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Brendan O'Boyle

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  • 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
  • Chart Of The Day, Flash-Crash Edition [View article]
    I don't think anyone is complaining about the 99.9% of the time that the trading range stays between where the bid/ask would have been. We are concerned about the 0.1% of the time when a security (or the entire market) melts down. Whether HFT contributed to this last summer is debatable, but it certainly caused the May 2011 flash crash.

    Heightened volatility due to HFT can contribute to an atmosphere of fear that will cause market panics to be more likely. Remember the 1987 crash was caused in large part by program trading, which was also new technology at the time.

    The thing that bothers me about HFT is how it contributes to a less rational market. A market that only considers price movement, rather than fundamental data regarding companies makes the market less efficient and more prone to selling panics. A computer never stops and says to itself - "does a sell on BIGS at $0.05/share make any sense?" Or "does a sell on AAPL for 9% less than one minute ago on no news about the company make sense?"

    The more I watch the market the more dumb-founded I am that professors of economics subscribe to the efficient market hypothesis. Anyone who has ever traded stocks can attest to how inefficient the market really is.
    Mar 25 03:18 PM | 5 Likes Like |Link to Comment
  • Coach Is Falling - Is It A 'Buy' Now, Or A 'Sell'? [View article]
    No the numbers are the same. I was talking about long-term debt (not the current liabilities), which is still $400M according to the 10-Q.

    $1.19B is all current liabilities vs. $1.7B in current assets. Last year current liabilities were $1.1B. About the same as a year ago. And we are still talking about an amount equal to the after tax income of the company in the last 12 months.

    Would you say I couldn't afford my mortgage if I grossed 100k, netted 75k and owed the bank 75k? Also, I think just about every company in the S&P probably has short-term liabilities equal to 10% of revenue. It's a necessary part of running a business (the average current ratio in consumer disc is 1.36 - 1.7/1.19 = 1.42, very much in line with the sector average). Therefore, the debt is a complete red herring, Coach has a very clean balance sheet.

    As for P/B, I do not care how it compares to the other companies you listed because it is not relevant as a method of valuation. By P/B would you would say that PM and IBM are worthless? These are simply companies that do not build up large amounts of assets on the balance sheet, thus the P/B is high. As a result the book value doesn't mean much, it's the cash flow of the company that creates its value.

    So I would say that Coach is a good buy as a turnaround (if you believe they can do it). When I say turnaround I don't mean in a quarter or two. So whether you want to buy COH or not depends on two things:

    1. do you believe they can right the ship?
    2. are you willing to wait at least 1-2 years on the investment?

    Thus the only thing in the article that I thought was pertinent was the part about "brand dilution," which didn't really tell me anything new.
    Jun 25 08:47 PM | 4 Likes Like |Link to Comment
  • What Would You Do With A Million Dollars? [View article]
    I just wouldn't pay someone 0.55% to manage a fund of bonds that pays me 2.70%.
    Jun 9 03:47 PM | 4 Likes Like |Link to Comment
  • What Is Wrong With This Picture? Maybe Investors Should Switch Canadian Pacific For CSX [View article]
    CNI beats them both.
    Jul 19 06:56 AM | 4 Likes Like |Link to Comment
  • The Small, But Important, Flaw In The Tepper Analysis [View article]
    I don't understand the thesis that lower deficit spending is bullish. Issuance of Treasuries is lower because taxes have gone up and spending has gone down. Both are contractionary, not bullish.

    It is funny that the exact same bullish argument would be draw from the opposite observation. Ie if taxes had not been raised and government spending had not been cut, Tepper would probably be talking about how much more effective the US government is at expansionary policy compared to European austerity.
    May 15 07:57 AM | 4 Likes Like |Link to Comment
  • Why Just About Everything Most Investors Do Is Wrong [View article]
    I have an aunt, who 15 or so years ago bought McDonalds and has made remarkable returns probably in excess of nearly every investment professional on the planet.

    I asked her: wasn't it tough in the early 2000s when everyone thought MCD was falling apart? She said she didn't check the price very often.

    The lesson is: get hobbies besides investing, then buy companies with durable competitive advantage (especially when they are available at good prices) and forget about it.

    It's so easy to say and so hard to do...
    Apr 25 07:17 PM | 4 Likes Like |Link to Comment