The Vegan Growth Portfolio.

The attraction of Earnings Yield for acquirers: WIBC

The underlying methodology of our quantitative equity models is to identify companies/stocks that are very attractively priced – including debt- so as to be potential targets for acquisition. One such holding Wilshire Bancorp symbol WIBC announced today that it will be acquired by BBCN Bancorp for $13 a share. Lets take a look at the valuation of WIBC pre-merger: Enterprise Value: $651m EBITDA (trailing 12 months): $101.3m Earnings Yield: 15.5% On of the factors that made WIBC so attractive and why using Market Capitalization as the basis of valuation incorrect was the fact WIBC has $6.52 a share in cash and very little debt.  The cash can then be used to reduce the cost of acquisition. No longer long...

October is the new September, our September letter

Hello all This is our latest monthly letter.  We’re essentially positioned for what we expect to be a strong stock market into December while anticipating a probable recession in 2016. 9.29.15 monthly letter All the best,...

Our bearish base case scenario

Its a great feeling to wake up to the realization that our anticipation and planning for several months comes to a very fruitful conclusion this morning..  We had watched the sea of red in the futures market over night but was still amazed to see a fall of 1000 Dow points in the first hour of trading. We have been anticipating a bear market for about a year and positioned our clients in a very conservatively in July, but didn’t expect this crash so soon.  I remember back in August of 1987 that it was a rough month as well but the real crash didn’t occur until October.   September could be another bad month as well. This morning we sold our profitable short positions in China A shares “CHAD” and Emerging Markets “EUM”.   We’ll revisit them and others at a point later in time.  We do expect some sort of big equity rally at any time now.  We remain holders of our largest positions in long dated US Treasury bonds. Our base case scenario is: There is no good reason to own stocks right now.  Despite this month’s crash we believe that stocks have entered a Bear market and we expect this to last in the range of 1 1/2 years.    We expect that this month’s crash is only the first leg down for the Bear, we anticipate a very strong reaction rally which is why we’ve sold our Emerging Market and China short positions.   The anticipated reaction rally will be short lived and eventually fail where a prolonged decline in stocks will take hold...

Positioning for a Bear Market

We have spent the last month positioning our client portfolios for what we believe is an emerging bear market in US stocks. 8.15 monthly letter

June update

Its been so long since a substantial market pullback occurred we can easily forget that market weakness is inevitable and part of the process.    We do not see any significant reason to pull away from stocks as the factors necessary for a substantial market pullback are just not present.  In the old days (facetiously written) an investor could expect 1 or 2 10% pullbacks and an average of 3.5 5% pullbacks a year. All recession indicators are saying we are quite a ways off from an economic peak and recession.    Recessions don’t occur while employment is improving, they occur after employment stagnates during an economic boom. The strength of the economy remains consistent with leading indicators showing a pickup in economic strength in the second half of the year.  Market valuations are on the high side which can be expected after a five and a half year run.  Economic growth continuing and the expected Fed rate hikes to be incremental and soft, we think the market will continue to move higher later this year. What really has our attention is the sell off in US Treasuries aka the Yield Curve moving higher.    All Treasuries are now quite oversold and are beginning to become attractive once again. We do believe the Fed will begin to raise rates and likely do it this year.  In previous cycles, rate hikes have eventually led to a flattening and eventually inverted yield curves.   We believe this time is no different, hence the widening of the yield curve created by the Treasury market sell off represents an opportunity. What does make...

Predicting business cycle peaks

Like so many other investment firms we had to endure the market decline in 2008 but being an independent firm we have the freedom to also say “never again”.   We’ve reached a point in our lives and stomach lining that there had to be precedents before the recession that could provide a heads up if a recession is looming.  In fact, over the years we’ve found many including Inverted Yield Curves written none other than the Federal Reserve. One thing you’ll notice over time with our blogs or letters is that we’re not opposed to using the research of other firms especially if they blend nicely with our own systems. We have often relied on academic research of others to build upon and couldn’t care less if research results were developed by others.  We always find it a bit small minded that so many firms insist on relying solely on their own research or incredulous when studies that could really help their clients are ignored. Why reinvest the wheel if its already been done by someone else? Our priority is to develop effective systems which deliver superior results to our clients and not claim that we have a monopoly on great ideas.  We have just a few criteria’s that must be met for inclusion to our own systems.  System should be open (no black boxes) and understandable and best of all, relatively simple. Too many times we look at systems of others that have done a remarkable job in back testing but when you look at the system details there’s a large number of criteria which just makes us...