What we’re reading (7/6)
“Are Stock Investors ‘Irrationally Exuberant’ Again?” (Wall Street Journal). Objective measures of investor sentiment suggest the market today is nowhere near as frothy/bubbly/irrationally exuberant as it was during the internet-stock boom. The article looks at the number of IPOs/average first-day returns, the extent to which companies are raising equity versus debt capital (in a bubbly market, you should see more equity raises), performance of dividend-paying versus non-dividend-paying stocks, and the average closed-end-fund discount (note: this last one relates to the NAV discount/premium concept we talked about in a prior post on transaction costs).
“ETFs Tracking the Work-From-Home Boom: Just a Fad or Here to Stay?” (CNBC). We actually think “here to stay” (not because we think the particular ETFs mentioned in this article are necessarily winners, we just think working-from-home in general ought to, and will, become more prevalent).
“This is the Simple Reason You Can’t Believe the P/E Ratio for the Russell 2000 Right Now” (MarketWatch). A pretty interesting article that points out why you need to look under the “hood” of how ratios and financial metrics reported by third-parties are calculated. Specifically, some research firms exclude index constituent companies with negative earnings when computing the average price-to-earnings (“P/E”) ratio for the overall index, thereby understating the true ratio (the “E” in the denominator should be lower than they report, making the true overall P/E ratio higher). We’re drawing an additional conclusion here: investors should exercise great caution in using simple ratios (like price-to-earnings, market value-to-book value, etc.) as proxies for assessing whether a company or index is a good “value” investment. We explicitly try to capture the “value” concept in our model, but we don’t use these simple proxies to do it.
“J.P. Morgan Launches Two Actively Managed Equity ETFs—What You Need to Know” (CNBC). We already commented on this “actively managed ETF” thing when Fidelity launched its own vehicles a few weeks ago (see here). And we’re equally dismayed now to see others getting in on the action. We look forward to looking at how these funds perform going forward and comparing them to SP’s Prime and Select picks.
“Nation’s 30-Year-Olds Pool Money To Buy 2-Bedroom Bungalow Together” (Onion). A nice little real estate update: “Admitting they would never be able to afford a place without sharing expenses, the nation’s 30-year-olds announced Friday that they had pooled all their resources to buy a 1,100-square-foot, two-bedroom bungalow together. ‘It may not seem like much for a few million people, but we can finish the basement and maybe add another bedroom, plus it’s nicer than all our old places,’ said Zach Bartley, 30, who noted that the house had some plumbing issues and a really outdated kitchen, but that it still felt nice to finally own a piece of property.”
