John Hussman: Yes, This is a Bubble

[oddballstocks]

Just to throw some fuel on the fire here.  For everyone who's saying there are no ideas out there, I just ran a screen on US stocks with a 5yr ROE greater than 20% that are debt free (there are 122) and I'm seeing 67 with P/E's less than 20x, 58 with a P/E less than 16, and 34 with P/E's under 10.  Maybe all of these companies are junk, I don't know, but I'm guess there are at least one or two good ideas in there.

 

My suspicion is that this is an ever changing list, if I ran the same screen next month it would probably have different results.  Just hunting off a list like this one could build a portfolio of high compounding companies.

 

Do you mind posting the list?

 

Unfortunately I'm not at liberty to post the list publicly, but Wrister's screener works as well.

 

To Ericopoly, yes you can easily screen out companies that return their capital to shareholders and generate these high returns.

 

Screener.co can do most of this stuff and they're fairly inexpensive and international.  Their data is pulled via CapIQ.

[ERICOPOLY]

Just to throw some fuel on the fire here.  For everyone who's saying there are no ideas out there, I just ran a screen on US stocks with a 5yr ROE greater than 20% that are debt free (there are 122) and I'm seeing 67 with P/E's less than 20x, 58 with a P/E less than 16, and 34 with P/E's under 10.  Maybe all of these companies are junk, I don't know, but I'm guess there are at least one or two good ideas in there.

 

My suspicion is that this is an ever changing list, if I ran the same screen next month it would probably have different results.  Just hunting off a list like this one could build a portfolio of high compounding companies.

 

Do you mind posting the list?

 

Unfortunately I'm not at liberty to post the list publicly, but Wrister's screener works as well.

 

To Ericopoly, yes you can easily screen out companies that return their capital to shareholders and generate these high returns.

 

Screener.co can do most of this stuff and they're fairly inexpensive and international.  Their data is pulled via CapIQ.

 

Thanks for the screener.co tip.

 

I believe what I'm thinking about is a function that would serve the purpose of giving us the proper mix of variables to screen on.

 

Okay, so it works like this:

 

You tell it that you like companies with 20% ROE, a 15x P/E, and a 20% payout ratio.  So you have it graph that across all combinations of ROE, P/E and Payout Ratio.  It would be essentially a three dimensional function.

 

It would find you, for example, the right combination of P/E and Payout Ratio to screen for if you wanted to know the equivalents given a 10% ROE.

 

Therefore, you could generate a bigger list of candidates to pick over.  Theoretically, you may improve your returns if the lower ROE companies are out of favor amongst stock screeners.

 

Call it a three-dimensional "equivalency" function.

 

[oddballstocks]

Just to throw some fuel on the fire here.  For everyone who's saying there are no ideas out there, I just ran a screen on US stocks with a 5yr ROE greater than 20% that are debt free (there are 122) and I'm seeing 67 with P/E's less than 20x, 58 with a P/E less than 16, and 34 with P/E's under 10.  Maybe all of these companies are junk, I don't know, but I'm guess there are at least one or two good ideas in there.

 

My suspicion is that this is an ever changing list, if I ran the same screen next month it would probably have different results.  Just hunting off a list like this one could build a portfolio of high compounding companies.

 

Do you mind posting the list?

 

Unfortunately I'm not at liberty to post the list publicly, but Wrister's screener works as well.

 

To Ericopoly, yes you can easily screen out companies that return their capital to shareholders and generate these high returns.

 

Screener.co can do most of this stuff and they're fairly inexpensive and international.  Their data is pulled via CapIQ.

 

Thanks for the screener.co tip.

 

I believe what I'm thinking about is a function that would serve the purpose of giving us the proper mix of variables to screen on.

 

Okay, so it works like this:

 

You tell it that you like companies with 20% ROE, a 15x P/E, and a 20% payout ratio.  So you have it graph that across all combinations of ROE, P/E and Payout Ratio.  It would be essentially a three dimensional function.

 

It would find you, for example, the right combination of P/E and Payout Ratio to screen for if you wanted to know the equivalents given a 10% ROE.

 

Therefore, you could generate a bigger list of candidates to pick over.  Theoretically, you may improve your returns if the lower ROE companies are out of favor amongst stock screeners.

 

Call it a three-dimensional "equivalency" function.

 

I believe you can do that with a Bloomberg Terminal.  It has the ability to backtest any combination and then rank results into quartiles.  It might be cumbersome to try different parameter sets and a better alternative would be to buy the Compustat database.  This is how most academic researchers work, they have a copy of the point-in-time Compustat where something like this can be modeled out.

[KinAlberta]

AAII has some other useful, fairly "proven" screens.  Some of which are finding few securities meeting their criteria.  Even their Shadow Stock Portfolio is having difficulty.

 

That said, while we can't predict a market movement one way or the other, at some point any prior intrinsic value discounts of securities one may have purchased disappears and then your return going forward becomes mediocre under a buy and hold approach - unless you can find new positions to substitute in.  If not one has to be ok with a market return and that's where Hussman's analysis comes into play.  A fully priced or higher market just doesn't provide great rewards going forward unless some unexpected growth or new market appears from somewhere. 

 

 

Here's to waiting for another 1974 market to materialize:

 

“Look At All Those Beautiful, Scantily Clad Girls Out There!

 

 

excerpt:

"Buffett is like the legendary guy who sold his stocks in 1928 and went fishing until 1933. That guy probably didn’t exist. The stock market is habit-forming: You can always persuade yourself that there are bargains around. Even in 1929. Or in 1970. But Buffett did kick the habit. He did “go fishing” from 1969 to 1974. If he had stuck around, he concedes, he would have had mediocre results."...

 

“You’re dealing with a lot of silly people in the marketplace; it’s like a great big casino and everyone else is boozing. If you can stick with Pepsi, you should be OK.” First the crowd is boozy on optimism and buying every new issue in sight. The next moment it is boozy on pessimism, buying gold bars and predicting another Great Depression."

 

http://www.forbes.com/2008/04/30/warren-buffett-profile-invest-oped-cx_hs_0430buffett.html

[Zorrofan]

speaking of buying gold bars and and predicting another Great Depression.....

 

http://www.zerohedge.com/news/2014-08-01/india-slams-us-global-hegemony-scuttling-global-trade-deal-puts-future-wto-doubt

 

He has been predicting the collapse of the Us and indeed the entire Western world since 2008......and still going strong.

 

cheers

Zorro

[TwoCitiesCapital]

speaking of buying gold bars and and predicting another Great Depression.....

 

http://www.zerohedge.com/news/2014-08-01/india-slams-us-global-hegemony-scuttling-global-trade-deal-puts-future-wto-doubt

 

He has been predicting the collapse of the Us and indeed the entire Western world since 2008......and still going strong.

 

cheers

Zorro

 

I know zerohedge isn't popular here, but they do generally have good info...it's just coupled with negative rhetoric. The quality has been slipping lately, but they were talking about things like algorithmic trading leading to flash crashes (happened), the London whale (happened), and HFT scalping months before traditional financial media.

 

it's certainly interesting and valuable if you take the data, ignore their commentary, form your own opinions.

[james22]

Against this troubling backdrop, it’s no wonder investors are worried that the bull market might end in 2008. But Wall Street’s top equity strategists are quick to dismiss such fears.

 

http://davidstockmanscontracorner.com/heres-what-wall-street-bulls-were-saying-in-december-2007-read-and-take-cover/

[physdude]

For those interested in mechanical screens, the Mechanical Investing board on the Motley Fools boards (http://boards.fool.com/mechanical-investing-100093.aspx?mid=31352318) is a goldmine.

[KinAlberta]

Any current thoughts on Hussman's work? 

 

He's far from alone among the smart money people.  Grantham and many others are entering the same "the Market is Grossly Overvalued" camp ages ago but don't know when the reversion part of regression to the mean will take place.  Seth Klarman has been here a while now.  Rodriquez is just waiting. There's so many.  Buffett says we're at a high range of normal - and so seems to be building cash more than anything else.

 

Yet, falling oil prices should prime the growth pump in many parts of the world - much like driving down interest rates did.  So could we be feeling a further equity spike and just heading towards a 1929 style blowoff? Or are markets now sensing that a slowing China, an anemic US market, debt market problems exacerbated by massive shale driller debt, continued EU issues, etc. all together put us closer to an equity correction right now despite any slow to materialize cheap oil benefits?

[peter1234]

Any current thoughts on Hussman's work? 

 

He's far from alone among the smart money people.  Grantham and many others are entering the same "the Market is Grossly Overvalued" camp ages ago but don't know when the reversion part of regression to the mean will take place.  Seth Klarman has been here a while now.  Rodriquez is just waiting. There's so many.  Buffett says we're at a high range of normal - and so seems to be building cash more than anything else.

 

Yet, falling oil prices should prime the growth pump in many parts of the world - much like driving down interest rates did.  So could we be feeling a further equity spike and just heading towards a 1929 style blowoff? Or are markets now sensing that a slowing China, an anemic US market, debt market problems exacerbated by massive shale driller debt, continued EU issues, etc. all together put us closer to an equity correction right now despite any slow to materialize cheap oil benefits?

 

It is well reasoned. He has been wrong for years. He will be right eventually. Just shows how hard it is to time the market.

;)

[AzCactus]

Any current thoughts on Hussman's work? 

 

He's far from alone among the smart money people.  Grantham and many others are entering the same "the Market is Grossly Overvalued" camp ages ago but don't know when the reversion part of regression to the mean will take place.  Seth Klarman has been here a while now.  Rodriquez is just waiting. There's so many.  Buffett says we're at a high range of normal - and so seems to be building cash more than anything else.

 

Yet, falling oil prices should prime the growth pump in many parts of the world - much like driving down interest rates did.  So could we be feeling a further equity spike and just heading towards a 1929 style blowoff? Or are markets now sensing that a slowing China, an anemic US market, debt market problems exacerbated by massive shale driller debt, continued EU issues, etc. all together put us closer to an equity correction right now despite any slow to materialize cheap oil benefits?

 

It is well reasoned. He has been wrong for years. He will be right eventually. Just shows how hard it is to time the market.

;)

 

I think its Buffett who said its easy to know what will happen, its hard to know when.  With that said the biggest question for Hussman and his shareholders is will he perform well enough when things go down to make up for his huge shortfall since March of 2009. 

 

Here's a chart showing 12 year returns. (attached)

Hussman-SP.pdf

[Guest]

Just food for thought here. Hussman Strategic Growth has a little over $900 million AUM. In 2011, it had roughly $6 billion. In 2005, it had $1.5 billion. He is now less popular (at least as far as AUM is concerned) than he was in 2005.