Friday, July 27, 2007
One astute reader asked what investments typically do well when the curve is inverted. "Sin" stocks such as alcohol, gaming, defence, and tobacco may fill this bill. People look for cheap fun when the economy is slowing down. For an entertaining analysis of this sector, you may want to read: "Investing in Vice: The Recession-Proof Portfolio of Booze, Bets, Bombs & Butts" by Dan Ahrens (St. Martin's Press; 2004)
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3 comments:
Hi again Deborah,
I just wanted to ask for your opinion on how long you think the decline in stocks will last (due to the reprizing of risk)?
best regards
Ole
Thanks for the tip.
Deb, you're a CFA! Don't adopt the tactics of get-rich-quick snake oil sales-people by erasing legitimate posts.
Just answer the question posed by Bam:
"I bought this book awhile ago. Studied it. It all sounded so good. And then I tried to recreate the buy/sell signal data.... If you already own the book and are using it to make investment decisions, be sure to try this exercise and answer the question at the end.
Go to Appendix 2.1 on page 333. Let's dig into the sell signal on "2000-08-01" as an example. First of all, as Weir explains in her book on page 15-16, the Treasury data is a monthly average. The Three-Month Bill entry is 6.09. That is an average of the 3-month yields from 8/1/2000 to 8/31/2000 (using the daily rates from H.15 3-month Treasury Bill secondary market rate data). Since that is an average, it is known on 8/31/2000 at the earliest. The same is true for the Ten-Year note and therefore the yield spread. Other than the misleading date name in the table (2000-08-01), so far so good.
Now we have a signal to Sell on 8/31/2000, right? The S&P 500 Index for 8/31/2000 is 1517.68. (Yahoo's daily historical Prices for S&P 500 INDEX,RTH (^GSPC)). The "2000-08-01" entry in the book shows 1430 which is what the S&P 500 Index was for 7/31/2000, a month earlier. The same is true for all the entries in appendix 2.1.
So the question is: how is it that you can buy and sell an index based on signals you won't know until a month later?"
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