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 ...

I continue to knock on every piece of wood, artificial or otherwise, as we continue to stake through this earnings period without a major blowup. With so many positions this is a bit uncanny - and my assumption will be this only means next earnings period we'll be taking some body blows as what the market gives, she takes away soon enough. But for now we enjoy. Deep sea oil driller Atwood Oceanics (ATW) reports a serious beat on the bottom line and a solid beat on the top line tonight. This continues the pattern in the sector and it only gets better from here as old contracts disappear and new contracts get signed at much higher rates. Analysts have estimated $6.71 for 2008 profits and $10.49 for 2009... I continue to believe this entire group is sadly undervalued as it's been treated as a CYCLICAL ...

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 ...