Grantham: There’s Risk in Value — and in Buy-and-Hold

Jeremy Grantham has released the second half of his fourth-quarter 2008 letter on GMO’s website, and in it he offers several intriguing points about why value investors got hit hard in 2008, where the economy is headed, and whether a buy-and-hold approach to stock investing makes sense. Calling 2008 “The Year of The Value Trap”, Grantham notes that the decades-long pattern of big market declines leading to great stock bargains and big recoveries did not occur. “Problems arise when this pattern of over-discounting and handsome recovery has taken place dependably for several cycles in a row,” he writes. “It begins […]

Growth vs. Value: Does It Matter Anymore?

Growth versus value: For decades, it has been perhaps the most widely asked question in stock market strategy discussions. But in Forbes’ most recent Intelligent Investing Panel, two top strategists argue that the growth/value debate is no longer the critical question it once was. Robert Froehlich, chief investment strategist for DWS Investments at Deutsche Bank, says that growth and value flat-out don’t matter anymore. Globalization, he says, has caused markets to become interdependent, which speeds up the transition from growth to value, or vice versa, Forbes’ Emily Schmitt writes. “We talk about it so much, but if you go into […]

Tilson on Cognitive Dissonance, and a Shift in Strategy

In a column for the Financial Times, money manager and columnist Whitney Tilson — one of those who predicted the housing and financial crises — discusses the “tricky” process of trying to alter one’s approach based on the lessons of the past year, and examines some changes that he and another star manager have made. Tilson say that many investors are likely enduring some serious cognitive dissonance — that is, they are having trouble reconciling their belief that they know what they are doing as investors with the reality that they have lost a good deal of money. “The unproductive […]

Schiff: Any Stimulus Plan Will Be Disastrous

While investors are eagerly waiting to hear what the final economic stimulus package will include, author Peter Schiff, who predicted the recent housing and stock market collapses, has been issuing dire warnings about whatever version of the plan is approved In an interview with Yahoo! TechTicker’s Aaron Task, Schiff says passage of the stimulus plan will do “the exact opposite of what President Obama is saying,” referring to Obama’s statements about disaster following if the bill isn’t passed. “If we don’t act,” Schiff contends, “it’s still going to be terrible. But if we do act, it’s going to be an […]

Munger on Morality, Higher Taxes, and How The Founding Fathers Can Help Us Now

Charles Munger, Warren Buffett’s long-time sidekick at Berkshire Hathaway, offers some tough medicine for the U.S. in an editorial written for today’s Washington Post. Calling the current situation “dire”, Munger says that the current bust goes well beyond the normal boom & bust cycle, and measures should thus be taken to keep it from occurring again. “Should we opt for even more pain now to gain a better future?” he asks. “For instance, should we create new controls to stamp out much sin and folly and thus dampen future booms? The answer is yes.”

Hulbert: Graham’s Approach Endures

In his latest MarketWatch column, Mark Hulbert wonders whether the recent market plunge has shown that “maybe Ben Graham isn’t old-fashioned after all”. Over the past couple decades, Hulbert says, the strict, conservative approach used by Graham — who is known as both the “Father of Value Investing” and the mentor of Warren Buffett — had fallen out of favor on Wall Street. But as the current downturn has dragged on, Graham’s approach seems quite relevant again, Hulbert says.

Hot List: How to Combine Strategies to Minimize Risk, Maximize Returns

In my new book, The Guru Investor, I detail ten of the best-performing stock-picking strategies of all-time. These guru-based approaches are a great way to get a leg up on the market, but, as I’ve found over the years, having a proven stock-picking methodology is just one part of the path to market-beating returns. Stock investors also must deal with a number of portfolio management questions, such as, “Which strategy is best for me?”, “How many stocks should I own?”, and, “When should I sell?” As I’ve worked with my guru-inspired models over the years, I’ve learned a great deal […]

PIMCO Boss: A New Take on Asset Allocation

In this month’s Kiplinger’s magazine, PIMCO CEO Mohamed El-Erian offers some interesting insights into diversification and risk management in an economic world that is in great flux. According to El-Erian, the old rules of diversification have changed in a couple different ways. First, with other countries catching up to the U.S., he says investors shouldn’t have as much of their portfolios in U.S. stocks or bonds as they have in the past. U.S. stocks should make up about 15% of an investor’s portfolio, with U.S. bonds accounting for 5%, he says. “We are going toward a world where the U.S. […]

Tilson & Heins: Look for Safer Buys in this Market

In their latest “Discovering Value” column for Kiplinger’s, Whitney Tilson and John Heins warn that investors shouldn’t give in to the temptation to swing for the fences by buying speculative stocks after the recent market plunge, but instead should focus on solid, undervalued stocks. “Given the perilous state of the economy, this is not the time to take unnecessary risk,” write Tilson and Heins, who do a great job explaining the neuropsychology that drives investors to seek out big gainers that are too risky. “Fortunately,” they note, “plenty of stocks combine solid potential for appreciation with strong protection against further […]

PIMCO’s Gross on Shadow Banking System — and the Key to Getting out of The Crisis

While policy makers continue to debate what is the best way to halt the country’s financial crisis, “bond king” Bill Gross of PIMCO says it is clear what needs to be done. “The remedy for this deflationary delivering and mini-depression is simple and almost axiomatic,” Gross writes in his latest commentary on PIMCO’s web site. “Stop the decline in asset prices. If that can be done, the real economy will level out as well.” Gross says that efforts to recapitalize banks as a way to get credit flowing and bolster asset prices have missed a key point. Drawing on data […]

Dreman & Dividends: Finding Value in The Market’s Unloved

One of the hardest things to do as an investor is go against the grain. Being a contrarian by investing in stocks that no one else wants to touch with a ten-foot pole is difficult, especially in markets like this. But most good value investors, including Warren Buffett, David Dreman, John Neff and others use strategies to uncover value where no one else wants to look. The Dreman strategy, in particular, has a deep bias for unloved, out-of-favor stocks. To identify those types of companies, the approach uses four price-focused variables: Price-Earnings Ratio, Price-Cash Flow Ratio, Price-Book Ratio and Price-Dividend […]

Buffett “Weighing Machine Metric”: Time to Buy Stocks

A metric that Warren Buffett uses to assess the market’s valuation is now showing that it is a good time to buy stocks, Carol Loomis and Doris Burke write for Fortune. According to Loomis and Burke, Buffett believes that over the long term, there should be a “rational relationship between the total market value of U.S. stocks and the output of the U.S. economy (gross national product).” If the total stock market value as a percentage of GNP falls to the 70 to 80 percent range, Buffett has said, buying stocks is likely to work out very well for investors. […]

The Dreman Strategy: How to Turn Others’ Fears into Your Profits

In my new investing book, The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies, I outlined the investment approaches of ten highly successful long-term investors. One of the individuals I highlight is the well-known contrarian, David Dreman. Dreman is chairman of Dreman Value Management and a longtime Forbes magazine investment columnist. I hope you enjoy the following excerpt from Chapter 5 of The Guru Investor, which discusses who David Dreman is, what his strategy consists of, and how to best implement it. I will be publishing a follow up to this piece in which I will […]

Buffett, Lynch, Graham and Others. 10 Quant Strategies Outlined in New Book.

I am excited to announce the publication of my new investment book, The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies. The book details the approaches used by some of history’s most successful investors such as Benjamin Graham, Peter Lynch, and Warren Buffett, and shows you how you can implement their approaches in your investment portfolio. What I have come to realize in nearly 15 years of research into these gurus is that each one has a disciplined investment approach and they follow those methods and principles with rigor and consistency through both good and bad […]

Bogle, Siegel, O’Shaughnessy: Where Do They Have Their Own Money?

While they have been hit hard over the past year, many of the world’s top investors aren’t shying away from the stock and bond markets, writes The Wall Street Journal’s Eleanor Laise. In fact, many have been snatching up bargain stocks and bonds for their own personal portfolios while most investors have been fleeing the market. “A sampling of high-profile industry veterans, academics and brokerage-firm chiefs reveals that many are hanging on to holdings battered by last year’s market slide and busily hunting down new opportunities, particularly among bonds and beaten-down value stocks,” Laise explains “And they’re generally upbeat about […]