I have not seen this type of brand name IPO trading volume for quite some time. From Groupon (GRPN) and Pandora (P) to Zynga (ZAGG) and now Avaya, the media would have you believe that investing in a brand name IPO is a quick fix for your portfolio.
Take the recent public stock offering in LinkedIn (LNKD) for example. The IPO price was set at $45 and jumped to $90 after one day of trading. As of this writing, the price is just below $73. At its current valuation, Morningstar estimates the Price-to-Earnings (P/E) ratio at 466. By comparison, the tech-heavy NASDAQ has a P/E of less than 20 (as of this writing).
Clearly, many people are very excited about the LinkedIn IPO and it shouldn’t surprise you that investors have had a long history of enthusiasm for IPO stocks. But has this enthusiasm ever paid off over the long-term? Continue reading →
Behavioral finance research has shown that individual investors too often invest in stocks that are in the news, and that those stocks then lose money. A recent story in the New York Times illustrates why this may become an even less successful stock investing strategy: program traders are beating average investors to the punch. Continue reading →
Rob Arnott is one of the few experts who predicted that the past decade was likely to be unpleasant for equity investors. In early 2002, he wrote a paper with Peter Bernstein that concluded that stocks were quite likely to under-perform bonds over the next decade. In mid-2009, having seen a long period in which bonds had, in fact, outperformed stocks, he wrote an article that was titled Bonds: Why Bother?
In this article, Mr. Arnott presents data to demonstrate that bonds have persistently out-performed stocks over a number of very long (multi-decade) historical periods. He then shows that when you look at price appreciation of stocks, net of inflation, there were three 20-30 year periods in the 20th century in which the real prce appreciation of stocks was less than or equal to zero! Continue reading →
Among the very most successful stock investing strategies of the year has been one focused on companies selling cheap but with strong book values. The strategy isn’t the brain child of Wall Street legends. It’s one developed by someone you may well have never heard of, a reserved Stanford accounting professor named Joseph Piotroski. In a paper published in 2000 by the Journal of Accounting Research Piotroski outlined the filters used to achieve 23 percent annual returns between 1976 and 1996. Piotroski’s ideas were compelling enough to attract the attention of John Reese, founder and CEO of Validea and Validea Capital Management, (pictured). Reese has spent the last 15 years studying history’s best investors and then building investment strategies based on that research. Among his “gurus”: Warren Buffett, Peter Lynch, and Ben Graham. So far this year, Piotroski’s method has topped those three, and the rest of Reese’s portfolios.
In this guest post, updating an earlier piece on his blog The Guru Investor, Reese explains the Piotroski strategy and offers some stocks that fit the bill today.Continue reading →