Saturday, March 31, 2012 0 comments ++[ CLICK TO COMMENT ]++

Sold: Montpelier Re (MRH)

Investing life has been quite boring for the last two years—come to think of it, so has other aspects of life :( I didn't buy anything for several years now and haven't posted much on the blog either. I've been reading quite a bit though, but haven't found any compelling ideas.

In any case, I just sold off one of my very first investments—one I made before I started this blog—for a small gain. That investment is a small reinsurance company called Montpelier Re (MRH). I bought it in February 2007 and sold it today (March 2012).

Purchase price (approx): US$ 17.96
Sale price: US$ 19.49

Simple return (excl dividends; US$): 8.4%
Total return (US$): 14.1% (2.67% annualized)

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Sunday, March 25, 2012 2 comments ++[ CLICK TO COMMENT ]++

Sunday Spectacle CLXVII

Rolling 10-Year Stock Market Return
Starting P/E Ratio

(source: "Gazing at the future: why stocks are underperforming," Crestmont Research. Downloaded March 25, 2012)

I think I posted similar, if not the same, charts, a few years ago and I thought it was a good time to revisit.

The above chart plots the rolling 10-year S&P 500 return (annualized), along with the starting P/E ratio at the beginning of the 10-year period. The starting P/E ratio—you can think of the P/E ratio as a proxy for valuation—plays a huge role in determining future returns. After all, if you buy something at a high price, your returns are likely to be lower than if you buy the same thing at a lower price. Typically, a high P/E ratio will compress and you'll post weaker returns.

The long-term stock market return is 10% per year and the average P/E ratio is around 15 (Crestmont has it pegged at 15.5). In the chart above, you'll notice that the 10 year return tends to be low when the P/E ratio is well above the long-term average, and vice versa.

The chart below clearly illustrates how bull markets tend to involve expanding P/E ratios (rising from a low value to high) and bear markets involve P/E compression (from a high value to a smaller one).

Secular Stock Market Cycles & the P/E Ratio

(source: "Secular Stock Markets Explained," Crestmont Research. Downloaded March 25, 2012)

Everyone has their own definition of secular bull and bear markets but Crestmont Research uses the P/E ratio to mark them.

The last decade has been a rough one for US stock market investors largely due to P/E compression. The P/E ratio of the S&P 500 has been falling from a peak set back in 2000, and this has had a strong negative impact on total return.

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Sunday, March 18, 2012 0 comments ++[ CLICK TO COMMENT ]++

Sunday Spectacle CLXVI

I don't think Wall Street is as bad as some claim—it's filled with sharks so you have to expect certain behaviour—and I'm not as negative on Goldman Sachs but given the controversy over the opinion piece by an ex-Goldman employee, I thought the following painting by Molly Crabapple captures the public mood. The painting, clearly influenced by Matt Taibbi's polemic on Goldman Sachs from a few years ago,  "The Great American Bubble Machine," is very provocative and I think the artist has captured the symbolism and surrealism inherent in everything that has been happening around us. Some readers probably won't like the painting but it reflects the criticism from some who feel the ethics on Wall Street has been heading downhill for 25 years.

(If interested, you can visit the artist's site to purchase her works.)

Great American Bubble Machine (painting)
by Molly Crabapple (2012)

(source: Great American Bubble Machine (painting) by Molly Crabapple.
h/t Wired for bringing her work to my attention.)

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Sunday, March 11, 2012 0 comments ++[ CLICK TO COMMENT ]++

Sunday Spectacle CLXV

Discretionary Spending of Americans

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Sunday, March 4, 2012 0 comments ++[ CLICK TO COMMENT ]++

Can We Trust What You Think?

Been going through a few Malcolm Gladwell speeches and here is another great one from 2003. It deals on the notion of how one's behaviour is altered when they are asked to think about a particular decision. It's an interesting talk and covers the material in his book Blink so some of you may be already aware of it. Gladwell touches on the famous Pepsi taste test and the failure of New Coke; the failure of up-and-coming musician Kenna; expert opinion vs non-expert opinion; and how packaging impacts the impression of the actual product.

Those interested in advertising, sales, market research, social science, and human behaviour will find the following video insightful.

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Malcolm Gladwell Discussion at High Point University

Most long-time readers know that I'm a big fan of Malcolm Gladwell and I ran across the following video of him having a discussion at High Point University. Anyone interested in social issues, entrepreneurship, or life in general, may find it interesting. Gladwell is a funny guy so it's not as boring as these discussions tend to be.

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Sunday Spectacle CLXIV

The Display Advertising Ecosystem

(source: Downloaded from "I'm Being Followed: How Google—and 104 Other Companies—Are Tracking Me on the Web" by Alexis Madrigal, The Atlantic. Feb 29, 2012, 2:57 PM EST)