Beware of the bubble in stock market bubble warnings – MarketWatch 08-11-15

Salient to Investors:

Mark Hulbert writes:

  • The stock market may be overvalued and could begin a bear market but it does not resemble the bubble market in 2000.
  • The explosion of bubble warnings is unwarranted. The 5 identifiers found by JeffreyWurgler at NYU and Malcolm Baker at Harvard in stock market bubbles since the 1920s are all absent today:
    • IPOs in the last 90 days numbered 69 versus 123 in Q1, 2000. The number in Q1, 2015 was a 2-year low.
    • The average first-day IPO return in the last 90 days was 17.6% versus 96% in Q1, 2000.
    • Dividend-paying companies have a 37% higher price/book ratio than non-dividend paying companies: in the 2000 bubble, non-dividend paying companies had a 43% higher price/book ratio than dividend-paying companies.
    • The proportion of corporate cash coming from equity issuance is less than half as much as in Q1, 2000.
    • Share turnover is at 62% versus 89% in Q1, 2000.

 

Read the full article at http://www.marketwatch.com/story/beware-of-the-bubble-in-stock-market-bubble-warnings-2015-08-11

Click here to receive free and immediate email alerts of the latest forecasts.

Opinion: Greed is still trumping fear, and that’s bad for stocks – MarketWatch 07-17-15

Salient to Investors:

Mark Hulbert writes:

  • Investor popularity of greed over fear indicates we are close to a stock market top. At the recent San Francisco Money Show, hundreds of seminars catered to greed, while only a handful catered to managing risk and loss.
  • At market tops greed completely replaces fear as investors’ primary concern. At market bottoms, fear dominates greed.
  • Martin Zweig maintained that newsletter advertisers are incredibly sensitive to which way the wind is blowing among individual investors. Zweig found that in the latter weeks of the 1973-74 bear market, there were zero bullish newsletter ads in Barron’s.
  • Late-stage bull markets can continue for some time despite irrational exuberance, viz the late 1990s.

Read the full article at http://www.marketwatch.com/story/greed-is-still-trumping-fear-and-thats-bad-for-stocks-2015-07-17?mod=MW_story_top_stories

Click here to receive free and immediate email alerts of the latest forecasts.

Former Reagan Budget Head David Stockman: Fed Has Created Gargantuan Global Bubble – MoneyNews 11-27-13

Salient to Investors:

David Stockman said:

  • QE is brewing asset bubbles around the world, exporting its lunatic policy worldwide
  • Central banks all over the world have been massively expanding their balance sheets, and as a result of that there are bubbles in everything in the world, asset values are exaggerated everywhere.
  • It is only a matter of time before the central banks lose control, and a panic sets in when people realize that these values are massively overstated.
  • Foreign central banks are easing for either good reasons of defending their own trade and their exchange rate, or because they’re replicating the Fed’s erroneous policies.
  • The Russell 2000 small-stock index is trading at 75 times reported trailing earnings, which makes no sense.

Mark Hulbert at Hulbert Financial Digest said the P/E based on 12-month trailing earnings of the S&P 500 is 19.1 is not indicative of a bubble, at least not one like 1999 which had a P/E of 29.7 in December 1999.

Read the full article at http://www.moneynews.com/StreetTalk/David-Stockman-Federal-Reserve-global-bubble/2013/11/27/id/538987

Click here to receive free and immediate email alerts of the latest forecasts.

Man vs. Machine: The Great Stock Showdown – Wall Street Journal 05-10-13

Salient to Investors:

Mark Hulbert writes:

The small number of advisers who outperform the market rarely keep doing so, so choosing a recent market beater does not increase your odds of future success. Of the 51 advisers out of more than 200 tracked who beat the Wilshire 5000 Total Market index, including reinvested dividends, in the decade that ended April 30, 2012, only 11 have outperformed the market since – no better than the percentage of all advisers, regardless of past performance. Over the past year, on average, the group has lagged the Wilshire index by 6.2 percent.

Lawrence Tint at Quantal Intl says:

Before computer-dominated trading, it was slightly easier to identify winning advisers in advance, because you could more easily understand and evaluate what they were doing. The average reader of The Wall Street Journal won’t be able to identify market-beating advisers, and repeated studies have shown that even the best institutional investors have been unable to identify them in advance, though there is an above-average chance that an awful adviser will continue to perform terribly, so avoid these.

Another reason it is hard for top-performing advisers to beat the index over the long-term is that they attract lots of new money which dilutes their ability to continue performing well.

Computers are ill-suited to thinking outside the box and devising new strategies to beat the market in the future.

Terrance Odean at University of California said the other side of the trade used to be a human but is now a supercomputer, so individual investors will almost certainly lose. Odean says academic studies over the past decade found that the average stock that traders sell outperforms the average stock they buy.

Traders are general unable to assess complex data – they look at the same data on different occasions and reach different conclusions, and unwittingly let their emotions dominate their intellect.

Daniel Kahneman at Princeton says humans consistently lose out to machines from medicine to economics to business to psychology to predicting the winners of US football games and judging the quality of Bordeaux wine – in each the accuracy of experts was matched or exceeded by a simple algorithm.

Bill Miller at Legg Mason says it is mathematically true that there is a portfolio size beyond which it is difficult, if not impossible, to beat the market. Miller says the primary cause of losing his hot hand at Legg Mason Value Trust was simply bad decision-making. Miller says Warren Buffett will have a more difficult time in the future picking stocks that will perform better than an index fund, and that much of the value that Berkshire Hathaway has added in recent years has not been from Buffett’s stock-picking skills but from his negotiating skills and Berkshires huge cash.

Individual fixed-come and equity investors should not trade. Short-term trading is now so dominated by computers that individuals and professional managers almost certainly will lose over time. Better to buy and hold diversified index funds with very low expenses.

Brad Barber at the University of California said computers either cannot, or do not do well, determine which patterns that emerge from data crunching makes sense.

Read the full article at http://online.wsj.com/article_email/SB10001424127887324059704578471154109438438-lMyQjAxMTAzMDEwMzExNDMyWj.html?mod=wsj_valetbottom_email

Click here to receive free and immediate email alerts of the latest forecasts.

What to do when your investment adviser resigns – MarketWatch 04-30-13

Salient to Investors:

Mark Hulbert writes:

The Utility Forecaster, whose editor is leaving, ranks first among 108 monitored services for risk-adjusted performance over the last 10 years, second out of 70 monitored services over the last 15 years, with above-average performance in both up and down markets over the last 12 years.

Whether a strategy’s track record continues with a new editor depends on the extent to which the strategy is quantitative and algorithmic – if it is then its future success is not as dependent on who is in charge. If the strategy relies heavily on subjectivity based on experience, then continuance of its success raises significant doubts.

Read the full article at http://www.marketwatch.com/story/does-investment-experience-count-2013-04-30?link=home_carousel

Click here to receive free and immediate email alerts of the latest forecasts.

Pick funds with stellar recent returns – MarketWatch 04-26-13

Salient to Investors:

Mark Hulbert writes:

Avoid mutual funds whose recent performance has begun to slip, no matter how good their performance might have been in previous years.

Favor funds with stellar recent returns, even if their longer-term performance is dismal.

No Load Fund X is the best performing stock-mutual-fund advisory service tracked by the Hulbert Financial Digest over the past two decades with an 11.3% annualized return versus 8.6% for the overall stock market.

A FundX Investment study of over 300 broad market funds found that the best portfolio was one that picked funds according to an average of their returns over the trailing 1, 3, 6 and 12 months – an 11.7% annualized return from 1/1/99 through 3/31/13 versus 3.5% for the S&P 500 – both include reinvested dividends and net of expenses. Using just the best performing funds over the past 12 months, produced a 10.2% annualized return.

Janet Brown at No Load Fund X said too much weight should not be placed on expense ratios when choosing funds.

The strategy has not beaten the market every year. Funds in mid-2008 that were exhibiting the best performance over the recent past were big casualties in the fall 2008 market meltdown.

Taxes eat into the profit of a frequently switching portfolio, so fund-switching strategies make more sense in tax-deferred portfolios.

The strategy does not work well with funds that charge a commission for purchases or levy transaction costs when selling shares held for only a short period.

Strategies that invest based on short-term recent performance historically don’t work as well with the riskiest funds.

Read the full article at http://www.marketwatch.com/story/pick-funds-with-stellar-recent-returns-2013-04-26

Click here to receive free and immediate email alerts of the latest forecasts.