In this article, I report on some recent findings from my little nonrigorous garden of stock market metrics. I’ll be pleased to learn of your consistent or contrary observations.
I found that the factor of ETF (Exchange-Traded Fund) dividend growth over the five years ending Dec 31, 2015 corresponded strongly with price performance in 2016, suggesting a useful predictor.
A digression on predicting stock market performance and on companies as portfolios
The distinguished financial empiricist Mark Hulbert published a newsletter on newsletters from the 1980s until closing the Hulbert Financial Digest on March 31, 2016. For nearly as long, he has reviewed the performance of mutual funds and ETFs, finding in them decision and performance dynamics nearly the same as newsletters.
Hulbert found that the previous year’s best performers tended to show mediocre to awful performance the following year. Three or five years of performance information also offered no guidance for an investor. Performance over ten years provides mild guidance though “statistically weak”.
Reliable and readily available price data seldom exceeds 10 years for most individual investors.
The late 1970s and early 1980s were the heyday of the conglomerate enterprise, such as Harold Geneen’s ITT, with subsidiaries in rental cars, hotels, telephones, steel mills and more. CEOs presented themselves as managers of portfolios of businesses. Can we confirm or deny the hypothesis that a firm behaves like a portfolio of businesses?
In my observations, I found that the rate of ETF dividend growth over the last five years corresponded strongly with price performance in 2016, suggesting a useful predictor. (See graph, above.) This finding echoes my earlier post in July 2016.
ETF price-to-book ratios show a small positive correlation to price performance during 2016, but this metric doesn’t separate the high performers from the crowd.
For common stocks, the annual revenue growth over the last five years had a small correlation with price performance during 2016, though that judgement hinges on BOFI and ELLI.
We examined the price history over the previous 10 years for all our ETFs and individual common stocks considered together. Did past performance predict future performance?
No strong trend evident. The spectacular prior price growth of AMBA and ELLI “predicted” ELLI’s continued high performance and AMBA’s underperformance in 2016. We tried omitting ELLI and AMBA in search of an insight.
We were able to confirm the Efficient Market Hypothesis. The previous 10 years of price growth held no secret predictor of performance in 2016.
Daniel Brockman owns MA, MDSO, ELLI, GILD, FRC, VOO and other securities discussed in this article.
Sources:
Securities prices, revenues and distribution history from Schwab.com https://www.schwab.com, Fidelity.com https://www.fidelity.com/, NASDAQ http://www.nasdaq.com/symbol/spy/dividend-history and Google Finance https://www.google.com/finance.
Jonathan Chevreau, “A loss for all investors” (Financial Post Mar 15, 2016 http://business.financialpost.com/investing/investing-pro/a-loss-for-all-investors-the-hulbert-financial-digest-says-goodbye )
Janet Brown, “Investors Lost A Vital Asset In February” (Forbes Feb 19, 2016 http://www.forbes.com/sites/investor/2016/02/19/investors-lost-a-vital-asset-in-february-and-it-wasnt-money/#284605bb1593)
Mark Hulbert, “The Index Funds Win Again” (New York Times Feb 21, 2009 http://www.nytimes.com/2009/02/22/your-money/stocks-and-bonds/22stra.html)
Mark Hulbert, “What the Past Can’t Tell Investors” (New York Times Jan 4, 2010 https://dealbook.nytimes.com/2010/01/04/what-the-past-cant-tell-investors/ )
Mark Hulbert, “Beating the Market: It’s Still a Tall Order” (New York Times Jan 9, 2010 http://www.nytimes.com/2010/01/10/business/mutfund/10stra.html)
Mark Hulbert, “Advisers Who Deliver Low-Anxiety Returns”, (Wall Street Journal May 16, 2014 http://www.wsj.com/articles/SB10001424052702303851804579560170046544420?tesla=y&mod=BOL_qtlatestnews_latestnews )
Search of Validea’s Guru Investor Blog, https://www.validea.com/blog/?s=hulbert, searched Jan 11, 2017.
Nate Wendler, “Gurus: The Investment Newsletter Judge” (Wealth Management Oct 01, 2008 http://www.wealthmanagement.com/equities/gurus-investment-newsletter-judge)
Daniel Brockman, “Notes from the Observatory: Does ETF Dividend Growth Predict Market Price Performance?” (Jul 1, 2016 https://daniel-brockman.blogspot.com/2016/07/does-etf-dividend-growth-predict-market.html)
No comments:
Post a Comment