Seeking Alpha
View as an RSS Feed

Tom Madell  

Latest  |  Highest rated
  • With The Market Overpriced, Here's What To Do [View article]
    Hello Dan - thank you for your interesting and thought provoking comments.

    While it might appear that my approach is "what has gone up, must come down (or vice versa)," it is actually far more complicated than that.

    I have always felt that a given sector within the market can remain either over- or under-valued for years on end. Thus, I do acknowledge that either economic factors or sentiment can continue to drive certain stock prices in the same direction rather than reversing as my approach might suggest.

    Yes, I agree that intrinsic forces in the world such as either fast or slow growth
    can continue to operate in either apparently favorable or unfavorable ways, for a given sector. But growth is not always synonymous with great stock returns. For example, while health care stocks can show better growth than other sectors, that does not mean that funds investing in health care will continue to do better than most sectors. I do believe that at some point, overvaluation sets in and serves to increase the odds of lesser returns.

    To continue the example, Vanguard Health Care Fund currently has a P/E ratio of 38. I would think that anyone with a knowledge of past P/E ratios would agree that this is a serious warning signal - not that the fund will necessarily crash immediately - but that based on an historical perspective, you could easily be better off investing in a fund with a lower P/E. Such a measure of overvaluation (which highly overlaps with my own 15+% for 5+ years "yardstick"), can't closely predict future returns but it certainly increases the odds of trouble ahead.

    Another factor to consider is that the economy tends to run in cycles of up periods followed by down periods. Often the up cycles tend to run in the general neighborhood of about 5 years. Since we have now surpassed that average length, we are "overdue" for a down cycle. And when a down cycle begins, funds that have gone up the most tend to correct the most.

    But, while my words may not be enough to convince someone of what I am saying, I offer the following evidence that my approach, similar to what you see presented in the above article and in my July 2 article at works is this:

    Had one invested in my 2000, 2003, 2006, 2009, and 2012 Model Stock Portfolios and held them for the 3 following years, one would have outperformed a portfolio of low cost index funds by an amount approaching 3% per year. This, I would argue, is a record that would have been hard to beat by merely trying to figure out the fund sectors with the current fastest growth.
    Jul 13, 2015. 03:47 PM | Likes Like |Link to Comment
  • Setting Up A Winning Portfolio For The Next 3 To 5 Years [View article]
    trend investor - see my article "Grow Rich Slowly" at

    where I discuss Vanguard Health Care.
    Jul 2, 2015. 02:36 PM | 1 Like Like |Link to Comment
  • Setting Up A Winning Portfolio For The Next 3 To 5 Years [View article]
    davel - You are overlooking my discussion of using hedged international funds instead if you believe that the dollar is going to continue to rise over the next 3 to 5 years.

    Also, TBGVX which is included in the portfolio, is currency hedged.
    Jul 2, 2015. 01:47 PM | 1 Like Like |Link to Comment
  • Setting Up A Winning Portfolio For The Next 3 To 5 Years [View article]
    TF17 - You can use your two index funds instead of my recommendations.

    However, I have been publishing similar Model Portfolios since 2000 and have found that my recommendations, on average, have done better than a weighted combination of Vanguard index funds. You can look at the following article to get data on how my recent Model Portfolios outperformed just using the kind of very broad indexes you are recommending:

    You might also look at my current July Newsletter for additional information which gives additional rationale for my approach

    Tom Madell
    Jul 2, 2015. 01:37 PM | 1 Like Like |Link to Comment
  • With The Market Overpriced, Here's What To Do [View article]
    Dane Van Domelen - thank you for your comment. I can expand on what's in this article by stating that the approach I'm recommending is not just if one thinks a bear market is coming.

    Rather, it can be used anytime. I believe you always want to look for the most undervalued or, at least, more fairly valued, market segments when making new investments or rebalancing.

    So, the approach would have worked well in late 2009 and 2010 when it appeared to me (and many) that we were embarking on a new BULL market. If you had picked the type of funds that had been most trashed
    in the preceding several years (such as a small growth fund - indexed or managed), you would have been rewarded more than most other categories over the following 5 years.

    So I know I can't predict and time the overall market. But I can say, and have accumulated 15 years of research showing, that your best bets are to currently favor market segments that, with a strong probability, will play catch-up and outperform over the upcoming years.

    So thanks for helping me to clarify this.

    Tom Madell
    Apr 29, 2015. 11:43 PM | 2 Likes Like |Link to Comment
  • Investors' Choices Of Funds/ETFs Tend To Underperform [View article]
    David - there are myriad points you make that have no bearing to what I state in my article:

    - your initial comment about past performance would imply that there are
    no people in the financial world/industry who can do better than average. But
    I would guess that many readers of Seeking Alpha would disagree; outperformance is never a guarantee, but it is certainly possible.

    -You fail to recognize that I never stated that investors need to pick
    funds that have "done well." Rather, I'm talking about funds that have
    done relatively better than the market averages. That means if the
    S&P index goes down say -20%, the fund that has outperformed may
    have only gone down -15%.

    -While you may focus on how funds do in the immediate future, most experts,
    and fund investors themselves, focus on holding on to a fund over at least
    a moderately long period to get the best results (and because most
    people don't have the time or interest to trade frequently).

    -You said five years ago investors might not have invested in equities
    if they focused on the prior 5 yr. performance. True, but since you
    think I said that one should only look for positive 5 yr. performers, I
    wouldn't have wanted stocks. Just the opposite: Five yrs. ago, I was
    recommending increasing one's allocation to stocks because stocks had
    become undervalued.

    -Methodology: I never said that all investors behave alike. What I said
    is that when someone picks a fund as a relatively long-term holding, they
    are often picking popular funds and maybe they should look for additional
    reasons for picking one or more funds.

    -You said "many investors are quick to jettison any investment that starts
    to lose money and replace it with another on the rise." If so, why did
    so many people lose so much money in the 2 bear markets of the last
    decade? Most fund investors are pretty poor at market timing.

    -My article is not about "distinguishing wise investors from unwise investors."
    It simply states that the most popular funds picked by investors turned out
    to be worse performing over a number of years than randomly picked funds.
    I also see similar trends in fund selection only one year later.
    Apr 1, 2014. 05:13 PM | Likes Like |Link to Comment
  • Planning For The Winding Down Of The Bull Market [View article]
    MrSun - my current Model Portfolios at show that I recommend a 52.5% allocation to stocks for Moderate Risk investors and a 70% allocation for Aggressive Risk investors. So, contrary to your assertion, my position is not one of "doom and gloom."
    Feb 5, 2014. 01:30 AM | Likes Like |Link to Comment
  • Planning For The Winding Down Of The Bull Market [View article]
    b3player makes some good points and it's hard to argue with some of them. I suppose the majority of investors would probably agree. But the point I am trying to make is that once you have say doubled your initial investment, unless you truly have maybe a decade or two ahead before you even want to think about this money, does it make sense to expect to keep on coming out ahead? Or, is a certain amount of "greed" (I hesitate to use this word because it may be closer to a psychological block that prevents people from taking money off the table when things are going well) built into most of our psyches?

    By using the casino example, I did not mean to suggest that investing is like a casino so perhaps another example would have been better, like winning a thousand dollars in the lottery after trying just once or twice, and then thinking that your odds are reasonable for that to happen again.) The example is not meant to disparage investors; it is merely to show that people who do extremely well at something that doesn't happen that often should not assume that this can keep repeating. In the case of the stock market, my research, which is pretty extensive, but doesn't cover the entire history of stock investing, shows that cycles and limits are definitely a big part of the picture even if we don't know exactly when they are going to happen.
    Feb 5, 2014. 01:22 AM | Likes Like |Link to Comment
  • Sector Funds: It May Be Best To Keep These To A Minimum [View article]
    The S&P Global Broad Market Index sector breakdown is pretty close to that of the S&P 500. (The BMI Financial sector is a little bigger as is Materials,while the Info Technology sector is a little smaller; otherwise, the differences are minor.) Have your sector-specific allocations generally enabled you to equal or better the BMI?Just curious.
    Jan 5, 2014. 01:17 PM | Likes Like |Link to Comment
  • The Stock Market Is Currently Overvalued And Irrational According To 2013 Nobelist [View article]
    It appears that some of those who have commented on my article
    thus far aren't seeing my main points. These are:

    -Whether you agree with his research or not, Shiller has made
    a great contribution to an understanding of asset prices which
    has been acknowledged by being awarded a share in the '13 Nobel Prize.

    -His main contribution was to show the role of psychological
    factors in distorting asset prices over the LONG TERM.

    -I publish a free Newsletter that for 14 yrs has relied quite a bit on helping investors recognize when fund/ETF prices are distorted. (Its track record is excellent as judged by Model Portfolio performance and its constantly increasing readership.)

    -While Shiller is to be recognized, unfortunately, his recent statements on the stock market have not proven accurate.

    -Buffett's quote suggests that when people are piling into (as
    they are now) or out of stocks, one should be a contrarian.

    -Both of these experts, though, are presently making comments that seem to take both sides of where stocks currently are.

    -Buy and hold investors may suffer angst if stock prices go down
    considerably, EVEN THOUGH these holders may eventually turn out OK. (And psychologically, it is hard to hang on when stocks drop considerably and people see their life saving disappearing.)

    On the other hand, my article says nothing about

    -PE/10 (CAPE)
    -Market timing
    -Trading or investing short term

    While people may want to legitimately discuss what is not part of my article, hopefully others should recognize that these topics aren't my topics.

    It is because people read so much of what they want to into things (such as stock prices or articles about investing) that aren't objectively there, I think this in a way helps demonstrate that many people will not be able to accurately read the currently overvalued condition of the stock market.
    Oct 31, 2013. 03:56 PM | Likes Like |Link to Comment
  • The Stock Market Is Currently Overvalued And Irrational According To 2013 Nobelist [View article]
    American in Paris & Pampano Frog:

    You guys are reading things into my article that I never mentioned.

    First is the notion that I am talking about Shiller's CAPE measure. However, my article does not make any reference to it, or any specific measure that he might use.

    Rather, the article is about his view that behavioral economics in general is a better way to understand long-term price direction than merely latching on to certain economic variables. In fact, the CAPE itself is merely another type of economic variable that is adjusted to try to make it more predictive.

    So, let me emphasize that I take no position on whether the CAPE is any good. My approach is very different although I do believe the behavioral economic approach is more realistic than just assuming all prices are essentially unpredictable (and rationally based).

    My article uses Shiller's own statements, for one, that the market is not "that overpriced" right now. This means to me that it is somewhat overpriced, but not extremely so. This is also what the Bloomberg TV host who interviewed him talked about at length after the interview.

    If Shiller would disavow the contents of my article, he would have to disavow his own quoted statements made on live TV. But he would (and certainly should) feel uncomfortable with the content of my article. I tend to doubt he based his interview statements solely on his CAPE measurements, but in any case, in spite of his pre-eminence in academia, his own media-based calls on the market which he has been sure enough to make in interviews, have probably led many investors to make the wrong decisions.

    Second, neither Shiller nor I believe in market timing (nor is it ever endorsed in this article either). This is about doing a little better by avoiding buying and even trimming down at historically very high points, along with not selling at very low points. I personally have done quite well for well over a decade following such a strategy which belies, for me at least, the statement that it does no good to make some portfolio adjustments on that basis.
    Oct 31, 2013. 12:53 AM | Likes Like |Link to Comment
  • An Alert To Investors [View article]
    heartky - you can see my recommended Portfolios' recent performance, along with additional comments, at
    (see bottom of article)

    Here is a summary:

    Oct. '12 Model Portfolios

    Our Portfolio's Return: 22.1%
    S&P 500 Index's Return: 19.3%
    Portfolio Outperformance: +2.8%


    Our Portfolio's Return: -1.0%
    Benchmark Idx (AGG): -1.7%
    Portfolio Outperformance: +0.7%

    Oct. '10 Model Portfolios (Annualized)

    Our Portfolio's Return: 15.0%
    S&P 500 Index's Return: 16.3%
    Portfolio Outperformance: -1.3%


    Our Portfolio's Return: 3.9%
    Benchmark Idx (AGG): 2.9%
    Portfolio Outperformance: +1.0%

    Oct. '08 Model Portfolios (Annualized)

    Our Portfolio's Return: 9.6%
    S&P 500 Index's Return: 10.0%
    Portfolio Outperformance: -0.4%


    Our Portfolio's Return: 5.6%
    Benchmark Idx (AGG): 5.4%
    Portfolio Outperformance: +0.2%
    Oct 16, 2013. 10:09 AM | Likes Like |Link to Comment
  • An Alert To Investors [View article]
    hw102 - International funds, such as VGK that focus on Europe still look relatively attractive for the next mo. or so; however, without a serious correction of 10-15% they are on the path of overvaluation.

    Regarding VWO, emerging markets are still working off the excesses that began in 2009; over the last 3 yrs., they have been
    on a downward trend. It would appear to me that these excesses need to be further removed. VWO might not be technically overvalued yet, but it appears unattractive to me.

    As far as I am concerned "overvalued" is a relative term with no one agreed upon definition. But I use these terms to mean that according to my research, sectors that go up in price a great deal for a long time, such as these two (and most other ETF categories right now) will tend to underperform over periods of as long as the next 5 years. But things can change if there is a significant drop in prices, making them more attractive once that happens.
    Oct 15, 2013. 10:01 PM | 1 Like Like |Link to Comment
  • Better Than Buy And Hold Over The Last 13 Years [View article]
    Dividends will add to the returns shown in the article. They should be close to the same for the two approaches except that if one has more shares, as in this comparison, they will have more dividends.
    Aug 1, 2013. 06:26 PM | Likes Like |Link to Comment
  • Better Than Buy And Hold Over The Last 13 Years [View article]
    Not talking about always. But the data is what it is for the 13.5 years examined.
    Aug 1, 2013. 06:24 PM | Likes Like |Link to Comment