Articles

Articles Written by Validea Founder John Reese

6/12/2018

John Reese Forbes Articles
Forbes

Prolific Quant Investor Tweets Up A Storm, Plus Five Stocks For The Wise Investor

As an investor, knowing what you don't know could be just as important-if not more so-than knowing what you do. At least that's the gist of a recent tweetstorm by famed investor James O'Shaughnessy, CEO of O'Shaughnessy Asset Management and author of the classic investing tome "What Works on Wall Street" (1996). Bloomberg columnist Barry Ritholtz described the post as "intriguing," and one that addressed, "our own lack of understanding of our own lack of understanding." In an interview with Bloomberg last year, O'Shaughnessy argued: "I have come to the conclusion--after 30 years of doing this and seeing clients' behavior just continue to repeat itself," he says, "the majority of investors lack the emotional characteristics and the personality traits that allow them to go on to become successful investors."

6/10/2018

John Reese Globe and Mail Articles
The Globe and Mail

Why Value Investors Shouldn't Give Up Just Yet

While growth stocks continue to clobber value stocks, causing many investors to question their priorities, it's not time to declare the death of value investing. Sure, the technology-heavy Nasdaq is at yet another record high in the ninth year of a broad bull market, led by tech giants Facebook, Amazon.com, Netflix and Google parent Alphabet, not to mention Apple. The rotation back to value stocks that many people started to anticipate two years ago has yet to materialize in the face of this relentless growth-stock rally. Instead, it seems some well-known value investors have shifted their thinking after five years of losing out.

5/29/2018

John Reese Forbes Articles
Forbes

Berkshire, Apple And Other Buffett-Like Picks

In an article I wrote last year titled, "Why Doesn't Berkshire Just Buy More Apple?" I argued that CEO Warren Buffett might consider putting his bloated cash balances to work by taking a bigger bite of the tech behemoth that he already knew and loved. Turns out, he did just that. Despite weak demand for the iPhone X and growing saturation in the smartphone market, the Oracle of Omaha upped his Apple ante last quarter by a staggering 75 million shares (45%), bringing Berkshire's total stake in Apple to approximately 5%.

5/27/2018

John Reese Globe and Mail Articles
The Globe and Mail

Adopting a Factor-Investing Strategy For a Little Extra Return

Investors are always warned not to put all their eggs in one basket. It's less risky and more rewarding to spread money around. Traditionally, this approach involved investing a certain percentage of money in bonds and another chunk in stocks of various types. This has gotten a lot easier with the explosion of passive investments such as exchange-traded funds, especially those tracking the stock-market indexes. All an investor has to do is pick an index to track, invest the money in the corresponding ETF and then sit back and watch. But fund companies didn't just stop there. In addition to funds tracking the indexes as they are, a whole industry of funds tracking the indexes in different ways also sprouted up.

5/16/2018

John Reese NASDAQ Articles
NASDAQ.com

No Fooling Around With This Top Performing Small Cap Growth Stock Model

When you buy shares of big, well-known companies, you're swimming with the sharks. At least that's the opinion of David and Tom Gardner, brothers and co-founders of the multi-media financial services company The Motley Fool. They argue that Wall Street (and analysts) devote a lot of time and attention to these companies and that individual investors are therefore unlikely to uncover something everyone else has missed. Small-cap stocks, on the other hand, are described on their site as "a deserted lagoon" many of which are "pearls of potential profit, waiting for the right catalyst to value them into the limelight." Although they tend to suffer deeper dips than their larger counterparts, the Gardners argue that small-caps can offer huge upside.

5/6/2018

John Reese Globe and Mail Articles
The Globe and Mail

Megadeals Are Back Amid Increasing M&A Activity

Markets have returned to volatility after an unusually calm 2017, but that hasn't stopped companies from striking deals to combine. So far this year, a record US$1.7-trillion in deals have been announced, nearly US$120-billion of that in just a few days last week, including T-Mobile US Inc.'s US$59-billion bid for Sprint Corp. More notable is the size of the transactions. Thomson Reuters points out that while the number of deals is down from this time last year, their size is way up. Megadeals - in the billions of dollars - are more than half of current activity.

5/3/2018

John Reese NASDAQ Articles
NASDAQ.com

A List For The Tenacious Value Investor

Value investors haven't had it too easy in recent years. But it's never really easy to be a value investor, an approach that involves buying out-of-favor stocks based on the future potential of the underlying business-described by legendary investor Warren Buffett as buying "a wonderful business at a fair price" rather than a "fair business at a wonderful price." Recent years have seen value stocks languish as growth stocks, particularly the tech giants, have pushed ahead.

4/25/2018

John Reese Forbes Articles
Forbes

Four Fundamentally Sound Stocks For A Focused, Institutional-Like Portfolio

Passive investing has spread like wildfire in recent years, but that doesn't mean an active approach can no longer reap rewards. Passive investing is a rules-based, disciplined strategy that strives to obtain the same return as the broader market by buying a cross-section of it and weighting holdings based on market capitalization. Conversely, active investing (also referred to as "stock picking") involves the individual selection of securities by an investor or portfolio manager.The shift away from active and into passive has been dramatic, driven by both the lower cost and historically better performance of passive funds.

4/18/2018

John Reese NASDAQ Articles
NASDAQ.com

Jelly Beans, Group Think and Greenblatt's Magic Formula

Even investing legends sometimes need props. When Gotham Asset Management co-founder Joel Greenblatt was asked to teach stock market concepts to ninth-graders in Harlem, he brought a large jar of jelly beans to the class and asked them to guess how many were in the jar. He allowed the students to hold and scrutinize the jar to arrive at their estimates and then, after each had written a guess, allowed them to make a second guess if they so desired.

4/16/2018

John Reese Globe and Mail Articles
The Globe and Mail

Five Debt-Laden Stocks That Could Be Attractive Buys

Debt isn't always the dirty word stock investors think it is. Some of the most successful investors over time have used debt to buy cheap companies, nurse them to health and reap the gains. Private-equity firms try to capitalize on debt to reap profit. They snap up struggling publicly traded companies, with the help of some debt financing, spend a few years turning them around by restructuring or shedding businesses and then they sell them back to public stockholders, ideally at a gain.

4/3/2018

John Reese Globe and Mail Articles
The Globe and Mail

These Three Stocks Score Highly in a Model Inspired by Warren Buffett's Bridge Philosophy

During a bridge game in 1968, investing legend Warren Buffett told mathematician Edward Thorp, "Investing in a market where people believe in efficiency is like playing bridge with someone who has been told it doesn't do any good to look at the cards." He was preaching to the choir. A few years earlier, the MIT professor figured out how to beat casinos in blackjack by identifying the sequencing of cards (he went on to invent a wearable computer to help him win at roulette). Mr. Buffett was an early admirer (casino operators were not).

3/28/2018

John Reese Forbes Articles
Forbes

Make Your Own Luck In Investing With These Four Stocks

Four leaf clovers and pennies-on-the-sidewalk aside, it's pretty tough to count on getting lucky. As an investor, this is a good thing to keep in mind. Although we'd like to find causality between actions and outcomes, the sobering truth is that sometimes there's none to be had. The universe is rife with randomness, and the world of investing is no exception. In his book Thinking, Fast and Slow, Nobel Laureate Daniel Kahneman uses the example of basketball to describes what he argues are "misperceptions of randomness".

3/21/2018

John Reese NASDAQ Articles
NASDAQ.com

Investing Lessons From The Duchess Of Poker, Annie Duke, Plus Five Names To Hold

Is investing in the stock market the same as gambling? Are we betting the odds when we purchase a piece of a company, playing a version of capitalist casino, rolling the proverbial dice? It really all depends on your mindset about investing and your approach to making decisions. In his famous book The Intelligent Investor, the late Benjamin Graham wrote, "An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."

3/14/2018

John Reese Globe and Mail Articles
The Globe and Mail

Three Stocks That Pass the Momentum Model Test

The trick to value investing is finding cheap stocks of well-run companies that are about to rise but haven't yet caught the attention of investors. It is in some ways the opposite of investing based on price movements, or momentum, a strategy that involves picking stocks that are already on an upswing with the expectation they have further to run. Value investors are supposed to focus on a company's numbers and not be swayed by technical analysis, however. Momentum investing is, after all, partly a self-fulfilling prophecy.

3/12/2018

John Reese Forbes Articles
Forbes

Apple And 4 Other Stocks That Fit Buffett's Investing Style

The much-anticipated release of Warren Buffett's annual letter to Berkshire Hathaway (BRK.A) shareholders at the end of February ignited the internet with a flurry of market and investment commentary. Some focused on the Berkshire's hefty cash balances against the dearth of acquisition opportunities, while others expanded on the famous ten-year, million-dollar bet Buffett waged-and won-that the S&P 500 would outperform a bundle of hedge funds (selected by investor Ted Seides). Still others, like the Wall Street Journal's Jason Zweig, zeroed in on what Buffett chose not to mention in the letter-that over the same ten-year period, Berkshire Hathaway also failed to outperform the S&P 500 (returning only 7.7% annually versus the index's 8.5% return).

3/5/2018

John Reese Forbes Articles
Forbes

12 Stocks That Fit The Investment Strategies Of Buffett, Lynch, Dreman And O'Shaughnessy

In this year's letter to Berkshire Hathaway shareholders, legendary CEO Warren Buffett lists the characteristics he looks for when considering a company for purchase, which include durable competitive strengths, strong management, and "a sensible purchase price." For this stock market guru, "sensible" is gauged by evaluating the following quantitative criteria (as outlined in the book Buffettology)

2/27/2018

John Reese NASDAQ Articles
NASDAQ.com

Screening For Super Stocks

The market blip that occurred earlier this month, sending shock waves through the much of the investment community, didn't faze legendary investor Ken Fisher. In a recent USA Today article, the market guru advises, "If you're fully invested, sit on your hands. Hard! For cash holders this action prescribes buying. Always stay cool. Fight any urge to sell. It's all signaling more new highs ahead." Fisher, who leads the money management firm Fisher Investments (approximately $70 billion in managed assets), goes on to say, "During corrections, media and market mavens invariably search for justifying causes. What made it happen? Why? By the time they agree, it's all over."

2/20/2018

John Reese Globe and Mail Articles
The Globe and Mail

When It Comes to Investing, There's Safety in Simplicity

It's easy to make investing overly complicated. Every day, nearly 10,000 U.S. mutual funds and exchange-traded funds compete for investor dollars with thousands of listed stocks, not to mention a dizzying array of options, futures and derivatives and trillions of dollars of bonds. Every day, fund managers are trying to lure investors with new strategies to make money.

2/5/2018

John Reese NASDAQ Articles
NASDAQ.com

Capitalize on Global Growth with These Five High Scoring Industrials

Global economic growth is surging, and many analysts contend that global equity markets are in for a strong 2018. For investors wanting to participate in the continuing bull market, overseas stocks are generally offering a better value than their U.S. counterparts, and might represent a good alternative if economic growth continues. Factories across the globe are running near full capacity-Chinese industrial utilization rates reached 78% in the fourth quarter of 2017, the highest level since 2011.

1/31/2018

John Reese Globe and Mail Articles
The Globe and Mail

Eight Deep-Value Stocks That Look Particularly Attractive as Interest Rates Rise

It's certainly been one long decade for value investors. This year had promised to see a reversal of years of underperformance, but at least so far, that hasn't happened. Is there still hope that conditions may finally be turning? Yes, this has been said before only to be proved wrong. Many expected the turn to come in 2015 and again in 2016, and for a while, it appeared it might have finally done so. But the market roared last year on the expectation of lower regulation and tax cuts, negating any momentum value might have gained.

1/30/2018

John Reese Forbes Articles
Forbes

Winning In The Market With The Patience Of The Wright Brothers And Warren Buffett

Patience is a firm requirement if you want to succeed at just about anything, and investing is no exception. But suppose you are working toward an investment goal that you're certain will lead to significant, possibly even game-changing gains over the long term, yet there is no immediate gratification or validation in sight? Would you have the patience to stick to your guns? This might be an interesting question to pose to the Wright brothers, who ushered in the age of aviation in 1903 after years of building printing presses and bicycles. Their first glider, which they tested in 1900, was a bust, but they kept their noses to the grindstone by constructing a wind tunnel to test nearly 200 wings and airframes of different shapes and designs.

1/16/2018

John Reese NASDAQ Articles
NASDAQ.com

A Momentum Model with Fundamentals Behind It

The stock market's sustained bull run is a reminder that momentum as an investing strategy can work well. While it may resemble performance chasing, buying stocks that have been performing well based on the assumption that they will continue to do so is more akin to banking on the emotional and irrational reactions of performance chasers by systematically identifying and buying shares that are on the rise. Momentum investors, while gravitating toward well-performing stocks, are doing so in; (1) a rule-based manner with entry and exit plans in place, and (2) with a view toward the short- and intermediate- term, rather than the long-term view of value investors.

1/11/2018

John Reese Forbes Articles
Forbes

Investment Ideas For Rebalancing Value And Growth Portfolios

There are hundreds of articles, blogs and videos sprawled across the Internet full of advice for the new year and checklists regarding what you should do with respect to your investments. So, let's part with tradition and focus on something that you should not do: Make investment decisions based on emotion. Investors can become swayed by media hype about a stock and coaxed into buying or, conversely, become panicked by bad press and sell a stock prematurely.

1/3/2018

John Reese NASDAQ Articles
NASDAQ.com

Home Improvement Picks that Could Perk Up a Portfolio

Whether or not you believe the new tax legislation is going to put more money in your pocket, economic indicators are pointing to continued growth in 2018. Most asset classes performed well in 2017, with many delivering double-digit returns, and the retail sector was no exception. Within this sector, the home improvement industry may be poised for a good year ahead, and investors might want to take a look at some opportunities there. In November, U.S. retail sales growth of 0.8 outpaced expectations (the consensus was for 0.3 percent growth). Home improvement is anticipating an uptick in growth over the coming year, according to the North American Retail Hardware Association's 2017 Market Measure report: "After all, this year has seen strong performance in the housing sector, lower unemployment, an energized stock market, a relaxation of lending restrictions and a consumer base with no shortage of home improvement ideas."

1/1/2018

John Reese Globe and Mail Articles
The Globe and Mail

Why Patience Can Often Lead to the Best Returns From Investment Managers

When it comes to picking an investment manager, it's hard to say what attribute is more important, luck or skill. A manager's track record often is not long enough to make the call on skill, and even if the work history does span decades, research has shown managers for the most part have a tough time beating the indexes consistently over a long period of time. Even the best managers underperform for a period of time, something I've written about in previous columns. Investors are flawed when it comes to choosing individual stocks or fund managers. We tend to overestimate our own decision-making abilities and defend our choices even if they turn out to be the wrong ones.