no_free_lunch

Another great write-up from the Brooklyn Investor, this time on the TPRE IPO. http://brooklyninvestor.blogspot.ca/2013/08/third-point-reinsurance-ltd-tpre.html

20% cash. The most I think I have ever had. Not really a market call as I claim no great abilities in that regard. I just don't see too many appealing risk/rewards.

This is interesting from a market efficiency viewpoint. I view this as mostly just noise and positioning by uralkali. Think about what just happened, a company has announced that they will be increasing their volumes and that prices will be dropping. Now why would a firm do something like this? Can you see XOM announcing that oil prices are going to be crashing soon? I think it all comes down to the increased production that is being built. Their is simply too much production being planned, prices would collapse if it all came online. So when viewed from that perspective, this is effectively a scare tactic, probably aimed most squarely at BHP's new mine but really to all the players who are bringing on production. When you view it like that, then what has really changed? What do we know now that we didn't know a few days ago? Not saying the potash producers are necessarily a buy at these levels but I view this as the market being very irrational in that potash equity prices shouldn't have changed as much as they did. I would also note that the uralkali and the other belorussian producer never really played ball as far as the restricting volume. They were always the first to crack, have done so numerous times over the past decade. They can say they will be producing full-out to scare people, but that is what they have always done.

Wasn't that the trend in the US as well? Before the huge RE crash?

Another idea might be an equal weighted index fund. This might sound too simplistic at first but look at the returns. There is an equal weighted S&P500 fund RSP available. Given my feeling that a bear is more likely than a bull this might not be a bad place to have some equity.

I did a bit of digging on individual Greece companies. Have you found that they are not actually all that cheap? Coke HBC for instance has an adjusted quarterly EBITDA of $90M but a market cap of $5.2B. It seems more on the expensive side if anything. All of the companies I have looked at do not appear that cheap, even when you look at prior years earnings. This is based admittedly on a very quick look.

Hellsten, I agree completely, summary stats are difficult to interpet. I mean: 1) How do they determine what the high point is? Is it the highest point over past 52 weeks, 5 years, ever? It makes a difference. 2) How many trades are there? That is, if it stays in this 50-90% down range for several years, how many times does it count? 3) Median, stdev would be nice. 4) How many cases were 0's? I just view it as interesting data, that warrants investigation. I have always wondered if you could just blindly buy pools of deeply discounted stocks and what the returns would be like. Given this data, it might be worth the time to put a study together and figure it out. Regarding Greece, I believe that you are interpreting the results correctly. Faber also did a study where he looked at the effects of low CAPE on returns and while the outcome wasn't as high, I think it was still ~15% CAGR after inflation. I cannot trade foreign securities but have been thinking about the GREK ETF.

Interesting article from Mebane Faber on various historical returns after sectors/industries/countries have seen large declines. http://www.mebanefaber.com/2013/06/25/what-happens-when-you-buy-assets-down-80/

Altius. Iron ore can come down a ways and it will still be a good investment.

Distractions work great for me. I find some project to work on, usually after a few days you are not even thinking about investing. It becomes the opposite problem where you start to find it difficult to motivate yourself to start researching stocks again.

ScorpionCapital, Your put strategy sounds interesting but I don't know of any stocks where a put striking at 50% of current market price yields15-20%, not even a long-term leap. Likely I just don't understand your strategy. Could you give an example?

Much appreciated Morgan.

I have been thinking about this one for awhile now. I keep wondering in my head why I'm doing so much work on ideas when I can buy an etf that will probably give similar results. The main drawbacks I have thought of: 1) Not internationally diversified. I am not sure I care. 2) There is actually little to no benefit to wide moat stocks versus low / no moat stocks, even based on morningstar's analysis. The main outperformance seems to come from picking the cheapest stocks relative to fair value. Not really an issue per se but something to be aware of. I would still prefer wide moat stocks, just in case. Maybe they have been lucky for the past 10 years, who knows, if it was all luck at least I own cheap companies with moats so hopefully won't significantly underperform. Or in other words, at least the methodology is one that I understand and where it makes sense that it would outperform. 3) They seem to be large cap focused. I don't think they necessarily have to be, but when you look at the index it is mostly large to mega caps. If there was a version that invested in say 50 small large moat, cheap small-caps that would be ideal.

John, The screen you are asking for is a bit trickier to do but definitely worthwhile. One I found manually is ADS. They bought back a bunch of stock in 08/09 when they were cheap and have since basically stopped buying back shares. They have also grown their EPS by about 8x over the past decade. Very interesting company albeit not particularly cheap right now.

I have been working on this a bit and don't mind sharing some results. Just keep in mind that my data-source is not the best and so some of these are not really cannibals but just data errors. Nevertheless it should be less work to go through this than the entire stock universe. These are all the stocks I could find which have reduced share count by 30% or more from 2006 to 2012. SYMBOL, SHARE REDUCTION 'aap', -30.346465072655004 'abc', -40.05856873715785 'acat', -32.78435631183613 'acgl', -39.93088525644429 'ads', -37.72755607298557 'aet', -36.5116241192287 'aiz', -35.85059902983259 'am', -38.93951758262922 'amgn', -35.35897433546168 'an', -41.5429263703194 'ann', -32.01821008664114 'apol', -35.13263652199344 'aro', -33.53342664581492 'asa', -33.02083148739591 'asca', -41.790513454678134 'azo', -47.903769482304135 'bbsi', -37.600003344482715 'bcsb', -46.023685850231345 'biib', -30.041102124577712 'cake', -30.64822889681782 'cb', -36.35479661371769 'cce', -41.20369228475263 'cec', -44.57532615343115 'cec', -43.73837723309554 'cec', -46.81736991401472 'cec', -46.014277324705255 'ceco', -30.244412355332628 'cent', -31.515915041125155 'cht', -45.37041895266577 'chtr', -75.203410132527 'cmt', -30.098043610912796 'cprt', -31.23445032597373 'cpwr', -42.44244579352724 'crtx', -37.780401754290594 'czr', -32.63496797831307 'dds', -37.646615468866926 'dnb', -31.281200468283245 'dst', -32.72449301170558 'dtv', -52.28943375394506 'eat', -40.67513281546914 'esi', -43.1773858174457 'fonr', -55.61837613281568 'fstc', -42.69113555655386 'gps', -43.40657116550908 'grr', -39.388797043548976 'gsol', -33.39198632181234 'iaci', -42.45321633856024 'jctcf', -34.03361389752438 'lbtya', -35.50966359470029 'lea', -37.088525207194536 'lxk', -34.123711894505924 'mrh', -50.55466098526027 'mx', -32.39756847075912 'noc', -30.84817382804339 'pgi', -31.931578076452404 'prls', -78.9224394144082 'ptp', -45.165076493624746 'pze', -52.65120183226871 'qlgc', -39.058549822590784 'qlti', -31.387153629504894 'rnr', -36.87274637755027 'sfi', -33.80738144911996 'shld', -33.56250077998267 'sonc', -32.17126469251842 'stmp', -30.95989344897906 'stx', -31.238824453023017 'swy', -45.58055138831687 'symc', -30.384615031925165 'tmk', -35.965221985474074 'ty', -39.09977438118547 'wlp', -50.49227822035534 'wtm', -41.65120725927062 'wtw', -42.820509469955745 'zlc', -33.05630629828733 'ustr', -32.90064832696405 'vc', -59.68991952563941 'vrsn', -37.09399238869885 'fico', -41.31716526804615 'awh', -42.27898537157808 'big', -44.16747005805737 'eihi', -30.308370333232947 'eig', -41.635051986243276 'ipcc', -40.876655577820166 'jack', -31.921166517708997 'ntls', -51.36124372023113 'pgla', -39.379156001199036 'roiak', -49.225003004083746 'sapx', -33.997343957503325 'hckt', -30.452301643089985

In addition to my previous comments regarding higher production drop-off rates with shale oil, I am also coming across frequent comments that the best quality assets are being developed first. As a result, you may also have to contend with lower average production from new wells as time goes on. Again, I view this as positive for the oil service/equipment companies. Demand for oil/gas is not going away anytime soon so if more drilling is needed then it will simply have to happen. http://www.theoildrum.com/node/9506

I am by no means an expert on oil and gas but I have certainly been educating myself since before and after I bought into this one. It is true that there has been a tremendous amount of drilling over the past decade, and production of both oil and gas has started to increase. However, it really seems that with the high depletion rates of the wells, that oil production hasn't been solved we are simply moving to a stage where continued high levels of drillling will be necessary. That bodes well for NOV in my opinion. http://business.financialpost.com/2012/07/21/will-tight-oil-change-the-world/?__lsa=3fff-2c3b

AIG-WT 8% ATSG 4.5% DAIO 1.5% FB 6% FTP 2.5% NOV 10% KSS 10% MBI 6% IBM 7% JNJ 7% GRVY 2% MISC ETFS 15% CHL 7% BIDU 2.5% CASH 12%

Well thanks to all who replied! The library idea was worth pursuing and while they don't have morningstar, I apparently do have access to valueline through the library. I hadn't even thought of valueline but I think I would actually prefer it to morningstar. Isn't that what Buffet used to use? I was looking for somethingthat can reduce the initial period where i am building up my initial slice of knowledge in order to figure out if I want to proceed with the research. Normally, it is a number of articles, links on google/yahoo finance, maybe a quick skim through the latest 10-Q, etc. So much faster with valueline. Thanks again, you guys are great. :)

I have been thinking about buying a morningstar subscription for the past several years and think maybe now is the time. I am curious if anyone on the board subscribes to them and what they think of their research. I would be using them exclusively for their individual equity research and rankings.

Did some basic research on the mexican homebuilder. It doesn't look good. Some of their competitors are going into bankruptcy proceedings. Rumors they will too. Much of the housing was low,low income build out in boonies. It's debatable whether there book is understated or not. The housing boom was brought on by government involvement and looks to be collapsing. There are always going to be issues when you are dealing with cheap stocks but I have to put this one in the too complicated category.

I don't really know for sure, just my opinion. I have read that china's growth this year will be the slowest since 1999. By the true definition of a recession, 2 quarters of negative growth, they are not there yet. However, in a relative sense they are in a recession. With stocks it's more important to look at things relatively than used some canned formula. I just remember the buzz about china in 2006/2007 and now the index is about 1/3 of where it peaked back then. It is also one of the cheapest countries based on shiller PE. http://topforeignstocks.com/2013/02/19/pe-ratios-of-emerging-markets/ Sorry for distracting the thread.

Is china an industry or is it a sector? I can never remember how these classifications work. ;) Either way it is for all intents and purposes in a recession.

Well I think I made it through most of your post. Not too long, just thorough. There are a couple of things that would scare me about investing in the way you describe. 1) At a minimum I would want diversification across sectors. I would want to make sure I don't have 85% in financial stocks if I'm investing blindly. With this type of investing that could happen. To get around this I would be tempted to set a maximum allocation for a sector. 2) I would buy an account with one of these backtesting companies and run longer and more recent tests. My experience with mechanical investing is you have a strategy that is up 20% pa, but when you break out the results it might not have beaten the S&P since 2007. It always make we wonder if I'm looking at a mirage, or if things have changed. Has the widespread availability of backtesting software fundamentally changed the market such that these strategies don't work as well as they once did? Why were the results for so many mechanical strategies so consistent, with rarely more than 2 years of underperformance, and now you have 5-6 years of underperformance? I would look for something that continues to perform well over the past 5 years. You then should test the effect of changing parameters. What if your pool size is 10 companies, 40 companies, 5 companies? What if you restrict it to specific sectors? Just keep changing the parameters and see if it continues to outperform in the majority of situations and with the most recent data. If it does, you might have something. My personal opinion is that it might just work due to the sub $25M market cap. I can see how with low volume stocks there might be very little appetite for this type of strategy. Personally, it's not for me as I just like fundamental investing, I feel that if the market changes I should be able to see it based on the valuations that are offered. Never forget that the stock market has a feedback loop in it.

Drokos, thanks for the update. If nothing else, it is worth looking at the ETF's holdings just to get a few ideas.