Weekend Reads for Investors: Fama, Forecasts, and the CAPE Debate
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
- Research Affiliates’ Jason Hsu on the challenges of year-end forecasting. (Research Affiliates)
- Byron Wien is back with his ten surprises of 2014. (Blackstone)
- Investing legends Ed Hyman and Bill Miller share their outlooks for 2014. (WealthTrack)
High Profiles
- “The Obsession of John Paulson” (aiCIO)
- Bethany McLean profiles Marissa Mayer, Yahoo’s geek goddess. (Vanity Fair)
Equity Research
- Big data and the future of equity research. (Tabb FORUM)
- Is sell-side research more valuable in bad times? (Editorial Express, Word doc)
- According to Roger Lowenstein, Dick Bove’s new book defending big banks is long on straw men and conspiracy theories. (New Republic)
CAPE Debate
- “Fixing the Shiller CAPE: Accounting, Dividends, and the Permanently High Plateau” (Philosophical Economics)
- “Does the CAPE Still Work?” (Hussman Funds)
- “A Counterpoint to Philosophical Economics’ Thoughtful Blog on the Shiller CAPE” (Minyanville)
- “When a Good Indicator Goes Bad” (Morningstar, registration required)
Emerging Markets
- Not everyone is negative on emerging markets: EMs have room to boom. (Financial Times)
- “Value Stocks Beckon in Emerging Markets” (Context)
Bad Actors
- The real Wolf of Wall Street: Forbes’ original takedown of Jordan Belfort. (Forbes)
- “What Have We Become? The Wolf of Wall Street vs. It’s a Wonderful Life” (Inside Investing)
- “To Catch a Trader” (Frontline)
- Is Steven Cohen oblivious to insider trading law? (Bloomberg)
The Lighter Side
- “Making Fun of Quantitative and Fundamental Investors” (Turnkey Analyst, video)
- “An electron and a positron walked into a bar . . . ” Scientists favorite jokes. (The Guardian)
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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