#bond market news

#

The High Yield Bond Market Has Never Been This Decoupled From Reality

Recovery rates in 2016 are extremely low.. for high-yield bonds, the recovery rate YTD is 10.3% (10.5% senior secured and 0.5% senior subordinate), which is well below the 25-year annual average of 41.4%. Final recovery rates in 2015 for high-yield bonds were 25.2%, compared with recoveries of 48.1%, 52.7%, 53.2%, 48.6%, and 41.0% in full-years 2014, 2013, 2012, 2011, and 2010, respectively. Notably, average recoveries for Energy and Metals/Mining bonds were 18.3% and 20.0%, respectively, which weighed down overall high-yield recovery rates. Excluding the troubled commodity sectors, high-yield recoveries were a more respectable 46.1% (32.1% Ex-Energy only ). As for loans, recovery rates for first-lien loans thus far in 2016 are 24.5%, compared with their 18-year annual average of 67.2%. Final 2015 1st lien recoveries were 48.2%, while average recoveries for Energy and Metals/Mining 1st lien loans were 44.1% and 38.4%, respectively.

The record collapse in recovery rates is shown below.

It is not just JPM who points out what we first noticed in January: in an interview with Goldman s Allison Nathan, credit guru Edward Altman reiterates that same warning, although he focuses on the 2015 recovery rate which already is more than two times higher than that seen in 2016 defaults:

Allison Nathan: What is your view on recovery rates?

Edward Altman: Our approach to recovery rates is not centered on sectors. What we ve looked at carefully over 25 years is the correlation between default rates and recovery rates. As you would expect, when the former rise to high or above-average levels, you always observe the latter dropping to below-average levels. This strong inverse relationship is as much a function of supply and demand as it is of company fundamentals. So if we are expecting a higher default rate in 2016 and even 2017, then we would expect a lower recovery rate. Already in 2015, the recovery rate dropped dramatically relative to 2014 even though the default rate was below average; we saw a 33-34% recovery rate versus the historical average of 45%, measured as the price just after default. This is primarily due to the heavy concentration of energy companies whose recovery rates depend on their ability to liquidate their assets at reasonable prices, which in turn depends on the price of oil. Low oil prices have pushed recovery rates in the energy sector below 25% and even into the single digits for some companies. And that s going to continue. So this year I expect recovery rates much below average, producing a double-whammy of high default rates and low recovery rates for credit investors.

Since then recovery rates have dropped even further. BUT high-yield bond prices have surged on the back of ECB, BOE buying and the knock-on effects of $200 billion per month of experimentation by the world s central-planners.

Simply put, the revelation of a default event exposes the vast gap between real asset values (upon liquidation or bankruptcy) and the artificially supported prices seen in bond markets .

In the 30 year life of the so-called junk bond market, the chasm between reality and central-planner-created markets has never been wider.



#business card size

#

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What is the Standard Business Card Size?

Imagine yourself at a job fair or conference with countless people handing you their business cards. At the end of the time you will have a tidy stack of cards that no matter how creative and attractive, just have to be tossed. But wait! Here’s one that sticks out and demands attention, it’s not the standard business card size but is a square business card.

Business cards designs in these modern times are abundant and unique, one of the surefire ways to attract even more attention with your business card is to choose a nonstandard business card size. Unusual business card sizes and shapes and the attention they attract is almost always worth the extra few dollars that you will spend on odd-shaped cards.

The standard business card size is 3.5 by 2 inches. That said there are a plethora of card shapes and sizes out there from the micro-business card at just 1 by 3 inches, to a square business card which adds height.

A huge part of landing any job or attracting the attention of the client is how you present yourself and don’t lie to yourself by thinking that your business card is not an integral part of that presentation. Though many people may not know it, they often have a window of about 10-15 seconds in which their card will either attract the eye of the person viewing it, or whether they will dismiss it and discount you as non-essential to their business. Though business card size isn’t entirely what will land you the job or account, it is something that will help extend that 10-15 seconds to the fullest and help give you the attention that you need to gain a callback or chance to prove that you are what the company needs.

Common Business Card Sizes



#selling a business

#

The New York Times

Small-Business Guide: How to Sell Your Business

By BARBARA TAYLOR

January 6, 2010

You only sell your business once.

That thought alone may be enough to keep you up at night when you decide it’s time to cash in on your years of hard work — as if there isn’t enough pressure associated with every step of the sale of a business. But there’s much you can do to prepare for the sale, and it’s not a bad idea to start thinking about it long before the day arrives.

While every transfer of business ownership is unique, there are some important questions that sellers should ask themselves and there is a common process that is used for the sale of most small businesses. The more you prepare, the more successful the outcome is likely to be. What follows is a brief outline of the process for small, closely held companies. Many of these principles apply to larger transactions as well. (You may also be interested in this blog post: Has the Economy Closed Your Exit Door? )

First, ask yourself three questions:

Can Your Business Be Sold?

Many elements of a business make it attractive to buyers. For example, does it have a solid history of profitability, a large and loyal base of customers, a competitive advantage (intellectual property rights, long-term contracts with clients, exclusive distributorships), opportunities for growth, a desirable location and a skilled work force?

Are You Ready to Sell?

Make sure you are ready, both financially and emotionally. Think about what life will be like after the sale. What will you do — not just for money but also with your time? Many business owners suffer real remorse after handing over their business to a new owner.

Here are a few indicators that it may be time to move on:

¶It’s not fun anymore. Burnout is a very real issue for business owners, and an entirely legitimate reason to sell.

¶You’re not inclined to invest in growth. You may be comfortable with the current size and profitability of your business and have no desire to make the capital expenditures necessary to take it to the next level.

¶You feel your management skills are overmatched. It is not uncommon for business owners to build their business to a certain point and then realize they lack the skill set required to go further.

What’s Your Business Worth?

Many owners have no idea. On one end of the spectrum, for example, was a client who owned a professional services firm. She felt the firm was worth more than $1 million. After a lengthy search, a buyer paid her less than half that amount. Then there was a client who was about to sell his I.T. company to an employee for $200,000. After advertising the business for sale nationwide, he sold it for one dollar shy of $1 million.

Selling a business is both art and science, and in no other area is this more evident than the valuation. While every seller wants to achieve maximum value, setting an asking price that is too high signals to buyers that you may not be serious about selling.

While there are a number of methods used to value a business, the most common formula for smaller transactions is a multiple of seller’s discretionary earnings (S.D.E.). This type of market-based valuation involves recasting profit-and-loss statements — adding back owner’s salary, perks and nonrecurring expenses — to find the S.D.E. of the business and then using comparable data for similar businesses to arrive at an appropriate multiple.

Prepare Your Business for Sale (Now!)

Another client owned a popular sports bar and grill. He’d made repairs to some of his kitchen equipment, brought his books current and determined a reasonable asking price. He got an inquiry from a serious buyer — an industry veteran on a nationwide buying spree with his partner. The buyer liked everything about the business, and asked for data from his point-of-sale system, which my client was unable to produce quickly. By the time he assembled the information, the buyer had made an offer on a similar business in another state.

There is no way to overstate the intensity with which buyers will scrutinize your business. But here are things you can do to put your best foot forward.

First, get your books in order. Not being able to provide accurate financial statements in a timely manner can cause a deal to unravel in short order. Be sure to have the following on hand before you go to market:

¶Last three years’ profit-and-loss statements.

¶Last three years’ balance sheets.

¶Year-to-date profit-and-loss statement.

¶Current balance sheet.

¶Last three years’ full tax returns.

¶List of furniture, fixtures end equipment.

¶List of inventories.

¶Commercial property appraisal or lease agreement.

Be ready to furnish other documentation — particularly during the due diligence phase — when you will probably be asked to produce insurance policies, employment agreements, customer contracts, lists of patents issued, equipment leases and bank statements.

You will also want to spruce up your business to make it attractive to buyers. Make any needed cosmetic improvements to the premises, get rid of outdated inventory and make sure that equipment is in good working order.

Not surprisingly, most savvy buyers use the Internet to research available businesses for sale. The two largest Web sites are BizBuySell.com and BizQuest.com. Some sites specialize in selling certain kinds of businesses like franchises, Internet properties or restaurants. Most of these sites charge a monthly subscription fee to advertise your business for sale.

There are two primary marketing materials that are typically used to describe your business to potential buyers. The first is a one-page document that offers highlights of the business without revealing its identity and is sometimes referred to as a “blind profile.” The second is a comprehensive selling memorandum or prospectus to be sent to serious buyers who have signed a confidentiality agreement.

Make Sure Potential Buyers Are Qualified

There’s no bigger waste of time than working with a buyer who will not be able to complete a transaction. Ideally, you will want all interested buyers to sign a confidentiality agreement before sending out anything other than the “blind profile” for your business. In addition, you should require buyers to submit some basic information:

¶Name and all contact information.

¶Previous employment and business ownership.

¶Funds available to invest and sources of financing.

¶Minimum monthly income requirement.

¶Intended timeframe for completing a transaction.

¶Reason for interest in your business.

Negotiating the Deal

After you’ve found a qualified buyer, provided a selling memorandum and had an initial meeting, it will be time to stop the flow of information and ask that an offer be presented. This can take the form of a nonbinding letter of intent or a term sheet. It should spell out the primary terms of a deal so that all parties can move forward in good faith.

My client ended up receiving three offers on her professional services firm. One was from a competitor, one was from an industry expert residing out of the country and one was from a regional firm looking to extend its geographic footprint. While that last offer was the weakest from a financial standpoint, we knew that this buyer would be able to complete a seamless transition and build her business. We decided to negotiate with the regional firm.

The asking price was $500,000. The regional firm offered a disappointing $400,000, with $50,000 down and the balance financed by the seller over five years at 6 percent interest. My client planned to stay with the firm under new ownership and was relatively certain that gross sales would increase substantially when her company became part of a regional brand. She offered a counter proposal: In lieu of financing the balance of $350,000, she asked to receive 10 percent of gross monthly sales for five years. She conservatively estimated that she would realize an additional $108,000 — over and above the selling price of $400,000 — at the end of the five-year period using this deal structure. Both parties accepted.

All sellers hope to get a full-price cash offer for their business. But in the real world this rarely happens. More often buyers will make a down payment and then pay some or all of the remainder in installments to either you or a lender. Don’t be dismayed by an offer that doesn’t meet your original expectations. As this case illustrates, a willingness to be creative with the terms of a transaction can go a long way toward a successful sale. Be sure to enlist an accountant and a lawyer to help you assess the tax consequences of the terms you suggest or accept.

Selling a business is largely about setting realistic expectations, avoiding surprises and just plain hanging in there. It can be an arduous journey, but one with a very tangible (and rewarding) light at the end of the tunnel. Once you’ve successfully sold your business, savor an accomplishment that not every entrepreneur gets to enjoy. Whether you’re lying on the beach, retiring by the lake or starting your next venture, you did it!

Barbara Taylor is co-owner of a business brokerage, Synergy Business Services, in Bentonville, Ark.



#best business laptop

#

TechRadar pro

The 10 best business laptops in July 2016

Our Techradar experts help you choose the right laptop for your organisation

It takes a lot to run a successful business, whether you’re managing a small-to-medium sized organisation, or working at a large enterprise scale. Second to top-notch talent, the most important thing required is top-notch machinery: high functioning, cost-efficient, and easy-to-use computers.

In many cases, particularly in open offices where space is tight, or in environments where employees may be shuffling from meeting to meeting or even working remotely, it’s necessary that these workstations be mobile. So, all that considered, what’s it going to be for your staff?

You’ve got no shortage of options; we’ve highlighted our favourite business-focused laptops taking into consideration a number of key factors including power, battery life, feature set and sheer value for money based on actual value as opposed to RRP.

This means that we’ve selected a wider range of laptops to suit most if not all budgets and hopefully all tastes; there’s a mix of cutting-edge products and old favourites here.

Almost all of them come with Windows Professional to enhance their business credentials. Remember that you can upgrade from any recent version of Windows Home/Personal (7, 8.1 and 10) to Windows 10 Professional for 99.99 (although you will need to upgrade to Windows 10 Personal for Windows 8.1 and Windows 7).

Note that you have only a couple of weeks till the free upgrade to Windows 10 expires.

1. HP 255 G4

A reliable workhorse that certainly won’t break the bank

CPU: 1.8GHz AMD A6-6310 | Graphics: AMD Radeon HD Graphics | RAM: 4GB | Screen: 15.6-inch, 1366 x 768 pixels | Storage: 500GB HDD

Up to 11 hours battery life

Doesn’t have the best input peripherals

Not much else wrong here

So, you want the most powerful system on the market with plenty of connectivity but don’t want to compromise on size or portability or battery life. Mission impossible? Well, not really. Take this Portege laptop from Toshiba. The Japanese manufacturer managed to squeeze an extraordinary amount of components in this device including a VGA port, a fingerprint reader and even a 4G/LTE modem and A-GPS!

4. Lenovo ThinkPad X240

An old favourite, but still a very worthy notebook

CPU: 1.6GHz Intel Core i5-4200U | Graphics: Intel HD 4400 | RAM: 8GB | Screen: 12.5-inch, 1366 x 768 pixels | Storage: 256GB SSD

Hot swappable batteries

Great fingerprint reader

Dense for its small size

Mention the word ThinkPad to older geeks and many of them will wax lyrical on how that laptop range set the benchmark for enterprise notebooks. The X240 might be a couple of years old already but its feature set means that it simply cannot be ignored at its current asking price. Sure it doesn’t have the latest CPU or a touchscreen but that probably won’t matter for the audience the X240 is aimed at.

5. Lenovo B51-80

A not particularly portable powerhouse

CPU: 2.5GHz Intel Core i7-6500U | Graphics: Intel HD Graphics 520 | RAM: 8GB | Screen: 15.6-inch, 1920 x 1080 pixels | Storage: 1TB HDD

Not great in terms of portability

Comes with Windows Home not Pro

If you are willing to sacrifice portability for sheer power, then this laptop is worth considering. Oddly enough, although it is part of Lenovo’s B-series (essentially aiming for the SMB market), it comes with Windows Home rather than Professional. Other than this, the B51 is a very decent all-rounder that hits almost all the right notes: from the powerful CPU to the full HD display and the discrete GPU.

6. HP EliteBook 745 G2

A great budget offering

CPU: 2.1GHz AMD A10 Pro-7350B APU | Graphics: AMD Radeon R6 Graphics | RAM: 4GB | Screen: 14-inch, 1600 x 900 pixels | Storage: 240GB SSD

MIL-STD 810G compliance

Display isn’t the best

Only 4GB of RAM

Business laptops do not have to be expensive. This EliteBook from HP embodies that idea, bringing together some very decent components at a rock bottom price. How HP manages to do that beggars belief, because this notebook is loaded with a powerful AMD CPU, 4GB of RAM, a fast SSD and it gives you up to 10 hours battery life.

7. Apple MacBook Pro 15-inch Retina Display 2015

A great performer with an excellent screen

CPU: 2.2GHz Intel Core i7 quad-core | Graphics: Intel Iris Pro Graphics | RAM: 16GB | Screen: 15.4-inch, 2880 x 1800 pixels | Storage: 256GB SSD

Superb Retina Display

Great battery life

Force Touch underdeveloped

Should a member of Apple’s award winning MacBook Pro family be included in a best business laptop shortlist? Certainly as it hits all the right notes especially as IBM has boosted Apple’s credentials as an enterprise player. And Apple’s top of the range models are certainly not overly expensive compared to their Windows-based counterparts, especially if you buy them from trusted third-party websites.

8. Fujitsu LifeBook E736

This notebook delivers on all fronts, but has quite the price tag

CPU: 2.6GHz Intel Core i7-6600U | Graphics: Intel HD Graphics 530 | RAM: 32GB | Screen: 13.3-inch, 1920 x 1080 pixels | Storage: 256GB SSD

Impressive performance levels

Modularity and expansion

Not a cheap laptop

Lacks option for discrete graphics

This is the other Japanese laptop company that we often hear about and while Fujitsu is rarely seen as an innovator, its newest range of notebooks may well change that perception by bundling a lot of features that are often regarded as optional by the competition. From the two-year standard warranty to the massive battery and 4G/LTE integrated modem, there’s a lot to love about this machine .

9. Dell Latitude E7470

A solid performer backed by Dell’s quality aftersales

CPU: 2.4GHz Intel Core i5-6300U | Graphics: Intel HD Graphics 520 | RAM: 8GB | Screen: 14-inch, 1920 x 1080 | Storage: 128GB

Impressive performance levels

Strong on connectivity

Screen suffers a bit from reflections

Not cheap for higher-end configurations

Dell’s decision to bypass the E7460 series to launch an E7470 left a few analysts puzzled but the PC vendor managed to deliver a magnificent piece of kit which it says is the most secure, most reliable and most manageable business-class laptop. It does come at a hefty price though and compared to the competition, this notebook may feel underwhelming. However, Dell’s forte lies in its services and aftersales.

10. Lenovo ThinkPad T560

Powerful yet still nicely slim and portable

CPU: 2.6GHz Intel Core i7-6600U | Graphics: Intel HD Graphics 520 | RAM: 8GB | Screen: 15.6-inch, 2880 x 1620 pixels | Storage: 256GB SSD

Three-year onsite warranty as standard

Top spec models aren’t cheap

Keyboard could use some improvement

Lenovo calls the newest member of the ThinkPad T-series family the ‘new standard for highly mobile laptops’. What makes it so special is the fact that it blurs the line between traditional business devices and more powerful mobile workstations. The top-end spec highlighted here boasts some of the highest configuration levels we’ve seen on any laptop and yet manages to pack everything into a very portable and elegant Ultrabook-esque form factor.

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#business card magnets

#

Quality Business Card Magnets at Cheap Business Card Magnet Prices
For not much more than many people pay for their business cards you can have these beautiful�full color �business card magnets. These stick around for years on refrigerators and filing cabinets. Your name is in front of your customers�and reminds them to contact you when�needed.�

  • �Actual Size: 2″ x 3 1/2″
  • Ultra High Gloss Coated
  • .023 Material Thickness
  • Rounded Corners
  • Full Color Printing
  • Free Proof, Artwork and Templates

Low Cost Business Card Magnets is our Flagship Product

Best Price Business Card Magnets and a Quality Product

You always receive a free proof for your approval� before magnets are produced.
Use our convenient shopping cart to order on-line or call our toll free number –
888-201-8456. When using the shopping cart you will be prompted to choose from our templates or upload your artwork and/or add the text for the card imprint. There will also be a box to enter instructions if neeeded. Once we have your order we will have our art department lay-out the copy and reply back to your email with proof for approval before product is printed.



#business phones

#

TechRadar pro

Top 7 best business mobiles in the UK in 2016: top smartphones for work

Impressive security features

Not premium build quality

When the Priv launched, it took a lot of analysts by surprised because of radical step involving the OS. BlackBerry had finally decided to embrace Android and re-introduce the keyboard (albeit a slide out one) on a flagship handset. It is, as techradar’s John McCann candidly puts it, the mullet of the smartphone world. “It’s still business in the front, but now there’s a party in the back too. It will divide opinion, but this is the best BlackBerry in years,” he added. The device will appeal to those who wants the security halo associated with BlackBerry with the ubiquity of Google’s Android. Overall, it remains a stunning piece of kit, and probably one bound to become a classic.

3. BlackBerry Classic

For those who yearn for the golden age of BB OS

Great messaging capabilities

Old-school QWERTY keyboard

Square screen not for everyone

Pretty hefty phone

There are still BlackBerry fans out there and the Canadian company unveiled the Classic to please them all. An old-school QWERTY keyboard, a familiar operating system and user interface, a design that doesn’t age and the enterprise-grade security are all on the feature list of this smartphone. Sure, Android might well have the upper hand when it comes to market share and the sheer number of applications but BlackBerry provides with yet another attractive alternative when it comes to business smartphones. It runs BlackBerry OS 10 with a square 720×720 pixel touchscreen display, a touchpad and up to 22-hour battery power.

4. Samsung Galaxy S6

A secure and compelling offering for BYOD aficionados

Disappointing battery longevity

With every iteration of its Galaxy S series, Samsung edges towards the business user. The S6 (and its partner the S6 Edge) saw the inclusion of Microsoft Office Android applications as well as Samsung’s own mobile device management container solution, Knox. The latter provides military-grade, multi-layered mobile security. Siloed personal and work partitioning containers (Knox Workspace) means that employers can separate work and personal life in a near seamless way. Great for BYOD aficionados. Samsung also wisely scrapped the plastic finish for a more upmarket design that blends glass and metal.

5. Samsung Galaxy Note 4

A more productive way to be mobile

Oodles of power

Some will find it too big

Since the Note 5 is not officially available in the UK, the best Android-based device with a pen remains the Note 4, still a very capable device. Multi-tasking is part of the parcel of business these days and what better phone to handle this than the Galaxy Note 4 with its stunning QHD (better than full HD) 5.7-inch display, 3GB of RAM and serious power inside. A great battery life and expandable memory have always been key Galaxy Note features, but you can now add a more premium design to that list. A metal frame runs round the circumference of the handset, and while the rear is still plastic it’s a big step forward for Samsung and it’s a welcome addition. The S Pen has been given a boost with greater accuracy, making handwriting and multi-tasking even easier. Snap two apps side by side on screen if you want to up your efficiency even more.

6. Apple iPhone 6S Plus

The alternative business smartphone

Bright and vibrant screen

3D Touch has definite potential

Supersized smartphones are all the rage these days, even Apple has one, and if the Cupertino firm’s styling and iOS heritage appeals to your business then check out the excellent iPhone 6S Plus. Its 5.5-inch display is one of the best on the market and the A9 processor that powers it regularly ranks amongst the most powerful in smartphone-dom. It supports more LTE bands than most smartphones and its enclosure is made of the same grade of aluminium alloy as used in the aerospace industry. Add in Siri and a bunch of other innovations (like Touch ID and 3D Touch) and you have a very capable business phone, one whose profile was raised by Apple’s close collaboration with IBM.

7. Lenovo K80M

A handset which boasts sizzling bang for buck

Great value for money

Plentiful RAM and storage

No local warranty

Some pre-installed bloatware

This smartphone is worthy of a special mention on this list as a business phone for a number of reasons. It is built by Lenovo, the biggest PC manufacturer on the planet, one who also owns Motorola as well. It’s shipped directly from China which is a novel but growing shift in the way products are purchased. It has a headline-grabbing 4GB of RAM, same as most desktop PCs, and 64GB of storage. Despite these specs and a quad-core Intel CPU it retails for a fraction of what similar smartphones will cost over here. Sadly though, because it doesn’t have a local warranty you will need to send it back for repairs.

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#stock market results

#

4 Ways To Predict Market Performance

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There are two prices that are critical for any investor to know: the current price of the investment he or she owns, or plans to own, and its future selling price. Despite this, investors are constantly reviewing past pricing history and using it to influence their future investment decisions. Some investors won’t buy a stock or index that has risen too sharply, because they assume that it’s due for a correction, while other investors avoid a falling stock, because they fear that it will continue to deteriorate.

Does academic evidence support these types of predictions, based on recent pricing? In this article, we’ll look at four different views of the market and learn more about the associated academic research that supports each view. The conclusions will help you better understand how the market functions, and perhaps eliminate some of your own biases.

Momentum
“Don’t fight the tape.” This widely quoted piece of stock market wisdom warns investors not to get in the way of market trends. The assumption is that the best bet about market movements is that they will continue in the same direction. This concept has is roots in behavioral finance. With so many stocks to choose from, why would investors keep their money in a stock that’s falling, as opposed to one that’s climbing? It’s classic fear and greed. (For more insight, see the Behavioral Finance tutorial.)

Studies have found that mutual fund inflows are positively correlated with market returns. Momentum plays a part in the decision to invest and when more people invest, the market goes up, encouraging even more people to buy. It’s a positive feedback loop.

A 1993 study by Narasimhan Jagadeesh and Sheridan Titman, “Returns to Buying Winners and Selling Losers,” suggests that individual stocks have momentum. They found that stocks that have performed well during the past few months, are more likely to continue their outperformance next month. The inverse also applies; stocks that have performed poorly, are more likely to continue their poor performance.

However, this study only looked ahead a single month. Over longer periods, the momentum effect appears to reverse. According to a 1985 study by Werner DeBondt and Richard Thaler, “Does the Stock Market Overreact?” stocks that have performed well in the past three to five years are more likely to underperform the market in the next three to five years and vice versa. This suggests that something else is going on: mean reversion .

Mean Reversion
Experienced investors who have seen many market ups and downs, often take the view that the market will even out, over time. Historically high market prices often discourage these investors from investing, while historically low prices may represent an opportunity.

The tendency of a variable, such as a stock price, to converge on an average value over time is called mean reversion. The phenomenon has been found in several economic indicators. including exchange rates. gross domestic product (GDP) growth, interest rates and unemployment. Mean reversion may also be responsible for business cycles. (For more insight, check out Economic Indicators To Know and Economic Indicators For The Do-It-Yoursel Investor .)

The research is still inconclusive about whether stock prices revert to the mean. Some studies show mean reversion in some data sets over some periods, but many others do not. For example, in 2000, Ronald Balvers, Yangru Wu and Erik Gilliland found some evidence of mean reversion over long investment horizons. in the relative stock index prices of 18 countries, which they described in the “Journal of Finance.”

However, even they weren’t completely convinced, as they wrote in their study, “A serious obstacle in detecting mean reversion is the absence of reliable long-term series, especially because mean-reversion, if it exists, is thought to be slow and can only be picked up over long horizons.”

Given that academia has access to at least 80 years of stock market research. this suggests that if the market does have a tendency to mean revert, it is a phenomenon that happens slowly and almost imperceptibly, over many years or even decades.

Martingales
Another possibility is that past returns just don’t matter. In 1965, Paul Samuelson studied market returns and found that past pricing trends had no effect on future prices and reasoned that in an efficient market. there should be no such effect. His conclusion was that market prices are martingales. (To read more, see Working Through The Efficient Market Hypothesis .)

A martingale is a mathematical series in which the best prediction for the next number is the current number. The concept is used in probability theory, to estimate the results of random motion. For example, suppose that you have $50 and bet it all on a coin toss. How much money will you have after the toss? You may have $100 or you may have $0 after the toss, but statistically the best prediction is $50; your original starting position. The prediction of your fortunes after the toss is a martingale. (To learn how this applies to trading, see Forex Trading The Martingale Way .)

In stock option pricing, stock market returns could be assumed to be martingales. According to this theory, the valuation of the option does not depend on the past pricing trend, or on any estimate of future price trends. The current price and the estimated volatility are the only stock-specific inputs.

A martingale in which the next number is more likely to be higher, is known as a sub-martingale. In popular literature, this motion is known as a random walk with upward drift. This description is consistent with the more than 80 years of stock market pricing history. Despite many short-term reversals. the overall trend has been consistently higher. (To learn more about random walk, read Financial Concepts: Random Walk .)

If stock returns are essentially random, the best prediction for tomorrow’s market price is simply today’s price, plus a very small increase. Rather than focusing on past trends and looking for possible momentum or mean reversion, investors should instead concentrate on managing the risk inherent in their volatile investments.

The Search for Value
Value investors purchase stock cheaply and expect to be rewarded later. Their hope is that an inefficient market has underpriced the stock, but that the price will adjust over time. The question is does this happen and why would an inefficient market make this adjustment?

Research suggests that this mispricing and readjustment consistently happens, although it presents very little evidence for why it happens.

In 1964, Gene Fama and Ken French studied decades of stock market history and developed the three-factor model to explain stock market prices. The most significant factor in explaining future price returns was valuation, as measured by the price-to-book ratio. Stocks with low price-to-book ratios delivered significantly better returns than other stocks. (To read more about this ratio, see Value By The Book .)

Valuation ratios tend to move in the same direction and in 1977, Sanjoy Basu found similar results for stocks with low price-earnings (P/E) ratios. Since then, the same effect has been found in many other studies across dozens of markets. (For more on this, check out Understanding The P/E Ratio .)

However, studies have not explained why the market is consistently mispricing these “value” stocks and then adjusting later. The only conclusion that could be drawn is that these stocks have extra risk, for which investors demand additional compensation. (To learn more about this phenomenon, read The Equity-Risk Premium: More Risk For Higher Returns and Calculating The Equity Risk Premium .)

Price is the driver of the valuation ratios, therefore, the findings do support the idea of a mean-reverting stock market. As prices climb, the valuation ratios get higher and, as a result, future predicted returns are lower. However, the market P/E ratio has fluctuated widely over time and has never been a consistent buy or sell signal .

The Bottom Line
Even after decades of study by the brightest minds in finance, there are no solid answers. The only conclusion that can be drawn is that there may be some momentum effects, in the short term. and a weak mean reversion effect, in the long term.

The current price is a key component of valuation ratios such as P/B and P/E, that have been shown to have some predictive power on the future returns of a stock. However, these ratios should not be viewed as specific buy and sell signals, just factors that have been shown to play a role in increasing or reducing the expected long-term return.



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Business English

Business English courses are aimed at working professionals or those seeking employment in which English is a requirement or is desired.

Evening courses

The evening courses are offered at the BSN Language Centre at upper intermediate and advanced levels and are held once a week. Similar to our general English courses, they cover grammar, vocabulary and pronunciation and all four skills: reading, writing, listening, and speaking but the contexts all relate to the business world. Our teachers use both commercially produced and authentic materials, and whenever appropriate we incorporate students’ real-life tasks.

The face-to-face lessons last for 2 hours. The courses are designed to fit into a busy work schedule and offer a more flexible solution to improve your English at work.

There are no specific starting dates. The courses run all year round. Students are tested and if there is a suitable course running, they can join from 1 week after the registration process has been completed.

English as a Medium of Instruction (EMI): a new course for university lecturers

The BSN Language Centre is the first to offer the EMI Skills Course, recently developed by Cambridge English, in the Netherlands. This course is especially developed for lecturers working within higher education who deliver international programmes in English. For further information visit our EMI Skills Course page

Levels
  • B2 Upper Intermediate and C1 Advanced
Lessons per week