Practical analysis for investment professionals
13 February 2015

Weekend Reads for Global Investors: Is the Price Right?

Posted In: Weekend Reads

“Is the price right?” astute investors are always asking themselves. This week seems a particularly good time to highlight some of the (mis)pricing situations on the minds of sharp investors.

Apple has just become the first American company to reach US$ 700 billion in market valuation, and Carl Icahn thinks it should be worth almost twice as much. The median price target of 41 analysts is only $133, marginally higher than where the stock is trading now and far short of Icahn’s projection.

I’m not sure who is winning this bet, but it does beg the question: How much is analyst research worth? Thanks to a new EU regulation, we are about to find out the answer, at least in the European Union and likely in the United States. According to the new law, buy-side firms will now have to pay for specific analyst research. The prevailing industry practice has been to pay for research through commissions.

Emerging Market Stocks = Cheap” — Jack Ablin, CFA, CIO at BMO Private Bank, reached this conclusion after looking at relative historical valuations. Has the “Taper Tantrum” created an opportunity for investors? I met Professor Andrew Karolyi at an academic conference in Sydney last December. He is a prominent researcher studying emerging markets, among other things, and I have since written about his latest project, which provides some unique perspective on the subject.

I would be remiss if I did not mention another bet: Warren Buffett vs. Ted Seides, CFA (Protégé Partners). It was a million-dollar bet. Read all about it in Seides’s own account for the Enterprising Investor.

Is the Price Right? 

Emerging Markets

Investing 

  • Robert Hagstrom, CFA, did some simulations to demonstrate “One Way to Beat the Market.” (A Wealth of Common Sense)
  • I alluded to this strategy recently as one of the four mistakes to avoid in “Beating the Market: Four Mistakes to Avoid.” The final answer lies in the confidence one places in the investor. Since we are all predisposed to be overconfident, about either our own investment skills or our skills in picking the great manager, the strategy seems like a risky bet for most. (Enterprising Investor)
  • Jason Zweig of the Wall Street Journal highlights a similar risk in “When Bond Funds Jump the Fence.” It all comes down to knowing yourself as an investor. As a fund manager, do you have the skills to take on that additional risk? As a fund investor, do you have the skills to pick the right fund? Don’t jump the fence unless you are well equipped. (Wall Street Journal)
  • Patrick O’Shaughnessy drills down into a value factor in “The Very Cheapest Stocks (Price/Book) Do Very Badly.” (Millennial Invest)

Economics

The Environment 

  • Striking the right balance between growth and clean air is not as easy as it sounds. “The Cost of Clean Air” (The Economist)
  • In its competition with China for faster economic growth, India has already done too much damage to its air quality. “Airpocalypse” (The Economist)
  • Los Angeles has a spotty history in terms of air quality. And it has still not put the problem behind it. “A Disgusting Day to Breathe in L.A.” (Earthjustice)

And Now for Some Reading Truly for the Weekend . . . 

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Photo Credit: ©iStockPhoto.com/temmuzcan

About the Author(s)
Larry Cao, CFA

Larry Cao, CFA, senior director of industry research, CFA Institute, conducts original research with a focus on the investment industry trends and investment expertise. His current research interests include multi-asset strategies and FinTech (including AI, big data, and blockchain). He has led the development of such popular publications as FinTech 2017: China, Asia and Beyond, FinTech 2018: The Asia Pacific Edition, Multi-Asset Strategies: The Future of Investment Management and AI Pioneers in Investment management. He is also a frequent speaker at industry conferences on these topics. During his time in Boston pursuing graduate studies at Harvard and as a visiting scholar at MIT, he also co-authored a research paper with Nobel laureate Franco Modigliani that was published in the Journal of Economic Literature by American Economic Association. Larry has more than 20 years of experience in the investment industry. Prior to joining CFA Institute, Larry worked at HSBC as senior manager for the Asia Pacific region. He started his career at the People’s Bank of China as a USD fixed-income portfolio manager. He also worked for US asset managers Munder Capital Management, managing US and international equity portfolios, and Morningstar/Ibbotson Associates, managing multi-asset investment programs for a global financial institution clientele. Larry has been interviewed by a wide range of business media, such as Bloomberg, CNN, the Financial Times, South China Morning Post and the Wall Street Journal.

2 thoughts on “Weekend Reads for Global Investors: Is the Price Right?”

  1. MarketFox says:

    Hi Larry,

    Great post. I found some of the posts, particularly the posts on beating the market through concentration and why low price to book investing is a bad idea very interesting.

    Here’s one you might also like, can statistics help us to identify market-beating fund managers?

    http://marketfox.org/2015/01/21/beating-the-market-part-4-can-statistics-help-us-to-pick-market-beating-fund-managers/

    1. Larry Cao, CFA says:

      Thank you for visiting our blog! I’m glad that some of the ideas resonated with you.

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