Industry Ranks February 2012
I’m working on my quarterly reshaping — where I choose new companies to enter my portfolio. The first part of this is industry analysis. 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...
We Eat Dollar Weighted Returns — III
Somebody notify the Bogleheads, they will like this one, or at least Jack will. Yo, Jack, I met you over 15 years ago at a Philadelphia Financial Analysts Society meeting. How bad are individual investors at investing? Bad, very bad. But what if we limit it to a passive vehicle like the Grandaddy of all...
On Junk Bonds
If someone were to ask me my opinion on Junk Bonds at present, fool that he would be to ask me because I know real experts elsewhere, I would say this: They are good for a speculative trade, but dumb money has arrived. Be ready to sell when the momentum fails. High yield ETFs sell...
Against Simple Valuation Metrics
There have been a lot of articles dealing with use of corporate free cash flow lately: Dividends — get them, are they sustainable? Buybacks — do they add value or not? Acquisitions — are they overpaying? What are the synergies? But you never hear about the last one — internal investment for organic growth. There...
The Rules, Part XXIX
Risk premiums should never be capitalized, they should only be taken into income as earned. This may end up being another odd post of mine. I’m going to start writing about bank regulation, but I will end up talking about monetary policy. There are many people who hate the rating agencies. They hate them because...
On Predicting the Future, Redux
From a reader, ptuomov: If you run a regression of the magenta line on variables that have similar trends, you will get a spuriously high R2. I think you should try to explain the weekly changes in the magenta series instead. (I may have misunderstood you regression, in which case please show the actual data...
Industry Ranks January 2012
I’m working on my quarterly reshaping — where I choose new companies to enter my portfolio. The first part of this is industry analysis. 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...
Permanent Asset Allocation
Short run Intermediate Long Run Nominal Real Nominal Real Nominal Real Stocks + - + small - big + 0 Bonds - 0 0 0 + 0 Cash + - + - + - Gold 0 - + small - + - Short run Intermediate Long Run Inflation Real Inflation Real Inflation Real Stocks +...
Stock Prices versus Implied Inflation
Eddy Elfenbein wrote a good post recently on the stock market versus inflation expectations. When I read it, I said to myself, “Wait, is the relationship between nominal and real rates really 1:1, or is it more complex?” Though it is not certain, the regressions that I ran indicated that 1:1 was not falsified by...
On Insurance Stock Indexes
I’m still toying with the idea of starting an insurance-only hedge fund. I own a lot of insurers, and I think that I get the better of that market. Where I have a harder time is with what to short. Shorting is tactical not structural, and I am less good at the tactical vs structural. ...
The Rules, Part XXVII, and, Seeming Cheapness vs Margin of Safety
The market takes action against firms that carry positions bigger than their funding base can handle. Temporarily, things may look good as the position is established, because the price rises as the position shifts from being a marginal part of the market to a structural part of the market. After that happens, valuation-motivated sellers appear...
Returns on Equity Amid the Financial Crisis, Response
I appreciate constructive criticism. I particularly appreciate comments at this blog, regarding my long article on how return on equity changed during the financial crisis. The reviewer said, In a world in which I didn’t have only 20 minutes to read, analyze and write about this paper, I’d like to think through his model choices....
