A reader left a question that I think is pretty damn good. He asked "what are the variables that I use that allow you to do a forward analysis of an asset with any meaningful probability of being right." As someone who believes in top down management I focus on big picture issues and then try to figure the best way to invest toward the big picture while at the same time building in some sort of counter strategy in case my assessment is wrong. So instead of looking at a stock from the bottom up and saying ok, here is a stock with such and such valuations that will make more widgets next year for a slightly smaller cost and buying it, top down looks at the world for things like supply and demand issues, turning points in cycles or big long-lasting themes as examples. The world ...

No video this week. We have guests and other dogs with us for the holiday.The chart is YTD for the Legg Mason Value Trust (LMVTX) versus the S&P 500.You know the fund for its very long streak of beating the S&P 500. A look at the stale holdings on Yahoo Finance shows that it makes what I think are big bets and sometimes big bets do not work out.It has United Healthcare (UNH) which has a 4.45% weight after a 41% drop. The fund is overweight financials versus SPX and it has zero in energy. Zero?This is a good example of how actively managed funds can be problematic. A contrarian might have guessed that after a long run of outperformance the fund would lag. That makes sense. But the issue that ...

Thank you Barry L. Ritholtz at THE BIG PICTURE for putting today's 260+ decline in the DOW in perspective. This morning's data may have made things appear worse. Providing a glimmer of hope that the U-3 unemployment rate isn't as bad as it appears, an unexpected surge in teenagers and 20-25 year olds is responsible for a chunk of the unemployment jump. More from Barry: Also possible -- a seasonal adjustment that was expected in June failed to pick up more teens applying for jobs in May "The government cautioned that the scope of the increase in the unemployment rate in May could be a statistical distortion. Month-to-month changes from April ...

I have not written in some time about a theme that I think is an important one. Skeptics could probably argue that the reason I haven’t written about it was that the recent facts have contradicted my belief, though the fact is just that I haven’t gotten around to it. So, to put the cards back on the table, it is time to talk about valuation cycles. Many people can tell you that the average market P/E over the long term is something like 15 times. Of course, “average” doesn’t imply that the P/E is always 15. About half the time it is higher, and about half the time it is lower. The trick is figuring out in advance which half is which. In behavioral finance, some would argue that the market follows long-term trends in valuation. Rising valuations spark investor interest, and additional investors adding money to the market causes ...

Gafisa (GFA) is trading back down almost text book post earnings; could not ask for a better trade than what we just enjoyed here. We doubled (0.9% stake to 1.8% stake) the position last Monday near $38 We took out a smaller portion at $43 Wednesday We took out (down to 0.6% stake) a big position Friday AM at $49.60 We added (back up to 0.9% stake) a small bit yesterday below $45 We added a much larger piece back at $42 this AM Downside remains first to upper $39s (near $40) - first support - and then at $38 (stronger support) but my largest sell was at $49.60 (Friday) and largest buyback was $42 (today) so we cleared 15% on that transaction in a 2 session period. I'll take that all day, every day. I'll buy more on a pullback to $38, but for now Gafisa is back to a 2.4% ...