Market Forecasting Difficult

A recent article in The Economist discusses the difficulty analysts face in forecasting returns given the current market’s stretched valuations. “Just as fund managers cannot be relied on to be consistent, returns from asset classes are highly variable. The higher the initial valuation of the asset, the lower the future returns are likely to be.”   The article offers GMO data showing, “The assets that GMO thought would yield a negative return of -10% to -8%, for instance, have in fact suffered average losses of only -2.8%.” According to the article, the reason for the miss is that equity valuations […]

Podcasts of the Week: Dalio, Bass, Gardner & Egan

By Jack M. Forehand — As I discussed in my Best Investing Podcasts article last week, podcasts have become a great source of investing knowledge for me. The format allows for conversations with much more depth than traditional mediums like TV and radio and I tend to learn at least one thing I didn’t know before from each episode. Given that there are many podcasts, and most people lack the time to listen to all of them, I will be featuring my favorite episodes each week here, in addition to some of my favorite episodes from the past via the […]

REIT Outperforms Through Active Management

As active stock managers continue to face competition from low-cost index funds, some firms have managed to outperform benchmarks by using “specialized expertise and fundamental research in sectors like real estate and energy,” according to an article in Institutional Investor. The article cites the example of Cohen & Steers, a firm that has managed real estate investment trusts since the 1980s, which is “beating index fund rivals as many have been hit hard by problems in the retail sector.” The firm’s president and chief investment officer Joseph Harvey attributes the performance to the fact that its managers, “began lightening up […]

Poor Market Breadth is Sign of Pullback, But No Bubble Envisioned

A series of “worrisome signals” are pointing to weakening market momentum and a possible pullback, according to a recent article in The Wall Street Journal. The signals are as follows: The S&P 500 has been hugging or lagging its 50-day moving average, a “short-term yardstick used by technical analysts to track trading momentum,” the article says, adding, “The longer the benchmark takes to break back above, the thinking goes, the sturdier this technical resistance will become, hindering the potential for gains.” The percentage of S&P 500 components trading above their 50-day moving averages has dropped to 46%, down from almost […]

Dalio and Gundlach Say Emerging Markets are Risky

A host of concerns across the globe are raising red market flags for heavy-hitting investors such as Ray Dalio and Jeffrey Gundlach, says a recent Bloomberg article. Among the concerns; rising global turmoil and terrorist activity, valuations that “no longer compensate for potential flareups in North Korea and Venezuela,” and unpredictability on Wall Street. Emerging market shares are among the assets causing worry, given that they are yielding less that U.S. junk bonds for “only the third time in history,” the article says. According to the article, DoubleLine Capital CEO Gundlach’s believes traders should be “moving toward the exits” on […]

Preserve and Grow Your Wealth With Good Habits & Discipline

By John P. Reese — In a classic episode of the comedy television series Seinfeld, Jerry is told by a rental car agent that although they had his reservation in their system, they had run out of cars. He responded in his inimitable, singular style, with: “You know how to take the reservation, but you don’t know how to hold the reservation. And that’s really the most important part.” I was reminded of the scene while reading an article from earlier this year by Collaborative Fund’s Morgan Housel titled “Getting Rich vs. Staying Rich” in which he recounted the decidedly […]

GMO Paper Says Indexing the S&P 500 is Risky

A comprehensive  white paper published by GMO’s Matt Kadnar and James Montier in August—arguing against a predominantly index-focused investment strategy–was condensed in a recent MarketWatch article. The article quotes the authors: “A decision to allocate to a passive S&P 500 index is to say that you are ignoring what we believe is the most important determinant of long-term returns: valuation. At this point, you are no longer entitled to refer to yourself as an investor. You may call yourself a speculator, but not an investor.” Given the market’s stretched valuations, the paper explains, passive investing prevents an investor from underweighting […]

U.S. Equity Funds Suffering Extended Run of Outflows

Investors pulled $2.6 billion from U.S. stock funds for the 10th week in a row, according to a recent Bloomberg article (based on data as of August 23rd outlined in a Bank of America Merrill Lynch research paper). In fact, U.S. equity funds have suffered their longest exodus in 13 years. “The outflows are yet more evidence traders are shunning the U.S. in favor of better growth prospects and more stable politics elsewhere,” the article says. Increasing doubt around the likelihood of policy change in Washington has exacerbated the trend, the article argues, turning attention and favor toward European equities. […]

Gundlach Says Now is the Time for Caution

In a phone interview with Bloomberg earlier this month, Jeffrey Gundlach said, “This is not the time period where you say, ‘I can buy anything and not worry about the risk of it’ The time to do that was 18 months ago.” The DoubleLine Capital LP co-founder and CEO, the article says, “sees too much of a good thing—and he wants no part of it.” He views risky assets such as junk bonds and emerging-market debt as overvalued, and shares the opinion of Oaktree’s Howard Marks that the markets have become too bullish. Gundlach told Bloomberg that he wants to […]

What A 238 Mile Sailboat Race Can Teach About Investing

By Jack M. Forehand —  I have raced sailboats since I was 12 years old. It has always been a passion of mine. The combination of being on the water while doing something competitive at the same time has always been a big draw for me. Over Labor Day weekend, I competed in the Stamford Vineyard Race on a friend’s boat Threebeans. The race includes many exhilarating moments, but also significant down time, and during those down periods, I couldn’t help but think about all the parallels between what it takes to do well in a race like that and […]

Hulbert: Small Cap Sector Shockingly Overvalued

In a recent MarketWatch article, Mark Hulbert reveals a revised calculation that the small-cap sector is currently valued at a whopping 78.7 times earnings. He writes, “the Russell 2000’s true P/E today is higher than it was at either the top of the internet bubble or the 2007 bull market peak.” Hulbert describes the calculation, which he credits to financial services firm INTL FCStone’s Vincent Deluard, who told him that nearly a third of the companies in the Russell 2000 index are losing money. This omission, writes Hulbert, “has huge consequences.” Neither the FTSE Russell (the company that created the […]

New Quants Are Focusing on Artificial Intelligence

There is a new breed of “quants” that are looking to disrupt the industry using artificial intelligence (AI), according to a recent article in Institutional Investor. One such fund is Numerai, started by 30 year-old South African Richard Craib, who thinks AI will “lower the cost of fund management, producing savings that can be passed on to institutional and retail investors.” While typical quantitative investment firms use people to build systematic strategies, Craib and his firm Numerai “intends to teach machines how to do that,” according to the article. Renee Yao, a Ph.D. in math and statistics, founded statistical arbitrage […]

In a High Market, Investors Should Prepare for a Downturn

A recent article by Jeff Sommer of The New York Times poses the question: “Is this the top of the market? Is it time to sell?” “Simply put,” writes Sommer, “my answer is this: If you’re a stock investor, be prepared for a major decline, not because one is necessarily coming soon but because no one can predict where the markets are heading.” The article points out that the current economic expansion is the third longest since 1854, and that the low volatility has been “almost supernatural.” Regarding the risk of a decline, Sommer offers comments by Vanguard principal Fran […]

Nifty Fifty and the FAANG Stocks

After the parabolic rise of the “Nifty Fifty” stocks in the 1960s and early 1970s, this group of 50 large-cap, blue chips equities “proceeded to dive and lose more than half their value in the ensuing bear markets of the mid-1970s.” This, according to a recent article in CNBC, should serve as a “historical warning to generations of investors of the heavy price to pay for unbridled, uncritical enthusiasm.” At their peak, the article says, the Nifty Fifty (which included names such as Coca-Cola, Xerox and General Electric) were trading at 42 times earnings. “Some of these stocks, “it says, […]

Opportunity in Emerging Market Bonds

While low inflation is presenting a challenge for the Fed and the European Central Bank, it is playing out differently in emerging markets, according to a recent article in The Wall Street Journal. “Investors in local-currency government bonds are the winners,” it says, “and could have more to come.” Although this year’s gains, the article says, are “flattered” by emerging market yields having been bolstered after the presidential election, “they are also the function of a fundamentally improving story for many emerging-market countries.” Inflation is a key piece, says WSJ, offering data from Capital Economics showing that (as of July) […]