The Stingy News Weekly (08/17/2015)
New from StingyInvestor
Try the hot potato
"When it comes to investing, the MoneySense Couch Potato represents the regular option for portfolios. It's not fancy, but it is effective and has been very satisfying over the long term. Investors looking for a little more spice might consider an aggressive style of indexing that has provided fiery returns without much downside. Call it the 'Hot Potato,' if you will."
Buffett's winning wager
"Take a trip to Garrison Keillor's Lake Wobegon and you'll discover that all the children are above average. Similarly, most stock pickers believe they're above average, too. But the market has a habit of proving them wrong."
How has the 4% rule held up
"The 4% rule has been much maligned lately, as recent market woes of the past 15 years - from the tech crash of 2000 to the global financial crisis of 2008 - have pressured both market returns and the portfolios of retirees. Yet a deeper look reveals that if a 2008 or even a 2000 retiree had been following the 4% rule since retirement, their portfolios would be no worse off than any of the other "terrible" historical market scenarios that created the 4% rule from retirement years like 1929, 1937, and 1966." [Retirement]
China's long Minsky moment
"Underlying all of this is the fact that China is still dealing with the consequences of an enormous credit and real-estate bubble that has accompanied, and prolonged, the latter stages of the growth miracle." [World]
Stock buybacks draw scrutiny
"Is the government really going to outlaw buybacks, which over the past decade have become one of the business world.s favorite corporate finance tools? On its face, the issue may seem like a nonstarter. But a growing debate has emerged around the topic of buybacks that increasingly has Wall Street and corporate America worried." [Markets]
Inflation and market returns
"On a nominal basis things look scary. On a real basis, not so much." [Markets]
Mind the gap 2015
"Overall, the average investor return across all funds was 5.61% for the cheapest quintile and 3.28% for the priciest. The gap was 80 basis points for the cheapest quintile and 179 basis points for the priciest." [Behaviour]
"We document a new pattern in stock returns that we call absolute strength momentum. Stocks that have significantly increased in value in the recent past (absolute strength winners) continue to gain, and stocks that have significantly decreased in value (absolute strength losers) continue to lose in the near future. Absolute strength winner and loser portfolio breakpoints are recursively determined by the historical distribution of realized cumulative returns across time and across stocks. The historical distribution yields stable breakpoints that are always positive (negative) for the winner (loser) portfolios. As a result, winners are those that have experienced a significant upward trend, losers are those that have experienced a significant downward trend, and stocks with no momentum have cumulative returns that are not significantly different from zero. The absolute strength momentum strategy is related to, but different from, the relative strength momentum strategy of Jagadeesh and Titman (1993) and the time series momentum strategy of Moskowitz, Ooi, and Pedersen (2011). Time-series regressions show that the returns to the absolute strength momentum strategy completely explain the returns to the relative strength and the time series momentum strategies, but not vice versa. Absolute strength momentum does not expose investors to severe crashes during crisis periods, and its profits are remarkably consistent over time. For example, an 11-1-1 strategy that buys absolute strength winners and sells absolute strength losers delivers a risk-adjusted return of 2.42% per month from 1965-2014 and 1.55% per month from 2000-2014." [Momentum Investing]
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