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The Remarkable Resilience of the Refining Industry

by: Lawrence Hamtil  on Thursday, September 27, 2018

Last summer, I wrote an article about lasting moats, describing certain industries that I think are characterized by durable moats that insulate the incumbents against not just competition, but also against major technological disruption.  Along with the tobacco, railroad, and airport industries I would like to add oil and gas refining. Read More

Valuable Lessons from Peter Lynch

by: Lawrence Hamtil  on Tuesday, September 11, 2018

Peter Lynch is one of the most celebrated fund managers in history, managing Fidelity's Magellan fund with such skill that its return was almost double that of the S&P 500 over the  period spanning 1977 - 1990.  Multiple analyses have been performed with the purpose of deconstructing and explaining Lynch's success (see AQR here and Daniel Sotiroff here), and the conclusion seems to be that higher beta (i.e. more risk than the overall market), momentum, and size were among the primary sources of Magellan's amazing performance.   Read More

The Inflation Advantage of Equal-Weight

by: Lawrence Hamtil  on Tuesday, August 28, 2018

I have written favorably several times before about the advantages of equal-weighted portfolios, and it is worth reminding readers that going back to 1990, the S&P 500 Equal-Weight index has not suffered a single negative 120-month return, which stands in stark contrast to the capitalization-weighted parent index, which experienced several negative 120-month periods around the time of the financial crisis: Read More

This Tech Cycle Has Not Been Like Any Other

by: Lawrence Hamtil  on Monday, August 20, 2018

Over the last few years, I have highlighted a few flaws which I see in index-only investing (see here, here, and here).  Chief among those flaws, as I see it, is that the index tends to overweight expensive sectors and companies at the expense of cheaper ones, thus inhibiting somewhat the performance of the portfolio.   Read More

Why You Should Not Bet On (High) Beta

by: Lawrence Hamtil  on Thursday, August 09, 2018

One of the more fascinating theories in behavioral finance is the "theory of leverage aversion," which, simply put, is the notion that investors who cannot or do not wish to add leverage to their portfolios (in order to magnify returns) instead do the next best thing, which is to load up on stocks with high beta.  In rough terms, a high beta stock is one with higher-than-average volatility than the overall stock market, but also therefore a higher chance of outperforming the market by delivering outsized returns, something researchers have come to call "lottery stocks."   Read More

A Min Vol - Momentum Barbell for Overseas Markets

by: Lawrence Hamtil  on Monday, August 06, 2018

A few months ago, I wrote about the compelling case for pairing minimum volatility with momentum strategies in a "barbell" approach.  The idea, in a nutshell, was to create a 50-50 portfolio of Minimum Volatility & Momentum (rebalanced annually).  This balancing of two extremes would help limit the extremes experienced by each factor portfolio during certain cycles (think the tech bubble and its aftermath for momentum), making the ride much smoother for investors by reducing long periods of underperformance.   Read More

Signals of Warning vs Signals of Opportunity

by: Lawrence Hamtil  on Tuesday, July 31, 2018

As Sam Lee has written, valuation in isolation can be a poor tool for making portfolio allocation decisions.  However, when paired with a less quantifiable - though no less real - measure such as investor sentiment, valuation-based timing can be powerful.  Consider the cases of two industries, which began the current millennium in utterly different circumstances:  telecommunications, which in March of 2000 was at its apex in terms of share of stock market capitalization and investor appetite, and tobacco, which was widely shunned by the investment community, the result of government lawsuits against the industry. Read More

Additional Perspective On Value vs Growth

by: Lawrence Hamtil  on Friday, July 27, 2018

Last year, I discussed why I thought the narrative about value lagging growth was overdone, if not misguided.  As a follow-up to that post, I wanted to provide some additional data, which I believe lend perspective to this discussion.   Read More

S&P 500: Why Sector Divergences from the Index Should Not Concern You

by: Lawrence Hamtil  on Tuesday, July 24, 2018

Recently, I have seen a few analysts raise concern over how narrow the S&P 500's performance has been when considering sector participation in the year's advance.  While it is true that as of the end of June only five S&P 500 sectors have so far registered positive total returns for 2018, - tech, consumer discretionary, energy, healthcare, and utilities, - it is also true that this is more noise than signal. Read More