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Article Archive: 2020

The Stingy News Weekly: July 12, 2020
07/12/20   SNW
This week we have no yield reversal value and more.

Fight the Fed model
07/12/20   Markets
"This has the appearance but not the reality of common sense. The empirical evidence tells us the Fed model has no power to forecast long-term real stock returns. On the contrary: Traditional methods, like examining the market's unadjusted P/E alone, have been very effective."

A world with no yield
07/12/20   Markets
"Around 90% of developed countries have government bond yields of 1% or less. Almost 40% of these countries have negative yields. Rates are low for a reason. We're in the midst of a depression which is a deflationary force and central banks are doing their damnedest to keep rates down to be able to fund all of the government spending and keep borrowing rates low."

Momentum plus long-term reversal
07/11/20   Momentum Investing
"Two of most documented anomalies in the asset pricing literature are the momentum effect and the long-term reversal effect. Momentum is typically defined as the last 12 months of returns excluding the most recent month (i.e., months 2 - 12) because it tends to show a reversal, which some have attributed to microstructure (trading) effects in which securities that have outperformed recently tend to continue to outperform. The long-term reversal effect is typically defined as the returns from month t - 13 to t - 60, in which securities that have outperformed for a long time tend to see a reversal in performance."

Clifford Asness talks value
07/11/20   Asness
"AQR's Clifford Asness on fundamental value with Tobias on The Acquirers Podcast" [video]

Charlie Munger talks
07/11/20   Munger
"Charlie Munger talks at the Redlands Forum" [video]

The Stingy News Weekly: July 4, 2020
07/04/20   SNW
This week we have concentrated G-score momentum reversals and recoveries.

Value in recessions and recoveries
07/04/20   Value Investing
"Value, quality, and small-cap strategies all tend to perform well during recoveries regardless of the catalyst for the bear market and recession."

On the risks of concentration
07/04/20   Stingy Investing
"Investors inspired by Mr. Munger's success should think thrice before buying just a few stocks. Such portfolios tend to either do very well or very poorly, but the odds favour the poor side of the ledger. While performing poorly is unfortunate for billionaires, it can be devastating for those of us of more modest means." [$]

Beyond the zero bound
07/04/20   Value Investing
"Perhaps the most significant conclusion to draw from Japan's experience during ZIRP therefore is not about the special impact of a low-rate environment. As we see it, interest rates were relevant in predicting bond returns and the poor performance of bank stocks, but other asset classes were better predicted by relying on entry valuations and yields."

Partha Mohanram on his glamour G-Score
07/04/20   Growth Investing
"Partha Mohanram is the John H. Watson Chair in Value Investing and Area Coordinator of Accounting at Rotman. He has published extensively in the areas of financial statement analysis, valuation of growth firms, implied cost of capital and executive compensation." [video]

Momentum plus long-term reversal
07/04/20   Momentum Investing
"Combining the alpha momentum and reversal strategies into the blended signal produces a superior return predictive signal, outperforming the individual momentum and reversal strategies."

The Stingy News Weekly: June 27, 2020
06/27/20   SNW
This week we have Grandpa running from broken bonds and more.

The twilight of bonds
06/26/20   Bonds
"But with low, nil, or negative yields, how much can bonds still contribute to a portfolio? Has the QE Kryptonite permanently disabled their superhero powers?"

A top-heavy stock market
06/26/20   Markets
"To this point, charting the performance of stocks following the year they joined the list of the ten largest firms shows decidedly less stratospheric results. On average, these stocks outperformed the market by an annualised 0.7% in the subsequent three-year period. Over five- and ten-year periods, these stocks underperformed the market on average."

Grandpa stocks
06/26/20   Value Stocks
"With a 30% FCF yield, grandpa doesn't have to live another lifetime to add a great deal of value to a portfolio."

Fred Vettese interview
06/26/20   Retirement
"Today, we get into a masterclass on retirement planning with a true expert in the field whose perspectives are distinctly evidence-based, Fred Vettese." [video]

Room to run
06/26/20   Value Investing
"The market today is a tale of two cities. Growth stocks are trading at very rich valuations as their prices have shrugged off any economic effects of coronavirus, whereas value stocks are trading at deeply discounted valuations that reflect significant fear about the pandemic's economic impact."

Broken asset classes
06/26/20   Markets
"In the five years after an asset class was declared broken, each roared back in a strong, and for many, swift rebound. All except one snapped back within one year, generating returns that ranged from 14% for US stocks to 68% for commodities. The sole dawdler, REITs, rebounded in 18 months, ultimately delivering a cumulative 86% return at the five-year mark - the weakest performance of the group."

Hedge fund performance fees
06/26/20   Funds
"Overall, investors collected 36 cents for every dollar earned on their invested capital (over a risk-free hurdle rate and before adjusting for any risk). In the cross-section of funds, there is a substantial disconnect between lifetime performance and incentive fees earned. These poor outcomes stem from the asymmetry of the performance contract, investors' return-chasing behavior, and underwater fund closures."

The Stingy News Weekly: June 20, 2020
06/20/20   SNW
This week we have micro, timing, donuts, and more.

Hertz donut
06/20/20   Stocks
"The stock of Hertz will, with high likelihood, go out at zero. Start with this: the firm has filed for bankruptcy. Stockholders mostly get nothing in bankruptcy. Sometimes they might get a little new stock or some warrants to help them save face, because they are delaying the reorganization, but this is usually a trivial amount of money, and implies a big loss to the stockholders."

Costs kill the overnight anomaly
06/20/20   Markets
"dissecting the data behind this supposed market timing strategy reveals that not only are any excess returns diminished by transaction costs, but the performance relative to buy-and-hold gross of costs has waned over the years."

Micro machine
06/20/20   Stocks
"Maj Soueidan on nano cap investing with Tobias Carlisle" [video]

Standing on the shoulders of giants
06/19/20   Stingy Investing
"He then launched his firm, Tidefall Capital Management, on Jan. 21, not long before the economy ran into the COVID crisis. The subsequent market decline came as bad news to most investors, but Tidefall's hedge fund climbed by a whopping 28.5 per cent from inception through to the end of May." [$]

The Stingy News Weekly: June 12, 2020
06/12/20   SNW
This week we have value, old age, Munger, and more.

Superforecasters
06/12/20   Behaviour
"Talented amateurs who pay attention to both the science and the news seem to be better at putting accurate probabilities on key outcomes in this phase of the crisis"

Old age and the decline in financial literacy
06/12/20   Behaviour
"Households over age 60 own half of the discretionary investment assets in the United States and are increasingly responsible for generating income from these investments to fund retirement. Studies in cognitive aging show that older respondents experience a decline in cognitive processes closely related to financial decision making. We investigate whether knowledge of basic concepts essential to effective financial choice declines after age 60. Financial literacy scores decline by about 2% each year after age 60, and the rate of decline does not increase with advanced age. Results from regressions censored by respondent groups and financial literacy topic areas suggest that the decline is not related to cohort effects or differences in gender or educational attainment. Confidence in financial decision making abilities does not decline with age. Increasing confidence and reduced abilities can explain poor credit and investment choices by older respondents."

5 factor investing tips
06/12/20   Value Investing
"Value, generally represented by portfolios of cheap stocks, holds up well in the analysis. Enterprise multiples and price-to-earnings generate some of the strongest results, however, the practitioner favorite - book-to-market - while able to be replicated, certainly doesn.t yield the strongest results."

Charlie Munger talks
06/12/20   Munger
"Charlie Munger, Stewart Resnick, Dick Ridordan are the legendary investors of our life time. Having these 3 titans in one room to exchange ideas was a privilege for me and an honor to share the conversation." [video]

U.S. economy is in a recession
06/12/20   Economy
"The bureau's Business Cycle Dating Committee - the fat lady of economic opera - said the expansion peaked in February after a record 128 months, and we've been sliding into a pandemic-driven recession since."

The Stingy News Weekly: June 6, 2020
06/06/20   SNW
This week we have value, momentum, the 4% rule, and more.

Improving momentum strategies
06/06/20   Momentum Investing
"The results of going long the best 10% and short the worst 10% for the traditional 12-month momentum strategy are already impressive, but if one selects only the stocks that overlap and appear in both the 12-month and 6-month momentum strategies, it gets even better."

Michael Kitces on the 4 per cent rule
06/06/20   Retirement
"Michael Kitces on early retirement - and how the recent stock market movement affects the FIRE Community and the 4% rule." [video]

Two centuries of value and momentum
06/06/20   Value Investing
"Both Value and Momentum have crawled out of even deeper drawdowns in the past."

The bull market is back
06/06/20   Stingy Investing
"The extra effort paid off in the form of sizzling returns because the hot potato portfolio fried up average annual returns of 15.4 per cent from the end of 1980 to the end of May, 2020. It surpassed the passive potato portfolio by an average of 5.8 percentage points a year." [$]

Behind private equity
06/06/20   Markets
"After fees, investors in private equity funds earn exactly what they would have in public stocks, according to new research. But the high fees have not only created a new billionaire class, they're squeezing private equity-backed companies for unrealistic growth."

Do civilisations collapse
06/06/20   World
"The idea that the Maya or Easter Islanders experienced an apocalyptic end makes for good television but bad archaeology"

The Stingy News Weekly: May 31, 2020
05/31/20   SNW
This week we have volatility, value, flu, economics, and more.

Repetition economics
05/31/20   Behaviour
"I believe repetition is the key to understanding decision making. If you include repetition into the equation, human behavior becomes rational. Biases disappear. They are not needed."

Volatility and value
05/31/20   Value Investing
"Historically, as uncertainty abates, and spreads contract, value outperforms"

Diversification drag
05/31/20   Markets
"Diversification has been a drag on investor portfolios for a number of years now. In a world where one asset class (U.S. large-cap growth stocks in this instance) is far and away the best performer, diversifying into other asset classes or strategies will make you feel silly."

Clarifying book cost
05/31/20   Hallett
"Book Value (BV) or Book Cost is simply the sum of purchases, transaction charges, and reinvested distributions; minus the distributions. return of capital component. This is the same definition of an investment.s adjusted cost base (or ACB). Accordingly, another way to think of BV and ACB is as an average cost of acquisition."

Equity styles and the Spanish flu
05/31/20   Markets
"We study the performance of equity styles during the period around the Spanish Flu pandemic of 1918-1919 and other deep historical market corrections to gain a deeper understanding on the performance of different groups of stocks during crises. We extend the widely used CRSP database with hand-collected data on U.S stocks and examine the major pre-1926 market corrections. We find that low-volatility and momentum tend to reduce losses during sharp market selloffs. By contrast, smaller stocks with high yields (value) offer less protection, but perform well during the recovery phase. Over major market selloffs and subsequent recoveries combined equity styles added value."

Risks of 14 summer activities
05/31/20   Health
"It has been around two months of quarantine for many of us. The urge to get out and enjoy the summer is real. But what's safe? We asked a panel of infectious disease and public health experts to rate the risk of summer activities, from backyard gatherings to a day at the pool to sharing a vacation house with another household." [audio]

The Stingy News Weekly: May 23, 2020
05/23/20   SNW
This week we have markets value, liquid, coffee, innovative, grim, pizza, and more.

The death of a small business
05/23/20   Economy
"Parker had been spending $3,000 a month to keep the shop closed as the pandemic spread. Selling a few cups of 'no touch takeout' coffee on weekends would not be enough to make up those costs, let alone the additional expense of rehiring employees and buying supplies."

Value and interest rates
05/23/20   Value Investing
"We find no evidence that links the size of the value premium to the level of interest rates, and therefore our results do not support assertions that a change in interest rate environment is a necessary condition for value's recovery from the last decade. Neither do our results support assertions that interest rates or the yield curve have been a major driver of value underperformance during the sharp drawdown from 2017 to 2019 or over the past decade."

A good source of income
05/23/20   Dividends
"Stocks may be one of the best sources of income of any asset class. And that income may be more important than ever with bond yields on the floor."

Liquid net worth
05/23/20   Thrift
"Yes, I have heard that '61% of Americans couldn't cover a $1,000 emergency expense directly from savings,' but it is still difficult to know that so many households are struggling to make ends meet."

Pizza arbitrage
05/22/20   Markets
"If capitalism is driven by a search for profit, the food delivery business confuses the hell out of me. Every platform loses money. Restaurants feel like they're getting screwed. Delivery drivers are poster children for gig economy problems. Customers get annoyed about delivery fees. Isn't business supposed to solve problems?"

Grim times for dividend investors
05/22/20   Stingy Investing
"Investors are worried about their dividend stocks. Canadian dividend payers lagged the market in the recent downturn and companies are starting to trim their dividends. But low share prices offer the prospect of reasonable returns to long-term dividend investors." [$]

How innovation works
05/22/20   Tech
"Ridley's new book, How Innovation Works, chronicles the history of innovation and argues that we need to change the way we think about innovation, to see it as an incremental, bottom-up, fortuitous process that happens to society as a direct result of the human habit of exchange, rather than as an orderly, top-down process developing according to a plan." [video]

The Stingy News Weekly: May 16, 2020
05/16/20   SNW
This week we have markets, debt, trend following, flaws, and more.

Debt: the first 5000 years
05/16/20   Books
"Graeber's broader point is that all debt, especially interest-drawing debt, is intimately related to its enforcement mechanism. IOUs don't exist in a vacuum; they're made in societal context. In an economic system where money is fundamentally a unit of trust, the rules around recoupment and enforcement of debts are made in an environment where people generally know each other, so we see recurring features like strong creditor protection and pretty sophisticated dispute resolution. In contrast, when money is a hard, fungible unit of scarcity, enforcement isn't a matter of trust; it's a matter of force. When your enforcement mechanism is state-backed violence, lenders and debtors have a pretty different relationship."

Masks new social norm
05/16/20   Behaviour
"The tipping point for achieving enough critical mass to initiate social change proved to be just 25 percent of participants."

Acceptable flaws
05/15/20   Behaviour
"Life is a little easier if you expect a certain percentage of it to go wrong no matter how hard you try."

Trend following in growth and value
05/15/20   Value Investing
"Value returns appear to be inversely correlated to historic returns: the worse value's recent performance, the higher the expected return. Growth appears to be the opposite: the better the historic return, the higher the expected future return. Value is mean reverting. Growth trends."

Why the market isn't down more
05/15/20   Markets
"Instead, it appears this has been more of a 'risk off rally' with investors rapidly selling the stocks of smaller companies, those with weaker balance sheets and those with economically sensitive business models, and piling into stocks of larger companies, with strong balance sheets and economically defensive business models."

The Stingy News Weekly: May 9, 2020
05/09/20   SNW
This week we have value, flies, masks, death, and more.

Market roulette
05/09/20   Markets
"After all, where else can you find a game that will make you $0.05 a day (in expectation) for every $100 wagered? Where else can you earn $1 a month, or $12 a year, for every $100 at stake?"

The yield curve indicator
05/09/20   Markets
"Cam explained that this indicator - when Treasury interest rates on shorter-term bonds rise above those being paid on longer-dated bonds - has been successful at predicting recessions 7 out of 7 times with zero false signals along the way. This recession means it's now 8 for 8!" [video]

Mask up
05/09/20   Health
"There's compelling evidence that Japan, Hong Kong, and other East Asian locales are doing it right and we should really, truly mask up - fast."

The death algorithm
05/09/20   Government
"If there was ever a subject that required a difficult public conversation, the response to Covid-19 is it. How many people are we willing to let die in order to keep businesses working? And which people will we let die? By creating a secret model to inform such decisions, the Trump administration is taking these questions out of the public and scientific spheres, replacing data-driven ethical debate with a pseudo-mathematical political tool. This is bad news for science, and potentially terrible news for Arizona residents."

The real Lord of the Flies
05/09/20   Behaviour
"It's time we told a different kind of story. The real Lord of the Flies is a tale of friendship and loyalty; one that illustrates how much stronger we are if we can lean on each other."

Value investing is not dead
05/09/20   Value Investing
"We think the medium-term odds are now, rather dramatically, on the side of value, with no 'this time is different' explanation we can find (and we've tested a lot of them!) holding a drop of water and no other period in the 50+ year history matching today."

When the TSX escapes the bear
05/09/20   Stingy Investing
"There were nine occasions when it hit new historic highs as it emerged from bear markets. The index climbed by an average of 11.1 per cent, 23.2 per cent and 34 per cent in the 12-, 24- and 36-months after the new highs." [$]

The Stingy News Weekly: May 3, 2020
05/03/20   SNW
This week we have Buffett, value, small caps, abundance, and more.

Rob Arnott interview
05/03/20   Value Investing
"I had a chance to connect with Research Affiliates Founding Chairman Rob Arnott to talk about his most recent presentation, which deals with the economy, falling stock prices, valuations and the death of value investing." [video]

An anatomy of calendar effects
05/03/20   Markets
"This paper studies the interaction of the five most well-established calendar effects: the Halloween effect, January effect, turn-of-the-month effect, weekend effect and holiday effect. We find that Halloween and turn-of-the month (TOM) are the strongest effects fully diminishing the other three effects to zero. The equity premium over the sample 1963-2008 is 7.2% if there is a Halloween or TOM effect, and -2.8% in all other cases. These findings are robust with respect to transactions costs, across different samples, market segments, and international stock markets. Our empirical research narrows down the number of calendar effects from five to two, leading to a more powerful and puzzling summary of seasonal effects."

When Buffett was a quant
05/03/20   Buffett
"From 1957 to 1969, deep-value stocks went from trading at 3x price-to-cash-flow to over 7x price-to-cash flow, nearing the all-time peak valuation for value stocks. Buffett's return of 24.5% per year in his first decade was a virtually identical result to simply buying the cheapest 10% of stocks in the market (for context, during that decade, this decile of the market was about 75 stocks that averaged about $75 million in market cap)."

The Simon Abundance Index 2020
05/03/20   World
"The Earth was 570.9 percent more abundant in 2019 than it was in 1980."

Berkshire Hathaway AGM
05/03/20   Buffett
"Warren Buffett shares his unscripted views on the company, the markets, the economy, corporate governance, and a lot more." [video]

Tobias Carlisle talks micro
05/03/20   Value Investing
"Q&A with Tobias Carlisle, Acquirer's Fund at the Planet MicroCap Showcase Virtual Investor Conference 2020." [video]

The Stingy News Weekly: April 24, 2020
04/24/20   SNW
This week we have value, dividends, small caps, tailwinds, and more.

Hired to pound the table
04/24/20   Montier
"Montier he has used the 35% sell off last month to urge purchases of cheap equities. He observes that 'Emerging markets were looking really, really cheap' and 'Europe was looking pretty damned exciting as well.' The reason for his enthusiasm was valuation: 'This was one of those examples where prices and fundamentals were getting dislocated.'"

Dividends and inflation
04/24/20   Dividends
"Relative to market prices and earnings, dividends have been the least volatile and exhibited the strongest correlations with inflation"

Investing in bad times
04/24/20   Stingy Investing
"Looking back at the prior 25 years, it is clear that investors benefited from buying stocks in down periods. More than that, they didn't have to time their purchases to perfection to do quite well. Simply buying when others were fearful yielded good results for investors who had the fortitude to hold on through the storms that buffeted them." [$]

The American tailwind
04/24/20   Buffett
"I don't think we'll have a long-lasting Great Depression. I think government will be so active that we won't have one like that. But we may have a different kind of a mess. All this money-printing may start bothering us."

Rally isn't a real recovery
04/24/20   Markets
"In a recovery, value and dividend yield are winners followed closely by small cap securities. High volatility stocks are almost as good as value. In addition, the performance of momentum is lackluster or even negative. Growth and low volatility are losers, according to StyleAnalytics."

Historic opportunity in small caps
04/24/20   Value Investing
"Following extreme periods like this historically, small value outperformed large growth by 16.8% annualized over the following 10 years."

Dan Rasmussen on microcaps
04/24/20   Value Investing
"Dan Rasmussen talks about microcaps and value" [video]

The Stingy News Weekly: April 17, 2020
04/17/20   SNW
This week we have value, vol, momentum, leverage, reversion, and more.

Yesterday's profits
04/17/20   Value Investing
"Unless you were concentrated in extremely high-expectation large growth stocks, we believe it was a very bad call to get out of equities because earnings were forecasted to disappoint."

Cheap winners vs boring winners
04/17/20   Value Investing
"Should investors prefer boring over cheap winners? Based on this analysis, there is no clear answer. The Low Volatility factor had significantly lower drawdowns than Value, but both feature low correlations to Momentum, which creates attractive multi-factor portfolios. Cheap stocks have not performed well over the last decade, but are cheaper, per definition, and low-risk stocks exhibit interest rate-sensitivity."

Until growth goes away
04/17/20   Government
"We can't automatically assume we'll be able to grow out of Covid-19 debt like we did after World War II. A lot of things globally and demographically happened after the war that gave a tailwind to growth. Some of those forces are now headwinds."

Dear fellow investors
04/17/20   Funds
"Let us start by saying that in our entire careers, we have rarely seen an opportunity to add as much long-term value for our investors as we do right now. This isn't to say that we believe that things will start getting better tomorrow, as we have no idea how this situation is going to play out over the next few weeks or months. But we do believe that the long term is what really matters in investing, and our confidence level is much higher for the longer term."

Don't try to catch the bottom
04/17/20   Hallett
"Because our decision to rebalance is never based on our view of the market and when we think the tide will turn. Rather, rebalancing is based on where each client's portfolio sits relative to their target allocations (which in turn are based on generating the target return in each client's wealth plan while adhering to each client's tolerance for risk). Given that the losses so far are about average by historical bear market standards; most portfolios have not yet breached the minimum threshold for their allocation to stocks (or maximum for bonds & cash). But if losses deepen - say to 40% or worse - before a recovery takes hold; it's likely that most clients - if not all - will get triggered for rebalancing."

Day of Reckoning for Private Equity
04/17/20   Markets
"No set of companies across industries is more at risk than those owned by private equity firms. Leveraged buyouts - now euphemistically called private equity - have 'leverage' in their name for a reason. That financial tool works both ways, magnifying returns in good times and punishing results for equity holders when the tide turns."

The Stingy News Weekly: April 12, 2020
04/12/20   SNW
This week we have balance, bonds, bears, value and more.

An economist on epidemiologists
04/12/20   Academia
"Tyler Cowen muses about epidemiologists."

The Bond Offer You Can Refuse
04/12/20   Bonds
"People say that cash has an opportunity cost. But that opportunity cost is a function of what comparable investments can earn. Rarely has cash (without rate risk) had this low of an opportunity cost compared to Treasury bonds (with rate risk)."

Small Cap Value
04/12/20   Value Investing
"You can see the returns coming out of a crisis tend to be far stronger in small value stocks than their large cap brethren. In fact, the numbers have been substantially higher."

Priced In
04/11/20   Value Investing
"In our view, it's buying cheap securities that likely won't experience bankruptcy. In debt, we think the place to do that is higher-quality high yield. In equity, we think the place to do that is deep-value equities that are also statistically unlikely to go bankrupt."

Look to Balanced Bob
04/11/20   Stingy Investing
"Bob's experience should provide investors some solace in these hard times. A simple low-fee balanced portfolio survived despite being launched at the top of the 2000 bubble and suffering from three bear markets. While the current downturn is likely in its early stages, it would have to be truly epic in its size and duration to extinguish Bob's portfolio over the next decade." [$]

The Stingy News Weekly: April 4, 2020
04/04/20   SNW
This week we have indexing, advertising, DCAing, holding, and more.

The path ahead
04/04/20   Management
"Since then, things have slid further and faster economically than anyone could have imagined. As of today, we have been spared what was predicted in the more catastrophic medical forecasts, but what started as theoretical and distant feels dangerous and ever-present. I have two friends-of-friends in the ICU with it, the first COVID-19 death in Missouri was in Columbia last week, and you can't read about what's taking place in NYC and react with anything other than deep concern."

Vanguard investors holding steady
04/04/20   Indexing
"The typical trader is buying equities on the dips, but older, wealthier traders are moving modestly to fixed income. On balance, we believe these levels of trading indicate that the vast majority of investors are maintaining a long-term perspective despite the market turmoil."

Against all odds
04/04/20   Health
"The Winnipeg lab also had been working for years on an Ebola vaccine, one that looked tremendously effective in animal models. The lab had even produced human-grade vaccine in the hopes of testing it in people. But as of April 2014, that still hadn't happened. The vaccine had never been deployed in an outbreak."

Advertising apocalypse
04/04/20   Media
"Nearly three-quarters of those surveyed say the current ad downturn will be worse than the financial crisis in 2008. About a quarter of those surveyed by IAB have pulled all of their advertising through the second quarter. Another 46% are reducing their ad spend for the same period."

When dollar cost averaging matters most
04/04/20   Markets
"Even the contributions that were way too early or way too late in relation to the bottom look amazing in terms of their growth. Those contributions have had longer to run than the more recent purchases but that.s the whole point."

The Stingy News Weekly: March 28, 2020
03/28/20   SNW
This week we have bear markets, innovation, weirdness, bond ETFs, and more.

Buying during a crisis
03/28/20   Markets
"Nevertheless, there is a silver lining for investors who are buyers of equities right now. Every dollar they invest in the current market environment will grow to far more than one invested in months prior, assuming that the market eventually recovers."

How innovation works
03/28/20   Tech
"In this interview, Yaron Brook sits down with Matt Ridley to discuss innovation and the bottom up process which 'flourishes in freedom'." [video]

Prepare for more weird
03/28/20   Markets
"The market going down rapidly is less unusual than it going up rapidly. Typically the speed of down moves is twice as fast as up moves. For the current up moves to be so fast is astounding."

Bond ETFs are being dislocated
03/27/20   Indexing
"The chart below shows us the dislocation between the AGG and its benchmark. Clearly, things became dislocated on March 10th, 11th, 12th, etc."

The hardest part of buy and hold
03/27/20   Behaviour
"The hardest part of a buy and hold strategy is that for it to work as expected, you have to do both the buying and the holding when markets are falling too. It's much easier to both buy and hold when markets are going up."

Buying a bear market
03/27/20   Stingy Investing
"Perhaps most encouragingly, investors who bought at the start of bear markets generally fared well - provided they held on. On average, the market gained 13.3 per cent in the 12 months after moving into bear-market territory and 34.3 per cent over the 24 months from the bear's beginning. Subsequent bull markets usually added a great deal to these gains." [$]

The Stingy News Weekly: March 22, 2020
03/22/20   SNW
This week we have bear markets, valuations, thrift, and more.

After the fall
03/22/20   Markets
"Once stocks fall 20%, long-term returns start to improve with every painful leg lower. This is why it's so important to stay in the game. Nobody ever said you have to have all of your money in stocks, but you can't be all cash either because lower returns today plant the seeds for higher returns tomorrow."

Good decisions in uncertain times
03/22/20   Markets
"Over the full 24-month period, returns remained very strong, with small value earning positive returns in 100% of 24-month periods and having the highest absolute performance of these four categories. Small growth performed the next best, then large value, with large growth being the worst performer."

Letter from Ernest Buffett
03/22/20   Buffett
"For a good many years your grandfather kept a certain amount of money where he could put his hands on it in very short notice. For a number of years I have made it a point to keep a reserve, should some occasion come up where I would need money quickly, without disturbing the money that I have in my business. There have been a couple occasions when I found it very convenient to go to this fund. Thus, I feel that everyone should have a reserve."

Risky returns
03/22/20   Markets
"Many investors are experiencing the real downside of stockmarkets for the first time. Suddenly they're no longer placid, happy holiday resorts where riches gently roll to shore simply by waiting. A volcano has erupted and everyone is running around with their hair on fire stealing each other's coconuts and hoarding pineapples."

U.S. valuation
03/22/20   Markets
"median valuations in the US stock market: large, mid, then small cap"

The right time to buy
03/22/20   Markets
"Our country has experienced World Wars, inflation, deflation, stagflation, financial panics, and everything in between. We have come out of all of these events stronger than ever, and we will do so today. It's going to hurt like hell, but we'll pull through this."

An ill wind
03/22/20   Markets
"In other words, if investors see there's a path to health, they'll gladly welcome financial incentives that provide a path to restoring wealth."

The Stingy News Weekly: March 15, 2020
03/15/20   SNW
This week we have a bear bounce, restaurants, oil, retirement, and more.

Money back after a bear market
03/15/20   Markets
"So investors could be waiting a while before being made whole from the prior peak. But there is a silver lining here if you look at these numbers a different way. The last column in this table shows the gains necessary to be made whole from these different loss levels"

Assessing the oil shock
03/15/20   World
"if we look beyond these short-term jitters, a supply shock like the one we witness at the moment should only be short-lived in nature. Russia will eventually have to fall in line with OPEC quotas at which point, oil prices should rise to the levels we saw last week. In the meantime, the lower oil prices will provide a small benefit to economic growth in developed countries that helps alleviate some of the negative consequences of the Covid-19 epidemic."

Never retire
03/15/20   Retirement
"If you want to live a satisfying, long life, neuroscientist Daniel Levitin has some advice for you: Stay busy."

Decline in restaurant traffic
03/15/20   Economy
"There are some sectors that will be hit hard over the next several months: hotels, airlines, restaurants, movie theaters, sporting events, and convention centers. People will probably avoid these places as part of social distancing."

The downside of UBI
03/15/20   Economics
"UBI can be a hard sell because it is a koan of fairness, activating one's empathy and rage simultaneously. The income is meant to support people who desperately need it, but also to support wealthy hipsters who just don't feel like working. The one hand clapping begins to feel like a slap."

Federal Reserve cuts rates on Sunday
03/15/20   Bonds
"The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent."

The Stingy News Weekly: March 8, 2020
03/08/20   SNW
This week we have viral, generalists, value, momentum, and more.

Naval Ravikant talks about coronavirus
03/06/20   Health
"Scott Adams talks with Naval Ravikant about the coronavirus." [video]

Why generalists triumph in a specialized world
03/06/20   Behaviour
"Join bestselling author David Epstein in conversation with Malcolm Gladwell for an engrossing discussion about Epstein's book, Range: Why Generalists Triumph in a Specialized World." [video]

The valuesburg address
03/06/20   Value Investing
"It is for us the survivors, rather, to be dedicated here to the unfinished work which those who invested in cheap stocks (and the truly fallen who shorted expensive ones) have thus far so nobly advanced."

Who cares what Mr. Market thinks
03/06/20   Markets
"So, with the market down more than 12%, it is like the market is discounting no earnings for the next four years! Nuts!"

Simple and effective
03/06/20   History
"A recent MIT study estimates only 70% of people wash their hands after going to the bathroom. And 50% of those people aren't doing it right. They further estimate that just 1 in 5 airport travelers has clean hands. If we were able to simply bump that number up from 20% of travelers to 60%, that could potentially slow the spread of disease by nearly 70%. Even 30% of travelers with cleaner hands could reduce the impact of a disease by nearly one-quarter."

How to respond to COVID-19
03/06/20   Health
"In the past week, COVID-19 has started to behave a lot like the once-in-a-century pathogen we've been worried about. I hope it's not that bad, but we should assume that it will be until we know otherwise."

Momentum down
03/06/20   Stingy Investing
"Signs of a serious decline can be gleaned from the behaviour of momentum stocks, which often act like canaries in the market's coal mine." [$]

The Stingy News Weekly: February 28, 2020
02/28/20   SNW
This week we have Buffett buying, flexible retirement planning, taking a chill pill, and more.

Don't lose it
02/28/20   Baheviour
"if you were going to design a laboratory experiment to test investors' mettle, this past week would provide a nearly perfect template. Think about it: We have a virus without a vaccine that's spreading rapidly - but nobody knows how rapidly - which is damaging the global economy - but nobody knows how badly - at a time when many U.S. stock investors were already anxious after an extraordinarily long bull market that has pushed valuations to worrisome levels."

There is always enough time to panic
02/28/20   Behaviour
"Six business days ago, my estimate of future stock returns over the next ten years was 2.21%/year, the lowest I have ever seen it (and a new all-time high for the stock market). Today it is 4.40%/year. Quite a move. Also in the quite a move department is the 10-year Treasury note, whose yield went from 1.56% to 1.23%, a new all-time low."

2 hours of Buffett
02/28/20   Buffett
"CNBC's full interview with Berkshire Hathaway CEO Warren Buffett"

A more generous strategy
02/28/20   Stingy Investing
"Prof. Gagnon prefers his own 'variable percentage withdrawal' method instead. The basic idea is to figure out how much to take out of a portfolio over a set number of years, assuming long-term historical growth rates for a particular asset mix. The amount taken out each year varies both as the value of the portfolio changes and as the retiree gets older."

You will likely get the coronavirus
02/28/20   Health
"Most cases are not life-threatening, which is also what makes the virus a historic challenge to contain."

The Stingy News Weekly: February 22, 2020
02/22/20   SNW
This week we have Buffett's letter, small value, passive distortions, leverage, and more.

Berkshire Hathaway letter
02/21/20   Buffett
"Over time, we want Berkshire's share count to go down. If the price-to-value discount (as we estimate it) widens, we will likely become more aggressive in purchasing shares. We will not, however, prop the stock at any level." [pdf]

Dan Rasmussen interview
02/21/20   Value Investing
Dan Rasmussen talks private equity and value [audio]

Distorting the market
02/21/20   Markets
"On this week's episode, we speak to Mike Green of hedge fund Logica Capital, who argues that the trend is causing major market distortions that will eventually unwind with ugly consequences." [video]

Venial sin punished quickly
02/21/20   Value Investing
"The point is a simple one. Value has started 2020 with an extremely severe loss versus very long-term history, and, defined in a wide variety of ways, the worst loss yet (examining all of the same 6-week length periods) over the entire long 2010-2020 value drawdown."

I don't know
02/21/20   Behaviour
"It's easier to gain more respect for someone who speaks honestly and is humble enough to admit that they don't know the answer in the face of a tough or sometimes even simple question."

Equity returns don't compensate for risks
02/21/20   Markets
"If this doesn't give you pause, then you either haven't understood finance theory or these results. They are a direct contradiction of the most basic premise of finance and indicate that we get something fundamentally wrong about finance"

Levered long
02/21/20   Markets
"Stocks and bonds both have positive expected returns, so I understand why a young person with a high risk tolerance would find this appealing. But after looking at the numbers, it probably doesn't make sense to do it with your entire portfolio, if at all. It requires constant monitoring, and an iron stomach. Leverage can turbo charge your returns, but it can also wipe them out if you're not careful."

The Stingy News Weekly: February 15, 2020
02/15/20   SNW
This week we have Charlie, crashes, pandemics, and more.

Charlie Munger AGM
02/15/20   Munger
"Investing legend Charlie Munger, Berkshire Hathaway vice chairman and chairman of the Daily Journal, speaks to shareholders at the newspaper's annual meeting. Munger is best known for his steady role as the right-hand man of investing legend Warren Buffett." [video]

Crisis investing
02/15/20   Value Investing
"We have spent the past year studying every financial crisis in the US since 1970. We have done this work for your benefit, so that you will keep your head when all about you are losing theirs. When weak hands fold, when forced sellers liquidate, we hope this research will help you make good decisions."

Great to gone
02/15/20   Markets
"Success often contains the seeds of its own destruction, and not just when it comes to family fortunes."

Historical value
02/15/20   Value Investing
"While they may not have been known by the same names, many modern investment factors have historical roots stretching back centuries."

Sequence risk
02/15/20   Retirement
"Sequence risk is the risk that investment returns happen in an unlucky order. It can make or break portfolios"

Epidemics and market returns
02/15/20   Markets
"A global pandemic that killed 3% of the Earth's population only sent markets down 10% over a period of 4 months. This is a stunning result. The worst virus since the bubonic plague and markets go through a run-of-the-mill decline? I would not have guessed that beforehand."

The Stingy News Weekly: February 7, 2020
02/07/20   SNW
This week we have liquidity, wagers, lies, heresies, and more.

A personal finance lie
02/07/20   Thrift
"the biggest lie in personal finance is that you can be rich if you just cut your spending."

Liquidity and factor returns
02/07/20   Value Investing
"We observe that the performance of the factor decreased consistently as the minimum liquidity constraints increased. This result can be explained by cheap stocks frequently being small stocks, i.e. having exposure to the Size factor. Removing these small and cheap stocks led to lower factor performance."

The temptation of cash
02/07/20   Markets
"How long do you usually have to wait before you would reach the absolute lowest price for any given trading day? The median amount of time before hitting an absolute low is 184 trading days (~9 months), but the average is 508 trading days (~2 years)."

The wager revisited
02/07/20   Buffett
"The best yardstick for success isn't whether you beat a benchmark, or your neighbor, or your brother-in-law. Instead, the best measure of success is whether you meet your financial goals - while also sleeping at night."

Five investing heresies
02/07/20   Markets
"Dan Rasmussen proceeds to knock down five investing heresies" [video]

The Stingy News Weekly: February 1, 2020
02/01/20   SNW
This week we have bond addicts, cubicles crack heads, misspelled buffetts, and more.

Investors are hooked
02/01/20   Bonds
"If high-yield bonds were the OxyContin of private equity's debt binge, private credit is its fentanyl."

The open-office trap
02/01/20   Management
"He found that, though open offices often fostered a symbolic sense of organizational mission, making employees feel like part of a more laid-back, innovative enterprise, they were damaging to the workers. attention spans, productivity, creative thinking, and satisfaction. Compared with standard offices, employees experienced more uncontrolled interactions, higher levels of stress, and lower levels of concentration and motivation."

The boomer blockade
02/01/20   Economics
"This blockade is both a literal blockade, stopping people from reaching the senior-most levels of organizations and institutions, and a figurative blockade, holding people back from finding meaning from new narratives and myths of success in life and at work."

Baby boomers took their children's future
02/01/20   Economics
"The post-war baby boom of 1945-65 produced the biggest and richest generation in British history. David Willetts discusses how these boomers have attained this position at the expense of younger generations." [video]

VAH:Value vs Glamour
02/01/20   Value Investing
"How HEI ran 47,500%; Anti-FOMO Starter Size Rules; and Value vs Glamour" [video]

The economics of buffets
02/01/20   Business
"Like most restaurants, buffets operate on extremely thin margins: For every $20 in revenue, $19 might go toward overhead, leaving $1 (5%) in net profit."

The Chick-fil-A franchise
02/01/20   Business
"Food is the most competitive industry known to man: It has the highest investment level of any industry, the highest failure rate, and the lowest margins."

The Stingy News Weekly: January 24, 2020
01/24/20   SNW
This week we have real data for the Asset Mixer, bubbles, bonds, couch potatoes, and more.

50 years of industry data
01/24/20   Markets
"of the forty-eight industry portfolios considered on a value-weighted or market capitalization basis, only six boasted a higher Sharpe than the broad market: Smoke, Food, Beer, Guns, Drugs, and Utilities."

Down on the farm
01/24/20   Fun
"A stable of lesser known speculative manias including Japan's rabbit mania, poultry fever and the ostrich feather boom."

Dan McMurtrie talks to Tobias Carlisle
01/24/20   Markets
"Daniel McMurtrie, better known as FinTwit's @Supermugatu, runs a long/short hedge fund, a Bangladeshi venture fund and wrote the modern 95 Theses for millennial daters: The Dating Market" [video]

Bonds, bubbles, and biases
01/24/20   Bonds
"The single best predictor of future bond returns is their starting yield. The lower the starting yield, the lower the future returns."

Asset Mixer Update
01/24/20   Stingy Investing
We've updated our Asset Mixer to include real data for 2019.

Periodic Table Update
01/24/20   Stingy Investing
We've updated our periodic table of annual returns for Canadians to include real data for 2019.

Increasing risks of loan funds
01/24/20   Hallett
"The appeal of bank loans as investments is two-fold: i) they offer mid-to-high single-digit yields (because borrowers are higher risk); and ii) they typically bear a floating interest rate so they.re immune to often-feared higher rates. But bank loans differ from high yield bonds in important ways."

2020 Couch Potato Model Portfolios
01/24/20   Indexing
"ETFs still aren't right for everyone, but the launch of 'one-fund portfolios' (also called asset allocation ETFs), combined with the low- and no-commission trades at several brokerages, have made them more appropriate even for small portfolios. For the vast majority of DIY investors, I believe these one-ticket solutions are the best way to build a diversified portfolio that balances low cost with ease of maintenance."

The Stingy News Weekly: January 17, 2020
01/17/20   SNW
This week we have value, predictions, allocations, and more.

Age-invariant asset allocation
01/17/20   Retirement
"In the present environment, the stock market is poised to deliver 2.52%/year over the next ten years. You can do better with an investment-grade portfolio of bonds."

Value's death exaggerated
01/17/20   Value Investing
"Over the last 12 years, the relative valuation of value and growth moved from the 21st percentile to the 97th percentile. This revaluation explains most of value's underperformance. Today, the relative valuation level is close to the most attractive valuation level in history at the peak of the tech bubble in 2000."

VAH: Akre
01/17/20   Value Investing
"S02 E02 Akre Never Sells, What Buffett Should Buy and Damodaran's Market Delusion" [video]

An inevitable market downturn
01/17/20   Stingy Investing
"There were 138 separate downturns in the S&P 500's inflation-adjusted record, based on Prof. Shiller's data. About 36 per cent of them lasted for one month and 67 per cent of them lasted for three months or less before the market moved up to new highs." [$]

O'Shaughnessy Q4 2019 letter
01/17/20   Value Investing
"our updated in-house 10-year point estimate for the U.S. market's nominal total return fell during the year, and now sits at ~1.5% annualized, which would mean a ~16% total return over the next decade."

The Stingy News Weekly: January 10, 2020
01/10/20   SNW
This week we have rebalancing, value, not selling, and more.

Rebalancing frequency
01/10/20   Markets
"My prior with most market-based analyses is that the patterns we observe are just noise and randomness. Given the conclusions found from those who have studied rebalancing previously, I am inclined to believe that this is true in this case as well."

Value's underperformance
01/10/20   Value Investing
"Critics of value investing have declared the death of value. However, the empirical analysis suggests it is unlikely because the size of the current drawdown, while painful, is not an outlier, and the pre- and post-2007 data suggest there have been no statistically significant changes in the two drivers of the value premium - migration and profitability. The simple explanation for value's underperformance is the relative increase in the valuations of growth stocks."

The art of not selling
01/10/20   Markets
"Of our most costly mistakes over the years, almost all have been sell decisions. The mistake, in virtually every instance, has been selling too soon."

The Stingy News Weekly: January 3, 2020
01/03/20   SNW
This week we have updates to the Asset Mixer and Periodic Table for Canadians, dividends, declines, optimism, and more.

How things go viral
01/03/20   Media
"Derek Thompson stops by The Compound to discuss how and why things go viral with Barry and Michael. Derek is a staff writer at The Atlantic and author of 'Hit Makers.'" [video]

What a time to be alive
01/03/20   World
"The difference between an optimist and a pessimist isn't usually over substance. It's the time frame they're looking at. Problems are easier to spot today, but progress is almost always more powerful over time."

The long suffering
01/03/20   Markets
"We know that stocks are risk assets, and that U.S. government bonds, specifically one-month T-Bills, are often referred to as risk-free assets. But the absence of risk can be very costly if your goal is to outpace inflation, which is why we take risk in the first place. Looking at this chart, one should conclude that risk-free is not only reward-free, but its the epitome of risk."

The power of reinvesting dividends
01/03/20   Stingy Investing
"The relative gains highlight the potential benefits of dividend reinvestment. The boost is so compelling that most investors like to use total returns rather than capital gains when studying the market." [$]

Asset Mixer Update
01/03/20   Stingy Investing
We've updated our Asset Mixer to include nominal data for 2019.

Periodic Table Update
01/03/20   Stingy Investing
We've updated our periodic table of annual returns for Canadians to include nominal data for 2019.

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