Two weeks ago in Thoughts From the Frontline, I mentioned a piece by one of my favorite contrarians and behavioral finance analysts, James Montier of Dresdner Kleinwort Wasserstein. It was going to be the Outside the Box last week, but a previous letter by Montier was sent instead.
I normally try not to use the same author two weeks in a row, but this was an exceptional letter and I wanted to bring it to my readers. James pulls together research and observations from many sources in order to prove his point and show that being a contrarian is not always the easy path to follow. I have always said that the time to own equities will be during the next recession when everyone else has given up on them, but that will also be the hardest time to buy. James helps explain why it is so hard to be contrarian and that is why it is this week's Outside the Box.
This week's letter is from my good friend Ed Easterling of Crestmont Research in Dallas. Ed helped co-author a couple of Chapters in my book "Bull's Eye Investing" and that inspired him to write his own book. Ed's recently published, a must read book in my opinion, is called "Unexpected Returns: Understanding Secular Stock Market Cycles."
This article uses some of the insightful research in the book to examine current market conditions and why Ed thinks the "Four Categories" are pointing to a bear market decline in the near future.
Successful investing is all about recognizing and managing risk and not looking for the next home run. It is a lesson we all need to understand. I hope you enjoy this week's edition of Outside the Box.
This week's letter is from John P. Hussman, Ph.D., President of Hussman Investment Trust. His firm is one of the few that has employed hedging techniques, similar to the hedge fund world, in a mutual fund structure. John is also one of the really, really, really smart guys in the running money business. John manages the Hussman Strategic Total Return Fund - HSTRX and the Hussman Strategic Growth Fund - HSGFX.
Hussman's Weekly Market Commentary on March 21, 2004 takes a look at the importance of dividends to long term returns. Many readers know that in my past letters and book I point out the role dividends play in the total return to investors. Equity valuations are high and dividend levels are low so the buy and hold market cheerleaders, who trot out their long term average market return studies, won't help you much unless your time horizon is 70 years.
This commentary does a great job of explaining the role of dividends and why equity returns may not be as high as the long term market average over the next 10-15 years and that is why it became this week's Outside the Box.