| Finance only the first sector to slide off the cliff
I laughed out loud when a portfolio adviser appeared on television and described his computerized approach to value investing. When asked why the price of one "undervalued" stock kept falling under his model, he solved the problem by lowering the price in his model. The real problem was that the adviser was basing his valuation on the company's earnings releases. This is common with black-box systems that extract information from a company's earnings reports that are at least three months old and sometimes in need of restatement. Two other analysis styles, growth investing and momentum investing, are also related to earnings and price acceleration. They all work in a bull market, when most stock prices are rising. The problem with these types of microanalysis is that an outside event, anything from rapid currency changes to unexpected competition or political unrest, can bring on a bear and torpedo any rosy prediction.
Stock maestro's picks: British pubs
They call him the L-Train. Larry Robbins is the driven, blunt, larger-than-life founder and CEO of Glenview Capital who manages $7 billion a year and has been honored as one of Trader Monthly's top 100 Hedge Fund Traders. At this year's Value Investing Congress held in Manhattan, which drew investing luminaries like Bill Ackman and Leon Cooperman, he told a crowd of fellow hedgies that his fund is adapting to uncertain times. "We don't have the same tailwinds," he said. "For example, M&A and private equity are on hold. They're not dead. There are a bunch of smart 26-year-olds all ready to buy out every company in America. But the L in the LBO isn't available so they'll have to wait." Robbins went on to explain that Glenview is doing something it doesn't normally do: Exercising patience.
Comparing bonds funds
Question: Every time I research bond mutual funds, I encounter the word "duration." What is it and how should it influence my investing? - Carl T. Copley, Bellevue, Wash. Answer: You probably already know that a bond fund's value rises and falls with the movement of interest rates in the economy. Duration reveals how much a fund (or a single bond) is boosted or whacked by changing rates. That's useful for comparing funds' interest-rate risks. Let's say you're deciding between two Vanguard index funds - the Long-Term Bond (ticker symbol: VBLTX) and the Intermediate-Term Bond (VBIIX). Lately, the long-term fund is yielding 5.42 percent while the intermediate-term fund is yielding 4.99 percent. Go for the bigger yield, right? Not necessarily.
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