In a previous post, I posted comments that Ron Baron made at the Charles Schwab 2011 Investment Outlook. Ron Baron made some interesting comments on a wide variety of topics in finance and ecomonics. Richard Bernstein was also part of the panel and weighed in on similiar issues. While, Richard Bernstein is not a value investor, in fact as I state below he is a macro investor he had some very interesting remarks. I do not necessarily agree with all his views, however, some are very interesting in particular remarks Bernstein made about Emerging Markets, muni-bonds, and US small cap stocks. There is much that a value investor could learn from Bernstein.
Richard Bernstein is the CEO of Richard Bernstein Advisors LLC. Bernstein was previously Chief Investment Strategist at Merrill Lynch & Co.His book " Style Investing: Unique Insight Into Equity Management " is widely viewed as the seminal book on style-oriented investment strategies. He donates the profits from that and his other book, "Navigate the Noise: Investing in the New Age of Media and Hype", to charity.
Bernstein views the market as divided into four different phases.
1. Denial- investors are almost all bearish and think any runup in stocks will be followed by a correction
2. Acceptance – people accept that the market is getting better and some investors start allocating more money to equities.
3. Brave new world- Everyone is bullish, we have entered a new era of non-stop growth and all the naysayers just missed out. This is a sign of a market top
4. Crash- Market corrects and then reverts to step number one, denial.
Right now Bernstein thinks the US is in between denial and acceptance.
However, emerging markets are in between 3-4
In the US you see earning surprises, revenue surprises, which appears to indicate mid cyclical cycle.
However, in emerging markets inflation is ramping up, yield curve flattening, 60% of emerging market companies had negative earnings surprises
Economy and confidence is disconnected in US and emerging markets, just in opposite directions. I
Bernstein sees more opportunity in 2011 in US and more risk in emerging markets in 2011
Bernstein does not think it will be a shock to the market when interest rates raise, it is already priced in.
Best indicator to watch is not tightening but rather a flattening yield curve, but we are far from inverted yield curve, but India they are there.
Inflation expectations have risen recently.
Bernstein stated that if you bought gold in 1492 you would not have made infation adjusted returns until 1980.
Bernstein prefers to invest in assets that produces thing.
Bernstein stated that if investors are really scared of inflation buy munis because they are massively undervalued. If inflation rises, tax revenue will increase and yields will go down (this was the most interesting observations Bernstein made).
Bernstein views Warren Buffett as an investor who earns his returns from carefully selcted securities.
Bernstein is at other extreme, he said were are macro and beta managers, they are alpha investors
Beta is key to returns. Bernstein stated his Fund is the only true beta managed funds.
Bernstein said explicitly that "Buy and hold is not dead."
For people who bought gold, oil, and China ten years ago it was not a lost decade.
People are making same mistakes by looking backwards, and assuming the next decade will be the same.
Bernstein stated that Small cap US stocks have projected EPS growth rates in 2011 2.5x China's and half the valuation.
Made fun of sell side analysts who try to predict exact GDP numbers.
However, thinks GDP will be stronger. Thinks this recovery is almost as strong as previous recoveries, it is only 1/10th lower than average GDP recovery.
US economy is one of the best recovering economies in the world (that is not a typo).
Although housing is not getting better it is not getting worse, housing might be dead for a generation.
He has minimal turnover in portfolio, even though he is a macro investor.
Bernsteins thinks High Frequency Traders only provides liquidty for other HFT traders, and there is no evidence at all of increasing liquidity.
Unemployment is bad but it has improved.
Follows 14 indicators of employment 11 are green, two are yellow and one is red.
Even with high unemployment some people getting jobs, which increases consumer spending.
http://www.valuewalk.com
Richard Bernstein is the CEO of Richard Bernstein Advisors LLC. Bernstein was previously Chief Investment Strategist at Merrill Lynch & Co.His book " Style Investing: Unique Insight Into Equity Management " is widely viewed as the seminal book on style-oriented investment strategies. He donates the profits from that and his other book, "Navigate the Noise: Investing in the New Age of Media and Hype", to charity.
Bernstein views the market as divided into four different phases.
1. Denial- investors are almost all bearish and think any runup in stocks will be followed by a correction
2. Acceptance – people accept that the market is getting better and some investors start allocating more money to equities.
3. Brave new world- Everyone is bullish, we have entered a new era of non-stop growth and all the naysayers just missed out. This is a sign of a market top
4. Crash- Market corrects and then reverts to step number one, denial.
Right now Bernstein thinks the US is in between denial and acceptance.
However, emerging markets are in between 3-4
In the US you see earning surprises, revenue surprises, which appears to indicate mid cyclical cycle.
However, in emerging markets inflation is ramping up, yield curve flattening, 60% of emerging market companies had negative earnings surprises
Economy and confidence is disconnected in US and emerging markets, just in opposite directions. I
Bernstein sees more opportunity in 2011 in US and more risk in emerging markets in 2011
Bernstein does not think it will be a shock to the market when interest rates raise, it is already priced in.
Best indicator to watch is not tightening but rather a flattening yield curve, but we are far from inverted yield curve, but India they are there.
Inflation expectations have risen recently.
Bernstein stated that if you bought gold in 1492 you would not have made infation adjusted returns until 1980.
Bernstein prefers to invest in assets that produces thing.
Bernstein stated that if investors are really scared of inflation buy munis because they are massively undervalued. If inflation rises, tax revenue will increase and yields will go down (this was the most interesting observations Bernstein made).
Bernstein views Warren Buffett as an investor who earns his returns from carefully selcted securities.
Bernstein is at other extreme, he said were are macro and beta managers, they are alpha investors
Beta is key to returns. Bernstein stated his Fund is the only true beta managed funds.
Bernstein said explicitly that "Buy and hold is not dead."
For people who bought gold, oil, and China ten years ago it was not a lost decade.
People are making same mistakes by looking backwards, and assuming the next decade will be the same.
Bernstein stated that Small cap US stocks have projected EPS growth rates in 2011 2.5x China's and half the valuation.
Made fun of sell side analysts who try to predict exact GDP numbers.
However, thinks GDP will be stronger. Thinks this recovery is almost as strong as previous recoveries, it is only 1/10th lower than average GDP recovery.
US economy is one of the best recovering economies in the world (that is not a typo).
Although housing is not getting better it is not getting worse, housing might be dead for a generation.
He has minimal turnover in portfolio, even though he is a macro investor.
Bernsteins thinks High Frequency Traders only provides liquidty for other HFT traders, and there is no evidence at all of increasing liquidity.
Unemployment is bad but it has improved.
Follows 14 indicators of employment 11 are green, two are yellow and one is red.
Even with high unemployment some people getting jobs, which increases consumer spending.
http://www.valuewalk.com
