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Exploring Why P/E 10 Works Better In Some Markets Than Others

by: Lawrence Hamtil  on Monday, July 16, 2018

It is well-documented that starting valuations have been found to be highly predictive of subsequent returns, not just in the United States, but in many other equity markets around the world.  One of the more popular valuation metrics for evaluating prospective returns in a given market is the 'cyclically-adjusted price-to-earnings' ratio, or 'CAPE,' developed by Professor Robert Shiller of Yale University.  Essentially, Professor Shiller's model adjusts earnings for inflation, and smooths out the noise in the earnings data by stretching it out over ten full years.   Read More

A Cautionary Tale for Index-only Investors

by: Lawrence Hamtil  on Monday, July 09, 2018

Based on fund flows, indexing is the undisputed investment style of choice these days, and it has much to commend it.  Yet, as I have written before, it is not without its flaws, not least of which is its tendency to have at times heavy concentrations in hot companies and sectors that have recently performed very well.  Given that there are now faint echoes of 1999-2000 in today's S&P 500 index (a good-sized weighting in tech stocks not least among them), I thought it would be worthwhile to revisit here Howard Mark's April 2001 memo, in which he offers a post mortem of the last stages of the tech bubble and its subsequent popping, a comparison that I think yields useful lessons for today's investors.  Marks writes: Read More