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Article Archive: 2021 The Stingy News Weekly: September 19, 2021 09/19/21   SNW This week we have value vs. growth, big bets, taxes, inflation, crashes, and more. ETF taxation in the crosshairs 09/19/21   Taxes "The real damage will be done to anyone who's had the temerity to do a little investing outside their 401(k). ETFs have been an incredible boon for smaller investors, giving them access to the same funds, the same fees, and the same tax advantages wealthy investors have so many other ways to access." Amazon and inflation 09/19/21   Markets "Labor productivity among nonstore retailers rose about 20% from 2019 to 2020, which is more than twice the 8% rate of labor-productivity growth experienced by the retail industry as a whole." Betting big and losing it all 09/19/21   Behaviour "So many of the people we celebrate today for being geniuses are the result of some combination of hard work, intelligence, luck and survivorship bias." Value vs. growth debate 09/19/21   Value Investing "The opposing view, that a group of stocks whose underperformance is more than explained by their falling relative valuations is actually cheap, seems a far less extraordinary claim. In order for it to be true, we merely need to believe that the future prospects of value stocks are not drastically worse than they have been in either the long term or the relatively recent past." Portfolios in crashes 09/19/21   Markets "based on their liquidity requirements, most large institutional investors have no alternative but to adopt cap-weighted strategies. Investing billions in small caps or emerging markets is more expensive than trading large-cap US stocks. Equal-weighting may offer higher returns for equity investors over the long run, but the majority of capital may not be able to access them." The Stingy News Weekly: September 12, 2021 09/12/21   SNW This week we have Graham, value by day, bargains, rules, and more. Rational at night, irrational at day 09/12/21   Markets "Meanwhile, all the different deviations from the rational model of CAPM appear during the day. Size, value, quality, and investment factors all have very high returns during the day when humans mess up all the nice rational models economists have developed. At night, these factors tend to lose a bit mostly because the stocks that have underperformed during the day catch up some performance based on the overnight news. But the nighttime setbacks aren't strong enough to eliminate factor returns." Buying cheap assets 09/12/21   World "Robert Arnott will discuss why he believes this long era of U.S. large-cap growth dominance could be coming to an end and what could take its place." [video] Negative value-add 09/12/21   Funds "Low-fee funds tend to have positive net value-added while high-fee funds have negative net value-added, suggesting, again, a systematic relation between net value added and percentage fees. However, in aggregate, the total net value added for the 'All funds (Index + Mutual)' sample amounts to a negative $125 billion USD. This number can be interpreted as a measure of the total economic value added or lost by the mutual fund industry for its investors." Ben Graham as a quant 09/12/21   Graham "Imagine - there seems to be practically a foolproof way of getting good results out of common stock investment with a minimum of work. It seems too good to be true. But all I can tell you after 60 years of experience, it seems to stand up under any of the tests I could make up." Rule your world 09/12/21   Retirement "I'm still wary of rules of thumb, but Gigerenzer makes a useful point. It's good to be analytical where appropriate. But sometimes, employing a rule of thumb might be better. Below, for example, are five questions that might be better answered with a rule of thumb than a spreadsheet" The Stingy News Weekly: September 5, 2021 09/05/21   SNW This week we have the value of value, generational wealth, housing, inflation, and more. The wealthiest generation 09/05/21   Economics "In this version, Gen X is now richer (30% richer!) than Boomers were at the same age (late 40s). Millennials don't yet have a year of overlap with Boomers, but they are tracking Gen X almost exactly. There is no reason they won't continue to track Gen X, and therefore exceed Boomers as well when they are in their late 40s" Future housing returns are stark 09/05/21   Real Estate "I wouldn't have the success of my financial plan be wholly dependent on further prices increases on residential real estate. Speculating on prices increases in real estate is fine - so long as if the amount at stake isn't material to the success of your financial plan." Death of the starter home 09/05/21   Real Estate "If we take this to the extreme - the monthly payment for a $1,000,000 home is now $520 lower than the monthly payment for a $750,000 home in 2002. Add in fewer homes being built, a touch of inflation, scarred homebuilders, HGTV messing with our expectations and it's no wonder new home sales prices have risen over the past 20 years." Conspicuous corruption 09/05/21   Crime "People can exhibit their status by the consumption of particular goods or experiential purchases; this is known as 'conspicuous consumption'; the practice is widespread and explains the market characteristics of a whole class of goods, Veblen goods, demand for which increase in tandem with their price. The value of such positional goods lies in their distribution among the population - the rarer they are, the more desirable they become. At the same time, higher income, often associated with higher status, has been studied in its relation to unethical behavior. Here we present research that shows how a particular Veblen good, illicit behavior, and wealth, combine to produce the display of illegality as a status symbol. We gathered evidence at a large, country-level, scale of a particular form of consumption of an illictly acquired good for status purposes. We show that in Greece, a developed middle-income country, where authorities cannot issue custom vanity license plates, people acquire distinguishing plate numbers that act as vanity plate surrogates. We found that such license plates are more common in cars with bigger engines and in luxury brands, and are therefore associated with higher value vehicles. This cannot be explained under the lawful procedures for allocating license plates and must therefore be the result of illegal activities, such as graft. This suggests a pattern of 'conspicuous corruption', where individuals break the law and use their gains as status symbols, knowing that the symbols hint at rule-breaking, as long as the unlawful practice cannot be incontestably established." Avoid 'breaking the buck' 09/05/21   Funds "Why penalize those who exit in a crisis? They are causing the crisis. Liquidity is not a free good, and certainly not in a crisis. This will make them think twice about liquidating, because they will absorb a disproportionate amount of the loss." Inflation portfolio using asset classes 09/05/21   Markets "Finally, we calculate the correlation of the portfolio to inflation. Although the asset classes were selected based on their correlation to inflation, the average correlation to inflation was only 0.4 during the period from 2006 to 2021. Investors might regard this as low, but the correlation of TIPS, which are popular inflation instruments, was approximately 0." Are value stocks cheap for a reason? 09/05/21   Value Investing "The value spread remains unusually high, which has led investors to be concerned that value may be cheap for a reason. In this short presentation, our Portfolio Solutions Group (PSG) explains how we evaluate this spread and illustrates our view that the current high value spread is forecasting higher expected returns, and not low fundamental growth rates." What we know about waning immunity 09/03/21   Health "Right now, some forms of vaccine effectiveness are slipping, but the most important ones aren't. Unless that changes, widespread boosters in already vaccinated countries are likely to provide diminishing returns, like topping off a drink that's already on the verge of spilling over." The Stingy News Weekly: August 29, 2021 08/29/21   SNW This week we have Buffett, international value, credit risk, and more. The international test 08/29/21   Value Investing "A few anomalies were strong across regions. Most of these were value anomalies (such as price-to-book, price-to-cash flow, and price-to-earnings). Others included gross profitability, earnings surprise, and new shares issuance." Small stocks pricier than they appear 08/29/21   Markets "Metrics that include negative earnings show the Russell 2000 went from trading at 27 times its past 12 months of earnings at the end of March 2020 to trading at 238 times earnings one year later, according to data from index provider FTSE Russell. That multiple fell by nearly half over the following month, and as of July was down to about 70. With loss-making companies removed, the Russell 2000's price-to-earnings multiple was both lower and less volatile: about 14 in March 2020, up to nearly 25 in March 2021 and then down to 19 at the end of July." Ted Weschler's $264 million retirement account 08/29/21   Buffett "Weschler, who operates out of a two-person shop located above a bookstore, has been one of Warren Buffett's deputies at Berkshire Hathaway since 2012, where he manages billions of Berkshire bucks." Evaluating credit risk 08/29/21   Bonds "I turned to my favorite measure of credit risk to try to answer this: (Long-term Debt + Short-term Debt) / Market Capitalization. Unless a company is in a very stable industry, I like that figure to be under one." Factors in fixed income 08/29/21   Value Investing "According to the paper, a global investment-grade strategy that uses quality and value factors generates more yield (1.55 percent) relative to the benchmark (1.33 percent). At the same time, it has a similar level of credit risk as the benchmark." The Stingy News Weekly: August 22, 2021 08/22/21   SNW This week we have fraud squared, wealth taxes, to the moon, goodwill, and more. The impact of goodwill 08/22/21   Value Investing "Liu, Yin, and Zheng.s findings led them to conclude that the negative return predictability of goodwill is due to the fact that investors underreact to the negative information on the firm value associated with high goodwill. Perhaps the publication of their paper will lead to at least a reduction in the size of the anomaly, as their findings were not limited to small firms where limits to arbitrage can allow mispricings to persist." A wealth tax will disappoint 08/21/21   Taxes "Such a tax would be an exercise in futility. And this isn't simply conjecture - wealth taxes have been tried. In 1990, 12 European countries had a wealth tax. By 2018, that number dropped to four" Touching the sky 08/21/21   Markets "With today's new high (4,479.71) in the S&P 500, the share of funds model now rates the market as having the highest valuation since 1945. The share of funds in stocks is over 52.3%. Projected returns over the next 10 years are -1.87%/year, not adjusted for inflation." Fake honesty 08/21/21   Behaviour "A landmark study that endorsed a simple way to curb cheating is going to be retracted nearly a decade later after a group of scientists found that it relied on faked data." The Stingy News Weekly: August 15, 2021 08/15/21   SNW This week we have expensive markets, inflation, liquidity, economic risks, fragility, and more. Hanging by a thread 08/15/21   Markets "Events, like money, compound. And the central feature of compounding is that it's never intuitive how big something can grow from a small beginning." The economic recovery catches a cold 08/15/21   Markets "Are we really going to just ignore the worst consumer sentiment numbers in a decade?" Evaporating liquidity 08/15/21   Markets "The Fed is tightening as they reduce QE, and begin raising the Fed Funds rate in 2022. It will end in a market meltdown in late 2022 as an overly indebted economy cannot tolerate the increase in the financing rate. The Fed will find itself trapped and interest rates will remain low. My confidence level on this idea is only 70%." Building an inflation portfolio using stocks 08/15/21   :Markets "Although we selected stocks based on their correlation to inflation, we have not analyzed how effective these stocks are as inflation-proxies. The average correlation was 0.4 in the period from 2007 to 2018, which is only marginally higher than the 0.3 of the Russell 2000. Given that the performance of both portfolios was approximately similar, this is not surprising. However, perhaps more surprising is that the correlation of other inflation-proxies like TIPS was not high either. In fact, the correlation of TIPS to inflation was 0.1 over the same time period, which is explained by the lagged inflation data that feeds into the TIPS principal and coupon calculation." The overvalued market 08/15/21   Markets "While it would be foolish to call the stock market anything but expensive right now there is some context required here. The JP Morgan Guide to the Markets has some excellent charts that do just that. Here's a good one that shows a number of different valuation measures compared to their 25-year averages" The Stingy News Weekly: August 8, 2021 08/08/21   SNW This week we have Chou, 15 times sales, sin stocks, an accounting hobby, nightmares, and more. The benefits of sin stocks 08/08/21   Markets "As the shunned-stock hypothesis suggests, sin stocks have not only provided higher returns than the market portfolio but higher risk-adjusted returns as well. In addition, Richey's study demonstrates that sin stocks provide the added benefit of being defensive in nature, reducing the tail risk of investing in equities. Risk-averse investors may conclude that, for them, sin investing is a good choice." Just say no 08/08/21   Markets "In fact, a portfolio holding a basket of stocks (with at least a $100 million market cap) exceeding 15x sales lost money from January 2000 to today. What's worse, it suffered a 92% drawdown! Not many investors can recover from that. Of course, maybe this time is different. Maybe valuations don't matter. But history suggests otherwise." Forms of wealth 08/08/21   Behaviour "Desiring money beyond what you need to be happy is just an accounting hobby." Investing nightmares 08/07/21   Markets "My investment nightmare doesn't involve a 50% decline or a lost decade like the one we had in the U.S. from 2000-2009 either. It's far worse than that. Because even the Lost Decade for U.S. stocks wasn't that bad when you consider the path markets took over that time period." Cash is the only thing 08/07/21   Management "The only thing that helps a company survive these extreme revenue shocks is access to cash. Companies that either had lots of liquidity at hand or could tap into existing credit lines to increase their cash at hand were more likely to survive and recovered more quickly." Francis Chou Q&A 08/06/21   Chou "The Center for the Advancement of Value Investing Education (CAVIE)'s 2021 Virtual Seminar on Value Investing and the Search for Value welcomed Francis Chou as a Guest Speaker. Mr. Chou is the Founder and President of Chou Associates Management" The Stingy News Weekly: August 2, 2021 08/02/21   SNW This week we have Buffett, inflation and bonds, Sir John, the 4% rule, and more. Buffett's evolution into a great manager 08/02/21   Buffett "One of the most interesting aspects of Cunningham's work with and about Buffett is the revelation that there are really two Buffetts, one the great investor that we all know about, and two, his later evolution into a great manager. We'll focus on what we can learn from Buffett, the manager in this week's show." [video] 22 maxims of Sir John 08/02/21   Value Investing "The most famous of Templeton's contrarian actions happened in 1939. On the eve of the Second World War, when Templeton was all of 26-years old, he borrowed a then-massive $10,000. He had decided to buy 100 shares in each of 100 companies whose beaten-up stocks cost less than a $1. Templeton judged the market was in headless chicken mode due to fears about the upcoming conflict. He wasn't sure which shares would prosper. But he was convinced they were all trading out of whack. The profits he banked when the markets recovered initiated a lifetime of running money." Bonds and inflation 08/02/21   Markets "Inflation has never been this high, with bond yields this low." Not a law of nature 08/02/21   Retirement "The first thing to understand about the 4% rule is that Bengen never intended it to be a rule per se. In his paper, he's clear that 4% is just a recommendation - and only under certain circumstances." The Stingy News Weekly: July 25, 2021 07/25/21   SNW This week we have value options, growth, inflation, indexing, and more. Double or nothing 07/25/21   Markets "As signs of policy-induced imbalances grow and become more difficult to defend, we believe the days of consequence-free money printing are over. Instead of adjusting to the heightened risk of quantitative easing ending, investors appear to be doing what they've been conditioned to do over the past decade: shake it off, parrot the Fed's narrative, and ride the stock market higher without concern. In effect, the game of double or nothing continues." Dan Rasmussen interview 07/25/21   Value Investing "Dan then delves into leverage and the value premium, telling us how important this interaction is. He gives us great details on the subject based on a study he was a part of while at Bain Consulting. The takeaway was that roughly 50% of deals done at multiples greater than 10x EBITDA posted 0% returns to investors, net of fees." Tim Travis on options and financials 07/25/21   Value Investing "Tim Travis is a veteran deep value investor and money manager with a long history of success in traditional investments, such as stocks and bonds, and deep value investing. He has developed an innovative methodology of combining options and distressed investing with value investing to generate income, reduce risk, and add an element of timing." [video] Turning Japanese 07/25/21   World "Demographers now predict that by the latter half of the century or possibly earlier, the global population will enter a sustained decline for the first time." Charles Ellis interview 07/25/21   Indexing "If you look at all those different component parts, most of us have way too much in stable assets, which is what bonds are supposed to do, which is why in the present circumstances, where the expected inflation is higher than the rate of return on the bond, it's really hard to justify being a bond investor today." Ask the question 07/25/21   Retirement "We should ask ourselves all kinds of tough financial questions. But many of the toughest never get asked - because we know answering them will involve agonizing choices, difficult conversations and unthinkable amounts of dollars. Consider these four..." What happens after a decade 07/25/21   Markets "Doing anything but hold a 60/40 portfolio (or a derivation of it) has almost inevitably come at a cost. It is now considered to be the natural, default option by many investors. It is not clear, however, whether this status is because of something innate in the 60/40 structure that makes it the neutral choice, or whether investor opinions would change if it endured a prolonged spell of disappointing returns." The Stingy News Weekly: July 19, 2021 07/19/21   SNW This week we have dividends, global stocks, inflation, index trading, and more. Put down the dividends 07/19/21   Dividend Investing "Ok, I'll admit that the title of this article is a little aggressive. That is especially true when you consider the fact that I don't think investing in high yield stocks is a bad investment strategy. In fact, academic research shows that it is a reasonable one." Beat the stock market 07/19/21   Indexing "His firm's research finds that buying the outgoing stock in discretionary deletions from the S&P 500 at the closing price on the day it's removed from the index has beaten the market by an average of nearly 20% over the following 12 months." In defense of global stocks 07/19/21   World "As you can see, most global stock markets would have increased your wealth most of the time. The primary exceptions to this are Spain in the 1970s, Japan in the mid-1980s to mid-1990s, and a handful of countries in 1999 and after the year 2000. The worst performing market in the group is clearly Greece, which destroyed wealth at a rapid clip starting in the early 2000s onward." Too smart 07/19/21   Behaviour "Ninety percent of personal finance is just spend less than you make, diversify, and be patient. But if you're very intelligent that bores you to tears and feels like a waste of your potential. You want to spend your time on the 10% that's mentally stimulating." Humility 07/19/21   Behaviour "Living in reality is a key to happiness. Delay gratification, have a buffer, and invest for the future. What could be simpler?" Hedging inflation is hard 07/19/21   Markets "Markets always require context but the biggest lesson here is how hard it can be to hedge against short-term risks in the markets. People have been pounding the table on inflation for a number of years now. I'm sure many of them were ready for a victory lap now that it's finally here. Yet the markets aren't cooperating." Equities as an inflation hedge 07/19/21   Markets "Equities generated attractive nominal returns across all inflation regimes. However, real returns were zero when inflation was above 10%. Energy and materials performed best, consumer-facing sectors worst." The Stingy News Weekly: July 11, 2021 07/11/21   SNW This week we have housing prices and growth investing, dollar cost averaging, meme stocks, inflation, patience, and more. Patient investing is hard 07/11/21   Markets "Unfortunately, my more than 25 years of experience in advising investors has taught me that when it comes to judging the performance of investment strategies involving risk assets, far too many investors believe that three years is a long time, five years a very long time and 10 years an eternity." When dollar cost averaging fails 07/11/21   Markets "If you had picked a random month to start buying U.S. stocks and kept buying for the rest of the decade, there is a 98% chance that you would have beaten cash (and an 83% chance that you beat 5-Year Treasuries as well). Yes, there were times when you underperformed, but in a vast majority of periods you would have made significant gains." Meme stock investing 07/11/21   Markets "You can't do this forever. It smells a bit like a Ponzi Scheme already, in fact. Eventually, you run out of marks." Location and the value premium 07/11/21   Value Investing "We investigate the value-growth premium puzzle by merging insights from urban economics and finance that relate firm location to its stock performance. The value-growth premium in locations with high historical house price appreciation is 3.6% larger per year than the premium in areas that experienced little house price appreciation. The link between housing value appreciation and the cross-section of returns supports investment-based models explaining the value premium; moreover we find the house price channel reduces growth firm returns rather than increasing returns of value firms. House price appreciation remains significant after controlling for common explanations of the premium." The value premium 07/11/21   Value Investing "The poor performance of value stocks versus growth stocks over the past decade has led to the belief that the value premium is dead. This, however, seems to be more a U.S. market phenomenon. The Canadian value premium persists, particularly for stocks with low prices." Don't try to predict it 07/11/21   Markets "Consumers, economists and bond traders often attempt to forecast inflation, but we really are walking in the dark." The Stingy News Weekly: July 4, 2021 07/04/21   SNW This week we have selling swampland in Florida, bubbles, inflation, bonds, debt, oil, and more. Pay down debt 07/04/21   Thrift "A safe withdrawal rate is the lesser of the yield on the 10 year treasury +1%, or 7%. The long-term increase in value of assets is roughly proportional to something a little higher than where the US government can borrow for 10 years. That's the reason for the formula. Capping it at 7% is there because if rates get really high, people feel uncomfortable taking so much from their assets when their present value is diminished." Hyper zip code inflation 07/04/21   Real Estate "In its effort to control asset prices, we believe the Federal Reserve has lost control of the real estate market. While they have succeeded in building a floor under home prices, they forgot about the ceiling! Assuming zip code hyperinflation spreads, we expect wealth inequality and housing affordability to become an increasingly hot topic in upcoming elections. In the meantime, the Federal Reserve's balance sheet continues to inflate as millions of potential homeowners are being squeezed out of the market. How much longer will the inequalities created from ultra-easy monetary policy be tolerated and left unchecked? We're not sure, but given the growing extremes, we believe it is the Fed's ability to QE without consequence that has become transitory, not inflation." On negative oil and futures prices 07/04/21   Markets "The spot barrel is the oil you can buy right now in the cash market for (almost) immediate delivery. Forward barrels are similar cash market transactions where you contract today for delivery of oil at some point in the future." A pragmatic approach to Treasurys 07/04/21   Bonds "But you should be a Treasury pragmatist. They serve a valuable role in the portfolio, especially in an active portfolio that increases or reduces risk based on the economic cycle. There is no other asset that we can think of that provides portfolio insurance and pays a positive coupon. If I tried to sell you an asset that was likely to trade up during recessions and yet pay you to own it, you'd be trying to figure out how the con worked. But that is how Treasurys act." Bubble of epic proportions 07/04/21   Markets "Grantham will explain why he is calling this a bubble of epic proportions and suggest ways that investors can handle it." [video] The Stingy News Weekly: June 27, 2021 06/27/21   SNW This week we have high expectations, copper, oil, intangibles, and more. High expectations 06/27/21   Markets "After capturing returns of 12.5% above inflation in 2020, investors anticipate even higher returns post-pandemic markets: For 2021 they expect to achieve annual returns of 13% above inflation. Over the long term, they anticipate 14.5%. Both numbers are substantially greater than the 5.3% above inflation financial professionals say is realistic." Market trivia 06/27/21   Markets "16 Unbelievable Facts About the Markets" Doctor copper 06/27/21   Markets "The results indicate that while oil is a top performer during economic recoveries, copper performs best when the economy is expanding." On oil 06/27/21   Markets "Today, we note that the high-yield spread over the last three months has fallen materially (from 3.86 to 3.36), indicating that now could be a good time to implement our strategy on the long side. In the long run, we believe this strategy could produce excess returns and be a valuable diversifier to tailored investor portfolios." The impact of intangibles 06/27/21   Markets "The good news is that intangible-intensive companies can grow faster than their tangible counterparts. The bad news is they can also become irrelevant and shrink fast." [pdf] The Stingy News Weekly: June 20, 2021 06/20/21   SNW This week we have mid-caps, absolute value, return expectations, and more. Estimating future stock returns 06/20/21   Markets "On March 31st, the S&P 500 was priced to return 0.07%/year over the next 10 years. Today, that figure is -0.67%. At the close on Monday, that figure was -1.03%. These figures do not take account of inflation, so it indicates real annual returns between negative 2 and negative 3 percent." Harder than it looks 06/20/21   Behaviour "The more we describe successful people as having guru-like powers, the more everyone else looks at them and says, 'I could never do that.' Which is unfortunate, because more people would be willing to try if they knew that those they admire are probably normal people who played the odds right." Maintaining the flame 06/20/21   Value Investing "As absolute return investors, we're empathetic to the challenges of maintaining discipline throughout an entire market cycle. While refusing to overpay and protecting capital during periods of excessive overvaluation sounds easy, it is not. It's one of the most difficult duties required by a portfolio manager and fiduciary. And while it's never been easy, the current market cycle's duration and extremes have made it the most challenging cycle of our careers." Mid-Caps 06/20/21   Markets "Unfortunately, this creates a conundrum for investors. They can look at 90-years of data for US stocks, where mid-caps did not generate attractive excess returns, or 30-years of data across other stock markets where mid-caps outperformed." The Stingy News Weekly: June 13, 2021 06/13/21   SNW This week we have profitable value, Cialdini, goalposts, traders, momentum ETFs, and more. Getting the goalpost to stop moving 06/13/21   Behvaiour "So having some ability to deny an extra dollar of work, or a potential opportunity, a bigger house or a nicer car, is essential if you want to use money to make a better life." Robert Cialdini interview 06/13/21   Behaviour "How rational are humans? Do we default to truth and naturally believe what people tell us? Are we natural-born skeptics or natural-born sheep?" [video] Combining value and profitability 06/13/21   Value Investing "When viewed in combination with similar such evidence from the US, the data suggest important benefits to targeting value and profitability jointly rather than piecemeal." Day traders learning about their ability 06/13/21   Markets "We analyze the performance of and learning by individual investors who engage in day trading in Taiwan from 1992 to 2006 and test the proposition that individual investors rationally speculate as day traders in order to learn whether they possess the superior trading ability. Consistent with models of both rational and biased learning, we document that unprofitable day tradersare more likely to quit than profitable traders. Inconsistent with models of rational speculation and learning, we document that the aggregate performance of day traders is negative, that the vast majority of day traders are unprofitable, and many persist despite an extensive experience of losses." [pdf] The problem with momentum ETFs 06/13/21   Indexing "This highlights the challenges with momentum ETFs that rebalance only twice a year. In a rapidly changing market environment, the strategies can be slow to catch-up meaning any hope of outperformance, especially in the short term, is most likely wishful thinking." A better retirement 06/13/21   Retirement "Among the unhappy retirees I've talked to, most are bored because they don't have anything to do. That can usually be fixed." The Stingy News Weekly: June 6, 2021 06/06/21   SNW This week we have real estate bubbles, commodities, inflation shelters, emerging markets, and more. Questioning emerging markets 06/06/21   Markets "We can demonstrate this relationship by comparing the outperformance of EM to US equities and the inverted US Dollar index. We observe that EM equities outperformed when the US Dollar depreciated. It is not a perfect relationship (there are none in finance), but it held broadly in the period between 1990 and 2020." Tobacco and defense as inflation shelters 06/06/21   Markets "tobacco and defense have historically been reliable inflation shelters, rewarding investors with positive real returns during periods of higher inflation that more negatively impacted both their respective sectors and the broad market." Stakeholder capitalism 06/06/21   Markets "The solution is thus to ensure that the CEO remains an owner, holding long-term equity, rather than being a salaried employee paid with a bonus based on short-term profit. Indeed, research shows that CEOs who own a substantial chunk of their firm outperform those who own little by 4-10 percent per year in long-term shareholder returns." Investing in commodities 06/06/21   Markets "On an individual basis, commodities appear to be largely unpredictable. And even though the significance of the mean regression factor improves dramatically in the cross-sectional analysis, there remains a lot of noise within the other factors, as their signs flip from positive to negative and they go from statistically significant to insignificant on different time frames. Market timing strategies based on fundamental factors in commodities do not appear to be as reliable as factor-based strategies in stocks and bonds." Canadian home prices a deal vs US bubble 06/06/21   Real Estate "Canadian real estate is receiving a big warning sign from an indicator that was an alarm for the US in 2006. The house price-to-rent ratio shows Canadian real estate is overvalued. When contrasted to the US is when you really get a feel for how much Canada went all-in on real estate. It makes 2006 America look like a sleepy backwater market of value investors." Algorithms are what we read 06/06/21   Media "I stopped writing a regular column on art and culture for the Globe and Mail, my job for almost twenty years. Nobody noticed. I did not receive a single reader's letter. I had a polite message from my section editor. He was sorry things didn't work out and hoped we could stay in touch. The note contained no sense of symbolic occasion. I knew what I did was no longer important, either to the national culture or to the newspaper's bottom line." The Stingy News Weekly: May 30, 2021 05/30/21   SNW This week we have value investing, the real estate bubble stateside, Cheetos, and more. Value and momentum investing 05/30/21   Value Investing "This article examined a common question - for Value and Momentum Investing, what is the best way to combine factors? While not the first article on the topic, we provide another set of insights. When examining mid-cap and large-cap stocks in both the U.S. and international markets, and keeping the number of stocks in the portfolio the same, more concentrated portfolios historically had higher returns in the 'Separate, then combined' Portfolio as opposed to the 'Combined-signal Portfolio.' In the U.S., as one adds more stocks, the return differential gets smaller. Last, from a risk-adjusted returns perspective, there is no clear-cut winner/loser." How boom turned to bust 05/30/21   Markets "Over the last 30 years, a buy-and-hold strategy in commodities underperformed the S&P 500 by 10% and the classic 60/40 portfolio by 9%, while also enduring colossal drawdowns and significantly more volatility." Indexes proliferate 05/30/21   Indexing "The lines have blurred between what constitutes an index and what is simply another active investment strategy" How to do long term 05/30/21   Behaviour "Long-term thinking is easier to believe in than accomplish. Most people know it's the right strategy in investing, careers, relationships - anything that compounds. But saying 'I'm in it for the long run' is a bit like standing at the base of Mt. Everest, pointing to the top, and saying, 'That's where I'm heading.' Well, that's nice. Now comes the test." Influencer half-life 05/30/21   Media "It takes a new influencer about six months to hit their peak. From then on their active follower base steadily declines with a half life of about 12 months or so. For you, as a parent, this means that once your offspring decides to become an influencer, your best bet is to expect that in three years. time they will be living in your basement again." A bad time to be a homebuyer 05/30/21   Real Estate "Because houses are selling so quickly, buyers are having to make all kinds of concessions to get the place they want. People are waiving inspections, paying in all cash and offering well over asking price in many cases." Who invented Flamin' Hot Cheetos? 05/30/21   Management "We have interviewed multiple personnel who were involved in the test market, and all of them indicate that Richard was not involved in any capacity in the test market." The Stingy News Weekly: May 23, 2021 05/23/21   SNW This week we have value investing, bonds, Canadian real estate bubbles, and more. Value's turn 05/23/21   Value Investing "Value's pain should eventually be rewarded just like it was in the period after 1999, when finally the performance and valuation disparity turned. Fundamentals started mattering and the market began rationally pricing assets. For a 7-year period after 1999, Value went on to trounce Growth by over 14% annually." Predictability of the value premium 05/23/21   Value Investing "Consider that in December 1994 (shortly after the publication by Gene Fama and Ken French of their seminal paper 'The Cross-section of Expected Stock Returns'), the relative price-to-book ratio of value stocks versus growth stocks was 2.1. Using Vanguard's Value ETF (VTV) and their Growth ETF (VUG), at the end of April 2021 that ratio had widened to 3.2 (52 percent wider), predicting a much larger value premium than Fama-French had found. We see the same pattern when looking at small value and growth stocks. At the end of 1994, the spread was 1.5. Using Vanguard's Small-Cap Value ETF (VBR) and their Small-Cap Growth ETF (VBK), the spread had widened to 2.3 (53 percent wider). Once again, the widening of the spread predicts a larger value premium than Fama-French had found. In other words, in terms of expected returns, the data suggests that the outperformance of value since April 2021 is likely to continue, as Yara, Boons, and Tamoni found that the spread has a strong predictive value two years out." Economics of customer businesses 05/23/21   Markets "Understanding the basic unit of analysis is an essential element of security analysis. An investor should have a point of view on how a company makes money, what opportunities exist, and the role competition might play in shaping the financial outcome. Boiled down to the core, the basic unit of analysis seeks to assess whether a company's investments are likely to earn a return in excess of the cost of capital." [PDF] A dark age for bonds 05/23/21   Bonds "There have been many periods in which real yields have been significantly higher or lower than the historical median. This includes times during which real yields have been negative (16% of the time) and other times when real yield have been above 4% (17% of the time)." Canadian property bubbles 05/23/21   Real Estate "They found Canada's hottest real estate markets are now less affordable than globally influential US cities. Heck, Canada's property bubble even pushed the tiny steel city of Hamilton to become less affordable than Los Angeles or New York City." The failure of anomaly indicators 05/23/21   Markets "One springboard for the You-Xue-Zhang article was a 2016 study by Harvey, Liu and Zhu, who after analyzing 296 anomalies from published papers found that between 80 and 158 (i.e., up to 53%) are likely false discoveries." Work in progress 05/23/21   Retirement "Thanks to the pandemic, most of us have discovered there's plenty of fat in our budget. Think about how much you saved over the past 14 months by not going on vacation, cooking at home and avoiding the shopping mall. During retirement, if your nest egg looks a little depleted, perhaps you should adopt a 'pandemic budget' for six months or a year." Wise words from Lou Simpson 05/23/21   Value Investing "Lou Simpson is largely unknown, even among investors. Yet, he quietly racked up a track record that bested the S&P 500 by 6.8%." How the virus spreads 05/23/21   Health "There was just one literally tiny problem: 'The physics of it is all wrong,' Marr says. That much seemed obvious to her from everything she knew about how things move through air. Reality is far messier, with particles much larger than 5 microns staying afloat and behaving like aerosols, depending on heat, humidity, and airspeed. 'I'd see the wrong number over and over again, and I just found that disturbing,' she says. The error meant that the medical community had a distorted picture of how people might get sick." The Stingy News Weekly: May 16, 2021 05/16/21   SNW This week we have value, China, Japan, cash, titans, winners and more. Following Japan 05/16/21   World "Obviously, this is not some romantic version of being active and productive in old age. Most of the time, older Japanese have to go back to work in some minimum wage jobs just to make ends meet." Sleeping with cash 05/16/21   Behaviour "What I've found, as far as my portfolio goes, is that the necessary prerequisite for a good night's sleep is one thing above all else: an oversized cash reserve. By that, I mean a cash hoard that can handle not only the most likely contingencies, but also unexpected ones - and then some. I typically keep enough cash to finance our normal expenditures for at least six years." Fall of the titans 05/16/21   Markets "The argument that low (and negative) interest rates justify higher valuations does not seem to hold water when the 10 largest companies by market-cap have an aggregate valuation multiple three times higher than the market. Add in the growing numbers of unsophisticated investors who are buying and selling stocks based largely on speculation, and the result is a potent mix for investors in today's stock titans." Weighting on China 05/16/21   World "Our conclusion is that, compared to Japanese public equities today, Chinese public equities are not technically public or equitable to the extent we can measure. They are massively more expensive and are probably subordinated to much more dubious lending practices than the government-approved ratings agencies would let on, according to S&P's mathematical standards. But we must admit that the trailing and one year forward growth is red-hot in the market that's marked-to-Marxist." Value still beats growth 05/16/21   Value Investing "The analysis above shows that a very simplistic split using the P/E multiple generated about a 2.5% spread between Value and Growth over a 40+ year period. When using Quintiles, the spread was about 5.75%. For deciles, the spread was about 7.4%." You needn't hold your winners 05/16/21   Value Investing "If stock performances showed higher persistence than would occur through chance, then the odds would favor investors who follow Baillie Gifford's advice to keep those that got you here. But they do not." The Stingy News Weekly: May 9, 2021 05/09/21   SNW This week we have dividends since 1800, value, real estate, cons, retirement, and more. U.K. dividend value since 1800 05/09/21   Value Investing "I explore the U.K. Value factor, by showing its previously unseen history extended back to 1800, and illustrating the similarity between its recent drawdown and bounce back as compared to the U.S. value factor." Resurrecting the value premium 05/09/21   Value Investing "They sought to show that the value premium could be restored through the use of a number of simple alterations that have been long used by many practitioners, as well as academics. They augment the book-to-market ratio with three alternative value signals, which have in common that instead of relying on balance sheet information, like book-to-market (or HmL) they are more based on earnings and cash-flows." They get fired all the time 05/09/21   Behaviour "Pop culture lionizes the dazzling brilliance of money managers on the autism spectrum. Reality rarely measures up." Performance pay and drug use 05/09/21   Behaviour "Using US panel data on young workers, we demonstrate that those who receive performance pay are more likely to consume alcohol and illicit drugs. Recognizing that this likely reflects worker sorting, we first control for risk, ability, and personality proxies. We further mitigate sorting concerns by introducing worker fixed effects, worker-employer match fixed effects, and worker-employer-occupation match fixed effects. Finally, we present fixed effect IV estimates. All of these estimates continue to indicate a greater likelihood of substance use when a worker receives performance pay. The results support conjectures that stress and effort increase with performance pay and that alcohol and drug use is a coping mechanism for workers." A famous con man 05/09/21   Crime "But though the movie claims to be based on a true story, creating the myth of Frank W. Abagnale Jr. might be the best con that Abagnale actually pulled. A new book contends that the story of the charming teen running from the FBI and pulling off all those impersonations without getting caught is mostly made up." Berkshire Hathaway vs. the stock exchange 05/09/21   Buffett "It's the stock-market version of the Y2K bug. And it's becoming an increasingly urgent issue as shares of Warren Buffett's company have risen more than 20% this year" Affordable cities in Ontario 05/09/21   Real Estate Hello Deep River, Smooth Rock Falls, Rainy River, Marathon, and Englehart. Deferred sales charges banned 05/09/21   Funds "The Ontario government is allowing the province's securities regulator to join the rest of Canada in banning early withdrawal fees charged by mutual funds." Built for Ease 05/09/21   Retirement "My father loathed the idea that he would spend his final years in a nursing home. In the end, he never had to confront that possibility: At age 75, while riding his bicycle, he was struck and killed by a speeding car. Still, I think often about his reluctance - because I share it. Despite exercising every day, I know I'm not as flexible or as fast as I once was, and it takes longer for the stiffness in my muscles to ease each morning. Meanwhile, I'm well aware that two of my four grandparents had dementia at the end of their life." The Stingy News Weekly: May 2, 2021 05/02/21   SNW This week we have Buffett, Munger, Kahneman, and more. Berkshire Hathaway meeting 05/02/21   Value Investing "Berkshire Hathaway Chairman and CEO Warren Buffett was joined by Vice Chairman Charlie Munger, and both shared their unscripted views on Berkshire Hathaway, the markets, the economy, corporate governance, and a lot more." [video] Value stocks are poised to outperform 05/02/21   Value Investing "We expect value to outperform growth over the next ten years by five to seven percentage points, annualized, and perhaps by an even wider margin over the next five years." On Thinking: Fast and Slow 05/02/21   Books "It is likely that Kahneman's book, or at least some of his chapters, would be very different from the actual book, if it had been written just a few years later." Operation Neptune's Spear 05/02/21   History "The full story of how, and why, America's top security officials decided to pull the trigger that night in May has never been told. This oral history - the story inside the West Wing and U.S. intelligence agencies as Neptune's Spear coalesced over the fall of 2010 and spring of 2011 - is based on extensive original interviews with nearly 30 key intelligence and national security leaders, White House staff, and presidential aides - including some who have never spoken publicly before, and roughly half of those pictured in Souza's famous photograph." Hanging tough 05/02/21   Markets "Finally, as I argued last year, I don't see any alternative to owning stocks. After factoring in taxes and inflation, cash investments and most bonds are priced to lose money." Currency crisis 05/02/21   Fun "There are various indicators showing that the U.S. could be headed for a currency crisis. One of them has paws." [video] The Stingy News Weekly: April 25, 2021 04/25/21   SNW This week we have inflation, gold, marriage, crime, and more. My worst investment 04/25/21   Crime "Everything went along swimmingly, with Mr. B sending me monthly statements indicating the steady rise in the value of my coins. I went to a few more seminars, where now he was advocating that, in addition to gold and silver, I may want to invest in a couple of small-cap stocks listed on the Toronto Stock Exchange..." Money printing and inflation 04/25/21   World "Intuitively, inflation should follow the money supply. The more money that circulates in an economy, the more demand for products and services, which should lead to higher prices. However, the economy consists of many interrelated variables and linear models frequently fail to represent reality." Not taking enough risk 04/25/21   Brokers "Court finds an investor's portfolio was too heavily concentrated in preferred shares, but its low-risk strategy was appropriate" Why we don't marry 04/25/21   Economics "Former Clinton advisor William Galston sums up the matter this way: you need only do three things in this country to avoid poverty - finish high school, marry before having a child, and marry after the age of 20. Only 8 percent of the families who do this are poor; 79 percent of those who fail to do this are poor." Craziest market 04/25/21   Markets "Currently, we have an antiquated video game retailer (GME) being valued at $10 billion (nearly 10 times what it was worth at the start of the year). We have a literal joke internet coin (Dogecoin) that has a market cap of over $50 billion. And I just recently heard about a single deli in New Jersey (HWIN) that was recently valued at over $100 million. The deli had $35,000 in sales over the previous two years." The Stingy News Weekly: April 18, 2021 04/18/21   SNW This week we have losses, alcohol, withdrawals, and more. Sustainability of withdrawal strategies 04/18/21   Retirement "The most important financial issue retirees have to deal with is whether their strategy will be able to sustain all the withdrawals they expect to make in retirement, as well as a bequest they aim to leave. For this reason, it is critical to periodically monitor the evolution of a financial plan in order to detect early signs of trouble, which may lead a retiree to introduce dynamic adjustments to a strategy. To that purpose, this article features two tools, a sustainability test and the sustainable withdrawal, and shows how to apply them. It also discusses the empirical evidence on both tools based on a comprehensive sample of 22 countries over a 120-year period." Against alcohol 04/18/21   Health "The overriding impression I got during the book was that alcohol is Really Bad for your health" Go figure 04/18/21   Thrift "A lot of investment math focuses on how money grows over time. But as an attorney who's worked with many clients hoping to retire in comfort, I find myself thinking more about risk - and how the math can work against us." The Stingy News Weekly: April 11, 2021 04/11/21   SNW This week we have getting old, the lost decade, after gains, base rates, and more. Tesla and base rates 04/11/21   Markets "What I wanted to focus on however was the revenue outputs in the model where the CFA credited analyst has $31b in 2020 rising to $700b in 2025, that's a CAGR of 117%! One of the things that always staggers me is the way analysts forecast revenue growth without any context to the base rate." What scares me about getting old 04/11/21   Retirement "The truth is that even for a guy who's spent a vast majority of his waking hours helping others imagine the best way to age, there's a lot that scares me about getting old." After big gains 04/11/21   Markets "I looked at the returns over the ensuing one, three and five year periods to see what happened after enormous gains of the past." Too smart for his own good 04/11/21   Behaviour "In good societies, debt levels are low. People pursue limited goals, avoid debt, and grow from retained earnings. As your great-grandparents might have said, a good life relies on deferred gratification. But such humility does not characterize the present." Death to the lost decade 04/11/21   Markets "Stable growth and tame inflation rewarded both equities and bonds and rendered less valuable any diversifying assets that sought to profit from more volatile or negative growth or higher inflation. Macro-economic analysis.and even more simple concepts like international diversification or value investing - failed to benefit investors. But growth has not always been so stable nor inflation so tame. And when those key economic drivers have behaved differently, the results for investors in different asset classes have been markedly different." It's all in the mix 04/11/21   Markets "It's impossible to predict where the market will go next, so your best defense is to have an appropriate asset allocation. But how exactly can you determine an ideal allocation?" The Stingy News Weekly: April 4, 2021 04/04/21   SNW This week we have FIRE, momentum, truth, and more. Momentum and mean reversion 04/04/21   Markets "Momentum dictates that what has done the best in the past will continue to do the best and Mean Reversion just the opposite - where what is done the worst will eventually do the best, reverting back to its mean. That both can be true is one of the great paradoxes in investing." The truth about lying 04/03/21   Behaviour "You can't spot a liar just by looking - but psychologists are zeroing in on methods that might actually work" Don't get burned 04/03/21   Retirement "Financial independence. Retire early. FIRE. It's the dream, right? No one to report to. Nowhere you have to be. You live life completely on your own terms. But as much as this movement has been revered by some in the personal finance community, it also has its downsides which are discussed far less often." What it takes 04/03/21   Thrift "No way. That's been my reaction whenever I've read about people saving 30% or more. I look back and think about making monthly mortgage payments, raising four children, paying for college and trying to save something to supplement my pension. For my wife and me, a 30% savings rate simply wasn't possible. Nevertheless, people do it." Yield shortage 04/03/21   Markets "But the nice thing about dividend-payers is that they're easier to hang onto if you just view the volatility as the cost of higher income. Stocks are violent, dividends are steady." Disappearing BOGOs 04/03/21   Markets "Based on numerous trips to the grocery store and other retail outlets, I've noticed a sharp drop in promotions over the past several months. Recent quarterly results and commentary of the businesses on our 300-name possible buy list support my anecdotal observations. With declining inventories and rising costs, companies have been reducing promotions to protect gross margins and receive full price on their limited supply." The Stingy News Weekly: March 28, 2021 03/28/21   SNW This week we have free, replication, real estate, and more. Low cost is better than free 03/28/21   Thrift "As someone who's worked on pricing R&D at two different wealth managers, I can assure you that like high-functioning pavlovian dogs, companies are very sensitive to what people want as revealed by their actual behavior. If people started subscribing in droves to a direct paid model, they'd hop on that model quickly. But usually we don't. Based on our behavior, we basically look companies in the eye and say 'Lie to me please'. 'Tell me it's free', 'Tell me there's no fee'." Replication crisis that wasn't 03/28/21   Markets "In plainer words, done properly (using a consistent methodology, accounting for the simultaneous testing of many factors, comparing to a fair yardstick and not 100% of a backtest, studying the broadest set of factors in the most places, using global data, and even making their code and data available online) the study of ex post 'after the research paper came out and told everybody the good news' factor results is extremely supportive of factor investing." Replication crisis in finance 03/28/21   Markets "Value factors became stronger when controlling for other effects because of their hedging benefits relative to momentum, quality, and leverage. And the Leverage cluster became one of the most heavily weighted, in large part due to its ability to hedge value and low-risk factors." Canadian systemic risk 03/28/21   Real Estate "In Vancouver, you currently need to earn at least $147,600 to make the payments on a typical home in February 2020. Over in Fraser Valley, you can get away with $143,700 per year. That's 44% and 40% higher than the current median household income, respectively. Greater Toronto real estate also requires much bigger salaries to carry the mortgages. The payments on a typical GTA home needs a minimum salary of $148,570. In Hamilton, it's estimated at $128,100 at minimum. The minimum income is 45% and 25% higher than the current estimated household income, respectively." Defining inequality so it can't be fixed 03/28/21   Economics "conventional income inequality numbers report the distribution of income before taxes and transfers. After taxes and transfers, income inequality is flat or decreasing, depending on your starting point." The Stingy News Weekly: March 21, 2021 03/21/21   SNW This week we have value, Japan, reversals, bubbles, and more. The great reversal 03/21/21   Markets "The current narrative is that a) small companies will benefit more from stimulus measures than their larger counterparts, b) global stocks will benefit from a falling dollar and higher global growth, c) value stocks will improve with the rise in interest rates and the steepening yield curve, d) technology will underperform as the vaccines and herd immunity will allow people to leave their homes again, e) bond yields will rise with inflation pressures mounting, and f) commodities will move higher with a resumption of growth and demand." The economic recovery in Japan 03/21/21   World "Despite one quarter of value outpacing growth, LTM EBIT margins are still 52% below their 2018 peak. Because of this, upward pressure on stock prices should depend very little on multiple expansion. Simply getting back to 2018 operating income is a ~100% return if these value stocks can hold their current multiples." Ain't so bad 03/21/21   Bonds "The 20-year treasury went from a low of 0.87% in March to 2.3% today. This is good for people buying today, relatively speaking, and horrible for people who bought in March. If rates stay where they are, it will take nearly 6 years to get back to break even." Blowing bubbles 03/21/21   Markets "Drawing on economist Hyman Minsky, Bernstein says there are four conditions necessary for a financial bubble to form: easy credit, exciting new technologies, amnesia about the prior bubble and bust, and the abandonment of old, prudent methods for valuing investments." Meb talks to Dan 03/21/21   Value Investing "In today's episode, we start with an update on Dan's private equity replication thesis and hear about the rise of private credit in the past few years. Then we dive into his recent paper on emerging markets crisis investing. While buy and hold investors in emerging markets have experienced higher volatility for disappointing returns, Dan believes learning to navigate these EM crises can provide the ability to reap excess returns. He walks us through the differences between global and idiosyncratic crises and what performs best between both debt and equity in each case." The Stingy News Weekly: March 14, 2021 03/14/21   SNW This week we have family, leverage, happiness, and more. Joel Greenblatt and Rich Pzena talk value investing 03/14/21   Value Investing "Legendary investors and long-time friends Joel Greenblatt (Gotham Funds) and Rich Pzena (Pzena Investment Management) recently sat down with investment strategist Steve Galbraith for a masterclass in value investing. The three long-time friends discussed a host of topics - including quality, momentum, interest rates, financials, ESG, disruption, parallels to the internet bubble, and their current positioning - along with the basics of how they define value." [video] Financial leverage makes stocks riskier 03/14/21   Markets "When calculating the risk-adjusted returns, the conclusion on the lack of value creation via leverage crystalizes further as the stocks with the lowest leverage generated far higher risk-return ratios than the most leveraged stocks on a sector-neutral basis. Given this, investors should avoid stocks with too much leverage, especially sector specialists." A new ice age 03/14/21   Markets "So instead of it being a new ice age for the traditional vendors, is it possible they might actually end up being the ones selling most of the new-age ice?" Valuing private equity 03/14/21   Markets "Our results don't imply that PE doesn't create any value, to be clear. But they are consistent with a Berk and Green story in which the value is extracted as fees by the GPs, leaving little in the way of excess return for the investors." Just make more money 03/14/21   Behaviour "The fact is: to be more happy, just make more money." Family money 03/08/21   Retirement "getting both partners involved has meant pushing back when the investment advisor tells her to follow up with the husband. "I'm like, wait, what about the wife? And they'll say, 'Oh, she doesn't do the money.' All the more reason because if something happens, she needs to have a resource." The Stingy News Weekly: March 7, 2021 03/07/21   SNW This week we have Dividends, good value, value expectations, overnight returns, and more. The long run is lying to you 03/07/21   Markets "To state the obvious, when strategies get more expensive, all-else-equal they do better while that richening is occurring. Yet to assume these changes are the expectation going forward, as simply examining past returns does, strikes us as folly. I examine the returns on various markets, market differentials, and most importantly, the value factor, using a regression framework that accounts for these valuation changes." Good versus bad value stocks 03/07/21   Value Investing "In this short research note, we will contrast Value & High Quality versus Value & Low Quality across stock markets." Groundhog day and overnight returns 03/07/21   Markets "my (admittedly basic) view is that the release of overnight news (such as take-outs, mergers, and earnings reports) is the primary driver of the 'overnight return puzzle' and that the fact that there is negative autocorrelation to intraday returns (which effectively 'gives back' a third of the overnight return) is probably driven by a mix of investor overreaction, market structure, and perhaps a little investor heterogeneity." Shill bidding 03/07/21   Markets "We find that a price premium of between 16% and 44% can be achieved by shill bidding. Importantly, shill bidding is quite easy to implement and neither the market maker nor bidders showed any indication that they noticed. We conclude that market makers should make a careful re-evaluation of the risks of shill bidding, since only they are in a position to take meaningful action to prevent it from occurring." Graphing Dividends 03/07/21   Stingy Investing "I've written many articles highlighting the big returns generated by Canadian dividend stocks. They usually include only one or two graphs due to space limitations. But I've given the extra graphs a home here for the enjoyment of dividend aficionados." [pdf] The Stingy News Weekly: February 28, 2021 02/28/21   SNW This week we have Buffett, Munger, Grant, Dickson, and more. Drew Dickson on European behavioral investing 02/28/21   Markets "Mr Dickson holds an MBA from the University of Chicago Booth School of Business, where he was a research assistant for behavioural economist Richard Thaler" [video] Financial bubbles of historic proportions 02/28/21   Markets "James Grant on bubbles and bitcion" [video] Time-varying media coverage and stock returns 02/28/21   Media "This excess return cannot be explained by mainstream risk factors and has an annualized alpha around 12%. Although this excess return is robust among more firms that are out of the scope of news data, it is bound to a short time horizon." Charlie Munger AGM 02/28/21   Munger "Charlie Munger, Vice Chairman of Berkshire Hathaway, speaks at the Daily Journal Annual Meeting." [video] Where things stand in Canadian dividend land 02/28/21   Stingy Investing "The long-term results dramatically favour the high-yield portfolio, which climbed by an average of 13.5 per cent from the start of 1977 through to the end of 2020. The market portfolio gained an average of 10.1 per cent annually over the same period while the low-yield portfolio fared nearly as well with a 9.8-per-cent annual gain." [$] Warren Buffett's 2020 letter 02/27/21   Buffett "In 1958, Phil Fisher wrote a superb book on investing. In it, he analogized running a public company to managing a restaurant. If you are seeking diners, he said, you can attract a clientele and prosper featuring either hamburgers served with a Coke or a French cuisine accompanied by exotic wines. But you must not, Fisher warned,capriciously switch from one to the other: Your message to potential customers must be consistent with what they will find upon entering your premises." The Stingy News Weekly: February 21, 2021 02/21/21   SNW This week we have inflation, timing, value, index funds, and more. Canada should go 1 dose 02/21/21   Health "The Covid-19 vaccine developed by Pfizer Inc. and BioNTech SE generates robust immunity after one dose and can be stored in ordinary freezers instead of at ultracold temperatures, according to new research and data released by the companies." UK value is extremely promising 02/20/21   Value Investing "While we still like our last named trade of the decade, emerging markets value stocks, the UK equity market, and UK value stocks in particular, are now even cheaper." Dangerously timeful 02/20/21   Behaviour "Accidentally adhering to timeful advice is outsourcing a certain part of your life strategy to recent history. But when you outsource decisions that change your life trajectory, do you want to bet the house on the wisdom of yesteryear?" How to buy a business 02/20/21   Markets "Most small companies are complete disasters that are held together with bailing wire and duct tape by the owner who works 60-80 hour weeks and knows the business inside-out. If it looks too good to be true, it probably is. Find the catch." Inflation beating asset classes 02/20/21   Markets "Some asset classes, such as equities, which many believe to be good at hedging inflation, actually provide poor inflation hedging characteristics but strong returns above inflation over the longer term" [large] One-click portfolios 02/20/21   Indexing "I mention all of this to provide some context for a discussion of TD's new trio of One-Click ETF Portfolios. Like other asset allocation ETFs, they offer investors an opportunity to build a globally diversified portfolio at low cost (the management fee is 0.25%) with a single product. But a close look reveals they're far more active than their counterparts from Vanguard, iShares and BMO." The Stingy News Weekly: February 14, 2021 02/14/21   SNW This week we have Buffett, Watsa, Chou, emerging markets, inflation, crashes, and more. A short history of U.S. corrections 02/14/21   Markets "The longest the stock market has gone without a double-digit correction since 1950 is 7 years from 1990-1997. Then from 2002-2007 there was a four-and-half-year drought with no corrections. This may surprise some people, but the third-longest streak of no market corrections over the past 70 years or so was the four years from late 2011 through late-2015." The defining trait of bubbles 02/14/21   Markets Figuring out the greatest bubble in history is like asking someone who their favorite child is. I go back and forth between the South Sea Bubble and 1980s Japan." The great forgetting 02/14/21   World "Perhaps the most firmly established proposition in late 20th century macroeconomics is that the Great Inflation of 1966-81 was caused by central banks printing too much money. If that proposition is wrong, then I might just as well give up. Everything else I believe about macro hinges on that being true. If the Great Inflation wasn't caused by too much money, then what can macroeconomics tell us about the world?" Emerging markets crisis investing 02/14/21   World "Verdadcap's 55-page study of emerging market crises." [Book] Variable percentage withdrawal critique 02/14/21   Retirement "The main assumptions behind the VPW tables are that you'll live to 100, stocks will beat inflation by 5%, and bonds will beat inflation by 1.9%. These figures are average global returns from 1900 to 2018 taken from the 2019 Credit Suisse Global Investment Returns Yearbook." Undercover surveillance by insurers 02/14/21   Health "Both public and private insurers say they use this kind of surveillance to try to prove fraud. But lawyer John McKinnon from the Injured Workers Community Legal Clinic, says it's more often used to intimidate injured people into dropping their claims or dissuading others from making claims at all." Good news on vitamin D 02/14/21   Health "Calcifediol treatment at the time of hospitalization significantly reduced ICU admission and mortality." [video] Chou follows Buffett and Watsa 02/08/21   Stingy Investing "I wish Mr. Chou well on his new venture and hope it proves to be a great success, much like Fairfax Financial or Berkshire Hathaway. But I admit that I'm not a disinterested observer. I own a stake in all three value-oriented companies. With a little luck they'll float higher over the long term." [$] The Stingy News Weekly: February 7, 2021 02/07/21   SNW This week we have bubbles, shorts, the wall of money, and more. Grantham and the next crash 02/07/21   Markets "Jeremy Grantham, co-founder and chief investment strategist of Boston's GMO, believes U.S. stocks have become an epic bubble and will burst in a collapse rivaling the crashes of 1929 and 2000." [video] And it's gone 02/06/21   Brokers "Tesluk, Chang and others lost their money and the benefits that flow from RESPs to a company securities regulators have repeatedly censured but continue to allow to do business." Shorting stocks 02/06/21   Markets "The margin calls kept coming. So did sleepless nights. There was no internet at the time and I had to wake up every weeknight at 2 a.m. to run to the store to get the newspaper to see whether there was any news on the deal. Not only did I have financial difficulties, but also my wife started to wonder why I kept running out of our apartment in the wee hours." Unfortunate investing traits 02/06/21   Markets "To make money they didn't have and didn't need, they risked what they did have and did need. And that's foolish. It is just plain foolish. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense." There is no wall of money 02/06/21   Markets "Prices matter. Buy low, sell high. But don't attribute anything to the 'wall of money.' It is a bogus concept, and should be ignored. The biggest changes in prices happen when the market is closed, and trading is limited." The Stingy News Weekly: January 30, 2021 01/30/21   SNW This week we have bubbles, net-nets, book value, diversification, and more. Book value bargains in the TSX 01/30/21   Stingy Investing "A portfolio of large stocks with the lowest 30 per cent of P/Bs gained an average of 12.9 per cent annually from the end of June, 1926, to the end of November, 2020. By way of comparison, the U.S. market gained an average of 10 per cent annually over the same period. Unfortunately, the low-P/B value portfolio disappointed in recent years. It gained just 9.4 per cent annually over the 10 years through to the end of November, 2020, while the market advanced by 14.6 per cent annually." Net-net review 01/30/21   Graham "We therefore conclude that when viewed from the perspective of a practitioner, the empirical evidence analysed is insufficient to support the view that investing in securities trading below their NCAV provides a reliable source of material outperformance." Diversification is not dead 01/30/21   Arnott "Extrapolating the recent superior performance of the 60/40 mix into the future requires the dangerous assumption that US stock market valuations will march to nearly unprecedented levels." Volkswagen 10 years later 01/30/21   Markets "Then, over the weekend, Porsche SE dropped a bomb. They issued a press release stating that they had control (via option and swap positions) of an additional 31.5% of the company through option positions, in addition to the 42.6% they already held. This got them to approximately 75%, which not only effectively meant they had a domination agreement (aka they owned VW), but that given the 20% stake already held by the state of Lower Saxony and more by other long-term shareholders, there basically was no float left for the most heavily shorted company in the world." The GameStop revolution 01/30/21   Markets "Individual traders banded together this past week to move markets like never before. But the buildup to this remarkable moment has been happening for decades." Fairfax's stealth rally 01/30/21   Watsa "I'm long shares for more than just the recent investment performance. Fairfax has been steadily improving its insurance operations and this is far more important to the investment thesis long term. But I wouldn't be surprised if the narrative on Fairfax's investment side becomes much more positive and quickly, pushing shares higher." The grocery store puzzle 01/30/21   Markets "If most e-commerce companies have been pulled 1-3 years into the future in terms of their revenue, then the e-commerce businesses of most category leading brick and mortar retailers have been pulled 5-10 years into the future" The Stingy News Weekly: January 24, 2021 01/24/21   SNW This week we have bubbles, quality, growth, well-being, and more. Investing in a bubble 01/24/21   Markets "This ratio of growth to value valuations has already reached 1999 levels and is trending towards dot-com bubble levels. While this is not a definitive sign that we are in a bubble that is about to burst, it is yet another in a growing number of red flags. And while we believe value will prevail in the full sweep of history, those who want to participate in the bubble.s upside might want to consider implementing trend-following rules that might help cushion the fall if the large-cap technology market turns." Quality, where art thou 01/24/21   Markets "Unfortunately, neither quality nor quality income ETFs had significantly lower maximum drawdowns during the global financial crisis of 2009 or the more recent COVID-19 crisis of 2020, which resulted in lower risk-adjusted returns compared to the S&P 500. In contrast, the portfolio comprised of highly profitable stocks achieved meaningful reductions in drawdowns in both crisis periods." Growth can go out of style 01/24/21   Markets "Amazon's stock fell from a peak of $113 to a low of $5.51. That means that from the peak, it got cut in half, then it got cut in half again, and then it got cut in half a third time, and then, you guessed it, it got cut in half again. And then it lost another 22% for good measure. So the next time you see somebody say, 'If you invested $10,000 at Amazon's IPO,' you can safely dismiss the second part of their statement." Randomized control trials and the minimum wage 01/24/21   Economics "There are four main results: '(1) the wages of hired workers increases, (2) at a sufficiently high minimum wage, the probability of hiring goes down, (3) hours-worked decreases at much lower levels of the minimum wage, and (4) the size of the reductions in hours-worked can be parsimoniously explained in part by the substantial substitution of higher productivity workers for lower productivity workers.'" Another alpha bites the dust 01/24/21   Markets "One of the claims of active fund managers is that the rise of indexing and passive investing in general would make the markets less informationally efficient. It would also create more opportunities for exploiting index funds that focus on minimizing tracking error.they are forced to trade, and, thus, likely to take a loss when rebalancing occurs. If that were the case, the rise in passive investing would have led to an increase in the Index Effect. Yet, the exact opposite has occurred." Well-being rises with income 01/24/21   Behvaiour "Past research has found that experienced well-being does not increase above incomes of $75,000/y. This finding has been the focus of substantial attention from researchers and the general public, yet is based on a dataset with a measure of experienced well-being that may or may not be indicative of actual emotional experience (retrospective, dichotomous reports). Here, over one million real-time reports of experienced well-being from a large US sample show evidence that experienced well-being rises linearly with log income, with an equally steep slope above $80,000 as below it. This suggests that higher incomes may still have potential to improve people's day-to-day well-being, rather than having already reached a plateau for many people in wealthy countries." Asset Mixer Update 01/20/21   Stingy Investing We've updated our Asset Mixer to include real data for 2020. Periodic Table Update 01/20/21   Stingy Investing We've updated our periodic table of annual returns for Canadians to include real data for 2020. The Stingy News Weekly: January 17, 2021 01/17/21   SNW This week we have growth, valuations, diversification, styles, willpower, and more. Stagnating growth 01/17/21   World "Recently released Census Bureau population estimates show that from July 1, 2019 to July 1, 2020, the nation grew by just 0.35%. This is the lowest annual growth rate since at least 1900." High stock valuations are fine 01/17/21   Markets "Let me restate that: most of the excess returns from the best performing stock periods have come from valuations going from really low back to average or above." Just take the money 01/17/21   Behaviour "So, from a happiness perspective, the best thing you could do is put some base level of wealth into a diversified portfolio and have the excess be concentrated in riskier assets." Morningstar's influence on style returns 01/16/21   Markets "But with the introduction of the style box, Morningstar at least managed to reduce the amount of flows chasing past performance. And this apparently also influenced style returns. If investors put a lot of funds to work in funds that had strong performance in the past, they create a herding effect that perpetuates the price momentum of past winners." You can't deplete your willpower 01/16/21   Behaviour "while the early ego-depletion concepts appear to be flawed, experts say that self-control can wax or wane for a number of predictable reasons. Understanding when and how this happens may help people avoid the kind of willpower failures that torpedo their aspirations." The Stingy News Weekly: January 10, 2021 01/10/21   SNW This week we have shareholder yield, bubbles, tax tips, dividends, and more. The value recovery 01/10/21   Stingy Investing "The economic turmoil of the past year caused many companies to pause their share repurchase programs to conserve cash. But those with the ability, and guts, to continue buying their shares in hard times deserve a second look from investors because such firms have generally fared well over the long term." [$] Waiting for the last dance 01/10/21   Markets "The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000." Dividends power the wealth effect 01/10/21   Dividends "if politicians sought to exploit the wealth effect the data would suggest that they encourage firms to increase their dividend distributions as much as possible." Rookie CEOs outperform 01/10/21   Management "In a study of 855 S&P 500 CEOs appointed over a 20-year period, the researchers found that those with experience in the role consistently underperformed their novice counterparts over the medium to long term. First-timers led their companies to higher market-adjusted total shareholder returns, with less volatility in the stock price. Among CEOs who headed two successive companies, 70% performed better the first time - and for more than 60%, their second companies failed to keep pace with the overall stock market." Children can't live here anymore 01/10/21   World "The consistent policy of the US since the 1930s is to make life harder for successive generations. The unique and unusual growth post-WWII hid that, but declining growth is laying that bare now. Social Security was a very sweet deal then for old folks that has become a very sour deal now for young folks. Defined benefits plans are a thing of the past, replaced by modest encouragements to personal savings using defined contribution plans. And now we see the same in monetary policy, where suppressed interest rates relatively favor those who are older. And, increased indebtedness slows future GDP growth." Capital gains planning to save tax 01/10/21   Taxes "There's a difference between good tax planning, and tax evasion. Claiming your parrot as a dependant won't work, unfortunately. The good news? There are some legitimate planning ideas you might want to consider in the short term. Today, I want to talk about capital gains." The Stingy News Weekly: January 3, 2021 01/03/21   SNW Happy New Year! A gut punch 01/03/21   Momentum "If, still an if, as we hope and expect, value continues to perform well over the next 6+ months, we should see the drag from the other factors greatly lessen and the net, we believe, turn sharply positive." CPP premiums go up 01/03/21   Taxes "For next year, the earnings ceiling, known as the yearly maximum pensionable earnings or YMPE, was supposed to be $60,200, an increase of $1,500 from the 2020 limit. But the actual amount is going to be higher at $61,600." 2020's lessons on risk tolerance 01/03/21   Stingy Investing "The problem is, it's easy for investors to overestimate their tolerance for risk in good times, only to wish they'd been more conservative when losses loom large during a market crash. Similarly, after the markets rebound, they might wish they had been more aggressive in bad times." [$] Asset Mixer Update 01/01/21   Stingy Investing We've updated our Asset Mixer to include nominal data for 2020. Periodic Table Update 01/01/21   Stingy Investing We've updated our periodic table of annual returns for Canadians to include nominal data for 2020. 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