Arnott Says U.S. Stocks are “Dead Money”

The founder and CEO of Research Affiliates argues that investors should load up on emerging market  stocks and sell off overpriced U.S. equities, according to a recent Barron’s article. In a recent interview, Arnott shared his insights on the subject: Should an investor make emerging markets a larger part of their portfolio? It depends on their level of risk tolerance, Arnott says. For instance, if an investor becomes “panicky” if share price gains are not immediate, then maybe not. “If you aren’t panicky,” says Arnott, “then I would be [disinclined] to own U.S. equities now.” On predicting performance of emerging […]

Finding Stocks Using the Investment Criteria of Great Investors

By John P. Reese — It’s the time of year when notebooks and pencils (okay, iPads and styluses) are replacing flip-flops and swimsuits. Go into any store and you’ll see all the trappings; every food item imaginable in snack-size packaging, backpacks, dorm room accoutrements, and a sea of organizational shelves, bags and boxes. Maybe it’s also a good time to evaluate how organized you are with respect to your investment portfolio. Do you have a solid, go-to approach that is aligned with your risk profile and future goals? Are you sticking to that approach no matter what you hear on […]

BlackRock’s Ang on Factor Investing

Andrew Ang, who runs factor investing at BlackRock, argues that factor investing remains “the language of investment excellence” despite naysaying by the likes of Vanguard’s Jack Bogle and smart-beta pioneer Rob Arnott of Research Affiliates. This according to a recent article in Forbes. Black Rock, the article reports, has been “firing human stock pickers and betting that factor investing is the future of the struggling active-investment-management business.” It adds that Ang expects smart-beta ETFs to reach $1 trillion by 2020, and has focused his firm’s offerings on six factors; small-size, value dividend yield, momentum and quality (for return enhancement), and […]

The Best Investing Podcasts

By Jack M. Forehand — I have to admit, I am not an avid book reader. That statement alone may doom me to a life of below average returns since almost all historically successful investors read an enormous amount (Warren Buffett advocates reading 500 pages a day). I do read occasional books, including the books of the gurus we emulate and also read many white papers, blog posts, investing articles etc., but I certainly don’t read as many books as the investors I look up to. For me, it’s easier to process information when it is presented in audio or […]

The Dangers of Index Investing

While the rapid rise in index funds over the past few decades is a “feel-good story—a populist victory, as finance goes” says an article in last month’s The Atlantic, there’s a growing number of experts arguing that passive investing is “strangling” the economy.’ The article cites research conducted in 2014 (by economist Jose Azar, Martin Schmalz and Isabel Tecu) to test whether airfares had been influenced by the growth of large shareholders—in other words, to determine whether common share ownership led to a less competitive economic environment. The researchers reported that airline ticket prices were “as much as 12% higher than […]

Quant Funds Showing Weaker Returns

Decreased returns from computerized investment strategies (“quant” funds) suggest that the robo revolution could be slowing down, according to a recent Bloomberg article. According to Eagle’s View Asset Management founder Neal Berger, the article says, quant fund returns have been losing ground for a year, “suggesting the rest of the market has figured out what the robots are doing and started taking evasive action.”   According to Fred Branovan of FFC Capital Corp., “market neutral funds need volatility to do well, and the daily increases in the equity markets make it very hard to short in this environment,” adding that most […]

Hulbert: High Valuations Could Trigger a Bear Market

Citing the rapid stock market decline that occurred in March 2000, financial analyst and journalist Mark Hulbert says investors should “expect some incredible fireworks when this incredible bull market finally comes to an end.” This according to a recent MarketWatch article. Hulbert explains that the market is overvalued “according to almost any standard valuation measure, and it’s at such times that, to use the famous phrase from hedge fund manager Doug Kass, risk happens fast.” The article provides the following chart to illustrate that the market is more stretched now than it was at between 86% and 100% of the […]

Ritholtz on the Challenges of Active Investing

In a Bloomberg article from earlier this month, columnist Barry Ritholtz outlines some of the benefits and challenges inherent in active investing. He cites the following “desirable goals” and some corresponding impediments to those goals: Alpha: outperformance versus a benchmark. “Of all the reasons to be an active investor,” writes Ritholtz, “alpha may be the most difficult to achieve.” He underscores the significant hurdle that both fund managers and individual investors face when attempting to choose benchmark-beating stocks. Expressive: investing toward a specific goal. An “unstated” desire of many investors is to “use their capital as an expression of their […]

David Tepper Says the Market is Not Overheated

The head of Appaloosa Management is “rejecting arguments that stocks are overvalued and believes there are still plenty of opportunities,” according to a recent CNBC article. Tepper says “any comparisons to past overheated markets are ridiculous,” adding that while stocks do look expensive, higher multiples are supported by the global economy in which he believes growth will continue and earnings will improve. Tepper argues further that stocks are still inexpensive relative to interest rates, and any rate hikes from the Fed will be slow in coming. The article cites Tepper’s 2010 prediction that “either the market would rally on strong […]

The Dow Isn’t Best Way to Gauge the Market

Although the stock market has had a strong run in recent years, New York Times columnist Jeff Sommer argues that the level of performance “depends on what you mean by ‘the stock market.’ ” He cites the divergence between the rise in the Dow Jones industrial average, the “oldest and best-known measuring stick for the American stock market” (which has gained more than 18% over the last year), and the S&P 500, the “benchmark for large companies used by many stock professionals” (which has seen a 12% rise over the same period). The gap, writes Sommer, has deepened further since last […]

Beware of Stock Market Charts that Tell Half the Story

When viewing data charts intended to show that, historically, market declines have been worse than increases, investors should make sure they have the whole story before panicking. This according to a recent Bloomberg article. Citing (and showing) charts that were recently posted in a blog by Lance Roberts, editor of the Real Investment Advice blog, the article states, “The reasonable-but-debatable point of the post was lost on the Chicken Little crowd screaming ‘History demands you sell your stocks now!’ ” It goes on to explain that the charts only look at a portion of the data series leading up to […]

Zweig: Cheaper Share Prices Can Be an Illusion

When ETF shares appear to be trading at a discount to the index of stocks they hold, according to a recent article in The Wall Street Journal by columnist Jason Zweig, “the apparent bargain is an illusion.” “Stock indexes, and by extension the funds that are based on them, are averages,” writes Zweig, adding, “Investment regulators say that fund companies are free to calculate and report an average valuation any way they wish, so long as it doesn’t mislead or deceive investors. So you should pay attention to how these funds report valuations.” Zweig cites examples of firms and the […]

Quant Funds Attempt to Disrupt Market

Quantitative hedge funds—that use mathematical algorithms to effect trades—are becoming increasingly popular, “reflecting in part a long run of underwhelming performance and expensive fees across the broader industry,” according to a recent article in the Financial Times. “Now,” the article says, “the widening access to faster and cheaper computing power, coupled with an explosion of new data sources like satellite images, internet chatter and online commerce, has encouraged a new wave of scientists and programmers to turn their expertise towards financial markets.”   According to Barclays research, the article says, assets managed by “quant” funds have doubled over the past […]

The Pros and Cons of the Shiller P/E Ratio

By Jack M. Forehand — The Shiller P/E (CAPE) Ratio has become one of the most widely followed market valuation metrics.  It became popular during the Technology bubble in the late 90s because it provided a unique perspective on how overvalued stocks had become during that high flying period. The Shiller P/E has been popularized by Robert Shiller, a Yale University Professor of Economics and Noble Prize winner. Shiller is the author of a number of top selling books, including “Irrational Exuberance.” The Shiller P/E is also often referred to as the CAPE ratio, or the Cyclically Adjusted P/E. The […]

Investors Should Imagine Pain to Evaluate Asset Allocation

While market worries abound, a recent article in The New York Times argues against trying to predict when the bull market will end or making trades based on those predictions. It adds, however, that there are those who “deserve to worry at any particular moment: those who will need most or all of their investment money soon.” It’s difficult to know, the article says, how much is the right amount to have invested in stocks at any given moment, but a good place to start is for an investor to determine “how comfortable you are with the possibility of losing […]