Near the end of 1993, Debbie and I were hunkered down at The Dorset Inn in Vermont. Its wide pine board floors, restored tap room, gourmet dining room and antique-outfitted guest rooms make the small inn a special place to get away from the constant din of markets and politics. Events that fall were oddly connected to this very moment in American history. In November of that year President Bill Clinton told the world that North Korea must never be allowed to develop a nuclear weapon. And in December, Clinton signed NAFTA into law. Projections made in 1993 on how the Korean situation and … [Read more...]

Yup, as the FT reports here, the folk at Man Group and AQR are developing quant funds to track the returns of private equity. How does one invest quantitatively in private companies? You don’t. The private equity quant funds will seek to replicate the returns of private equity in the public markets. It turns out that buying highly leveraged small-cap value stocks has a return profile similar to the returns of the private equity asset class (see research here for example). One has to applaud the quants for lifting the veil on many Private equity managers sole competitive advantage (that’s … [Read more...]

In a recent interview with The Wall Street Journal's Chris Kornelis, actor, former Mr. Olympia, and former governor of California, Arnold Schwarzenegger said “We learn not only just from our success, but we learn actually more from our failures.” Schwarzenegger was speaking about the investments he's made in his life, both in his time and his money. Schwarzenegger says his best bet was coming to the United States, and his worst was the film Hercules in New York. He explains why saying of his immigration: “Coming to America opened up all the doors that I didn’t even think about,” he says. … [Read more...]

During my five decades of investing, I have more often than not been arguing against the going wisdom of the markets. To call me a contrarian would be accurate. Leper investor also fits. In December of 2001, I explained what I called “Leper Investing,” to my readers. Leper Investing In order to invest successfully over your lifetime, you need to act counterintuitively; that is, against the prevailing Wall Street wisdom. You want to buy contrary-opinion names—those stocks loathed, despised, and shunned by the institutional magnets. Your caches of lepers will generate above-average … [Read more...]

Earlier this week the WSJ ran with a headline asking if Value Investors face an existential crisis. See here. The NY Times also featured a piece on the difficulties of value investing. Below are some of the highlights. Think value investors have it tough these days? Just ask William J. Nasgovitz, portfolio manager of the Heartland Value fund, whose own mother recently tried to pull her money out of the fund. “My mom wanted to buy Walgreen at 50 times earnings and sell out of the value fund after making six times her money,'' Mr. Nasgovitz said. ''It's a great company, but it isn't worth 50 … [Read more...]

You know how this story ends, but the truth is both approaches can work over the long-run, so long as you have the patience and tenacity to stay the course. In the chart below, we compare the 30-year performance of Young Research’s Cyclical and Defensive Indices. Think of these as proxies for the tortoise and hare approach to investing. The Young Research Cyclical Portfolio is a modified market capitalization weighted index of the technology, industrial, energy, materials, financial and consumer discretionary sectors. These are the sectors that tend to fluctuate most with the business … [Read more...]

You don’t want to be in the prediction business, period, especially when it comes to your hard-earned money. In the last week, by example, my favored GNMA fund (managed by Wellington), surged by over one percent. In a week! That’s a big move when the annual yield is around three percent. Markets are funny. The reason for the surge in GNMAs is because the market now believes the Fed will only raise rates a couple times this year. The market, remember, is a forward looking mechanism and had already priced in three increases. This week, in studying Richard C. Young’s Intelligence Report … [Read more...]

Originally posted October 12, 2017. Let the good times roll? Great lyrics from the Cars but it’s a song I can’t get out of my head thinking about the money piling up by the truckload at Vanguard’s back door. We’re talking nearly $300 billion in the first nine months of this year alone. All of that money unloaded and stacked up with the rest of the $4.7 trillion at the firm. That’s a lot of confidence in one company. And maybe Vanguard deserves it thanks to the tireless work of founder Jack Bogle on the power of low cost index investing. But where is all that money going? As I’ve stated … [Read more...]

One of the more important gifts a mother can give to her children is educating them about money. Growing up, my mother was always talking to my sister and me about money. Just the other day she asked: “E.J. what’s going on with GNMA?” As a sixth-grade teacher my mom made investing fun for her students. Every year she would hold an investing contest. The students would pick their stocks and then, through the course of the school year, excitedly comb through The Wall Street Journal for quotes, pumping their fists and letting out a “YES!” for the winners or pressing their ink-stained finger … [Read more...]

Where will you live in retirement? Having recently been to New York City it’s a wonderful place to visit, but nowhere I’d like to spend most of my time. Plus, who can afford it? Check out the quote at the end of this piece. But first… Imagine retiring in 1999 and dreaming about the trips you would take using the profits from the stock market. Well for ten-years hence, the Dow lost money. That’s right, from March 1999 to March 2009 the Dow went from over 9,800 to just under 7,300—not including dividends. And that’s the key. For dividend-centric investors, living through such periods of … [Read more...]