Practical analysis for investment professionals
17 January 2014

Weekend Reads for Investors: Fama, Forecasts, and the CAPE Debate

Posted In: Weekend Reads

Perhaps not surprisingly, global equity markets have gotten off to a rather sluggish start in 2014. Emerging market stocks continue to lag, while European markets, up slightly, lead developed markets. In the United States, stocks have met little resistance since experiencing a 19% correction (from which they quickly rebounded) in the summer of 2011. Since World War II, US stocks have seen corrections of 10% or more, on average, every 18 months. This may be cause for concern for some investors. And with valuation multiples stretched, corporate earnings are also undoubtedly on the minds of investors. Cost cutting and share repurchases helped drive profits higher over the past year, with buybacks at their highest level since 2007. It is hard to see earnings, and stock prices for that matter, moving meaningfully higher without stronger top-line growth. Absent accelerating economic activity, revenue growth may prove to be a significant challenge for companies in 2014.

Here are some stories that caught my eye over the past few weeks.

Strategic Thinking

  • Third Avenue Fund’s Martin Whitman criticizes the work of Eugene Fama as “sloppy” and “unscholarly” in his annual letter to shareholders (Third Avenue Funds, PDF), prompting a swift defense from a Fama ally (Index Universe).
  • Richard Bernstein challenges the notion that there’s an equity bubble. (Richard Bernstein Advisors)

Forecasting Follies

High Profiles

Equity Research

CAPE Debate

Emerging Markets

Bad Actors

The Lighter Side

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, was director of member and corporate products at CFA Institute and served as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

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