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Two Ways 2017 Differs From 2000 and 2007

by: Lawrence Hamtil  on Monday, October 30, 2017

There is a lot of angst these days about the stock market, with the usual suspects calling for a crash that will dwarf those of 2000 and 2007.  The purpose of this article is not again to refute those naysayers, but to show two very important distinctions, - one fundamental, the other technical, - between today's market, and the markets of the two most recent significant peaks. Read More

Valuation Update: Equity Multiples & T-bond Yields Relative to Inflation

by: Lawrence Hamtil  on Tuesday, October 24, 2017

A common theme of this blog has been that valuation data, in order to be useful, should not be looked at in isolation, but rather should be viewed in the context of inflation.  That inflation does matter to equity valuations and bond yields can easily be seen in the chart below, which shows the S&P 500's earnings yield (the inverse of the P/E ratio), the S&P 500's CAPE yield (the inverse of the CAPE ratio), and the 10-year Treasury bond yield versus the rate of inflation.  In the postwar period, particularly since 1960, all four have tracked one another very closely: Read More

The Case for Health Care Stocks

by: Lawrence Hamtil  on Monday, October 16, 2017

Tadas Viskanta over at Abnormal Returns has an interesting symposium today on the topic of what investments might be better investments over the next decade than the S&P 500.  The suggestions made by his featured guests are varied and creative, and they are worth checking out.  However, I would like to add a suggestion or two of my own. Read More

Testing the Small Company Premium at the Sector Level

by: Lawrence Hamtil  on Monday, October 09, 2017

In a previous articled titled, "Learning the Wrong Lessons," I discussed how the small company premium is a real enough phenomenon, but that for it to be realized by investors, portfolios must be sufficiently diversified in order to reduce the extreme risk inherent in small companies.  However, most studies on this subject have examined portfolios of large and small companies only on the basis of random selection, which does not tell us much other than that individual large companies tend to mirror the capitalization-weighted market more closely and with substantially less risk than individual small companies. Read More

A Few Myths Regarding the Dollar and Domestic Stocks

by: Lawrence Hamtil  on Thursday, October 05, 2017

Whenever there is a major move in the value of the dollar, you will likely hear talking heads recommend one adjustment or another to your portfolio, whether it is to compensate for, or take advantage of, the opportunity presented.  For example, because a far greater percentage of revenues are earned overseas by large cap companies, you will likely hear that a tilt toward large caps is warranted when the dollar weakens.  Conversely, when the dollar is strengthening, you will probably hear a recommendation to tilt toward more domestically-oriented small cap stocks.  However, when performing a thorough analysis of past dollar cycles, it is not clear that moves in the dollar really warrant major repositioning within the domestic portion of a portfolio. Read More

Does Equal-Weighting Lead to More Consistent Returns?

by: Lawrence Hamtil  on Tuesday, October 03, 2017

In a previous post, I discussed how equal-weighting the positions in an equity portfolio historically has yielded greater returns than portfolios composed by market capitalization.  Among the reasons for this, I noted, were the benefits of implicit rebalancing, a tilt toward value, and a greater exposure to what is called the "small company premium," which, simply put, is exposure to the excess returns historically generated by smaller firms.   Read More