How to Win NFL Pick’em

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:

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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!

 

Mom’s Buying Munis

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.

 

muni

 

 

New Contest – $45k & Travel

Another contest, this one for the super model nerds, over $40k in prizes and top finishers also get a free trip to NYC.

Model Off 2013

Shareholder Yield Presentation

Giving a talk next week online, feel free to join in and ask some great questions!

 

Mebane Faber
Join me, Mebane Faber, for my live presentation:
Global Stock Valuation and Shareholder Yield—A Better Approach to Dividend Investing

Thursday, September 19 at 10:00 – 11:00 am Eastern.

CAPE Ratio for Stocks and Weekend Reading

Want to know the CAPE for your favorite stock?  Curious about GOOG (52) DELL (9) or JCP (6)?

Here you go!

http://www.caperatio.com

A few books that just arrived as well below.  What are you reading? 

The Manual of Ideas: The Proven Framework for Finding the Best Value Investments

Treasury’s War: The Unleashing of a New Era of Financial Warfare

Quantitative Investing: Strategies to exploit stock market anomalies for all investors

CAPE Values for Frontier Markets

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:

Screen Shot 2013-08-27 at 3.56.28 PM

Stock Market Selection Strategies

The Jay Cutler Bull Market

It is interesting to note that CNBC viewership largely tracks the market.  Up in good times, down in bad times –  with the exception of this past bull where viewership has declined to near all time lows.  Doesn’t seem like retail is participating, or perhaps more accurately, even cares.

Source: ZH

Screen Shot 2013-08-28 at 12.09.54 PM

What Siegel is Missing

Jeremy Siegel talks about CAPE in a recent FT article.  He has a few criticisms, but misses the bigger picture in my opinion.

1.  He talks about write downs and how that biases CAPE.  The problem is, even if you ignored the  bear market, even if the earnings decline of 2008,2009, 2010 never happened, effect on PE10 / CAPE would be mild- it would go from 23.7 to 21.2.  In other words it is still expensive!  (This was a month ago).

Today SocGen put out an excellent piece titled “To Ignore CAPE is to Deny Mean Reversion”

They use the MSCI earnings index that doesn’t include the writedowns and they come to the same conclusions as using the S&P series.  

2.  CAPE isn’t really a short term timing measure for one market.  Like most valuation measures, it’s not that helpful telling you what to do for the next 6 months.  It makes much more sense to align the indicator with your holdings period.  Here is a post we did – Broadening the Window.  However, pretty much every value measure we track aligns to say the same thing – US stocks are expensive.

3.  But the biggest point that he misses, is that in a global world why focus on just the US?  There are well over 40 investable countries in the world, why just settle for one?  We have shown numerous times that selecting countries on a relative basis on CAPE works great to not only pick winners, but also to avoid the bubbly losers.  And according to CAPE, the US is the second most expensive market we track right now…and according to 1 year PE, it is the 4th most expensive…and according to P/B…etc

If you do a composite across 10PE, 1PE, FCF, P/B, and dividends…the US is still the 4th most expensive…

4.  Note the potential for margin mean reversion in the below chart from the SocGen piece….which side would you rather bet on?

 

Clipboard02

 

Conclusion from Lapthorne at SocGen:

“At the peak of the cycle, when profits are far above average and the economy is doing well, it is hard to imagine earnings collapsing back below the average, as it is to imagine a depressed region recovering. Mean-reversion in earnings, though sometimes delayed, is as undeniable as the economic cycle itself. Cyclically adjusted (or trend) PE calculations will always give a conservative valuation estimate. But that is exactly the point of valuation – to offer a degree of safety (a margin of error) and to smooth the dangers of the economic cycle. That peak profits typically accompany peak valuations only reinforces the point.

One can always discuss the idiosyncrasies of any particular valuation metric, although we reach similar conclusions to Robert Shiller’s CAPE analysis – but using a more modern time frame and a different (and more generous) earnings series. Our conclusions are that the US equity market is currently expensive. We can also reach a similar conclusion using alternative valuation metrics such as dividend yield, trend PE, and Tobin’s Q.

Most significantly, the downside risk of investing when earnings and valuations are far above historical averages should not be underestimated.  from our work, peak earnings go hand-inhand with peak valuations. When earnings revert back to mean (and below), the valuation will also collapse. That many continue to argue against this, and so soon after the collapse of 2008/09, is something we find quite remarkable. “

The Disruption Continues

KHLoXcr

What used to be marketed as alpha is really just simple indexes once you shed some light on it….(Sculpture from Tim Noble and Sue Webster and HT: MS)

If I were a high fee mutual fund complex I would sure hope I was near retirement.  The evolution of former alpha into “alternative beta” or “smart beta” or just simply just “better indexes” continues.  I’ve been harping for years wondering why some fund complexes haven’t launched some simple managed futures products with low fees, and finally I saw today one did.  Lets look forward to this continuing!

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