43 Bear Markets Analyzed

Investors seeking clues as to the future direction of global equities might turn to history as their guide; Morgan Stanley analysts led by Andrew Sheets certainly have. They’ve crunched the numbers on more than 40 bear markets thoughout history, defined as a more than 20 percent peak to trough decline.

Here’s what they found.

Source: Morgan Stanley Analyzed 43 Bear Markets and Here’s What It Found – Bloomberg Business

Swedroe: Investor Lessons From 2015

Every year, the market provides us with important lessons on the prudent investment strategy. Many times, the market will offer investors remedial courses, covering lessons that it has already delivered in previous years.That’s why one of my favorite sayings is that there’s nothing new in investing; there is only investment history you don’t yet know.

Source: Swedroe: Investor Lessons From 2015 | ETF.com

Chief Investment Officer – High Yield’s Liquidity Conundrum

Liquidity in the biggest individual high-yield fixed income funds varies significantly from one portfolio to the next, according to an analysis by Fitch Ratings.

Source: Chief Investment Officer – High Yield’s Liquidity Conundrum

Checking In On the Commodities Cycle

2015 was another dismal year for commodities, the third year in a row of negative returns.  Over supply continues to be the universal theme in the market, however capacity cuts are beginning to be announced.  As the saying goes the cure for low prices are low prices.

The real curse for commodity prices, however, is on the supply side. The last decade’s commodities boom has led to irrational investment in new projects. China’s demand for iron ore and coal declined only this year, but commodity prices have been dropping since 2011. These price declines reflect concerns about a persistent surplus as mining firms continue to expand supply. Global iron ore production is expected to have increased by 100 million tons in 2015 despite the declining demand from China, and further increases are expected over the next two years.

Source: The Commodities Crash: A Supply-Side Perspective

Short Selling as an Investment Strategy

A great post on Jim Chanos of Kynikos Associates and how he views short selling versus being net long.  The quote below from Charlie Munger mentioned in the article sums up the art of short selling and why most investors should steer clear of the investment strategy.

I’ve experienced the irrational exuberance of these type of promoters all too often when being short.  Even being right on your thesis is not enough to be a successful short seller.  Shortly after the 2007 iPhone launch, Palm announced that it would be coming out with a competing smartphone (the Pre) that was going to blow away the competitors.  Backed by Elevation Partners the managing partner would go on TV every chance he could get to promote the coming phone and how great the sales were going to be.  The stock rose until the eventual launch of the phone, once sales were seen as disappointing the stock began to drop, but Elevation engineered a sale to HP and managed to save their investment and make short sellers lives miserable.

“It’s dangerous to short stocks.” “Being short and seeing a promoter take the stock up is very irritating. It’s not worth it to have that much irritation in your life.” “It would be one of the most irritating experiences in the world to do a lot of work to uncover a fraud and then at have it go from X to 3X and at h the crooks happily partying with your money while you’re meeting margin calls. Why would you want to go within hailing distance of that?  We don’t like trading agony for money.”

Source: A Dozen Things I’ve Learned about Investing from Jim Chanos

How the Pundits Damage Your Long-term Plans

Great post by Josh Brown at The Reformed Broker about how listening to the market pundits can lead investors to abandon their investment plans to their detriment.

Let me wrap this up: 401(k) accounts are sacred, but they are not magic. They require a thoughtful person making decisions and behaving logically in order to work. The 401(k) users who have persevered through the large drawdowns of 15 and 7 years ago, while continuing to plug away with fresh contributions, are doing better than ever.

Source: The Farce Awakens

Asset Class Returns for 2015

It’s important to remember there are two reasons for diversification.  The first is it reduces risk, and the second is it exposes you to whichever asset class is doing well each year.  Since we don’t know which asset class will be the best performing ahead of time, think of diversifying across asset classes as fielding a baseball team, wherever the ball is hit to on the field there is someone positioned there to make a catch.

This year the rebound in real estate from the 2007-2009 crisis made REITs the top performing asset, while emerging markets added to their run as the bottom performer.  (Commodities were down so much they didn’t even make it onto the chart)


Source: Novel Investor (CLICK FOR FULL SIZE CHART)

Spoofing and Front Running

This type of trading now represents 70% of the volume –  but it adds liquidity!  (Yeah right)

That the firm took matters into its own hands shows how deeply the electronic bait-and-switch scheme has penetrated the global marketplace—and how slow regulators have been to root it out. The firm’s efforts, disclosed in a court filing in November, enabled Citadel to detect suspicious orders and, in a blink, pull back from trading.

Source: Spoofing fight draws Chicago’s Citadel, Vertex – Finance News – Crain’s Chicago Business