Feeds:
Posts
Comments

Brilliant CFA interview with C. Thomas Howard on behavioral investing. Howard takes an unconventional approach, but there is some solid research backing up his process:

What are the five criteria?

One is dividends; we buy stocks that pay dividends. Companies that pay dividends are saying to the market, “We believe we have earnings into the foreseeable future.” It’s a powerful signal. It’s putting your money where your mouth is. In identifying behavioral price distortions, I look for situations where people are putting their money where their mouth is.

Analyst earnings estimates are the second factor. Based on the forward P/E, analysts are saying they believe there’s enough future earnings to justify the current price. Now I have two opinions on the company—management’s opinion and the sell-side analyst’s.

Third, I want companies with as much debt as possible. If I find one with negative net worth, I’m thrilled. Now, when most people hear that, their lip curls and they say, “That’s bad.” The reason debt is attractive is because the underwriter or the bank worked closely with the company and decided they could make the loan and the firm would repay it. I’ve now got a commitment from three sides—again, people putting their money where their mouth is, saying, “Yes, we believe in this company.” The greater the debt, the better I like it.

Then, I use a price-to-sales ratio. Sales are the least manipulated of accounting measures and have been shown to be one of the best predictors. And I have a minimum sales threshold. Those are my five criteria.

Aren’t these basic balance sheet metrics rather than distortions?

They are distortions. Investors tend to underreact to dividends; they don’t realize how powerful a signal it is. The typical response to dividends is a downgrade of growth prospects. It turns out it’s just the absolute opposite of that—the higher the dividend, the higher the return, the higher the growth of the company. Investors also tend to overreact to debt. If a company has lots of debt, they tend to run away from it. I’m harnessing these particular behavioral mistakes.

What names do you hold in your portfolio?

I don’t know the names of the stocks I own.

Really? Are you serious?

I’m serious.

How does that work on an operational basis?

I have to know them long enough to tell our traders to trade them, but beyond that, I don’t remember the names. The reason is a component of my process. I ruthlessly drive emotion out of my decision process. I make no attempt to remember names any longer than it takes for me to say, “Trade this stock.” I just don’t remember. Now, I do look at them from time to time. They’ll float through my brain, but it’s nothing that I keep track of.

Why should I remember the name of a stock? It’s not part of my process. I believe the name of a stock creates emotional problems. You could wipe out the name and call this stock “123.”

Are you saying you don’t place importance on names, or are you actually saying you don’t remember the names?

I literally don’t know the name. I cannot name the 10 stocks that I currently own.

Read the rest of C. Thomas Howard’s interview with the CFA Institute Magazine on behavioral investing.

Buy Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (hardcover or Kindle, 240 pages, Wiley Finance) from Wiley Finance, Amazon, or Barnes and Noble.

Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.

Click here if you’d like to read more on Deep Value, or connect with me on Twitter, LinkedIn or Facebook.

About these ads

I conducted an interview with Harvest and its community, and it has posted to my Harvest miniblog. Click the picture below or go here to read the interview.

Harvest Interview

Read the Harvest interview here.

Buy Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (hardcover or Kindle, 240 pages, Wiley Finance) from Wiley Finance, Amazon, or Barnes and Noble.

Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.

Click here if you’d like to read more on Deep Value, or connect with me on Twitter, LinkedIn or Facebook.

Five Good Questions

Jacob Taylor’s new project, Five Good Questions, launched a few weeks ago. It’s a great concept. Jacob asks authors five good questions about their book and delivers the interview to your inbox every Friday. He’s lined up some very interesting thinkers in finance and investing. The link to my interview, which posted Friday, is below:

5GQ

Sign up to receive Jacob Taylor’s Five Good Questions here.

Buy Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (hardcover or Kindle, 240 pages, Wiley Finance) from Wiley Finance, Amazon, or Barnes and Noble.

Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.

Click here if you’d like to read more on Deep Value, or connect with me on Twitter, LinkedIn or Facebook.

Earlier today I was on Bloomberg Radio’s Taking Stock with Carol Massar, Jim O’Shaughnessy and Patrick O’Shaughnessy talking about opportunities in global deep value stocks.

Here’s the .mp3 of Taking Stock:

Buy Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (hardcover or Kindle, 240 pages, Wiley Finance) from Wiley Finance, Amazon, or Barnes and Noble.

Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.

Click here if you’d like to read more on Deep Value, or connect with me on Twitter, LinkedIn or Facebook.

Carl Icahn’s An activist manifesto for The Economist:

In August 2013, I tweeted to my followers that we believed Apple was “extremely undervalued”.Since then Apple’s stock price has increased by over 50%. The Economist has asked me to write 850 words of advice on what the investor should do to profit in 2015. At the risk of being a bit facetious, I would say: become a Twitter follower and read my future tweets!

On a more serious note, in reply to The Economist’s question I believe that, even at today’s prices, Apple stock is greatly undervalued. Why? The answer is a pervasive misunderstanding among investors and Wall Street analysts: they think Apple is a hardware company when in reality it’s a company that sells an entire ecosystem of hardware, software and services. Once a consumer buys a single Apple device, thereby entering its ecosystem, they often increase their exposure to it through incremental Apple products. Then, when the time comes for them to replace their device, they tend to stay with Apple rather than switching to a competitor, which is the consumer behaviour suffered by simple hardware companies when what they sell is viewed as a commodity. We have written a letter to Tim Cook, the CEO, expressing our views (it can be seen on our website: shareholderssquaretable.com).

If you had purchased stock of IEP, our flagship company, at the start of 2000 you would have had an annualised return of 21.5% compared with the s&p500’s 3.8%; and if you had bought IEP on April 1st 2009 you would have had 33.8% compared with the s&p500’s 20.4% (counting in each case up until September 30th 2014). Even more telling is the return of a person who invested in 23 companies whose boards our appointees joined between January 1st 2009 and June 30th 2014; if the person invested in each company on the date that the nominee joined the board and sold on the date that the nominee left, they would have obtained an annualised return of 27%. 

Read An activist manifesto.

I examine Icahn’s investment strategy in depth in Deep Value.

Buy Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (hardcover or Kindle, 240 pages, Wiley Finance) from Wiley Finance, Amazon, or Barnes and Noble.

Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.

Click here if you’d like to read more on Deep Value, or connect with me on Twitter, LinkedIn or Facebook.

Joel Greenblatt chats with Consuelo Mack on WealthTrack about abandoning special situations for the Magic Formula.

I delve into the Magic Formula in Deep Value with some surprising findings.

h/t Patrick O’Shaughnessy.

Buy Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (hardcover or Kindle, 240 pages, Wiley Finance) from Wiley Finance, Amazon, or Barnes and Noble.

Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.

Click here if you’d like to read more on Deep Value, or connect with me on Twitter, LinkedIn or Facebook.

Bruce Greenwald, Robert Heilbrunn Professor of Finance and Asset Management, Director of the Heilbrunn Center for Graham and Dodd Investing at Columbia Business School, and author of the excellent Value Investing: From Graham to Buffett and Beyond delivered a presentation to the 12th International Post Keynesian Conference Wednesday September 24, 2014. He had some interesting comments on deep value investing cued up at 17.30 below:

h/t John at Shadowstock.

Buy Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (hardcover or Kindle, 240 pages, Wiley Finance) from Wiley Finance, Amazon, or Barnes and Noble.

Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.

Click here if you’d like to read more on Deep Value, or connect with me on Twitter, LinkedIn or Facebook.

Follow

Get every new post delivered to your Inbox.

Join 6,367 other followers

%d bloggers like this: