Is Gundlach Right, Have Bonds Bottomed?

A few weeks ago bond king and fellow Angeleno Jeff Gundlach mentioned that he thought bonds were near a bottom.  From Reuters:

“The momentum of higher interest rates is slowing,” Gundlach said. “Now is the time to be thinking about taking advantage of the price discounts that exist in some of the risk areas of the bond market,” he added.

Now I don’t know why his econometric analysis had led him to this conclusion, but history is certainly on his side, and we agree with him.  We used to do a lot of posts on asset classes, drawdowns, and really bad months.  Here are two charts on bond drawdowns from a post in 2010:

In general it shows that 10 year bonds usually don’t decline much more than 8%, and if they hit mid teens that is a great buying opportunity.  


Longer duration 30 year bonds obviously have higher drawdowns, and 15% is rare, with 25% being even more so.



A post we did in 2011 titled “When things go on sale, people run out of the store” examined what happens when you buy bonds in these drawdowns.  10 year bonds are down around 7% and 30 year around 12%.  That is usually time for a nice intermediate term trade.  Please visit the 2011 post for many more tables and charts.

Note:  This long term drawdown system usually couples well with short term really bad months.  We examined what happens after really bad months in asset classes (usually around -8% for equity like and -4% for bonds) and no surprise, that is usually a good time for a short term trade.

More on Timing

Factor Tilts

I was thinking about putting together a piece about “Indexing 2.0″.  ie What is the best was to build a portfolio that incorporates most of the factor anomalies, and maybe a chart with all of the ETFs filled in for the spaces.  This article reminded me of the project…with an interesting quote from Bill Bernstein: So, short-term T-bills remain appropriate on the fixed-income side, and on the equities side, would you hew to the classic broad-market passive investment frames of reference you’ve long embraced?

Bernstein: Yes, but I’ve always believed in factor tilts. And there are some new factors. There’s profitability and momentum, and I think those will hold a premium in the future.

Updated with great article from Gestalt.

How is CAPE Working?

I took a look at the CAPE values at year end 2012 to see how those markets were performing in 2013.

The 10 cheapest are up around 1%, and the 10 most expensive are down around 6%.

The five most expensive countries by CAPE at end 2012 are -11% YTD, led by expensive Peru and Columbia.  

We sent out the CAPE update to the Idea Farm list the other day, but fair warning, the US is now in the top 3 most expensive out of 40 countries…


Travel: NYC

I am a glutton for punishment.  First, Palm Springs in a 120 degree sauna last weekend and NYC next week (9-12).

Drop me a line if you want to meetup somewhere with AC.

Asset Allocation is Like Bullets

You see a lot of articles that like to compare investing to X (Poker, Moneyball, relationships, death, etc).  While they are a bit tiresome,  I was loving these photos from Sabine Pearlman Photography.  Kind of amazing to see the intricate differences in design that are largely used for the same purpose.


Trends in LA (CFA pres)

I’ll very likely be in attendance…


Tuesday, July 16th, 2013


Alex Greyserman, PhD
Chief Investment Officer – ISAM Systematic


Jack Weiner
Head of Sales, Americas – ISAM Systematic

Chair: Erik Einertson, CFA

An Alternative Investments Group Event

The presentation entitled “Trend Following: An Overview of Methodology and Return Characteristics” or as we refer to it the Trend Following Teach-In, is designed to further educate and demystify the strategy for several of our largest institutional clients.  It offers a general overview of the strategy and includes explanations around the source of risk premia that delivers the strategy’s returns, expectations of risk, methods of benchmarking, and strategy for risk allocation within a broader portfolio.  The analysis draws upon detailed research papers on the nature of trend following, which are produced by the ISAM Research team as well as analysis from academia.  The aim is to provide clarity and deep insight for both current and prospective investors into what can be described as an uncorrelated asset class with strong Crisis Alpha characteristics.

2013 First Half Review

How are most asset classes performing so far in 2013?  The best performers list is dominated by US stock categories, and the other end is largely commodities, foreign stocks, and bonds.

US Small caps lead the pack up 18%, while precious metals are down the most at -30%.  






40 sorted

Stockpicking Contest with $65k in Prizes

SumZero and Value Investing Congress are partnering up for their annual stockpicking contest…

We’ve had a few five figure winners from blog readers in past contests, let’s get some more!

$65,000 in prizes for the 3 finalists! Like last year, our grand prize winner will take the stage at the 9th Annual New York Value Investing Congress, taking place September 16th & 17th at Jazz at Lincoln Center’s Fredrick P. Rose Hall, and present their winning idea to an audience of elite investors. But this year he or she will also take home a robust cash prize of $50,000, and our 2nd and 3rd prize winners will also receive cash prizes of $10,000 and $5,000, respectively. All 3 finalists will receive a one year subscription to FactSet as well as free admission to the Value Investing Congress and Pre-Congress workshop. All contestants are eligible to receive a special trial offer to FactSet products as well.

How Can I Enter?
Starting July 15th, submit your finest investment idea in written form to this site. Your pitch must be 500 – 3,000 words in length and the company/opportunity you focus on must have a market capitalization of at least $500 million (USD). Preference will be given to write-ups on companies with greater liquidity, as well as those with a significant discussion of valuation factors and catalysts.

Beyond these minimal requirements, any and all types of investment ideas and strategies are welcome. This includes spin-offs, special events, turn-arounds, shorts as well as various asset classes outside of common equities, including preferreds, credit, derivatives and others.

Eligibility requirements include being an active SumZero member working on the buyside.

Some other conferences below…

Most are offered once a year with various deadlines:

Research Papers

S&P SPIVA ($30,000 + $15,000)

AQR Insight ($100,000 prize)

Whitebox Research ($25,000 prize)

NAAIM Wagner Award ($10,000 prize)

MTA Dow Award ($5,000 prize)

- See more at:

What Happens When You Buy Assets Down 80%?

We’ve done a lot of articles on value and drawdowns on the blog before (search the archives).  I was curious what happens when you bought the US equity sectors back when they were really hammered (French Fama to 1920s).  

Average 3 year nominal returns when buying a sector down since 1920s:

60% = 57%

70% = 87%

80% = 172%

90% = 240%


Average 3 year nominal returns when buying an industry down since 1920s:

60% = 71%

70% = 96%

80% = 136%

90% = 115%


Average 3 year nominal returns when buying a country down since 1970s:

60% = 107%

70% = 116%

80% = 118%

90% = 156%


It’s hard to buy something down 80%, especially if you owned it when it was down 30, 50, then 80%.  But usually that is a great time to be wading in…Some recent examples of assets that have gotten clobbered include tech in 2002, homebuilders in 2009, and Greece and (Junior) Gold Miners now.  

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