For those that are not familiar, I run an email service called The Idea Farm. The goal is simple: sort through the flood of white papers, books, investment newsletters, and general noise to find the 1 or 2 best ideas or research pieces each week. Honestly, I think the two pieces I mailed out this week have been worth the price of subscription alone.
Starting at the end of the year I’m going to raise the price (a lot) to try and keep the list small, but anyone subscribing prior to January 1 will be grandfathered in at the current rate, forever. What you receive:
> 1-3 emails per week with the best investment research. Some weeks zero, some more than 3.
> Free copies of all of my current and future books
> Excel backtester for testing asset allocations and tactical portfolios (will update in January)
> Quarterly country stock valuation updates across CAPE and other metrics
> Hedge fund profiles of my favorite 30 hedge funds to track with stock picks
>Access to all of the archives, updating quarterly
And maybe a sneak peak at the below graphic…The Idea Farm
From @MebFaber and favorites:
A few reads on the way or on my nightstand:
added one more I forgot: Dual Momentum by Antonacci
Zero to One – Peter Thiel
Millennial Money – Patrick O’Shaughnessy including special offer with lots of goodies here
World Order – Henry Kissinger
Deep Value – Toby Carlisle
Spy the Lie – Philip Houston
because of “X”. Market participants love focusing on the details while often avoiding the greater picture. And almost always they find ways to justify whatever market stance they have. Most bulls are now finding holes in all the valuation metrics the same way most bears in 2008 and 2009 were finding ways valuation metrics were different that time. They never are.
So, my argument to the CAPE ratio haters – fine, don’t use it. Let’s substitute in dividends, book values and cash flows, three totally different metrics. I sent this piece to The Idea Farm the other week with actual values, but below are the rankings for all the countries in the world by the four metrics, and then by an average of all . Notice anything?
They all agree. (For the most part, not exact of course… ) Poor Denmark.
I’ve been writing about 13F investing strategies for a long, long, time. Almost no where else in finance is there more disinformation on a topic. Honestly, I don’t think the SEC should make funds publish their holdings, but since they do, it is silly to not track what other managers are doing.
My first article on Seth Klarman was over 7 years ago (wowza). I used to even write some articles for Forbes print magazine on the topic. The last time I did I covered Seth Klarman’s Baupost Group. And sure enough I had a ton of hecklers online and sure enough a few weeks after the post he had a biotech stock get bought out.
Fast forward to 2014 and this summer Klarman owned Idenix which got bought out for a whopping 200+% premium netting Baupost over a billion dollars.
His simple top 10 clone has beaten the market by over 10% a year since 2000, and 10/15 years since 2000.
2014? Up 50%.
Yep, nothing to see here. My favorite thing about Baupost though is their holdings are almost always unique. Many hedge funds simply look like a copycat of other funds. Equity curve followed by top holdings:
Source: AlphaClone (PS know who else is having a great year? Pershing Square….)
I’ll be in the following cities to give some talks, come say hello!
Atlanta, Wed September 10th, ASFIP
Chicago, Sep 15th-19th, State Street and Morningstar Events
Charlotte, Sat Sep 20th, CFA/MTA Luncheon
Asia (Thailand and Bhutan), October 1-14
Sante Fe, Oct 16th-17th, private event
Portland, November 15th, AAII
Houston, January 15th, FPA
ETF.com, January 26th-28th
I just got back from 5 days backpacking and fishing in King’s Canyon (next to Sequoia) at a place called Rae Lakes. It has been on my bucket list for years, and it did not disapoint. Here is a quick photo before we dive into all things valuation related. Lots and lots of (little) trout.
So, there has been a lot of discussion about the CAPE ratio on social media lately. I’ve been writing on CAPE for a long time, including dozens of blog posts, a white paper, and a book - Global Value. (I’ll even send you a free copy if you agree to write an honest review on Amazon, just email me.) We launched an ETF on the findings at has been one of the top 5 launches of the year. Barry did a nice post with links to a lot of writers thoughts on the topic. I’ll add some of my findings with links below from the blog over the years.
Is the CAPE ratio good at predicting future returns? (Yes) Is it perfect? (N0)
Does the CAPE ratio work on individual stocks? (Yes)
Does the CAPE ratio work for sector rotation? (Yes)
Does valuation and sentiment correlate? (Yes)
Using CAPE to get out of stocks in the 1990s, is that a bad thing? (No)
Do accounting changes matter (Not really)
Does 2008/2009 matter? (No)
Does it matter what CAPE ratio you use? ie 1,3,5,7, 10 year? (Not really)
Can you combine trend and valuation to time the stock market? (Yes)
Does buying expensive markets result in bigger losses? (Yes)
Do the best and worst times in history to invest correlate with value? (Yes)
Another post on trend and value
Behavioral reasons value works
and Global Valuations
Does CAPD work too? (Yes)
Does CAPD say the same thing as CAPE? (Yes)
CAPE ratio Bollinger Bands
Are market cap weighted bubbles one reason the CAPE ratio works? (Yes)
Did the CAPE ratio work in 2013? (Yes)
How long does it take to work off a CAPE ratio bubble? (About 2-4 years)
Does it matter what value metric you use? (Not really) also here
How big was the US bubble? (Normal for bubbles, tiny vs. Japan)
Are most stock markets cheap? (Yes)
Does adjusting CAPE ratio for inflation make sense? (Perhaps)
Does CAPE simply correlate with drawdowns? (Yes) and here
Asness on CAPE
Arnott on CAPE
I can’t rec these interviews enough. Barry Ritholtz chats up lots of investment luminaries including Gundlach, Arnott, etc….bookmark!
Read, and then re-read this study. Patrick and I chatted about this study when I was in NYC last over beers and wine…my guess was that the moonshots would have had more growth characteristics, which caused people to consistently chase them. Turns out, it looks almost random.
I have been following the crowdfunding space with interest over the past few years, and dabbled a bit investing in a few private companies. As our investment management company has grown to over $400 million in assets under management, we have considered building out the business to add some much needed operational support. While at this time we are profitable and don’t need to raise money to continue our current operations, additional capital would allow us to accelerate a few initiatives and add some headcount to our current team of four.
Crowdfunding a round with accredited investors who can add value seems like an interesting option. We have reviewed a number of the crowdfunding websites, but they all charge fees that we find to be too high for a company that has a public brand and can go straight to the consumer. We don’t want to penalize our investors with carry or any other fees, so we are organizing the round ourselves with no fees. The round will be small (~$2M).
If you are an accredited investor that is interested in investing in a private, fast growing, early stage ETF issuer, please drop us a line at email@example.com with “Crowdfund” in the subject line and we will send you the pitch deck.
Please note that any securities would be sold only to accredited investors, which for natural persons, are investors who meet certain minimum annual income or net worth thresholds. Further, investing in securities involves risks, and investors should be able to bear the loss of their investment.
Any securities offered by the company would (i) be offered in reliance on an exemption from the registration requirements of the Securities Act and (ii) not be subject to the protections of the Investment Company Act or required to comply with specific disclosure requirements that apply to registration under the Securities Act. The SEC will not have passed upon the merits of or given its approval to such securities, the terms of such offering, or the accuracy or completeness of any offering materials.
Any performance data included herein represents past performance, which does not guarantee future results, and current performance may be lower or higher than the performance data presented. We are not required by law to follow any standard methodology when calculating and representing performance data and the performance of our company may not be directly comparable to the performance of other companies.