blainehodder

Professor Aswath Damodaranon the current market valuation: http://aswathdamodaran.blogspot.ca/2013/03/a-sweet-spot-for-us-equities.html It is worthwhile to take a look at the comments as well. I wrote a comment regarding CAPE/Shiller models, and profit margin mean reversion, and he has a pretty good response.

Shadowstock has posted cannabals on his blog. Not sure if that's what you were thinking.

...If you could open such a fund with fees below 1% let us know! I'd be happy to invest! But you are right. Let's say you would have to make 100K/year in profit at minimum to make it worth your time... then you would need probably $20M AUM assuming 100K expenses and a 1% fee. At this point you may have too much cash to deploy into the strategies unless you had multiple funds with different strategies. global microcap MF, global net-net...and more. I guess it just might not be feasible (yet)? More likely, you'd need 2 people running the funds, contract out your accounting and legal expenses etc. It starts to look daunting without a performance fee, but then that defeats the purpose. Most people who would invest in a microcap netnet fund "basket" could do it without paying the expenses associated with a performance fee. Just hit Graham investor, or a Bloomberg or whatever and buy away. Then if you start actively managing it, if you are charging the currently insane management fees of hedge funds, all the outperformance would just go in your jeans, as opposed to customers. Still, not all cheapo startegies that work are in microcaps, and I haven't found many ETFs that are truly cheapo strategies in my opinion. On a different note, one of the best sources of ideas for me comes from ranking microcaps by EV/EBIT and ROIC on the Bloomberg. If MF no longer works well on huge stocks, it certainly still seems to identify winners like JCTCF in the 20-50 mill category.

Microcap ETFs would be a bit nutty due to liquidity issues. But there are several value ETFs to pick from with P/B being a popular factor. Agreed. I guess I just haven't found any of these ETFs that I really consider cheap enough for my Grahamsian taste. A quick look at the holdings of some of these ETFs and I see p/b stocks above 3, P/e averaging above 18. Not exactly a cheap enough stocks for outperformace in my opinion. Do you know any true value ETFs? Most of the ones I find would be laughable to Graham.

This is 3 year data, hardly statistically valid. In fact given the tumult, I would expect something like this during this period. That said, to me MF is a beginning, it gives companies to analyze. Whenever I hear this response I wonder how long is needed for something to be statistically significant? I've heard people claim 120 years of market data isn't enough to show stocks outperform bonds at a statistically significant level. I agree Nate, but in the case of a long term quantitative investing strategy, wouldn't it be best to look at the performance over a full market cycle at least? If we only look at the run up since 09, you could conclude that buying "high beta" glamour stocks is a great strategy, netnets are horrible, etc. Given the rationale behind the MF, I believe it will outperform a comparable index over a full market cycle as backtesting seems to indicate, even if real world performance falls short of the backtests . Almost anything with a cheapness metric in its ranking should outperform over time I think given you buy enough stocks for general diversification. I don't see how adding a quality criteria to that could be a bad thing. Personally, I do believe the MF is one of the best strategies out there if you aren't a stock picker. Adding a z-score, and/or f-score to the ranking might help avoid some real traps as well. If you are a stock picker (I am) I think you have to ask yourself if the marginal time spent is worth any out performance you might achieve over a strategy like this (instead of just the index)... or maybe you just enjoy it! I do :) I still can't believe no super value ETFs exist... straight low fee (sub 1%) 30 stock MF ETF, every netnet under 66% NCAV with acceptable z-score ETF over 25 mill, all P/B below 1 f-score/z-score over a hurdle (not Chinese) ETF etc. I would consider putting the majority of my money in those if they existed, and only pick a couple stocks outside of that. Maybe it isn't feasible for the really small type strategies above due to liquidity, but certainly a cheapest decile ev/ebit, or p/b S&P type index could exist.

There should be a TARP warrant ETF. Most of the underlying companies seem cheap.

If you lived, or currently live in PIIGS or Cyprus, would you empty your bank account? I never really thought it was possible to make such poor economic decisions. With what is happened in Cyprus, would you keep any more than a tiny minimum bank balance necessary to function if you lived there? Greece? Italy, Ireland, Spain? Considering interest rates are nil, it seems there is little incentive to keep money at a bank. If I were in Cyprus or Greece, I think I would buy a combo lock, hide my cash in a box, and call it a day. It seems you'd be taking a bigger risk of theft in a bank account than hidden in a locked box. If I were an Oligarch, I'd be transferring my cash to a more friendly nation like Switzerland. I never thought such pro bank run policy choices could be made... With that said, I'm long EWI, EWP, EIRL, GREK :) Maybe I'll scoop up some more if they crater.

Does anyone know of any solid Cyprus companies that are about to be decimated? Something along the lines of Coca Cola Hellenic would be fantastic! Sorry I can't really contribute(yet...reading as fast as possible. Will be at bloomberg soon). I am clueless about Cyprus but my bargain senses are tingling. Can anyone with any insight help us out here?

It is a shame there isn't a kindle version. You can find fairly cheap used copies of the text though. It is somewhat nice to have the paper copy for notes and questions.

[amazonsearch]Options, Futures and Other Derivatives[/amazonsearch] Hull's book is regarded as the standard (intro) options and derivatives book. I think it is very well written, and I firmly believe that many people on this board should take a deep dive and go through the book before laying out their hard earned dollars in the options market. Many options strategies discussed on this board are simple enough to be fully understood after reading the book. I believe once more people have a better understanding, it will increase the quality of conversation, as well as the board members' profits! Value investing shouldn't be an excuse for not arming yourself with info. I know some options traders who would be licking their lips listening to some of the recent discussion. Let's not be the patsy at the table.

Yeah, I hold GREK. Also have EIRL, EWP, EWI. Nice piggy basket. It seems cheap markets work well, like cheap stocks. I'd love to see a Shiller PE, magic fomula combo strategy. Cheapest/Quality stocks in the cheapest markets... Probably closer to what I would be doing in these markets if I could afford the broker fees.

I'm long through the ETFs. Simple, and cheap for me. It costs me too much in brokerage fees to go a different route.

I was hoping we could start a thread of LEAP ideas which are potentially mispriced due to the binary nature of of the underlying. Any ideas? Here is a thought to get started: -Could Chinese stocks be good LEAP candidates? Tons of cheap stocks on the radar which are either outright frauds and worth nothing, or far too cheap. Prob not a great idea, as even if they are cheap, the market may never recognize it. -COCO - could fly if the gov reverses decision on title IV. Alternatively, they could be in real trouble if the gov makes an example of them.... unfortunately the long dated options don't really trade.

I always find it interesting when people use single year PE ratios on the broad market as if it has some great predicative power. The only data backed work on macro market predictions I have seen are from Shiller, Hussman, Carlisle and Gray, Joachim Klement, Natascia Angelini, Giacomo Bormetti, Stefano Marmi, and Franco Nardini etc. It appears to me that the Shiller PE and Hussman models appear to have decent long term predicative power. http://greenbackd.com/2012/07/30/new-global-research-on-graham-shiller-cyclically-adjusted-price-earnings-cape-ratio/ The regular news media seems to support wild ass guesses... I imagine the readers of this board understand that the volatility of current market PEs or for that matter profit margins makes them useless for predictions. It is quite fun to see the single year stats on CNBC regularly.

I'm long the iShares Spain ETF. Seems to be a cheap way to get in on cheap stocks in a cheap market...it holds positions in Telefonica and Banco Santander etc. Plus it is free with my broker to buy ETFs. Woooo!

Yes I definitely agree Eric. Waiting is costly, and macro analysis proves too many people stupid on a regular basis. I am not really seeking the sidelines, but I have taken profits on things that have run up to fair value or higher and am looking to get into some other cheap stuff. Am I wrong in thinking having some cash would be prudent in case a huge opportunity arises? Do you have any on hand, or are you 100% invested? Also, didn't you have some cash on hand to capitalize on the financial panic in 08'? Or did you have to sell cheap stocks even cheaper to buy the cheapest thing you have ever seen if you get what I am saying? I am geuinely seeking advice here. I don't have near the experience or returns you have had. I was a broke uninvested student in 08' and a kid during the dotcom bust. I am noticing the net-nets right now are for the most part very ugly (the exchange listed ones at least), and the really ridiculous dream stocks I was finding are no longer cheap (JCTCF comes to mind). There is still always winning businesses to be had in North America regardless of the environment, as you may prove with BAC, but I am not finding tons of easy money... (I haven't spent the time analyzing the BAC balance sheet to feel comfortable). In the end I agree with your advice for sure, I guess I am just saying it might not hurt for me to look for cheaper markets to play in where the dream stocks exist, and hold some cash in case our markets get cheaper. Cheap, high returns on tangible cap, smart capital allocation, and management I can trust are prob more abundant in non-North American markets right now no? This applies far more to me than you though as you are heavilly in BAC. I am very curious however in the stocks that would interest you if say, you didn't understand banks, or weren't allowed to buy them?

I remember a lot of the cheaper stuff going up during the crash of the Dot Com growth bubble. And that was no small correction. BUD for example, went up a lot. Jae Jun at oldschoolvalue.com has done some work running backtests on various value strategies with stockscreen123. His results are here: http://www.oldschoolvalue.com/stock-screener.php It appears every strategy was severely punished in the 08' crash, with particularly devastating drawdowns on NCAV, netnet working cap portfolios, and net net working cap increasing models. In 2000, He shows drawdowns on most value strategies as well. I'm not sure about 99 though. Of course, this is only true for a generic basket, not individual stock picks. Stockscreen123 recently moved to Compustat data (which accounts for survivorship bias), which was likely used in Jae's backtest as he recently revamped the screener, so the data is likely correct or close to correct. Greenblatt's reported magic formula results show up 12.8% in the 2000 bust which is very interesting, but was definitely hit fairly hard during the 08' crisis. I suspect the MF would be down if we face another "most assets are priced lower" periods (as opposed to the dot-com bust), but this is just a guess. Cheap, quality stocks seem to perform the best in most periods up or down given a 10 year time frame though, which we all know or wouldn't be members of this forum! While I don't claim any ability to predict the shorter term returns of the market, the Shiller PE does a pretty damn good job in the 5-10 year range. http://greenbackd.com/2012/07/30/new-global-research-on-graham-shiller-cyclically-adjusted-price-earnings-cape-ratio/ So, even though some stocks are bound to do well during an overall expensive market period, it seems playing the cheap quality game, in cheaper markets might be a decent idea. Particularly for more diversified investors who are less confident in single names... I wish I understood banks better:) As it is though, I am not finding tons of companies that are cheap, and I can understand.

Does anyone know of a source for shiller PE 10 numbers by country?

http://www.hussmanfunds.com/wmc/wmc130204.htm I am with Hussman here. Dow all time high. S&P at all time highs. Looking overbought on a bollinger basis, overbullish advisor sentiment, and grossly overvalued with a shiller P/E of 22.8. All combined with cyclical highs in profitability. I am hearing my coworkers abandon the sidelines to chase the run up. All of this is happening and everyone I talk to has the same plan: "It will all go up until the Fed tightens." Who will be the buyer in this case? I can't see this ending well, even if you hold cheap stocks. Even net nets, magic formulas etc. get crushed during big corrections. Right as the market hits all time highs, I am selling off the fair value + stuff and raising cash. I can't wait to buy my favorites on the cheap. What about you?

Fantastic! Thanks!

Personally, I think it would be extremely foolish to go to Columbia with the sole hope of admittance to the value investing program. Not many of the people who apply gain acceptance into the program, therefore I would choose whichever school you think is best ignoring the value program. Since Harvard grads are at pretty much every top end fund with large AUM, Harvard is almost surely the best bet, given the choice. That being said, Columbia is obviously highly respected, so you should choose based on which school you think is best. Just don't bet the farm on getting access to the value program.

Yes, I looked at AUTO before and it is a very compelling high ROIC growth story... AND it is dirt cheap. Sadly I just can't bring myself to buy OTC stocks right now while I have space in tax sheltered accounts. In Canada we are not allowed to buy OTC in the TSFA (zero cap gains) or RRSP (writeoff) accounts. Great start though! Here is a decent writup on AUTO. http://montesolcapital.com/wh2/ It also should be a magic formula stock due to the cheapness and returns on capital but it is too small to hit Greenblatt's screen. I think whopper wrote it up for the newsletter he runs. I'll be sure to check out ADVC as well, but it looks as though my conclusion will be the same. I really am missing the boat by avoiding OTCs, but the 30+% tax return I get from the RRSP, or alternatively the 30+% cap gains avoidance really handicaps them in my book. Does anyone have any thoughts on this? Do you fellow Canadians max your tax sheltered accounts before you venture in OTC land?

I was hoping to start a list of strong moat, sub 100 mill market cap ideas. It certainly would be nice to get in on the next Starbucks microcap. Are there any well managed stars you've spotted in your hometown that are well managed and publicly traded? Sadly, I don't really have any ideas to get the ball rolling, but I'd be interested in hearing yours :D.

If you were going to start a (non investment) business today, what would you do? What are some industries or small businesses known to have high returns on capital (other than software), pricing power, and could be started with less than $1 million?