• More on the Distribution of Stock Returns
    Posted by on April 21st, 2009 at 2:45 pm

    Last week, I discussed the distribution of stock gains. I speculated that the fat tails is probably very significant. It hints that there may be “great stocks” whose returns make up an unusually large share of the market’s gains.
    I looked at the market’s gains this decade. Here’s the distribution of gains for over 3,500 stocks since December 31, 1999 (I used a log scale):
    image796.png
    The x-axis shows is the stocks ranked from worst to best (left to right). The y-axis is the log of the gain.
    The median stock is a loss of 20%. Over 57% of stocks are down for the decade. Even the stock at the 25th percentile is up about 70% which isn’t that great for a decade’s work.
    Just by eyeballing the chart, the appears to be major turn northward at around point 3400 which corresponds with a gain of over 500%.
    Here’s the raw data. I’d welcome if anyone could make a histogram based on standard deviation points. I strongly doubt that it’s symmetrical.
    Update: Don Fishback was good enough to bring his charting skillz to us. Check out his post. What strikes me is the leftward tilt of the distribution. Lots of underperformers. It’s like Wall Street is a reverse Lake Wobegon.
    Another Update: A reader provides a graph of returns by standard deviation. Notice how the peaked is to the right of 0.
    image798.png

  • Eaton Vance Takes a Hit
    Posted by on April 21st, 2009 at 12:22 am

    Shares of Eaton Vance (EV) got dinged today for over 11%. In this past weekend’s Barron’s, I noticed they ran a research piece from Sandler O’Neill saying that run in asset managers is overdone. That’s not really a big deal except that EV hasn’t been leading the market at all. The stock is up 70% since the market bottom in early March, but the stock was down a lot too.
    I can’t be sure if the Barron’s piece caused today’s selloff, but Sandler O’Neill also made it clear that they’re raising their earnings estimates for the quarter and fiscal year.

  • Memo to All CWS Employees
    Posted by on April 20th, 2009 at 2:26 pm

    To: CWS All
    From: Eddy
    Subject: Cost-Cutting Initiative
    Look folks, in case you haven’t noticed, we’re in the worst depression in 70 years. This means that all of us–you, me, my security detail–need to start cutting back on expenses. I’m ordering all department heads to cut their FY 2009 budgets by 0.0028%. I realize this will be painful and I want to thank everyone for their help.
    Read here for more details.

  • Citi Guys Slams Sysco
    Posted by on April 20th, 2009 at 1:12 pm

    In NY Mag, a Citigroup exec slams the unwashed masses:

    “No offense to Middle America, but if someone went to Columbia or Wharton, [even if] their company is a fumbling, mismanaged bank, why should they all of a sudden be paid the same as the guy down the block who delivers restaurant supplies for Sysco out of a huge, shiny truck?” e-mails an irate Citigroup executive to a colleague.

    Two things: First, saying “no offense but” is not an excuse to be offensive.
    Secondly, and for the record, you could have bought Sysco (SYY) 35 years ago for $21-1/8. Today, the stock is at $22.30.
    Oh, did I mention the splits totaling 144-for-1?
    Let’s just say that Citigroup hasn’t been as strong a performer.

  • Another Victory for Technical Analysis
    Posted by on April 20th, 2009 at 12:46 pm

    The S&P’s rally begins almost exactly six years after the last turnaround. It even picks the devlish 666 as a bottom.
    Then on Friday, the index finally surpasses gold for the first time in three months.
    So of course we were due for a selloff!!
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  • The Battering of Quants
    Posted by on April 20th, 2009 at 12:30 pm

    Bloomberg wakes up to the fact that momentum quant funds have been getting killed:

    Companies with the most debt and lowest returns on assets are turning the biggest six-week rally in stocks since 1938 into a bloodbath for last year’s best- performing trading strategy.
    Investors using so-called quantitative momentum strategies — which speculate that the worst stocks in the past 12 months will continue to decline — have become this year’s biggest losers after banks and companies that rely on consumer spending surged. Quant momentum managers may have lost 27 percent this month in the U.S., the most since at least 1993, while those in Europe may have dropped 20 percent in March and 24 percent in April, according to data compiled by JPMorgan Chase & Co.
    “Not in a million years would we have expected this gyration to be as vicious and enduring as it has been,” Steven Solmonson, the head of Park Place Capital Ltd., a hedge fund that oversees $150 million, said in an interview from New York. “The quants got whipsawed badly.”

  • Eli Lilly’s Earnings Jump 23%
    Posted by on April 20th, 2009 at 9:26 am

    Eli Lilly (LLY) is one of our new additions to this year’s Buy List. The company just reported decent earnings this morning. AP reports:

    Eli Lilly & Co. said Monday flat costs and strong sales of several top-selling drugs boosted first-quarter profit 23 percent, surpassing Wall Street expectations.
    Higher sales volume and increased prices helped boost revenue from many of Lilly’s drugs. Those factors helped offset a reduction in revenue caused by the stronger dollar, the company said.
    Sales of the antidepressant Cymbalta, Lilly’s second-best seller, grew 17 percent to $709 million, and the insulin Humalog saw revenue rise 11 percent to $450.6 million.
    Lilly earned $1.31 billion, or $1.20 per share, compared with profit of $1.06 billion, or 97 cents per share, during the same period a year earlier. Revenue rose 5 percent to $5.05 billion.
    Analysts polled by Thomson Reuters expected profit of 99 cents per share on revenue of $5.05 billion.

    That’s a huge earnings beat. The company also reiterated its full-year EPS forecast of $4 to $4.25 which means the stock is far from fully valued. The stock also pays a dividend close to 6%. Eli Lilly is a great buy.
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  • The Allure of Outrage
    Posted by on April 19th, 2009 at 7:19 pm

    Clay Shirky has a very good and honest post on the narcotic allure of moral posturing. I think this is a bigger problem that many people realize.
    What I find so frustrating about such much political discourse is that people don’t want to be proven right—they want to be proven better.
    (HT: Felix)

  • Rabbit Hood
    Posted by on April 19th, 2009 at 4:54 pm

    They really don’t get much better than this:

  • Event Risk Is Driving Markets
    Posted by on April 17th, 2009 at 4:43 pm

    Peter Boockvar from a recent speech:

    If the DJIA goes to 10,000, great! But if gold goes to $2000 at the same time, maybe not so great. If the stock market was left to its own devices, than I would say 400-500 in the S&P would be its inevitable destination as 10x ’09 earnings of about $40-50 would be a fair multiple based on previous bear market bottoms. Unfortunately, our officials won’t let it happen as any recovery that may soon ensue will be darkened by the insidious hidden tax of inflation, debasement of our currency and excessive sovereign debt that will take more and more tax dollars (aka, money sucked out of the private sector and shifted to government) to finance.
    We all have to understand that the Fed and Treasury have embarked on a grand experiment. We now have a marketplace where fundamental analysis is being trumped by huge event risk of a different kind, Washington, DC kind, where some new acronym program, some reckless comment from a Congressman or some new asset class Bernanke Capital Management deems attractive to him, is driving markets.

    (Note: I originally misidentified the speaker as Barry Ritholtz. This has since been corrected).