Articles

Articles Written by Validea Founder John Reese

5/23/2017

John Reese Forbes Articles
Forbes

Investors, There's Nothing Magical About Quant Strategies

As the debate continues around the topic of human versus machine-based investment models, fund managers continue to allocate resources to quantitative modeling in the hopes of beefing up returns, satisfying prickly clients and maybe even attracting some new ones. The flow of funds into the "quant" sector has more than doubled since 2009, and high-profile managers (BlackRock, for one) are bulking up their quant teams and relying more heavily on computer algorithms for stock-picking.

5/23/2017

John Reese Globe and Mail Articles
The Globe and Mail

A Practical Approach to Factor-Based Investing

As investors, we've been taught that success comes from sticking to a few basic ideas: Cheap stocks outperform expensive ones; earnings quality matters; prices move on momentum. Market anomalies can be exploited for profit and have helped make so-called "smart beta" exchange-traded funds a hit in recent years. But what if the widely followed investment factors underpinning these investments don't really function as expected?

5/17/2017

John Reese NASDAQ Articles
NASDAQ.com

Buffett, IBM and a Lesson in Selling Stocks in Your Portfolio

Prior to the Berkshire Hathaway annual meeting last Saturday, CEO Warren Buffett disclosed that he had sold about a third of the firm's 81 million shares of IBM, causing a nearly 4% drop in the tech company's share price that precipitated a domino-like rash of headlines. While the billionaire investor is known for taking a long view on the companies he owns, he makes it clear in this year's letter to shareholders that his commitment is not without borders.

5/16/2017

John Reese Forbes Articles
Forbes

A Fundamental-Based Investment Approach Is Timeless: Five Stock Buys

Long before Warren Buffett, Bill Gates or John D. Rockefeller, there was Jakob Fugger. Born in Augsburg, Germany in 1459 to a well-heeled merchant family, Fugger emerged as one of history's most ruthless businessmen, keenest investors and preeminent financiers for kings, explorers and popes (albeit at times for such ignoble pursuits as buying votes and waging war). In the process, Fugger became one of the wealthiest people in history, amassing a fortune of about $400 billion (in current dollars) at the time of his death, a whopping 2% of Europe's GDP at the time.

5/10/2017

John Reese NASDAQ Articles
NASDAQ.com

International Markets, Mean Reversion and 5 Picks

An article in last month's Financial Times stated, "Investors are flocking back to European equities and propelling a rally across continental stock markets," noting the stark contrast with 2016 when "investors pulled roughly $100 billion from the asset class." It's easy to see why investors may have been ready to throw in the towel on international markets. Over the past 10 years, the MSCI EAFE has shown an annualized return of a measly 1.2%. The S&P 500, on the other hand, has earned an annualized return of 7.2%. Over the last 3 years, the performance gap is even wider.

5/9/2017

John Reese Forbes Articles
Forbes

Forget P/E, Focus On Price-To-Sales To Find Super Stocks Like These

As the second earnings season of the year winds down, we're reminded of how much investors and the media focus on a company's profits and a stock's price-earnings ratio, the ubiquitous share valuation measure. Price-earnings ratio, calculated by dividing a stock's per-share price by the amount of per-share earnings it generates, is used to give investors an idea of how much bang they're getting for their buck. For decades, the P/E ratio has been the most frequently used and discussed stock analysis ratio and, in many newspapers, it's the only valuation metric included in their daily stock listings.

5/8/2017

John Reese Globe and Mail Articles
The Globe and Mail

Why ETFs Have Displaced Mutual Funds as a Portfolio Mainstay

Many investors may not be aware, but the idea of an exchanged traded fund was originally conceived by the U.S. Securities and Exchange Commission in response to the 1987 stock market crash. The idea for an ETF-like vehicle, which was labelled a "market basket instrument," was discussed by the SEC as a way to buffer the equity market from the futures market, writes Eric Balchunas in his book The Institutional ETF Toolbox. As Mr. Balchunas points out, "the U.S. government had a hand in inventing the ETF."

5/2/2017

John Reese Forbes Articles
Forbes

Buffett, IBM And Picks For The Long-Term Investor

Warren Buffett has heard noise about IBM before, so when this past week's announcement of a revenue miss resulted in a 5% dip in the tech giant's share price, he did what he typically does when faced with short term shifts in the value of his holdings. Probably nothing. There are those that think Buffett's stake in IBM is curious, not only because of his openly cautious approach to tech over the years but also because of the world's continuing shift toward cloud computing-and the threat it represents to the makers of computing devices. But Buffett doesn't make investments without having a concrete reasons for doing so.

4/30/2017

John Reese Globe and Mail Articles
The Globe and Mail

How to Avoid Being 'Skewed' by Stocks Delivering Outsized Gains

The odds of winning a coin flip beat the chances of hand-picking a winning portfolio of stocks. This effect has been well documented over the last year as active fund managers failed to beat broad market benchmarks such as the Standard & Poor's 500. J.B. Heaton, a lawyer and PhD in financial economics, has written recently about a phenomenon called "skewness" that helps explain why stock pickers can't get an edge. His work builds on previous academic research on the subject from as far back as 20 years ago.

4/26/2017

John Reese Forbes Articles
Forbes

UConn Women's Basketball, Bill Miller And The Realities Of Winning Streaks

After winning 111 games in a row and setting a college basketball record, the UConn women's basketball team suffered a shattering 66-64 loss last month against Mississippi State on a buzzer beater jump shot that ended the team's four-year title run. The last time Connecticut had suffered a loss was November 14, 2014. Within seconds, their streak ended. What did legendary coach Geno Auriemma say about his team's loss? "I knew this was coming at some point. I'm just shocked it took this long to happen."

4/25/2017

John Reese NASDAQ Articles
NASDAQ.com

When it Comes to Investing, Simpler is Often Better

The simpler it is, the better I like it. Of the countless quotes attributed to mutual fund great Peter Lynch, this one really stands out as a reflection of his investment philosophy. When he took over as manager of Fidelity's Magellan Fund in 1977, fund holdings totaled approximately $20 million. During his tenure from 1977 to 1990, it generated returns averaging 29.2% per year compared to the S&P 500's 15.8%, making Lynch something of a legend. When he retired in 1990, the fund had grown to $14 billion, a 700-fold increase.

4/19/2017

John Reese NASDAQ Articles
NASDAQ.com

Five Stock Picks for the Level-Headed Investor

The story centered around his highly-intelligent, "switched-on" friend Art, who would become extremely reactive when the market rose, call O'Shaughnessy and instruct him to go "all in" on his most aggressive strategy-one which would have done well over the prior several years. O'Shaughnessy (founder of the asset management firm bearing his name) would advise his friend against the move, but to no avail. At which point, O'Shaughnessy recalled, "I would hang up the phone, get on the speaker so that everyone in the office could hear and say, 'We've just called a market top.'"

4/18/2017

John Reese Forbes Articles
Forbes

Stock Picking Robots Are Coming

The use of robots in the workplace has allowed companies to lower production costs, increase efficiency, and fatten margins. Although it's unlikely that machines will completely displace humans-at least in our lifetime--the conversation is gaining momentum in the world of investing. Money managers are allocating more resources to quantitative model-building and the bot-versus-human narrative has amplified as firms are turning to stock-picking algorithms to entice clients seeking low-cost alpha. According to PricewaterhouseCoopers, robotic process automation (RPA) concepts--logic-driven robots that execute pre-programmed rules-"have been around for nearly a decade, and they've advanced quickly. In financial services, insurance carriers have used RPA in claims processing for quite a while. Capital markets firms are now turning to 'automation' to reduce costs, provide better service, and even make complex regulatory implementations work more efficiently."

4/16/2017

John Reese Globe and Mail Articles
The Globe and Mail

If You Can't Find a Good Fund Manager, Turn to ETFs

Warren Buffett, the billionaire famous for selecting stocks that become winning investments, has long said investors would be better off ditching high-fee actively managed funds and putting their money in low-cost indexing strategies. That is because active managers often go through droughts during which they lag the market. Mr. Buffett wrote about this in his recent annual shareholder letter, repeating advice he gave shareholders in 2005, when he said professional investors - over a period of years - will underperform the returns achieved by amateurs doing nothing more than putting their money in an index fund.

4/12/2017

John Reese Forbes Articles
Forbes

Five Small-Caps For The Long-Term Investor

Small-cap stocks enjoyed a shot in the arm in the wake of the Trump victory last November, as the markets reflected anticipation and excitement around the new president's domestically-centered, Make-America-Great-Again policy agenda. Since then, however, the small-cap rally has all but ground to a halt. An aborted health care vote and other missteps have raised some doubt as to how effective the president will be in effecting the changes he promised the country, including sweeping tax reform, deregulation, increased infrastructure spending and improved trade agreements. Small-caps are more sensitive to these policy shifts due to their disproportionate amount of domestic revenue (and higher effective tax rates than multinational companies), and stand to benefit from Trump's plan to bring overseas production back within U.S. borders.

4/4/2017

John Reese Forbes Articles
Forbes

Five Stocks For The Smart Contrarian Investor

The Citigroup Economic Surprise Index, which measures how current economic data is comparing to expectations, has been rising for months and is now at a three-year high--which really isn't much of a surprise. Consumer confidence is up, the economy continues to expand, and investors remain pretty optimistic. The elevated index, however, could be a warning sign for stocks. Historically, markets perform best not during times of economic prosperity but rather when the economy is booming despite diminished expectations . When things are plugging along as they are in today's market, forecasters tend to extrapolate forward using recent trends and assume the good news will continue. Unfortunately, however, stocks don't necessarily follow suit.

3/29/2017

John Reese NASDAQ Articles
NASDAQ.com

Four Magic Formula Picks For a Richly Valued Market

"Frothy." "Pricey." "Stretched." These are among the adjectives used to describe the stock market's valuation these days -- and they're not even the most ominous. When you consider the cardinal rule of investing-buy low, sell high-such descriptors could discourage the most intrepid investor. Unless you subscribe to the view of one of the greatest investors of all time, that is. Warren Buffett not only believes that the U.S. stock market is a good bet, he declared in a recent CNBC interview, "If there's a game it's very good to be in for the rest of your life, the idea to stay out of it because you think you know when to enter it-is a terrible mistake."

3/29/2017

John Reese TheStreet.com Articles
TheStreet.com

Buffett, Rail Investors Could Be on the Right Track

When you land on one of the railroads in a game of Monopoly, there's a good reason not to pass on buying it. In his recently released 2016 letter to Berkshire Hathaway (BRK.A) (BRK.B) shareholders, Warren Buffett sings the praises of his company's ownership of Burlington Northern Santa Fe by describing the resilience of the railroad's operations. With respect to the company's debt, Buffett says that it has "earning power that, even under terrible economic conditions, would far exceed its interest requirements."

3/28/2017

John Reese Forbes Articles
Forbes

Quant Guru Explains Why Reactive Investing Undermines Success

The knee-jerk, media-sensitive mindset of most investors gets in the way of their success. At least that's the gist of comments made by James O'Shaughnessy, CEO of O'Shaughnessy Asset Management, in a recent Bloomberg interview. O'Shaughnessy, whose philosophy inspired one of my guru-based stock screening models, is a quantitative investor who uses concrete metrics to evaluate stocks. In his 1996 book What Works on Wall Street, he outlined the results of an in-depth, quantitative stock market study (one of the most detailed in history) in which he back-tested the performance of dozens of stock-picking approaches spanning more than four decades (from the early 1950s to the mid-1990s).

3/28/2017

John Reese TheStreet.com Articles
TheStreet.com

European Picks That Could Be Worth the Trip

Even before German Chancellor Angela Merkel's irksome summit with President Donald Trump, uncertainty had been looming across the pond. As the slow march toward Britain's exit from the EU continues and the tense French presidential election nears, there's a lot to keep track of with respect to the European markets. Add to the mix the European Central Bank's fairly loose grip on the interest rate reigns--even though economic data is on the upswing--and you've got more than a few plates in the air. According to an article last month in the Wall Street Journal, in February the Eurozone Economic Sentiment Indicator hit its highest level since March 2011, and "the world economy is enjoying unusually synchronized strength."

3/21/2017

John Reese Globe and Mail Articles
The Globe and Mail

Five Stock Picks Inspired by 3G Capital and Buffett Strategies

The Brazilian billionaire partners at the private-equity firm 3G Capital have often been compared to Berkshire Hathaway billionaire Warren Buffett. The two big investors have teamed up on some high-profile deals, notably the acquisition of H.J. Heinz and the subsequent merger of Heinz and Kraft, not to mention the recently abandoned approach by Kraft Heinz to buy Unilever. But while Berkshire Hathaway's portfolio is weighted heavily to stocks of consumer-goods companies and - owing to a big bet on Apple and IBM - technology, 3G's stock holdings include a heavy dose of energy, basic materials and telecommunication shares.

3/20/2017

John Reese Forbes Articles
Forbes

Is The Market Expensive? Buffett Says No

"Frothy." "Pricey." "Stretched." These are among the adjectives used to describe the stock market--and they're not even the most ominous. When you consider the cardinal rule of investing-buy low, sell high-such descriptors could discourage the most intrepid investor. Unless you subscribe to the view of one of the greatest investors of all time, that is. Warren Buffett not only believes that the U.S. stock market is a good bet, he declared in a recent CNBC interview, "If there's a game it's very good to be in for the rest of your life, the idea to stay out of it because you think you know when to enter it-is a terrible mistake."

3/20/2017

John Reese Globe and Mail Articles
The Globe and Mail

Warren Buffett Pushes Back at Critics of Stock Buybacks

Warren Buffett's Berkshire Hathaway currently has $86-billion (U.S.) cash at its disposal to acquire companies or take bigger stakes in existing stock holdings, as it did with Apple shares in the final three months of 2016. Shareholders and followers of Mr. Buffett have come to expect big moves from the billionaire, who is known for focusing on the long term. But in his annual letter to shareholders last month he spent some time trying to talk readers into accepting a practice that has been vilified for encouraging short-term thinking: share buybacks.

3/10/2017

John Reese TheStreet.com Articles
TheStreet.com

4 Value Stock Picks for an Elevated Market

If you ever shopped for a DVD in a video store you would typically walk past a bin of cheap movies on the way to the new-release rack. The new titles would be pricey, so you might turn to the jagged bargain pile, the top layer picked over because it was too hard to rummage through without work gloves and a lot of patience. But if you committed to scouring carefully and systematically, you could sometimes find a jewel. The bargain-bin pickings in today's market are slim, to be sure, but that doesn't mean there are none to be found. True value investors understand that shopping for good deals goes much deeper than the sticker price.

3/9/2017

John Reese TheStreet.com Articles
TheStreet.com

General Motors 1 of 6 Picks for Main Street Investors

President Trump's promise to "Make America great again" -- by creating jobs, pushing for tax reforms and deregulation, and renegotiating trade agreements with a view toward strengthening domestic businesses -- has brought Main Street back into focus. According to the 2017 Business Leaders Outlook survey from JPMorgan Chase, optimism is at its highest level (and pessimism at its lowest) since 2010. Michael Hartnett, chief investment strategist for Bank of America Merrill Lynch, recently told WealthTrack's Consuelo Mack that the past decade of slow growth, low interest rates and nonexistent inflation was "great for what the rich people buy and own."