14 Aug 2015

What Success Looks Like

A while back, a colleague recommended that I listen to a podcast on Bloomberg called Masters in Business with Barry Ritholtz.  On the podcast, Ritholz interviews luminaries from the investment industry (and a few others) and talks about my favorite topic. Although I had listened to one featuring AQR co-founder Cliff Asness, I really didn’t take interest because I had seen Ritholtz on CNBC and didn’t think he was particularly… Read More

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13 Aug 2015

Wincing at US Market Valuations

One of the things that I have heard many times over the years is that lower interest rates equal higher equity valuations.  To be honest, I always struggled to understand why that relationship would be dogmatic. In the past, I reconciled the idea by thinking about the price-earnings ratio (PE-ratio) as an earnings yield, which is simply the inverse of the PE-ratio.  If the PE-ratio is 20, then the earnings… Read More

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12 Aug 2015

The Chinese are Nervous

Although China has been liberalizing in recent years, one of the most centrally planned aspects of their economy is the value of the currency. Yesterday, the People’s Bank of China (PBoC), their central bank, lowered the value of their currency against the US dollar by almost two percent, the largest one-day move in decades (although as currency devaluations go, this one was small). If you look at the chart below,… Read More

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11 Aug 2015

Buffett Bags an Elephant

Warren Buffett wrote in Berkshire Hathaway’s 2010 annual report that they ‘will need both good performance from our current businesses and major acquisitions.  We’re prepared.  Our elephant gun has been reloaded, and my trigger finger is itchy.’ At that time, he was just coming off his largest deal ever, purchasing the railroad Burlington Northern Sante Fe for $26.7 billion in 2009.  In 2013, it appeared that he had bagged his… Read More

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5 Aug 2015

The Secret to Stock Buyback Returns

As I wrote earlier this week, the plunge in oil prices has dramatically cut profits for energy firms (see the article here). Some of those companies have been using their excess cash over the last few years to buy back shares of their own stock, which reduces the number of shares outstanding held by investors. Last year, I looked at buybacks versus dividends (read the article here) and today I… Read More

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4 Aug 2015

Greek Stocks Fall 16% in One Day; Markets Still Efficient

Thankfully, Greece has been out of the headlines for a few weeks as the Mediterranean country continues to negotiate their third bailout in five years. In the meantime, some of the capital controls are beginning to lift: banks reopened on July 20 (although withdrawals are still severely limited) and yesterday, the Greek stock market opened again, albeit -16 percent lower. Obviously, that’s an enormous decline – the S&P 500 has… Read More

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3 Aug 2015

Lower Oil and Earnings: A Tough Combo

We are now almost three quarters of the way through the current earnings season and, so far, earnings are down around -1.3 percent from last year according to FactSet. That’s much better than what markets were expecting at the outset of the quarter, which was -4.6 percent as 73 percent of companies reported results better than analyst estimates. Results in the energy sector have been especially terrible, falling -57 percent… Read More

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31 Jul 2015

Acropolis Dodged a Bullet

One of the hottest trends in investing over the past five to ten years has been investing in master limited partnerships (MLPs). As the name states, an MLP is a limited partnership that is somehow engaged in the natural resources business.  MLPs engage in the exploration and development (upstream), processing and transportation (midstream) and distribution and marketing to end consumers (downstream) of products like timber, coal, minerals, oil natural gas… Read More

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30 Jul 2015

Get Out Your Smelling Salts: The Fed Speaks

As expected, the Federal Reserve Open Market Committee (FOMC) left short-term interest rates unchanged yesterday. Their statement yesterday along with other comments from Fed officials imply that the Fed is on course to raise rates later this year, citing solid job gains and lower unemployment. Specifically, the statement yesterday added the word ‘some’ to a key phrase: ‘The Committee anticipates that it will be appropriate to raise the target range… Read More

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29 Jul 2015

When the Index is Wrong

When you buy an index fund, it’s natural to expect that your fund will earn basically the same return as the index. In a perfect world, you should expect an index fund to earn the index returns minus the cost of the index fund.  If an index fund charges 0.1 percent annually and an index earns 10 percent, you should expect to earn 9.9 percent. There are other reasons why… Read More

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