While many investors think U.S. stocks are safer than their global peers, they may well be wrong, says The Wall Street Journals Brett Arends.
Charles Schwab Chief Investment Strategist Liz Ann Sonders says she thinks the market’s recent turnaround has more to do with a belief that weather has been behind some weak economic data than it does with a belief that a weaker economy will lead the Federal Reserve to slow its plan to taper its asset purchases. “There is a lot of indication that [the weak data] has been very dependent on the weather, but I also think we’re well past the point where the market is going to rally on negative news,” Sonders tells Yahoo! Finance’s Daily Ticker. Continue reading
Could historically high profit margins be the result of more foreign profits, making the high margins a new reality rather than anomaly? Fund manager John Hussman says the data says ‘no’.
The ongoing trouble in Ukraine has been a daily worry in the stock market news. But Warren Buffett says it’s not impacting his approach. Asked if talk of potential world war or a new Cold War impacts his investing, Buffett said in a CNBC interview that even if those things did happen, he’d still be buying stocks. Continue reading
Warren Buffett will release his 2013 year-end letter to Berkshire Hathaway shareholders tomorrow, but the Oracle of Omaha has already released a particularly intriguing excerpt in Fortune magazine focusing on real estate. Continue reading
After its huge run-up over the past 5 years, does the stock market still have good times ahead? Quantitative investing guru James O’Shaughnessy thinks so.
In an interview with Canada’s Globe and Mail, O’Shaughnessy says that back in 2009 his firm looked at how the market would have to do in the next decade just to match its worst 20-year return ever. “If memory serves me, it was 6% average annual gain after inflation,” he says. “If we look back in 2019, I’m not saying that stocks will be giving huge double-digit returns, but I do think they will end up being one of the best-performing asset classes.”
O’Shaughnessy says the big risk investors face right now is “extrapolating the bond market’s fantastic performance since 1981 into the future. We think long-term bonds will be going into a multidecade bear market, and we’re urging investors to invest only in short-term bonds.” He adds, “I’m not saying don’t buy bonds; I’m saying be careful which bonds you buy.”
O’Shaughnessy also talks about what valuation metric he prefers, and offers some general investment advice. “Establish an asset allocation and then rebalance it when it gets 15% out of whack,” he says. “Really, if investors could just do that, they could substantially improve their overall performance.”
With the bull market around its halfway point, in his estimation, Kenneth Fisher is focusing on “big, fat stocks” — that is, large-caps with fat gross profit margins.
“It works because fat gross margins offer a firm more discretion to fine-tune its future. Invest in more research than peers do. Or market more. Or afford more capital expenditures. Or, or, or!” Fisher writes in his latest Forbes column. “It renders more reliable future earnings — the very theme my research shows that later-stage bull markets love.”
By “fat”, Fisher says he means “above 50% and higher than the industry’s average”. He does note that the strategy didn’t work in the last bull market, “I think because that bull was unusually, and prematurely, truncated”. But, he says, “that boosts the odds this bull market ends more normally. In this case gross and fat mean beautiful.” He looks at a handful of stocks he’s high on that have high gross margins. Among them: tech giant Intel, which has a gross margin of 58 percent.
James Montier and GMO are known for their conservative, cautious approach — a mindset that has helped the firm often recognize market and economic problems well ahead of others. So, what scares Montier right now? The lack of assets offering a “margin of safety”.
“I just can’t find any assets that have a particularly high margin of safety,” Montier tells Advisor Perspectives. “There is nothing that reaches out and screams, ‘Hey, I’m really undervalued.’ Therefore, you are in this situation where you’re stuck in this kind of foie gras market where you’re being force-fed risk assets. That is a very uncomfortable position to be in.” Montier says you have to balance that against the idea that we are in a period that is very different from the past, in that central banks are keeping rates extremely low. That means building a portfolio that can withstand potential rate hikes, and which can also survive if rates remain low for a long while more — no easy task.
“You have to recognize that this is the purgatory of low returns,” Montier says. “This is the environment within which we operate. As much as wish it could be different, the reality is it isn’t, so you have to build a portfolio up that tries to make sense. That means owning some equities where you think you’re getting at least some degree of reasonable compensation for owning them, and then basically trying to create a perfect dry-powder asset.”
Montier talks about how to create that perfect dry powder asset in an environment in which it is not naturally occurring. He also discusses why he thinks profit margins are going to revert to their mean, and why criticisms of the 10-year cyclically adjusted P/E ratio are off base.