What I’ve been reading this week

Is The Fed Managing Stock Market Sentiment? (The Irrelevant Investor)

“There are plenty of investors who agree with Josh that the Fed’s real mandate is stable (stock) prices. I don’t know if I buy that, but even if Powell isn’t consciously taking the stock market into consideration when making decisions, is it possible that he can watch carefully and not be influenced by them? I don’t know if I buy that either.”

“Quantitative Teasing” (WSJ)

“QE, or not QE? That is the question bedeviling the monetary-policy peanut gallery after Federal Reserve Chairman Jerome Powell announced on Tuesday that the central bank had decided to increase its purchases of short-term Treasurys, but that the move shouldn’t be considered a form of quantitative easing.”

Aramco’s Long-Delayed Mega-IPO Is Finally Set to Hit the Market (Bloomberg)

“The government is set to make a formal announcement in late October, and the superlatives are likely to follow thick and fast: the biggest-ever share sale, the world’s most valuable company, the largest dividend payments in history.”

“What could be in short supply is interest from the world’s money managers, who see reasons to stand on the sidelines: a weak oil market, concerns about the strength of the global economy, and last month’s attack on Aramco’s most important crude-processing plant. Investors are already demanding a premium to hold the country’s debt, downgraded in October by Fitch Ratings Ltd.”

“BOTTOM LINE – The long-delayed IPO of Saudi Arabia’s Aramco, which pumps 10% of global crude oil, may need to value the company at less than the expected $2 trillion.”

The Initial Grind Is The Hardest (Dividend Growth Investor)

  • Buy quality dividend growth stocks every month 
  • Hold those shares for as long as the dividends are not cut 
  • Reinvest dividends selectively 
  • Maintain a diversified portfolio 
  • Be a patient buy and hold investor

At What Point Does Malfeasance Become Fraud?’: NYU Biz-School Professor Scott Galloway on WeWork (Intelligencer)

“The market is going to have to decide how thin the lines are between vision, bullshit, and fraud.”

Why the U.S. Yield Curve Reliably Predicts U.S. Recessions (American Institute for Economic Research)

“If the U.S. yield curve exhibited predictive power only in the U.S., it would still be an important thing to know and use. But it also contributes to reliable forecasts of economic-financial results abroad, especially when coupled with signals from local yield curves. Economists, investors, and policy makers would do well to take seriously the predictive power of the yield curve, to study and comprehend not only its empirical but also its causal features.”

The Seven-Year Auto Loan: America’s Middle Class Can’t Afford Its Cars (WSJ)

When God Is Your Portfolio Manager (WSJ | The Intelligent Investor)

“No matter what you believe or how you invest, the advent of this approach highlights the promise and perils of socially responsible investing in general: You can salve your conscience, or you can earn higher returns. It isn’t likely you can do both.”

“Whether faith-based investing will pay off in this world or only in the next is another question. Excluding companies with any involvement in abortion eliminates most healthcare stocks. Many technology companies run diversity programs that seek to advance gay employees, so they’re out. Such filters can cause a BRI portfolio to deviate from the stock market as a whole.”

“Some researchers have found, however, that “sin stocks”—alcohol, tobacco or gambling companies, for instance—outperform the market over time. That’s presumably because investors’ distaste creates a discount, causing those stocks to sell too cheaply in the short run and enabling them to outperform in the long run.”

Stocks vs. Bonds – Defensive Play Calling (Gordian Advisors)

Exhibit 1 – Performance of stocks and various bonds in the 2018 downturn
Exhibit 2 – Performance of stocks and various bonds in the 2019 recovery

Are Long-Term Bonds Worth the Risk? (A Wealth of Common Sense)

“If you’re a trader, it’s possible long maturity bonds make sense if you can ride the trend and get out before a large loss. If you’re a long-term investor, I think you really have to consider the risk-reward relationship in long-term bonds. When rates were much higher it’s possible that long maturity bonds were worth the risk. For many investors, it may not make sense to invest in long-term bonds at today’s yield levels and maybe any yield levels if you cannot handle large losses in fixed income.”

A Value Investor Defends Value Investing (Despite Its Recent Track Record) (WSJ with Joel Greenblatt)

WSJ: Value investing means different things to different people. What does it mean to you?

MR. GREENBLATT: It does not mean low price-to-book-value, low price-to-sales ratio investing, which is how most people define it.

Stocks aren’t pieces of paper that bounce around, they’re ownership shares of businesses that we value and try to buy at a discount. Thinking about it that way, value investing is self-defined: It is actually valuing businesses—the way a private investor values them based on cash flows and expected cash flows—and then trying to buy them at a discount to what those cash flows are worth.”

“It’s a great environment for value investors who do their work, but a bad environment for all active management—including what is traditionally classified as value investors—because of people’s lack of patience. Patience is the thing in short supply.”

A few more easy reads for the weekend:

Where Have all the Stock Market Wizards Gone? (A Wealth of Common Sense)

What I Learned About Life From Buying a Goat on Craigslist (Ryan Holiday for Forge)

Successful Success (Calibrating Capital)

What’s Your Delta? (Of Dollars & Data)

Context is King (Your Brain on Stocks)

-Cole.

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