World Beta Blog

The Ira Sohn conference is running with a great list of speakers, I attended last year and am sad to miss – it  is a wonderful conference for a great cause.  Here is a list of other good idea conferences.

Einhorn had a quote: ”It doesn’t make sense to blindly follow me or anyone else into a stock,” do your own work.”  I agree with that of course, but what else could someone say, “yes please follow me into all of my stocks”?

I’ve written a book on 13F investing since there is soooo much confusion and misunderstanding in that space.  I’ll try and put it out sometime this summer after we finally publish our Shareholder Yield book next Tuesday (finally).  Curious to see how this ebook experience goes before deciding if next book should be physical or not…

So, how would blindly following Einhorn do?  Well, the answer is, it depends.  Great since 2000, but much better from 2000-2006, and not so hot since then.  This is long only, top 10 longs, 50 days after q end.  Einhorn may derive solid alpha from his short book (I have no idea) but I don’t have the updated monthly returns so can’t comment.  

As always, data is from AlphaClone…

We did a post the other day that combined simple value and trend systems into a portfolio that resulted in much lower volatility and drawdowns.  My friend John Hussman takes a look with a slightly different methodology and finds similar results.  Namely, buying what is cheap and trending up is a good idea.  Buying what is expensive, loved, and moving down is a bad idea.

That quote was from my friend Eric Crittenden at Longboard way back in 2007.  We were chatting about how a lot of the investable hedge fund indexes massive underperform the more often quoted, but also uninvestable cousins.  I had just published an article for the Technical Analyst magazine that examined this chronic underperformance of the investable indexes.  How have the indexes held up since? 

Since March of 2003:

Investable Index:  0.98% per year

Non-Investable:  6.43% per year.

…and since our original conversation on email in 07:

Investable Index:  -2.62% per year

Non-Investable:  2.28% per year.

on 60 minutes:

I’m finally putting out this ebook, and thought I’d include a section with 10 FAQs on dividends and buybacks.

If you have any burning questions send them in!

I really like Bloomberg moving into this space, but my guess is they’re going to have to cut their fee in half – $1,200 for something people will see as an app seems way too much.

A nice summary from Hulbert:

“Buyback strategies aren’t nearly as time-sensitive, according to David Ikenberry, dean of the Leeds School of Business at the University of Colorado Boulder and one of academia’s leading experts on stock buybacks. In an interview, he said that he has found in his research that the average buyback stock outperforms the market in each of the four years following the company’s announcement of its share-repurchase program.”

Professor’s homepage here.

Repost from Oct 2010.  Will probably post again in 2016.

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“Because I believe that all criteria for investing (that is, good betting strategies) should have a logic that isn’t time specific, I believe that the alpha generators that make up the ultimate alpha generator should be timeless and universal. By that I mean that they should have worked over very longtime horizons and in all countries’ markets.” Ray Dalio, Founder Bridgewater

Any trading system that is based on uncovering alpha, at least to me, must have a fundamental reason why the strategy works.  If you cannot explain why the inefficiency exists, or understand the fundamentals behind a technical strategy then you are likely just data mining.  I can get on board with the Presidential Cycle (source: NDR) as there are possible monetary reasons that strategy would work (artificial election year stimulus).  We are currently in the most favorable year (3) of the cycle being the pre-election year. Also Crossing Wall St.

One popular system many people discuss is the “Sell in May and Go Away” (also known as the Halloween Indicator) strategy.  The system simply invests in the stock market from November – April, then moves to cash from May – October.  This strategy popularized by Yale Hirsh (who writes the informative and entertaining Stock Trader’s Almanac 2011), has its origins in the U.K. market as far back as 1935 (see must read paper “Are Monthly Seasonals Real?“).

The paper finds very strong evidence of abnormal performance in the UK since the 1600s, and Bouman and Jacobson (2002) find that the strategy works in 36 of the 37 countries they tested.

This strategy has performed mightily since 1950 in the US as the chart below indicates. This is what is great about the investment blogosphere – the velocity at which an idea whips around and lots of people can comment on it and share their input…Lots and lots more chatter here on: Abnormal Returns, Hulbert,and CXO.

If you take the strategy back to 1900 in the US, the results do not confirm for the first half of the century.  You have to ask yourself “What is the fundamental reason this strategy works?”  Some offer Seasonal Affective Disorder, holiday good tidings, pension flows, summer vacation, and tax season in April…

In any case, the new period starts Monday!

I created this chart today to see how many of the S&P 500 stocks had a positive net payout yield (dividends & net stock buybacks).  Turns out it is most, nearly 80%, which is great (R2K is less around half which is not surprising due to their smaller size, etc.)

Here is the chart.  I excluded the 10 worst capital destroyers as it caused the chart to scale funny.  Interestingly enough, half of the 100 or so companies with a negative payout yield actually had a positive dividend, including eleven over 3%.  

We sent out the below to The Idea Farm list recently, and the chart was so good I had to share it here.  

JDV includes this great chart that illustrates investing in the largest company in the US….good idea? 

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The Trillion Dollar Mistake

• 5 New Asset Classes with SocGen (upcoming)
• Macro Updates with Cornerstone  (upcoming)
• Inflation expectations and commodities with Guggenheim
• Cantor on Kamikaze QE
• McClellan on copper inventories
• Fundamental improvements with Janiczek
• and our GTAA paper update.