World Beta Blog

Rewind back to February of this year. At the end of February most asset classes were in massive drawdowns referenced in the table below.

The first row is the maximum drawdown each asset class experienced since their respective peaks.

The second row is the appreciation of each asset class since the end of February 2009.

The third row is the amount each asset class is still down from its high.

(Note: The max drawdown may not have occurred in Feb, so the numbers not necessarily sequential ).  Results through 11/2009.

The point of this post is twofold.

1.  It goes to show how risky asset classes are.

2.  It goes to show that ever after this massive rally, as a buy and hold investor, you are still down.  Compounding works both ways!  Down 50%, up 50% does not equal flat.  It equals still down 25%.

2009 should be seen as a big free gift from Mr. Market.  It is a massive rally that is giving you the chance to re-evaluate your risk tolerances.  If you can’t tolerate 60% losses in your portfolio, then you need less equity-like assets.  If you can’t tolerate watching your portfolio decline by half  then you may need to evaluate your risk management systems (you know our solution which is currently hitting new highs).

More in the next post.

Today is a perfect example of why I would rather read Abnormal Returns than the WSJ, FT (my favorite of the papers), IBD, and Barron’s.

Combined.

Look at all the useful info there: the lowest cost ETFs in each category, James Montier’s 10 Lessons (Not?) Learnt, ways to improve the carry trade, how well do TIPS work – I would pay $5 a day for that.

What is on the front page of all those other sites?  Bernanke, Bernanke, Bernanke, Bernanke and about 10,000 other links to click on.  Useless.  Don’t get me started on the aggregators.

I need less of more useful and targeted information, not more of noise and useless information.  All the major sites continue to bungle this opportunity.

Stay tuned in the New Year for a new solution to this problem that I am quite (to say the least) excited about.

PS I’m doing a webinar for SFO magazine today come ask some questions! (4:30 PM Eastern)

Nice article from my friend Jake over on EconompicData on buybacks and dividend yields.

I used to spend a lot of time talking about dividends and returning capital to shareholders, and still can’t understand the focus on (just) dividends.  An older post here: A Better Dog.

Highlight from the article:

A wonderful paper scheduled for April publication in the Journal of Finance takes a new twist on the Dogs of the Dow strategy. The paper, by Boudoukh, Michaely, Richardson, and Roberts is titled, “On the Importance of Payout Yield“.

Dividends are only one way of returning capital to shareholders. Share repurchases are another such method (see MSFT), and since they are not taxed like dividends, it can be argued they are a more efficient way of returning profits. Buybacks represent about half of all shareholder payouts, and have increased steadily since the early 1980’s. There is a structural reason for this, and is due primarily to the SEC instituting rule 10b-18 in 1982 – providing a safe harbor for firms conducting repurchases from stock manipulation charges. See Grullon and Michaely [2002] for more info on the impact of Rule 10b-18.

The authors examined the payout yield and net payout yield, whose formula is:

Payout Yield = $ spent on dividends + $ spent on share repurchases
(Net payout is simply subtracting the $ raised through new share issues to the above formula)

The authors find that “the widely documented decline in the predictive power of dividends for excess stock returns is due largely to the omission of alternative channels by which firms distribute and receive cash from shareholdlers.” Additionally, while dividend yield has lost its predictive ability over time, the payout yield has remained a robust indicator for excess stock return.

But then again, WisdomTree isn’t going to tell you that, are they?

AOL Daily Finance (HT: GDP)

Call for papers, deadline is March 15th, 2010.

Last year’s winner here:

Tactical Equity Allocation Model (T.E.A.M.) A Quantitative Approach for Investing in Long-Term Trends by using Short-Term Mean-Reversion Techniques to Optimize Risk-Adjusted Returns

Three new feet in Mammoth!

Some cool recent snow related links:

Jackson Hole Mtn Guides

Whistler Alpine Guides Bureau and Snowmobile Guides

Monarch SnowCat Tours

Kirwood PowerCat Tours

Micah Heli

Silverton Guides

I have written a ton of posts on why hedge funds attract the best talent in the investing field (namely, compensation).  Let’s look at a real time example to see if this theory holds up.

Morningstar has been tracking a portfolio they call the “Ultimate Stock Picker’s Portfolio” for a couple years.  It is nearly impossible to track since there have been at least three authors over that period (Fuller, Owens, and Warren), and they don’t track the performance as far as I can tell (maybe there is a reason for that?).  I took a post from the end of 2008 with the recommended list of 15 Ultimate Stock Picks.  They were:

MSFT, WFC, COP, GE, EBAY, CMCSK, HD, PFE, WLP, MMM, DIS, UNH, SNY, COST, and LOW

If you bought that portfolio you would be up about 23% YTD, roughly in-line with the S&P 500.

However, what if you looked to the hedge funds instead for your stock ideas?  At the end of 2008 I posted 5 Ideas for 2009 (which I will update in January).  The last idea was to track the top stock picks of the Tiger Cubs.  The list was:

QCOM, V, MA, AMX, PCLN, TDG, SD, SBAC, AMT, XTO

If you bought that portfolio you would be up about 60%, beating the S&P 500 by about 40%.

If you want to check out the current Tiger Cubs holdings, you can view them here.

This New Yorker article is the funniest (and most accurate) piece on publishing I’ve ever read.

Interesting website someone emailed me the other day – Alpha Titans. Looks like a FOF marketed to financial professionals (and individuals too?).  Fee structure is 1&10 and 1&20 (latter seems high).  Looks to be a competitor to Hatteras.

How long till we see a listed product?

More info below:

Alpha Titans 1X Performance and 2X

Fund Manager Transparency Report

Always nice to have some comps to compare to:

Alpha Magaznie Hedge Fund Compensation Tables