NYC and Chicago Next Week

I’ll be talking at these two events next week, drop in and say hello and pick up a free book!

NYC

High Income Strategies in a Challenging Interest Rate Environment

Tuesday October 1, 2013 8:15 AM through 3:15 PM
NYSSA Conference Center

CHICAGO

Morningstar ETF Conference

I’ll be on a panel Friday…

How Does a 2000 Year Old Asset Allocation Strategy Perform?

Maybe the combination of two seemingly unrelated things will make the whole more complete?

download

Much like the Merkel shirt on a plumber, the above phrase is really asset allocation summed up in a nutshell.  Add assets that should pay you cash flows, and do so in different environments.  We did a few posts on this already, and I added a new one after reading the new edition of Gibson’s Asset Allocation book.  

“Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.” -Talmud

So I added a column for 33% REITs, 33% US stocks, and 33% in 10 Year US Bonds.   How did it perform?

Basically the same as all the other asset allocation strategies.  Buy and hold asset allocation is great, you just shouldn’t be paying people much for it…

talmud

Does CAPE Work on Stocks?

My buds Wes Gray and Jack Vogel  just put out a killer new paper where they asked the above question.  The simple answer is “yes it does”.

The more interesting answer is 1) there are other cyclically adjusted measures that work better and 2) there is some other factor (you know I like) that reaaaalllly gets the returns flowing.  Our friends at O’Shaughnessy should like this one too.

Enjoy!  (and if you email Wes please shame him for canceling on our Morningstar panel at the ETF conference next week!)

 “On the Performance of Cyclically Adjusted Performance Measures” 

Below is a summary of the 20 cheapest S&P500 companies with positive values CAPES all under 10 from CAPERatio.com:

LyondellBasell Industries NV LYB Basic Industries Major Chemicals
Cliffs Natural Resources Inc CLF Basic Industries Precious Metals
Citigroup Inc C Finance Major Banks
General Motors Company GM Capital Goods Auto Manufacturing
United States Steel Corporation X Basic Industries Steel/Iron Ore
J.C. Penney Company, Inc. JCP Consumer Services Department/Specialty Retail Stores
Bank of America Corp BAC Finance Major Banks
Apollo Group Inc APOL    
Alcoa Inc AA Capital Goods Metal Fabrications
Pitney Bowes Inc. PBI Miscellaneous Office Equipment/Supplies/Services
Franklin Resources, Inc. BEN Finance Investment Managers
Morgan Stanley MS Finance Investment Bankers/Brokers/Service
Marathon Oil Corporation MRO Energy Oil & Gas Production
Valero Energy Corporation VLO Energy Integrated oil Companies
Frontier Communications Corp FTR Public Utilities Telecommunications Equipment
Altria Group Inc MO Consumer Non-Durables Farming/Seeds/Milling
Exelon Corporation EXC Public Utilities Power Generation
Dell Inc. DELL Technology Computer Manufacturing
SunTrust Banks, Inc. STI Finance Major Banks
Peabody Energy Corporation BTU Energy Coal Mining

 

PS this is another wonderful resource from Wes at his Turnkey Analyst site…sort of like the FF data resource…

 

How Does the All Market Portfolio Perform?

I enjoyed reading Phil DeMuth’s recent book The Affluent Investor.  It’s a good overall read on asset allocation for the individual.  At one point he mentions an all market portfolio (from Picerno) that invests in all of the world asset classes in proportion to their market cap.

I thought I would add the allocations to the other allocations we posted a few months ago.  The All Market Lite is a simplified version with only three holdings.  

mkt

 

He also talks about cloning Pabrai in a recent Forbes article.  Out of curiosity, I tested Pabrai’s top 10 holdings courtesy of AlphaClone and found outperformance of about 8% since 2004 (although his fund started in 2000 I believe).  Not bad!

 

Travel: NYC, Chicago, Dallas

I’m heading to these three cities over the next two weeks for two speeches and one Broncos game.  Drop me a line if you want to meetup!

If you are a financial professional that wants me to stop in your city for a speech or meetings, also shoot me an email.  Lots of cities I haven’t been to that I would be happy to make a trip to.

Best Ideas Conferences

I added a few new listings to the Conferences page on The Idea Farm.

Ira Sohn London

Alpha Hedge West (Fall – Great summary from MarketFolly)

and the new Robin Hood Investor’s Conference (Fall)

Wine and Burgers

 I’m testing to see if this storify link works below…was trying to post some tweets…

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4% real returns.  For wine.

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And for the Broncos game tonite, I’ll be making Papa’s favorite hamburger:

FROM EXPERIMENTING,

PAPA’S FAVORITE HAMBURGER. There is no reason why a fried hamburger has to turn out gray, greasy, paper-thin and tasteless. You can add all sorts of goodies and flavors to the ground beef — minced mushrooms, cocktail sauce, minced garlic and onion, chopped almonds, a big dollop of piccadilli, or whatever your eye lights on. Papa prefers this combination.

Ingredients –

1 lb. ground lean beef

2 cloves, minced garlic

2 little green onions, finely chopped

1 heaping teaspoon, India relish

2 tablespoons, capers

1 heaping teaspoon, Spice Islands sage

Spice Islands Beau Monde Seasoning — ½ teaspoon

Spice Islands Mei Yen Powder — ½ teaspoon **

1 egg, beaten in a cup with a fork

About one third cup dry red or white wine.

1 tablespoon cooking oil

What to do –

Break up the meat with a fork and scatter the garlic, onion and dry seasonings over it, then mix them into the meat with a fork or your fingers. Let the bowl of meat sit out of the icebox for ten or fifteen minutes while you set the table and make the salad. Add the relish, capers, everything else including wine and let the meat sit, quietly marinating, for another ten minutes if possible. Now make four fat, juicy patties with your hands. The patties should be an inch thick, and soft in texture but not runny. Have the oil in your frying-pan hot but not smoking when you drop in the patties and then turn the heat down and fry the burgers about four minutes. Take the pan off the burner and turn the heat high again. Flip the burgers over, put the pan back on the hot fire, then after one minute, turn the heat down again and cook another three minutes. Both sides of the burgers should be crispy brown and the middle pink and juicy.

** Spice Islands discontinued its production of Mei Yen Powder three years ago. If you don’t have any in your pantry, here’s how to recreate it:

9 parts salt

9 parts sugar

2 parts MSG

If a recipe calls for 1 teaspoon Mei Yen Powder, use 2/3 tsp of the dry recipe (above) mixed with 1/8 tsp of soy sauce.

Wikipedia/Hoover’s for Hedge Funds

A few years ago I built this basic website to try and archive hedge fund letters.  It obviously needs a refresh but the site is Hedge Fund Letters.

I don’t care about making any money from the site (but I also didn’t want to get sued so was anonymous), but I mainly just wanted to read all of these incredibly interesting letters.  Who wouldn’t want to read Tiger, or Baupost, or Soros letters?  The problem is I never had the time to work on it myself, but I enjoy reading them and there is no central repository for it.  The concept was a Wikipedia or Hoover’s for hedge funds and their letters, and to increase hedge fund transparency in general.  I have hundreds if not thousands of letters now, but also have not uploaded a fraction of them simply due to time constraints.

My thoughts are changing a bit though, and now that the hedge fund marketing rules are getting relaxed, I was considering putting some resources into the site or hiring/partnering with some people.  Reach out to the funds, let them send in a profile and all their letters (would mark profile “verified”).  

Let me know if you have any thoughts or would like to help out or run the website!

Chart Review

FinViz is one of the better visualization websites.  Below are some weekly charts for perspective:

cop cattle wheat cof lum nat 30 usd jpy eur sp japan crude gold plat

Keeping it Simple: Trend and Valuation

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…

 

retuy

 

 

Hussman study:husss

 

 

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