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Bill Simoes  

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  • Saudi Arabia Vs. Shale - A Game Of Chicken! [View article]
    Nick: Good points about looking at cash flow. However, you can't generalize about the oil industry. Big shale players like Exxon, Conoco and EOG has strong balance sheets. If shale oil really is cost competitive with OPEC- as this article seems to imply- then this means that the strong are going to take over the weak.
    Aug 12, 2015. 11:18 AM | 4 Likes Like |Link to Comment
  • The Bear Is Alive! [View article]
    On May 3, 2009 Eric wrote:

    While the recent stock market rally has raised optimism that the bear market may be behind us, numerous factors suggest that the market may need to retest March 9 lows before a final bottom can be declared. Thus, it is important to continue to proceed with caution when managing stock portfolios in the coming months. This is particularly true since the period from mid May to mid July has traditionally been a difficult stretch for stocks during major bear markets.

    On May 3, 2009 SPY was 87 and by year end 2009 was 112, at present it is 209. Eventually Eric will be right about a bear market. My take-away is that if a man as well educated and smart as Eric cannot predict the movement of the market, then I can't.

    If you had followed Eric's May 3, 2009 advice on dealing with the 2008 bear market you would have been much poorer for it.
    Aug 5, 2015. 09:51 AM | 1 Like Like |Link to Comment
  • FNDX: A Fundamental Alternative For SPY [View article]
    I don't think that FNDX is a good replacement for SPY, nor does it claim to be. Rather it is a consideration for those that want a value and quality tilt. I would suggest that a more appropriate comparison is IVE which is a large company value ETF.

    If you don't buy into the idea that value and quality offer a premium, then it doesn't makes sense to buy FNDX. However, if you don't buy into the idea that value and quality offer risk adjusted premiums, then it makes no sense to buy SPY as it is just large companies. When you buy SPY rather than Vanguard Total Market ETF, you are implicitly assuming that large companies offer better risk returns that the total market.
    Apr 27, 2015. 12:24 PM | Likes Like |Link to Comment
  • Cost-Efficient Exposure To Momentum [View article]
    Hi Shawn

    I am interested in what you said about the calculation of correlation. The correlation factor was calculated between MTUM and IVE. The latter being a value ETF. Could you explain how you would do it?
    Mar 30, 2015. 11:42 AM | Likes Like |Link to Comment
  • Cost-Efficient Exposure To Momentum [View article]
    Hi Left Bank:

    I used the Fama French Regression model (see link below). It is very easy to use and flexible as in addition to the FF factors of market, size and value, you can add momentum and quality. Alpha in this model, is the return that is unexplained by the above factors. In theory a perfectly executed passive fund alpha should be the MER. Based upon this analysis, it appears that MTUM has a problem with its construction.
    Mar 4, 2015. 10:07 AM | Likes Like |Link to Comment
  • Cost-Efficient Exposure To Momentum [View article]
    Momentum looks great in the academic literature as it is negatively correlated with value and offers positive returns. However, in practice it doesn't seem to work for the passive investor.

    The correlation of Value and MTUM is 86% which doesn't make it a great diversifier. Further, as shown by the factor models below, while MTUM has a good exposure to momentum (o.49) you pay for it with a huge negative alpha of 4.24% and negative exposures to size, value and quality. These negative exposures all have return costs.

    My conclusion is that momentum is an academic anomaly which cannot be realized by passive investments. Maybe active investors can realize it, but that is not my thing. I am retired and don't want to spend my time trading. Maybe the extra returns of an active trading strategy can overcome the capital gains and transactions costs.

    Mkt 1.10
    Size -0.47
    Value -0.37
    Momentum 0.47
    Quality -0.14
    Annual Alph -4.24%
    Fit 93%
    Mar 3, 2015. 01:22 PM | Likes Like |Link to Comment
  • The Eagle Ford Advantage: Location, Infrastructure, And Low F&D Costs [View article]
    Hi Michael; I have spent the last 6 months hiking, fly fishing and traveling. Even spent a bit of time in your part of the world checking out Yosemite. We loved it.

    To carry on with our conversation about oil. I don't question the premise of your article that the EF, COP, EOG are of high quality. However, value investors want Quality at a Reasonable Price (QUARP). I am unconvinced that these investments are reasonably priced even at today's reduced prices. It all depends upon what your oil price forecast is and whether developed producing reserves will last longer than the time it takes for oil prices to recover.

    I say developed producing reserves because if you are investing based upon undeveloped unproven reserves in the ground you are doing something similar to buying futures on the commodity markets.

    We know that EF wells and hence EOG has pretty short reserve lives when using proved producing reserves as a basis. As a result, I would go with the likes of COP as it has staying power with it diversified portfolio.

    If it is true that the oil markets can remain irrational longer than some oil companies can stay liquid (paraphrased from Keynes) then you want to stay with the well diversified companies with healthy balance sheet and long reserve lives which need minimal capital to maintain them. A lot of the shale companies are heavily indebted, have short proved producing reserve lives, large future CAPEX requirements and don't have the staying power to take advantage of a shakeout that would result from prolonged low prices.

    As a result, I would add safety and liquidity to my list of requirements for quality companies. Whether any quality company in the oil patch is selling at a reasonable price depends upon your crystal ball on the future of oil prices. However, how is that approach to investing different than speculation?
    Dec 10, 2014. 10:32 AM | Likes Like |Link to Comment
  • The Eagle Ford Advantage: Location, Infrastructure, And Low F&D Costs [View article]
    Hi Michael: Nice to read one of your articles again. I agree with you that COP and the EF are the best of breed. However, the big question is whether the breed (oil industry) is a good one to invest in.

    If you continue to invest in the industry , I think that you have to assume that the dip in oil prices is a temporary thing and we will see a bounce back in prices. However, if oil prices remain in this region for a prolonged period of time, it is questionable if the valuations have adjusted adequately.

    As you know, I have 30+ years as an engineer in the oil industry, but I starting to wonder if this is something more than a cyclical change in prices. Maybe there is a disruptor which is going to reduce oil demand. As we just saw it doesn't take much of an oversupply to tank the market. I think the present oversupply is less than 1% of global production.

    I want to emphasize that I don't know what is going as I am not entirely buying the media stories. However, when I don't understand, I get very nervous.

    So what could cause a disruption in the oil business? One thing is a carbon tax which would reduce demand. Another is solar energy. I considered the latter to be laughable until I read an article in the latest Scientific American which talks about how solar energy combined with the future available of home batteries from Tesla's gigafactory have got the energy generating utilities nervous (SA, Nov 2014, p66 "Solar Wars").

    The thing about all relatively inelastic markets is that a small oversupply can reduce prices dramatically. Could solar, carbon tax, etc. reduce demand by a couple of percent and would this mean much lower oil prices? I don't know, but things have changes from a couple of years ago when I would have dismissed the idea out of hand.
    Dec 9, 2014. 01:19 PM | 2 Likes Like |Link to Comment
  • Suncor Is A Buy, Especially With Energy East On The Horizon [View article]
    Enbridge's Line 9 reversal will be on stream in early 2015. This will supply the Quebec and Montreal refines with domestic and Bakken crude and displace the offshore Newfounland and Foreign oil.

    As a result the Energy East crude will have to be exported.
    Nov 21, 2014. 11:18 AM | 4 Likes Like |Link to Comment
  • A Global Passive Benchmark With ETFs And Factor Tilts [View article]
    Hi GeslaltU

    Not sure you are right about the GMP which includes bonds as being the tangent portfolio according to Sharpe

    Sharpe's portfolios are composed of various combinations of equities with no bonds. The efficient frontier of these equity portfolios is the mixture of equities which has the highest return for a given risk level. Sharp argued that the market equity portfolio is the tangent obtained by drawing a line between the efficient frontier (for equities only) and a risk free asset.

    As a result, I would argue that the you should take the GMP (for equities) only as the tangent and then adjust your risk level by putting it into short term government bonds in your home currency.

    Investing in global bonds adds currency risk. I don't even like global government bonds in Europe, as they add counter-party risks when you least want it: during a time of financial crisis. As for EM, corporate bonds, etc. which are contained in the GMP outline in your article, they are not risk free assets.

    Based upon Sharpe's argument, it doesn't make sense to me to use a 55% allocation to Global bonds and then factor tilt the 45% equities. Rather I would factor tilt the Global equity portfolio and add short term governments in your home currency according to one's risk preference.
    Nov 12, 2014. 07:37 PM | Likes Like |Link to Comment
  • Forget Active Vs. Passive: It's All About Factors [View article]
    Could you clarify why you have the Global components (ACWI and GVAL) as separate asset classes rather than break them into their components - US, International, Emerging Markets and Frontier market?
    Nov 12, 2014. 05:44 PM | Likes Like |Link to Comment
  • Are You Still Miscalculating Risk? A Guide To Creating Alpha Without Skill [View article]
    Hi Pat2153:

    What measure of risk would you suggest as an alternative to SD?
    Oct 23, 2014. 09:16 AM | Likes Like |Link to Comment
  • Are You Still Miscalculating Risk? A Guide To Creating Alpha Without Skill [View article]
    Could you tell us what your guidelines are for monthly re-balancing?
    Oct 22, 2014. 12:32 PM | Likes Like |Link to Comment
  • Are You Still Miscalculating Risk? A Guide To Creating Alpha Without Skill [View article]
    Thank you for a well written, informative article dealing at a higher level of sophistication than many authors.
    Oct 22, 2014. 11:05 AM | Likes Like |Link to Comment
  • How To Take Advantage Of Market Corrections And Recessions [View article]
    Thanks for the clarification.
    Aug 12, 2014. 10:49 AM | Likes Like |Link to Comment