Earnings-based strategy has high risk factor | Chicago Tribune:
"A study by University of Illinois finance professor Allen Poteshman for the 10 years through May 2000 showed that there's a particular danger in holding growth stocks during the three-day period around an earnings report versus holding value stocks during the same time. Value stocks outperformed growth stocks by an average of 95 basis points per quarter."Later in the same article was an interesting look at earnings' quality. Short version: playing games with accounting numbers may trick the market for a while, but in long run, higher quality earnings is key.
"there's more than one way for a company to beat earnings expectations. Sanjeev Bhojraj, a finance professor at Cornell University, looked at companies that beat expectations through low-quality earnings--maneuvers involving accrual accounting or short-term reductions in expenses like research or advertising.And then an interesting look at the Value-line anomaly from The NY Times. Short version? After beating market for quite a while, Value-Line has not done so well, BUT statistically it is still too early to say much.
These companies did well in the short run, handily outperforming companies that missed expectations with "high-quality" earnings. But long-term investors would have done well to put more emphasis on earnings quality than on headlines.
"Value Line’s record in its earliest years was good enough to impress even Fischer Black...[who] would concede that Value Line’s record was an exception to his previously held belief [of market efficiency]. It is doubtful that Professor Black, who died in 1995, would have reached this conclusion had he been able to focus only on the performance of Value Line’s Group 1 stocks during this decade. In 2006, those top-ranked stocks lagged the Dow Jones Wilshire 5000 by nearly 13 percentage points...Professor Aronson found that their performance in recent years “is consistent with normal random variation in historical performance.” He concludes that there is no statistical basis for saying that “the Value Line ranking system has deteriorated."....One lesson is that in most cases, except when there is evidence of criminality or sheer incompetence, we shouldn’t switch advisers or strategies because of a few years of mediocrity.”Sears announced they will appeal the court ruling that sided with bondholders over whether Sears had the right to redeem bonds prior to expiration. (who says Bondholders and Shareholders don't fight?) In the meantime, Sears took a charge to cover the loss.
And finally the Napa Valley Register has an interesting look at why people have an big incentive to take firms private and then later take the same firm back public:
"The first time Joseph Neubauer took Aramark Corp. private in 1984, the deal was worth $889 million.
When he and other managers led a leveraged buyout of the nation’s largest food services company a second time, the price tag zoomed to $6.24 billion.
And the biggest winner among shareholders at Aramark, which Friday completed its first week as a newly private company? Neubauer and his family, whose holdings soared in value to almost $1 billion."