It’s a tale of two markets.  #-ad_banner-#Value stocks, which are well represented in the Dow Jones Industrial Average and S&P 500 Index remain near all-time highs, while growth stocks, more clearly represented by the Nasdaq Composite Index, appears to be on unstable ground. The Nasdaq index itself isn’t too far from its peak, but many underlying growth stocks have plunged badly during this earnings season. As an example, the S&P posted around 60 new 52-week highs and 60 new lows last Friday, while the Nasdaq saw 21 new 52-week highs against 139 new lows, a nearly 1-to-7 ratio. Short sellers… Read More

It’s a tale of two markets.  #-ad_banner-#Value stocks, which are well represented in the Dow Jones Industrial Average and S&P 500 Index remain near all-time highs, while growth stocks, more clearly represented by the Nasdaq Composite Index, appears to be on unstable ground. The Nasdaq index itself isn’t too far from its peak, but many underlying growth stocks have plunged badly during this earnings season. As an example, the S&P posted around 60 new 52-week highs and 60 new lows last Friday, while the Nasdaq saw 21 new 52-week highs against 139 new lows, a nearly 1-to-7 ratio. Short sellers are on the case. The latest short seller data, released on May 9 and reflecting short positions through the end of April, show a great deal of macro positioning by short sellers. Their use of exchange-traded funds (ETFs) as proxies for bearish bets is a strong tell in this market. Here’s a look at some key funds, and how shorts are adjusting their exposure. Broadly speaking, short sellers are boosting their exposure to tech stocks and small caps, while reducing their exposure to value stocks, bank stocks and utility stocks. Some of this is a valuation call: Tech… Read More

In America, television is an institution — but at my house, neither of my teenage sons have much interest in it. #-ad_banner-#I’ve told my sons about how, when I was young, nearly everyone spent a good deal of their free time watching TV despite the small number of channels available. At my house, we have a “smart” TV with hundreds of channels — but my sons say they find TV boring, as do all their friends.  On occasion, they’ll watch a sporting event or another program, but overall there is zero interest in the electronic box that captured my generation’s… Read More

In America, television is an institution — but at my house, neither of my teenage sons have much interest in it. #-ad_banner-#I’ve told my sons about how, when I was young, nearly everyone spent a good deal of their free time watching TV despite the small number of channels available. At my house, we have a “smart” TV with hundreds of channels — but my sons say they find TV boring, as do all their friends.  On occasion, they’ll watch a sporting event or another program, but overall there is zero interest in the electronic box that captured my generation’s imagination. The scripted, non-interactive nature of television holds little attraction for today’s youth, who have grown up with the Internet and various forms of digital entertainment. Because I’m always thinking about how to profit from new trends, I wondered whether my sons’ opinion was signaling the death of television. What my research found has led me to firmly believe that TV viewership is on an irreversible downward slide. While the collapse of this cultural institution will be slow, I have identified a side play to this decline that I think will continue to suffer, creating an ideal short investment. Before… Read More

“If I had a way of buying a couple hundred thousand single-family homes… I would load up on them,” Warren Buffett said in a CNBC interview in 2012, citing the historically low mortgages rates at the time. #-ad_banner-#Buffett went on to say that his Berkshire Hathaway (NYSE: BRK-B) simply wasn’t set up to purchase and manage what would be the world’s largest portfolio of single-family homes. However, he is cleverly doing the next best thing. Berkshire is quietly building an empire within the housing market that doesn’t actually own, manage or otherwise control single-family homes. His new business… Read More

“If I had a way of buying a couple hundred thousand single-family homes… I would load up on them,” Warren Buffett said in a CNBC interview in 2012, citing the historically low mortgages rates at the time. #-ad_banner-#Buffett went on to say that his Berkshire Hathaway (NYSE: BRK-B) simply wasn’t set up to purchase and manage what would be the world’s largest portfolio of single-family homes. However, he is cleverly doing the next best thing. Berkshire is quietly building an empire within the housing market that doesn’t actually own, manage or otherwise control single-family homes. His new business is a transactional business that profits from the buying and selling activities of others — namely, the residential real estate brokerage business. Berkshire is rolling across the United States snapping up and rebranding local and regional brokerages under its own name. If you haven’t seen  Berkshire Hathaway HomeServices’ maroon signs in your area, you likely will soon. Needless to say, residential real estate sales are a huge business. This industry saw its first wave of consolidation as a highly fragmented group of small local operators were acquired or displaced by larger regional firms. After a second… Read More

We are halfway through earnings season, and according to FactSet Research Systems (NYSE: FDS), 73% of the companies in the S&P 500 have beat consensus earnings estimates, but only 53% have exceeded revenue forecasts.  #-ad_banner-#Considering that we are now in the fifth year of a cyclical bull market (arguably within a new secular bull market), it would not be unusual for companies to find it difficult to grow the top line much more, which after all the cost cutting of recent years would now be needed to expand net income and margins further. Case in point, Amazon.com (NASDAQ: AMZN), which… Read More

We are halfway through earnings season, and according to FactSet Research Systems (NYSE: FDS), 73% of the companies in the S&P 500 have beat consensus earnings estimates, but only 53% have exceeded revenue forecasts.  #-ad_banner-#Considering that we are now in the fifth year of a cyclical bull market (arguably within a new secular bull market), it would not be unusual for companies to find it difficult to grow the top line much more, which after all the cost cutting of recent years would now be needed to expand net income and margins further. Case in point, Amazon.com (NASDAQ: AMZN), which reported first-quarter results on Thursday after the close. The company slightly exceeded Wall Street’s lowered expectations with sales of $19.7 billion versus analysts’ forecast of $19.4 billion, which represented a 23% gain on a year-over-year basis. Earnings per share (EPS) of $0.23 were in line with estimates and up from $0.18 in the same quarter one year ago.  What’s concerning for investors is that revenue growth for the quarter was roughly the same as one year ago and significantly below the 34% growth in 2012 and more than 40% in 2011. Looking toward the second quarter, AMZN could be reporting… Read More

Since the 1980s, one of the most well-known and heavily used strategies among hedge funds and portfolio managers has been pairs trading. #-ad_banner-#Classified as a market-neutral trading strategy, pairs trades attempt to do away with the unpredictable up and down moves of the overall market that often take individual stocks with them. Instead, those who employ a pairs trade aim to isolate the movement between two similar companies. In a properly hedged pair, an investor goes long on one stock and short on the other. Thus, when the market goes up, the long position follows suit… Read More

Since the 1980s, one of the most well-known and heavily used strategies among hedge funds and portfolio managers has been pairs trading. #-ad_banner-#Classified as a market-neutral trading strategy, pairs trades attempt to do away with the unpredictable up and down moves of the overall market that often take individual stocks with them. Instead, those who employ a pairs trade aim to isolate the movement between two similar companies. In a properly hedged pair, an investor goes long on one stock and short on the other. Thus, when the market goes up, the long position follows suit and profits, while the short loses money (and vice versa when the market falls). The relationship between the two stocks (known as a spread) will influence whether the overall position prospers or not. To profit from this strategy, you have to choose good pairs in the same industry with similar business models and a consistent, historical relationship. One of the most prevalent and oft-researched pairs relationships has remained between the world’s two largest payment processors, Visa (NYSE: V) and MasterCard (NYSE: MA). These two financial transaction companies are roughly the same size, ($120 billion to $140 billion in market cap),… Read More

It’s difficult to admit that I was too early with a market call. It’s even harder to accept when I realize I was riding the coattails of a billion-dollar bet made by a renowned activist investor. #-ad_banner-#While I can take comfort in the fact that I judiciously used a stop-loss order and stuck to my investing rules despite being very confident, it’s still not a good feeling. On a positive note, things are finally happening that may vindicate the investor’s billion-dollar bet and my own bias. Here’s the story. Multi-level marketing (or MLM, as it’s commonly called) has long fascinated… Read More

It’s difficult to admit that I was too early with a market call. It’s even harder to accept when I realize I was riding the coattails of a billion-dollar bet made by a renowned activist investor. #-ad_banner-#While I can take comfort in the fact that I judiciously used a stop-loss order and stuck to my investing rules despite being very confident, it’s still not a good feeling. On a positive note, things are finally happening that may vindicate the investor’s billion-dollar bet and my own bias. Here’s the story. Multi-level marketing (or MLM, as it’s commonly called) has long fascinated me from a distance. Hearing rags-to-riches stories and attending presentations is a sure way to get excited about the wealth-building power of the MLM concept — until you look past the hype and realize that many MLM firms are thinly disguised pyramid schemes. With that said, the MLM health products company Herbalife (NYSE: HLF) has been under fire since December 2012, when activist investor Bill Ackman announced a $1 billion short position in HLF. Ackman asserts that Herbalife is an illegal pyramid scheme that sells dubious products to naive buyers/distributors. To support his argument, Ackman launched a full-scale informational war… Read More

There’s a potential time bomb right under our improving economy. #-ad_banner-#This explosive situation affects over 40 million Americans. You probably know at least one person who is feeling its effects. The silver lining in this problem is that it is creating a limited-time opportunity for investors. I was first made aware of this quandary several years ago, when a close friend of mine, a former business owner whose business was made irrelevant by changing technology, decided to follow his dream and get a college degree.   After four years, he graduated with a bachelor’s degree and over $100,000 of student… Read More

There’s a potential time bomb right under our improving economy. #-ad_banner-#This explosive situation affects over 40 million Americans. You probably know at least one person who is feeling its effects. The silver lining in this problem is that it is creating a limited-time opportunity for investors. I was first made aware of this quandary several years ago, when a close friend of mine, a former business owner whose business was made irrelevant by changing technology, decided to follow his dream and get a college degree.   After four years, he graduated with a bachelor’s degree and over $100,000 of student loan debt. He went into the workforce and was shocked that only minimum wage jobs were available to him. There was no way he could make the payments on his college loans.  He even looked into bankruptcy to lift the burden — but was shocked  to find out that student loan debt is not dischargeable.   My friend took a low-paying job with the hopes of advancing but was unable to pay back his loans. He’s now living in his parents’ house with trashed credit and little prospects for getting a better job. My friend is not alone with his… Read More

It would be great if investing was more science than art, but unfortunately the reverse is probably true. #-ad_banner-#In reality, stock price behavior often has more to do with to publicity, psychology, and hype than facts and figures. So sometimes investors are pretty much left to guess about what a stock, industry, or the market in general might do next. The guesswork is most nerve-racking when a stock or group of stocks is hyped so much their prices rapidly begin soaring to unexpected heights and seem like they’ll never stop rising. At that point, investors have a tough decision —… Read More

It would be great if investing was more science than art, but unfortunately the reverse is probably true. #-ad_banner-#In reality, stock price behavior often has more to do with to publicity, psychology, and hype than facts and figures. So sometimes investors are pretty much left to guess about what a stock, industry, or the market in general might do next. The guesswork is most nerve-racking when a stock or group of stocks is hyped so much their prices rapidly begin soaring to unexpected heights and seem like they’ll never stop rising. At that point, investors have a tough decision — sell and lock in their gains, or hold out for more profits. It’s a hard call to make. No investor wants to cash out only to find later they did so too soon and missed out some of the best growth their investment had to offer. But it’s the anticipation of this sort of remorse that keeps so many investors in the game too long, setting them up for massive losses when the hype fades and the market realizes the investment is ridiculously overpriced. I’m not just talking about the dot-com bust a decade and a half ago. Investors have… Read More

Led by some of the smartest people on earth, the hedge fund industry wields market-moving power. The industry’s assets grew by nearly $229 billion last year, to just over $2 trillion. #-ad_banner-#By following these behemoths of the financial world, investors can obtain an edge in creating their own market-beating returns. Without being an insider, how can individual investors know what hedge funds are buying or selling? The Security and Exchange Commission requires hedge fund managers who manage over $100 million to file a Form 13F every quarter. These documents quietly reveal what hedge funds and other large institutional investors are… Read More

Led by some of the smartest people on earth, the hedge fund industry wields market-moving power. The industry’s assets grew by nearly $229 billion last year, to just over $2 trillion. #-ad_banner-#By following these behemoths of the financial world, investors can obtain an edge in creating their own market-beating returns. Without being an insider, how can individual investors know what hedge funds are buying or selling? The Security and Exchange Commission requires hedge fund managers who manage over $100 million to file a Form 13F every quarter. These documents quietly reveal what hedge funds and other large institutional investors are buying and selling. One of my favorite investment tactics is to look for patterns in 13F filings. Companies that have attracted interest from multiple hedge funds can signal a great buying or selling opportunity. I call these buying and selling patterns hedge fund swarms. My basic definition of a hedge fund swarm is when three or more hedge funds buy or sell a particular stock during a single quarter. Obviously, the more funds in the swarm buying or selling, the more powerful the signal. I recently discovered a company that has attracted a swarm of hedge fund activity in the… Read More

From late December to mid-January, airline stocks made another move higher, thanks to expectations of another banner year in 2014. It’s been quite a run for the major carriers such as Delta Airlines (NYSE: DAL) and United Continental Holdings (NYSE: UAL), which have surged more than 600% and 900%, respectively, over the past five years. #-ad_banner-#Credit goes to an investor willingness to stop worrying about the next industry bankruptcy. These carriers are now much more financially stable, and the era of booms and busts has likely passed. Share prices no longer deserve to trade at four or five times trailing… Read More

From late December to mid-January, airline stocks made another move higher, thanks to expectations of another banner year in 2014. It’s been quite a run for the major carriers such as Delta Airlines (NYSE: DAL) and United Continental Holdings (NYSE: UAL), which have surged more than 600% and 900%, respectively, over the past five years. #-ad_banner-#Credit goes to an investor willingness to stop worrying about the next industry bankruptcy. These carriers are now much more financially stable, and the era of booms and busts has likely passed. Share prices no longer deserve to trade at four or five times trailing earnings, which had often historically been the case. Both of these carriers now trade for more than 10 times this year’s earnings. Yet headwinds are beginning to gather for this industry, and United is especially vulnerable. In recent weeks, analysts have been trimming their profit forecasts for the company, mostly due to a large number of flight cancellations as the nation endured a deep freeze. Three months ago, analysts had assumed that UAL would lose $0.36 a share in the current quarter, which is seasonally weak. But the carrier told investors that bad weather has had a deep impact, and… Read More