Succinct Summation of Week’s Events for 6.14.19 (plus “What Works”: Key New Findings on Stock Selection)

Below is the usual weekly summation, the main positives being an increase in industrial production double the forecast and roughly 50,000 more new job openings than expected.  The corresponding negative is 3,000 more jobless claims than previous but the 50,000 new openings should be good news for those people.  The bonus this time is Article #36 of the AAII Top 40 which follows along the same theme as yesterday, "New Findings on Stock Selection."  Hope everyone enjoyed the soggy weekend. 

Succinct Summation of Week’s Events for 6.14.19

June 14, 2019 5:00pm by Barry Ritholtz

Succinct Summations for the week ending June 14th, 2019

Positives:

1. MBA mortgage apps rose 10.0% w/o/w, greater than previous decrease of 2.0%.
2. MBA mortgage refinance apps rose 47.0% w/o/w, greater than previous 6.0% increase.
3. Job openings came in at 7.449M for April, higher than the expected 7.400M.
4. Industrial production rose 0.4% m/o/m, greater than the expected increase of 0.2%.
5. Business inventories rose 0.5%, meeting the higher end of expectations.
6. PPI-FD rose 0.1% m/o/m, meeting expectations.

Negatives:

1. Jobless claims rose 3k w/o/w from 219k to 222k.
2. CPI rose 0.1% m/o/m, lower than the previous increase of 0.3%.
3. Import prices fell 0.3% and exports prices fell 0.2% w/o/w, both lower than the previous increase of 0.1% for each.
4. Retail sales rose 5.0% m/o/m, missing the expected increase of 7.0%.
5. Consumer sentiment came in at 97.9 for May, lower than the expected 98.4.
6. Same store sales rose 5.0% w/o/w, decelerating from previous increase of 5.8%.

June 10, 2019 » View Online For the AAII Journal’s 40th anniversary, we are celebrating by sharing 40 influential investment education articles from our past. These from-the-vault, hand-curated articles are of value because each one imparts a timeless investment process or lesson.

TOP40: Article 36

“What Works”: Key New Findings on Stock Selection “There is no such thing as a silver bullet” is a phrase that applies to a lot of different things, including investing. In my 22-plus years at AAII, I have yet to come close to finding a single variable or indicator for selecting stocks. Just as certain sectors and industries and investment styles (growth versus value, etc.) fall in and out of favor, so too do different factors. This is also what James O’Shaughnessy discovered when he set out to find the “best” investment factor, the results of which became the first edition of “What Works on Wall Street,” in 1995. O’Shaughnessy studied the performance of a range of factors, including the price-to-sales ratio, EBITDA-to-enterprise-value ratio, price-earnings ratio and shareholder yield (dividend yield plus buyback yield). What he found was that factors, too, experience periods of strength and weakness. O’Shaughnessy updated his research for the fourth edition of “What Works,” which he summarized in this October 2013 article “What Works”: Key New Findings on Stock Selection. As a value investor, one lesson you learn rather quickly is that a stock trading at a cheap valuation isn’t always a real value. This is especially true if you are only looking at one valuation measure, such as the price-earnings ratio. To help overcome this, O’Shaughnessy developed a value composite that is made up of five different valuation measures. This composite, based on his research, significantly increases the likelihood of correctly identifying stocks that are over- or undervalued. O’Shaughnessy also created composites for financial strength and quality. These two composites work well at helping you know which stocks to avoid. The financial strength composite uses four factors built from balance sheet and cash flow statement items that provide a picture of a company’s debt load and its ability to repay its obligations. The earnings quality composite uses four factors to see how closely reported accounting earnings match “cash” earnings. The greater the disparity between the two, the lower the earnings quality of a company. If there is one lesson to be learned from O’Shaughnessy’s research, it is that you shouldn’t be basing your buy and sell decisions on a single variable or factor. In the long run, selecting companies with excellent value, financial strength and high earnings quality should boost your portfolio’s performance. To learn more, see the article “What Works”: Key New Findings on Stock Selection. Stay tuned: Tomorrow I highlight an AAII Journal article that outlines attitudes and processes that can help you cope with turbulent markets to keep you on the path toward a secure retirement. Read the full article now — “What Works”: Key New Findings on Stock Selection