All that matters to an investor are returns after all fees, inflation, and taxes (or what I like to call “returns you can eat”). My friend Peter Mladina has a great paper out in the JWM (that they charge $45 for) called “Portfolio Implications of Triple Net Returns”. Pair this with Ferri’s The Power of Passive Investing: More Wealth with Less Work, and Bogle’s The Little Book of Common Sense Investing and you have some solid critiques against active management.
Well this is certainly an interesting perspective (NYT):
Madoff paused as he related this. His voice settled. He said to me, “I am a good person.”
A comment I often hear people make about 13F tracking is that you will always trail the manager in buying the stock. This is factually true, but it assumes that is always a bad thing. Case in point, from MarketFolly: ”you can buy shares at the same level (or even below) what Buffett paid for them in Conoco Phillips (COP), Kraft (KFT), Sanofi Aventis (SNY), and Munich RE”
Which is the largest company in the United States—Exxon, Walmart, General Electric, or Bank of America? The answer is…
…all of the above.
Walmart ranks first on five-year average sales. Exxon ranks first on five-year average cash flow or earnings or market cap. General Electric is at the top of dividend payer list for the past five years. And, even after all of its write-offs, Bank of America remains the largest company by book value. (From IndexUniverse / Arnott)
If you are interested in trading system design the I think Conquering the Divide: How to Use Economic Indicators to Catch Stock Market Trends is a must read. Want to know how to turn BAA spreads, PMI, and Durable Goods reports into money makers? Check it out.
Well this looks bullish. James Glassman (Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market fame) is now out with a book Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. I haven’t read either so no comment on the texts.
I bought all of these currencies (usually $10mm+ bills) on eBay for about $20. Top 5 Hyperinflations (CNBC):
Greece, Oct. 1944
Germany, Oct. 1923
Yugoslavia, Jan. 1994
Zimbabwe, Nov. 2008
I’ll be in SF through tomorrow morning if anyone is around for a quick meetup.
Books on the way and pre-ordered from Mauldin, Greenblatt, and Kauffman:
Since I am still finishing up the design of the CQR newsletter (this weekend I hope!) I thought I would update my travel here since I will be in the Bay Area for a talk Saturday.
Come out and ask some questions!
AAII Silicon Valley, Feb 19, Sunnyvale, CA
AAII Los Angeles, Mar 19, Los Angeles
R Finance , Apr 29-30, Chicago, IL
NAAIM, May 2-4 , San Diego, CA
ETF Investing, May 16-18, New York, NY
I’ve long written on the blog that dividends no longer give an investor the total picture regarding how companies return cash to shareholders. Dividends quit being predictive in the early 1980′s due to a structural change in markets as companies starting buying back more stock. It 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  for more info on the impact of Rule 10b-18. Nice graphic from EconomPic here:
The problem is even including buybacks doesn’t give one the entire picture. You have to include share issuance as well. One of my favorite papers is On the Importance of Measuring Payout Yield: Implications for Empirical Asset Pricing. Take a look at the below chart that shows net payout yield (which is dividends + buybacks – issuance). I think there is a lot of interesting work to be done with float on both an aggregate stock market level as well as individual stock level. (Caveat: one difficulty is that companies can announce buybacks then never make them as well as cutting dividends etc. One could get even further and include debt repayment as well.)
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. Many companies still love just talking about dividends, after all it is a great story. But when there is a shift in markets structurally I tend to side with ol John Maynard “when the facts change I change my mind – what do you do?” line of thinking.
From 1983 – 2003 the various strategies returned:
This paper (“Asset Growth and the Cross-Section of Stock Returns” by Schill, Gulen, and Cooper) is even more encompassing. It basically says a decrease in total assets is good – things like dividends, buybacks, spinoffs, and paying down debt. Ominous signs for future stock performance – accquistions, share issuances, borrowing, and sitting on lots of cash.
I would curious to hear any creative ways readers can interpret the below data sets (and if you have access to CRSP would love to see the paper updated with 2009-2011 data). Would also like to see an indepedent Net Payout Yield “Dogs of the Dow” and “Dogs of the S&P500″ with data through 2011. Drop me a line if you are interested in working on either project.
As an aside, TrimTabs does a lot of work here and is launching a tactical fund based on float. Full disclosure: we launched a fund with the same provider (AdvisorShares) and I may be biased since I went to the 2003 ALCS with TrimTabs in Al Davis’s box where Damon had the collision in CF. As an aside to that aside, Davis’s box is the most 70′s pimped out thing I have ever seen with mirrors everywhere, etc.
Here are a couple posts from Aswath Damodaran on the subject of augmented dividends:
The below chart and table I constructed from the CRSP Excel files from Payout and Net Payout Time Series Data: Excel File
Payout and Net Payout Time Series Data:
This dataset contains annual and monthly time series for aggregate corporate payout (dividends plus equity repurchases) and net payout (dividends plus equity repurchases less equity issuances). To use this datasets, please reference the following paper which contains details on the construction and usage of the data.
“On the Importance of Measuring Payout Yield: Implications for Empirical Asset Pricing,” with Jacob Boudoukh, Roni Michaely, and Matthew Richardson, Journal of Finance, 2007, 62, 877 – 915
Nice update to the Dorsey Wright Paper: Bringing Real World Testing to Relative Strength. Here is their monthly newsletter that takes a look at relative strength as another alternative to market cap weighting.
I spend a lot of time thinking about what to do with my content. Wonderful post by James Altucher on his writing experiences as well as a new project by Seth Godin – The Domino Project.
A portfolio manager doing genetics research (and in this case I’m not referring to my bio background!).
One of the original reasons I started blogging had to do with frustration that the UK,Canada, Amsterdam, Swithzerland etc all were about a decade ahead of the US in listing hedge funds. They had funds managed by Third Point, K2, Harris, etc and the US was falling far behind. We tried to launch an ETN on the foreign listed hedge funds in ’08 but Lehman imploded that structure for awhile and you can’t invest in those funds otherwise due to the PFIC tax treatment (which is a shame since you can often buy them at solid discounts to NAV).
It’s great to see more and more hedge-like mutual funds and ETFs coming to market. Lots of alternative beta indexes coming out of the big shops as well.
Barclay’s has a turn-of-the-month Index (TOM – trademarked I’m not joking) that shorts 10 days prior to month end the covers and goes long 3 days prior through 3 days after. I know Peter Eliades used to run a fund based on the concept and the numbers (backtested) are impressive.
It looks like there is a UK based product trading for about a year and a half.
Another interesting index is the Dow Jones Contrarian Opportunities Index that screens for stocks with the worst three year trailing total returns. Lots and lots of great innovation out there and it feels like we’re only in the first inning…
I couldn’t stop laughing at the resemblance between the stage at Inside ETFs and all of the Zach Galifianakis skits – Between Two Ferns. Below is a picture of Ralph Acampora and me (you can’t see David Fry and Ian Naismith). Following are a couple of the FunnyorDie videos (I think are SFW). Thanks to the traders at Knight for the pic. Michael Cera followed by Conan O’Brien.
I will be in Greenville, SC tomorrow, Atlanta Friday, and Miami next week for the IndexUniverse Conference. Drop me a line if you want to meetup!