  The interview lasts 6+ minutes.  Erin Ade and I discussed:

  • Who benefits from lower energy prices.
  • The No-Lose Line for owning bonds,
  • Whether you are compensated for inflation risks in long bonds
  • How much an average person should invest in stocks with any assets that they have after buying their own house.
  • The value of economics, or lack thereof, to investors today.

2. Also, I did an “expert interview” for Mint.com.  I answered the following questions:

  • What is your most basic advice on investing?
  • What can you tell young people to help them stay financially secure in their futures?
  • How can a potential investor go about finding the best investment professional to work with for his or her individual needs?
  • Please explain how being a good investor and a good businessman go hand in hand.
  • What is your favorite part of your job?
  • You clearly do a lot of reading, as seen from your book reviews. What other genres of books do you enjoy?

3. Finally, Aleph Blog was featured in a list of the Top 100 Insurance Blogs at number 29.  I find it interesting because my blog has maybe 18% of posts on insurance topics.  That said, I have a distinctive voice on insurance, because I will talk about consumer issues, and what are companies that might be worth owning.

Enjoy the overly long infographic.

Top 100 Insurance BlogsAn infographic by the team at Rebates zone

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I’m going to show you two portfolios — I’m not initially going to tell you much about either one, but then you can consider which one you might like better.  Here’s portfolio A:

LOSERS_9447_image002

And here is portfolio B:

WINNERS_3286_image002

There is one obvious difference in the two portfolios: portfolio B has gone up more than portfolio A in the past year.  But the hidden story is that portfolio A’s stocks have had price returns of -85% or worse over the past four years, whereas portfolio B’s stocks have has price returns of 1000% or better.  They are the only stocks with current market caps of over $100 million that meet those criteria.

Now, which one would you choose, if you had to hold one portfolio for the next year? The next four years?

Oddly, the right answer might be portfolio A.  Currently, I am reading through a book called Deep Value, which I will review in a week or two, and they cite in Chapter 5 some research by Thaler and De Bondt which indicates that portfolios that have gone through extreme failure tend to outperform portfolios that have gone through extreme success.

Though the momentum anomaly (weak as it has been recently) usually favors portfolios with stronger price momentum, the relationship breaks down over longer periods of time, and more severe moves, where mean-reversion tends to take over.  One thing that I can tell looking at the two portfolios — the expectations are a lot, lot higher for portfolio B than portfolio A.  Things only have to stop getting worse for there to some positive price action there.

Sometimes I like to run a screen for stocks have done badly over the last four years, but have begun to outperform over the last year.  This can point out areas that are still ignored by most of the market, but where trend may have shifted.  I’ll post that screen after my software has its weekly update on Saturday.  Until then.

PS — as an aside, it will be fun to review the relative performance of these portfolios.

Sometime in the next few weeks, I am going to dig into my pre-2003 [pre-RealMoney] files and see if there is anything there to share with readers.  Most of my best stories I have already told in my various series.  The one I will tell tonight I don’t think I have told.

In 1994, we had a problem at Provident Mutual’s Pension Division.  Our main external equity manager was having a very lousy year as value managers that focused on absolute yield were getting taken to the cleaners.  This was after a few years of poor performance — the joke was, given the great performance of the past, “Hey, can you develop the 19-year track record?”  (The last 5 years as a group were horrid, but the previous 14 were great.)

Aside: there aren’t many absolute yield managers in equities today.  Back when dividend yields were higher, and corporate bond yields were higher, both absolute and relative yield managers flourished as interest rates and dividend yields crested in the early 1980s, and the stocks paying high dividends got bid up as interest rates fell, much as the same thing happened to zero coupon and other noncallable long duration bonds.

The process started with a call from a manager of managers who proposed that we start up “multiple manger funds,” where we would be the manager of managers.

This offered several advantages:

  • It offered us an easy out with our long-held failing manager, because we are not firing them, just making them a portion of the assets in the value fund.
  • It would make eliminating them easier in a second step, with less PR damage.
  • It would make us look like we were taking action and control in a new way for our clients. (They loved it.)
  • As it was, we did a good job selecting managers, and the funds performed well.
  • We could negotiate lower fees with the managers,
  • It gave us a great marketing story.
  • Our margins and growth improved.

I was critical to the process, being the only member of the team with investment expertise.  Everyone else was a marketer or the divisional head.  (I take that back, one member of the marketing area was genuinely sharp with investments.)  After we chose the managers, I set the allocations.

Now onto tonight’s topic (what a long intro): At the beginning of our relationship with the manager of managers, they did a traditional holdings-based analysis of how a manager managed assets.  About one year into the process, they introduced returns-based style analysis.

Though the Wikipedia article just cited has a bevy of errors, it will still give you a flavor for what it is.  Let me give my own explanation:

It takes a lot of effort and wisdom to look at quarterly portfolio snapshots and analyze what a manager is doing.  You almost have to be as wise as the manager himself to analyze it, but many fund analysts developed the skill.

But returns-based style analysis offered the holy grail: we can understand what the manager is doing simply by comparing the returns of the manager versus returns on  variety of asset indexes, using constrained multiple regression.

The idea was this: the returns of a manager are equal to his alpha versus a composite index that best fits his performance.  Since we were dealing with long-only managers, the weights on the index components could not be negative.

The practical upshot to the manager of mangers was: “Whoopee!  We can analyze every manager under the sun just by looking at their return patterns.  No more time-consuming work.”

After the first meeting with the manager of managers, I expressed my doubts, and asked for a special meeting with their quants.  A week later, I had a meeting with a few members of their staff, of which one was the quant, a nice lady 10 years my junior, who I felt sorry for.  She started her presentation at a very basic level, and asked “Do you have any questions?”  I asked, “Isn’t this just an quadratic optimization problem where you are choosing weights on the convex hull?”  She paused, and said, “Oh, so you *do* understand this.”  The meeting ended son after that — we agreed on the math, and in math, there is no magic.

But that placed me on the warpath; I genuinely felt the advice we were getting had declined in value.  I wrote a 16-page report to our manager explaining why returns-based style analysis was inferior.

  • There is no way to correctly estimate error bounds, because of nonlinear constraints.  (Note: two years later, I guy came up with an approximate way to do it in an article in the Financial Analysts Journal.  I called him, and we had a great talk.  That said, approximate is approximate, and I haven’t seen any adopt it.)
  • Because many of the indexes are highly correlated with each other, small differences in manager returns make a huge difference in the weight calculated for each index.
  • If a manager is changing investments because he senses a factor like market cap size or valuation is cheap, it will get interpreted as a change in his index, and will not come out as alpha, but as beta.
  • If I don’t believe that the CAPM and MPT are valid, why should I believe this monstrosity?
  • And more… I hope I find my 16-page paper in my files.

After six more months we terminated the manager of managers, and hired a better one.

  • Lower fees
  • Lower fees from managers (they had greater bargaining power)
  • We reduced our fees to clients
  • Better marketing name
  • Holdings based manager analysis

After that, things were much better, and we continued to grow.

My years at Provident Mutual were exceedingly fruitful — this was just one of many areas where my efforts paid off well.

All that said, there is no way to fix returns-based style analysis.  It is a bogus concept and needs to be abandoned.  Those who use it do not grasp the limits of econometrics, and are Sorcerer’s apprentices.

PS — Need I mention that the originator of the idea, Bill Sharpe, is not all that sharp with econometrics?  He’s a bright guy, but it is not his strong suit.

PPS — there are not many actuaries with a background in econometrics.  That is why I have written this.

One of the things that annoys me about the concept of the equity premium is that it is an academic creation that does not grasp the structures of the markets.  Send the academics to be bond and equity portfolio managers for a time, and maybe we would get a better theory than Modern Portfolio Theory [MPT].

Here is the first thing that is wrong with MPT — it doesn’t understand the bond market.  The best estimate of what bonds will return over time is the current yield less expected losses from defaults and optionality.  Hold a bond to its maturity, and the standard deviation of returns is low, over the full time horizon.

Thinking about bonds in the current environment, virtually nothing is earned with high-quality short-dated debt.  The yield curve is still relatively steep, as people expect the economy and lending to pick up.

Think for a moment. what is a longer asset, a corporate bond, or the stock of the same company?  The stock is the longer asset, because the cash flows of the business in question potentially stretch far longer than the maturity of the corporate debt, at least in most cases.

Also think, in a bad scenario, where insolvency is possible, who has the better claim: the equity or the unsecured debt?  The unsecured debt, of course.

Longer assets in general possess more risk and should carry higher yields to induce people to take those risks.  Inverted yield curves are exceptions.  Also in general, longer corporate bonds have higher spreads over Treasuries most of the time, than shorter corporate bonds.

The one significant advantage that equities have over corporate bonds is that of control.  Increases in earnings go to the stockholders.  Buyouts go to the stockholders.  Bondholders get paid off at best.

That said, in the losing scenario, bondholders get back 40% of par on average, while stockholders get little if anything.

I believe that the equity of a company needs to be priced to return more than the longest unsecured debt or preferred stock of the company.

Thus when I think about MPT, I think they are positing an asset-liability mismatch, comparing T-bills versus a long asset, common stocks.  The comparison should be broken down into several spreads:

  • T-bills vs T-notes/bonds of the longest maturity issued by companies like them.
  • Corporate bond yields minus Treasury yields at the same maturity.
  • The earnings yield of the stock minus the corporate bond yield.

This takes apart the seemingly simple MPT calculation, revealing the complexity within, helping to explain why beta doesn’t work.  It embeds an asset-liability mismatch.  Stocks are long term, T-bills are not.  There is no reason why their returns should be considered together, without a model of yield curve spreads, corporate spreads, and equity financing spreads.

That’s a sketch of the correct model, now who wants to try to build it out?

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.

Last night I was at the Towson University International Markets Summit.  I’m grateful to the students for inviting me, as it is an honor.  During the presentation, I mentioned the book “Accounting for Value” by Stephen Penman.  I reviewed the book two years ago.  A great book, and one that should lead readers to modify their views on value investing.

But one aspect of the book was easy to implement, he cited his paper that you can read here, Returns to Buying Earnings and Book Value: Accounting for Growth and Risk.  Buy the stocks that are the cheapest as measured by the highest quintiles of book value to price, and trailing twelve month earnings per share to price.

I ran this analysis for all US-traded stocks with over $100 million of market capitalization.  Here are the results:

CompanyTickerIndustryCountryB/PE/P
Petrobras Argentina SA ADRPZE0606 – Oil & Gas – IntegratedArgentina

1.26

7.95

Pampa Energia S.A. (ADR)PAM1203 – Electric UtilitiesArgentina

0.83

11.41

OMV AG (ADR)OMVKY0609 – Oil & Gas OperationsAustria

1.13

11.33

Validus Holdings, Ltd.VR0709 – Insurance (Life)Bermuda

1

13.3

Everest Re Group LtdRE0715 – Insurance (Property & Casualty)Bermuda

0.88

15.35

Maiden Holdings, Ltd.MHLD0715 – Insurance (Property & Casualty)Bermuda

0.93

10.11

Montpelier Re Holdings Ltd.MRH0715 – Insurance (Property & Casualty)Bermuda

0.99

11.83

Axis Capital Holdings LimitedAXS0715 – Insurance (Property & Casualty)Bermuda

1.01

13.2

Platinum Underwriters HoldingsPTP0715 – Insurance (Property & Casualty)Bermuda

1.02

11.25

White Mountains Insurance GrouWTM0715 – Insurance (Property & Casualty)Bermuda

1.07

8.49

Aspen Insurance Holdings LimitAHL0715 – Insurance (Property & Casualty)Bermuda

1.12

9.61

Assured Guaranty Ltd.AGO0715 – Insurance (Property & Casualty)Bermuda

1.18

18.59

Partnerre LtdPRE0715 – Insurance (Property & Casualty)Bermuda

1.23

10.75

Argo Group International HoldiAGII0715 – Insurance (Property & Casualty)Bermuda

1.27

11.55

Endurance Specialty Holdings LENH0715 – Insurance (Property & Casualty)Bermuda

1.31

12.55

Gerdau SA (ADR)GGB0121 – Iron & SteelBrazil

1.32

6.84

Gafisa SA (ADR)GFA0215 – Construction ServicesBrazil

2.04

15.52

Petroleo Brasileiro PetrobrasPBR0606 – Oil & Gas – IntegratedBrazil

1.67

13.2

Telefonica Brasil SA (ADR)VIV0915 – Communications ServicesBrazil

0.85

7.58

Companhia de Saneamento BasicoSBS1209 – Water UtilitiesBrazil

0.89

8.57

Endeavour Silver CorpEXK0118 – Gold & SilverCanada

0.89

9.9

Teck Resources Ltd (USA)TCK0124 – Metal MiningCanada

1.33

6.84

TransGlobe Energy CorporationTGA0609 – Oil & Gas OperationsCanada

0.85

10.03

Granite Real Estate InvestmentGRP.U0933 – Real Estate OperationsCanada

0.87

7.53

Brookfield Office Properties IBPO0933 – Real Estate OperationsCanada

1.08

10.08

Boardwalk REIT (USA)BOWFF0933 – Real Estate OperationsCanada

1.14

11.54

Greenlight Capital Re, Ltd.GLRE0715 – Insurance (Property & Casualty)Cayman Islands

0.9

19.45

Sinopec Shanghai PetrochemicalSHI0103 – Chemical ManufacturingChina

1.52

11

Yongye International, IncYONG0103 – Chemical ManufacturingChina

1.65

43.36

China XD Plastics Co LtdCXDC0109 – Containters & PackagingChina

1.13

22.71

Lihua International IncLIWA0127 – Misc. Fabricated ProductsChina

2.31

41.21

Xinyuan Real Estate Co., Ltd.XIN0215 – Construction ServicesChina

5.22

42.83

China Automotive Systems, Inc.CAAS0415 – Auto & Truck PartsChina

0.99

11.04

China Petroleum & Chemical CorSNP0609 – Oil & Gas OperationsChina

0.87

10.11

Concord Medical Services HldgCCM0806 – Healthcare FacilitiesChina

3.06

12.45

China Telecom Corporation LimiCHA0915 – Communications ServicesChina

1.17

7.03

Xueda Education Group (ADR)XUE0969 – SchoolsChina

0.84

6.63

Changyou.Com Ltd (ADR)CYOU1018 – Computer ServicesChina

1.23

20.92

Nam Tai Electronics, Inc.NTE1024 – Electronic Instruments & ControlsChina

1.11

21.58

Jinpan International LimitedJST1024 – Electronic Instruments & ControlsChina

1.7

13.36

Semiconductor Manufacturing InSMI1033 – SemiconductorsChina

0.96

8.06

China Eastern Airlines Corp. LCEA1106 – AirlineChina

1.05

12.11

China Southern Airlines Co LtdZNH1106 – AirlineChina

1.7

13.19

Guangshen Railway Co. Ltd (ADRGSH1112 – RailroadsChina

1.34

6.64

Axa SA (ADR)AXAHY0709 – Insurance (Life)France

1.19

9.46

Volkswagen AG (ADR)VLKAY0412 – Auto & Truck ManufacturersGermany

0.94

9.73

Allianz SE (ADR)AZSEY0715 – Insurance (Property & Casualty)Germany

0.92

11.08

E.ON SE (ADR)EONGY1203 – Electric UtilitiesGermany

1.28

8.17

National Bank of Greece (ADR)NBG0727 – Regional BanksGreece

2

131.03

Capital Product Partners L.P.CPLP1118 – Water TransportationGreece

0.83

10.36

Safe Bulkers, Inc.SB1118 – Water TransportationGreece

0.83

11.99

StealthGas Inc.GASS1118 – Water TransportationGreece

1.32

9.08

Navios Maritime Holdings Inc.NM1118 – Water TransportationGreece

1.32

13.4

Sun Hung Kai Properties LimiteSUHJY0215 – Construction ServicesHong Kong

1.44

15.22

Hysan Development Company LimiHYSNY0215 – Construction ServicesHong Kong

1.66

20.18

Tai Cheung Holdings Ltd (ADR)TAICY0215 – Construction ServicesHong Kong

2.11

34.38

Le Gaga Holdings Ltd ADRGAGA0509 – CropsHong Kong

1.55

14.63

Bank of East Asia Ltd. (ADR),BKEAY0727 – Regional BanksHong Kong

0.85

8.78

Iao Kun Group Holding Co LtdIKGH0912 – Casinos & GamingHong Kong

1.36

12.89

Cheung Kong (Holdings) LimitedCHEUY0933 – Real Estate OperationsHong Kong

1.16

11.07

Seaspan CorporationSSW1118 – Water TransportationHong Kong

1.05

15.2

Magyar Telekom Tavkozlesi NyrtMYTAY0915 – Communications ServicesHungary

1.34

6.66

XL Group plcXL0715 – Insurance (Property & Casualty)Ireland

1.12

11.72

Fly Leasing Ltd(ADR)FLY0939 – Rental & LeasingIreland

1.3

17.39

Ellomay Capital Ltd.ELLO1033 – SemiconductorsIsrael

0.93

10.95

FUJIFILM Holdings Corp. (ADR)FUJIY0112 – Fabricated Plastic & RubberJapan

1.55

6.64

Kobe Steel, Ltd. (ADR)KBSTY0121 – Iron & SteelJapan

1.47

14.7

Mitsui & Co Ltd (ADR)MITSY0218 – Misc. Capital GoodsJapan

1.33

13.26

Wacoal Holdings Corporation (AWACLY0403 – Apparel/AccessoriesJapan

1.45

7.14

Toyota Motor Corp (ADR)TM0412 – Auto & Truck ManufacturersJapan

0.82

10.5

Honda Motor Co Ltd (ADR)HMC0412 – Auto & Truck ManufacturersJapan

0.92

7.61

Nissan Motor Co., Ltd. (ADR)NSANY0412 – Auto & Truck ManufacturersJapan

1.11

10.04

Nomura Holdings, Inc. (ADR)NMR0718 – Investment ServicesJapan

1.09

10.18

Mizuho Financial Group Inc. (AMFG0727 – Regional BanksJapan

1.13

14.9

Sumitomo Mitsui Financial Grp,SMFG0727 – Regional BanksJapan

1.28

16.67

Mitsubishi UFJ Financial GroupMTU0727 – Regional BanksJapan

1.53

13.67

Nippon Telegraph & Telephone CNTT0915 – Communications ServicesJapan

1.39

8.93

ORIX Corporation (ADR)IX0939 – Rental & LeasingJapan

0.98

7.59

Ternium S.A. (ADR)TX0121 – Iron & SteelLuxembourg

0.89

7.61

ING Groep NV (ADR)ING0709 – Insurance (Life)Netherlands

1.14

9.46

VimpelCom Ltd (ADR)VIP0915 – Communications ServicesNetherlands

0.93

13.67

ASM International NV (ADR)ASMI1033 – SemiconductorsNetherlands

1.01

74.95

Petroleum Geo-Services ASA (ADPGSVY0612 – Oil Well Services & EquipmentNorway

0.81

9.85

Banco Latinoamericano Comerc EBLX0727 – Regional BanksPanama

0.85

8.39

Compania de Minas BuenaventuraBVN0118 – Gold & SilverPeru

1.18

10.05

OFG BancorpOFG0727 – Regional BanksPuerto Rico

0.93

11.04

Popular IncBPOP0727 – Regional BanksPuerto Rico

1.52

19.77

Triple-S Management Corp.GTS0806 – Healthcare FacilitiesPuerto Rico

1.79

12.52

LUKOIL (ADR)LUKOY0606 – Oil & Gas – IntegratedRussian Federation

1.91

19.08

China Yuchai International LimCYD0218 – Misc. Capital GoodsSingapore

1.2

15.34

Net 1 UEPS Technologies IncUEPS0703 – Consumer Financial ServicesSouth Africa

0.91

6.79

POSCO (ADR)PKX0121 – Iron & SteelSouth Korea

1.72

6.97

Shinhan Financial Group Co., LSHG0727 – Regional BanksSouth Korea

1.24

8.42

Woori Finance Holdings Co., LtWF0727 – Regional BanksSouth Korea

1.91

9.86

SK Telecom Co., Ltd. (ADR)SKM0915 – Communications ServicesSouth Korea

0.89

11.87

Repsol SA (ADR)REPYY0606 – Oil & Gas – IntegratedSpain

1.06

7.93

Transocean LTDRIG0612 – Oil Well Services & EquipmentSwitzerland

1.14

9.54

ACE LimitedACE0715 – Insurance (Property & Casualty)Switzerland

0.84

10.92

Allied World Assurance Co HoldAWH0715 – Insurance (Property & Casualty)Switzerland

1

11.73

United Microelectronics Corp (UMC1033 – SemiconductorsTaiwan

1.3

8.02

Silicon Motion Technology CorpSIMO1033 – SemiconductorsTaiwan

1.96

19.74

BP plc (ADR)BP0606 – Oil & Gas – IntegratedUnited Kingdom

0.85

15.1

Noble Corporation PLCNE0612 – Oil Well Services & EquipmentUnited Kingdom

1.08

10.05

Subsea 7 SA (ADR)SUBCY0612 – Oil Well Services & EquipmentUnited Kingdom

1.09

7.02

ENSCO PLCESV0612 – Oil Well Services & EquipmentUnited Kingdom

1.11

12.2

Rowan Companies PLCRDC0612 – Oil Well Services & EquipmentUnited Kingdom

1.3

6.71

HSBC Holdings plc (ADR)HSBC0727 – Regional BanksUnited Kingdom

0.94

8.09

Vodafone Group Plc (ADR)VOD0915 – Communications ServicesUnited Kingdom

1.47

31.68

J Sainsbury plc (ADR)JSAIY0957 – Retail (Grocery)United Kingdom

0.96

10.57

Global Ship Lease, Inc.GSL1118 – Water TransportationUnited Kingdom

2.11

16.62

Cliffs Natural Resources IncCLF0124 – Metal MiningUnited States

1.87

12.76

M.D.C. Holdings, Inc.MDC0215 – Construction ServicesUnited States

0.91

23.28

M/I Homes IncMHO0215 – Construction ServicesUnited States

0.92

27.21

URS CorpURS0215 – Construction ServicesUnited States

1.16

7.02

Mestek, Inc.MCCK0218 – Misc. Capital GoodsUnited States

0.98

11.53

General Motors CompanyGM0412 – Auto & Truck ManufacturersUnited States

0.83

7.98

Rocky Brands IncRCKY0418 – FootwearUnited States

1.21

6.82

Johnson Outdoors Inc.JOUT0430 – Recreational ProductsUnited States

0.87

7.83

LeapFrog Enterprises, Inc.LF0430 – Recreational ProductsUnited States

0.89

17.58

Yasheng GroupHERB0509 – CropsUnited States

11.77

70.4

Seaboard CorporationSEB0515 – Food ProcessingUnited States

0.82

6.77

John B. Sanfilippo & Son, Inc.JBSS0515 – Food ProcessingUnited States

0.84

8.55

Omega Protein CorporationOME0515 – Food ProcessingUnited States

1.01

12.24

Ennis, Inc.EBF0518 – Office SuppliesUnited States

0.92

8.43

ACCO Brands CorporationACCO0518 – Office SuppliesUnited States

1.01

11.07

Universal CorpUVV0524 – TobaccoUnited States

0.93

10.8

Hess Corp.HES0609 – Oil & Gas OperationsUnited States

0.86

12.86

Approach Resources Inc.AREX0609 – Oil & Gas OperationsUnited States

0.93

9.48

Equal Energy Ltd. (USA)EQU0609 – Oil & Gas OperationsUnited States

0.96

9.38

Sandridge Mississippian TrustSDT0609 – Oil & Gas OperationsUnited States

1.49

63.59

PHI Inc.PHII0612 – Oil Well Services & EquipmentUnited States

0.85

8.96

Medallion Financial CorpTAXI0703 – Consumer Financial ServicesUnited States

0.94

9.13

CIT Group Inc.CIT0703 – Consumer Financial ServicesUnited States

0.96

7.26

Goldman Sachs Group IncGS0703 – Consumer Financial ServicesUnited States

0.97

10.16

Ellington Financial LLCEFC0703 – Consumer Financial ServicesUnited States

1.04

13.7

Walter Investment Management CWAC0703 – Consumer Financial ServicesUnited States

1.11

23.94

Chimera Investment CorporationCIM0703 – Consumer Financial ServicesUnited States

1.12

11.58

PHH CorporationPHH0703 – Consumer Financial ServicesUnited States

1.19

9.68

EZCORP IncEZPW0703 – Consumer Financial ServicesUnited States

1.58

7.55

WellPoint IncWLP0706 – Insurance (Accident & Health)United States

0.89

9.52

Employers Holdings, Inc.EIG0706 – Insurance (Accident & Health)United States

0.93

10.46

Reinsurance Group of America IRGA0706 – Insurance (Accident & Health)United States

1.08

7.49

American Equity Investment LifAEL0709 – Insurance (Life)United States

0.86

16.77

Protective Life Corp.PL0709 – Insurance (Life)United States

0.92

9.76

FBL Financial GroupFFG0709 – Insurance (Life)United States

0.96

9.73

Unum GroupUNM0709 – Insurance (Life)United States

0.98

9.55

Assurant, Inc.AIZ0709 – Insurance (Life)United States

1

9.67

Lincoln National CorporationLNC0709 – Insurance (Life)United States

1.07

9.76

Symetra Financial CorporationSYA0709 – Insurance (Life)United States

1.23

8.64

CNO Financial Group IncCNO0709 – Insurance (Life)United States

1.29

12.39

Imperial Holdings, Inc.IFT0709 – Insurance (Life)United States

1.38

37.03

National Western Life InsurancNWLI0709 – Insurance (Life)United States

1.63

10.85

Genworth Financial IncGNW0709 – Insurance (Life)United States

1.72

6.87

Fortegra Financial CorpFRF0712 – Insurance (Miscellaneous)United States

1.28

8.18

Allstate Corporation, TheALL0715 – Insurance (Property & Casualty)United States

0.82

8.75

HCC Insurance Holdings, Inc.HCC0715 – Insurance (Property & Casualty)United States

0.82

8.92

State Auto Financial CorpSTFC0715 – Insurance (Property & Casualty)United States

0.83

6.92

Stewart Information Services CSTC0715 – Insurance (Property & Casualty)United States

0.83

7.96

Safety Insurance Group, Inc.SAFT0715 – Insurance (Property & Casualty)United States

0.84

7.39

Investors Title CompanyITIC0715 – Insurance (Property & Casualty)United States

0.86

9.85

First American Financial CorpFAF0715 – Insurance (Property & Casualty)United States

0.87

6.75

American Financial Group IncAFG0715 – Insurance (Property & Casualty)United States

0.87

9.15

ProAssurance CorporationPRA0715 – Insurance (Property & Casualty)United States

0.87

10.86

Old Republic International CorORI0715 – Insurance (Property & Casualty)United States

0.88

10.53

Selective Insurance GroupSIGI0715 – Insurance (Property & Casualty)United States

0.9

8.51

Horace Mann Educators CorporatHMN0715 – Insurance (Property & Casualty)United States

0.91

9.6

Kemper CorpKMPR0715 – Insurance (Property & Casualty)United States

0.95

9.64

Baldwin & Lyons IncBWINB0715 – Insurance (Property & Casualty)United States

0.98

9.42

Hanover Insurance Group, Inc.,THG0715 – Insurance (Property & Casualty)United States

0.99

9.44

Alleghany CorporationY0715 – Insurance (Property & Casualty)United States

1.01

9.15

EMC Insurance Group Inc.EMCI0715 – Insurance (Property & Casualty)United States

1.02

9.88

United Fire Group, Inc.UFCS0715 – Insurance (Property & Casualty)United States

1.05

10.3

Navigators Group, Inc, TheNAVG0715 – Insurance (Property & Casualty)United States

1.09

7.68

Cna Financial CorpCNA0715 – Insurance (Property & Casualty)United States

1.1

8.15

American International Group IAIG0715 – Insurance (Property & Casualty)United States

1.34

12

American National Insurance CoANAT0715 – Insurance (Property & Casualty)United States

1.4

8.99

MBIA Inc.MBI0715 – Insurance (Property & Casualty)United States

1.45

10.86

FBR & CoFBRC0718 – Investment ServicesUnited States

1.03

29.21

KKR Financial Holdings LLCKFN0718 – Investment ServicesUnited States

1.05

11.24

NASDAQ OMX Group, Inc.NDAQ0718 – Investment ServicesUnited States

1.13

6.66

Piper Jaffray CompaniesPJC0718 – Investment ServicesUnited States

1.17

7.42

Primus Guaranty, Ltd.PRSG0718 – Investment ServicesUnited States

1.25

50.12

Arlington Asset Investment CorAI0718 – Investment ServicesUnited States

1.28

11.6

Oppenheimer Holdings Inc. (USAOPY0718 – Investment ServicesUnited States

1.34

6.71

CIFC CorpCIFC0718 – Investment ServicesUnited States

1.73

9.51

JPMorgan Chase & Co.JPM0724 – Money Center BanksUnited States

0.98

7.39

First National Bank AlaskaFBAK0727 – Regional BanksUnited States

0.81

6.61

Old National BancorpONB0727 – Regional BanksUnited States

0.81

7

Sandy Spring Bancorp Inc.SASR0727 – Regional BanksUnited States

0.81

7.28

TowneBankTOWN0727 – Regional BanksUnited States

0.81

7.52

Fidelity Southern CorporationLION0727 – Regional BanksUnited States

0.81

10.35

Central Pacific Financial CorpCPF0727 – Regional BanksUnited States

0.81

21.18

Cascade BancorpCACB0727 – Regional BanksUnited States

0.81

22.18

LCNB Corp.LCNB0727 – Regional BanksUnited States

0.82

6.69

S & T Bancorp IncSTBA0727 – Regional BanksUnited States

0.83

7.38

Great Southern Bancorp, Inc.GSBC0727 – Regional BanksUnited States

0.83

8.55

ESB Financial CorporationESBF0727 – Regional BanksUnited States

0.84

6.88

WesBanco, Inc.WSBC0727 – Regional BanksUnited States

0.84

7.15

Trustmark CorpTRMK0727 – Regional BanksUnited States

0.84

7.28

KeyCorpKEY0727 – Regional BanksUnited States

0.84

7.3

MidWestOne Financial Group, InMOFG0727 – Regional BanksUnited States

0.84

8.77

Bar Harbor BanksharesBHB0727 – Regional BanksUnited States

0.84

9.1

Seacoast Banking Corporation oSBCF0727 – Regional BanksUnited States

0.84

21.31

First Bancorp IncFNLC0727 – Regional BanksUnited States

0.85

7.39

Mercantile Bank Corp.MBWM0727 – Regional BanksUnited States

0.85

9.45

Heritage Financial Group IncHBOS0727 – Regional BanksUnited States

0.86

7.23

MainSource Financial Group IncMSFG0727 – Regional BanksUnited States

0.86

7.33

Norwood Financial CorporationNWFL0727 – Regional BanksUnited States

0.86

7.9

Fulton Financial CorpFULT0727 – Regional BanksUnited States

0.87

6.82

Pulaski Financial CorpPULB0727 – Regional BanksUnited States

0.88

6.85

Washington Federal Inc.WAFD0727 – Regional BanksUnited States

0.88

6.87

International Bancshares CorpIBOC0727 – Regional BanksUnited States

0.89

7.93

Lakeland Bancorp, Inc.LBAI0727 – Regional BanksUnited States

0.9

6.84

Northrim BanCorp, Inc.NRIM0727 – Regional BanksUnited States

0.9

7.67

BCB Bancorp, Inc.BCBP0727 – Regional BanksUnited States

0.9

7.91

ACNB CorporationACNB0727 – Regional BanksUnited States

0.9

8.14

Intermountain Community BancorIMCB0727 – Regional BanksUnited States

0.9

9.74

First Financial CorpTHFF0727 – Regional BanksUnited States

0.91

7.44

Farmers & Merchants Bancorp InFMAO0727 – Regional BanksUnited States

0.91

7.8

Southeastern Bank Financial CoSBFC0727 – Regional BanksUnited States

0.91

11.29

Isabella Bank CorpISBA0727 – Regional BanksUnited States

0.92

6.95

First Merchants CorporationFRME0727 – Regional BanksUnited States

0.93

6.76

Wintrust Financial CorpWTFC0727 – Regional BanksUnited States

0.93

7.12

First Citizens BancShares Inc.FCNCA0727 – Regional BanksUnited States

0.94

7.57

Firstbank CorporationFBMI0727 – Regional BanksUnited States

0.94

8.03

Century Bancorp, Inc.CNBKA0727 – Regional BanksUnited States

0.95

10.72

Central Valley Community BancoCVCY0727 – Regional BanksUnited States

0.96

6.62

PNC Financial Services Group IPNC0727 – Regional BanksUnited States

0.96

8.94

American National BankShares IAMNB0727 – Regional BanksUnited States

0.96

9.01

Capital One Financial Corp.COF0727 – Regional BanksUnited States

0.97

9.95

Provident Financial Services,PFS0727 – Regional BanksUnited States

0.99

6.92

NASB Financial, Inc.NASB0727 – Regional BanksUnited States

0.99

11

Flagstar Bancorp IncFBC0727 – Regional BanksUnited States

1.01

21.87

First Defiance FinancialFDEF0727 – Regional BanksUnited States

1.02

8.35

MidSouth Bancorp, Inc.MSL0727 – Regional BanksUnited States

1.03

6.96

C&F Financial CorpCFFI0727 – Regional BanksUnited States

1.04

13.4

First Community Bancshares IncFCBC0727 – Regional BanksUnited States

1.05

7.25

Provident Financial Holdings,PROV0727 – Regional BanksUnited States

1.05

8.78

Chemung Financial Corp.CHMG0727 – Regional BanksUnited States

1.06

6.7

Territorial Bancorp IncTBNK0727 – Regional BanksUnited States

1.08

7.23

Berkshire Hills Bancorp, Inc.BHLB0727 – Regional BanksUnited States

1.09

6.61

Regions Financial CorporationRF0727 – Regional BanksUnited States

1.09

7.73

Old Second Bancorp Inc.OSBC0727 – Regional BanksUnited States

1.1

113.32

Farmers Capital Bank CorpFFKT0727 – Regional BanksUnited States

1.14

7.7

Premier Financial Bancorp, IncPFBI0727 – Regional BanksUnited States

1.18

10.46

FIRST FINANCIAL NORTHWEST, INCFFNW0727 – Regional BanksUnited States

1.18

14.46

Intervest Bancshares CorpIBCA0727 – Regional BanksUnited States

1.19

8.37

MBT Financial Corp.MBTF0727 – Regional BanksUnited States

1.23

28.89

New Hampshire Thrift BancshareNHTB0727 – Regional BanksUnited States

1.26

7.66

MVB Financial CorpMVBF0727 – Regional BanksUnited States

1.29

10.03

Citigroup IncC0727 – Regional BanksUnited States

1.3

8.73

Susquehanna Bancshares IncSUSQ0727 – Regional BanksUnited States

1.31

8.42

QCR Holdings, Inc.QCRH0727 – Regional BanksUnited States

1.44

12.41

First Niagara Financial GroupFNFG0727 – Regional BanksUnited States

1.45

8.28

First Citizens Bancorporation,FCBN0727 – Regional BanksUnited States

1.5

9.95

Farmers & Merchants Bank (LongFMBL0909 – Business ServicesUnited States

0.98

8.05

Kelly Services, Inc.KELYA0909 – Business ServicesUnited States

1.02

7.21

Lakes Entertainment, Inc.LACO0912 – Casinos & GamingUnited States

1.01

14.29

Black Box CorporationBBOX0915 – Communications ServicesUnited States

1.38

7.36

Iridium Communications Inc.IRDM0915 – Communications ServicesUnited States

1.72

10.16

Courier CorporationCRRC0927 – Printing & PublishingUnited States

0.86

6.72

CSS Industries IncCSS0927 – Printing & PublishingUnited States

1.08

7.53

Blackstone Mortgage Trust IncBXMT0933 – Real Estate OperationsUnited States

0.87

145.18

New York Mortgage Trust IncNYMT0933 – Real Estate OperationsUnited States

0.88

14.44

PennyMac Mortgage Investment TPMT0933 – Real Estate OperationsUnited States

0.89

13.15

Starwood Property Trust, Inc.STWD0933 – Real Estate OperationsUnited States

0.94

7.84

Capstead Mortgage CorporationCMO0933 – Real Estate OperationsUnited States

0.99

7.31

Dynex Capital IncDX0933 – Real Estate OperationsUnited States

1.02

12.82

Two Harbors Investment CorpTWO0933 – Real Estate OperationsUnited States

1.04

16.24

American Capital Agency Corp.AGNC0933 – Real Estate OperationsUnited States

1.05

14.81

Apollo Commercial Real Est. FiARI0933 – Real Estate OperationsUnited States

1.09

7.4

MFA Financial, Inc.MFA0933 – Real Estate OperationsUnited States

1.09

9.89

Anworth Mortgage Asset CorporaANH0933 – Real Estate OperationsUnited States

1.1

9.07

Resource Capital Corp.RSO0933 – Real Estate OperationsUnited States

1.16

9.91

Rent-A-Center IncRCII0939 – Rental & LeasingUnited States

0.97

8.84

Willis Lease Finance CorporatiWLFC0939 – Rental & LeasingUnited States

1.31

9.51

Biglari Holdings IncBH0942 – RestaurantsUnited States

0.83

23.81

Rick’s Cabaret Int’l, IncRICK0942 – RestaurantsUnited States

0.92

8.66

PCM IncPCMI0948 – Retail (Catalog & Mail Order)United States

1.09

7.11

Trans World Entertainment CorpTWMC0963 – Retail (Specialty Non-Apparel)United States

1.68

7.37

TravelCenters of America LLCTA0963 – Retail (Specialty Non-Apparel)United States

1.76

7.55

Tech Data CorpTECD0966 – Retail (Technology)United States

0.87

7.43

hhgregg, Inc.HGG0966 – Retail (Technology)United States

1.32

6.67

Ingram Micro Inc.IM1015 – Computer PeripheralsUnited States

0.84

6.68

Key Tronic CorporationKTCC1015 – Computer PeripheralsUnited States

0.93

9.42

Xerox CorpXRX1018 – Computer ServicesUnited States

0.89

8.31

VOXX International CorpVOXX1024 – Electronic Instruments & ControlsUnited States

1.57

10.96

OmniVision Technologies, Inc.OVTI1033 – SemiconductorsUnited States

0.91

8.46

Benchmark Electronics, Inc.BHE1033 – SemiconductorsUnited States

1

9

JetBlue Airways CorporationJBLU1106 – AirlineUnited States

0.85

6.84

Republic Airways Holdings Inc.RJET1106 – AirlineUnited States

1.42

12.1

SkyWest, Inc.SKYW1106 – AirlineUnited States

2.19

8.93

Atlas Air Worldwide Holdings,AAWW1109 – Misc. TransportationUnited States

1.49

10.44

International Shipholding CorpISH1118 – Water TransportationUnited States

1.67

7.41

Gas Natural IncEGAS1206 – Natural Gas UtilitiesUnited States

0.89

6.75

What are my surprises here?

  • My but there are a lot of foreign companies in this list, far more as a percentage than the 3575 total companies I started with.  It seems that foreign companies are cheap.
  • Now, that said, accounting standards are tighter in the US than elsewhere, and particularly, be careful on Chinese companies.  Many of them are scams.
  • There are a lot of financial companies listed.  I would note that earnings quality for financial companies is often poor, so don’t go “hog wild” buying financial companies.

All that said, this could be a good list for starting due diligence, and I will use at least some of this in my next selection of companies for my clients.

What’s that, you say?  Do I and my clients own any of these firms?  Yes we do.  Of the 38 stocks in my portfolio, 11 of them pass this screen, and here is the summary:

Full Disclosure: Long ENH, SNP, GTS, LUKOY, BP, ESV, RGA, AIZ, NWLI, IM, XRX

The growth of corporations is always constrained by something.  The trick is figuring out what the “something” is.  Tonight, I am here to simplify it for you.

Financial businesses that are regulated

We value these via book value or tangible book value.  Capital levels constrain business growth, so look at the return on equity to help modify what the proper valuation level should be.  Book value and return on equity are what govern.

Non-financial businesses that are regulated, such as utilities 

Look to the rate base that the regulators use.  Book value might be a good substitute, but look to see how companies might invest to increase their “rate base.”  Market Cap as a ratio to what the regulators allow profits on would be ideal.

Unregulated businesses that are mature

These are governed by sales per share, calculating the price-to-sales ratio.  In general, it is wise to buy these when the P/S ratios are low, and sell them when they are high.

Unregulated businesses that are not mature

This is the complex part of valuation, but in this case the PEG Ratio makes sense.  Companies that grow their earnings rapidly can justify high P/E multiples, but in general they need to grow earnings more rapidly than their P/E ratio expressed in percentage terms.

I don’t invest in many immature businesses, so this is not so relevant to me.  I look for places where businesses are neglected, and I buy, while selling businesses that are more then fully valued.

Summary

Think about compounding.   Ask what will best compound the growth of your capital.  I suspect that it will resemble what I have written here.  Focus on compounding and ignore Modern Portfolio Theory.  Compounding is real business.  MPT is fakery from men who could not build a business.