20 Aug 2015

Pull the Trigger Already

As usual, markets were hyper-focused on the exact timing of interest rate liftoff.  While it’s clear that rates are very likely to rise before the end of the year, the debate continues over whether September or December will carry the day. Judging from the minutes, I personally have the feeling that the Fed doesn’t really know because the voting members themselves are split.  Remember, while these folks are brilliant economists,… Read More

By David Ott Tags:
19 Aug 2015

High Yielding Asset Classes

Given the low interest rate environment that we’ve endured over the last several years, a lot of our clients ask how we can increase the yield of our portfolios. While yield is an important component of total return (which is income and appreciation/deprecation together), we sometimes see investors stretch for yield without fully understanding the consequences of their decisions. The table below shows the SEC-yield (which is a whole story… Read More

By David Ott Tags: , , ,
18 Aug 2015

The Outlook for Stock Returns

Last week, I wrote that I was wincing at the valuation for the US stock market (click here for the article) and said that I thought that returns in the coming years would be lower than the historic averages. Importantly, I said that returns could be low without a crash in the form of lower average returns.  I wish I had also said that even though the average return might be lower,… Read More

By David Ott Tags: ,
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

By David Ott Tags:
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

By David Ott Tags:
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

By David Ott Tags:
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

By David Ott Tags: ,
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

By David Ott Tags: ,
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

By David Ott Tags: , ,
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

By David Ott Tags: