|2018 Mid-Year Comments (Part II): International & Emerging MarketsJul 30, 2018|
Jul 30, 2018
2018 Mid-Year Comments (Part II): International & Emerging Markets
When we started investing in the international (2005) and emerging (2006) strategies, we pointed out that we believe these international markets had better long term growth dynamics than the U.S. market. However, we went on to emphasize that because these markets were more volatile and unpredictable, a dividend discipline was even more important for these strategies than for the U.S.
|2018 Mid-Year Comments: The 1999 ReplayJul 09, 2018|
Jul 09, 2018
2018 Mid-Year Comments: The 1999 Replay
The current market has begun to resemble the one during the peak of the tech bubble in 1999. Then as now, a few tech stocks -- currently the FANG issues (Facebook, Amazon, Netflix, Google) -- are driving the NASDAQ and the S&P 500 to new highs even while the rest of the market is actually down. The FANG stocks are +25% for the year while the S&P 500 without the four stocks is -0.3% for the year. Also the tech weighting of the S&P 500 has now reached 25%, double the normal percentage and one that approaches the tech level weighting of 1999. Not a good time to ignore risk.
| 2018 Outlook: Flying HighFeb 27, 2018|
Feb 27, 2018
2018 Outlook: Flying High
A look inside the strong market of 2017 reveals something unique -- the longest period ever without a 3% correction. We believe the reason for the one-way market was that skittish investors, not knowing what to do as the 2016 election approached, sold out when Trump won. Now those once nervous investors have been steadily coming back into the market.
|International Markets UpdateDec 28, 2017|
Dec 28, 2017
International Markets Update
International equities, after several years of underperformance, finally came back into favor in 2017. However, value as a style is still deeply out of favor as you can see in the chart below. The last time that value was this out of favor was during the Tech Bubble, following which MSCI World Value was up 75% over the next 7 years (March 2000 - Feb 2007) while MSCI World Growth was actually down*.
|Don't Forget RiskDec 19, 2017|
Dec 19, 2017
Don't Forget Risk
This year's most popular and well-attended institutional investment conference was called SEEKING ALPHA. The term alpha is commonly understood to mean return in excess of a benchmark index. But outperforming a benchmark has been a major challenge for active managers in markets like the one we've had, among the longest uninterrupted market advances in history. But the move up is hardly unique; in fact, it resembles the Nifty Fifty market of the late 1960's and the Tech Bubble of the 1990's. As we know, the aftermath of both devastated many investors.
| Don't Forget the Safety NetJul 28, 2017|
Jul 28, 2017
Don't Forget the Safety Net
The two most common questions we get are how will President Trump affect the market and when will we see the next recession? Our Long Term Value Study, just below, answers both questions. The study shows that from 1968 to the present, every single five-year period featured some unnerving political events, a bear market, or both. Among the traumas, there was the Nixon resignation, 9/11, and the sub-prime financial crisis. But the study also shows that a market participant who focused on a price discipline and invested for the long term did far better than one who reacted to the political and macro-economic headlines of the day.
|Listen to Graham, Not BuffettMar 16, 2017|
Mar 16, 2017
Listen to Graham, Not Buffett
It is well known that if something factually not true is repeated often enough, people will eventually come to believe that it is true. Nowhere is the phenomenon more common than on Wall Street. The most recent example is the overwhelmingly positive press coverage given to the unfounded assertion that passive investing is the best way to participate in the stock market. The result has been a stampede of money into S&P 500 ETF index funds. Contributing to the stampede is a recent article in the Financial Times in which Warren Buffett, a Ben Graham disciple no less, recommends passive over active investing.
|Welcome to the Post Melt-Up MarketJul 29, 2016|
Jul 29, 2016
Welcome to the Post Melt-Up Market
In our January 2016 market letter, we pointed out that once the back of a melt-up market is finally broken, there eventually follows a long period of outperformance by value stocks. However, when an extended melt-up ends, speculation and momentum do not suddenly stop. Instead, what happens is a period of extreme volatility and erratic stock market behavior, which usually takes the market to new highs.
|Market Outlook: Everyone is Underweighted in ValueJan 30, 2016|
Jan 30, 2016
Market Outlook: Everyone is Underweighted in Value
Market history shows that applying a low P/E value discipline to stock selection has rewarded investors with such powerful long-term results it seems inconceivable that they can be underweighted in the strategy. The reason is that in a melt-up market, like the one we just experienced, growth stocks and index funds increasingly get bid up over value stocks as the market becomes less and less concerned about risk and valuation. However, once a melt-up market ends, a period follows where value dramatically outperforms for a long time. Below you can see how year after year value outperformed the passive S&P 500 index following two other similar extreme melt-up periods.
|Melt-up Market UpdateOct 26, 2015|
Oct 26, 2015
Melt-up Market Update
The sell-off in the third quarter finally broke the back of the melt-up market. As we have pointed out in recent market letters, the longer a melt-up market lasts, the more speculative it becomes, and this was one of the most extended in the past 70 years.
|Mid Year CommentsJun 30, 2015|
Jun 30, 2015
Mid Year Comments
The melt-up market, now the third longest recovery without a 10% correction in the last 70 years, continues to roll along. Dangerously, we have now reached a point in the market where risk is being increasingly ignored by many investors. Evidence for what is going on can be seen in the P/E multiples of some popular stocks: Facebook at 80x earnings, Netflix at 170x, Twitter at 100x, and Amazon at 120x, to name a few. More evidence of an extended market lies in what happened in the first quarter of this year when the most speculative stocks with no dividends dramatically outperformed the more conservative dividend-paying stocks.
|The Nature of the BeastJan 26, 2015|
Jan 26, 2015
The Nature of the Beast
In the interview that summarized his 60 years in the investment business, Ben Graham was asked for his opinion of the professionals on Wall Street. His answer was that "Most of the stockbrokers, financial analysts, and investment advisors, etc. are above-average in intelligence, business honesty and sincerity. But they lack adequate experience with all types of security markets and an overall understanding of common stocks." He called this "the nature of the beast," which is the natural, emotionally-driven instinct to buy high and sell low.
|The Five Year PlanSep 01, 2014|
Sep 01, 2014
The Five Year Plan
In our last market letter, we pointed out that $1 million invested in the S&P 500 in 1968 would have become $75 million by 2013. Over the same period of time, investing that same $1 million using a P/E discipline would have grown to a staggering $573 million. This would seem to make a strong case for both long-term investing and the use of a price discipline in stock selection. But Wall Street has become increasingly consumed with short-term trading and long-term investing is generally ignored.
|Melt-up Market UpdateMar 20, 2014|
Mar 20, 2014
Melt-up Market Update
The current melt-up market is now 650 days old - i.e. 650 days without a 10% correction - making it one of the most powerful and long lasting equity run-ups in the last 70 years. Feeding the frenzy have been headlines reading "...Market at New Highs..." appearing an amazing 70 times in the last 12 months. In such an environment, investing with a price discipline is ignored if not completely forgotten. As a result, stocks like Facebook and Twitter have become market darlings, despite having meager or no earnings. What we have is reminiscent of the melt-up markets of the 1920s, the 1970s, and the late 1990s, in which it became ever more difficult for disciplined investors to outperform the market. Even the legendary Warren Buffet has failed to outperform the market over the last five years for the first time in his long career.
|Melt-up MarketDec 09, 2013|
Dec 09, 2013
As investment managers, we spend most of our careers coping with negatives such as recessions, inflation, wars, government shutdowns, etc. The opposite is much less common - a melt-up market - which is what we have now. A melt-up market is one that moves up for at least 500 days without a 10% correction. Such a market tends to develop in periods like we have been examining in recent market letters, where we noted that one of the most powerful long-term drivers of stock prices is a massive shift of money from bonds and cash into stocks after stocks reach record low levels of ownership.
|Mid Year CommentsJul 15, 2013|
Jul 15, 2013
Mid Year Comments
Recently market commentators have questioned whether the "dividend trade" is
too crowded and overdone. We believe that the guessing and worry are misplaced because The High Dividend Strategy is a long term investment
approach and not about trading. Granted, the chase for yield has driven up the price of many high dividend stocks. However, one of the main features of the strategy is applying a price/earnings (P/E) discipline, and not simply focusing on dividend yield and dividend growth. But because of the worry over the "dividend trade," we think this is a good time to review our investment approach.
|2013 OutlookJan 31, 2013|
Jan 31, 2013
In what might be called a relief rally, the stock market sailed through January showing strength not many expected. It's unclear whether the election results or the quick fix for the fiscal cliff will have any positive effect on the economy, but at least investors are relieved that both are behind us. One definite benefit to the market was holding the tax increase on dividends to 20%, up from 15%, which could have been much worse. Next, of course, is the battle over the debt ceiling limit.
|Some ConcernsAug 01, 2012|
Aug 01, 2012
The one constant in my 45 years in the investment business is that there is always something to worry about. In this letter we want to speak to concerns that investors have raised during recent meetings. First, not a day goes by that we don't get the question, the high dividend strategy has become so popular maybe it is overdone? Maybe, but not for the long term investor.
|Dividends RevisitedApr 01, 2012|
Apr 01, 2012
After being ignored for years, an investment strategy focused on high dividends was the market's best performer in 2011. This attracted a lot of attention, as many brokers and advisors scrambled to set up high dividend ETF's and mutual funds using the strategy. So many of them, that some began to say that the strategy had become "crowded."
|Forget the EuroJan 01, 2012|
Jan 01, 2012
Forget the Euro
Investors continue to agonize about the European debt crisis and its possible impact on the global economy. But stock market history shows that long-term investors would be better advised to think instead about earnings and dividends. To summarize Benjamin Graham's advice after 50 years in the investment business: "Forget everything else and just invest with two simple principles".
|The Recovery Phase Update Aug 01, 2011|
Aug 01, 2011
The Recovery Phase Update
Not only has the recent headline news been bad, but dire long-term consequences associated with the headlines seem to hang in the air indefinitely -- Greece, Italy and the endless Euro saga, runaway U.S. government debt, the declining dollar, and a sluggish economy facing the threat of a double-dip recession. In addition, the extreme volatility produced by the high frequency trading gang has left investors frozen on the sidelines. All the bad news and chaos is not unusual for a recovery period, something we'll talk about a bit later in this report.
|The Recovery PhaseApr 01, 2011|
Apr 01, 2011
The Recovery Phase
We believe the recent strength in the most conservative high dividend stocks may finally be signaling the end of the highly speculative REBOUND phase of the market and the beginning of a more rational RECOVERY phase.
|The Wall Street Quilt SaysJan 01, 2011|
Jan 01, 2011
The Wall Street Quilt Says
The best strategy last year was to buy the most speculative high beta stocks - those companies with no earnings or those with extreme high valuations. In the recent market rally from late August through December these high beta stocks outperformed the low beta stocks by an amazing 300%.
|Outlook for 2011 ~ A Pre-Election YearNov 01, 2010|
Nov 01, 2010
Outlook for 2011 ~ A Pre-Election Year
Despite the gradual economic recovery, investors have found it difficult to shake off the negative bias that has built up toward the stock market during these last ten difficult years. Is there anything out there that can reverse the market psychology? There is: 2011 is a pre-presidential election year.
|High Dividend and Global High DividendJun 01, 2010|
Jun 01, 2010
High Dividend and Global High Dividend
Why dividends are important for investors has little to do with the level of tax rates. The main driver behind the success of a high dividend strategy is its discipline - which is purely mathematical. History shows that when the market goes down, the highest dividend yielding stocks tend to go down half as much.
|Time for Value?Mar 01, 2010|
Mar 01, 2010
Time for Value?
In our last market letter, we showed that once a major rally breaks the back of a long bear market, a new up period begins, marked by an irrational speculative phase for stocks. History shows that panicky short covering and get-rich-quick trading become the main drivers of the market. In fact, early in the rally, we saw that speculation became so extreme that stocks selling for less than five dollars a share with no earnings and no dividends outperformed the average stock in the S&P by 400%.
|After the TurnOct 01, 2009|
Oct 01, 2009
After the Turn
What history shows investors is that once the stock market is up over 40% after a major bear market, the back of the bear has been broken and a new recovery phase has begun. The tricky part is that history also shows investors that the period just after the turn is usually quite irrational, as panicky short covering and trading related to it become the main drivers of the market. The result is that the stocks with the worst fundamentals outperform those with the best fundamentals.
|Update and OutlookMar 01, 2009|
Mar 01, 2009
Update and Outlook
Our August market letter looked at the relationship between recessions in the economy and bear markets on Wall Street over the last 40 years. The idea was to put into perspective the current downturn.
|Recessions and Bear MarketsAug 01, 2008|
Aug 01, 2008
Recessions and Bear Markets
The headlines are bad. Bank and financial stocks have collapsed from the credit crisis, real estate values are plunging, gas prices have gone through the roof, and consumer confidence lies near 40-year lows. Despite all the negative news, economists can't agree if we're in a recession. But we do know one thing for sure. When the stock market drops more than 20% from its high, its official, we have a BEAR MARKET.
|Global Investing, More Potential -- More VolatilityNov 30, 2007|
Nov 30, 2007
Global Investing, More Potential -- More Volatility
The global economy is booming. After years of being dependent on the United States, the developing countries are growing on their own. It started after the Cold War ended and despite 9-11 has been rapidly gathering momentum ever since. The Internet and speed of communications have dramatically accelerated the process. The chart below shows that the global GDP of developing economies has nearly doubled in the last 15 years and continues to pick up speed.
|Value vs. GrowthJan 30, 2006|
Jan 30, 2006
Value vs. Growth
The new year has produced a debate in the financial press and among market strategists over value versus growth investing. About the subject, Charlie Munger, Warren Buffet's partner, recently said, "The whole concept of dividing stocks into value and growth strikes me as twaddle. To me, all intelligent investing is value investing."