World Beta Blog

Starting in the New Year, my content will no longer be available on TheStreet.com (RealMoney) or SeekingAlpha, but only here on World Beta.

Many people have written about the downsides of being associated with either site ad nauseam (Ritholtz at the Big Picture and Abnormal Returns (and here) especially) , and it is time to disassociate from both. To be clear, I have friends at both sites and wish them nothing but success in the future.

Stay tuned for some interesting developments in 2010.

PS How can you, in good faith, run an investment website with ads like this? (Source: Both AOL DailyFinance and TheStreet.com currently running these ads)  Up 2000%!!

Cool design:

AndreaAir

Cooka

While I use Hedge Fund Letters for my hedge commentary fix, I was wondering a little about where to go for the best free institutional research published online.  I’m thinking in the vein of GMO, Hussman, PIMCO, Research Affiliates, etc.  I’m going to start a list below, feel free to make some comments and I’ll add as they come in.  Only requirement is the author(s) have to be institutional money managers:

PIMCO

Hussman

Research Affiliates

First Quadrant (I really liked this currency paper)

Buffett Letters

Munger Letters

Bridgewater

GMO

Arrowstreet Capital

Reed Conner

SSgA

FundAdvice

EuroPacific

O’Shaughnessy and here

Reed, Connor, Birdwell

Howard Marks (Oaktree)

The LCM Perspective from Lotsoff Capital Management

Martin Capital

Western Asset

Pzena

PanAgora

Gluskin Sheff

It’s interesting to note that while I used to almost always get my books from Half.com, now I almost exclusively use Amazon coupled with their Prime shipping.  I’ve ordered on average about 50 books a year the past 3 years (although this year is a little higher).

I just read Think Twice: Harnessing the Power of Counterintuition on the plane to Colorado.  I like Mauboussin’s work, but I’ve read so much behavioral literature at this point it was mostly rehashing.  Probably worth the read if you’re new to the space.  I also read Riches Among the Ruins: Adventures in the Dark Corners of the Global Economy in Colorado and on the way back to LA.  This was a good book in the same vein as Jim Roger’s books and Confessions of an Economic Hit Man.  Although the conclusions (it was highly profitable to trade emerging market debt but now too efficient) remind me of Ben Graham’s conclusion about stock analysis about 30 years ago.

The five best reads this year are below.  What I liked about these reads is that they give you a framework for how to invest based on history.  And by history I mean hundreds of years rather than the last three.  The takeaways are usually quite different than the commonly accepted theories of today.  What they are not are simple explanations of what happened after the fact – they are useful in building your portfolio going forward.  I don’t need to know what went wrong, I need to know how to prepare now.

1.  The Greatest Trade Ever

2.  This Time is Different

3.  The Myth of the Rational Market

4.  GFD Guide to Total Returns

5.  The Capitalism Distribution

Honorable Mention: The Ivy Portfolio (I can’t nominate my own book, right?)

Interesting new upcoming book I have on pre-order – The Billion Dollar Mistake: Learning the Art of Investing Through the Missteps of Legendary Investors.

What is your favorite read?

I’m headed to Colorado for the week, but here is a nice blogger roundtable from Bespoke. My interview here.

In the spirit of the holidays here are some great old Calvin and Hobbs strips….(Hat Tip: Dad)

And if you want to give World Beta a holiday present, go leave a review on Amazon for my book (+ or – doesn’t matter)!

Awesome! HT: LBass

Often times there are comments left on old posts that would probably be of interest to the community.  Below is a thoughtful comment from DP that I wanted to respond to.  My comments in bold:

I don’t think people realize that all this data is free.  All this hedge fund, endowments, etc. is public domain.  Goto SEC and search for Appaloosa and find their quarterly filing.  Takes 1.5 minutes.  Or there’s several sites who aggregate these filings for free….yes, I said free.  This timing strategy, nor the data, is proprietary in any way.  Faber’s just giving you a means (and thoughtful organization) to the information – which he charges for.  It’s kinda like paying for a butler cuz you’re too lazy to walk to the fridge.

I was totally transparent about this in my book, even showing investors how to find all the info on the SEC or any of the numerous sites like GuruFocus or Stockpickr.  The huge problem is that you don’t know if the data is of any use.  If you look at the top 5 portfolios on Stockpickr, 4 of the 5 underperform their benchmark.  So, not only is the free information useless, it is misleading and hazardous to your wealth.  There are over 100,000 people on Stockpickr that have used this information to their detriment.

On top of that, one of the biggest benefits of using AlphaClone is the ability to combine groups of funds and other strategies.  So, I think this is a good example of you get what you pay for.

Also, you have to realize that this data is ‘old’.  Funds are required to file their holdings/activity 45 days after quarters end.  So do the math…one quarter..plus 30 days = ~ 120 days.  Yep, thats 1/3 of a year late.  Market volatility is pretty high these days; so keep your eye on the ball.

Even more important to backtest the info.  Some funds simply trade too much for 13F data to be useful.  Stockpickers with longer term time horizons are the best choices.  Using AlphaClone you would realize it doesn’t make sense to follow a Rentec or SAC.  And guess what the worst performing fund in the database was – yup, Galleon.

One of the biggest mistakes a casual investor has is getting lured into these large, advertised % gains.  Ever hear or read: “past performance is not indicative of future results”?  Unfortunately, this post is a little suspect and selective in nature.  Any sentence that starts with ‘If you bought __’ is merely a “claim” based upon past performance.  I’d advise the author to be careful with such wording.

I totally agree with this, and if you were a long time reader you would recognize I don’t engage in selling snake oil.  That having been said, we have been tracking Appaloosa since 2007, and included the fund at the beginning of 2008 for the World Beta clone.  I’m not trying to grandstand here, Appaloosa simply had an amazing year – but don’t forget they lost money in 2008.

Also one of the points of the article was how well cloning can work, and can even outperform the net returns of the fund (namely due to the 2 & 20 drag).    Note how the traditional media picks up the story (but has yet to catch on to the AlphaClone angle) with articles from the Journal, the Atlantic, and New York mag.

But you raise a good point – using AC assumes two things.  1.  The market can be beat.  2.  You can identify managers ahead of time.

We think we can, and a great real world proof is the group of funds we’ve been tracking since 2007 on the blog.  The strategy has outperformed nicely.

Since most of the followers are casual investors; they need to know all the details.

Totally agree, but most of my readers are professionals that are HNW.

Very cool things – Samuel Moyer Furniture and Agan Harahap’s photos:

as well as Hiroshi Sugimoto‘s

I spent a lot of time writing my book with one of my best friends.  He was a big huge American Bulldog named Boondock.  He was rescued from a shelter here in Los Angeles, and I can’t imagine ever finishing the book without all of the walks we went on to help clear my head.  We eventually lost him to lymphoma, but the book was dedicated to him and I promised some of the proceeds to the local shelters.

Check out the Found Animal Foundation.  They’re doing some amazing work, their annual Save a Stray event here in LA placed over 400 animals.  Since they don’t take donations, my first one goes to Clinico.

From the Found Animal Foundation website:

With an estimated 6 – 8 million dogs and cats entering U.S. shelters and approximately 50% of these animals being euthanized yearly, most for the simple lack of a home, Found Animals focuses on a select group of strategic priorities. These initiatives include:

Sterilization programs focused on ensuring accessible, affordable services to increase spay/neuter rates and decrease the number of animals entering the shelter system.

• $75M Michelson Prize & Grants program for innovation in non-surgical sterilization
• $1M+ in grant & partnership commitments for high-quality, low-cost spay/neuter in Los Angeles

Adoption events encouraging the public to visit their local shelter and insuring they have an exceptional experience, proving to the public that adoption IS the best option for acquiring a pet.

Resources to ensure lifelong, loving relationships between pets and their people.

• Microchipping program provided ~40,000 free chips to Los Angeles area shelters last year

If you think what happened is happening in Japan can’t happen here, think again.  We are already one decade in, the US has already experienced a lost decade.  The question is, will there be more than one?  If you compare both at their peak (Japan early 90s and US ’07) there are some similarities and some differences.  Both had nice appreciation in real estate (Japan’s was higher), both had stock market gains, both had high debt (Japan more corporate, US more household).  Savings was(is) higher in Japan, their current account and unemployment was better, the US has more population growth, and the US was more proactive in policy intervention.

Regardless, both have had some nice rallies along with some nasty bear markets.  Most importantly, is your portfolio prepared for the possibility (no matter how remote) of stocks being down 75% from their peak in another 10 years?  Regardless of your opinion, you at least need to consider it.  Charts below, Japan 7 years leading up to peak, then to present.  US 7 years up to peak and to present.  Both aligned with peaks.

And to answer the question in the comments about how the simple timing model would work over this period – it beats buy and hold by over 5% a year.  More importantly it reduces volatility and drawdown by roughly half.

(Interestingly enough, Japan was one of my 5 Ideas for 2009.  While it has done fine on an absolute basis, on a relative basis it has underperformed almost all other countries.  I’ll take a look at the bullish case for Japan in January.  Sentiment is TERRIBLE on Japan but valuations are low.  More later.)