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Oppenheimer Holdings Inc. Message Board

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  • So how was the article from 1994 shared 3 months ago relevant today? If you took the time to read the entire article..(it was actually titled: “STOCKS ARE STILL YOUR BEST BUY Yes, they look expensive -- but a strengthening economy offers plenty of opportunity. A look at the business cycle will help you pick the right sectors.”)

    So the question in this article wasn’t whether the stock market will perform well or not but that if you pick the right industries to invest in, then stocks are still your best buy.

    As the article reads: “The road to riches requires looking at the parts of the stock market that are not aging and worn out but merely primed to take off as the economy's engines roar on. BUYING STOCKS that perform best in an economic upswing will involve a few decisions: Do you want a stock that has already performed well, or do you want to go with stocks just starting to turn?”

    So how relevant were those industry picks in 1994 to their performance in 2014? Let’s take a closer look at those industries’ YTD performance. With only one industry in the red (steel) the rest of the picks were among the highest performing so far in 2014. On aggregate if one had picked these sectors he/she would have outperformed the S&P 500 by many % points even as the market as a whole is pretty much flat:

    Aluminum +20%
    Gold +12%
    Airlines +10%
    Silver +9%
    Trucking +6%
    Railroads +2%
    Chemicals +2%

  • This article was published on March 21st, 1994!!! Yes, almost 20 years ago!!! I selected the most relevant points....

    (FORTUNE Magazine) – IS IT TIME to turn away from stocks? No, not yet, though your nervousness is understandable. Τhe Dow Jones industrial average seems dangerously high. After 40 months without a 5% to 10% correction, vs. an average bullish run of 27 months, the market is indeed long in the tooth. But the power of investor cash and strong earnings cannot be ignored. Despite this rising market's advanced age, its total return to investors is still subpar. More money can be made. The road to riches requires looking at the parts of the stock market that are not aging and worn out but merely primed to take off as the economy's engines roar on. Rising interest rates means a new chapter for the market. For years declining rates boosted stocks, making them more attractive than fixed-income investments. But the Federal Reserve reversed gears. Investors initially took the news badly..But those who sold may have acted too hastily.....will lower the attractiveness of stocks, represented by the P/E multiple on the market. Stocks in Standard & Poor's 500-stock index recently traded at 23 times trailing earnings. The average historical P/E multiple for stocks is 14. If earnings don't come through fast enough, prices will have to fall to make stocks look more reasonable. But while rising interest rates may eventually slay the bull, that's unlikely to happen soon. One reason is that near-term advances in earnings could pull down those lofty P/Es. When compared with expected earnings the market looks more reasonable, trading at a P/E multiple of 15. Companies have been reporting strong gains through cost cutting and modest price increases in sectors like autos. An economic turnaround in Europe would spell more good news...

  • After reading the article on Seeking Alpha about OPY and regarding the fallacy of the book value ratio, I was surprised to read this “the easiest ways to be deceived is the book value metric.”

    It’s good to over-analyze the structure of the P/B ratio and whether it is a fair valuation method or not. To a certain point this is reasonable, however, what the article fails to point out is the comparison aspect.
    When I look at valuation methods like P/E or P/B or even when looking at risk statistics like Standard Deviation, I tend to compare these numbers vs. a benchmark. After all, what do these ratios really tell us as stand alone numbers? Why not look at it on another level? For instance, look at the intricacies of the P/B ratio vs others. Wouldn't it be worth exploring the comparison with sector peers or via comparison with historical mean P/B ratios before discarding the metric all together?

    It is not my intention here to suggest that the P/B ratio has fallen over that of its historical mean or is grossly undervalued vs. its peers because I don't have the statistics to prove that it is so. However, it is important for the investor to consider the main driving factors of the P/B ratio. Wouldn't these ratios be more relevant when used as a guide vs. other comparable historical or peer group valuations? These are questions that the investor should ask himself in response to such specific calls, instead of just following these analyses blindly.

  • Reply to

    The "January Effect"....

    by superbmetamorphosis Jan 8, 2014 8:53 PM

    ....continued.....The answer is: the annualized since inception return (from 1926) on the S&P is now 10%. Where as the 20 year annualized return is 9.3%. Historically, the correlation between the two shows that the 20 year annualized return has not dropped significantly below the “since inception” (from 1926) annualized return. I don’t know what the 2014 return will be, but my educated guess is that market prices will be much higher than today 3 to 5 years from today. If you examine the correlation between the 20 year time frame vs the since inception period returns, one can determine that the data provide a comprehensive idea of fair market levels over time.

    So, how is this historical data relevant? My point is simple, next year’s return might not prove to be as crucial because we will be dropping the 1994 return from our 20 year calculation (1.32% return in 1994). However, where it gets interesting is from 2015 and on. When chartists will start looking at the 20 year annualized returns vs the since inception annualized returns. (the 20 year annualized return will drop sharply, unless we are able to frontrun the 38%, 23%, 33%, 29% and 21% returns from 1995-1999) This is probably one of the most relevant aspects to study and understand. So to me, it is better to further analyze long trends. Not the months following the January phenomenon…

  • Lately I hear that the annual stock market price trends tend to repeat the month of January price movement.

    I believe that history is philosophy teaching by example. That, in a nutshell, summarizes why history is relevant. Knowledge of market ups, downs and sideways movements in the past allows the investor to have a perspective of how drastic, or not, market swings can be.

    However, if we look at the potential of the above example of the “January” effect as a “warning” or a “tell” on where the markets are heading then why not further examine long-term historical trends? Why just rely on the short-term outcome of events?

    I too, believe that 87 years are sufficient data points to draw conclusions from. However, I think the “tell” of the January effect is kind of silly.

    To me, a more relevant question is what has been the correlation between the annualized “since inception” return on the S&P 500 each year from 1926-2013 vs. the 20 year annualized return.....continued....

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