Assets and Defending Them

Think that big acquisition and borrowing a bunch of dough was a good idea? Sometimes your good intentions can work against you. . .(PS A little Will Ferrell V-Day humor here – if anyone can find the video clip please let me know. . .)

Here is a link to a great new paper scheduled for publication later in the year by The Journal of Finance – “Asset Growth and the Cross-Section of Stock Returns” by Schill, Gulen, and Cooper. (Nod to SmartMoney article by Hough that brought it to my attention. He mentions NDAQ and BBY as a couple of stocks that pass the screen.)

Long time readers know that I am a fan of using payout yield over dividend yield, and this paper is even more encompassing. It basically says a decrease in total assets is good – things like dividends, buybacks, spinoffs, and paying down debt. Ominous signs for future stock performance – accquistions, share issuances, borrowing, and sitting on lots of cash.


We test for firm-level asset investment effects in returns by examining the cross-sectional relation between firm asset growth and subsequent stock returns. As a test variable, we use the year-on-year percentage change in total assets. Asset growth rates are strong predictors of future abnormal returns. Asset growth retains its forecasting ability even on large capitalization stocks, a subgroup of firms for which other documented predictors of the cross-section lose much of their predictive ability. When we compare asset growth rates with the previously documented determinants of the cross-section of returns (i.e., book-to-market ratios, firm capitalization, lagged returns, accruals, and other growth measures), we find that a firm’s annual asset growth rate emerges as an economically and statistically significant predictor of the cross-section of U.S. stock returns.


Investor Dashboards . This is an easy way to track the timing model (thanks to reader JW). Although it looks like they use BigCharts which I *don’t think* accounts for dividends and distributions correctly.


Lots of sound advice in Vanguard’s “We Believe” series:

Vanguard We Believe #1

Vanguard We Believe #2

Vanguard We Believe #3

Vanguard We Believe #4

Vanguard We Believe #5

Vanguard We Believe #6

Vanguard We Believe #7

Vanguard We Believe #8

Vanguard We Believe #9


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