Bloomberg Profiles David Tepper
Posted by Eddy Elfenbein on January 5th, 2010 at 8:31 am

Bloomberg profiles hedge fund manager David Tepper who make a few billion dollars last year betting that the world was not, in fact, coming to an end.

“It was crazy,” says Tepper, a Pittsburgh native. “In February and early March, people were in a panic.”
Appaloosa began scooping up bank-related securities, including common and preferred shares and junior subordinated debt. The Short Hills, New Jersey-based hedge fund firm bought into Bank of America, Citigroup, Fifth Third Bancorp and SunTrust Banks Inc. Tepper also bought the bonds of New York- based American International Group Inc., Frankfurt-based Commerzbank AG and London-based Lloyds Banking Group Plc, paying as little as a nickel on the dollar.

20 Years Since the Nikkei’s Peak
Posted by Eddy Elfenbein on January 5th, 2010 at 8:07 am

Thinks it’s been bad here? Check out how the Japanese market has done over past two decades.

The Nikkei hit its peak 20 years ago on December 29, 1989 at 38,916. This past March, the index hit a low of 7054. That’s an 82% drop.

Remembrance of Stocks Past
Posted by Eddy Elfenbein on January 4th, 2010 at 3:47 pm

Mark Hulbert has an article in the New York Times on one of my favorite topics—momentum investing. The issue I take with Mark is that he focuses on the intermediate-term impact of momentum. The impact where momentum has been most strongly felt is in the short-term. The shorter the term, the stronger it is. Historically, the impact has been very real and quite large. Whether it will continue is another question, and I tend to doubt it will.
The article contains this quote:

“We can be comforted by the fact that reasonably efficient markets always base their level on anticipated future returns,” he added, “and do not include history in the calculation.”

Sorry, but that’s just not true. One of the mysteries of the stock market is that the past does have an effect on the future. What it is and how it works isn’t exactly clear. For example, the stock market does significantly better on days following up days, and significantly worse on days following down days. Also, the persistence of tall heads and fat tails suggests (but isn’t proof) that the past impacts the future. In other words, stocks may go down simply because they’re going down.
Hulbert then goes on to discuss one area of market inefficiency which is the historical outperformance of small-cap stocks. Interestingly, this is the one anomaly that I’m most skeptical of. Historically, the numbers back it up but the small-cap premium is highly volatile compared with its size. In fact, small-caps have experienced decades of lagging the market.
I’m currently reading Eric Falkenstein’s fascinating book, Finding Alpha which discusses the small-cap premium and suggests that it may be an illusion due to methodological errors. I suspect he’s right. The January Effect doesn’t make much sense without it.

2010 Gets Off to a Nice Start
Posted by Eddy Elfenbein on January 4th, 2010 at 2:14 pm

The new year has gotten off to a very good start. The Dow has been up by as much as 170 points today and it came close to breaking 10,600 for the first time in 15 months. The Nasdaq is now at a 16-month high.
The new Buy List is also doing well. Moog (MOG-A) is up over 4% today, plus Leucadia (LUK) and Stryker (SYK) are both up over 3%. Stryker is up thanks to an analyst upgrade, and price target revision from $48 a share to $59.
Our new additions are also holding their own. I should add that I announce the new buys two weeks before the new year so I can’t be accused of trying to goose the numbers. Wright Express (WXS) is up about 4.5% today, and the big news of the day is an upgrade on Intel (INTC). The analyst at Robert W. Baird raised the stock to Outperform from Neutral, and bumped up the price target from $24 a share to $26.

Bernanke Defends the Fed
Posted by Eddy Elfenbein on January 4th, 2010 at 12:50 pm

I continue to be very impressed with Ben Bernanke. Yesterday, he gave a speech to the American Economics Association which defended the Federal Reserve from the charge that easy monetary policy caused the housing bubble. Naturally, this won’t sit well with the Fed’s critics.
If you have the time, I encourage you read Bernanke’s speech. It’s long but he uses the length to carefully consider the evidence leveled against loose monetary policy. He briefly mentions a favorite topic of his, the global savings glut, as explaining some of the housing bubble. I think this is a very important topic. As I’ve said before, if you really want to damage another country, don’t send in tanks. Instead, lend them too much money.

Female CEOs Win Again
Posted by Eddy Elfenbein on January 4th, 2010 at 9:46 am

From the Chicago Sun-Times:

Still, the year after Hillary Clinton and Sarah Palin fell just short of becoming the first female president or vice president, and heading into 2010, when women will begin outnumbering men in the work force, stocks of the 13 Fortune 500 companies that had a woman at the helm for all of 2009 were up an average 50 percent.

Ah, Economists
Posted by Eddy Elfenbein on January 2nd, 2010 at 5:22 pm

From the WSJ:

Stanford University economist Robert Hall, incoming president of the American Economic Association, values his time so highly that his wife, economist Susan Woodward, occasionally puts her foot down. “Bob doesn’t see why we can’t just hire people to trim the Christmas tree,” she says. “I tell him that’s not what it’s supposed to be about.”

Mars Goal By 2010, Soviets Say
Posted by Eddy Elfenbein on January 1st, 2010 at 12:26 am

So reads the Anchorage Daily News from Jul 7, 1988. Sixteen months later, the Berlin Wall would come down.
In 1984, there was talk of the U.S. colonizing the Moon by 2010.
The Reading Eagle from Nov 6, 1910 reports that there will be 6 billion people by 2010, which was a pretty good estimate.
The Modesto Bee from July 11, 1966 tells us that our Story & Clark piano will still be insured in 2010. That’s good to know.
The downside is that by 2010, the Ottawa Citizen from November 5, 1960 tells us that food scarcity will lead us to eat…baby bees!
The Spokesman-Review from Apr 6, 1962 writes that some historical material isn’t to be opened until 2010. Also, the Gadsden Times from May 6, 1960 reported that 85-year-old former President Herbert Hoover helped dedicate a new Boy’s Club of America headquarters with a time capsule to be opened in 2010.

The 2010 Buy List
Posted by Eddy Elfenbein on December 31st, 2009 at 8:40 pm

Here’s my 2010 Buy List. For tracking purposes, I assume it’s a $1,000,000 portfolio and each position is worth $50,000. Here’s each stock, ticker, starting price and number of shares. This is what I’m referring to when I discuss how well the Buy List is doing.

Also as in previous years, I’ve only changed five stocks to the Buy List.
The five stocks I’m taking out are Amphenol (APH), Cognizant Technology Solutions (CTSH), Donaldson (DCI), Danaher (DHR) and FactSet Research Systems (FDS).
The five new stocks are Gilead Sciences (GILD), Intel (INTC), Johnson & Johnson (JNJ), Reynolds American (RAI) and Wright Express (WXS).
The average stock on the Buy List is a bit larger than in previous years. The total market cap of the 20 stocks is $580 billion. The average dividend yield is 1.70% which is also higher than in previous years.
Only six stocks have remained on for all five years; AFLAC (AFL), Bed, Bath & Beyond (BBBY), Fiserv (FISV), Medtronic (MDT), SEI Investments (SEIC) and Sysco (SYY).
The list is now locked in and I can’t make any changes for the next 12 month. I’ll start tracking the new list on Monday, January 4, 2010.

The 2009 Buy List
Posted by Eddy Elfenbein on December 31st, 2009 at 7:31 pm

Trading for the year 2009 is now over. Overall, we had a very good year. The 20 stocks on the Crossing Wall Street Buy List were up an average of 43.97%. This beat the overall market by a good margin. For the year, the S&P 500 was up 23.45%.

Including dividends, the Buy List was up 45.83% compared with 26.46% for the S&P 500. The Buy List’s dividend yield works out to 1.29% compared with 2.44% for the S&P 500. This was our best year by far and it was the third straight year that we’ve beaten the S&P 500.

For the entire four-year history of the Buy List, we’ve made 14.93% compared with -2.68% for the S&P 500 (including dividends). Best of all, our annual turnover has been just 25% which means we change just five stocks a year. Our four-year “beta” is 0.9396.

I’ll restate the Buy List rules. Each year, the Buy List consists of 20 stocks that I’m not allowed to change throughout the year. Once the list is set, it’s locked in place until the following December 31. I announce the change each year around the middle of December. Each year, I only have five new buys and sells. For tracking purposes, I assume the Buy List is equally weighted among the 20 positions in a hypothetical $1 million portfolio. You can check the performance of the Buy List anytime 24/7 at our Buy List page.

My goal is to show investors that by choosing stocks wisely and sticking with high-quality stocks, you can beat the market—and that’s exactly what we’ve done. I try to beat the market by a few percentage points and to do it with less risk.

For 2009, our daily volatility was slightly greater than the S&P 500 coming in at 4.44% more volatile. The last two years, we were less volatile than the market. For 2009, our beta was 0.9834.

Eighteen of our 20 stocks closed higher for the year. Only Moog (MOG-A) and Eli Lilly (LLY) lost money. The big winner was Nicholas Financial (NICK) which gained 222% for us. NICK was our biggest loser in 2008 (I’m glad I stuck with it). Our other big winners were Cognizant Technology Solutions (CTSH) which gained 151% and Amphenol (APH) which gained 92%. I’m dropping both stocks for 2010.

Just in case anyone doubts my math, this spreadsheet has all the numbers for the Buy List. There was (thankfully) only one accounting item this year when Nicholas Financial had a 10% stock dividend.