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Jeff Gonion

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  • Beat The Market With Sector Rotation [View article]
    This strategy returned 48%, or 3.3% per year, handily beating the S&P 500, for a bit of work on a monthly basis.

    I also assume that you didn't take into account the effect of short-term capital gains taxes from frequent buying and selling. This will reduce gains by a quarter or a third, depending on your income bracket.

    --- It's important to compare any strategy to a benchmark, to understand whether you could have done better elsewhere.

    Anyone can beat the S&P 500 over the last 10 years.
    It's just too easy.

    I generally use mid-caps as a benchmark to beat, unless I'm specifically targeting large-cap stocks.

    Simply holding an S&P mid-cap ETF (such as MDY) returned 140% over the same period, or 7.4% per year, with much less work, only paying taxes on dividends (at the dividend tax rate).

    The S&P large cap equal-weight ETF (RSP) returned 98% over the same period (or 5.7% per year), again only paying dividend taxes.

    So doing more work and paying more taxes for a 3.3% return (before taxes) isn't really grabbing me...
    May 27 11:18 AM | 1 Like Like |Link to Comment
  • Want To Invest In A Hedge Fund? Think Again [View article]
    While alternative investments *theoretically* have the advantages you state, it's important to look past the top level and drill-down into details.

    1. The Great Recession saw an unprecedented correlation between asset classes; Equities, Debt, Commodities, CDO's, real-estate, currencies, default swaps, etc. This caused many hedge funds to exhibit the same correlation they theoretically were supposed to have avoided.

    2. It's not actually true that an investor that held their portfolio through the 2007-08 is just now hitting their high water mark. An investor that simply held the S&P mid-cap 400 index hit their high water mark back in 2010.

    3. Pension funds have a long-term time horizon. Such funds will often cover payouts from the non-volatile portions of their portfolios while waiting for equities to rebound. It's not enough just to look at the funding level of a pension fund to determine it's health. You have to consider the payout ratio with respect to capital inflows and the asset allocation of the fund. If equity redemptions are not needed to cover payouts, the overall health of a well-run fund may not be affected by recessions.
    
    4. Finally, the calculation of performance fees was just an illustration of how fees affect return. It should not be taken literally. Each hedge fund determines individually how they want to calculate fees, and specifies this in their placement documents. Some funds may calculate fees differently for different clients through side-letters. Some funds use a hurdle, while others use a high-water mark, while others may have no such construct. There is no "one method" by which this is done. The varieties are endless.
    Mar 14 10:05 AM | Likes Like |Link to Comment
  • Reconsidering Basic Asset Allocation [View article]
    It's certainly an interesting from an academic standpoint, but...

    1. Since interest income, dividends, and capital gains (yes, you can have capital gains on bonds too) may all be taxed differently, investors will not actually get the returns mentioned in this article. Rebalancing will also force materialization of gains, increasing the tax burden.

    2. I can't help but notice that none of Barclays' corporate bond funds achieved the returns of the Barclays U.S. Corporate Bond Index. The article doesn't really deal with a real-world implementation of the theory.

    IGU is mentioned, but on most days this fund trades literally zero shares. To say it's "thinly traded" is an understatement. It's illiquid.

    The article also mentions AQRIX, which has a $5M minimum investment. The fund is also less than 6 months old. Nobody who has ever got caught in the unwinding of a mutual fund will touch this, especially with $5M.

    How about a version of the article that goes through this in a real-world sense, employing tradable funds and accounting for taxes and rebalancing, compared with simply holding the S&P500 and reinvesting dividends?
    Feb 28 01:10 PM | 2 Likes Like |Link to Comment
  • SPY: The Perils Of Market-Cap Weighting [View article]
    The top 5% of the market is the 95-100 percentile.
    Feb 14 07:49 PM | 1 Like Like |Link to Comment
  • 12 Healthcare Stocks Undervalued By The Graham Number [View article]
    Graham first published his formula in 1962, and revised in in 1974. Both formulae were published in his book "The intelligent Investor"

    1. Your formula is not the one Graham published.

    2. Graham explicitly stated: "...we do not suggest that this formula gives the 'true value' of a stock..."

    Graham did not use the book value in his formula, and certainly notr a square-root (what on earth would be the financial basis for a square-root?)

    Grahams original formula was based on EPS and long-term expected growth rate of the company. The revised formula also accounted for the ratio between investment-grade corporate bond yields vs their historical average.
    Dec 19 12:34 PM | Likes Like |Link to Comment
  • 3 Golden Cross Stocks Undervalued By The Graham Number [View article]
    Graham came-out with a formula in 1962, and revised it in 1974, both of which he published in his book "The Intelligent Investor".

    1. Your formula is not the one Graham published.

    2. Graham explicitly stated "...we do not suggest that this formula gives the 'true value' of a stock..."

    Graham's formula did not involve the book value, (or a square-root).

    The original formula was based on EPS and the long-term expected growth rate of the company. The revised formula also accounted for the ratio between investment grade corporate bond yields vs their historical average.
    Dec 17 02:38 PM | Likes Like |Link to Comment
  • Gold: Time Tested Insurance Against A Stock Market Crisis [View article]
    The premise of your article seems to be that if you would have bought gold during a down-market, you would have fared better than owning the S&P.

    While that might be true, identifying when the S&P is about to nose-dive has confounded financial analysts and investors since the dawn of the markets. In order to benefit from the facts in this article, and investor would need to know when the S&P is hitting it's peak and move into gold.

    Easier said than done.

    In fact, if you can identify the peaks, you wouldn't bother with gold, you would simply short the S&P and make a *lot* more that way.

    It would be more illustrative to talk about how good of an investment gold is to hold long-term, rather than holding it when you are able to predict the stock market drop before it happens.
    Nov 25 01:22 PM | 1 Like Like |Link to Comment
  • If You Go By ECRI, Recession Is A Done Deal [View article]
    ECRI's WLI is not predictive, even according to ECRI.

    It basically just tracks the stock market.
    Oct 3 07:19 PM | Likes Like |Link to Comment
  • ECRI U.S. Recession Forecast Will Weigh Heavily On Global Stock Markets [View article]
    We might enter a recession, we might not. These are definitely uncertain and fear-filled times. I have serious concerns myself.

    Regardless, I find it difficult to respect a financial organization that issues report containing statements like this:

    "...the U.S. economy is indeed tipping into a new recession. And there’s nothing that policy makers can do to head it off."

    Should I seriously believe that they have somehow analyzed all possible policy decisions with some sort of ultra futuristic computer model that can predict the future, and nothing helps?

    Or should I believe that this is an attempt to grab headlines?
    Oct 2 12:51 PM | 1 Like Like |Link to Comment
  • Japan's Currency Is Showing Amazing Strength. What's Going On? [View article]
    There is a combination of effects happening right now.

    First, carry-trade fear: Carry trades are being closed-out, due to the possibility of a massive repatriation of Yen to pay for reconstruction, as happened in 1995 after the Kobe earthquake.

    Second, Japanese investor fear: A lot of Japanese have investments in the US, not only due to the relative health of the US economy compared with Japan's, but also due to the fact that American interest rates are expected to rise before Japan's. This gives Japanese investing in the US more bang for their buck: The US stock market goes up, and the dollar also goes up, compounding their gains. These businesses and individuals are well-aware of what happened after Kobe, and nobody wants to sell dollars to buy yen at 66 when they can do it at 80.

    Finally, speculation of massive repatriation of Yen in the weeks and months to come. Sometime within the next month or so, repatriation of Yen to pay for damages is expected to begin in earnest, strengthening the Yen even further. The argument that there will be currency intervention doesn't sway many investors, since there was also intervention in 1995, and the Yen still increased 20%. This expectation is leading people to buy Yen now in expectation of future repatriation.
    Mar 17 10:10 AM | Likes Like |Link to Comment
  • Akamai Experiencing Growth in Public Sector Services [View article]
    Issue #1: This is absolutely false.
    Everybody can see that this is false by simply going to the Trefis website and trying it.

    >> "a warning pops us saying that an assumption is causing a problem with the model."

    Not true. The warning that pops-up (as of today) simply states:

    "One of your forecasts has caused a division to have negative profits and no value."

    1. This does not tell people that they are "causing a problem with the model". It tells them that profits for a division are negative. This happens all the time in the real world, so there is no indication that the model is not working.

    2. It is incorrect to assign zero-value to a financial loss anyway. A financial loss has negative value. This is a bug.

    From your comments (causing a problem with the model) it would appear that this is a bug that Trefis is aware of.

    Issue #2: From what I can tell, this is a bug that Trefis is aware of and is *not* disclosing to to customers and visitors to their website.

    Considering these two issues, Trefis doesn't seem like a company I can trust.
    Dec 1 12:17 PM | Likes Like |Link to Comment
  • Verizon FiOS Penetration Rising [View article]
    Extreme values? Negative Values?

    I only use the negative values to highlight the absurdity of the problems.

    Is 4% margin "extreme"?
    I don't think so, but apparently Trefis does.

    "seekingalpha.com/user/..."

    As you can see from your own model, you project that MSFT stock price will be higher at 4% profit margin than if they have a 27% profit margin. These are both realistic numbers. It would be advisable to fix the bugs in your model rather than make excuses for them.

    Another bug is that a division that loses money accounts for 0% of the stock price. You can't seriously believe this. It is well-known that a division that loses money weights negatively on the stock price.

    If Trefis really believes there is nothing wrong with these things, then you have a lot to learn about how the market *actually* works.

    Otherwise, the implication is that you have bugs in the model that you're not fixing.

    Both are bad.
    You may wish to consider a third option: Fix the bugs.
    Nov 30 07:23 PM | 4 Likes Like |Link to Comment
  • Akamai Experiencing Growth in Public Sector Services [View article]
    Extreme Values? Negative Values?

    I only use the negative values to highlight the absurdity of the problems.

    Is 4% margin "extreme"?
    I don't think so, but apparently Trefis does.

    "seekingalpha.com/user/..."

    As you can see from your own model, you project that MSFT stock price will be higher at 4% profit margin than if they have a 27% profit margin. These are both realistic numbers. It would be advisiable to fix the bugs in your model rather than make excuses for them.

    Another bug is that a division that loses money accounts for 0% of the stock price. You can't seriously believe this. It is well-known that a division that loses money weights negatively on the stock price.

    If Trefis really believes there is nothing wrong with these things, then you have a lot to learn about how the market *actually* works.

    Otherwise, the implication is that you have bugs in your model that you're not fixing.

    Either is bad.
    You may wish to consider a third option: Fix the bugs.
    Nov 30 07:15 PM | 6 Likes Like |Link to Comment
  • Price Direction for Windows OS Could Determine Degree of Uptick for Microsoft [View article]
    Don't believe it...

    If you want to see just how flawed Trefis' analysis is, go to their website and punch-up MSFT. Play with the Windows OS Operating Margin. Watch what happens to the stock price. For example playing with the 2011 margin (leaving smoothing on) gives you:

    Margin = 27.00% Price = 21.35
    Margin = 4.3% Price = 23.01 (less profits = higher stock price?)
    Margin = -80.3% Price = 28.69 (loss = even higher price?)
    Margin = -1000% Price = 28.69 (Massive loss = no effect?)

    Don't believe it...
    Nov 30 06:57 PM | 4 Likes Like |Link to Comment
  • Verizon FiOS Penetration Rising [View article]
    I would caution you against believing conclusions from Trefis.

    In the case of this FiOS article: Try going to the Trefis website for VZ, and dragging FiOS profit margins down to -400% (i.e. VZ losing money on FiOS).

    The Trefis website calculates the stock price will *increase 13-fold* from 31.69 to 424.67 due to FiOS losing money.

    If you believe that, I've got a bridge to sell you...
    Nov 30 03:16 PM | 5 Likes Like |Link to Comment
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