Tag Archives: calendar

Finding That Elusive 90-Cent Dollar

Photo credit: photosteve101 If I offered to pay you a crisp $1 bill for the 90 cents you have jingling in your pocket… well, you’d probably think I was either crazy or a scamster. Or maybe both. But if, after inspecting the dollar bill, you determined the deal to be legit, you’d jump on it in a heartbeat. In fact, you might even run to the bank and take out your entire life savings in dimes in the hopes that I’d give you a dollar for every 90 cents you could throw together. Why wouldn’t you? It’s free money. I’m not going to give you a dollar for 90 cents… so, sorry if I got your hopes up there. But I will point out several pockets of the market today where these kinds of deals (or better) are on offer. But first, we need a little background. “Book value” or “net asset value (NAV)” is the value of a company’s assets once all debts are settled. Think of it as the liquidation value of the company. Now, for most companies, book value is a pretty meaningless number. If you’re a service or information company like a Microsoft (NASDAQ: MSFT ) or Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ), the value of your business is in intellectual capital and in the collective brainpower of your workforce. And that’s something that is a little hard to put on a balance sheet. Likewise, the accounting book values of old industrial companies with a lot of property, plant and equipment – think General Motors (NYSE: GM ) or Ford (NYSE: F ) – are also pretty useless as the numbers on the books reflect historical costs rather than current market or replacement value. And this is further distorted by accounting depreciation. But while NAV is more or less worthless for most mainstream companies, it’s extremely useful in a few pockets of the market, such as mortgage REITs and closed-end funds. In each of these cases, the book value of the companies is based on the real market value of the securities they own, minus any debt used to finance them. What you see really is what you get. And this is where it gets fun. At current prices, many mortgage REITs are worth more dead than alive. Mortgage REITs have an interesting business model: They borrow a ton of money at cheap, short-term rates and invest it in mortgage securities offering a higher yield. When the spread between short-term rates and long-term rates is wide, mortgage REITs leverage up aggressively and make a ton of money. When the spread narrows, they tend to reduce leverage and bide their time. Mortgage REITs usually trade at healthy premiums to book value, which makes sense. The whole is worth more than the sum of the parts, and you’re paying for management expertise, instant diversification and the REIT’s access to cheap and abundant credit – three things you’re going to have a hard time getting on your own. Well, today, it’s not uncommon to see these trading for just 80%-90% of book value, implying that you could hypothetically buy up the entire company, sell it off for spare parts, and walk away with 10%-20% in capital gains… all while collecting dividends. Closed-end bond funds are another quirky corner of the market where it’s easy to find some nice bargains these days. Closed-end funds are very different from what you’d think of as a “normal” mutual fund. In a regular, open-ended mutual fund, the size of the fund changes as new investors buy shares and old investors leave. Shares are priced every afternoon based on the closing prices of the stocks or bonds in the portfolio. So, you can never have a situation where the price of the fund deviates from its net asset value. Closed-end funds are a different animal. They have IPOs like stocks and have a fixed number of shares that trade on the New York Stock Exchange. And these shares are priced throughout the day, just like any stock. So, you can get quirky situations where a dollar’s worth of quality bonds are selling for $1.05, $0.90 or whatever price the fickle Mr. Market wants to assign that day. And right now, we’re seeing discounts as high as 10%-20% in some funds. Today, as an asset class, closed-end bond funds are trading at the deepest discounts since the pits of the 2008 crisis and aftermath. In an otherwise expensive market, we have the opportunity to profit in three ways: Earning a very solid current yield of anywhere from 6% to 9%. Enjoying capital gains as the values of the bonds in the portfolio appreciate. Enjoying additional capital gains as the current deep discounts to NAV start to shrink to something more reasonable. Given how expensive the broad market is right now, these closed-end funds really present us with a nice alternative. This article first appeared on Sizemore Insights as Finding that Elusive 90-Cent Dollar Disclaimer: This article is for informational purposes only and should not be considered specific investment advice or as a solicitation to buy or sell any securities. Sizemore Capital personnel and clients will often have an interest in the securities mentioned. There is risk in any investment in traded securities, and all Sizemore Capital investment strategies have the possibility of loss. Past performance is no guarantee of future results. Original Post

Do You Need To Buy At Market Bottoms To Get Profitable Results?

By Ronald Delegge Legendary speculator Bernard Baruch once quipped: “Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars.” Baruch was on to something. And since reams have been written and said about tops and bottoms in both individual securities along with broader markets, we can’t help but ask: Does a person need to buy at the absolute bottom to turn a profit? Hit the rewind button to July 15, 2015, when via ETFguide’s Weekly Picks we wrote the following timestamped ETF trade alert to premium members: Mining stocks are in puke territory and trading 15% below their 50 and 200-day moving average. The Market Vectors Gold Miners ETF (NYSEARCA: GDX ) is oversold and market sentiment is presently overly bearish. We’re buying GDX at current prices near $16.50. Buying depressed out-of-favor assets takes guts, but with enough patience and time, the results can be rewarding. Since our GDX trade alert on Jul. 15, GDX has been dead money and it wasn’t until Jan. 19, 2016 when GDX hit a rock bottom closing price at $12.47. The rest of the global gold mining sector too, went straight into the toilet. And now comes the fun part. Click to enlarge Since GDX’s closing bottom on Jan. 19, the fund has soared +46.05% compared to just a +2.87% gain for the S&P 500. But wait, there’s more. Our GDX position – which we did not buy at the market bottom – is now ahead by a respectable +18.11% (see chart above) and it’s still an open trade. Only a greedy slob would be unhappy with that kind of return in this kind of market. It also explicitly proves that you don’t have to buy at market bottoms to turn a profit. I would argue that having stamina, stomach, and patience (SSP) are far more important than buying stocks or whatever else at the bottom. Why? Because even a trader or investor that buys at the bottom but lacks SSP, will inevitably self-destruct. And besides that, nobody but “liars” consistently buys at market bottoms – nobody . Another real life example – and one of the most extreme cases I’ve ever seen – that buying at market bottoms isn’t a prerequisite to achieving great profits is a Portfolio Report Card I did on my Index Investing Show podcast for a 72-year old man with a $26.9 million portfolio. What did he own? This particular guy invested in biotech stocks right before the 1987 stock market crash. Bad timing. He also bought Apple (NASDAQ: AAPL ) a few years later in 1991 which again was really bad timing. It was such bad timing that ten years later, he was down 25% on his original investment in Apple! Instead of bailing, his SSP (stamina, stomach, and patience) kept him in the game and legendary results followed. Even though he missed several market bottoms in Apple, he was still able to turn an $84,000 investment into over $8 million. In summary, if you want profitable investment results, stop focusing on tops and bottoms and start cultivating SSP. Disclosure: No positions Link to the original post on ETFguide.com

Investors’ Biggest Mistake: Home Bias

By Tim Maverick Everybody loves to cheer for their home team when it comes to sports. But, it turns out that investors around the world do the same with their money. Let me give you an example. Brazil is suffering through its worst economic downturn since the Great Depression. Its currency, the real, is near record lows. And its stock market is down by 40% over the past five years. Add in other factors such as the Zika virus – and it’s bad times, to say the least. But what are Brazilian investors doing? They’re liquidating their overseas holdings and buying Brazilian stocks. Are they nuts? Nope, it’s just human nature. In investing, it’s called “home bias.” And U.S. investors are among the most guilty. It’s Not 1950 In my years giving advice to clients, I found a very strong aversion among investors to investing overseas. People confuse familiarity with safety. I once had a client who stormed out of the office saying he would never invest a penny of his money outside the United States. Now, that was an extreme circumstance. But people do invest as if it’s still 1950, and the U.S. is the dominant economic power. Back then, the U.S. made up a huge part of the world’s market capitalization. Today, that’s down to about 50%. Yet, people invest as if nothing’s changed. A study by the mutual fund company Henderson Global Investors found that Americans were the second-most guilty of home bias globally, trailing only Canadians. This is backed up by an analysis done last summer by robo-advisor SigFig. It found that the median individual investor had a mere 6.6% of their portfolio in international equities. The study also found that bigger, and presumably more sophisticated, portfolios had less home bias. This makes sense. I can guarantee people like George Soros don’t have most of their portfolios in the U.S. The World Is Waiting The U.S. economy produced only 22.5% of the world’s GDP in 2014. That’s quite a change from just after World War II when the U.S. accounted for half of global GDP. Overall, developed economies now make up less than half of global GDP. Developing economies now account for just over half. Let’s just think about Asia for a moment – specifically China, India, and Indonesia. In terms of population, they rank first, second, and fourth respectively. The U.S. is third. There are over 2.8 billion people in these three countries. Are you, as an investor, going to ignore them as if they don’t exist? Wall Street wants you to. They want you to buy U.S. stocks. That’s why most Wall Street firms badmouth China every chance they get. Use Your Common Sense Investing overseas is really just common sense. Most people wouldn’t put 100% of their money into one stock. Nor would they limit themselves to stocks from Pennsylvania just because they live in that state. Why then would you limit yourself to just one country? My favorite analogy is that it would be like grocery shopping in only one aisle of the store. But investors continue shopping in one aisle. Home bias remains a big problem for even financial professionals. The toughest sell remains getting clients to diversify. Many stubbornly cling to putting all or most of their eggs into one basket. At a conference for registered investment advisors in November, Charles Schwab’s Jeff Kleintop said, “That’s exactly the opposite of what they should be doing now.” Now Is the Time to Diversify I would put the emphasis on the word now. The U.S. market has outperformed international markets since 2009. I can assure you it won’t continue. Markets will revert to the mean. In simple terms, underperforming markets will begin outperforming – and vice versa. As someone who has been in the investment business since the 1980s, I can tell you it’s a basic fact of financial markets. It’s like the sun rising and setting every day. Many markets – particularly the emerging ones – are at valuations not seen in decades. That’s thanks largely to U.S. fund managers selling. In other words, home bias. I think it’ll be a lot easier and more profitable to find companies that are serving those 2.8 billion-plus consumers in Asia, than finding an undiscovered gem in the U.S. The mass of Wall Street research makes that near possible, except for an occasional penny stock. I’d like to end with a piece of advice from famed investor, Jim Rogers. He said you should wait until you see money lying in the corner and all you have to do is go over and pick it up. That describes overseas markets right now more than the U.S. Link to the original article on Wall Street Daily .