Is this the bottom in stocks?

…or are you catching a falling knife? Unless you have a plan (and the tactical model I published certainly looks like a good one right now), then subjective guessing about where the markets are going is a recipe for disaster.

Do you have your Bad Idea jeans on? A little humor from the SNL vaults for these volatile markets. . .

Is it Time to Buy the Gold Miners?

Please read my original post here for background information.

The ratio of the Barrons Gold Mining Index to cash gold is getting into buy territory where future excess returns are nicely positive (around 1.2 currently).

LinkFest

I feel like I have been on the Moon for the past 10 days – that’s what happens when you lose your laptop charger when on a long trip.

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It is better to buy stocks when credit spreads are rising rather than falling (at least for a one month hold). It also looks like spreads are predictable.

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I always wondered why a search engine didn’t pay the users to search, and now one does – Scour.

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As always, a great review over on CXO of an academic paper. In his September 2008 paper entitled “Black Swans in Emerging Markets”, Javier Estrada investigates the influence of the best and worst days on long-term equity returns in emerging markets. I would bet that the vast majority of the up and down days occur when below the 10-month moving average. And I bet the volatility is much higher in line with my asset class studies here.

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Gottex is launching an endowment style fund. And here is more on Harvard’s ’08 results.

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If you bet on the election, don’t use real money.

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% distance stock markets are from their peak. That means it is going to take a gain of around 150% to get back to even in China, or, roughly five years compounding at 10% per year. Ouch.

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A Tiger Cub shuts down. Also, more fund closures here.

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I worked in a gene therapy lab in college and remember spilling our prized virus all over the lab (and the resulting two hour clean-up). I am still waiting to see if I get any super powers from the experience. Judson on the Virus.

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The TechCrunch 50 Program.

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Five Great Investment Papers.

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Ok, it’s official. I’m buying a Maserati. Today.

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If ever there was a reason to go out and party Tuesday night, this is it…

Time to Short Credit Spreads?

As the Bespoke boys point out, spreads of corporates vs. treasuries are getting to historical levels. Below is a chart that takes the data back a little further. All data is from the St. Louis Fred database.

Index Huggers

Is your fund manager just an index hugger in disguise? (Cartoon from www.nicholsoncartoons.com.au )

Investing in most mutual funds is a waste of time as they rarely offer any benefit over low cost index funds. Sure there are some exceptions of managers willing to hold unconventional portfolios like CGM (CGMFX), Fairholme (FAIRX), and Hussman (HSGFX) – but most simply track an index with more fees.

To give an example, I looked at the 9114 funds Morningstar ranks as “all-diversified stock funds”. Of these funds, the average performance is around -12% YTD, and only about 50 have positive performance YTD. The top five are:

HRVIX Heartland Value Plus 11.17
PARSX Parnassus Small-Cap 9.96
FVALX Forester Value 9.29
AARFX Akros Absolute Return 7.81
HFTFX Hennessy Focus 30 7.29

Of the 158 long short funds, only 14 are positive, with the top five being:

HSKSX Highbridge Statistical Mkt Neutral Sel 7.99
DDMIX DWS Disciplined Market Neutral Instl 6.20
HSGFX Hussman Strategic Growth 5.01
MGAAX Managers AMG FQ Global Alt. 3.98
PALIX Palantir Fund 3.66

In a related note, if you had been following the simple TAA timing model from my paper, you would be up around 2% (gross of fees) through the end of July. Even a simple buy and hold would have flat performance YTD through July. . .

Follow-Up Post To Largest Company By Market Cap

About a year and a half ago I wrote and article investigating the performance of the largest public stock by market capitalization each year.

The original study was featured in the book “Mosaic: Perspectives on Investing” by Pabrai.

Pabrai did a backtest and reported a near 500 bps underperformance for the top mkt cap company vs the S&P 500. I extended the study a few years and found the results to be consistent, with the underperformance in CAGR of almost 7% from 1986-2006. This intuitively makes sense as the forces of capitalism work to compete with the top company (in addition to the difficulty in growing earnings at a massive scale).

How did this strategy perform in 2007?

Awful. Exxon’s stock (XOM) was up about 24% vs. 5.5% for the S&P 500. XOM would have been the largest company again in 2008, and both XOM and the S&P are down about equally in 2008.

Bespoke takes a look at the top companies in the world by market cap and 2008 stock performance.

PS One of the topics Pabrai covers in a subsequent book is cloning the best investment processes of great investors such as Buffett, Graham, and Munger. He argues that there is no need to reinvent the wheel – and simply apply the same selection model these investors have for decades. I go a step further and argue that an investor can perform equally well by simply following the holdings of these investors.

I have no idea how Pabrai’s funds are performing, but if he is just running a long only book, then it sure looks like he is in trouble (from SEC filings). I don’t see him on the implode-o-meter list…

LinkFest

Some of my research got mentioned in the new issue of the New Yorker. You can find the article here: “That Uncertain Feeling“. Although the author makes it sound like the reason markets are more volatile when they are declining is that traders are chasing losses – which I disagree with. I think it is simply that people are fearful and using a different part of their brain – namely, the flight response.

Here is some more on the psychology of losing.

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PTJ’s new quant fund Tensor is having a great year.

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The first shipping ETF launches.

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AllAboutAlpha has an article about Lo, and I must say I am more excited about his upcoming book The Heretics of Finance: Conversations with the Leading Practitioners of Technical Analysis than any other book in a long time.

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Nice graphic of voter turnout by age.

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The best photos from the Olympics.

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China is probably a great 6-12 month buy here. I remember an academic paper that tracked the results of local stock returns following hosting an Olympics, and the excess returns were high. Email me a link to the paper if you can find it.

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I thought Tropic Thunder was fantastic, especially Robert Downey Jr. Great recent interview in Rolling Stone here.

And the Winning Cover is. . .

I thought my book was coming out in November, but now it looks like February. Sheesh.

A good indication of the quality of my design tastes shows that my favorite cover garnered a puny 5% of the total vote for the three covers. Maybe that is a good sign that I am a contrarian (or have really bad taste I am not sure which.)

You can click through and see which cover won.

The Ivy Portfolio: How to Manage Your Portfolio Like the Harvard and Yale Endowments

It also makes me wonder about Amazon’s algorithm “Customers that bought this book also bought”.

How can they compute this if my book hasn’t even gone on sale yet? (Maybe they’re using pre-sales numbers, I dunno.)

Hedge Fund Masters Update

Are the top value hedge funds going to beat the market every quarter, or just outperform when the market is going up?

Maybe we should ask Will Ferrell, errr, I mean Robert Goulet:

“You win, you always do – that’s why I come up here.” (Video at the end – thanks to reader SB.)

All data is from the close on Wednesday. (For a much more in depth look into the 13Fs check out these posts over on the Market Folly blog.)

It is time to update the two hedge fund 13F portfolios we track on World Beta. If are are unfamiliar with the approach it is spelled out numerous times on my blog – you can just search “13F” and a bunch of posts will pop up.

I am not sure if I am going to continue to track these after the launch (hopefully next month) of AlphaClone. This blog is mostly about investment theory and applications rather than making investment advice and picks, so unless there is a lot of interest I may discontinue the updates. The strategies have outperformed the indexes by around 15% over the past year and a half, and there is some validity behind the approach. The two strategies we have tracked seem to follow the market on the downside but have much higher upside volatility. Those numbers are in line with my historical backtests of 6-12% outperformance per year. If you have a strong opinion either way, let me know. On to the filings!


Hedge Fund Consensus - Top holdings owned by 15 value hedge funds, ranked by # of funds with the same position. Qualcomm (QCOM) was the standout performer at around 18%, and American Express (AXP) was the worst performer at -23%. Everyone still loves Qualcomm, but everyone really loves American Express (AXP) now. Is it a falling knife or just a really cheap stock? Currently AXP is down about -40% from its high.

AAPL (3)
BRK(3)
MA(3)
QCOM(3)
TGT(3)
V(3)

WLP (4)

AMX (5)
GOOG (5)
MSFT (5)

AXP (6)

The list of double repeats is at the end of the post.

Hedge Fund Best Ideas – Top two holdings from each of 10 value hedge funds listed below. Qualcomm was the standout performer here as well, and Cadence Design Systems (CDNS) and News Corp (NWS) were the worst at around -31%.

AAPL
AMT
AMX
AXP
CDNS
CA
CY
GOOG
HLX
HPQ
KO
MA
MSFT
NWS
RIMM
SD
TGT
WFC
WLP
WYE

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Baupost Group

Klarman still holds his top positions in News Corp (NWS), Wellpoint (WLP), and Exterran (EXH). New positions include PDL Biopharma (PDLI) and United Health Group (UNH).

Top 10 holdings are:

WLP
NWS
EXH
PDLI
UNH
UFS
LINE
LMDIA
THRX
HRZ

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Blue Ridge Capital

Griffin runs a pretty diversified portfolio, and he was added to top names Google (GOOG) and Wyeth (WYE). New positions include Anadarko (APC) and Visa (V).

Top 10 holdings are:

GOOG
WYE
AXP
AAPL
CVA
MIL
TV
SCHW
APC
DISCA

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Warren Buffett

Not much going on here. Bought some NRG Energy (NRG). The Conoco (COP) stake was exempted from filings (thanks reader MC).

Top 10 holdings are:

KO
WFC
PG
BNI
AXP
JNJ
KFT
WSC
USB
MCO

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Eminence Capital

New position in Google and Abbott (ABT), sold out of Yahoo (YHOO) and UPS (UPS). Added to top positions American Express (AXP) and Cypress Semi (CY).

Top 10 holdings are:

AXP
CY
ORCL
PHG
FISV
DGX
MSFT
SAI
UTX
IGT

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Greenlight Capital

50% of Einhorn’s portfolio is in his top five holdings. New positions in Teradata (TDC) and Republic Airways (RJET).

Top 10 holdings are:

TGT
HLX
MSFT
AMP
MDC
HMA
BAGL
MIM
URS
PCX

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Lone Pine Capital

Bought new positions in Entergy (ETR) and Weatherford (WFT).

Top 10 holdings are:

SD
AMX
XTO
GOOG
QCOM
ETR
FAST
WFT
MON
MSM

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Maverick Capital

Ainslie added new positions in First Solar (FSLR) and CVS Caremark (CVS). Sold Qualcomm and Amazon.

Top 10 holdings are:

AAPL
RIM
AMX
BK
MRVL
FSLR
BAX
AMD
JWN
RTN

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Okumus Capital

Lots of turnover here. 60% of the portfolio is in the top three positions Microsoft (MSFT), Cadence Design (CDNS), and Office Depot (ODP). MSFT is a new position and accounts for a third of the portfolio.

Top 10 holdings are:

MSFT
CDNS
ODP
M
AN
MHP
ORLY
DST
EXPE
CTA

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Private Capital

Bought a little Sothebys (BID), sold out of BEA Systems (BEAS).

Top 10 holdings are:

CA
HPQ
SYMC
MGM
S
RCL
RJF
JW
IGT
NTRS

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Tiger Global

Mentor (MNT) and Trustmark (TRMK) are new positions, and sold out of Luxottica and Focus Media (FMCN).

Top 10 holdings are:

MA
AMT
CSX
GOOG
AMX
QCOM
BIDU
SBAC
TDG
MELI

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List of double repeats:

AMT
APC
BID
BNI
CA
CDNS
CSCO
COV
CY
DST
ETN
IGT
HPQ
HMA
HLX
KO
MDC
MSTR
MRVL
NWS
ODP
ORCL
PCLN
RIMM
SAI
SD
TDC
UNH
WFC
WMB
WMT


via videosift.com

LinkFest

Man I bet the magazines are going nuts over this site – Mygazines. I have no idea how this is possibly legal.

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One more aggregator launches – Blogs.com. At least they have the name going for them, but I can’t say I have any reason to go to their site. . .

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Man I wish I had this when I was writing my book or my college thesis – would have saved me a ton of time. Bibme.org

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I’m thinking about a Fall fly fishing trip to Montana. Any suggestions?

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Looking for a new job? CalPERS is hiring.

CalPERS, the largest public pension plan in the United States, seeks an experienced investment professional for the role of Chief Investment Officer (CIO). This individual leads and manages the 200+ person Investment Office, which invests CalPERS assets across a diversified global portfolio in public and private equity, fixed income, real estate, and inflation-linked assets. The CIO makes recommendations to and works closely with the CalPERS Board of Administration to determine prudent, forward-thinking investment strategies in accordance with CalPERS fiduciary responsibilities, policies and corporate governance standards. The CIO is a visible investment leader for CalPERS globally – within the investment community, public pension industry, before regulatory and governmental bodies and in the media.

See http://www.calpers.ca.gov/eip-docs/about/facts/investme.pdf for further details about CalPERS investment allocations.

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