Daily Speculations

 

Highlights from "The Speculator,” a weekly CNBC Money column by Victor Niederhoffer and Laurel Kenner, posted Wednesday evenings on www.moneycentral.com. 

Do Ivy League CEOs really do better? See a workout of our study on CEOs and Nasdaq companies.

Independence Day 2003: The pursuit of happiness and the pursuit of self-interest are inextricably linked. People come to the United States from all over because we believe the proper role of individuals is not to seek status or dispensation from a government or lord, but to use their own property in diverse ways to be happy. The benevolent side effect is an economy that provides an amazing variety of life-improving products affordable to the masses.  Read all about it in CNBC Money column, See our Thanksgiving articles of 2000,  2001 and 2002 for further insights into the individualist spirit and how it fosters material well-being, personal freedom and harmony.  

 

Summer Switch: In July and August 1998-2002, the five best first-half performers in the Dow underperformed the five worst first-half performers by an average 14 percentage points. We reported the results in our June 5 CNBC Money column, "10 Dow Plays for a Good Ol' Summertime."  With June over, it was time to execute the strategy. See a workout of our study.  Read about summer switches.

 

JULY-AUGUST SHORTS (Best 1st-half Dow performers)	% Chg 1st half
J.P. Morgan Chase (JPM)	42
Home Depot (HD)	38
McDonald's (MCD)	37
Intel (INTC)	33
Hewlett-Packard (HWP)	23
JULY-AUGUST LONGS (Worst 1st-half Dow performers)
AT&T (T)	-27
Kodak (EK)	-22
SBC Communications (SBC)	-6
Johnson & Johnson (JNJ)	-4
General Motors (GM)	-2

 

 

Analyst Meetings and Stock Performance: See workouts of our results on stock performance and analyst meetings, as discussed in our CNBC Money column.

 

Book Review: Adventure Capitalist by Jim Rogers: With our workout of commodities trends during the 20th century and reader Q&A with Rogers.

 

Inside Info (6/12/3):  If something was 99% that an event will happen and the event happens, it doesn't add anything much to your knowledge. If the event doesn’t happen, that’s information. Similarly, if you pick out a black ball after picking out 100 red balls from an urn, that gives you a lot of information. The system of analyzing bits of information on a binary scale is the standard in telecommunications. In our CNBC Money column, Laurel interviews the mysterious hedge fund manager Mr. V and discovers that his recent purchases of shares in Apple, Cintas, Microchip Technologies and Sigma-Aldrich resulted from a new system of analyzing insider stock transaction based on this rich concept. Laurel managed to obtain a workout from highly placed sources in Mr. V's operation and makes it available here>>>.   

 

Summer Switches (6/5/3): Casting around for a way to head off the deluge of losses that usually engulf Vic during summer months, we happened on something amazingly simple,  robust and useful. See a workout of our study. Read about summer switches>>> 

 

Biotech is Back (5/29/3):  We spliced into this classic boom-and-bust sector after Genentech (DNA) ignited a May rally. Read the full remarks of Roger Longman, a main source for the article, and a critique by a PhD research chemist working in the pharmaceuticals industry >>>

 

The Fed Model: We devoted three columns ("Overvalued? Stocks Look Cheap to Us" 5/8/3),  ("We Road-Test a Rule of Thumb" (5/15/3) and "What's Good for Bonds is Good for Stocks" (5/22/3) to the predictive power of the difference between earnings yield and interest rates -- the so-called Fed Model. Our studies of the relation indicate an expected return for stocks this year of 12-15%. A good discussion of the Fed model appears in Mitch Zacks' excellent book, Ahead of the Market.

 

Cliff Asness, managing principal of AQR Capital, a widely respected money management firm, and Value Line research chief Sam Eisenstadt, our favorite practical speculator, objected to our results, contending that P/E levels are far better than the Fed Model in predicting long-term stock market returns. Our own tests indicate that P/E is practically useless; however, neither Asness nor Eisenstadt can be ranked among the chronic bears, and their objections are well worth considering. A draft paper by Asness, "Fight the Fed Model: The Relationship Between Stock Market Yields, Bond Market Yields and Future Returns," may be downloaded at http://papers.ssrn.com/abstract=381480.

 

Guaranteed to Happen: (5/1/3)  Just when the market is ready to rally after three years in the dumps, the anti-enterprise professors and gurus will come out in a herd to warn that American business is on the ropes, that no one on Wall Street can be trusted, that government would do a much better job managing our resources and that ordinary investors should avoid stocks at all costs.

 

Good boards, bad performance: (4/24/3) As ratings firms offer investors more and more measures for good corporate governance, Daily Speculations found that the best-rated have not been the best-performing in recent months--another example of the terrible law of ever-changing cycles. Never forget that the market moves relative to expectations, and not relative to past events and conventions. See our performance rankings of companies rated by S&P for transparency & disclosure, and check out our column on CNBC Money. The current pet recommendation of corporate governance reformers is that the jobs of CEO and chairman should  be held by separate people. The Spec Duo is all for good corporate governance, but when we took up pencil and envelope to see if such companies actually do better in the stock market than those with combined CEO-Chairmen, we came to a startling conclusion.

 

Lords on Boards (4/17/3): The spirit of independence at the core of America’s character is at odds with the worship of royalty. The Declaration of Independence declared that the right to pursue happiness comes from the nature of man, not from the largesse of a king. The U.S. Constitution bans titles of nobility for U.S. citizens. But U.S. corporations, Wall Street and the investing public have succumbed to the all-too-human predisposition for servility. The consequences go beyond the sociological; awareness of this tendency can help investors protect their portfolios, if they resist the temptation to bow down. Check out our full set of data on Lords on British Boards and Politicians on U.S. Boards.

 

The Equity Share Ratio (4/10/3): Companies are smart enough to offer stock when their shares are riding high -- and often, that's a sign the stock is about to fall. It works the other way, too: they don't sell when the market's in the doldrums. Last year's dearth of equity offerings relative to total equity and debt raised suggests stocks are about to start climbing back up.

·         Read the groundbreaking academic study on the equity share

·         Click here for a complete data set