Brandon Snow's blog

Investing with Honor

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I recently came across a great piece discussing Investing with Honor, which I think very nicely complements our investing philosophy.  The article was written by John Glotermann from Obermeyer Asset Management Company and published in Marc Faber's August Monthly Market Commentary.  Through all the noise in the market and with all the bad players trying to take a piece of the pie without a long term imperative, this discussion really helps remind us of our responsibilities.

Investing with Honor

U.S. equity valuation and implied returns

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Here is a quick discussion on multiples from our Strategist, Bob Swanson.

Recently, some attention has been placed on market valuation. Here we attempt to relate valuation to subsequent equity performance. The most common measure of valuation is the price to earnings ratio (P/E). Cambridge evaluates both the historical and projected P/E ratios. Today’s P/E ratio, based on the prior 12 months, is 17.9x while the 12-month forward P/E is 16.5x. Both of these measures are slightly above historical averages as seen in the chart below.

Cash is offence, stock picking is defense

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One of the comments that we frequently hear has to do with managers “raising cash” when they get defensive. We find it comical when we are told that someone has shifted from 2% to 8% cash in their portfolio because they are bearish – what really matters is the 92% of the portfolio that remains invested!

Sharpening Our Views on Income

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I wanted to pass along some comments from our macro team:

Since the end of the financial crisis, bonds have outperformed equities on a risk-adjusted return basis. We measure risk-adjusted returns via the Sharpe Ratio. Put simply, the higher the Sharpe Ratio the better the reward (i.e. total return) relative to the volatility. However, looking forward, we believe equities have a better balance of risk/reward over bonds.

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