2011 Year-End Valuations
From the December 2011 newsletter:
As mentioned last year, valuation ratios such as P/E are not very useful in making one year market predictions. This is disappointing, since they do a fair job of predicting longer-term returns of at least 5-10 years. As a result, you will not see a market forecast from us for 2012 or any other single year, unless we can support it with a high standard of evidence.
The next best thing is to evaluate the markets today using those valuation ratios and consider how that affects future returns in the 5-10 year time frame. It’s not as exciting, but it’s far more responsible and reliable based on historical market data.
Valuing Real Estate (REITs)
From the September 2011 newsletter:
In prior newsletters, I made the case for using the P/E ratio to value the stock market and to predict future returns. Now let’s apply the same analysis to real estate, or more specifically REITs.
One crucial feature of REITs is that they are required to distribute almost all their income to maintain their tax status. This means earnings (the E in P/E) can be closely approximated by dividends. And dividend data is far easier to find for individual investors. Even better, the REIT industry provides historical data on their website for budding data scientists.
Options for Old 401k Accounts
From the June 2011 newsletter:
If you have ever switched jobs, you probably have more than one old 401k (or 403b) account with past employers, with the occasional unexpected statement as your only reminder that they even exist. You suspect just leaving it there is not what you should be doing, but what is the best strategy with old 401k accounts?
When leaving a job and starting a new one, you generally have four options with your old 401k (exceptions always apply):
The Value of Diversification
From the March 2011 newsletter:
When I list “full diversification” as one of core components of Mariposa’s investment strategy, what does that really mean? What’s the point of diversification?
Before answering those questions, let’s first discuss one interesting, but often overlooked, property of investments: the difference between the realized, annualized return and the average return. For example, if you experience returns of +10% in one year and then -10% in the next, your realized return is not 0%, but slightly negative (-1% if you’re calculating at home). I like to think about this relationship as a simple formula:
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