Brands that make consumers emotional outperform the S&P 500 over time – MarketWatch 10-07-15

Salient to Investors:

MBLM found that from 2005 to 2014,  companies with intimate brands averaged 5% more revenue growth and 11% more profit growth than the S&P 500 index. The top-performing industry in the US was the auto industry, suggesting scandals did not dent customer enthusiasm.

Mario Natarelli at MBLM said only a quarter of the 52,000 brands surveyed evoked intimacy with their customers.

The top ten were, in order: Apple, BMW, Toyota, Amazon, Harley-Davidson, Disney, Coca-Cola, Whole Foods, GMXC and Samsung.

Read the full article at http://www.marketwatch.com/story/brands-that-make-consumers-emotional-outperform-the-sp-500-over-time-2015-10-06

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Looking for the lifeboats – The Economist 09-19-15

Salient to Investors:

  • Both equities and government bonds are overvalued but are unlikely to fall in tandem. Long-term investors should ignore short-term market declines because over the long-term, asset prices rise – US equities overcame the dotcom bubble and 2008 financial crisis to reach record highs in 2015.
  • However, equities could be in for a long slow decline, a la Japan, the first rich country to fight deflation and zero interest rates. Japanese equities are still down 50% since the end of 1989, while bond yields have remained very low since the late 1990s. At least Japanese investors could have escaped into foreign assets, but that option is narrowing because all the developed world faces deflation, including emerging markets.
  • Robert Shiller at Yale said more investors fear US stocks are overvalued than at any time since 2000. Deutsche Bank says government bonds are the most expensive they have ever been.
  • AQR research found that:
    • In the 10 worst quarters for global equities between 1972 and 2014, equities lost more than 18% on average, bonds gained 4.8%, commodities and gold gained. Corporate bonds lost value, relative to government bonds.
    • In the 8 bad equity quarters since 1990, hedge funds lost and average of 5.2%, excluding trading costs and fees, but a combination of value, momentum, carry, defensive and trend-following strategies would have produced very good returns, excluding trading costs and fees.
    • In the 10 worst quarters for government bonds between 1972 and 2014, bonds lost 3.9% on average, while equities gained 3.5% on average thanks to a big gain in Q2, 2009, gaining in 6 of the 10, and commodities rose.
  • In the 10 worst quarters for government bonds, cash averaged a small gain.
  • Back-testing strategies is unsafe because there is no guarantee that they will be as successful in future.

Read the full article at http://www.economist.com/news/finance-and-economics/21665026-which-investments-work-best-when-markets-decline-looking-lifeboats

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Here Are the Ominous Signs a Crushing Stock Market Correction Looms – TheStreet.com 08-15-15

Salient to Investors:

James Hickman writes:

  • Uninterrupted streaks in which the S&P 500 closes within 10% of its all ­time peak historically precede sudden declines: viz the tech bubble of the 1990s and the credit/housing bubble of the 2000s. The median decline from the peak is ­43% and typically takes 13 months, while the median annual market total returns over the following 10 years from the peaks is only 2.5%.
  • The high cyclically adjusted P/E ratio predicts below ­average stock market returns for the next decade ­­.
  • The low levels of the CBOE Volatility Index and CBOE SKEW Indices signal investor complacency.
  • 11 countries – 67% of the global economy – have had decelerating GDP growth for several years.
  • Sovereign debt levels above 90% have often led to reduced federal spending and increased taxation, and significantly slower economic growth.
  • Population growth is flat in the developed countries that comprise most of the global economic base, while productivity growth has been decelerating. Nearly all future population growth will be in the LDCs.
  • US corporate growth has come primarily from cost-­cutting, with profit margins nearly 70% above the long­-term average, meaning growth cannot continue without top­line growth.
  • Since 1964, the premium of the 10-yr US Treasury yield over its long-­term average has accurately predicted stock market declines 71% of the time: the premium is currently 2.5% versus the average yield of more than 5%.
  • Long-term interest rates are unlikely to rise meaningfully before 2017, so this is not yet bearish: since 1960, the direction of interest rates has predicted market stability 83% of the time.

Read the full article at http://www.thestreet.com/story/13257758/1/here-are-the-ominous-signs-a-crushing-stock-market-correction-looms.html

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Jeremy Grantham: 3 Insights From a Top-Down Value Investor – The Motley Fool 06-02-15

Salient to Investors:

Jordan Wathen at TMFValueMagnet writes:

  • Eyquem found that from 1951 to 2013, the lowest PE decile of stocks compounded annual returns of 16.7% versus 9.3% for the highest decile.
  • Never pile in or out of an investment for the simple fear of falling behind.
  • No one gets fired for being average.
  • Individual investors’ single biggest advantage is not having to report to anyone, not having to match the market’s return every year.

Jeremy Grantham says:

  • Financial assets can be overpriced or underpriced but will always return to average.
  • Rewards come from buying cheap assets not from taking risks.
  • Professional investors’ behavior is driven by career risk. Keynes said their primary directive is first and last to keep their jobs and so never, ever be wrong on their own. The great majority therefore go with the flow, either completely or partially, thus creating the momentum that drives prices far above or far below fair price.

Read the full article at http://www.fool.com/investing/general/2015/06/02/jeremy-grantham-3-insights-from-top-down-value-i.aspx

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Record S&P 500 Masks 47% of Nasdaq Mired in Bear Market – Bloomberg 09-15-14

Salient to Investors:

  • The S&P 500 has closed at new highs 33 times in 2014, while less than 6% of stocks are in bear markets.
  • 47% of Nasdaq Composite stocks and over 40% of Russell 2000 and Bloomberg IPO Index stocks are at least 20% off their 12-month highs. 45% of small-cap stocks, IPOs and tech stocks, and 18% of S&P 500 stocks, were at least 20% below their 52-week highs in October 2007.
  • Analysts forecast over 20% of Nasdaq Composite and Russell 2000 companies will be unprofitable this quarter, while only 15 companies in the S&P 500 reported a loss for the past year.
  •  Skip Aylesworth at Hennessy Funds said it is 3 years since a 10% decline in the S&P 500 and investors are avoiding companies that will suffer the most when the market stumbles. Aylesworth said small caps tend to get ahead of themselves and get whacked when the market corrects.
  • Malcolm Polley at Stewart Capital Advisors sees Alibaba’s performance will indicate the market’s health and says bigger companies seem to do better and large tech names tend to perform very well. Polley said the bull market is long in the tooth and needs to rest.
  • David James at James Investment Research said most people do not see that most stocks are not making new highs and many stocks have made significant declines.
  • Brad Thompson at Frost Investment Advisors said stocks with weak or no earnings and fewer shares to trade fare worse during market turmoil, but does not subscribe to the market will fall once the punch bowl is taken away camp.
  • The San Francisco FRB said low volatility across financial markets may signal investors are underestimating how quickly the Fed will raise interest rates.
  • Dan Miller at GW&K Investment Mgmt said US stocks remain one of the best investments and the weak performance in small caps in 2014 is not that bad considering they rose almost 60% over the previous 2 years. Miller said low interest rates and the good US economy will push the market higher.
  • Excluding unprofitable companies, the Russell 2000 is at 20.5 x earnings versus 17.9 x for the S&P 500.
  • Oliver Pursche at Gary Goldberg Financial Services said the performance divergence is a valuation story, and nervous investors are more likely to sell off what they perceive to be riskier asset classes.

Read the full article at  http://www.bloomberg.com/news/2014-09-14/record-s-p-500-masks-47-of-nasdaq-mired-in-bear-market.html

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How to Trade ‘Scotsie 100’ If Scotland Votes to Split – Bloomberg 09-10-14

Salient to Investors:

  • Andrew Garthwaite et al at Credit Suisse say there is a 25% chance Scotland will choose independence on September 18, while markets will price in a 35% chance, so recommend buying Scottish stocks 2 days before the vote because investors tend to overact to political uncertainty. If independence wins, they recommend avoiding Scotland’s stocks because it would cause a deep recession and ongoing political turmoil. The strategists say 20 Scottish companies are at risk of a “yes” vote because of their reliance on Scottish revenues or connections to North Sea oil or other reasons: stocks including Royal Bank of Scotland, John Wood, SSE and Stagecoach.
  • Paul Marsh at London Business School and Scott Evans at Walbrook Economics found that £1 invested in their “Scotsie 100” in 1955 would have grown to £648 versus £1,168 in the rest of the UK – excluding financial stocks, the Scottish index outperformed the rest of the UK by a small margin.

Read the full article at http://www.bloomberg.com/news/2014-09-10/how-to-trade-scotsie-100-if-scotland-votes-to-split.html

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Fidelity Reviewed Which Investors Did Best And What They Found Was Hilarious – Business Insider 09-04-14

Salient to Investors:

James O’Shaughnessy of O’Shaughnessy Asset Mgmt said:

  • Fidelity found that their best performing accounts were those of people who forgot they had an account with them.
  • The shorter you hold a stock, the more likely you are to lose money.

Barry Ritholtz found that when families fought over inherited assets and did not touch those assets for say 10 or 20 years, those years were the best period of performance.

Richard Bernstein of Richard Bernstein Advisors found:

  • Over the period December 31, 1993 to December 31, 2013 the average mutual fund investor underperformed every investment asset class except Asian emerging market and Japanese equities, and even underperformed cash.
  • The average mutual fund investor would have improved performance by simply buying and holding any asset class other than Asian emerging market or Japanese equities.
  • The underperformance suggests the average mutual fund investor consistently bought assets that were overvalued and sold assets that were undervalued.
  • When chaos occurred, the average mutual fund investor ran away.

Read the full article at  http://www.businessinsider.com/forgetful-investors-performed-best-2014-9

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Surging U.S. Stocks Echo Dot-Com Rally With Cheaper P/E – Bloomberg 08-26-14

Salient to Investors:

  • The market looks more and more like the dot-com bubble market except for valuations: 19x now versus near 30x then.
  • Widespread gains now compare with the concentration in computer shares back then. The S&P 500 Equal Weight Index has risen at an annualized 28% rate since 2009, near double the return in the last half of the Internet bubble. 380 S&P 500 stocks have risen in each of the last 5 years versus 307 in the 1990s. 48 stocks are now at 52-week highs versus 27 at the peak in 2000.
  • Annualized returns of 24.5% since March 2009 compared with 27.1% over an equal amount of days ending March 24, 2000, the peak of the Internet rally.
  • The put-call ratio is near its highest since October 2008.
  • Ed Hyland at JPMorgan Chase Private Bank said the market is expensive but not in the bubble and could go higher.
  • Brad McMillan at Commonwealth Financial Network said the market is in a clear upward trend.
  • Howard Ward at Gamco Investors said the market is rationally responding to improving domestic economic news, extraordinarily low interest rates, easy money and limited inflation, so its valuation is justified.
  • Cameron Hinds at Wells Fargo Bank said today’s market is justified on the underlying fundamentals, unlike the clearly excessive levels in 2000.

Read the full article at  http://www.bloomberg.com/news/2014-08-25/record-gain-driving-u-s-stocks-with-speed-of-dot-com-era.html

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The Stock Market’s Missing Ingredient – Bloomberg 08-21-14

Salient to Investors:

Barry Ritholtz writes:

  • Rarely have conditions for market gains been so promising at a time when investor psychology has been so negative.
  • Only 7% in a Gallup poll were aware of the S&P 500’s 30% increase in 2013, while more than 50% would put new cash into bank accounts or CDs rather than equities.
  • Stephen Suttmeier at Bank of America Merrill Lynch said the present rally is the 5th longest since 1928, the S&P 500 Index has not closed below its 200-day moving average on a daily basis for 21 months versus the record of 30 months between 11/25/1953 and 5/23/1956. Suttmeier said the last streak of 21 months was between 7/27/1950 and 4/30/1952 and coincided with the S&P 500 secular bull market breakout in 1950.
  • The deluge of Internet warnings, along with post-crash traumatic stress syndrome, has investors obsessively fearing the next market meltdown.
  • Shiller’s CAPE at 26.3 versus its average of 16.6 and Tobin’s Q ratio at 1.17 versus its average of 0.68 both show markets to be significantly overvalued, while most other metrics show them to be fully valued, or slightly rich.
  • We can slowly grow our way out of high CAPE valuations. Salil Mehta at Georgetown University said the CAPE is not a tool for predicting crash timings, though it would take a high, single-digit number of years where prices underperform earnings, in order to drive it back to its normal long-term average of 15-16.

 

Read the full article at  http://www.bloombergview.com/articles/2014-08-21/the-stock-market-s-missing-ingredient

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Bogle’s legacy: Returns that trounce active investing – MarketWatch 08-07-14

Salient to Investors:

Mitch Tuchman at Rebalance IRA writes:

  • The best strategy for a retirement investor with a 5 to 25 year time horizon in a tax-deferred account uses low-cost index funds allocated across multiple asset classes and re-balanced at least annually.
  • Re-balancing – the discipline to sell assets that have gained to reinvest in assets that have declined – brings is a huge advantage.
  • Burton Malkiel at Princeton says re-balancing a stock/bond split portfolio annually added 1.5% to returns during the past 15 years.
  • Diversify over multiple asset classes, including large-caps, small-caps, developed-foreign and emerging-market stocks, bonds and real estate.
  • John Bogle at Vanguard says over a lifetime of active investing, the active manager gets 80% and the investor gets 20%.

Read the full article at http://www.marketwatch.com/story/bogles-legacy-returns-that-trounce-active-investing-2014-08-07

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