Archives of “Bond” tag

rss

These 13-cent stamps beat the U.S. stock market

  
Analysis, Education
#  #  #  #  #  #  #  #

Are stocks always the best long-term investment?

Maybe not.

When some obscure Hawaiian stamps from 1851 go up for auction later this month, they are expected to fetch from $50,000 to $75,000 each.

And if they do, that will mean they have almost certainly been a better financial investment — probably a much better investment — over the past 165 years than the U.S. stock market.

The 13-cent so-called “Missionaries” were used by Christian missionaries in the Hawaiian islands to send letters home. At the time, Hawaii was an independent kingdom. The Associated Press reports that the stamps are part of a 77-stamp collection being sold by Bill Gross, the bond market guru. Ten such “Missionaries” in near-mint condition are being sold.

If the stamps sell for $50,000 each, that will represent a compound annual return of 8.1% over the initial 13-cent purchase price. If the stamps sell for $75,000, you can raise that to 8.4%. (more…)

Biggest Bubble Ever? 2017 Recapped In 15 Bullet Points

  
Analysis, Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Here are his 15 bullet points that show why in 2017 we may have seen the biggest bubble ever (and why we can’t wait to see what 2018 reveals).

  1. Da Vinci’s “Salvator Mundi” sold for staggering record $450mn
  2. Bitcoin soared 677% from $952 to $7890
  3. BoJ and ECB were bull catalysts, buying $2.0tn of financial assets
  4. Number of global interest rate cuts since Lehman hit: 702
  5. Global debt rose to a record $226tn, record 324% of global GDP
  6. US corporates issued record $1.75tn of bonds
  7. Yield of European HY bonds fell below yield of US Treasuries
  8. Argentina (8 debt defaults in past 200 years) issued 100-year bond
  9. Global stock market cap jumped1 $15.5tn to $85.6tn, record 113% of GDP
  10. S&P500 volatility sank to 50-year low; US Treasury volatility to 30-year low
  11. Market cap of FAANG+BAT grew $1.5tn, more than entire German market cap
  12. 7855 ETFs accounted for 70% of global daily equity volume
  13. The first AI/robot-managed ETF was launched (it’s underperforming)
  14. Big performance winners: ACWI, EM equities, China, Tech, European HY, euro
  15. Big performance losers: US$, Russia, Telecoms, UST 2-year, Turkish lira

As Hartnett summarizes, “2017 was a perfect encapsulation of an 8-year QE-led bull market”

  • Positioning was too bearish for either a bear market or a correction in risk assets.
  • Profits were higher than expected (global EPS jumped 13.4%) this time thanks to a synchronized global PMI recovery.
  • Policy was aggressively easy, as the ECB and BoJ bought a massive $2.0tn of financial assets; fiscal policy also easy (e.g., US federal deficit up $81bn to $666bn).
  • Returns were abnormally high in 2017 (Table 3); corporate bonds and equities soared, but the biggest surprise was stubbornly low government bond yields: thematic leadership of scarce “growth” (e.g. tech stocks), “yield” (e.g., HY, EM and peripheral EU bonds) and “volatility” once again remained the core of the bull.

How to Spot a Market Top

  
Analysis, Education
#  #  #  #  #  #  #

This is via an article in the Wall Street Journal title: How to Spot a Market Top

It begins generically enough with the sort of stuff you hear all the time:
  • A da Vinci sells for $450 million
  • one bitcoin is worth $7,700
  • 99-year-old Austria issues a 100-year bond at an interest rate of 2.1%
  • Clearly there is too much money in the world. That isn’t new, but how long can it last?
  • With central banks scaling back stimulus, investments that appear attractive when interest rates are near, or below, zero suddenly look silly.
Then, some, errr … wisdom:
  • The end may come soon, or the current investing nirvana could go on.
K, thanks.
But, then it gets better:…  walks through the risks and likely scenarios for markets in the coming months. It is ungated (I think), co check it out while we await Europe/UK action:

How Does Buffett Make So Much Money? Not How You Think!

  
Analysis, Education
#  #  #  #  #  #  #  #

Excerpt:

Berkshire Hathaway has realized a Sharpe ratio of 0.76, higher than any other stock or mutual fund with a history of more than 30 years, and Berkshire has a significant alpha to traditional risk factors. However, we find that the alpha becomes insignificant when controlling for exposures to Betting-Against-Beta and Quality-Minus-Junk factors. Further, we estimate that Buffett’s leverage is about 1.6-to-1 on average. Buffett’s returns appear to be neither luck nor magic, but, rather, reward for the use of leverage combined with a focus on cheap, safe, quality stocks. Decomposing Berkshires’ portfolio into ownership in publicly traded stocks versus wholly-owned private companies, we find that the former performs the best, suggesting that Buffett’s returns are more due to stock selection than to his effect on management. These results have broad implications for market efficiency and the implementability of academic factors.

Buffett’s record is remarkable in many ways, but just how spectacular has the performance of Berkshire Hathaway been compared to other stocks or mutual funds? Looking at all U.S. stocks from 1926 to 2011 that have been traded for more than 30 years, we find that Berkshire Hathaway has the highest Sharpe ratio among all. Similarly, Buffett has a higher Sharpe ratio than all U.S. mutual funds that have been around for more than 30 years.

We document how Buffett’s performance is outstanding as the best among all stocks and mutual funds that have existed for at least 30 years. Nevertheless, his Sharpe ratio of 0.76 might be lower than many investors imagine. While optimistic asset managers often claim to be able to achieve Sharpe ratios above 1 or 2, long-term investors might do well by setting a realistic performance goal and bracing themselves for the tough periods that even Buffett has experienced.

In essence, we find that the secret to Buffett’s success is his preference for cheap, safe, high-quality stocks combined with his consistent use of leverage to magnify returns while surviving the inevitable large absolute and relative drawdowns this entails. Indeed, we find that stocks with the characteristics favored by Buffett have done well in general, that Buffett applies about 1.6-to-1 leverage financed partly using insurance float with a low financing rate, and that leveraging safe stocks can largely explain Buffett’s performance.

 
Source: Andrea Frazzini, David Kabiller and Lasse H. Pedersen, “Buffett’s Alpha.”

Go to top