• 15 Mar
    There’s Only One Reason The Markets Are Rising & Nothing Can Be Done About It

    There’s Only One Reason The Markets Are Rising & Nothing Can Be Done About It

    • Everybody knows the market is extremely overvalued and risky, but nobody cares as long as it goes up.
    • Funds keep flowing into U.S. equities despite the fundamentals. This will be very painful when the trend reverses.

    Introduction

    We all know that in the long run, our investment returns are perfectly correlated to the underlying performance of the businesses we own in relation to the price we pay for ownership. If the price is high, our returns will be weak. If what we buy is cheap in relation to underlying earnings, our returns will be great or even amazing. This is a universal truth. However, there are some issues with it.

    The first is that even if most agree on the strong correlation between earnings and stock returns, very few like to think about the long term and instead prefer to only think about the short term. In the short term, stock returns are driven by equity flows and there is nothing that we can do about it even if it has been statistically proven that long term returns are perfectly correlated to underlying earnings and the greatest investors, like Ray Dalio and Warren Buffett, keep reminding us of this fact. More →

  • 14 Mar
    The Market Is Overvalued – Look For Merger Arbitrage Opportunities

    The Market Is Overvalued – Look For Merger Arbitrage Opportunities

    • The arbitrage idea disclosed back in October has delivered 14% since then, but that isn’t the point.
    • The point is that merger arbitrage can deliver significant returns with less risk.
    • You can further improve your returns by not listening to the media, or even better, by listening but doing the opposite.

    Introduction

    There are essentially two low risk options to invest in in these expensive markets. It’s true that the S&P 500 can go higher in 2017 and 2018, but it’s what we don’t see coming that scares me at these valuations.

    The S&P 500 has a CAPE ratio of 29.14. This ratio has been higher only two times in history. You can read more about the CAPE ratio here. More →

  • 13 Mar
    Value Investing: The Importance of a Margin of Safety

    Value Investing: The Importance of a Margin of Safety

    • A margin of safety and value investing aren’t so attractive in rising markets, but become essential in declining markets.
    • The lower the price, the higher the margin of safety, no matter what the market thinks. Klarman usually buys more in such occasions.
    • Algorithms and numbers don’t make great investors. Discipline, patience, and judgement do.

    Introduction

    We have finally arrived at the core of Seth Klarman’s book Margin of Safety, i.e. Value Investing and the Margin of Safety.

    “Value investing is the discipline of buying securities at a significant discount from their current underlying values and holding them until more of their value is realized.” Klarman

    The essence of value investing is finding a bargain, i.e. buying a dollar for much less than one hundred pennies. When a bargain is found—and they can be very difficult to find, especially in a market like the one we’re in now—the next step is to determine the margin of safety, or the discount the price offers in relation to the undiscovered value. The bigger the discount, the better. More →

  • 12 Mar
    Sunday Edition: My Favorite Long-Term Currency Play

    Sunday Edition: My Favorite Long-Term Currency Play

    Markets are forward looking, and therefore have a way of discounting many fundamental arguments as to why an asset should rise or fall, so that when the “fundamentals” seem obvious, it’s too late as a trader, and often even as an investor to earn outsized gains.

    To illustrate my point, I will use an article I came across that was written on October 25, 2016.  Even though the article is now a little over four months old, the basic thesis put forth in the article is still “relevant” to my discussion. More →

  • 10 Mar
    How The CAPE Ratio Can Give You An Investing Edge

    How The CAPE Ratio Can Give You An Investing Edge

    • The CAPE ratio shows when something is cheap or expensive and is much more precise than the PE ratio.
    • The S&P 500 is 74% overvalued and will result in negative 10-year returns according to the CAPE ratio and history.
    • However, there is plenty that can be done to improve your returns.

    Introduction

    Whether you’re a long-term investor or a trader, something that gives you a clue on the long-term trend around a security or sector is always very useful. Such a ratio was developed by Yale professor Robert Shiller and he didn’t get a Nobel prize for nothing, the CAPE ratio really works.

    Today, I’ll describe it, show how it can be used, and analyze its past performance. More →

  • 09 Mar
    What Is Your Investing Edge?

    What Is Your Investing Edge?

    • We’re all different, so investing can’t be one size fits all.
    • This article will discuss various investing edges that could fit your investment attitude.
    • Don’t worry about Wall Street and their billions spent on research. These days, almost all data is available online and only you can make the best decision for yourself.

    Introduction

    The market wants you to believe that you don’t have an investing edge. It’s simply not in the interest of the industry that you do your own investing because without fees, Wall Street would soon turn into something like the image above and with the bull long gone.

    However, we’re all different and you should find an investing edge that best suits you and your investing goals. The beauty of investing is that it isn’t one size fits all. More →

  • 08 Mar
    Inflation Has Arrived – Here’s What That Could Mean For Markets

    Inflation Has Arrived – Here’s What That Could Mean For Markets

    • After 7 years of enjoying interest rates close to zero, the party is over.
    • There are several scenarios that can develop, but the long-term outcome is clear.
    • In the short term, higher interest rates should increase demand for the dollar and U.S. assets, so we could see a higher S&P 500 in combination with higher interest rates.

    Introduction

    For the past year I have been writing about how things are bound to change when inflation finally arrives. Well, inflation has arrived and it’s quickly going higher which means that we’ll have to start talking in nominal and real returns, the FED will be forced to take action no matter the economic environment, and it will have significant repercussions on the economy and markets.

    Usually when I’ve written about inflation, it was about something that will happen somewhere in the future. Now that inflation is finally here, I’ll discuss what will happen in the short term. More →

  • 07 Mar
    The Superinvestors Of Graham And Doddsville – Is Buffett A Hypocrite?

    The Superinvestors Of Graham And Doddsville – Is Buffett A Hypocrite?

    • According to Warren Buffet in 1984, investing and beating the market is simple: just use value investing and a margin of safety.
    • For this market, value investing is irrelevant. However if things change, value investing will become essential.
    • Spoiler alert: What I’ve written in this article you will either immediately like or totally disregard. Unfortunately, the latter will have a negative impact on your wealth.

    Introduction

    One short, 15-page article holds more investing insight than all the content published by the media in a year. It’s Warren Buffett’s article The Superinvestors of Graham and Doddsville.

    As the article was written in 1984, it gives you the real, non-political and unconstrained Buffett. Today’s Buffet is a hypocrite because he is forced to say index funds are a good investment even though stocks are at valuations he would never approve of. He has become so big that anything opposite to positive statements would lead to a possible market meltdown. Plus, don’t be confused by the fact that he recently bought $12 billion of stocks, as he bought into extremely cheap sectors, you can read more about that here.

    Today, I’ll summarize Buffett’s article and put it into today’s context. More →

  • 06 Mar
    The Market Is Euphoric – It’s Time To Get Rid Of Your Overvalued Stocks

    The Market Is Euphoric – It’s Time To Get Rid Of Your Overvalued Stocks

    • Market timing is tricky because if you missed the best 40 days in the last 20 years, your annual returns quickly turn from positive 8.19% to negative -1.96%.
    • But the fact remains that we are looking at a euphoric market with shaky economic foundations.
    • You don’t have to get out of the market. Getting out of overvalued stocks should suffice.

    Introduction

    With every new high reached by the DOW or the S&P 500, the market gets riskier. However, I don’t want to be another analyst that just predicts doom and gloom so today I want to discuss the best risk reward allocation and what an investor can do in these exciting but risky times. More →

  • 05 Mar
    Sunday Edition: How To Set Up A 10 To 1 Reward To Risk Trade

    Sunday Edition: How To Set Up A 10 To 1 Reward To Risk Trade

    Today I want to briefly discuss the difference between trading and investing (there is a big difference) and then show you how to set up a trade with very high reward potential and minimal risk.

    Many market participants don’t properly distinguish the difference between investing and trading which can be detrimental to the success of a portfolio.

    An investment is an asset that is purchased with the hope that it will generate income or will appreciate in the future. Whether investing in public or private companies, you are becoming a literal owner of that business and have claim to a certain percentage of assets and cash flows. More →

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