During this time of year in the Upper Midwest one can say if you don’t like the weather—wait a day. With the jet stream bouncing above and below us in rapid order like so many Vikings passes, our weather can go from frustrating to fine in the short-term often before we can react to it. It reminds us of the market.

The question we have is that with the rise of computerized trading and artificial intelligence, are we mere humans getting beat in short-term investing? Despite The Rise of the Machines, these devices do have to be programmed by some lowly carbon-based life form somewhere. But the software can be programmed without the personal biases of humans and can take into consideration several different investment styles modeled after some of the best investors in those styles. Continue reading →

Now that we are entering October, we Upper Midwesterners have to look forward to a dreary period of time when days are darker, our skin starts to shiver and our hearts beat faster to move our chilled blood. I am speaking, of course, of Earnings Season.

After listening to countless conference calls, several detailed phone discussions and reading/writing many reports we need to figure out what we think these securities are worth. But what method does one use for valuation? Price to Earnings is the most popular and can be used across sectors, but can be managed via accounting methods and is not useful for early stage/pre-earnings companies.  Price to Sales combats some of those problems and can be the least susceptible to accounting noise, but can overlook poor cost oversight. Enterprise Value to EBITDA works well because it can reflect the cash generation characteristics of a company and is comparable across capital structures but can be difficult to utilize across industries. Price to Book can be the go to valuation for pre-earnings companies but can be difficult to use due to differences in accounting assumptions. We have other valuation tools as well, discounted cash flow, PEG ratios and many others.

Naturally, we use each of these valuation methods on a daily basis and some may work better than others for certain sectors and certain situations—and we all need to use a combination to get a more qualified valuation picture. But usually we have our favorites and one that we typically put more weight on than others—especially during the screening process. Do you have a valuation method that you go to more often than others? What do you think?

Last week the Federal Reserve surprised nearly everyone when it decided to delay the so-called “Tapering” of its asset purchases after communicating to the market that it likely would do so earlier in the year. While we are not Fed watchers (we prefer watching the Vikings, albeit the Vikings may be more painful to watch), count us as one of the surprised by the Fed action. We thought that one of the recent goals of the Fed was to become more transparent, which up until recently we believed it was successful in doing. Markets were better able to anticipate Fed moves and the Fed could see the market’s reaction to its policies, or potential policies, on a real-time basis. Not a bad deal eh?, as we say in Minnesota.

Some would say because of this the credibility of the Fed’s transparency been called into question. If so what will be the fall-out? The markets anticipated a tapering and sent out what we considered a rational price signal by moving the prices of interest rate-sensitive assets. Now those decisions likely will be called into question. And as we all know, Mr. Market doesn’t like surprises.

Therefore our question to you is what will happen next time the Fed telegraphs a potential tapering? Will the markets take the Fed at its word and treat this as a one-off after a likely change in Fed leadership or will Fed announcements in the future cause as much seemingly random behavior as a Christian Ponder pass? What do you think?