Important New Value and Momentum Stock Investing Return Benchmarks for Serious Investors!

Academics have long known of dramatic price increases when a company unexpectedly releases news of windfall earnings. These same rising stocks can also collapse on surprise losses.

And like the impetus gained by a moving object these share price movements don’t stop.

They tend to drift upwards or downwards for weeks, months, or years ex-post facto in the U.S. stock market. An important recent article in the Journal of Financial Economics extends this knowledge to international stocks.

A team led by finance professor Brad Barber of U.C. Davis finds that international stocks offer higher returns in months of earnings announcements. Results are thought to be due to high price uncertainty as investors scramble to update valuations.

See Barber, Brad, Emmanuel De George, Reuven Lehavy and Brett Trueman. 2013. The earnings announcement premium around the globe. Journal of Financial Economics 108. 118-138.

Research spanned many countries but was the most significant in the United States, Japan, The United Kingdom, Australia, Germany, France, South Africa, and Switzerland.

Proven to Beat the Stock Market Averages

These new earnings announcement effects are compared to the three key strategies known to beat the market according to Fama and French (2012).

See Eugene Fama and Ken French. 2012. Size, value and momentum in international stock returns. Journal of Financial Economics 105. 457-472.

Eugene Fama is a finance professor from the Booth School of Business of the University of Chicago. He won the Nobel prize in economics for helping to clarify the Capital Asset Model which he used to prove the existence of the three important anomalies violating market efficiency.

Investors have long known that it is possible to beat the averages buying low capitalization “small” stocks.

This will allow you to beat the market by 1.2% per year. And is roughly equivalent to the dividend yield anomaly documented by finance professor Jeremy Siegel of the Wharton School of Business.

Everybody knows how hard it is to value invest the way Warren Buffet does. He takes huge positions that scare average investors.

Yet Main Street can easily value invest by seeking out cheaply priced stocks with high book value as compared to market capitalization.

This simple “value” strategy yields a much heftier 5.4%.

Yet it is the high priced stocks that keep rising that offer the biggest boost to your returns. “Momentum” is king.

The yield to momentum is the highest at 7.4%.

The 3 Key Ways Main Street 401(k) and Roth IRA Investors Can Beat The Market

The Barber et. al. (2013) study shows buying stocks in the month that firms are scheduled to release earnings beforehand yields nearly return as much as momentum. And the international returns are even higher.


| Anomaly | Abnormal Return |


| Size | 1.2% |


| Book-to-Market | 5.4% |


| Ex Ante Earnings Announcements | 7.2% |


| Momentum | 7.4% |


| Ex Ante International Earnings Announcements | 11.0% |


But is this new earnings anomaly anything that serious investors should pay attention to?

The really big money comes from sitting and doing nothing while riding large positions in long term price movements in uptrend. The problem with this new earnings based investing strategy is that it increases portfolio turnover as compared to long term value and momentum strategies.

And it increases trading frequency.

According to numerous studies increased trading frequency induces higher portfolio turnover and damages returns from high costs. And international stock markets have hidden costs as well as entry and exit trading frictions for U.S. investors that make the strategy even less tenable.

These two studies both reconfirm dominance of a U.S. domestic strategy of employing the power of value and momentum in your portfolio. But what does this say in terms of meaningful numbers for your family?

Professor Ken French reports the average return over the last twelve months on his Dartmouth University Data Library page (Rm-Rf Fama/French Research Factor 1 of 3).

Google Search: “Ken French Data Library” whenever you want to know what the correct market average benchmark is.

The last 12 month average return is currently 11.77% (but it may not be when you read this). This pushes the expected average return for value investors up to 17.2% for the fiscal year.

Top value investors such as Warren Buffet or Mohnish Pabrai can extract even higher returns as a skill premium.

Momentum investors looking back 12 months should be enjoying a 19.2% return. Rethink what you are doing if you are running well below.


| Anomaly | Abnormal Return | Rm-Rf | Total % Return |


| Size | 1.2% | 11.8% | 13.0% |


| Book-to-Market | 5.4% | 11.8% | 17.2% |


| Ex Ante Earnings Announcements | 7.2% | 11.8% | 19.0% |


| Momentum | 7.4% | 11.8% | 19.2% |


| Ex Ante International Earnings Announcements | 11.0% | 11.8% | 22.8% |


If you know these simple numbers you have a very nifty benchmark for your value or momentum returns at any point in time.

This is what Warren Buffet calls your internal scorecard.

The biggest step to building a large stock portfolio is believing. Hopefully these eye popping academic numbers will help.

To do so requires identifying rare situations in the stock market that give you favorable odds. The two key earnings studies above are signposts directing you toward investing in domestic U.S. value and momentum stocks for above average single stock investing returns.

Want a Loan From a Commercial Mortgage Bridge Lender? Talk About What’s Important to Them

The best piece of advice I can give to commercial property owners and investors trying to convince a private lender (often called a “hard money” lender) to make a loan is to talk more about things the lender cares about and don’t talk as much about things you care about.

Private bridge lenders have two primary goals the first is preservation of capital and the second is making money; from a business standpoint those are the primary things they care about. Any borrower who hopes to secure a loan approval and close a deal would do well to remain focused on these areas.

It is of paramount importance that you persuade the lender that they will get their money back, on time and with interest and that the property has the intrinsic value to support the loan.

Private Lenders Care about Current Values

Bridge lenders are short-term lenders. Most firms rarely makes bridge loans for terms of more than eighteen months. Grandiose visions of what a building will be worth after you refurbish it or how much income it will produce after you boost occupancy rates are all-well-and-good but will not be considered when a bridge lender is calculating their maximum loan amount.

Talk about the current value of the building and the current income the building produces and you will be talking the language of the private commercial mortgage lender. Most private lenders have fairly strict loan-to-value (LTV) ratio standards that they are will not violate. Virtually all of them are based on current market value or quick sale value. Loan officers will listen to your plans for value creation and wish you well but they will only lend money against today’s value and income.

Private Lenders Care about Protective Equity

Borrowers argue in vain when they argue with private commercial mortgage lenders for higher LTV ratios. Preservation of capital is a primary objective of every bridge lender out there. The people who invested millions of dollars in private commercial mortgage pools and private equity funds that make commercial mortgage bridge loans are very interested in making money but they are even more interested in not losing the money they already have.

Every LTV percentage point is a point of risk to the lender. The managers of commercial mortgage funds thought very carefully about how much risk they were willing to take and they set their maximum LTV ratios based on that assessment. The private investors, pension funds and trusts that placed money with a private lender did so based on the specific investment policy (including LTV rations) that was presented to them.

Don’t bother requesting a higher LTV you won’t get it. Instead put your efforts into archiving the required LTV. Consider bringing in a cash partner, think about contributing more hard equity (cash) out-of pocket, look into syndicating the deal, or, if you’re buying an existing asset, renegotiate the purchase price with the existing owner.

Private Lenders Care about the Exit Strategy

One of the best ways to get into a loan is to work out how you are going to get out of the loan before you even apply. In-other-words, your exit strategy is more important to a private lender than any other aspect of your business plan. Make sure you have a good one and emphasize it throughout the loan process.

Short-term lenders want to know for sure exactly how and exactly when they will be paid back, in-full, with interest. You will be asked about your exit and your exit will be scrutinized. You will be tempted to talk about getting into a deal. Resist that temptation and talk to your lender about how you will be paying them off and getting them out.

If your exit is the sale of the asset have detailed comparable sales data on hand, have a comprehensive marketing plan already done before you ask for a dime. If you are planning to use a real estate agent, select them ahead of time, use one that specializes in commercial properties and have them draw up a broker price opinion for you.

If your exit plan is to get financed through a conventional lender meet with the loan officer and get as much commitment from them as they are willing to give; a forward commitment is ideal though not easy to get. Print out the banks lending criteria and prove to your private lender that you can and will meet them. Set up a call or meeting between your bank lender and your private lender so everyone can be sure everyone is on the same page.

Your vision will be about getting in and adding value. Your bridge lenders vision will be all about getting paid and getting out. Talk about what is important to them.

Private Lenders Care about Commitment

If a private lender makes a short term commercial bridge loan to fund your project they will be making a huge financial commitment; they will want to see a huge commitment to the deal on your part.

Always talk about what you are willing to do to make a deal work. Never talk about what you refuse to do. When a potential borrower applies for a commercial mortgage and the first thing they mention is something they are not willing to do, it is the kiss of death to their loan application.

Negative statements are taken as a lack of commitment and will be extremely off-putting to lenders.

Declarations like: “I’m putting in X dollars in cash and not a dollar more” or “I will not sign a personal guarantee” say to a lender “I’m not really committed to this deal”. If your not 100% behind a deal the lender will walk away.

The kind of borrower private lenders are looking for is the kind who is so convinced that their deal will make them money that they are willing to go all in. If you nickel and dime a hedge fund or private equity shop about things like appraisal fees and legal expenses it will be taken as a sign that your deal is not all-that strong.

A good rule of thumb is until you have a preliminary approval in-hand and you know the bridge lender wants to make a deal don’t say anything except that you are willing to do what ever it takes to get it closed. There will be time later to talk about who pays for the survey or the phase one environmental report (it will be the borrower) or to discuss the level of personal versus business recourse to build into the loan.

Never open with your demands. Lenders don’t care about what you won’t do they want to know what you will do.

Private lenders want to make deals; that’s how we make our profits. That-being-said, don’t forget that not losing money is at-least as important to bridge lenders as making money is.

When in talks with a private commercial mortgage lender, stick to things that are important to them. This will show that you are professional and have a realistic outlook.

Stress the current value of a property, don’t ask lenders to relax LTV standards instead find ways to reach them, have a real exit strategy and be ready to defend it and demonstrate as much commitment to your deal as you are asking for from the lender.

In-short, if you want them to write that big check, talk much more about what concerns them and much less about what concerns you.

Tips to Get Started Using Social Media to Fundraise

Last year, Nonprofit Tech for Good reported some of the following statistics:

* Fifty-five percent of those who engage with nonprofits via social media have been inspired to take further action.

* The average nonprofit crowdfunding campaign raises $9,237.55.

* Online giving grew 13.5 percent in 2013.

Social media is here to stay and nonprofits need to become more aggressive in incorporating its use into their overall outreach strategy for courting their current and prospective donors. The vast majority of organizations say that their websites and email is the most important communication tool that they use. Fully, 97 percent of nonprofits are using Facebook.

Nonprofits exist not only to fulfill their respective missions, but in order to accomplish their work, they are also looking to promote their organizations and obtain financial support, in effect fundraising dollars. As noted in a Nonprofit Quarterly article 74 percent of organizations use social media to announce events and activities, and only 53 percent, “follow the best practice of posting issue-centric content to establish thought leadership… ”

That point is one that should not be taken lightly. The reality is that nonprofits should not be in the business of simply using social media to promote their activities. The most successful organizations (for-profit and nonprofit) are the ones who consistently become thought leaders in their respective fields. Individuals and the media want to know that your organization is an expert in the field and this is not acquired by simply publicizing your own events.

In order to be effective at using social media, you need to regularly communicate with your followers. This means with tools such as Facebook, it should be approximately 5 to 10 times per week. Since Twitter is a micro-blog, nonprofits can certainly tweet more often than Facebook. One of the key best practices to keep in mind for this particular platform is to build up your followers. To accomplish this, your organization can look into Tweelow, @NonprofitOrgs and WeFollow. And, on Twitter or other similar platforms, in order to have a good conversation, remember to follow back those who follow you.

Most nonprofits are very good at being able to communicate what they do, but many forget that there should be a regular call to action in your conversation. There are several means to accomplish this:

* Ask a question and target your message to influencers on varying social media platforms.

* Tell followers what you need via a wish list or if you have implemented a campaign, let people know how to get involved and why.

* Ask people to share or retweet (RT).

* If publicizing an event, promote early-bird tickets.

A great practice to promote your cause that people will remember is to post great photography and images on the social media platforms you are using. People may notice a picture more than text. Infographics are also another approach to get your message across in a simple to digest and visually memorable fashion.

Finally, get messy. Some nonprofits don’t use social media because they are afraid of doing something “wrong”. There are no hard and fast rules. The reality is that the more your organization uses social media, the more you will see what the best practices are around that specific platform. Start out using one or two tools and as you gain more confidence and success, add other social media.