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Brendan O'Boyle

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  • John Hussman: Run, Don't Walk [View article]
    The market will not go down just because margins are high and the CAPE is a bit above average.

    Margins could remain at record highs for years, what is the cause of their imminent collapse? You will have to give me something more convincing than mean reversion. And if they go down because wages go up that would be an overall plus for the economy and the stock market (eventually, margins were also at record highs in the 50s you know).

    Also Hussman has not done a good job of timing the market, sure you can wax poetic with gloom and doom, but unless you can do better I am skeptical about following your advice. The market looks nothing like a bull market top, the economy is improving. This bull will run at least for a few more quarters. If by Q3 we can't make a new high I would start to get worried. This is a normal, healthy pullback, a time to add to positions not sell them.

    And is 4.5% with or without dividends? I would feel pretty good if my portfolio gave me 4.5% plus dividends.
    Apr 24 07:49 AM | 6 Likes Like |Link to Comment
  • Big Obstacles Face Retail MLP Investors [View article]
    This is simply a rule of thumb that says that the total return from an investment is the dividend yield plus the growth rate.

    Presumably if you buy a stock for $100 with an 8% growth rate plus a 2% dividend then one year later you have a stock worth $108 and $2 in dividends that you have received.

    Then the next year you repeat (except now the dividend is $2.16 and 8% growth from $110 with dividends reinvested is $8.80), the issue is that you are counting on the market to fairly price in the 8% growth rate, which may or may not be the case over shorter periods of time (or even over fairly long periods of time).

    This is part of the reason that MLPs are quite desirable within a reasonably well diversified portfolio (particularly if you need to use the investment income as you can do so without ever selling a share). KMP for example pays a 6.5% yield, maybe you only get 5% growth, but you can count on the dividend because it is paid in cash. If for a few years the market doesn't fairly price in the growth at least you get half of the total return as cash.
    Jun 23 11:17 AM | 5 Likes Like |Link to Comment
  • AT&T: Financial Shenanigans, Painful Truth Coming [View article]
    I don't want to comment specifically on AT&T as an investment, but how is borrowing money to buy back stock not warranted?

    At the price they bought it the stock was paying a 6% dividend and T can borrow money at a price well below that. How does that represent a poor decision by management? It is saving them money.

    Furthermore, plenty of low growth companies make fine investments. Look at TRV or IBM over the past 5 or 10 years neither of which has much to speak of in terms of bottom-line growth, but both reward shareholders year after year with generous buybacks and dividends.

    If T has a market cap of about 200B has 20B in annual free cash flow, I fail to see a major reckoning for shareholders. 10% FCF declining at 3% per year is a 7% discount rate. Ironically this statement by the author could be made into the cornerstone of a bull case for AT&T.

    Thus, the business could decline by 3% per year in perpetuity and net you a 7% return in that time if it is all being returned as cash in the form of dividends and buybacks. Worst case scenario a 7% return, wow sounds like a death trap.

    Not saying the company is my cup of T, but if you are buying it for the yield I think you could do a lot worse.
    Apr 22 08:55 PM | 5 Likes Like |Link to Comment
  • Some money managers are getting excited by the latest holy grail for investors - using gross profitability as a basis for picking stocks. Research from University of Rochester's Robert Novy-Marx shows that cheap "quality" plays outperformed the overall market by over four percentage points a year from 1963-2011. "You get much more informative signals about the health of firms" this way, says Novy-Marx. [View news story]
    Assuming AAPL has sustainable earnings you buy AAPL. But tech could be tricky because their moat could erode.

    This is why you will never have a computer solve some equation to pick the best stocks. You need someone to read the quarterly reports figure out where the company is headed and balance that against the raw data. A data driven screener can help, but ultimately it is the investor who must determine if the company is really a buy.

    BTW, this is why most of the money for data driven buying and selling goes to HFT. In the short term the market lacks much rationality, which is why a computer can beat a human. In the long term not so much...
    Mar 3 02:04 PM | 5 Likes Like |Link to Comment
  • Did Draghi Flip The Spring Switch? [View article]
    Michael, I have to say your calls have consistently been the most accurate out of any commentator on this site. I'm hoping the summer switch continues, keep up the great work!
    Jul 28 04:34 PM | 5 Likes Like |Link to Comment
  • The Inefficient Market Hypothesis [View article]
    I would add that careers are made and lost in the hedge fund and mutual fund industries based on quarterly performance. HFT takes this to it's most extreme level. They don't care about long term performance because they never hold anything long enough for it to matter. Most actively managed funds have turnover of 100% annually.

    The reason value investing, or low beta investing works is in large part because it doesn't work quickly. It's slow and steady not get rich quick. You can't buy a low beta or undervalued stock and expect to outperform in a quarter. But look at MCD, PEP, CVX or GIS versus the SnP over 12 years. Probably that kind of outperformance isn't possible now because the same level of overvaluation isn't present in the marketplace. But none of these stocks are more highly valued now compared to 12 years ago.
    Jul 25 06:58 PM | 5 Likes Like |Link to Comment
  • The Inefficient Market Hypothesis [View article]
    Actually I believe that the low beta paradox is hard-wired into human nature, thus no matter how widely decimated these theories are individuals will choose to ignore them. And these data were published before (2007 and 2008 I believe), I didn't do the original research.

    We love chasing stocks higher or a stock with a compelling story that provides little in the way of a sturdy business model or compelling valuation. We love lottery tickets, quick gains, easy money.

    Unfortunately, this approach to investing is fatally flawed, but that is the paradox: investors repeat the same mistakes over and over.

    Look at the internet bubble 2.0 stocks: GRPN, FB, CRM, LNKD, P etc. All these stocks have no dividend, high P/E (if they earn anything), low (in most cases negative) ROE. Did that stop any buyers when they went public?

    We love these stocks like we love lottery tickets and unfortunately we pay far too much for them. Poor performance is almost guaranteed.

    Now I will accept that there may be more overvaluation right now in stocks with low beta. But I believe this is more temporary risk-aversion due to economic and European uncertainties than investors realizing that these stocks outperform.
    Jul 25 06:04 PM | 5 Likes Like |Link to Comment
  • U.S. Stock Market Complacency On Verge Of Collapse [View article]
    No Fisher was out of the market in the mid-70s, 1987 and 2000 bear market. He missed 2008, that is definitely true. He analyzed the housing problem and mistakenly believed that it was overblown.

    I would like specific data related rational for your bearish bias and a back-checked 30 year (at least) comparison to 3, 6, 12 and 24 month returns on the S&P 500. So maybe the number of negative earnings pre-announcements vs. forward returns or the current trend or level of S&P 500 margins vs. forward returns.

    Then you will have me convinced you have a factual reason for bearishness instead of a 'gut feeling.' Gut feelings are wrong at least 60% of the time.

    My bias is this: the stock market goes up on average 10% per year. Therefore, I would rather be in the market unless there is a convincing reason I shouldn't be. Basically my thinking is the same as Fisher's, the onus is on the bear's because historically they are usually wrong.
    Jul 7 01:36 PM | 5 Likes Like |Link to Comment
  • For All The Shouting, This Is Still A Normal Correction [View article]
    I could be wrong, but I don't expect to see panic similar to last August out of this downtrend. The leg down has been rather slow and orderly, I expect to test the 200 day ma at 1270, but not too much pain beyond that. The 10 year failed to make new highs yesterday - I think the flight to safety trade is starting to get old.

    Personally I don't try to time the market by getting in and out, it doesn't work. You would think all these hedge funds and mutual funds that lagged the SnP last year would have figured this out. I felt like I was right more than I was wrong trying to time the market last year and I still got the exact same return as the SnP. No bear market on the horizon = stay fully invested.

    But I'm just guessing, no one ever got rich trying to predict how far a correction would go. There has been panic in some individual equities and I have been in buy mode. QSII and CTSH are already in the buy column, AAP and GPN are looking tasty once the downward trend starts to reverse. 3 of those 4 were on Forbes' fastest 25 company sales growth list. All look undervalued and are in sectors that I am quite bullish on.

    Everyone knows Greece is a mess and 2010 and 2011 were not disasters if you stayed invested. I don't see anything different now, how Greece isn't priced in at this point is beyond me.
    May 19 01:45 PM | 5 Likes Like |Link to Comment
  • ConocoPhillips Is A Buy [View article]
    Why are you trading this stock? Just buy COP and forget about it. 1.2x price to book, 5% dividend that has grown 12% per year for the last decade and a low payout ratio.

    I'm still trying to decide if my buy for the month is COP or APA. I do like that dividend, but APA has more growth, choices choices...
    May 15 09:53 PM | 5 Likes Like |Link to Comment
  • Not So Golden Years: How An Aging Society Can Impact The Markets [View article]
    I am not sure I agree with the 10 yr yield vs. demographic trend graph. The fact that median age has been increasing while interest rates have been falling is correlation not causation.

    If you went back to 1900 you would see median age rising for 100 years, but rates did not fall that entire time.

    Falling interest rates are due to low inflation and central bank planning which has pushed for many years to lower the price of money.

    I also expect that most of these trends, as they are widely known, are already priced into the market. Investors pay more for a dollar of earnings in emerging markets as they expect higher growth, and they pay less for US or Euro earnings because it is anticipated growth will be slower.
    May 15 06:01 PM | 5 Likes Like |Link to Comment
  • Is The Stock Rally Over? [View article]
    No one cares about an election in France. The stock market does not care about Iranian nuclear threats, the stock market got through the Cuban Missile Crisis just fine. Elections are good for the stock market, especially when the choice is between an incumbent and a first time republican. Unemployment has been getting better, inflation is average.

    Actually when you look back at history you realize we've got it pretty good. I mean you could have been born in 1910, lived through 2 world wars a depression, near nuclear annihilation, and stagflation. Look on the bright side ; )
    Apr 22 01:28 PM | 5 Likes Like |Link to Comment
  • Signs Of A Stock Market Top? [View article]
    I was reading a piece yesterday in the WSJ, even 2008 was a more or less average panic as measured by corporate bond defaults. Imagine that when you couldn't get a bid for anything. Even the MBS that the Fed had to buy during QE1 to stop the liquidity crunch have been reported to perform more or less as advertised.

    Basically we just live in an insanely manic depressive market. Where huge bets are made on leverage during booms and these turn bust and no one will bid anything. The Euro crash last summer was a crisis engineered by Mr. Market's imagination. There was no solvency crisis and yet for a few days it looked as though Italy was about to go belly up. And then the year changed and it was like waking up from a bad dream...
    Apr 17 04:48 PM | 5 Likes Like |Link to Comment
  • ECRI's WLI Rises To 33-Week High, Growth Rate No Longer Negative [View article]
    Nah they can just back up the date again, by 2015 they're bound to be right eventually.
    Mar 31 12:41 PM | 5 Likes Like |Link to Comment
  • 1400 Looks Like The S&P's Interim Top [View article]
    I disagree with you here. Every dip is being bought aggressively. Unless some of the macro data turns south I don't see the catalyst for a real correction yet. Of course we may go down another 25 points, but unless your focus is very short term those kind of moves aren't worth worrying about.
    Mar 31 01:08 AM | 5 Likes Like |Link to Comment