My friend John Hussman has done a lot of great work looking at stock returns during different regimes. At the end of the post is a chart where he looks at some various scenarios and how the market performs. Below, I simplify it a bit, and just look at US stocks since 1900 across trend and valuation. Trend is > 10 month simple moving average. Valuation is CAPE <> 17. Not rocket science.
Not surprisingly, the best time to be invested is in a cheap, uptrending market. The worst time? An expensive, downtrending market.
(The returns are median monthly returns after inflation, annualized.) We are currently in the category of up, expensive.
The biggest shock occurs when the expensive US market moves into a downtrend. What’s that you say? A bear market? Never heard of it…
It is interesting to me to hear the famous value guys disagreeing on market opportunities lately. Some are talking about finding lots of opportunity, while others are returning cash to investors due to lack of opportunity. I guess it depends on your framework. Even quants are disagreeing on what they see out there. Here is a great chart from some of my favorite writers over at SocGen - but it shows two basic quant screens and when they find the most opps…
I posted this article way back in 2010. It is a simple quant, anti-consensus method to win your NFL (or any sport) pickem league (where you bet against the spread in a closed league). If you have been following this you would likely have won both weeks thus far in 2013:
I’ve used a simple betting strategy to win our office NFL pool most weeks. It simply fades the consensus picks. Online books and betting websites have been publishing this data since the early ’00s, and now it looks like there is some empirical evidence that backs up this supposition from the website Sports Insight. Now, these %ages will not help you in Vegas (you need to win roughly 55% of the time to overcome the vig) but they may help give you an edge in your office pool. Note that since your competitors are likely following the consensus, any win will likely distance you from the rest of the field as well creating an outlier that should help to separate points from the pack. This is the most important piece of information – if you can bet on a team where 80% or 90% of the pool is taking the other side, you stand a great chance of winning…
The website lets you download the data (for a $) so you can run your own quant analysis. Report back with any interesting findings!
My mother (that I love more than anything on the planet) is the near perfect contrarian signal when it comes to investing. Rarely do we actually talk investing, but when we do it is usually in the form of “should I sell X?” after X has declined by Y.
She has probably way too much US stock exposure for her risk tolerances (although her cost basis on some stocks is quite remarkable), and so we are rotating her out of the expensive (IMO) US stock market into bond opportunities, and balancing out the foreign exposure to over 50% of equity exposure. Specifically, she will be adding muni ETF and CEFs. The broad AAA indexes have declined by 7-10%, and historically that is incredibly rare – it only happens about once a decade. If they continue down another 5% she will buy more, and if they continue down to a 20-25% drawdown I expect there to be some massive opportunities in the CEF space for a great investment.
Chart is through July, so there is a little more DD than you can see on the chart.
Another contest, this one for the super model nerds, over $40k in prizes and top finishers also get a free trip to NYC.
Giving a talk next week online, feel free to join in and ask some great questions!
Want to know the CAPE for your favorite stock? Curious about GOOG (52) DELL (9) or JCP (6)?
Here you go!
A few books that just arrived as well below. What are you reading?
Damodaran’s post the other day (and a reporter inquiry) led us to add 15 new countries to our CAPE tables. We will send out the new values this week to The Idea Farm list. There is a new most expensive country in the world!
However, as you move down the market cap ladder the countries get less and less investable..below is a nice chart from Emerging Global Advisors on developed vs emerging vs frontier: