taking stock of trump’s triumph

Donald Trump’s stunning victory blindsided investors and media pundits alike—not to mention part-time finance bloggers like myself. Last week, I all but guaranteed a Clinton victory, and predicted that it would probably lead to slower earnings growth for health care and energy companies, as well as continued anemic economic growth for the country as a whole.

So much for all that.

Continue reading


the one election-proof industry

After one of the longest, weirdest, and most exhausting election seasons in our history, we are only six days away from (finally) choosing a new president. As importantly, 34 Senate seats and all 435 House seats are up for grabs.

Investors are justifiably nervous about the outcome. Yesterday’s selloff was probably a symptom of that unease. Betting markets currently predict Hillary Clinton has a 70-75 percent chance of winning. I suspect her odds are much better. Four years ago Obama’s five million vote victory was fueled by a 56 to 44 percent majority of female voters and an even greater 74 to 26 percent majority of Hispanic voters. I am 99 percent certain Trump will do worse with both groups. Ever since he announced his candidacy Republican leaders (and media talking heads) have known that women and Hispanics would be his Achilles heel and yet, shockingly, he has made no effort to improve his appeal to these voters. Either he is delusional about his chances or simply refuses to learn the daunting math required for a Republican to win the general election.

The Donald’s only hope is the fact middle-of-the-road voters seem to dislike Hillary almost as much as they dislike him.

Continue reading


headline risk is still poison for these stocks

Stock picking is hard. Most institutional and retail stock pickers underperform the indexes. But every investor could improve the likelihood they beat the market by following one rule:

Avoid high profile, controversial companies where an adverse news event could produce an overnight price collapse.

Three stocks have proven the utility of this investing rule in spades: Valeant Pharma, Wells Fargo, and Mylan Labs. All three have been scrutinized for behavior labeled unethical by some and illegal by others, and all three have cost their investors in a big way because of it.

Continue reading


buy the housing dips

Nearly a decade after the financial crisis interest rates remain at zero. Fed watchers have been arguing for years that policymakers will soon raise rates, only to see the possibility put off yet again (and again and again). While many believe Yellen and company have stuck with ZIRP due to worries about the impact of a hike on the stock market, a bigger concern might be housing.

Continue reading


it’s (still) the economy, stupid

On Monday night, more than eighty million Americans watched our two candidates for president argue more about missing tax returns, deleted emails, and a former beauty queen than the issue that matters most to our country’s health and prosperity: economic growth.

When our economy grows rapidly, as it did during the Reagan and (Bill) Clinton administrations, good things happen. Home ownership increases, budget deficits shrink (Mr. Clinton produced a surplus his last four years), crime drops, and America’s influence increases worldwide. Unfortunately, our gross domestic product hasn’t grown more than four percent a year since the end of the last century, and I don’t see it topping that critical figure again anytime soon.

Continue reading


tech stocks are still seriously overvalued

Seventeen years ago, I had a front row seat for the nuttiest mania in stock market history. I vividly remember visiting now failed companies like Quokka Sports, Planet RX, Women.com, and Commerce One and listening to their managements confidently predict glowing futures. These firms, and many more, sold above 100x revenues–and they were far from the most overvalued stocks in the market. Other public dotcom companies had no revenues at all. Their stocks soared on nothing more than hopeful business models and lofty expectations of explosive growth.

I was in the ninth year of managing my hedge fund in 1999. It gained 8 percent that year, badly lagging the S&P’s 19 percent return and the Nasdaq’s staggering 85 percent (!) gain. In March of 2000, the Nasdaq hit an all-time high of 5132.52. Then, on March 20th, Barron’s magazine wrote a much publicized article that listed every dotcom by its cash, monthly cash burn, and the number of months before each company would run out of money if it did not raise additional capital. There were 207 companies on that list. A large number went broke. Some of those flameouts, like Pets.com, live on in infamy. The majority of them are only recalled by hardcore stock junkies, especially those who got burned by their implosion.

Remember Be Free, ZapMe!, SmarterKids.com, drkoop.com, and MotherNature.com? Most investors under the age of 35 almost certainly don’t—and that’s a problem, because what happened to those businesses could easily happen to many of the new tech sector darlings. Far more companies in today’s public and private markets will probably become tomorrow’s drkoop.com instead of the next Amazon or Microsoft. And as we saw so vividly in 2000, when the end comes, it comes quickly.

Continue reading


happy birthday to the index fund

Wednesday marked the fortieth birthday of the most investor-friendly idea in stock market history: the index fund. Forty years ago Vanguard introduced the first fund that merely tracked the S&P 500. It has appreciated 6,334 percent since inception, trailing the S&P by a mere .14 percent annually, all of which was the ‘expense ratio’ charged investors. Few, if any other funds have matched or exceeded this annual return.

Today roughly $5 trillion is invested in index funds. Vanguard is the largest index manager, with over $3 trillion in assets under management (AUM). Other money managers now offer index products alongside their traditional, actively managed funds.

Study after academic study shows that index funds outperform most actively managed funds. The reason is simple. Fees. The average expense ratio for actively managed stock funds is around 1.5 percent. It is somewhat less for fixed income funds. As Vanguard founder John Bogle has convincingly shown, a fund with a 1.5 percent annual fee (and the same pre-fee annual return) will produce a much smaller total return over a multi-year period than a fund with a .14 percent annual fee.

Investors have taken notice. According to the Wall Street Journal, they have invested $409 billion in passive index funds in the last year and pulled $310 billion out of actively managed funds over the same period. Roughly 20 percent of all money in stock funds is now indexed, up from zero 40 years ago.

I suspect this trend will accelerate.

Continue reading


is it time to sample stocks in these two dog-eat-dog sectors?

[Before I get to the latest post, a quick reminder that you can receive new posts by email. Simply scroll down until you find the “Subscribe to this Blog” box in the right margin, then enter your email address and complete two quick steps to confirm it.]

Two of the roughest, most failure-prone sectors in the stock market have always been—and probably always will be—restaurants and retail. Competition is brutal in both spaces, margins are usually slender, and bankruptcy always seems to be one poor management decision away.

I’ve written about the slow-motion train wreck of the traditional retail sector fairly regularly over the last couple of years, and with several large operators like Nordstrom’s and Kohl’s posting surprisingly decent earnings lately, I thought it might be a good time to check back again. Could brick-and-mortar retail be on the brink a comeback?

Probably not.

Continue reading


knowledge is power

One of my favorite investing quotes comes from the legendary 1968 book The Money Game by George Goodman, aka Adam Smith: “If you do not know who you are, Wall Street is an expensive place to find out.”

I put this line at the beginning of my book because I’ve seen its wisdom proved again and again in my thirty-plus year career. As ironic as it sounds, the folks who start out in the investment business just to make money usually make less of it. The ones who do so because they’re inspired to learn as much as they can tend to make more. Of course, there’s nothing wrong with wanting to make money. We’re all trying to do that—the more the better. But if investing doesn’t fuel your intellectual curiosity, you’re probably not going to make as much money as you hope, and there’s a good chance you’ll go broke.

Continue reading


the year of the gun

Successful stockpicking is all about identifying profitable inefficiencies in consensus expectations for a given company or industry—and as much as I hate to say it, the mind-numbing spate of violence we have been living through this year probably makes the gun business one of the most undervalued sectors in the market today.

Continue reading