Romick Thinks Big, and Global

Steven Romick, whose FPA Crescent Fund has beaten 99% of its peers over the past decade, is high on larger stocks that can take advantage of fast-growing foreign markets.

“The opportunity set has changed,” Romick tells Bloomberg, which adds that Romick says big companies are both cheaper and better positioned to tap into faster-growing non-U.S. markets. Romick also says he thinks the U.S. economy will “muddle along”, and is concerned that taxes will increase to pay down government debt. Consumers also may take years to pay down debt, he says, according to Bloomberg.

The article also gives insight into Romick’s broader strategy, which he has said is like a “free-range chicken” because of the broad spectrum of investments it will find. That strategy also involves holding high cash levels when need be, which helped him limit losses from the 2008 market crash. As of the end of June, Bloomberg reports, Romick has about 30% of the fund in cash, down from 45% at the end of September 2008.

Reese on How to Find “Enduring Moats” Like Buffett

In his latest article for Canada’s Globe & Mail, Validea Co-Founder and CEO John Reese talks about how some of the world’s most successful investors have targeted firms that have what Warren Buffett calls “enduring moats” – competitive advantages that can make for big-time stock gains.

“What is an enduring moat?” Reese writes. “It can come in several shapes and forms. One that Mr. Buffett has cited, for example, is a powerful brand name. Take Coca-Cola. The company is one of the (if not the) best-known brands in the world, and its famed cola has become enmeshed in our culture and lexicon.”

Other types of moats include being the low-cost producer in an industry, or having exceptional product quality, Reese says. “These various types of ‘moats’ all have a similar effect,” he explains. “They make it difficult, if not impossible, for other companies to move in on a firm’s business turf. A new startup could have unlimited funds and one of the best managers in the world, and it still likely couldn’t supplant Coca-Cola as one of the world’s leading beverage companies; the Coke brand’s tentacles are simply spread too deeply into the global consumer psyche.”

Reese says Buffett isn’t the only guru to use the “moat” concept. Others like Joel Greenblatt and Kenneth Fisher also make a point of targeting firms with competitive advantages. And, while such advantages are subjective qualities, Reese says these gurus used a variety of different metrics to identify firms that likely have “moats”.

To read the full article, which includes a few “moat stock” picks that Reese’s Guru Strategies like, click here.

Hussman: Market Still Overvalued

John Hussman says technicals and fundamentals are battling it out in the market. And, while the former may take stocks higher in the short term, the latter will win out over the long haul, he says.

“We continue to observe a clear deterioration in leading indicators of economic activity,” Hussman writes in his latest market commentary on Hussman Funds’ web site. “Over the short-term, my impression is that the technicals may hold sway for a bit. … [But] the historical evidence suggests that fundamentals have ultimately trumped technicals when we’ve observed similar warnings from economic indicators in the past. … My impression is that the economic cold water could hit investors very abruptly, so that gains achieved over several weeks may be suddenly erased in a matter of a few days.”

Hussman’s advice to those looking to the market to fund major expenses over a short period of years: “Get out.” His advice to those who have a long-term, diversified, disciplined system, however: “Stick to your discipline.”

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Shiller Expecting Double-Dip Recession

Yale economist and home price index co-creator Robert Shiller says he’s not sure where housing prices are headed, but he is worried about the broader economy. “I’m worried about a double-dip recession,” Shiller tells Reuters Insider, pointing to lingering problems with the economy, such as high long-term unemployment. “Something is not normal in this economy yet.” He adds that the probability of a double-dip is more than 50 percent. “I actually expect it,” he says.

Top Mid-Cap Manager Talks Strategy

Michael Lippert, whose Baron Opportunity Retail fund is in the top 12% of mid-cap growth funds over the past year, and the top 4% over the past five years, says he’s putting new money to work in the current market. Lippert talks to CNBC about his fund’s long-term approach, which keys on innovative companies that have strong “moats” around their businesses.

Sonders on Stocks, Gold, and The Machines

Charles Schwab Chief Investment Strategist Liz Ann Sonders says the current market environment “smacks of a buying opportunity,” and says she’s highest on healthcare and technology stocks.

“I’m not a market timer, so I’m not telling clients to back up the truck and load up,” Sonders tells Kiplinger magazine. “But to me, this smacks of a buying opportunity. I think we can have an up year, but there could be a decent amount of pain between now and then.”

Sonders also sounds skeptical of gold in terms of fundamentals. “When an exchange-traded fund is the fifth-largest holder of gold — it owns more gold than most countries — that tells me there’s a lot more performance-chasing demand than there are fundamental underpinnings for gold at current prices,” she says. And she adds that she finds the abundance of “machine-to-machine” trading in the market to be troubling, and causing “a lot of funky things happening that go beyond fundamentals”. She says she thinks machines will cause more “mini-dramas” going forward.

Stocks Cheaper vs. Bonds than at Bear Market Lows, Top Managers Say

O. Mason Hawkins and G. Staley Cates, whose three Longleaf Partners’ funds have handily beaten the market over the past year and the long term, say stocks present a “superior” opportunity at current levels.

“Equities offer a superior opportunity for investors today, particularly compared to fixed income,” Hawkins and Cates write in their latest quarterly letter. The duo says the S&P 500’s earnings yield, based on 2011 projected earnings, is between 9.4% and 10.4%. The EAFE Index, meanwhile, is offering a 9.8% earnings yield. “If earnings grow organically from today’s depressed levels at only 5% per year (a rate that does not require the reinvestment of earnings because of current excess capacity),” they say, “and even if the P/E ratio remains below the long-term average, an investor’s five year average annual return will be in the mid-teens.”

Hawkins and Cates present a chart showing that at bear market lows since 1932, earnings yields have been an average of 2.8 percentage points above Aa2 bond yields. At the beginning of July, the spread was 4.3 percentage points, “or almost twice stocks’ relative attractiveness to bonds at bear market lows,” Hawkins and Cates write. “We have rarely witnessed this much disparity in the benefits of being an owner of a growing coupon versus being a lender to a fixed one.”