June 6, 2020

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When to Buy, When to Sell

When to Buy, When to Sell

One of the oldest investment controversies is whether you should buy shares and hang on to them indefinitely, staying permanently fully invested and only switching infrequently among companies; or you should follow an active policy. [Read more…]

Outperformers likely to continue outperforming

price share

Continuing to ourperform – outperformers. This article follows on from, Book value to market price, wherein what successful investors use heuristics to shape their strategic decisions, was mentioned

  • The FT’s James Mackintosh reported recently: “Momentum has been the most rewarding bet of the past 40 years. It beat the market and outperformed other popular investment strategies including buying small companies, value investing and picking stocks that are cheap on measures such as price-to-book or price-to-earnings…

“It even beat the market after adjusting for the extra volatility caused by buying into bubbles and losing big when the bubbles burst.”

Bernstein reports that between January 1927 and March 2013 a portfolio of high-momentum stocks – those with high short-term returns – beat a comparable portfolio of low-momentum counters by an average of nearly 7 per cent a year.

    • Growth companies in general “are lousy stocks.” That’s because everyone already knows they are great companies, so they bid up the price of their stocks. “There is good evidence that investors in general pay way too much for this earnings growth.”

A classic 1993 study by Russell Fuller and colleagues showed that high PE growth stocks did not increase their earnings in subsequent years nearly enough to compensate for their high prices. “Growth stock investing is a losing proposition.”

    • If dividends are important to you, you are less at risk in a market catastrophe. Over the 1929-32 period American stocks lost on average 90 per cent of their value, but their dividend payments only fell by 50 per cent.

High-dividend stocks are also outperformers. A 2011 study by London Business School researchers of 19 nations over 113 years showed a consistently positive relationship, with those in the high-dividend category returning an average of 13.4 per cent a year, the lowest-yielders only 5.5 per cent.

    • Winning strategies may not be repeatable, or disappoint, because too much copycat money flows into them. The famous John Templeton “made out… like a bandit” because he was the first to see the potential in neglected “penny” stocks.
    • Because REITs – real estate investment trusts – have to distribute 90 per cent of their earnings as dividends, and can therefore only invest a small portion of their earnings in their operations, their dividends grow more slowly than those of other listed companies – “more slowly than inflation, in fact, by about 1 per cent per year.”
    • Political favouritism depresses long-term returns of some asset categories because it makes them more expensive to buy. Conservatives favour precious metals “in opposition to the spectre of paper fiat currencies that can easily be debased by evil governments,” while liberals “tend to favour alternative energy stocks and avoid the manufacturers of tobacco, alcohol and firearms.”
    • “Except in extraordinary circumstances, I don’t like corporate bonds.” Besides their equity-like behaviour in a market panic, there is an inherent conflict of interest between bondholders, whose only concern is the safety of their interest and capital at maturity date, and shareholders, always tempted to raise debt to boost equity returns.

The problem with most bonds, especially the higher-risk “junk” variety, is that they lose so much value at exactly the point when you need the most cash out of them to buy equities and other assets that have become cheap.

  • Avoid hedge funds. The market is overcrowded and they are “savaged by high fees.” Over the past decade “you would have done just as well investing mainly in [Treasury] bills, spiced with a soupçon of stocks, and at much lower cost.”
  • Bernstein favours the Dimensional US Large Cap Value fund, which passively invests in companies with the highest BTM ratings. Over the 15-year period to November 2013, the fund delivered average annual earnings growth of 9.31 per cent, compared to 7.69 per cent for the S&P 500.

Bernstein reckons that investors shouldn’t expect to achieve anything better over the long term than average growth, or something close to it, and even that will be difficult.

copyright: Martin Spring of OnTarget

Planning Your Portfolio

planning your portfolio

Planning Your Portfolio – All successful investors use heuristics to shape their strategic decisions, but it’s wrong to assume they are always correct. [Read more…]

Banking: Crisis by Design

banking home

Banking – After the devastating Sub-Prime Crisis, which has cost the world trillions of dollars’ worth of lost economic growth, destroyed millions of jobs and businesses, and burdened taxpayers with huge state debts that continue to mount, you would expect implementation of radical reforms to prevent such a crisis from happening again. [Read more…]

Shale Gas: a High-Cost Resource

shale gas

Shale Gas – Despite much talk about how it’s going to revolutionize global supplies, investors in the shares have seen them perform poorly for years, major companies in the sector such as Shell and BHP Billiton have been taking some big write-downs and the much-predicted improvement in natural gas prices fails to arrive. [Read more…]

Share and Bond Markets


Earnings – the lack of them – remain the biggest threat to American equities, whose recent strong growth has been driven by optimism and buy-backs rather than underlying profits, while the latter have come from cost-cutting, not growth in sales. [Read more…]

Monetary-easing policy options

European Central Bank

This slowly-developing environment of greater tolerance towards easy-money policies makes it less likely that the European Central Bank will be prevented from implementing more unconventional measures, if they become necessary. [Read more…]

Strong Euro, Weak Dollar

euro notes

One of the more difficult decisions facing investors is what is going to happen to the euro. [Read more…]

Promising Themes to Invest In


Equity investors should ignore the “incessant din” of current news and focus on long-term secular trends, advises Morgan Stanley Wealth Management strategist Dan Skelly. [Read more…]

Goldilocks continues to rule

credit - goldilocks environment

Goldilocks continues to rule in investment markets

A Goldilocks environment is one where there are no extremes – economic growth is positive but moderate, inflation is low, exchange rates fluctuate within a comfortable range, central banks pursue market-friendly money-creation and interest-rate policies. Conditions are neither too “hot” nor too “cold.” [Read more…]