Patsy Nodilo, CEO of Pathlight Investors, discuses the sharp pullbacks and market volatility that have greeted investors this year.
The following is an excerpt from our recent research piece "Stock Market Bubble or More Room to Run?" The full report can be found here:http://pathlightinvestors.com/sites/default/files/pdfs/Bubble%20or%20Room%20to%20Run%20Nov%202013t.pdf
At the time of this writing, U.S. stock markets are at all-time highs, and home prices in most markets have skyrocketed to near 2007 levels—all despite modest economic growth, elevated unemployment, and continued fighting in Washington D.C. This combination of strong investment performance and a weak macro environment has many investors believing that a bubble is brewing in stocks. They believe that artificially low interest rates have created false appreciation, that money printing will lead to rampant inflation, and, finally, that the bubble will POP, leading to another round of despair and
BUT WAIT—there is another sort of believer: those who focus on the indisputable facts—facts that show the
U.S. economy continues to grow, those who understand that millions of private sector jobs have been created over the
last four years, those who believe inflation remains tame, those who believe stocks are not excessively valued relative to
history, and those who are excited that U.S. government deficits are the lowest in many years. These sides couldn’t be farther apart, as evidenced by how easy it is to find prognostications on the future value of the S&P 500. To put it starkly, 2014 price targets range from 1,400 to 2,100, which translate into returns from current levels ranging from -21% to +19%, a 40% difference. This begs the question,who it right?
Patsy Nodilo, CEO of Pathlight Investors, shares the 4 “Be’s” of investing and how they've helped her and Pathlight create value consistently over the years.
The following is an excerpt from our recent research piece "Back from the Dead: Finding Value in Challenged Businesses" The full report can be found here: http://pathlightinvestors.com/sites/default/files/pdfs/October%20Pathlighter%20%2010162013.pdf
Halloween is a time of ghosts, goblins, monsters, and zombies—a month for candy, costumes, and haunted houses. I will be spending my Halloween with my two young children trick or treating, of which treats are their only interest, of course. In thinking about it, investment markets are not too dissimilar from the month of October. There are tricks, some treats, the walking dead, and some that will actually come back from the dead. The trick with investing is the ability to decipher those that will come back to life from those that may be perpetual zombies. In investment parlance, it’s the difference between finding value and value traps.
This analysis is easier said than done, as the abundance of information, or misinformation, media hyperbole, and the proverbial hot tip often lead investors to visit the wrong neighborhood. I’d like to take the mask off Pathlight’s investment process and let our clients and readers better understand the procedures we adhere to when researching and analyzing investment opportunities. We’ll use a real-life example of investing in a company that was left for dead by some investors but embraced by the Pathlight Investment Team.
Here's our picks for October 2013:
China growth ests cut by World Bank – the World Bank on Mon lowered its growth forecasts for China and most of developing East Asia; the WB now sees developing East Asian growth +7.1% in ’13 (down from +7.8% in Apr) and +7.2% in ’14 (vs. +7.6% in Apr). Chinese growth in ’14 is seen +7.7%, down from its prior forecast of +8% - Reuters http://goo.gl/E9XJ44
Puerto Rico is the new Greece - http://www.forbes.com/sites/realspin/2013/10/16/why-would-a-puerto-rico-debt-crisis-matter/
How Summers was doomed – the Reuters provides some background on Larry Summers’ path through the Senate; the White House knew he was doomed when it realized at least 5 Democratic Senators on the Senate Banking Committee were leaning against Summers as Fed chairman. "Four seemed insurmountable. Five was just game over," said a Senate aide. Reuters http://goo.gl/Zt4sqK
Health care – the White House said Americans will pay on average $328 per month for a mid-tier health insurance plan once the new ObamaCare exchanges open next week. The Obama administration is counting on signing up 7 million Americans in the first full year of reform through the state exchanges – Reuters http://goo.gl/hmb8Sm
Greece – the country’s deputy PM said a 3rd bailout wasn’t required; all Greece needed was a “re-profiling” of its current debt (longer maturities and a lower interest rate) and that, combined w/a return to the debt market in ’14, could suffice. Reuters http://goo.gl/ebc5iD
Spain – the gov’t may deepen the overhaul of labor laws in an effort to reduce unemployment – Bloomberg http://goo.gl/7xKG3h
Congress – the coming fall will be “bitter, ugly, and widly unpredictable” in Washington. Congress is set “decide the fates of a president’s power, a military strike, defense contracts, the budget, health-care implementation, the Federal Reserve chairmanship, illegal immigrants, and all of us who would be hit by a debt default”. Politico http://goo.gl/Epy9Ah
And On A Lighter Note…
Japanese professor pushes for Hide and Seek at the Olympics: http://goo.gl/WRk3nn
Adrian Larson, President of Pathlight Investors, discusses the recent shutdown and the market’s reaction to the latest political gamesmanship.
The following is an excerpt from our recent research piece "The Labor Evolution: An Examination of Changing U.S. Employment" The full report can be found here: http://pathlightinvestors.com/sites/default/files/pdfs/Pathlight%20Insights_Labor%20Article.pdf
In the month of September we celebrate Labor Day. We take a moment to tip our caps and salute the men and women who build, support, and advance the most dynamic economy the world has ever known. We give everyone who has worked, is working, or looking for work, a moment to pat themselves on the back and say “job well done” and for many, we allow them to skip the worst workday of the week and spend time doing what makes them happy.
But times are different now. Labor is challenged. Job seekers are taking longer to find employment, and many are forced to take jobs that leave them underemployed (if they can find employment at all). That’s not to say we haven’t made significant progress over the last 4+ years, but the employment picture has changed, and not in the would-be employee’s favor. Greater efficiency through technological advance has sent productivity soaring meaning fewer warm bodies are now needed to perform the daily tasks of business. Additionally, the debt and leverage driven false demand of the 1990’s and first decade of the 2000’s has been replaced by more prudent spending meaning there is less demand for goods and services.
Ready for some more great articles? Here's our picks for September 2013:
European peripheral sovereign appetites increase; spreads between Spanish and German borrowing costs narrowed to the slimmest level in the past two years; improving growth trends and macro calm is helping to spur increased buying – WSJ http://goo.gl/ZoI6fb
Earnings vs. stock prices – the WSJ discusses how profit growth is slowing and multiples are expanding; “valuations are heading towards the expensive side of the ledger at a time when the biggest boost from the earnings recovery may be in the rearview mirror – WSJ http://goo.gl/Z8JpmM
Fed chairman – economists responding to a Bloomberg survey view Yellen as the most qualified and most likely candidate to become Fed chairman. 65% of economists think Obama will select Yellen (vs. 25% for Summers and 6% for Kohn). Bloomberg http://goo.gl/Yhlgze
How the debt ceiling battle could unfold – it sounds like Boehner will initially attack the ACA in the ceiling negotiations although won’t push for a full de-funding of the bill. Instead, House Republicans could push for a delay to the individual mandate and/or an abolition of the medical device tax (delaying the mandate could wind up lowering the deficit). Keystone approval is another bargaining chip Republicans could demand. At the end of the day though it looks like Washington isn’t facing an easy fall – “some Hill aides are grimly bracing for a series of bills to buy time by raising or suspending the debt limit for brief periods throughout the fall”. http://goo.gl/XnYmHm
China – Wall St banks raise growth ests; Credit Suisse became the latest sell-side firm to raise Chinese growth ests (they came out Mon morning); Barclays thinks growth may have accelerated; last Thurs Deutsche Bank bumped their forecasts – WSJ http://goo.gl/z3V1c9
Russia to send two ships to east Mediterranean – Russia will send two ships to the east Mediterranean to strengthen its naval presence because of the "well-known situation" there – Reuters http://goo.gl/v8MnUX
India to monetize its gold? India’s trade minister Thurs said the RBI should consider monetizing its gold holdings. “Any talk of using the country's gold to help meet India's international obligations revives memories of a 1991 balance of payments crisis - when India flew 47 tonnes of gold to Europe as collateral to avoid a sovereign debt default” – Reuters http://goo.gl/6uIjS6
And On A Lighter Note…
Florida to call on Labrador retrievers to stem Giant Snail invasion: http://goo.gl/9cX1Zx
Chinese zoo tries passing off dog as an 'African lion': http://goo.gl/8wcTKB
M.J. Nodilo, President of Pathlight Investors, discusses what Pathlight is doing within portfolios Syria, rising rates, yet another debt ceiling debate on the horizon.
We are pleased to announce that Pathlight’s research on hedge funds has gained national attention. Check it out!
If you missed it, here are links to the original research pieces: