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The Guru Investor Blog

Thoughts, Ideas and Insights from Top Minds in the Investment World
Fri, 17 May 2013 10:16 AM

Finding Growth In A Slow-Growth Economy


Growth has been sluggish in the United States for some time now. But in a recent Seeking Alpha column, Validea CEO John Reese says that doesn’t mean there’s no growth to be had for investors.

“While the broader economy continues its muddle-through advance, many individual companies are putting up some very impressive growth numbers,” Reese writes. “And with so many fearful about the overall economy, a lot of these fast-growing firms’ shares are available for significantly cheaper than they might otherwise be.”

Reese says his Guru Strategies, each of which is based on the approach of a different investing great, have been finding a number of growth plays lately. He looks at five of them, including MWI Veterinary Supply.

 

 


Tagged: John Reese, Validea
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Thu, 16 May 2013 2:01 PM

Gross: Bond Bull Is Ending


PIMCO “bond king” Bill Gross says that the bull market in bonds is ending. Gross tells Bloomberg that, without additional quantitative easing, he thinks treasury bonds will decline in yield as the economy slows, which will push credit spreads higher. He sees a 12-month period ahead where combined treasury, corporate, and high yield bonds “don’t move much”. Gross also says the stock market has been rising in part because of economic improvement, and in part because of the “Bernanke put” — the belief that Ben Bernanke and the Federal Reserve will continue to bolster stocks over the long haul. Gross says there’s “a lot of money chasing a lot of risk, and in some cases it may be justified.”

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Tagged: Bill Gross
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Thu, 16 May 2013 11:00 AM

The Benefits of Self-Doubt


Warren Buffett and Ray Dalio are two of the most well-known, successful investors in the world. And The Wall Street Journal’s Jason Zweig says they have at least one key trait in common: They are open to criticism and self-doubt.

“A deliberate, lifelong effort to find people to tell him why he might be wrong is one of the keys to Mr. Buffett’s success,” Zweig writes on WSJ’s MoneyBeat blog, discussing how Buffett took the rare step of inviting questions from a bearish investor at Berkshire Hathaway’s recent shareholder meeting. “It doesn’t come naturally to most investors.” (Hat tip to The Stingy Investor for highlighting the piece)

Buffett, Zweig says, once noted about scientist Charles Darwin that “whenever he ran into something that contradicted a conclusion he cherished, he was obliged to write the new finding down within 30 minutes. Otherwise his mind would work to reject the discordant information, much as the body rejects transplants. Man’s natural inclination is to cling to his beliefs, particularly if they are reinforced by recent experience.”

Dalio, meanwhile, believes in “thoughtful disagreement”. He told Zweig that “when two intelligent parties disagree, that’s when the potential for learning and moving ahead begins. The most powerful thing that [an investor] can do to be effective is to find people you respect who have opposite, different points of view [from yours] — and have an open-minded exchange with them about what’s true and what to do about it.” Dalio says investors could improve their chances of being right by 30% to 40% by seeking out those who disagree with them in an intelligent way, and trying to understand the opposing argument.

Cabot Research Chief Executive Mike Ervolini recommends that investors look back through their account statements to see how long it typically takes for their average winners to stop outperforming. When future winners reach that average, he says to seek out a contrary opinion to re-evaluate whether the stock is still a good one to hold.

grahamad

 


Tagged: Jason Zweig, Ray Dalio, Warren Buffett
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Thu, 16 May 2013 8:07 AM

Advisers vs. Machines


Professional and individual investors have long had a hard time beating the broader market. And, says Mark Hulbert, the rise of computer trading programs may be making it harder than ever.

Hulbert writes in The Wall Street Journal that it’s been “nearly impossible lately” for investors to consistently beat index funds, and just as difficult to predict which managers will be able to do so. “Consider the 51 advisers out of more than 200 on the Hulbert Financial Digest’s list who beat the market in the decade-long period that ended April 30, 2012, as measured by the Wilshire 5000 Total Market index, including reinvested dividends,” he says. “Of that group, just 11 — or 22% — have outperformed the overall market since then.”

Hulbert says that computerized trading has been winning out over traditional advisers in large part because computers can process vast amounts of financial data very quickly, which most people cannot do. He also says that investors “unwittingly let their emotions dominate their intellect”, something that is not a problem for computers. He references the work of behavioral finance pioneer Daniel Kahneman, who, in his 2011 book “Thinking, Fast and Slow,” reviewed more than 200 academic studies that analyzed competitions between human beings and mechanical algorithms. Whether the subject was medicine, economics, business, psychology, sports predictions, or the quality of Bordeaux wine, “the accuracy of experts was matched or exceeded by a simple algorithm,” Kahneman said.

Hulbert says all this means that investors should trade as infrequently as possible. Computer trading now dominates Wall Street so much that even professional managers “will lose out to them over time”. He recommends low-cost buy-and-hold index funds.

Hulbert does say that there may well be a place for human investors amid an increasingly computerized Wall Street. Brad Barber, a finance professor from the University of California, told him that computers cannot do some things, like determining whether a pattern makes sense. “If you don’t understand the reason for a pattern, you’re vulnerable to following a mindless algorithm that is quite likely to perform poorly,” Barber said.


Tagged: Brad Barber, Daniel Kahneman, Mark Hulbert
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Wed, 15 May 2013 10:58 AM

Oberweis: Small-cap Growth Still A Bargain


Newsletter guru Jim Oberweis says that, while small-cap growth stocks have performed well recently, they remain at very attractive valuations.

In his latest Forbes column, Oberweis says that small-caps (those with market caps under $1 billion) that are growing both earnings and revenue at a pace of 30% or more are trading at a median forward earnings multiple of just 13, well below the 10-year average of 17. “Some of the difference may be explained by slower growth expectations for the overall economy, but some of that discount stems from good old-fashioned fear,” Oberweis writes.

He says he thinks smaller stocks will fare “considerably better” than large-cap value stocks going forward. He offers four of his current favorite small-caps, including Stamps.com.


Tagged: Jim Oberweis
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Tue, 14 May 2013 1:06 PM

Guru Strategy Ratings: JPM, PCLN on the Move


Each week, we take a look at which stocks John Reese’s Validea.com Guru Strategy computer models have newfound interest in, and which they have soured on. Here’s a look at some of the stocks John’s strategies have upgraded or downgraded today.

Screen shot 2013-05-14 at 2.04.30 PM


Tagged: John Reese, Validea
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Tue, 14 May 2013 10:52 AM

Tepper: Bullish Argument Is "Overwhelming"


Hedge fund guru David Tepper of Appaloosa Management says he sees an “overwhelming” case for stocks right now. “I’m definitely bullish,” Tepper tells CNBC “It’s so overwhelming”. He cites the improving economy and housing market and easing policies by central banks around the world as reasons. He also says that fears about the Federal Reserve “tapering” its easing policies are misguided. He says that the federal deficit is “shrinking massively”, and over the next six months will be only $100 billion. Meanwhile, the Fed will be buying about $500 billion in assets over that period as part of its easing plans. So even if the easing is designed to finance the deficit, $400 billion will still be out there, needing to find a home. Some will go to the economy, but a lot will likely go to stocks, Tepper contends. In fact, he says some tapering will be needed to keep the market from going into “hyper-drive”.

 

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buffettad


Tagged: David Tepper
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Fri, 10 May 2013 12:00 PM

Sonders On The Economy-Market Relationship


While many investors have avoided stocks in recent years because of economic concerns, Charles Schwab Chief Investment Strategist Liz Ann Sonders says history shows that to be a bad idea.

“The connection between the stock market and the economy seems obvious,” Sonders writes in commentary on Schwab’s site. “If the latter is performing well, the former should follow. In reality, not only is the opposite typically true — stocks lead the economy — but the two can often appear to be completely disconnected.”

Rather than being “glued at the hip, as many investors assume,” Sonders says the market and economy are “more like ... tethered at the hip by a fairly long rope. Ultimately they can’t get too far apart, but the two can move in different directions — and at different paces — in the shorter term. The trick for investors is to understand the relationship and know how to avoid some common mistakes.”

“The bottom line,” Sonders says, “is that the stock market, as a leading indicator, tends to launch into rallies and/or corrections around economic inflection points. By definition, a rally-inducing inflection point occurs when economic growth stops falling and begins to rise, which means GDP growth is at its worst. This is part of why new bull markets can breed rampant skepticism.”

Sonders also says that earnings and the stock market can diverge significantly in the short term.  And she looks at other factors that impact stock prices, including valuation, economic surprises, and the Federal Reserve.

buylikeguruad


Tagged: Liz Ann Sonders
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Fri, 10 May 2013 11:00 AM

Cooperman: No Shortage of Bargains


Hedge fund guru Leon Cooperman says he thinks the market has gotten a little ahead of fundamentals, but by and large he thinks the bull market has more room to run. Cooperman tells CNBC that he thinks two things could lead to a bear market: recession, or a reversal of Federal Reserve policies, neither of which he sees as happening soon. Cooperman says Federal Reserve Chairman Ben Bernanke has succeeded in getting the market to a fair value level. Given the absence of alternatives, he likes equities. “We find no shortage of cheap stocks,” he says.

Screen shot 2013-05-10 at 11.50.33 AM

 


Tagged: Leon Cooperman
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