Opinion

James Saft

Investing in the wretched: James Saft

Apr 27, 2012 18:22 UTC

By James Saft

(Reuters) – At a time when one super-stock, Apple, is driving returns and portfolio construction, it is important to remember that there is usually more to be gained from the widely derided than from the universally loved.

Choosing stocks like Apple, which makes great products and has the glow of success about it, is an easy and comfortable choice. Investors feel they are affiliating with something successful, and they get that blast of pleasurable chemicals to the brain every time they see a positive story in the press or a surge in share price.

That success comes with a price tag. A review of the literature shows that portfolios with stocks in widely admired companies usually underperform baskets of stocks with companies nobody much likes.

A 2010 study by Meir Statman, a professor at Santa Clara University, and Deniz Anginer, a World Bank economist, found sustained outperformance from what they called ‘spurned’ companies.

The study used the annual survey of analysts and executives, conducted by Fortune Magazine, of the most and least admired U.S. companies as a benchmark. They found that over a 24-year period you’d actually be better off holding stocks of the least admired companies.

SAFT ON WEALTH: Investing in the wretched

Apr 27, 2012 18:15 UTC

April 27 (Reuters) – At a time when one super-stock, Apple,
is driving returns and portfolio construction, it is important
to remember that there is usually more to be gained from the
widely derided than from the universally loved.

Choosing stocks like Apple, which makes great
products and has the glow of success about it, is an easy and
comfortable choice. Investors feel they are affiliating with
something successful, and they get that blast of pleasurable
chemicals to the brain every time they see a positive story in
the press or a surge in share price.

That success comes with a price tag. A review of the
literature shows that portfolios with stocks in widely admired
companies usually underperform baskets of stocks with companies
nobody much likes.

Bonds living on one lung: James Saft

Apr 26, 2012 10:47 UTC

By James Saft

(Reuters) – Guess what, bond investors: just like the Federal Reserve, you are trapped.

The Fed on Wednesday said it was keeping rates on hold until at least late 2014 but failed to tip its intentions clearly about any possible additional round of quantitative easing. The Fed once again stressed the “significant downside risks” from “strains in global financial markets,” a nod to the backwash from euro zone issues, having eliminated this language from its last statement.

Going strongly into equities seems brave given the bumpy recovery and with continued risks of fallout from Europe, even with an implied promise of a safety net from the Federal Reserve. That leaves the rather unlovely option of government bonds, now 30 years into a bull market and offering low yields and the, distant, possibility of big losses when the Fed eventually hikes rates or gets behind the inflation curve.

Euro zone’s backlash whiplash: James Saft

Apr 24, 2012 11:24 UTC

By James Saft

(Reuters) – It’s not simply an austerity backlash in the euro zone; it is a policy backlash, as everyone appears to blame everyone else for a host of overlapping and conflicting policies which clearly aren’t working.

A series of political and monetary ructions are showing that it is very difficult to predict with any confidence what path Europe will choose, much less who will lead it there or even how the euro zone will be constituted and organized.

All of this argues for increased risk premia on euro zone assets, a conclusion duly enacted on Monday by financial markets. Little surprise, given developments:

Get ready for election fun

Apr 19, 2012 20:02 UTC

By James Saft

(Reuters) – If worrying about the impact of politics on your portfolio makes you want to scream, you probably ought to just turn off your TV and phone for the next seven months.

The 2012 U.S. presidential and congressional elections could set the tone for years to come on the single issue that may have the most power to move markets: deficits.

The United States has dug itself a deep fiscal hole, and that means some combination of spending cuts and tax increases to get out of it. More worryingly, perhaps, is a political atmosphere in which cross-party cooperation isn’t likely, increasing the chances of policy gridlock and bigger issues later.

More firepower, less force for IMF: James Saft

Apr 19, 2012 04:03 UTC

By James Saft

(Reuters) – The International Monetary Fund may emerge from its meeting this week with more firepower but less force.

While the fund is looking on track to add at least the $400 billion it has argued it needs to deal with the potential fallout from the euro zone crisis, it will have to cope with a U.S. which is partly sidelined by domestic politics during a period of rising international economic tension and protectionism.

Even the $400 billion is a downgrade from a $600 billion figure bandied about earlier. IMF Managing Director Christine Lagarde has been busily putting a positive gloss on the shortfall, arguing that matters have improved substantially in Europe since the bigger figure was suggested.

A new Great Rotation?

Apr 13, 2012 00:16 UTC

By James Saft

(Reuters) – One of these days, and it might start soon, investors are going to begin to reverse their multi-year rotation out of stocks and into bonds.

We are now fully 30 years into perhaps the greatest bond bull market in history, as interest rates have slid from the high teens to a level that feels like it’s change for a Coke. As well, equities have returned virtually nothing for a decade for most investors. To make matters for equity bulls worse, these lousy returns have come along with huge volatility as the market worked its way through first the dotcom bubble then the housing bubble and now very possibly the social media bubble.

The last 30 years have been marked by two related trends. Inflation has fallen, benignly at first but painfully after the bursting of the housing bubble. At the same time debt levels surged, first in private hands before the crash and now in public ones.

Bernanke’s Instagram bubble

Apr 12, 2012 12:05 UTC

By James Saft

(Reuters) – Instagram founders Kevin Systrom and Mike Krieger ought to get down on their knees every night and thank Ben Bernanke.

That’s because the Federal Reserve chief has been crucial in creating an atmosphere in which two 20-somethings can sell an 18-month-old company with 13 employees and no significant revenue for $1 billion.

Facebook agreed on Monday to pay $1 billion in cash and stock for Instagram, which develops photo-sharing applications, just a week after the infant company closed a funding deal valuing it at a paltry $500 million.

Switzerland’s line in the sand

Apr 10, 2012 10:18 UTC

By James Saft

(Reuters) – Things are getting sticky for the Swiss and their franc.

Twice in the past week the market, that nebulous but inexorable force, took a run at the cap on the value of the franc established by the Swiss National Bank last September.

Last Thursday, amid low pre-holiday volume, the franc actually pierced the 1.20 per euro line the Swiss central bank had drawn in the sand. Suspected intervention soon drove the franc lower but then once again over the weekend the franc came within a hairsbreadth of that line.

“We won’t accept any exchange rate below 1.20. We are committed to buying foreign exchange in unlimited quantities to defend this level,” a spokesman for the SNB said, re-enunciating a policy intended to insulate Swiss exporters and fend off deflation.

No de-coupling for U.S.

Apr 6, 2012 17:19 UTC

April 6 (Reuters) – This time around it looks that when the
rest of the world comes down with a cold, the United States
starts sneezing, too.

Arguments for American exceptionalism, or even that
much-vaunted but seldom seen phenomenon known as “de-coupling,”
were undermined on Friday when U.S. payrolls data disappointed
deeply.

For investors, this is somewhat dispiriting, as many were
hoping to ride out the effects of a sharp European slowdown and
weakness in emerging markets by investing in U.S. shares, which
had a great first quarter, driven by strong signs out of
manufacturing and a brightening jobs picture.

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