Famed value investor David Dreman showed in his book Contrarian Investment Strategies that buying the cheapest 20% of stocks produced outsized returns, while buying the most expensive 20% of stocks produced well below-average returns. This observation held true in most periods that he measured, and it worked almost perfectly over longer periods of time. (more…)

With the one-year anniversary of the failure of Lehman Brothers passing last week, a lot of professionals have been reflecting on what we’ve been through as investors and as a society as a whole. One theme that has been discussed quite a bit is the concept that certain institutions are too big to fail. Given the concentrated leverage on its books and the inadequate regulatory framework under which it operated, most agree that Lehman was, indeed, too big to fail. (more…)

A fisherman was fishing his favorite spot one day. His family had fished there for generations using the same bait, line and tackle, and they had always had great results. One day he noticed another fisherman pulling in fish after fish after fish. This fisherman was using a net. “Hey!” yelled the first. “That’s cheating! You can’t do that!” “Yes, I can!” replied the second. “Don’t you see how nicely it works?” (more…)

“Stocks Cheapest since ‘89 Show Why Analysts Say Economists Wrong on Growth” claimed a headline on Bloomberg this morning. The article surveyed two groups of professionals: economists and analysts. While the economists forecast about 2% economic growth in 2010, the analysts expect earnings growth (for publically traded companies) to grow by over 20% in the same time period. If that growth of better than 20% manifests, the article suggested, the market would be historically cheap with a price-to-earnings (P/E) ratio of just over 13. (more…)

Is it really almost Labor Day!?! Indeed. This traditional marker for the end of summer, the start of school, the end of vacation season and the end of driving season is upon us. As for the markets, Labor Day signals that vacation season is coming to an end for the big money movers on Wall Street, so any market movements will mean more—take that last comment with a large grain of salt. (more…)