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Is there an undervalued asset class in the house?
Old 06-05-2007, 02:35 PM   #1
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Is there an undervalued asset class in the house?

I'm watching our ER portfolio hit a seemingly never-ending series of new highs. My Fidelity.com daily e-mail alerts consist mostly of "xxx hit a new 52-week high." Our kid's college fund is going to both Harvard AND Yale. We're not rebalancing because everything seems to be going up fast enough to remain more or less in its allocation.

I'm not looking for trouble and I'm not going to chase performance. I'm even getting nervous about shorting anything else because I'm afraid of all the irrational investors. I could sit on our current holdings for quite a few more years, including my shorts in First Federal and Abercrombie & Fitch. I'm just having a hard time finding anything that makes me go "Hmmm!" and look up its history or fire up a spreadsheet.

So... what asset class sucks? I'm not talking about "This is too expensive". I'm talking about "This is cheap for a reason, and it's a really ugly one!"
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Old 06-05-2007, 02:40 PM   #2
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Quote:
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I'm talking about "This is cheap for a reason, and it's a really ugly one!"
The first thing that comes to mind is Paris Hilton...
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Old 06-05-2007, 02:47 PM   #3
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Nothing wrong with a 5% yield 2 year treasury bought at issue...
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Old 06-05-2007, 02:58 PM   #4
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At this time, the dollar is down and unpopular. Does that make it undervalued? Only time will tell. Also, without doing ForEx trades, it's not clear to me how to "invest" in the dollar except by investing in US companies.
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Old 06-05-2007, 03:03 PM   #5
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Dunno. SP 500 index fund? VFINX was trading at a PE of 16.9 as of 4/30/07.

Maybe Large Cap Growth. It's been "the year of large cap growth" for the last few years though, and in spite of that it has underperformed. Maybe this year is the year...
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Old 06-05-2007, 03:40 PM   #6
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How about the Prudent Bear Mutualk Fund??
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Old 06-05-2007, 04:54 PM   #7
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Cash!
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Old 06-05-2007, 04:58 PM   #8
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So... what asset class sucks? I'm not talking about "This is too expensive". I'm talking about "This is cheap for a reason, and it's a really ugly one!"
I don't see any cheap asset classes, but then again they aren't priced unreasonably if you think economic expansion will continue. Cheap industries (industry funds) meeting your description might include:

Banks having any whiff of a (or a direct) connection to subprime. Financial ETFs have underperformed quite a bit this year.

Anything related to the housing market (homebuilders, HD/LOW, building material manufacturers).

Perhaps pharma companies. Many believe they will have big problems replacing their blockbusters (e.g. PFE and Lipitor) or have large potential liabilities (e.g. MRK and Vioxx).

Maybe some of the heavier industrial companies because people are worried that their earnings have reached a cyclical peak (e.g. CAT, IR).

I think it's a trickier issue for index fund investors since no asset class looks cheap and if you aren't shopping for individual holdings nothing looks like a bargain. If I had to pick one fund class I'd agree with justin and go with large cap.

BTW, I'm starting to get the feeling there aren't many of us here who want to talk about individual securities.
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Old 06-05-2007, 05:14 PM   #9
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BTW, I'm starting to get the feeling there aren't many of us here who want to talk about individual securities.
I'm trying to get out of the ownership habit myself, so talking about it helps cut down on my buying impulses.

Besides it's good to be able to find the stock-picking threads without having to search among the rest of the board. There may not be many here interested in stock-picking, but it's probably at least as many as are participating in the surfing thread...
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Old 06-05-2007, 07:03 PM   #10
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BTW, I'm starting to get the feeling there aren't many of us here who want to talk about individual securities.
There's a few of us like brewer and me that will, but the "indexers" tend to overrun the threads with their "show me how you can beat Vanguard over 10 years and maybe I'll listen" diatribe.................
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Old 06-05-2007, 07:16 PM   #11
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As your DD is well into her high school career I would take some profits, at least a third and invest it in CDs. I think the cycle on this money is too short to go bargain shopping (unless you can find a good maritime carrier that you like). Maybe invest some in one of Brewer's bargains.
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Old 06-05-2007, 07:22 PM   #12
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OK, I'll bite. I work with a small universe (about 30) of what I consider high
quality management stocks, with long histories of increasing profits and dividends.
I evaluate stocks based on the ratio of current PE to historical PE, adjusted for changing
expected growth rates and adjusting income for whatever I happen to discover
in the 10Ks that I disagree with. I then own the best valued 10-15 stocks
within this universe.

I think that some of the biggest cap blue chips are slightly undervalued,
in particular PG, JNJ, GE, ITW.

I think that some of the higher quality REITs are getting reasonably priced,
in particular WRE and PLD.
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Old 06-05-2007, 07:24 PM   #13
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...but the "indexers" tend to overrun the threads with their "show me how you can beat Vanguard over 10 years and maybe I'll listen" diatribe.................
Naaahhh! We wanna watch you testosterone charged young bucks skilled analytical minds do your thing.
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Old 06-05-2007, 07:48 PM   #14
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As your DD is well into her high school career I would take some profits, at least a third and invest it in CDs. I think the cycle on this money is too short to go bargain shopping (unless you can find a good maritime carrier that you like). Maybe invest some in one of Brewer's bargains.
We've been going back & forth on that. (Paralysis by analysis.) She graduates from high school in 2010.

For many years Grandma & Grandpa were dropping broad hints about paying for college. In light of their move back to the Mainland, their condo purchase, and what we've learned of their 100% Treasury/CD asset allocation, however, I suppose we should revisit that assumption more pessimistically.

Way back in 1992 we bought enough "gone to hell in a handbasket" EE bonds to pay for at least half a ride to UH.* This was back when EE bonds were still a good deal, and since they're going to her education they won't be taxed. She was also gifted an I bond that'll pay for another semester or maybe two.

The rest of the college portfolio is invested half in Berkshire Hathaway and half in Tweedy, Browne Global Value. Both have darn near doubled over the last five years. Both are quite likely to ride out anything as nasty as 2000-2003 in good shape, although CDs would probably do better. There's not enough for Amherst or Hahvuhd but that's not our problem-- there's probably enough to buy four years in at least three-quarters of the nation's private schools.

If she was going to apply to a civilian school then I'd be all over a less-risky asset allocation, and we'd probably be at least a quarter in CDs by now.

But the kid is dead set on applying to USNA. She's hitting all the right GPA & demographic buttons and should be physically qualified. In those circumstances, she wouldn't be using any of those funds until at least 2014 and probably more like 2017. Graduate school? Med school? A house down payment? Under those possibilities we're not in any hurry to mess with the AA.

I think we're going to ride the razor's edge at least through the 2008 elections. Or maybe we'll do something if PenFed comes out with more of those righteous 6.25% CDs.

*Sigh, I need to update the Savings Bond Wizard again. There's gotta be an easier way! Looks like they're yielding 5.85%.
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Old 06-05-2007, 07:57 PM   #15
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I think bank and other financial stocks have all been punished in some case unreasonably for their association with the sub-prime lending.

I like Capital Source (CSE) which just announced its 3rd dividend increase in the last two years. It yielding just over 9% currently, although at just over $26 it isn't a screaming bargin.

Brewer talked about a while ago after CSE acquired TONE.

Disclosure long on CSE.
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Old 06-05-2007, 10:02 PM   #16
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There's a few of us like brewer and me that will, but the "indexers" tend to overrun the threads with their "show me how you can beat Vanguard over 10 years and maybe I'll listen" diatribe.................
Well? Show me and I'll shaddup...
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Old 06-06-2007, 07:27 AM   #17
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Well? Show me and I'll shaddup...
How shall I put this politely? Maybe an old saw is appropriate: "if you don't have anything nice to say..."
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Old 06-06-2007, 07:30 AM   #18
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I think bank and other financial stocks have all been punished in some case unreasonably for their association with the sub-prime lending.

I like Capital Source (CSE) which just announced its 3rd dividend increase in the last two years. It yielding just over 9% currently, although at just over $26 it isn't a screaming bargin.

Brewer talked about a while ago after CSE acquired TONE.

Disclosure long on CSE.
Banks in general are cheap. It seems to be so broad based that you could just buy one of the retail bank ETFs to get the exposure. I see more M&A going on now that prices have dropped and sellers are "coming to Jesus" and realizing that the Fed could let them twist in the wind for a loooooonnnnggg time.

FWIW, I looked carefully at CSE when they announced the TONE deal. I liked what I saw and plan on retaining the CSE shares I will receive for my TONE position, but its worth noting that CSE is materially higher risk than a retail bank funded with deposits. I imagine that CSE would be pretty badly hurt in a junk bond or capital markets crash.
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Old 06-06-2007, 08:36 AM   #19
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Japanese consumer finance companies, which have gotten whacked by some new anti-usury laws. I have some Promise (symbol: 8574) in my portfolio, which is down 40% since I picked it up 3 years ago, making it...let's see...yup, my biggest dog. Woof.
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Old 06-06-2007, 08:44 AM   #20
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Honda has been beaten down recently and seems to have hit a low of $34 this month. Performance in Japan is the reason. (ADR: HMC) But future prospects have to remain good. They have beaten Toyota on reliability overall which is a major feat.

Two others that I like (although they are already on a tear) are ACH and AMOV.
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