Investing Links of Interest – May 12, 2013
James Altucher, writing at Seeking Alpha, has been bullish in the past, but is now becoming more cautious on the stock market and provides his reasons why and a solution for investors.
My solution: I am buying smaller stocks where I am not competing for information against massive hedge funds and mutual funds that do everything they can to cheat the system (insider trading, manipulative trading, high frequency trading, special access to secondaries, etc).
I also invest in long-term demographic trends that I believe in. These companies will do well regardless of the overall stock market. It’s why microcaps always outperform large caps in the long run.
Source: Seeking Alpha
Barron’s columnist Kopin Tan writes about “Searching for Signs of a Market Top.”
Barron’s semiannual Big Money poll recently showed 74% of professionals who identified as bullish or very bullish, the most in the poll’s two-decade history.
Darcy Keith of Canada’s The Globe and Mail interviews Marc Faber. Excerpt:
“In the 40 years I’ve been working as an economist and investor, I have never seen such a disconnect between the asset market and the economic reality … Asset markets are in the sky and the economy of the ordinary people is in the dumps, where their real incomes adjusted for inflation are going down and asset markets are going up.
“Something will break very bad.”
Source: The Globe and Mail
Kevin Simms and Joseph G. Paul at AllianceBernstein, see opportunities for investors in global deep-value situations, which have suffered through a five year relative slump.
As a result of all of these trends, the opportunity in deep value stocks has become very compelling. We measure this by looking at spreads between the most attractive quintile of global equities based on price/book valuations and the most expensive stocks have widened. Even after the equity market rally of recent months, these spreads are wider than almost any time in the last 50 years, except for during the technology bubble. Typically, when this ratio has narrowed and the line has declined, the cheapest stocks have outperformed strongly.
Source: AllianceBernstein Blog
CNNMoney columnist Shawn Tully writes equities are actually pricey, just when the “experts” are claiming they’re cheap.
Today, the price-to-earnings multiple on the S&P 500 (SPX) is 18.6 (its current price of 1620 divided by trailing, 12-month earnings-per-share of around $87 a share). That’s well above average of roughly 16 over the past century, but in line with the ratio in the last two decades.
That seemingly middling number is highly misleading. Masking the lofty valuations is a virtual bubble in corporate earnings. Since the fourth quarter of 2009, S&P 500 profits have jumped 71%. Earnings as a portion of the overall economy stand at 11%, vs. a long-term norm of 7%. In the Fortune 500 list released on May 6th, profits as a share of revenues were 6.8%, compared with an average since the mid-1950s of 5.2%.