A Simple, Incredible System that's Beaten the Market by 10% a Year
By Dr. Steve Sjuggerud
Friday, October 9, 2009
"Using a form filed with the government that's available to everyone, we've found ways to beat the market by as much as 10% a year."
Investment analyst Mebane Faber told me that recently (in so many words), over dinner with my good friend and mentor Van Simmons.
Mebane ("Meb" for short) is a relatively unknown young analyst, but he's doing fantastic work...
Last week, I told you about his simple investing system that didn't lose money for 35 years. (It's from his book, The Ivy League Portfolio.) What's more, it beat the market with less risk. And astoundingly, you only have to look at your portfolio once a month – 12 days a year. It's simple, but incredible... the mark of a great idea.
Last night, he explained another simple but incredible idea...
"Big investors – those with over $100 million – have to disclose their investment holdings in government filings called 13Fs," Meb explained. "The information is backward looking... But I've studied it, and it turns out it can be extremely valuable."
One thing Meb does is "clone" the big hedge-fund managers, like George Soros, David Einhorn, and Seth Klarman. Through these government filings, he can use these gurus' expertise without paying them big fees.
Meb explained that "mining" these government forms to copy the best portfolios works best with investment managers who hold stocks for a long period of time... investors like the world's second-richest man, Warren Buffett. Let's take a closer look at how you could use Meb's ideas to "clone" Warren Buffett's portfolio out of the government filings...
The 13F filings are quarterly. To keep it simple, Meb takes Buffett's top-10 holdings and equally weights them in his portfolio. Three months later, when the new 13F filings come out, he changes the portfolio.
Meb said, "It turns out that a simple portfolio that invests in Buffett's top 10 stock holdings, equal-weighted and rebalanced quarterly, beat the market by 10% a year from 2000 through 2008."
(A recent academic paper, called Imitation is the Sincerest Form of Flattery, corroborates Meb's research. It used a similar strategy from 1976 to 2008, and it beat the market by 11% per year.)
"Mining" these 13F forms turned out to be so valuable, Meb created a way to backtest these ideas automatically. He and his partner Maz Jadallah founded AlphaClone and made his program available to the public... for way too cheap (with a free 14-day trial and a "Guest Pass").
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Now, you can easily backtest the performance of a portfolio that simply follows the stock ideas of the biggest and best money managers as soon as their portfolios are available through government filings.
If you're interested in picking your own stocks, or you'd like to see how you could have performed if you'd followed the best hedge-fund managers in the business, give AlphaClone a try.
And keep an eye out for Mebane Faber. This young analyst keeps delivering original, simple ideas.
Good investing,
Steve
P.S. Follow Meb at www.MebaneFaber.com and try his AlphaClone program at www.AlphaClone.com. |
A DEPRESSING LOOK AT STOCK MARKET GAINS
Today, we perform a "real wealth" check on the stock market. It's a little disappointing...
As we mention from time to time, the seasoned investor computes his returns not in terms of dollars or euros, but in terms of "real wealth." And by real wealth, we mean gold.
Figuring gains in gold bypasses the misleading numbers you encounter because of inflation and currency dilution... It bypasses the "Boy, $50 doesn't cover what it used to" phenomenon and allows you to gauge returns by how much house, fuel, food, and vacation they'll buy you.
Performing this honest calculation is a downer this year: You see, the mainstream headlines will tell you that stocks – as measured by the S&P 500 – are up 18% this year. But gold is up 23% in the same time. So in terms of real wealth, stocks have actually decreased this year. Dollars are flooding the market, but they're worth less and less.
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Mortgage rates for 30-year fixed U.S. home loans fell for the second consecutive week, pushing borrowing costs to near-record lows.
The average U.S. 30-year rate dropped to 4.87 percent from 4.94 percent last week. The 15-year rate was 4.33 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement.
Falling rates helped boost home-loan applications last week to the highest level since May. The Mortgage Bankers Association's index of applications to purchase a home or refinance rose 16 percent. Rates around 5 percent, slumping home prices and a government tax credit for first-time homebuyers are bolstering demand for housing.
– Bloomberg
In the year since the government stepped in to rescue the collapsing mortgage giants Fannie Mae and Freddie Mac, the agencies have taken $96 billion from the Treasury, and may still need more.
That was the somber assessment delivered Thursday by the federal agency charged with overseeing the government-controlled Fannie and Freddie, which have lost a combined $165 billion since July 2007 as their bets on the housing market went bad.
Right now, 3.1 percent of Freddie Mac loans are seriously delinquent, and Fannie's seriously delinquent rates is an even higher 4.2 percent, Mr. DeMarco testified. And as unemployment nears 10 percent and homeowners struggle to persuade lenders to refinance their mortgages, delinquency rates are rising.
Fannie and Freddie now manage a stable of nearly 100,000 foreclosed properties, whose numbers are almost certain to grow.
– New York Times
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