29 Aug 2017

Forecasting Expected Returns

“Price is what you pay.  Value is what you get.”  -Warren Buffet How can investors know the value of an investment?  Bond yields remain very low and stocks continue to climb higher across the globe.  Using typical valuation measures, markets everywhere look very expensive.  However, investors continue to pour money into them, so they must see value.  The value of an investment is subject to an uncertain future, so how… Read More

17 Jan 2017

I am a Capitalist

Last week, I had a very enjoyable meeting with a valued client and long-time reader.  In the meeting, he said that I should publish some of my old Daily Insights now and again, something I plan to do from time to time when I don’t have an idea (like now) on periodic Throwback Thursdays.   The commentary below dates back to August, 2011, when stocks lost more than 15 percent… Read More

25 Aug 2016

Dow Falls 1,000 (One Year Later)

Last year at this time, deep fears about China’s economy caused US markets to drop sharply.  The Shanghai market -8.5 percent one day drop spread to our shores and the Dow Jones Industrial Average (DJIA) fell -1,000 points in a single day. The week before, markets that had dropped by the massive one day plunge sent all of the stock market indexes into a correction, generally defined as a decline… Read More

5 Jul 2016

Why Did Stocks and Bonds Gain Last Week?

One of the interesting things about the stock rally last week is that bonds also rallied.  Over longer periods, stocks and bonds are lowly correlated, which means that they are generally independent from each other. Over very short periods, especially when there is a lot of activity, stocks and bonds are usually negatively correlated.  If you had told me that stocks would rebound sharply last week and gain 3.27 percent, which reversed most… Read More

3 Jun 2016

Small Caps Simultaneously Over- and Under-Perform

You may have noticed that the small cap index in the table above, the Russell 2000, has been gaining ground recently on the S&P 500, the benchmark index for large cap stocks. The chart below shows the return for the Russell 2000 (in orange) as nearly caught up with the S&P 500 (in blue).  The return difference, as we can see in the table is just one-third of one percent,… Read More

16 May 2016

Buffett Considers 2nd Tech Investment

Last December, I wrote that fading internet stock Yahoo was trading below the sum of its parts. You can read the whole article here, but the basic idea was that when you looked at the component value of Yahoo’s major parts, the market was saying that the core business was worthless. At that time, Yahoo owned stock in Alibaba worth $32 billion, stock in Yahoo Japan worth $8.5 billion and cash… Read More

19 Nov 2015

Injured Unicorns Spotted in Silicon Valley

As opposed to the horse with a single, spiraling horn projecting from its forehead, today’s unicorn describes privately held start-ups that are worth more than $1 billion: think Uber, AirBnB, Snapchat or Pinterest (actually, these are all considered ‘deca-corns’ because they are worth more than $10 billion). Current estimates suggest that there are now 143 unicorns in existence today and are supposedly worth half a trillion dollars, but it’s actually hard… Read More

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9 Oct 2015

Visualizing Stock Returns

A great way to visualize asset class returns is to put them into what the industry calls a ‘periodic table,’ which I’ve done below.  The basic idea is to order the returns of asset classes in each calendar year from best to worst. In the chart below, 2006 is the first year and the best performing asset class in gray was 35.9 percent.  At the bottom of the column is… Read More

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1 Oct 2015

What If I was Japanese?

Stocks enjoyed a positive finish to a tough quarter, as the S&P 500 gained 1.91 percent yesterday but was still down -6.44 percent for the quarter. It was the worst quarter for most markets since 2011 during the first phase of the European debt crisis. Somewhat surprisingly, markets shook off weak purchasing manager data from Chicago and the onset of Russian airstrikes in Syria. Some investors believe that more stimulus… Read More

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29 Sep 2015

Can One Stock Foil the Market?

The selloff in stocks yesterday was a little different than what we’ve seen so far this month, both in terms of its magnitude, but also its suspected causes. Last month stocks sold off more sharply than they did yesterday, but things had quieted down a little bit, as you can see in the chart below. When stocks fell last month, the concerns were macro in nature: the slowdown in China,… Read More

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