The Little Book of Bull's Eye Investing: Finding Value, Generating Absolute Returns, and Controlling Risk in Turbulent Markets (Little Books. Big Profits) [Hardcover]

John Mauldin (Author)

Book Description

Publication Date: May 8, 2012 | Series: Little Books. Big Profits (Book 37)

To make money in this troubled economy you need to understand where the markets are headed, not where they?ve been. Clinging to outdated strategies and played out market trends are sure ways to miss out on new investments, and in The Little Book of Bull?s Eye Investing, acclaimed investment expert John Mauldin teaches you how to read the direction of the markets to make decisions that capitalize on today?s investment opportunities.

A practical road map to what?s in store for the markets to help you stay ahead of the curve, the book debunks many of the myths that have come to govern investment logic, particularly the buy-and-hold, relative return vehicles that Wall Street peddles to unsuspecting investors. Giving you a clear view of the trends shaping the markets right now which are likely to provide investment options for the decade ahead, The Little Book of Bull?s Eye Investing teaches the value of careful research before you put your money to work.

Whether the market is on its way up or down, there are always excellent opportunities to invest profitably. You just need to know where they are. Looking at how the markets have behaved in the past to make an educated prediction about where they?re going, The Little Book of Bull?s Eye Investing explains how to make investment decisions that make sense today, whether you?re trading stocks, bonds, gold, real estate, or anything else.

Making the most of the markets is like hitting a moving target?difficult, but not impossible?and with The Little Book of Bull?s Eye Investing in hand, you have everything you need to improve your eye for investing and make stable and secure trading decisions that can turn a profit in even the most turbulent of times.

Editorial Reviews

From the Inside Flap

To make money in this troubled economy you need to understand where the markets are headed, not where they've been. Clinging to outdated strategies and played out market trends are sure ways to miss out on new investments. In The Little Book of Bull's Eye Investing, acclaimed investment expert John Mauldin teaches you how to read the direction of the markets to make decisions that capitalize on today's investment opportunities.

A practical road map to what's in store for the markets to help you stay ahead of the curve, the book debunks many of the myths that have come to govern investment logic, particularly the buy-and-hold, relative return vehicles that Wall Street peddles to unsuspecting investors. Giving you a clear view of the trends shaping the markets right now, which are likely to provide investment options for the decade ahead, The Little Book of Bull's Eye Investing teaches the value of careful research before you put your money to work.

Whether the market is on its way up or down, there are always excellent opportunities to invest profitably. You just need to know where they are. Looking at how the markets have behaved in the past to make an educated prediction about where they're going, The Little Book of Bull's Eye Investing explains how to make investment decisions that make sense today, whether you're trading stocks, bonds, gold, real estate, or anything else.

Making the most of the markets is like hitting a moving target—difficult, but not impossible—and with The Little Book of Bull's Eye Investing in hand, you have everything you need to improve your eye for investing and make stable and secure trading decisions that can turn a profit in even the most turbulent of times.

From the Back Cover

Praise For THE LITTLE BOOK OF BULL'S EYE INVESTING

"John Mauldin understands the complexities of investing in today's tumultuous global environment. This is an invaluable guide for identifying the certainties in an increasingly uncertain market climate, and the profitable opportunities that will emerge."—David Rosenberg, Chief Economist and Strategist,Gluskin Sheff + Associates

"Successful investing requires making sense of the big picture and helping investors gain perspective. The Little Book of Bull's Eye Investing is a must-read. Once again, John Mauldin has nailed it!"—Jon Sundt, President and CEO, Altegris Investments, Inc.

"Be prepared to discover what readers of John Mauldin's online newsletter already know—his practical and sensible investment advice, drawn from a deep knowledge of markets and history. In this book, John lays out—in his appealing style—not only the essence of bull's eye investing, but also how not to fail as an investor."—A. Gary Shilling, President, A. Gary Shilling & Co., Inc.

"No one does a better job of synthesizing wide ranging sources of market wisdom than John Mauldin. His unique perspective often reveals what professionals miss and what Mom and Pop investors have yet to learn."—Barry Ritholtz, CEO and Director of Equity Research,Fusion IQ

See all Editorial Reviews

Product Details

• Hardcover: 187 pages
• Publisher: Wiley; 1 edition (May 8, 2012)
• Language: English
• ISBN-10: 1118159136
• ISBN-13: 978-1118159132
• Product Dimensions: 5 x 0.8 x 7.2 inches
• Shipping Weight: 8.8 ounces (View shipping rates and policies)
• Average Customer Review: 3.9 out of 5 stars  See all reviews (21 customer reviews)
• Amazon Best Sellers Rank: #107,484 in Books (See Top 100 in Books)

More About the Author

John Mauldin is a renowned financial expert, a multiple New York Times best-selling author, and a pioneering online commentator. His weekly e-newsletter, Thoughts From The Frontline, was one of the first publications to provide investors with free, unbiased information and guidance. Today, it is one of the most widely distributed investment newsletters in the world, translated into Chinese, Spanish and Italian. He is regularly seen on TV and in national print media. President of Millennium Wave Investments, he is the father of seven children (five adopted) and lives in Dallas, Texas.

Most Helpful Customer Reviews

43 of 43 people found the following review helpful

5.0 out of 5 stars Another Book Review from the Aleph Blog May 9, 2012

By David Merkel

Format:Hardcover

This was one of those books that grew on me. The author, the well-known John Mauldin, strings together a bunch of ideas originated by others. That's not much different than what Tadas Viskanta does at Abnormal Returns. He brings us the best ideas that he has culled from others. That is a significant piece of work that should not be denigrated by others.

The beginning of the the book is consumed with 12-20 year market cycles. There are times when investing in risky assets where you face headwinds and tailwinds. The headwinds and tailwinds are driven by valuation, often expressed through Q-ratio, CAPE, or Michael Alexander's Price-to-Resources ratio, out of which the book makes a lot (link here for an example). It's a Price-to-Adjusted Book value ratio as I see it.

Regardless of the method, if you buy in at high valuations, the wind is in your face, and you are not likely to earn much. The opposite is true for low valuations, but at the valuation trough, everyone is disgusted, and few are willing to buy.

So it takes a strong stomach and mind to follow a method like this. Strong stomach, because when it is time to buy one will fear that the money will be lost. Strong mind, because near valuation peaks people will tell you that you are nuts to leave the party -- it's just getting started.

But what if a decent sized portion of institutional money did this? The cycles would go away, or be muted. That's not likely to happen in my opinion: some men may change, but you can't change mankind. Emotions of fear and greed dominate over clear thinking....

The book touches on many other topics:

* Why strategies go in and out of favor
* Why to be skeptical of those who give investment advice (including Mauldin & me)
* That the growth rate of the economy eventually limits the growth rate of any company.
* The effect of demographics on the markets
* Why chasing performance doesn't work.
* Why most newsletter writers strategies could never be as good as they state, or they manage money in tiny niches.
* How to detect value in stocks.
* How to use bonds and commodities in asset allocation.

I say "touches on" because in line with its title, it is a "little book." You are only getting a taste of what an intelligent investor who hires other managers to manage money for clients thinks. This is especially true as you go through the section on value investing, which does not get much beyond dividend yield, dividend growth, and price-to-book (common equity).

As such, this book will not be a complete answer to any investor wanting to learn about the markets. It introduces basic concepts in ways that most ordinary people could learn. Reading time should be less than two hours. One more thing, the book has very little in the way of math.

I appreciated the short summaries at the end of each chapter. If someone wanted to get the gist of the book, they could read all of the short summaries in about 10 minutes, and then they would have the skeletal ideas of the book, allowing them to read all or part of the book with greater understanding.

Quibbles

The book could have used an index.

Who would benefit from this book: People who want an introduction to investing, including long-term market cycles would benefit from this book. It would be of modest help to experienced investors who understand market cycles. Read more ›

12 of 12 people found the following review helpful

5.0 out of 5 stars Good introduction to John Mauldin's work December 19, 2012

By Charles Lewis Sizemore, CFA

Format:Hardcover

John Mauldin is far too much of a gentleman to say "I told you so," but he would certainly be within his rights to do so.

When Mauldin published the original Bull's Eye Investing in 2003, he made his case that U.S. stocks were in the early stages of a secular bear market. Today, nearly a decade later, he has been proven largely correct. The S&P 500 is still below its 2007 all-time high and, far more significantly, still below the previous high set after the secular bull market of 1982 - 2000. Adjusted for inflation, investors that held throughout this period would be sitting on some stinging losses.

The Little Book of Bull's Eye Investing, published in 2012, is a shorter, more digestible update to Mauldin's original magnum opus. And Mauldin is adamant that, despite his belief that the secular bear still has a few years left in it, the book is not about "doom and gloom," and "the world as we know it is not coming to an end." There is money to be made; it just so happens that you might have to look in unfamiliar places to find it.

Let's start with a few definitions. A secular bear market is a long-term period in which stock prices are flat or falling. In practice, this has been anywhere from 8 to 20 years, with approximately 17 years being the average of the past century.

Investing in a secular bear is very different than investing in a secular bull. As Mauldin writes,

In secular bull markets, an investor should search for assets that offer relative returns--stocks and funds that will perform better than the market averages. If you beat the market, you're doing well...

In a secular bear market, however, that strategy is a prescription for disaster.... If the market goes down 20 percent and you go down just 15 percent, you'd be doing relatively well, and Wall Street would call you a winner... But you are still down 15 percent.

In markets like these we face today, the essence of Bull's Eye Investing is to focus on absolute returns. Your benchmark is a money market fund. Success is measured by how much you make above Treasury bills.

Mauldin sees another five to six years of secular bear market conditions, "in terms of valuations, if not in price."

This requires a little explaining. In a secular bear market the price of most stocks falls or stagnates, but price is less significant that valuation. A stock that cost $500 can be "cheap," just as a penny stock can be "expensive."

Value has to be measured relative to something--such as earnings, revenues, cash in the bank, or accounting book value. In a secular bull market, investors become more and more optimistic about the future earnings potential of stocks and assign them higher and higher valuations, often to the point of absurdity. By the time the S&P 500 reached its top in early 2000, the average price/earnings multiple was over 30, and it was not uncommon to see multiples of well over 100 on popular technology stocks.

But in a secular bear market, this works in reverse. Investors get progressively more skeptical of future growth and assign lower and lower valuation multiples. Today, more than twelve years after the last secular bull ended, the average price/earnings multiple is 15. That is less than half of the 2000 high.

Interestingly, throughout the cyclical bull market of 2003-2007 (in which the S&P 500 hit a new all-time high), valuations continued to shrink. To keep things in perspective, had valuations remained at 2000 bubble levels, we would have seen the S&P 500 priced at 4,000-5,000--and the Dow Industrials priced at 40,000 or more.

Mauldin recognizes that markets go through long cycles of expanding and contracting valuations. But this is distinctly not the advice you are going to get from Wall Street or from most financial advisors. Instead, they use modern portfolio theory (or, in Mauldin's words, a "rigged" or "twisted" version of it) to justify a buy-and-hold investment plan under any and all scenarios. After all, stocks "always" generate 7-10 percent returns over the long term.

Unfortunately, the "long term" can be very long indeed, particularly if you are in or near retirement.

Mauldin on Market Psychology

"The new era economists argue that we are now smarter than our fathers, something I understood implicitly when I was in my 20s," Mauldin writes. " Since then, as the father of seven kids, six of whom are older than 18, I have developed doubts."

Speaking facetiously, Mauldin writes that "our emotional forebears invested without the wisdom that we now possess. They didn't understand that markets will go up eventually and that all you need to do is buy and hold and not worry about corrections and other transient phenomena."

And naturally, we now have a smarter and more experienced Federal Reserve to step in and save us when need be.

All of this sounds good, of course. We do know more about economics and about the workings of capital markets than our counterparts in prior generations. But ultimately, it doesn't matter as much as we would hope. As Mauldin makes clear, emotion drives the stock market.

The biggest factor driving stock returns, in Mauldin's view, is not earnings growth or underlying economic conditions. It is investor perception of these, and as investors lose faith in the ability of equities to generate high returns, their selling creates a self-fulfilling prophecy that takes years to fully play out. Thus, we have secular bear markets.

How To Invest in a Secular Bear

"The essence of Bull's Eye Investing is quite simple," Mauldin explains. "Target your investments to where the market is going, not to where it has been."

Fair enough. But what about specifics?

Mauldin has a couple recommendations:

1. Go for a deep value approach. Invest like a Benjamin Graham by systematically buying companies that are priced so cheaply they can be cut up and sold for spare parts at a profit. This requires time, research, and patience that many investors may find too onerous, but you simply are not going to be able to generate decent returns in a value strategy by buying and holding a mutual fund.

2. Whatever your trading strategy, "cut your losers and let your winners ride." Set stop losses on your positions, and stick with them. You should also have an exit strategy. Set targets for profit taking before you actually invest. And naturally, "do not fall in love." The stock will not love you back.

3. Consider dividend-paying stocks as income vehicles...but only if you are reasonably confident that a broad market crash isn't around the corner. During bear markets, dividend stocks fall less than the broader market. But they still most certainly fall.

4. Actively trade. On this count, Mauldin is a little harsh, saying that only about 1 percent of his readers are really traders at heart. "Any of the other 99 percent who venture in will be their cannon fodder."

5. Investigate alternative investments, and particularly absolute returns funds. On this count, select your managers very carefully and be sure to do your due diligence.

Finally, Mauldin's best advice, as a confessed "serial entrepreneur," is to consider starting your own business if you have a good idea and have the endurance to see it through to the end. Even in a low-growth "muddle through" economy, there are new opportunities. It is simply a matter of finding them and exploiting them.

The Little Book of Bull's Eye Investing is a nice, succinct primer on John Mauldin and his approach to the investing process. It offers no quick fixes or get-rich-quick advice, but it is a good book to keep readers grounded in reality. I keep a copy on my bookshelf, and I recommend it to readers today. Read more ›

9 of 9 people found the following review helpful

5.0 out of 5 stars a valuable book by a tireless financial writer May 5, 2012

By Joy Greenway

Format:Hardcover|Amazon Verified Purchase

I would like to thank john mauldin for his website, johnmauldin.com , and his free email service where he comments on the financial condition in various parts of the planet. The book is easy to carry around and read when you have a few spare minutes. I was interested in the 17.6 year stock cycles , that describes alternating secular bear and bull cycles from 1935 to 1947 to 1965 to 1982 to 2000. We have been in a secular bear market since 2000. Adding 17.6 years to february of 2000 means we may remain in this secular bear till autumn of 2017. It is easier to make money in secular bull markets than secular bear markets (if you are long stocks). I would recommend this book and to sign up to his free email service on his web site. He also has a premium (pay) service for those wishing more information.
Steven Vig

6 of 6 people found the following review helpful

1.0 out of 5 stars Disappointing July 23, 2012

By Frankhay

Format:Hardcover|Amazon Verified Purchase

The title of the book made a promise that was not fulfilled in the book. After reading it I still do not know where I should put my money! Stocks are on the decline, bonds are a no no and commodities could go either way. My advice is don't waste your time or money on this one.

59 of 79 people found the following review helpful

2.0 out of 5 stars Charitable donation to Mauldin April 21, 2012

By Elliot R. Royce

Format:Kindle Edition|Amazon Verified Purchase

It's very hard to begrudge John this Bullseye Lite given how generously he shares his wisdom through his newsletter, but this is a sellout. Just one of his newsletters has more actionable information than this shameless recycling of his and others' intellectual property. Spend the time and money to read one of his other excellent outputs. John, pls send me a form so i can write this off as a charitable donation!

That said, it's better than most investment books which is why I trust only in a few authors, such as Mauldin.