Top 5 of the Week of September 3
Jack Forehand from Validea heads up our Top 5 this week with a look at the traps in value investing. For Mayport Wealth Management, Adam M. Grossman considers investors making prescient calls about the future. And Nicolas Rabener, writing for Enterprising Investor, asks if the Fed model makes a good valuation tool.
From Pension Partners, Charlie Bilello examines crowding in tech stocks. And Barry Ritholtz, Chairman & CIO of Ritholtz Wealth Management, reveals what really ends a bull market…
The Pitfalls of Value Investing
- As a value investor, it’s assumed that you just buy cheap stocks and the market will eventually adjust to affirm your inspired purchases
- The real world isn’t like that though; many stocks are priced cheaply because they are “value traps” and they deserve to be, not because they’re a diamond in the rough
- The problem is that methods which attempt to avoid these traps can result in investors missing out on those that are good investments
The Difference Between Heeding Prophecies and Observations
- While self-proclaimed fortune tellers like Nostradamus are not worth listening to, there are prescient people whose observations—not prophecies—might be worth taking note of
- There are some such individuals today who observe that the market has rarely been more expensive than it is at the moment in history
- So, it’s likely that the market will correct itself, but who knows when—in fact, it may even get more expensive first—so don’t try to time it but do protect your nest egg through asset allocation
Whose observations do you listen to? Share your comments in the section below
Are You a Believer?
- If you’re a Fed model believer, then you trust that you can use bond yields as a level to assess if stocks are over- or undervalued
- At the moment, the Earnings Yield is above the 10-Year Treasury Yield which is why many suggest that stocks are still undervalued—and attractive accordingly
- But, data shows that cheap stocks will yield above-average forward returns, while expensive stocks will produce below-average forward returns—regardless of where bond yields sit
The Long Shadow of Tech Stocks
- The shadows of the dot-com bubble are long stretching and cause many investors to beware technology stocks inspite of their positive performance
- The current situation isn’t as alike the early 2000s as investors seem to think, the gains of today’s tech stocks are much more temperate than the rapid leaps back then
- Metrics show that crowding, however, is currently on par with that point though and while it’s not negative to a sector it’s worth keeping an eye on multiple signals to assess portfolio risk
Age Is Only a Number
- Bull markets don’t just wither and die with old age, and the length of the bull market is not what you should be looking at
- It’s important, instead, to know why it should concern you as an investor how long a bull market is
- Don’t buy into the idea that there is a “magic sell-by date” on bull markets, you can get tricked into selling equities that way and missing out on potential gains
Top 5 of the Week is a summarized collection of financial investment articles that we like and think you might like too. Having written thousands of pages of equity strategy and company research between us, we understand the allure of the ever-changing world of finance. Investing is an art form—and like everything, something you can work on and improve at. There are some excellent writers out there on the finance web, some offer a running commentary on today’s market, some are doing research, some have tips on how to Become a Better Investor, and some just lift the cloud of fog behind a lot of financial jargon. Each week we will keep you up to date with the top 5 articles worthy of your attention.
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