Word's for the week preparedness and patience.
"It usually takes me two or three days to prepare an impromptu speech." Mark Twain
"It is not often that a man can make opportunities for himself. But he can put himself in such shape that when or if the opportunities come he is ready." Theodore Roosevelt
"The secret of success in life is for a man to be ready for his opportunity when it comes." Benjamin Disraeli
"The key to everything is patience. You get the chicken by hatching the egg, not by smashing it." Arnold H. Glasow
"Opportunity doesn't make appointments, you have to be ready when it arrives." Tim Fargo
"Your responsibility to be ready for the fight, never ends." James Yeager
"Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish." John Quincy Adams
"Chance favours the prepared mind." Louis Pasteur
"He that can have patience can have what he will."
"Be Prepared"; this is the Boy Scout Motto! Oh yes, I was a boy scout. It was a great way to learn about responsibility, service and preparedness.
I was nominated to become part of "Order of the Arrow". In order to become officially part of that order, I had to stay out in a wooded state park for a weekend with other initiates. We could only have two matches, some food, a knife and a sleeping bag and a back pack with some clothes.
That was one cold late October weekend that I will remember. It did teach me that I could make it, with a minimal amount of resources and to rely on others in a team effort.
As an Investment manager I am always reviewing, studying and analyzing.
Investing is a game of preparing and patience.
There are times of extreme overconfidence and extreme fear that steer the investment landscape away from fundamental realities.
Nervousness or speculation are dangerous postures when making investment decisions.
The last two years there have been developments that may be coming to a point where you may not have be prepared for, or if you have prepared you might be losing patience.
The Stock market has been going up and up with little concern, yet this is at some point unsustainable.
Unless we are patient and prepared we might get caught up in the noise and not hear the real message.
In the Business Insider August 5th, 2014 Henry Blodget wrote a piece titled "Now It's Time To Think About What Will Happen When Companies Stop Buying Back So Much Stock ..."
Blodgett states; "As corporations have borrowed more and more money, the level of corporate debt relative to the size of the economy has continued to increase. As the chart below shows, this ratio is now at its highest level ever - even higher than it was in 2007, before the last debt-fueled economic implosion. Importantly, corporate net debt - the amount of debt that corporations are carrying minus the cash they have on hand (green line below) - is also at its highest level ever as a percent of the economy."
Also on August 5th 2014 Doug Short wrote a piece in Seeking Alpha titled "The Q Ratio And Market Valuation: Monthly Update".
Tobin's Q Ratio is a way to value companies and financial markets. It is a ratio derived by James Tobin of Yale University. Tobin is a Nobel laureate in economics. The Q ratio is the markets value of a company divided by that companies replacement value based on total assets.
Doug Short "Quick take: Based on data extrapolations through the end of July, the Q Ratio is 72% above its arithmetic mean and 85% above its geometric mean. If we use the calculation method of Nobel Laureate James Tobin, the ratio is 90% above its arithmetic mean and 108% above its geometric mean."
Doug Short "Unfortunately, the Q Ratio isn't a very timely metric. The Z.1 data is over two months old when it's released, and three additional months will pass before the next release."
Mark Hulbert wrote an article last January in Marketwatch titled; "Six Ratios Say This Market Is Way Overbought".
In the article he states;
- "Price/earnings ratio. Calculated by dividing stock price by earnings per share, this is perhaps the most widely followed of all valuation ratios. Based on the previous 12 months' earnings, the S&P 500's current P/E ratio is 18.6, which is higher than those that prevailed at 24 of the 35 bull market tops since 1900. (Data before 1957 are for the S&P Composite Stock Index, since the S&P 500 didn't exist yet.)
- Cyclically adjusted P/E ratio. This is the version of the P/E championed by Yale University Professor Robert Shiller, the recent Nobel laureate in economics. It is calculated by dividing a company's stock price by the average of its inflation-adjusted earnings of the preceding decade. For the S&P 500, this ratio currently stands at 25.6, which is higher than what prevailed at 29 of the 35 tops since 1900.
- Dividend yield. This is the percentage of a company's stock price that is represented by its total annual dividends. Since this yield tends to fall as prices rise, and vice versa, the market should register some of its lowest readings near its tops. The S&P 500's yield currently stands at 2.0%, which is lower than the comparable yields that prevailed at all but five of the bull-market tops since 1900.
- Price/sales ratio. This is calculated by dividing a company's stock price by its per-share sales. Though it is lesser known, it still is championed by many investors because it is based on data that are less susceptible to manipulation than earnings. For the S&P 500, the price/sales ratio currently stands at 1.6, which is higher than the comparable readings that prevailed at all but two of the bull market tops since 1955, which is how far back data are available.
- Price/book ratio. This is another lesser-known valuation indicator, calculated by dividing a company's stock price by its per-share book value-an accounting measure of net worth. For the S&P 500, this ratio currently stands at 2.7, which is higher than all but five of the 28 bull-market tops since the mid-1920s, which is how far back data are available.
- "Q" ratio. This indicator is based on research conducted by the late James Tobin, the 1981 Nobel laureate in economics. It is similar to the price/book ratio, except that book value is substituted by the replacement cost of assets."
The S and P 500 has continued rambling forward this year, though to many it was evident that the 2013 return had gotten way ahead of normal value metrics.
I don't think we could expect this steady march up to continue without risk increasing significantly.
The S and P 500 index trended up last week. + .75%
The 10 year Treasury Yield index trended down last week.
The US Dollar index trended up last week. + .40%
The CRB Commodities index trended up last week. + 1.41%
The Gold Index trended up last week + .44%
Inflation Linked Bonds trended up last week + 1.14%
The US Aggregate Bond Index trended up last week + .40%
The International Aggregate Bond Index ended the week even.
The New York Composite Index trended up last week. +.90%
The Dow Jones World Index trended up last week + .57%
The NCREIF Index is aggregated and reported quarterly and is a total return broad representation including rents and appraisal of non-traded Commercial Real Estate.
2014 2nd qtr + 2.91%
Year to date US stocks, gold, inflation linked bonds and real estate lead. The yield on the ten year treasury is down 20% year to date.
Many investors take the wrong approach looking primarily at recent return and average percentage rates. Overall risk measures and managing downside risk play an increasing role in end results.
Investors instead should be focused on managing Dynamic Beta exposure, evaluation Active Share, Sharpe ratios, Treynor ratios, Sortino ratios and Alpha.
Please forward to anyone who may be interested in this information.