Thursday, July 31, 2014

07/31/2014 Matrix: Slightly Bullish... again again

Geeze what a wishy washy market!

Small Value Mid Value Large Value Mid Blend Small Growth Small Blend Large Blend Large Growth Mid Growth
Finance 1 3 5 7 11 14 18 22 32
Utilities 2 4 6 8 12 15 19 23 33
Industrial 9 10 13 16 17 20 21 28 45
Staples 24 25 26 30 36 40 53 68 73
Healthcare 27 29 34 38 44 52 61 71 76
Cyclicals 31 35 37 43 49 56 64 72 78
Materials 39 42 47 54 58 63 67 74 79
Technology 41 46 50 57 59 65 69 75 80
Energy 48 51 55 60 62 66 70 77 81

Make up your mind, already.

Before the close the Sector Model switched back into Financials, and I bought BKU (a Small Value Financial stock) as well.

Wednesday, July 30, 2014

07/30/2014 Matrix: Slightly Bearish... again...

The Sector Model switched back to XLU before the close, returning to a slightly bearish stance.

Small Value Mid Value Mid Blend Large Value Small Growth Small Blend Large Blend Large Growth Mid Growth
Utilities 1 3 5 7 10 14 19 23 27
Finance 2 4 6 8 11 15 20 24 29
Industrial 9 12 13 16 17 18 21 33 41
Staples 22 25 28 31 34 42 59 69 72
Healthcare 26 32 36 38 43 51 63 71 74
Cyclicals 30 35 39 40 47 53 65 73 76
Materials 37 45 49 50 54 61 67 75 78
Technology 44 48 55 56 60 64 68 77 80
Energy 46 52 57 58 62 66 70 79 81

This market is worse than a ping pong tournament...

Monday, July 28, 2014

07/28/2014 Matrix: Slightly Bullish

Financials strengthened today, giving the market a more bullish stance:

Small Value Mid Value Large Value Small Growth Mid Blend Small Blend Large Blend Large Growth Mid Growth
Finance 1 2 3 5 6 8 17 22 24
Utilities 4 7 9 11 12 13 20 27 33
Industrial 10 14 15 16 18 19 21 41 48
Staples 23 26 30 34 35 38 60 70 72
Healthcare 25 28 31 36 37 42 62 71 74
Cyclicals 29 32 39 43 44 47 66 73 75
Materials 40 46 50 53 54 57 67 76 78
Technology 45 49 52 56 58 61 68 77 80
Energy 51 55 59 63 64 65 69 79 81

Sunday, July 27, 2014

07/27/2014 Matrix: Mildly Bearish

For the moment, the combination of sectors and styles is "risk off."

Small Value Mid Value Large Value Small Growth Mid Blend Small Blend Large Blend Large Growth Mid Growth
Utilities 1 3 5 7 9 12 19 23 28
Finance 2 4 6 8 10 13 20 24 30
Industrial 11 14 15 16 17 18 21 41 49
Staples 22 26 31 34 35 43 61 69 72
Healthcare 25 27 32 37 39 46 62 71 74
Cyclicals 29 33 40 45 47 51 65 73 76
Technology 36 42 48 52 54 58 67 75 78
Materials 38 44 50 55 56 59 68 77 79
Energy 53 57 60 63 64 66 70 80 81

Utilities and Value are both bearish, while the favoring of Small caps is bullish.

So, mildly bearish.


Saturday, July 26, 2014

07/26/2014 Fama versus Shiller -- the TOO efficient market


Style Model
Small Value
Sector Model
XLU
0.00%
Large Portfolio
Date
Return
Days
BX
4/14/2014
17.40%
103
TIVO
4/23/2014
11.60%
94
SHOO
4/28/2014
-4.43%
89
PM
5/27/2014
-0.96%
60
SR
6/2/2014
11.33%
54
CFI
6/9/2014
-0.56%
47
FRAN
6/16/2014
-11.02%
40
NUS
7/7/2014
-14.33%
19
BT
7/14/2014
-1.45%
12
RRD
7/21/2014
-1.30%
5
(Since 5/31/2011)
S&P
Annualized
13.01%
Sector Model
Annualized
26.88%
Large Portfolio
Annualized
25.41%

 

Rotation: selling BX; buying CHFC.

The Sector Model continues to plod along, well ahead of both the S&P and the back-test baseline:



 

Before the close on Friday, the Sector Model switched from Financials to Utilities.

Financials remain a close second, however, and the Style Model’s call for Small Value tilts the next trade into a Small Value Financial rather than a (comparatively) Large Value Utility.

So, CHFC it is.

Large and Small are easy to parse.

But Value and Growth?

I’ve written before that “Value” looks at what the assets are worth if a company is going out of business, and “Growth” looks at the potential for expansion.  Value tries to minimize losses and Growth tries to maximize gains.

Each is trying to outperform, but in different ways.  Growth tries to go up more than the market, and Value tries to go down less than the market.

My models don’t care either way.

But the key to understanding Value and Growth is to look at the difference between Fama and Shiller.  Both earned the Nobel Prize, but Shiller argues that the market is inefficient and Fama argues that the market is efficient.

They argue the opposite; so which one is right?

Well, both, and neither.

Haugen (The Inefficient Stock Market, page 92; The New Finance, pages 17-24) understood how to thread the needle between the two, when he studied how Growth COMPANIES compared to Value COMPANIES.  Not “stocks”, mind you, but “companies.”

Over the course of 1-5 years Growth companies grow more than Value companies.

In other words, investors are remarkably efficient in picking which companies will grow more than other companies.

But they are TOO efficient.  Growth stocks are priced higher than Value stocks because the companies they represent will grow more than the value companies.  The problem is that investors over shoot.  It’s not that they are wrong, but that they are too right.  Even though a value company will grow less, its stock will grow more because it is priced too efficiently.

It’s as if you have a horse that has a sixty percent chance of winning, but you are offering two to one odds.  Over time, you’ll lose money because you are betting too much.  You’ll win more races, but still lose more money.

So the answer to the argument between Shiller and Fama is this: investors are efficient about company prospects, but inefficient in the size of their bets.

The prospects for the value companies I am selecting are indeed poor, but not AS poor as the stocks are priced.

Tim