Can Turtles Fly?

I have suggested in the past—and this isn't anything unique from me—that there are very few value investors in the institutional world because of the institutional imperative. It simply isn't possible for the majority of the fund managers to become value investors. They would literally get fired after a few poor quarters. In fact, if I were a fund manager, I think I would follow more of the crowd. But how about amateur investors? Well, I think there are very few amateur value investors as well. Some who call themselves value investors really aren't in my opinion (my definition of value investing is a bottom-up approach to investing with heavy emphasis on fundamental analysis—not everyone follows this definition.) I definitely don't consider myself a value investor and anyone reading this blog for very long would know it as well (although some people lump me into the value investor camp :) ). For instance, it's hard to consider anyone that is influenced by Marc Faber...

I don't usually quote, or indeed follow, Robert Prechter. For those not familiar, he runs a trading advisory firm, Elliott Wave International , which, as the name implies, uses technical analysis based on Elliott Waves. His strategies have little to do with anything I do. However, if I see him in a newspaper article or a video interview on the Internet, I pay attention. The reason is not so much because he is good—he supposedly called the 1987 crash but seems to have a debatable record, with good calls between 2000 and 2002 and poor strategy from 2003 to 2007—but because he is one of the few deflationists out there. He has been considered a perma-bear but, given how he is a trader, he may be trading both ways (without following his trading strategies, I have no idea.) Other than Robert Prechter, Gary Shilling, and possibly Hugh Hendry, I don't see too many deflationists out there (there are also a few bloggers such as Mike Shedlock.) In the last few months, I had been looking...

As I have speculated in the past, institutional investors—pension funds in this example but also endowments, insurance companies, and so on—will likely reduce their equity exposure over the next decade or two. I have linked to charts that show bond exposure at multi-decade lows so there is only one way the asset allocation can go. Ideally, pension funds (and others) shouldn't have gone so far down with their bond allocation but it's really difficult to do that in real life for various reasons. (As a side note, the increased bond allocation will be one of the sources that fund government deficits going forward.) Bloomberg has a story that may portend to the future : The world’s biggest pension funds lost confidence in stocks as the best long-term investment, cutting holdings or leaving them unchanged during the steepest rally since the 1930s. Funds overseeing money for California teachers and public workers, Dutch government retirees and South Korean private- sector employees...

(source: Chart acompanying "Hints of a Rebound in Global Trade" By FLOYD NORRIS. The New York Times. Published: August 14, 2009)

Two of my favourite contrarians are the Canadian duo at Contra-the-heard , Benj Gallander and Ben Stadlemann. They publish a newsletter and although I have never subscribed to their letter, I encounter their opinions either through articles they write for The Globe & Mail or on television at Business News Network (this is Canada's business cable channel.) They got killed last year but they seem to have a good long-term record. They generally only invest in microcaps and small-caps, with many of them penny stocks trading for less than $0.50, so I don't really follow through on their ideas very much. They also invest in distressed companies and I don't see the merit in some of their picks. These guys are like me :) and invest in very high risk stuff so be careful with their picks. Anyway, one of their picks, Magic Software (MGIC), that I was interested in, but never looked at because it wasn't cheap, hit price levels that made it attractive. But that was 3 or 4 month...

As may get the feeling by now, I am not a fan of Austrian Economics. I support their stance on freedom and property rights but not their constant trashing of the government and call for unfettered capitalism. It is likely that the ideology will never gain any major support in any democratic system, except under duress (such as during a major war or super-high unemployment or some such thing.) To see why, consider what Mike Shedlock of MISH's Economic Analysis blog , who happens to be an AustEcon supporter, says about FDIC: Instead of spreading a small number of small bank failures out over a large number of years, a large number of big failures are all clustered together. If this is not an asinine model what is? Note this is a failure caused by regulation. There should not be an FDIC in the first place. This view is nothing unique to Mike Shedlock and has been expressed by others such as Jim Grant and Jim Rogers (not sure if Rogers is an AustEcon believer.) So I'm not trying to...

At the start of the year, the bond market and the stock market were pointing in different directions. Bonds were forecasting high defaults and economic malaise, while stocks were more subdued. So far the stock market has been right. Will the year finish that way? Something to think about... Some articles for you to check out, in no particular order... (Recommended) Interview with Paul Sonkin (Street Capitalist): Tariq Ali at Street Capitalist does a good job interviewing Paul Sonkin. Don't know much about Sonkin but he tends to specialize in small-cap and micro-cap stocks so anyone who likes tiny companies should check out the interview. More than 150 banks at dangerous loan loss levels (Bloomberg): The question is whether this is the peak or not. I think the stock market is pricing in the loss rates as the peak. If we have hit the peak, things will look bleak but should improve over the next 5 years. But if it is not the peak, watch out... Battle over fair-value accounting cont...