China Stocks Surge on Policy Optimism While Bond Yields Increase

China's stocks advanced, capping the benchmark index's biggest gain in a month, while borrowing costs rose amid speculation the government will unveil detailed changes in economic policy as soon as next week.

The Shanghai Composite Index (SHCOMP) climbed 1.7 percent to 2,135.83 at the close, erasing a weekly decline, as Citic Securities Co. (600030) and Haitong Securities Co. led a rally in brokerages. Yields on the nation's 10-year notes increased eight basis points to 4.60 percent, the highest level since 2007, and the benchmark money-market rate rose the most in five months.

Optimism that the government will elaborate on plans to elevate the role of markets in the world's second-largest economy has revived investor confidence, after the ruling Communist Party stopped short of unveiling detailed policy shifts on Nov. 12, according to Dragon Life Insurance Co. Bond yields increased as the central bank drained cash from the financial system and investors speculated the government will loosen its grip on interest rates.

"The market is expecting that some important decisions from the plenum will be implemented soon and some additional details to be announced will exceed market expectations," said Wu Kan, a money manager at Dragon Life, which oversees about $3.3 billion. "Investors had overreacted by panic selling when the plenum concluded."

Property Rights

A 20,000 word document approved at the plenum lays out 15 areas of reform and 60 "concrete tasks," the Communist Party's People's Daily newspaper reported today. Speculation on the contents was fueled by photographs circulating online of portions of an unidentified document referring to topics such as requiring state-owned enterprises to pay larger dividends, encouraging more private investment in state projects, and offering farmers more property rights.

Policy changes may be announced over the next seven to 10 days, Jonathan Garner, the Hong Kong-based chief Asia and emerging-market strategist at Morgan Stanley, said in an interview from Singapore yesterday. Investors will regain some confidence in China's structural reforms next week, Lu Ting, a Hong Kong-based economist at Bank of America Corp., wrote in an e-mailed note.

The nation will probably ease controls on interest rates and energy prices after policy makers assigned markets a "decisive" role in allocating resources this week, according to Wang Tao, the chief China economist at UBS AG who formerly worked at the International Monetary Fund.

Money Markets

The seven-day repurchase rate, a gauge of liquidity in the financial system, jumped 107 basis points to 5.30 percent, according to a fixing by the National Interbank Funding Center. Yuan forwards touched a one-month low as they headed for a weekly drop.

The People's Bank of China's money-market operations withdrew a net 15 billion yuan ($2.5 billion) in the last four days after draining 5 billion yuan last week, according to data compiled by Bloomberg. The monetary authority auctioned 30 billion yuan of the finance ministry's three-month deposits to banks at a yield of 6 percent yesterday, the most since June and more than the Shanghai Interbank Offered Rate of 4.7 percent for similar-term funds.

Top Canadian Companies To Watch In Right Now

Citic Securities and Haitong Securities, China's biggest listed brokerages, jumped at least 6 percent after the Shanghai Securities News cited Xiao Gang, chairman of the securities regulator, as saying the capital markets will "usher in" new opportunities. BesTV New Media Co., which is forming a video-game venture with Microsoft Corp., surged 6.3 percent.

The CSI 300 Index advanced 2 percent to 2,350.73. The Hang Seng China Enterprises Index (HSCEI) gained 2.8 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.- listed Chinese companies, added 0.7 percent yesterday.

The Shanghai index climbed 1.3 percent this week, narrowing this year's loss to 5.9 percent. Trading volumes in the index were 10 percent above the 30-day average today, according to data compiled by Bloomberg.

Top 20 International Stock Funds in DC Space

What to do, where to go?

If you’re looking internationally in a bid to diversify your clients’ retirement plan, BrightScope offers some help.

The research firm recently announced the top 20 international stock funds in the defined contribution industry. The list is part of a series of rankings BrightScope regularly publishes to provide “investment managers, mutual fund companies, investors, and others with more insight into the top funds and managers in the retirement marketplace.”

"Maintaining diversification is essential to the health of any portfolio," Brooks Herman, head of data and research at BrightScope, said in a statement. "Traditionally, international equities offer returns that are less correlated with domestic equities, which improve the risk/return profile of a portfolio."

Since its infancy, the 401(k) marketplace has suffered from a lack of quality data that is comprehensive enough to be useful for most strategic functions, the firm argues. Historically, it claims has been “virtually impossible” to determine a specific mutual fund's total distribution in 401(k) plans. Noteworthy findings since BrightScope's last release of this list, in September 2011, include the following:

Click through to find the top 20 international funds in the defined contribution space (by total distribution) in reverse order:

20. Morgan Stanley Institutional International Equity

19. Vanguard International Value

18. Wells Fargo International Equity Index

17. Principal Diversified International

Hot Biotech Companies To Watch In Right Now

16. Artisan International

15. Aberdeen Select International Equity

14. Janus Overseas

13. Templeton Foreign

12. Vanguard Developed Markets Index

11. Fidelity Spartan International Index

10. Fidelity International Discovery

9. Northern Trust EAFE Index

8. BlackRock EAFE Equity Index Fund

7. Thornburg International Value

6. Harbor International

5. Vanguard Total International Stock Index

4. Vanguard International Growth

3. Dodge & Cox International Stock

2. Fidelity Diversified International

1. American Funds EuroPacific Growth

--- Check out these related stories on ThinkAdvisor:

Top 5 Insurance Companies To Watch For 2014

In a press release Thursday, Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) announced that "Berkshire Hathaway Specialty Insurance, its recently formed commercial property casualty insurance group, has commenced operations, underwriting property, casualty, professional and executive liability insurance and programs for customers in the U.S."

Meanwhile, Berkshire CEO Warren Buffett offered the following words:

It's official: We are moving into commercial insurance in a substantial way, and we are here to stay. With our proven underwriting discipline and�financial strength, along with a stellar management team, Berkshire Hathaway Specialty Insurance is a�welcome solution for customers seeking large-scale property and casualty capacity for the long term.

The release goes on to say that the policies are being underwritten on the non-admitted paper of National Fire & Marine Insurance Company, which is one of Berkshire's existing excess and surplus insurance companies, and itself a subsidiary of Berkshire's National Indemnity Group.

Top 5 Insurance Companies To Watch For 2014: AmTrust Financial Services Inc (AFSI)

Amtrust Financial Services, Inc., incorporated on November 7, 1990, is a holding company. The Company is a multinational specialty property and casualty insurer focused on generating consistent underwriting profits. The Company operates in four business segments: small commercial business, specialty program and personal lines reinsurance. The Company transacts business through 11 insurance company subsidiaries: Technology Insurance Company, Inc. (TIC), Rochdale Insurance Company (RIC), Wesco Insurance Company (WIC), Associated Industries Insurance Company, Inc. (AIIC), Milwaukee Casualty Insurance Company (MCIC), Security National Insurance Company (SNIC), AmTrust Insurance Company of Kansas, Inc. (AICK) and AmTrust Lloyd�� Insurance Company of Texas (ALIC). In January 2013, the Company acquired First Nonprofit Companies, Inc. In February 2013, the Company's subsidiary acquired Car Care Plan (Holdings) Limited (CCPH) from Ally Insurance Holdings, Inc.

Small Commercial Business

Small Commercial Business segment provides workers��compensation to small businesses that operate in low and medium hazard classes, such as restaurants, retail stores, physicians and other professional offices, and commercial package and other property and casualty insurance products to small businesses. The Company is authorized to write its Small Commercial Business products in all 50 states. The Company distributes its policies through a network of over 8,100 select retail and wholesale agents who are paid commissions based on the annual policy premiums written. Commercial package products provide a range of insurance to small businesses, including commercial property, general liability, inland marine, automobile, workers��compensation, and umbrella coverage.

The Company maintains Small Commercial Business property and casualty claims operations in several of its domestic offices and the commercial package claims operation is separated into four processing units: casualty, propert! y, cost-containment/recovery and a fast-track physical damage unit. As of December 31, 2012, its Small Commercial Business property and casualty claims were approximately 61% automobile and 13% property and inland marine with the remaining 26% involving general liability and umbrella losses.

Specialty Risk and Extended Warranty

The Company��Specialty Risk and Extended Warranty segment provides coverage for consumer and commercial goods and custom designed coverages, such as accidental damage plans and payment protection plans offered in connection with the sale of consumer and commercial goods in the United States and Europe, and certain niche property, casualty and specialty liability risks in the United States and Europe, including general liability, employers��liability and professional and medical liability. specialty risk business primarily covers, such as legal expenses in the event of unsuccessful litigation; property damage for residential properties; home emergency repairs caused by incidents affecting systems, such as plumbing, wiring or central heating; latent defects that materialize on real property after building or completion; payment protection to insureds if they become unable to meet financial obligations under finance contracts; guaranteed asset protection (GAP) to cover the difference between an insurer�� settlement and the asset value in the event of a total loss, and general liability, employers��liability, public liability, negligence of advisors and liability of health care providers and medical facilities.

The Company's extended warranty business covers selected consumer and commercial goods and other risks, including personal computers; consumer electronics, such as televisions and home theater components; consumer appliances, such as refrigerators and washing machines; automobiles (excluding liability coverage); furniture, and heavy equipment. The Company also serve as a third party administrator to provide claims handling and ca! ll center! services to the consumer products and automotive industries in the United States and Canada. It underwrites the specialty risk coverage on a coverage plan-level basis, which involves substantial data collection and actuarial analysis, as well as analysis of applicable laws governing policy coverage language and exclusions.

Specialty Program

The Company�� Specialty Program segment provides workers��compensation, package products, general liability, commercial auto liability, excess and surplus lines programs and other specialty commercial property and casualty insurance to a narrowly defined, homogeneous group of small and middle market companies. The type of risk covered by this segment is similar to the type of risk in Small Commercial Business but also covers, to a small extent, certain higher risk businesses. The coverage is offered through accounts with various agents to multiple insureds. Policyholders in this segment primarily include industries, such as retail, wholesale, service operations, artisan contracting, trucking, light and medium manufacturing, habitational and professional employer organizations. As of December 31, 2012, the Company underwrote 77 programs through 44 independent wholesale and managing general agents. Workers��compensation insurance consists approximately 33% of this business during the year ended December 31, 2012.

Personal Lines Reinsurance

The Company�� Personal Lines Reinsurance Segment has a 20% participation in the Personal Lines Quota Share, by which it receive 10% of the net premiums of the personal lines business. The Personal Lines Quota Share provides that the reinsurers, severally, in accordance with their participation percentages, will receive 50% of the net premium of the GMACI Insurers and assume 50% of the related net losses.

Top 5 Insurance Companies To Watch For 2014: Old Republic International Corporation(ORI)

Old Republic International Corporation, through its subsidiaries, provides various insurance and mortgage guaranty products in North America. The company operates in three segments: General Insurance, Mortgage Guaranty, and Title Insurance. The General Insurance segment provides liability insurance coverages to businesses, government, and other institutions in commercial construction, forest products, energy, general manufacturing, and financial services industries; and transportation, including trucking and general aviation industries. It provides various insurance products, such as automobile extended warranty, aviation, commercial automobile insurance, general liability, home warranty, inland marine, travel accident, and workers? compensation, as well as liability coverage for claims arising from the acts of owners or employees, and protection for the physical assets of businesses. This segment also offers financial indemnity products, such as consumer credit indemnity , errors and omissions/directors and officers, guaranteed asset protection, and surety, as well as bonds that cover the exposures for losses of monies, or debt and equity securities due to acts of employee dishonesty. The Mortgage Guaranty segment insures first mortgage loans, primarily on residential properties incorporating one-to-four family dwelling units to mortgage bankers, brokers, commercial banks, and savings institutions. The Title Insurance segment provides lenders' and owners' title insurance policies to real estate purchasers and investors based upon searches of the public records. It also provides escrow closing and construction disbursement services; and real estate information products, national default management services, and services related to real estate transfers and loan transactions. Old Republic International Corporation markets its products directly, as well as through insurance agents and brokers. The company was founded in 1887 and is based in Chi cago, Illinois.

Advisors' Opinion:

• [By Fredrik Arnold]

  Ten Champion dogs that promised the biggest dividend yields into July included firms representing five of nine market sectors. The top stocks were three of five from the financial sector: Universal Health Realty Trust (UHT); Mercury General Corp. (MCY); Old Republic Int'l (ORI). The other two financial firms, HCP Inc., and United Bankshares Inc. (UBSI), placed sixth and eighth.

• [By Ben Levisohn]

  Its big day has also boosted other insurers. Radian Group (RDN) has risen 7.2% to $14.39, while Old Republic International (ORI) has advanced 2.1% to $15.24, Genworth Financial (GNW) is up 3.6% at $13.41 and MBIA Inc. (MBI) has jumped 4.3% to $10.76.

10 Best Safest Stocks To Buy For 2014: AmTrust Financial Services Inc (AFSI.O)

Amtrust Financial Services, Inc., incorporated on November 7, 1990, is a holding company. The Company is a multinational specialty property and casualty insurer focused on generating consistent underwriting profits. The Company operates in four business segments: small commercial business, specialty program and personal lines reinsurance. The Company transacts business through 11 insurance company subsidiaries: Technology Insurance Company, Inc. (TIC), Rochdale Insurance Company (RIC), Wesco Insurance Company (WIC), Associated Industries Insurance Company, Inc. (AIIC), Milwaukee Casualty Insurance Company (MCIC), Security National Insurance Company (SNIC), AmTrust Insurance Company of Kansas, Inc. (AICK) and AmTrust Lloyd�� Insurance Company of Texas (ALIC). In January 2013, the Company acquired First Nonprofit Companies, Inc. In February 2013, the Company's subsidiary acquired Car Care Plan (Holdings) Limited (CCPH) from Ally Insurance Holdings, Inc.

Sma ll Commercial Business

Small Commercial Business segment provides workers��compensation to small businesses that operate in low and medium hazard classes, such as restaurants, retail stores, physicians and other professional offices, and commercial package and other property and casualty insurance products to small businesses. The Company is authorized to write its Small Commercial Business products in all 50 states. The Company distributes its policies through a network of over 8,100 select retail and wholesale agents who are paid commissions based on the annual policy premiums written. Commercial package products provide a range of insurance to small businesses, including commercial property, general liability, inland marine, automobile, workers��compensation, and umbrella coverage.

The Company maintains Small Commercial Business property and casualty claims operations in several of its domestic offices and the commercial package claims opera tion is separated into four processing units: casualty, pr! op! erty, cost-containment/recovery and a fast-track physical damage unit. As of December 31, 2012, its Small Commercial Business property and casualty claims were approximately 61% automobile and 13% property and inland marine with the remaining 26% involving general liability and umbrella losses.

Specialty Risk and Extended Warranty

The Company��Specialty Risk and Extended Warranty segment provides coverage for consumer and commercial goods and custom designed coverages, such as accidental damage plans and payment protection plans offered in connection with the sale of consumer and commercial goods in the United States and Europe, and certain niche property, casualty and specialty liability risks in the United States and Europe, including general liability, employers��liability and professional and medical liability. specialty risk business primarily covers, such as legal expenses in the event of unsuccessful litigation; property damage for resid ential properties; home emergency repairs caused by incidents affecting systems, such as plumbing, wiring or central heating; latent defects that materialize on real property after building or completion; payment protection to insureds if they become unable to meet financial obligations under finance contracts; guaranteed asset protection (GAP) to cover the difference between an insurer�� settlement and the asset value in the event of a total loss, and general liability, employers��liability, public liability, negligence of advisors and liability of health care providers and medical facilities.

The Company's extended warranty business covers selected consumer and commercial goods and other risks, including personal computers; consumer electronics, such as televisions and home theater components; consumer appliances, such as refrigerators and washing machines; automobiles (excluding liability coverage); furniture, and heavy equipment. The Company also serve a s a third party administrator to provide claims handli! ng and! c! all cen! ter services to the consumer products and automotive industries in the United States and Canada. It underwrites the specialty risk coverage on a coverage plan-level basis, which involves substantial data collection and actuarial analysis, as well as analysis of applicable laws governing policy coverage language and exclusions.

Specialty Program

The Company�� Specialty Program segment provides workers��compensation, package products, general liability, commercial auto liability, excess and surplus lines programs and other specialty commercial property and casualty insurance to a narrowly defined, homogeneous group of small and middle market companies. The type of risk covered by this segment is similar to the type of risk in Small Commercial Business but also covers, to a small extent, certain higher risk businesses. The coverage is offered through accounts with various agents to multiple insureds. Policyholders in this segment primarily include industries, such as retail, wholesale, service operations, artisan contracting, trucking, light and medium manufacturing, habitational and professional employer organizations. As of December 31, 2012, the Company underwrote 77 programs through 44 independent wholesale and managing general agents. Workers��compensation insurance consists approximately 33% of this business during the year ended December 31, 2012.

Personal Lines Reinsurance

The Company�� Personal Lines Reinsurance Segment has a 20% participation in the Personal Lines Quota Share, by which it receive 10% of the net premiums of the personal lines business. The Personal Lines Quota Share provides that the reinsurers, severally, in accordance with their participation percentages, will receive 50% of the net premium of the GMACI Insurers and assume 50% of the related net losses.

Top 5 Insurance Companies To Watch For 2014: Fairfax Financial Holdings Ltd (FRFHF.PK)

Fairfax Financial Holdings Limited (Fairfax) is a financial services holding company. The Company, through its subsidiaries, is principally engaged in property and casualty insurance and reinsurance and the associated investment management. The Company�� segments consist of Insurance, Reinsurance, Insurance and Reinsurance Other, Runoff, and Corporate and Other. On December 22, 2011, the Company completed the acquisition of 75% interests in Sporting Life Inc. On August 16, 2011, the Company acquired William Ashley China Corporation. On March 24, 2011, an indirect wholly owned subsidiary of Fairfax completed the acquisition of The Pacific Insurance Berhad. On February 9, 2011, an indirect wholly owned subsidiary of Fairfax completed the acquisition of First Mercury Financial Corporation. In October 2012, its RiverStone runoff subsidiary acquired all the outstanding shares of Brit Insurance Limited.

Advisors' Opinion:

• [By Alex Jordon]

  There's talk that Prem Watsa, head of Fairfax Financial Holdings (FRFHF.PK), could possibly be involved in a privatization bid for the company. Consider:

• [By Infinity Group]

  With 515 million shares outstanding, this equates to 33% of all shares being shorted. It should also be noted that Prem Watsa's Fairfax Financial Holdings (FRFHF.PK) is holding 51.8 million BlackBerry shares. Prem Watsa stated at the annual FairFax shareholders meeting that Fairfax is holding a long position with BlackBerry and anticipates shareholder value increasing over the next 2-3 years. The cost basis for FairFax financial holdings is approximately $17 per BlackBerry share.

Top 5 Insurance Companies To Watch For 2014: Aflac Incorporated(AFL)

Aflac Incorporated, through its subsidiary, American Family Life Assurance Company of Columbus (Aflac), provides supplemental health and life insurance. The company offers various voluntary supplemental insurance products, including cancer plans, general medical indemnity plans, medical/sickness riders, care plans, living benefit life plans, ordinary life insurance plans, and annuities in Japan. It also provides loss-of-income products, such as life and short-term disability plans; and products designed to protect individuals from depletion of assets, which comprise hospital indemnity, fixed-benefit dental, vision care, accident, cancer, critical illness/critical care, and hospital intensive care plans in the United States. The company sells its products through sales associates and brokers, affiliated corporate agencies, independent corporate agencies, and individual agencies. Aflac Incorporated was founded in 1955 and is headquartered in Columbus, Georgia.

Advisors' Opinion:

• [By Brian Pacampara]

  What: Shares of Aflac (NYSE: AFL  ) climbed 1.5% this morning after FBR Capital upgraded the life insurer from market perform to outperform.

• [By Russ Krull]

  Aflac (NYSE: AFL  ) sold $700 million in 10-year notes. The money will go toward redeeming two yen-denominated notes with a principal value of about $340 million due in 2014 and $300 million in U.S. dollar-denominated notes due in 2015. Any money left over goes toward "general corporate purposes," including capital contributions to subsidiaries, if needed. With Japan's Central Bank aggressively easing, it's curious that Aflac chose to borrow dollars to pay back yen-denominated notes.

• [By Chuck Saletta]

  Who showed us the money?
  On Monday, supplemental insurance giant AFLAC (NYSE: AFL  ) paid $9.45 in dividends to the IPIG portfolio. This was the company's third consecutive dividend at $0.35 per share. If it follows its previous trends, we can expect another payment at that level before it gets reviewed for potential increase.

• [By Dan Caplinger]

  Ask most people about Aflac (NYSE: AFL  ) , and they'll automatically start talking about the company's duck commercials. But those who've focused more on Aflac stock than on its advertising have been richly rewarded lately, and with new efforts to foster growth in the insurance company's largest market, Aflac has huge potential to cash in on improving conditions among its customer base.

Whisper Number: How Will Analog Devices Investors React to Earnings?

Analog Devices, Inc. (NASDAQ:ADI) is expected to report earnings on Tuesday, November 26. The whisper number is $0.57, one cent behind the analysts’ estimate. Analog Devices has a 66 percent positive surprise history, having topped the whisper in 27 of the 41 earnings reports for which we have data.

Earnings history:

- Beat whisper: 27 qtrs
- Met whisper: 2 qtrs
- Missed whisper: 12 qtrs

Our primary focus is on post earnings price movement. Knowing how likely a stock’s price will move following an earnings report can help you determine the best action to take (long or short). In other words, we look at what happens when the company beats or misses the whisper number expectation.

The table below indicates the average post earnings price movement within a one and thirty trading day timeframe.

The strongest price movement of +1.0 percent comes within twenty trading days when the company reports earnings that beat the whisper number, and -3.8 percent within thirty trading days when the company reports earnings that miss the whisper number. The overall average price move is ‘as expected’ (beat the whisper number and see strength, miss and see weakness) when the company reports earnings.

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The table below indicates the most recent earnings reports and short-term price reaction.

The company has reported earnings ahead of the whisper number in one of the past four quarters with a whisper number. In the comparable quarter last year, the company did not have a whisper number. Last quarter, the company reported earnings four cents ahead of the whisper number. Following that report, the stock realized a 2.8 percent gain in twenty trading days. Overall historical data indicates the company to be (on average) an ‘as expected’ price reactor when the company reports earnings.

Enter your expectation and view more earnings information here or let us know your expectation in the comments section below.

John Scherr is the founder and President of WhisperNumber.com, an independent financial research firm focused on earnings expectations. He is a regular contributor to CNBC and Fox Business Network, and has been featured in Barron's, The Wall Street Journal, and MarketWatch. He is considered a leading expert on 'whisper numbers' and post earnings price movement analysis. WhisperNumber.com provides specific earnings trade alerts to take advantage of earnings report price movement with their Whisper Reactors subscription service.

Investing Insights: Can Google Continue to Trend Higher?

Ask Matt: Time to worry if dividends top profit?

USA TODAY markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com.

Q: Is it a problem if a stock's dividend is greater than earnings?

A: When a dividend seems too good to be true, it probably is.

Investors are wise to compare the amount of cash being paid out by a company and compare that to the company's earnings. Dividends are paid out of the company's cash horde. That cash horde increases during the normal course of business if the company generates profit that exceeds the dividends it's paying out, not to mention other cash it is't using to pay for things such as stock buybacks.

TRACK YOUR STOCKS: Get real-time quotes with our free Portfolio Tracker

Companies can temporarily afford to pay out dividends that are larger than profits, but that doesn't last long without resorting to unusual action. Eventually the dividend will need to be cut or suspended if it tops a company's profit. How long that will take, though, depends on how much cash the company has and how much larger the dividend is than the profit. Some companies may also look to sell stock or borrow money to keep up a dividend it cannot afford from profit.

Generally, most companies can afford to pay larger dividends. The payout rate of companies in the Standard & Poor's 500 is 33%, meaning companies are paying out a third of their profit as dividends. That's low by historic standards, well below the 52% average over time, says Howard Silverblatt of S&P Dow Jones Indices.

In your e-mail, you asked about the dividend at Williams Partners (WPZ). The company pays a 6.6% dividend yield. It paid 86 cents a share in the form a dividend in the August quarter, which was greater than the 62 cents a share it earned during the second quarter. But that's likely a temporary situation: the company earned $3.60 last year, which exceeded the $3.14 a share it paid in dividends in 2012.

One More Stumble From Vermillion Could be the Clincher (VRML)

It's not an uncommon situation. While investors are scouring the news (or lack thereof) from a company, they're not paying much attention to the stock itself. Big mistake, as stocks can and do have a life of their own, sometimes independently of the company. Vermillion, Inc. (NASDAQ:VRML) is the most recent example of this alarming disconnect. While news from the company of late has been fairly benign and a little non-existent, shares of VRML has been inching towards a key technical line in the sand that if crossed under could spark a fairly rapid selloff.

First things first. For those not familiar with the company, VRML is a medical diagnostic stock. Specifically, Vermillion is best known for its ovarian cancer test OVA1, which can determine if on ovarian mass is malignant. It's not the only test the company has on the market, however - it's just the flagship product. Also in Vermillion's product library is the OVA2 test, which is currently in development as a tool that could pinpoint other ovarian-cancer-related problems that OVA1 can't, and the VASCLIR test, which is also currently in development as a means of determining and individual's risk of peripheral artery disease.

Though VASCLIR and OVA2 aren't making a big impact on the stock yet, since neither are on the market, VRML does get traction from time to time with news on the OVA1 front. Makes sense. The product's been approved since September of 2009, and has had plenty of time to develop sales momentum as well as draw out any issues or problems. So far, there are no major snafus, and Vermillion, Inc. sold $330,000 worth of the ovarian cancer test last quarter... a fairly typical quarter. That's not great for a $53 million company, but in the world of biopharma, future potential is the name of the game... or is it?

With nearly three full years of an approved OVA1 test's sales under its belt, it's safe to assume the revenue the company has generated has been something of a disappointment. The best year we've seen from Vermillion was 2012's $2.09 million in sales, and that was more than one full year after the test was approved and began being sold. Since then, sales have actually been waning. Indeed, things have been so disappointing that the company is now being scrutinized by law firms nosing around for a possible "breach of fiduciary duties" case to be brought against the board of directors.

It's not hard to understand why. The company was talking a big game three years ago, but it's been talking the same game the whole time, without ever actually getting to that promised land. Three years is enough time to get there. The only good news we've gotten recently was positive reviews of the diagnostic test in the American Journal of Obstetrics. But, that wasn't exactly news - the FDA's approval was confirmation enough that the test itself worked.

Hot Energy Stocks For 2014

It's unlikely the case will actually go anywhere or be successful, mind you; failing to live up to expectations isn't a crime, and it's near impossible to prove that any member of the Vermillion's leadership team knowingly and willingly overstated the potential of OVA1. Still, it doesn't make the marketing of OVA1 any easier when you also have to deal with a lawsuit.

None of that, however, is the part of the story Vermillion, Inc. shareholders have to worry about now. Right now the biggest concern is the fact that VRML shares - unaided by any encouraging new news and dogged by the occasional bad news - are on the verge of breaking under a huge support level at $2.23. That's where the 200-day moving average line is now, and that level's been a significant horizontal support level in the recent past. Meanwhile (since June), VRML has left behind a string of lower highs that will likely, eventually drive the stock under its support level. Once under that mark, the selling floodgates could open and there's nothing to stop the bleeding.

It's admittedly tough to bet against a stock before a breakdown actually materializes. In the case of Vermillion though, it's not like there are any real revenue catalysts in the pipeline. The main product has been on shelves for three years now - if it was going to happen (and if the market was going to reward the company), it would have happened by now. Speculators may want to go ahead and make their bets, as one more stumble could rapidly accelerate the selling process for VRML.

For more trading ideas and insights like these, be sure to sign up for the free SmallCap Network newsletter.

Can Boeing Stock Get Passed a Government Shutdown?

With shares of Boeing (NYSE:BA) trading around $119, is BA an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Boeing is an aerospace company. It focuses primarily on engineering, information technology, research and development, test and evaluation, technology strategy development, environmental remediation management, and intellectual property management. The company operates in five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital Corp.

Boeing may have to furlough employees if the government shutdown persists through the week. Bloomberg reports that the furloughs would occur at Boeing's defense, space, and security unit. A Boeing spokesman outlined several events that could cause workforce reductions, including stop-work orders from Boeing's partners, a shortage of government inspectors, funding cuts, or reduced access to federal buildings where employees work.

T = Technicals on the Stock Chart Are Strong

Boeing stock has been surging to the upside in recent years. The stock is currently consolidating near all time high prices but looks poised to head higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Boeing is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Boeing options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Boeing Options	29.93%	83%	80%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
October Options	Flat	Average
November Options	Flat	Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Boeing’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Boeing look like and more importantly, how did the markets like these numbers?

	2013 Q2	2013 Q1	2012 Q4	2012 Q3
Earnings Growth (Y-O-Y)	11.02%	18.03%	-30.91%	-7.53%
Revenue Growth (Y-O-Y)	9.05%	-2.53%	14.05%	12.87%
Earnings Reaction	-0.77%	3.00%	1.27%	-0.15%

Boeing has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been conflicted about Boeing’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Boeing stock done relative to its peers, Lockheed Martin (NYSE:LMT), Spirit Aerosystems (NYSE:SPR), Northrop Grumman (NYSE:NOC), and sector?

	Boeing	Lockheed Martin	Spirit Aerosystems	Northrop Grumman	Sector
Year-to-Date Return	57.87%	37.79%	44.43%	46.11%	45.56%

Boeing has been a relative performance leader, year-to-date.

Conclusion

Boeing is an aerospace company and provider of aircrafts and related products and services to corporations and governments worldwide. If the current government shutdown persists, Boeing may be forced to furlough some employees. The stock has been moving higher in recent years and is now consolidating near all time high prices. Over the last four quarters, earnings have been mixed while revenues have been rising, which has produced conflicting feelings among investors about earnings announcements. Relative to its peers and sector, Boeing has been a year-to-date performance leader. Look for Boeing to OUTPERFORM.

Top Investments For 2014

We'd all like to invest like the legendary Warren Buffett, turning thousands into millions or more. Buffett analyzes companies by calculating return on invested capital, or ROIC, to help determine whether a company has an economic moat -- the ability to earn returns on its money above that money's cost.

In this series, we examine several companies in a single industry to determine their ROIC. Let's take a look at Frontier Communications (NASDAQ: FTR  ) and three of its industry peers, to see how efficiently they use cash.

Of course, it's not the only metric in value investing, but ROIC may be the most important one. By determining a company's ROIC, you can see how well it's using the cash you entrust to it and whether it's actually creating value for you. Simply put, it divides a company's operating profit by how much investment it took to get that profit. The formula is:

ROIC = net operating profit after taxes / Invested capital

(Get further detail on the nuances of the formula.)

Top Investments For 2014: Galena International Resources (GTO.V)

Galena International Resources Ltd., an exploration stage company, engages in the acquisition and exploration of mineral properties. It holds a 100% interest in the Chaves geothermal project, a geothermal exploration concession that covers an area of 201 square kilometers in Chaves, Portugal. The company was incorporated in 2007 and is based in Vancouver, Canada.

Top Investments For 2014: Reece Australia Ltd (REH.AX)

Reece Australia Limited engages in the import, wholesale, distribution, marketing, and retail of plumbing and bathroom products in Australia and New Zealand. The company�s bathroom products include accessories, basins, bath spouts, baths, spas, heated towel rails, hot water units, mirrors, showerbases, shower cubicles and bath screens, shower outlets, taps, toilets and bidets, vanities and bathroom furniture, wastes and plugs, and water flow control products. Its plumbing products comprise hot water units, rainwater tanks, pipe and fittings, clips and pipe supports, valves, pumps, tools and hardware, workwear and safety gears, macerators, water filters, air conditioning units, ducting and ventilation products, fire service, tap and cistern spares, gas spares, commercial bathroom ware, material safety data sheets, and hydronic heating and flashing products. The company also offers kitchen and laundry products consisting of kitchen and bathroom appliances, kitchen sinks, la undry trough and cabinets, and taps. In addition, it provides heating, ventilation, air conditioning, and refrigeration (HVAC-R) products and services to HVAC-R contractors; and irrigation products, such as turf, agricultural sprays and drippers, valves, pipe and fittings, pumps, automatic controllers, professional outdoor lighting, and a range of water saving products for the landscape, commercial, and agricultural industries. Further, the company offers various products and services for underground pipe networks, including water mains, gas mains, sewer mains, telecommunications, electrical, and fire services; and onsite services for builders, commercial plumbers, and developers. It serves customers in the trade, retail, professional, and commercial markets through a network of 453 trading outlets. The company was formerly known as H.J. Reece Limited and changed its name to Reece Australia Limited in 1987. Reece Australia Limited was founded in 1919 and is based in Burwood, Australia.

5 Best High Tech Stocks To Invest In 2014: Argo Group International Holdings Ltd.(AGII)

Argo Group International Holdings, Ltd. underwrites specialty insurance and reinsurance products in the property and casualty market worldwide. The company?s Excess and Surplus Lines segment underwrites casualty, property, transportation, and binding authority for commercial enterprises, including restaurants, contractors, day care centers, apartment complexes, condominium associations, manufacturers, and distributors; and offers policies for medical facilities within the social services, miscellaneous healthcare, and long term care markets, as well as for lawyers, miscellaneous professions, employment practices, and real estate related accounts. This segment also provides package policies for environmental consultants and contractors, storage tanks, dry cleaners pollution liability, as well as other environmental related liability exposures; and coverage for architects and engineers, accountants, and insurance agents. Its Commercial Specialty segment offers property casu alty and surety coverages; and underwrites business coverage for small commercial businesses comprising office, retail operations, light manufacturing, services, and restaurants. This segment also provides general and automobile liability, automobile physical damage, property, inland marine, crime, public official?s and educator?s legal liability, employment practices, law enforcement liability, environmental and lawyers professional liability, student accident, police and firefighters accident, workers compensation, inmate medical, and tax interruption coverages. In addition, the company?s International Specialty segment covers claims arising from catastrophic events, such as hurricanes, windstorms, hailstorms, earthquakes, volcanic eruptions, fires, industrial explosions, freezes, riots, floods, and other man-made or natural disasters. Further, its Syndicate 1200 segment underwrites property and non-U.S. liability insurance. The company was founded in 1986 and is based in Pembroke, Bermuda.

Advisors' Opinion:

• [By CRWE]

  Argo Group International Holdings, Ltd. (Nasdaq:AGII), an international underwriter of specialty insurance and reinsurance products, reported that its board of directors has declared a quarterly cash dividend of 12 cents per share on the company’s common stock.

Top Investments For 2014: Neonode Inc (NEON)

Neonode Inc., incorporated on September 4, 1997, develops and licenses the next generation of optical multi touch solutions and user interface solutions to Original Equipment Manufacturer (OEMs) and Original Design Manufacturer (ODMs) who embeds the Company's MultiSensing technology into handheld devices and touch screens that they develop and sell. The Company�� MultiSensing touch technology is suited for consumer and industrial electronic devices and supports unlimited gestures, multi-touch and sweep navigation. The Company's MultiSensing technology, rivaling the capacitive touch solutions, is being integrated into a range of products, including mobile phones, tablets and e-readers, toys and gaming consoles, household appliances, printers and office equipment, and automotive Human-Machine Interface (HMI) and infotainment systems. All control hardware is integrated into the Company's single optical controller chip NN1001, developed in collaboration. In January 2013, it established a subsidiary, Neonode Japan Inc. in Tokyo.

The Company has developed a range of touch features and functions to suit a multitude of industries and devices. All control hardware is integrated into the Company's single optical controller chip NN1001, developed in collaboration. The Company offers zForce touch technology to its customer based on infrared light.

The Company competes with 3M, Synaptics, ATMEL, Cypress, Maxim, Nextwindow, Zytronic, Tyco Electronics, Touch International, Mass Multimedia Inc., Young Fast and TPK.

Top Investments For 2014: Linde AG (LIN)

Linde AG is a German company engaged in the gases and engineering sector. It operates two divisions: Gases and Engineering, as core divisions, as well as Gist. The Gases Division includes Healthcare, producing medical gases; and Tonnage, as its two global business units; as well as the two business areas Merchant and Packaged Gases, offering liquefied and cylinder gases, and Electronics. The Company�� products are used in the energy sector, for steel production, chemical processing, environmental protection and welding, as well as in food processing, glass production and electronics. The Engineering division offers planning, project development and construction of turnkey industrial plants used in fields, such as petrochemical and chemical industries, in refineries and fertilizer plants, to recover air gases, to produce hydrogen and synthesis gases, to treat natural gas, and in the pharmaceutical industry. As of August 13, 2012, the Company acquired Lincare Holdings Inc. Advisors' Opinion:

• [By John Udovich]

  Small cap media stock�LIN Media LLC (NYSE: LIN) might not be a household name, but there is a good chance you might be watching the company�� programs because like the Sinclair Broadcast Group, Inc (NASDAQ: SBGI) and Nexstar Broadcasting Group, Inc (NASDAQ: NXST), its helping to consolidate the media industry plus its making investment in other forms of media like social media. The stock has also outperformed those two peers along with the�PowerShares Dynamic Media Portfolio ETF (NYSEARCA: PBS).

• [By Monica Wolfe]

  Gabelli started the week by reducing his position in LIN Media (LIN). The guru reduced his position by -1.36%. Gabelli sold a total of 23,007 shares at an average price of $16.88 per share. Gabelli now holds on to a total of 1,666,208 shares of LIN Media, representing 3.06% of the company�� shares outstanding.

• [By Jeremy Bowman]

  What: Shares of LIN TV (NYSE: LIN  ) were up as much as 13% today, climbing steadily after the local media provider announced this morning its second acquisition in less than a week.

POZEN: Right Stock, Wrong Time (POZN)

At first glance, POZEN Inc. (NASDAQ:POZN) doesn't look like anything more than a volatile mover and shaker, currently overbought, and due for a dip. And truth be told, POZN is overbought and due for a pullback (and will be even more so, given this morning's bullish pre-market activity). When you take a step back and look at the much-bigger-picture though, you'll find that POZEN Inc. is only at the beginning of what could be a sizeable move for investors willing to give it some time.

First things first. POZEN is the biotech company behind Treximet, for migraines, VIMOVO, a pain-relieving anti-inflammatory, and a few other related drugs in the pipelines. The company's business model is primarily the creation of new drugs via the combination of existing and approved drugs with the aim of making the combination drug more effective than its individual components alone. It may not be ground-breaking, but POZN shareholders can certainly appreciate the lower-risk approach.

The strategy isn't the reason the stock's suddenly perked up though, and become trade-worthy. It's the combination of news of (1) the rights to market VIMOVO have been acquired by Horizon Pharma, (2) a special dividend of excess cash [how often is that a problem, right?], (3) the prospect for a partner with its so-called "safer aspirin" before the end of 2014, and (4) the likely approval of its two PA drugs in late January. Put them all together, and what POZEN Inc. has is a lot of things all working in a bullish direction for POZN shares.

Hot Growth Companies To Watch In Right Now

Perhaps more than anything else making the stock such a great buy right now, however, is the fact that all the news support POZN has pushed the stock above key technical lines, which in itself can act as a prod for further upside.

The weekly chart of POZEN below makes the point, though a monthly chart would have done just as well. As of August, POZN shares have moved above a key falling resistance line. Even before the break above that ceiling, however, we had already seen a higher major low. In combination, the two big clues tell us this tidal shift has been a long-time in the making. That's why it's also apt to be a long time in the unwinding, or in the rally that undoes the long-term downtrend. The stock may not hit a major headwind until the $12-ish area.

That being said, while POZEN Inc. may not hit a major headwind until it reaches the $12.00 mark, it will almost certainly hit several minor headwinds in the meantime, with the first of them possibly materializing today.

Assuming today's pre-market gain of 13% sticks, paired with the week's 10% gain already, POZN is up a whopping 23% or so in just a week. That's a tough act to follow, at least straight-away. So, the last thing you'd want to do here is jump on POZEN Inc. at a short-term high. Let it slide back a bit, then go fishing, and then be willing to sit on it for a while to let it give you everything it can.

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Stocks To Watch For October 2, 2013

Hot Bank Companies To Watch In Right Now

Some of the stocks that may grab investor focus today are:

Wall Street expects Monsanto Company (NYSE: MON) to report a Q4 loss at $0.43 per share on revenue of $2.24 billion. Monsanto shares gained 1.06% to close at $105.48 yesterday.

Global Payments (NYSE: GPN) reported upbeat fiscal first-quarter results and raised its annual forecast. Global Payments named Jeffrey S. Sloan as its new chief executive and announced its plans to buy back up to $100 million of its common stock. Global Payments shares surged 6.80% to $54.15 in the after-hours trading session.

Analysts expect Texas Industries (NYSE: TXI) to post its Q1 earnings at $0.01 per share on revenue of $233.63 million. Texas Industries shares gained 1.82% to close at $67.52 yesterday.

Team (NYSE: TISI) lowered its annual earnings outlook. Team shares tumbled 10.63% to $35.75 in the after-hours trading session.

Synergetics USA (NASDAQ: SURG) reported its FQ4 earnings of $0.06 per share on revenue of $17.9 million. However, analysts were projecting earnings of $0.05 per share on revenue of $17 million. Synergetics USA shares dipped 11.82% to $4.40 in the after-hours trading session.

Posted-In: Stocks To WatchEarnings News Guidance Buybacks Management Pre-Market Outlook Markets Trading Ideas

(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

  Around the Web, We're Loving... Petition urges Wal-Mart, McDonald's to pay more Obama's Syria Waffle Huge Blow to US Credibility in Mideast Microsoft Buys Nokia Phone Unit for $7.2B - And CEO? What Should You Know About AMZN? Most Popular The Pending U.S. Government Shutdown: What Does It Mean For You? Leaked iPad 5 Video Draws 450,000 Viewers (AAPL) Bargain Shopping the S&P 500 World's Favorite Game Maker to IPO JC Penney Continues To Search For A Bottom As Shares Hit 31-Year Low UPDATE: Credit Suisse Lowers PT on Arena Pharmaceuticals Following Management Meeting Related Articles (GPN + MON) Stocks To Watch For October 2, 2013 Global Payments Rises After Earnings Beat, CEO Announcement Global Payments Names Jeffrey S. Sloan Chief Executive Officer Earnings Scheduled For October 1, 2013 Earnings Expectations For The Week Of September 30: Walgreen, Monsanto And More Benzinga Weekly Preview: Italian Senate To Decide Berlusconi's Fate

Top 5 China Companies To Buy For 2014

Although Boeing (NYSE: BA) had its early problems with the new 787-Dreamliner, there has certainly been nothing wrong with the performance of the company's stock.

For 2013, Boeing has soared by over 80 percent to around $135 a share. But there could even more growth ahead, as Mark Kingdon, of Kingdon Capital Management, sees Boeing at almost $170 a share.

Speaking at the recent "Invest for Kids" conference in Chicago, Kingdon was bullish on Boeing, the largest U.S. exporter by dollar value, for a variety of factors both micro and macro.

For the macro conditions, Kingdon is "generally positive" on both equities and the global economy. He is pleased by the changes taking place in Japan and China. That scenario is also bullish for Boeing, as both China and Japan are major players in air travel.

Top 5 China Companies To Buy For 2014: Top Image Systems Ltd.(TISA)

Top Image Systems Ltd. provides enterprise solutions for managing and validating content entering organizations from various sources. It develops and markets automated data capture solutions for managing and validating content gathered from customers, trading partners, and employees. The company?s solutions deliver digital content to the applications that drive an enterprise by using technologies, such as wireless communications, servers, form processing, and information recognition systems. It offers eFLOW Unified Content Platform that provides the common architectural infrastructure for its solutions. The company also provides Smart, an automated classification solution, which is the eFLOW plug-in for unstructured content providing single point of entry for information entering the organization; and Freedom, the eFLOW plug-in for semi-structured content that enables customers to identify and capture critical data from semi-structured documents, such as invoices, purchase orders, shipping notes, and checks. In addition, it offers Integra, the eFLOW plug-in for structured content, which provides a solution for data capture, validation, and delivery from structured predefined forms; eFLOW Ability, an integrated module interfacing with SAP systems for automated parking, approval, and posting of invoices and other document within SAP systems; and eFLOW Invoice Reader, an invoice capture and approval solution, which could be deployed and integrated in enterprise accounting environment, such as SAP, Oracle, and other financial systems. Top Image Systems Ltd. sells its products through a network of value-added distributors, systems integrators, original equipment manufacturers, and partners in approximately 40 countries worldwide. It has strategic partnership with SQN Banking Systems (SQN) to incorporate SQN's fraud detection solutions with its eFLOW Banking Platform in the Asia Pacific market. The company was founded in 1991 and is headquartered i n Ramat Gan, Israel.

Top 5 China Companies To Buy For 2014: China Security & Surveillance Technology Inc. (CSR)

China Security & Surveillance Technology, Inc., together with its subsidiaries, manufactures, installs, distributes, and services surveillance and safety products, systems, and software in the People?s Republic of China. The company?s products include standalone digital video recorders (DVRs); embedded DVRs; mobile DVRs; real-time hard-compression coding cards; DVR compression boards; digital cameras; intelligent high-speed dome cameras; intelligent control system software platforms; perimeter security alarm systems; monitors; and radio frequency identification terminals and data collectors. It serves various customers, which include governmental entities, such as customs agencies, courts, public security bureaus, and prisons; non-profit organizations, including schools, museums, sports arenas, and libraries; and commercial entities consisting of airports, hotels, real estate, banks, mines, railways, supermarkets, and entertainment venues. The company is headquartered in S henzhen, the People?s Republic of China.

Best Dividend Companies To Buy For 2014: Clean Diesel Technologies Inc.(CDTI)

Clean Diesel Technologies, Inc. engages in the manufacture and distribution of emissions control systems and products for heavy duty diesel and light duty vehicle markets. The company operates in two divisions, Heavy Duty Diesel Systems and Catalyst. The Heavy Duty Diesel Systems division designs and manufactures verified exhaust emissions control solutions that are used to reduce exhaust emissions created by on-road, off-road, and stationary diesel and alternative fuel engines, including propane and natural gas. Its products include closed crankcase ventilation systems, diesel oxidation catalysts, diesel particulate filters, Platinum Plus fuel-borne catalysts, ARIS selective catalytic reduction reagents, catalyzed wire mesh diesel particulate filters, alternative fuel products, and exhaust accessories. This division offers its products for original equipment manufacturers of heavy duty diesel equipment, such as mining equipment, vehicles, generator sets, and construction equipment, as well as retrofit customers consisting of school districts, municipalities, and other fleet operators. The Catalyst division produces catalyst formulations using its proprietary MPC technology for gasoline, diesel, and natural gas induced emissions. Its products comprise catalysts for gasoline engines, diesel engines, and energy applications. This division supplies its catalysts to automotive manufacturers and large heavy duty diesel engine manufacturers. The company sells its products through a network of distributors and dealers, and its direct sales force worldwide. Clean Diesel Technologies, Inc. is based in Ventura, California.

Advisors' Opinion:

• [By CRWE]

  Clean Diesel Technologies, Inc. (Nasdaq:CDTI), a cleantech emissions control company, will be a presenter at the 3rd Annual Craig-Hallum Capital Group Alpha Select Conference. The presentation is scheduled for 2:10 p.m. ET on Thursday, September 27, 2012 at the Sentry Centers in New York.

Top 5 China Companies To Buy For 2014: Bona Film Group Limited(BONA)

Bona Film Group Limited distributes films in the People?s Republic of China. It distributes films to movie theaters, as well as to non-theatrical distribution channels, including DVD and Blu-ray and other home video products; Internet and digital distribution; in-flight entertainment; and cable, satellite, and broadcast televisions. The company also invests in the production of Chinese and Hong Kong films in order to obtain the distribution rights for movie theaters and non-theatrical channels. In addition, Bona Film Group operates six movie theaters in five cities of the People?s Republic of China; operates a talent agency business that represents artists; and involves in film advertising and television production businesses. The company was founded in 2003 and is headquartered in Beijing, the People?s Republic of China.

Advisors' Opinion:

• [By Seth Jayson]

  Calling all cash flows
  When you are trying to buy the market's best stocks, it's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That's what we do with this series. Today, we're checking in on Bona Film Group (Nasdaq: BONA  ) , whose recent revenue and earnings are plotted below.

Top 5 China Companies To Buy For 2014: BHP Billiton Limited(BHP)

BHP Billiton Limited, together with its subsidiaries, operates as a diversified natural resources company worldwide. The company engages in the exploration, development, and production of oil and gas; mining and refining of bauxite into alumina, and smelting of alumina into aluminum metal; and mining of copper, silver, lead, zinc, molybdenum, uranium, gold, diamonds, and titanium minerals, as well as development of potash deposits. It also involves in the mining and production of nickel products, manganese ore, and manganese metal and alloys, as well as in the mining of iron ore, metallurgical coal, and thermal coal. BHP Billiton Limited sells its copper, lead, and zinc concentrates, and alumina to smelters; copper cathodes to wire rod mills, brass mills, and casting plants; uranium oxide to electricity generating utilities; rough diamonds to diamond buyers and diamond manufacturers; nickel products to stainless steel, specialty alloy, foundry, chemicals, and refractory ma terial industries; metallurgical coal to steel producers; and energy coal to power stations, power generators, and industrial users. The company, formerly known as BHP Limited, was founded in 1885 and is headquartered in Melbourne, Australia.

Advisors' Opinion:

• [By David Smith]

  Grasberg's horrendous happenings
  On May 14, a training area in a Grasberg tunnel, away from the company's main operating areas, caved in on 38 workers. While 10 of the victims were rescued, the rest perished. The following day, Freeport suspended its operations at the big facility, which, in addition to its copper output, contains the world's largest reserves of gold. Only BHP Billiton's (NYSE: BHP  ) Escondida facility in Chile can boast a size advantage over Grasberg.

Thirsty? Fine wine funds growing again after weak vintages

Some wine investment funds have taken a hit in recent years as top-tier Burgundies and Bordeaux have slid down in value but wine funds aimed at middle-tier labels are raising a glass to the rosy returns on their investments and continue to attract investors.

As an investment strategy though, investing in wine is not for the faint of heart.

Wine funds began grabbing headlines in around 2009 as prices of the most sought-after labels began to spike in value. Pricing data tracked by Liv-Ex.com shows the top 100 labels gained 75% from the start of that year through mid-2011. Since then, prices have fallen, dropping by 25% through August.

Despite the slump, funds focusing on wines that are a few rungs down the top-label ladder remain confident about the earnings they are generating for investors.

Top Low Price Companies To Own In Right Now

“In wine, what happens in downturns is that the big names fall the hardest,” said Brian Mota, co-founder of TWT Investment Partners LP. “We like to be positioned in names that are not the tip of the iceberg.”

The Oracle Paradis Wine Fund was launched six months ago in the United Kingdom, according to director David Nathan-Maister. This month, the fund announced it had purchased one of the oldest bottles of white wines from the Jura vineyards in France, a 1781 Chateau Chalon valued at about $50,000.

In total, the Oracle fund has attracted about $5 million in investment through a dozen investors, including some from the U.S. Mr. Nathan-Maister said the firm aims to raise $15 million over the next 12 months, and the fund is on track to deliver returns above 10% by the end of the year.

The fund has homed in on three wine and spirit categories beloved by expert collectors — 19th-century Tokaji wines from Eastern Europe, French wines from the Jura vineyards and 19th-century cognac.

“The prices in these specialist areas have not increased to anything like the degree that [the big labels] have,” Mr. Nathan-Maister said. “We feel, therefore, that there's underexploited value in those areas.”

Mr. Mora has a similar strategy for The Wine Trust, which he launched in August 2011 with partner Timothy Clew, just after the height of the fine-wine price spike. The fund is private-equity based and focuses on long-term holdings. The partners aim to acquire midtier wines that are less subject to sharp price downturns, he said.

Mr. Mora declined to disclose the amount of assets that the fund has under management, but said it has been making annualized ! percentage returns in the midteens.

Another fund — The Bottled Asset Fund — was launched with an initial $9 million investment in 2010 and expects to generate returns of more than 30% when its strategies are exited in the next four to five years, said fund director Sergio Esposito. He said the fund focuses lar

If You Like Rare Element Resources as a Trade Right Now, You'll Love This Competitor (REE, AVL)

Top 5 Safest Stocks For 2014

Rare Element Resources Ltd (NYSEMKT:REE) has been getting more than its fair share of attention of late.... bullish attention, to be precise. The stock's benefited from the attention too, with REE shares up 58% in the past two and a half weeks. As compelling as that move is, however, it's not the best rare earth bet at this point. If you like Rare Element Resources, you'll love Avalon Rare Metals Inc. (NYSEMKT:AVL). Unlike REE, AVL isn't already overbought. Indeed, it's just getting started.

First and foremost, it's worth noting that the undertow pushing Avalon Rare Metals and Rare Element Resources Ltd shares upward is doing the same for most rare earth metal miners. That undertow is simply a broad price improvement for rare earth elements. Since July's low, neodymium ("the biggie) prices have advanced from $75/kg to the current price of $103/kg, and are still going strong. Some observers have already suggested the proverbial bottom has been made, and their arguments actually hold up pretty well. That's why REE and AVL have been such - no pun intended - hot commodities of late... this rebound in rare element prices seems to be the real deal.

So what's wrong with Rare Element Resources Ltd that isn't wrong with Avalon Rare Metals? In simplest terms, AVL isn't overbought right now, while REE is.

With just a quick glance at the chart of Rare Element Resources Ltd we can see that shares had already been hot, gapping higher back on the 16th, yet never looking back. Now it's up huge, and on huge volume. In fact, today's big 11% pop will be the highest volume day we've seen in months.

On the surface it seems bullish, but this is one of those "too much of anything is still too much" situations. REE may be hot, but it's well overextended already, and today's extreme bullishness may be actually be a blowoff top.

AVL, on the flipside, isn't nearly as overextended right now. In fact, it appears to just be getting started. Though it too is surging on huge volume today, this is the first time we've seen any real technical progress from the stock. Make no mistake, though - this progress should be catalytic. Not only has Avalon Rare Metals Inc. just now hurdled a key horizontal line at $0.96, but it's just not toying with its 200-day moving average line; Rare Element Resources Ltd shares have already blown well past their 200-day line, and if anything that long-term indicator line is ready to reel REE back in.



The tricky part here is dealing with the reality that both stocks are still subject to any fluctuations in rare earth element prices. If they fall, so too will REE, and most likely AVL will as well. But, Avalon shouldn't fall as much since it's not as overextended, which means it's going to rekindle the uptrend much better and much stronger (and at a much higher level) than Rare Element Resources shares will.

To make matters trickier, it's possible rare element prices won't fall anytime soon, or even in the distant future.

Regardless, if you're willing to bet that rare earth element prices have already seen their worst and can only get better from here - for the long haul - then Avalon Rare Metals Inc. is a much more palatable pick than Rare Element Resources Ltd is at this point.

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Best Financial Companies For 2014

With shares of Honda Motor (NYSE:HMC) trading around $40, is HMC an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let�� analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Honda Motor develops, produces, and manufactures a variety of motor products ranging from small general-purpose engines and scooters to specialty sports cars. The company�� business segments are the motorcycle business, automobile business, financial services business, and power product and other businesses. Honda conducts its operations in Japan and worldwide, including North America, Europe, and Asia.

Honda reported earnings that showed its profit rose less than expected. Net profit increased to 120.4 billion yen from 82.2 billion yen a year ago but came in below analyst expectations of 134.9 billion yen, according to analysts surveyed by Reuters. Honda�� profit forecasts for the full year also came in below expectations. Honda saw improvements in car sales in the U.S. and motorcycle sales in India and Thailand, but the company has been doing some big spending to build new plants and boost production.

Best Financial Companies For 2014: Sterling Bancorp(STL)

Sterling Bancorp operates as a bank holding company for Sterling National Bank that provides a range of banking and financial products and services in the Untied States primarily in New York, New Jersey, and Connecticut. It accepts various deposit products, including checking accounts, money market accounts, negotiable order of withdrawal accounts, savings accounts, rent security accounts, retirement accounts, and certificates of deposits; and deposit services comprising account management and information, disbursement, reconciliation, collection and concentration, ACH, and others. The company also provides business and consumer lending, asset-based financing, factoring/accounts receivable management services, equipment leasing, commercial and residential mortgage lending and brokerage, and trade financing services for commercial, industrial and financial companies, and government and non-profit entities. In addition, it offers financing and human resource business process outsourcing support services for the temporary staffing industry, which comprise full back-office, computer, tax, and accounting services, as well as financing to independently-owned staffing companies. The company operates 12 offices, including 9 offices in New York City, two branches in Nassau County, and 1 branch in Yonkers, New York. Sterling Bancorp was founded in 1929 and is based in New York, New York.

Advisors' Opinion:

• [By Jon C. Ogg]

  The M&T Bank Corp. (NYSE: MTB) and Hudson City Bancorp Inc. (NASDAQ: HCBK) transaction is the only pending deal of 2012 vintage due to various regulatory concerns. MTB currently has 9% short interest outstanding and PACW 15%. Another merger covered is the deal between Provident New York Bancorp (NASDAQ: PBNY) and Sterling Bancorp (NYSE: STL), and the balance are simply too small for us to warrant effort.

• [By Corinne Gretler]

  Statoil ASA (STL) rose 4.2 percent to 137.60 kroner. Norway�� biggest energy company made its third oil discovery off the coast of Canada in the Flemish Pass basin. Bank of America Corp. raised the stock to buy from neutral.

Best Financial Companies For 2014: Entertainment Properties Trust (EPR)

EPR Properties, a real estate investment trust (REIT), develops, owns, leases, and finances entertainment and related properties in the United States and Canada. Its properties include megaplex theatres, entertainment retail centers, and destination recreational and specialty properties. As of December 31, 2007, the company had a real estate portfolio of 79 megaplex theatre properties located in 26 states in the U.S. and Ontario, Canada; 1 additional theatre property under development; 8 entertainment retail centers located in Westminster, Colorado, New Rochelle, New York, White Plains, New York, Burbank, California, and Ontario, Canada; and 1 additional entertainment retail center under development and land parcels leased to restaurant and retail operators. EPR Properties qualifies as a REIT under the Internal Revenue Code and would not be subject to federal income tax to the extent that it distributes at least 90% of its taxable income to its shareholders. The company wa s founded in 1997 and is based in Kansas City, Missouri.

Advisors' Opinion:

• [By Lawrence Meyers]

  I also jumped on the 9% Preferred Series E of an interesting REIT called EPR Properties (EPR), a $2.38 billion trust that owns 114 megaplex movie theaters; nine entertainment retail centers; seven family entertainment centers where one can bowl, enjoy nightlife, or sit atop observational towers; 13 metro ski parks; three water parks; four golf complexes, and 48 public charter schools.

• [By Monica Gerson]

  EPR Properties (NYSE: EPR) closed a deal to acquire the Camelback Mountain Resort in Tannersville, PA, for around $70 million. EPR Properties shares gained 0.31% to close at $48.59 on Friday.

Best Value Stocks To Own Right Now: Fox Chase Bancorp Inc. (FXCB)

Fox Chase Bancorp, Inc. operates as the holding company for Fox Chase Bank that provides financial services to consumers and businesses in Philadelphia and New Jersey. Its deposit products include non-interest-bearing demand accounts, such as checking accounts; interest-bearing accounts, including negotiable order of withdrawal and money market accounts; savings and club accounts; brokered deposits; and certificates of deposit. The company�s loan products portfolio comprises multi-family and commercial real estate loans; one-to four-family residential real estate loans that enable borrowers to purchase or refinance existing homes; commercial and industrial loans offered to professionals, sole proprietorships, and small and mid-size businesses; construction loans comprising adjustable-rate and fixed-rate loans offered to individuals, builders, and developers to finance the construction of residential dwellings, as well as loans offered for commercial development projects, including apartment buildings, restaurants, shopping centers, schools, and other owner-occupied properties used for businesses; and consumer loans, which include home equity loans and lines of credit, loans to individuals to purchase insurance policies, loans secured by certificate of deposits, and unsecured overdraft lines of credit. It also offers cash management services. In addition, the company manages and holds investment securities; and secures, manages, and holds foreclosed real estate. It operates through 11 branches in Philadelphia, Richboro, Willow Grove, Warminster, Lahaska, Hatboro, Media, and West Chester, Pennsylvania; and Ocean City, Marmora, and Egg Harbor Township, New Jersey. The company is headquartered in Hatboro, Pennsylvania.

Advisors' Opinion:

• [By Tim Melvin]

  To start, Seidman disclosed a position in Fox Chase Bancorp (FXCB), located in Hatboro, Pa. The bank is trading right around book value and has been a holding of mine for some time now. Me. Seidman owns a little over 5% of the bank.

Best Financial Companies For 2014: Citizens & Northern Corp(CZNC)

Citizens & Northern Corporation operates as the holding for Citizens & Northern Bank, which provides various banking and mortgage products and services to individual and corporate customers in north central Pennsylvania and southern New York. Its deposit products include various checking accounts, passbook and statement savings, money market accounts, interest checking accounts, individual retirement accounts, and certificates of deposits, as well as non-insured Repo Sweep accounts. The company?s loan portfolio comprises mortgage loans, commercial loans, and consumer loans, as well as specialized instruments, such as commercial letters-of-credit. It also provides trust and financial management services, including administration of trusts and estates, retirement plans, and other employee benefit plans; investment management services; and various personal and commercial insurance products, as well as mutual funds, annuities, educational savings accounts, and other investmen t products through registered agents. As of April 20, 2011, the company operates 26 full service offices in Tioga, Bradford, Sullivan, Lycoming, Potter, Cameron, and McKean counties in Pennsylvania; and Steuben and Allegany counties in New York. Citizens & Northern Corporation was founded in 1971 and is based in Wellsboro, Pennsylvania.

Best Financial Companies For 2014: Avenue Income Credit Strategies Fund (ACP)

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Advisors' Opinion:

• [By Rich Duprey]

  Maintaining its $0.12 per share�monthly dividend payout, closed-end management investment company�Avenue Income Credit Strategies Fund� (NYSE: ACP  ) �said yesterday it�will make the payout�on May 31 to the holders of record at the close of business on May 15. The stock will trade ex-dividend May 13.�

Best Financial Companies For 2014: Old Mutual(OML.L)

Old Mutual plc operates as a long-term savings, protection, and investment company. The company provides investment management and life assurance-based solutions, which address protection and retirement savings needs; and banking, short-term insurance, and asset management solutions in Europe, the Americas, Africa, and Asia. It offers life assurance, pensions, and investment products to individuals, businesses, corporates, and institutions. The company also offers investment banking solutions to institutional and corporate clients; corporate banking services, including commercial, industrial, retail, and residential property finance solutions to retail and corporates markets; commercial banking solutions to small to medium-sized businesses; and transactional, card, lending, and investment products and services to individuals and small businesses. In addition, it provides short-term insurance products, including property, accident, motor, engineering, marine, and crop insur ance to customers ranging from small businesses to large corporations; protection, fire policies, accident policies, and motor fleet insurance to corporate clients ranging from mid-size companies to large multi-nationals; domestic household, motor, and all risk short-term insurance products to domestic customers; and alternative risk transfer products primarily to medium-sized commercial customers. Further, the company provides investment management solutions to institutional and individual investors. It offers its products and services directly, as well as through financial advisers. Old Mutual plc was founded in 1845 and is based in London, the United Kingdom.

Best Financial Companies For 2014: ARMOUR Residential REIT Inc (ARR)

ARMOUR Residential REIT, Inc.( ARMOUR), incorporated on February 5, 2008, is an externally-managed Maryland corporation managed by ARMOUR Residential REIT, Inc. The Company invests primarily in hybrid adjustable rate, adjustable rate and fixed rate residential mortgage backed securities (RMBS). These securities are issued or guaranteed by a United States Government-sponsored entity (GSE), such as the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac), or are guaranteed by the Government National Mortgage Administration (Ginnie Mae) collectively, Agency Securities. From time to time, a portion of its portfolio may be invested in unsecured notes and bonds issued by United States Government-chartered entities, collectively, Agency Debt. As of December 31, 2012, Agency Securities account for 100% of its portfolio.

The Company seeks long-term investment returns by investing its equity capital and borrowed funds in its targeted asset class of Agency Securities. The Company�� assets have been invested in Agency Securities or money market instruments, primarily deposits at federally chartered banks. The Company borrows against its Agency Securities using repurchase agreements. Its borrowings generally have maturities that may range from one month or less, up to one year, although occasionally it may enter into longer dated borrowing agreements to more closely match the rate adjustment period of its Agency Securities.

Advisors' Opinion:

• [By Amanda Alix]

  After getting beaten to a pulp again last Friday, mortgage REITs ticked upward on Monday, even as a mass downgrading of the sector�took place by Wunderlich Securities. Though agency players Annaly Capital (NYSE: NLY  ) and American Capital Agency (NASDAQ: AGNC  ) were able to gain back only a portion of their Friday stock price losses -- as was particularly hard-hit Armour Residential (NYSE: ARR  ) �-- the upswing was a welcome, though surprising, outcome.

Best Financial Companies For 2014: Cathay General Bancorp(CATY)

Cathay General Bancorp operates as the holding company for Cathay Bank, which offers various commercial banking products and services for individuals, professionals, and small to medium-sized businesses primarily in California. Its deposit products include passbook accounts, checking accounts, money market deposit accounts, certificates of deposit, individual retirement accounts, college certificates of deposit, and public funds deposits. The company?s loan portfolio comprises commercial mortgage loans, commercial loans, small business administration loans, residential mortgage loans, real estate construction loans, and home equity lines of credit. It also offers installment loans to individuals for automobile, household, and other consumer expenditures. In addition, the company provides trade financing, letters of credit, wire transfers, forward currency spot and forward contracts, traveler?s checks, safe deposit, night deposit, social security payment deposit, collecti on, bank-by-mail, drive-up and walk-up windows, automatic teller machines, Internet banking, and other customary bank services. As of April 20, 2011, Cathay General Bancorp operated 31 branches in California, 8 branches in New York State, 1 branch in Massachusetts, 2 branches in Texas, 3 branches in Washington State, 3 branches in the Chicago, Illinois area, 1 branch in New Jersey, and 1 branch in Hong Kong, as well as a representative office in Shanghai and in Taipei. The company was founded in 1961 and is headquartered in Los Angeles, California.

Moneyball and Value Investing: Variant Perception is Key to Success

“It’s unbelievable how much you don’t know about the game you’ve been playing all your life.”

– Mickey Mantle, New York Yankee Hall of Famer

Moneyball, the 2011 movie starring Brad Pitt as Oakland Athletics General Manager Billy Beane, is just as much about value investing as it is about baseball. Just as value investors analyze stocks objectively based on the relationship of a stock’s market price to quantitative measurements like its discounted cash flow (DCF) value, adherents of sabermetrics analyze baseball players objectively based on the relationship of a player’s salary to quantitative measurements like on-base percentage and fielding independent pitching (FIP).

In both the stock market and baseball, the question is whether the commodities at issue are efficiently priced. If they are, then value investors should just give up and buy an index fund and baseball teams with the most money will always win the World Series. But value investors historically have outperformed because stocks aren’t efficiently priced due to the behavioral flaws of most investors who exhibit reckless overconfidence and short-term thinking.

The question posed in Moneyball is whether the managements of major league baseball teams exhibit similar flaws when evaluating player talent. Traditionally, teams have relied on baseball scouts who evaluate players based on five skills: hitting, power, fielding, arm strength and speed. These are primarily physical attributes that measure a player’s potential rather than his actual achievement. In the movie, scouts also try to assess a player’s mental confidence by inane and completely untested criteria like the attractiveness of the player’s girlfriend. For example, one scout rules out a player because:

His girlfriend is ugly. A guy with an ugly girlfriend has no confidence.

Pop psychology at its worst!

Billy Beane is Living Proof of the Need for Sabermetrics

As a teenager growing up in California, Billy Beane was an outstanding high school baseball player who scored at the top of the list for each of the five skills measured by scouts. In 1980, he was drafted in the first round by the New York Mets and paid a $125,000 signing bonus. Yet, Beane was a total bust in his six major league seasons due to emotional problems (mostly a bad temper) and obsessive over-thinking (he was smart enough to get accepted at Stanford University) that interfered with his ability to concentrate and execute.

Although not mentioned in the movie, the original book by Michael Lewis compares Beane’s failure with the success enjoyed by fellow Met Lenny Dykstra, who had substantially less physical talent and was dumb. Dykstra’s stupidity turned out to be an advantage because he didn’t get scared or over-think things. The bottom line is that Beane knew from his own experience as a failed player that the criteria used by scouts didn’t work (p. 38):

A young player is not what he looks like, or what he might become, but what he has done. Most of what’s important about a baseball player, maybe even including his character, can be found in his statistics. The scouts even had a catch phrase for what Billy and others were up to – ‘performance scouting.’ Performance scouting in scouting circles is an insult. It directly contradicted the baseball man’s view that a young player is what you can see him doing in your mind’s eye.

Baseball Success Transcends Simplistic Stereotypes

Many highly successful players did not fit the physical stereotype used by scouts to judge talent. Examples include Chad Bradford who had a weird underhand pitching motion, catcher Scott Hatteberg who couldn’t throw but could still hit, and third baseman Kevin Youkilis who was fat and couldn’t run, throw, or field, but was the “Greek god of walks.” Paul DePodesta, Beane’s assistant in Oakland and the real sabermetric genius, refused to cooperate with the movie for some inane reason, so the writers changed his character’s name to Peter Brand, made him fat, and had him graduating from Yale instead of Harvard (the ultimate insult). Anyway, in the movie DePodesta’s character calls the A’s sabermetric-enhanced team the “island of misfit toys.” But it turns out that these misfits could really play ball and the story provides a perfect Hollywood message to resonate with theatergoers: you don’t have to fit a stereotype of beauty to be a success.

Dividend Investing is Like Sabermetrics

An investing analogy to the concept of “performance scouting” would be selecting boring dividend stocks over flashy high-tech growth stocks because academic research has shown that investors overpay for growth (causing them to underperform) and ignore slow-growth and low-beta stocks (causing them to be undervalued and subsequently outperform). Such investors also think it is mostly a waste of time to meet with company management, preferring to judge management performance simply by evaluating the company’s financial performance.

Sabermetrics Means Thinking Outside of the Box

But sabermetrics – the term is derived from the Society for American Baseball Research (SABR) – goes beyond the concept of performance scouting and statistics. It asks the question: which baseball statistics are the most informative? Traditional baseball men focused on batting average, but sabermetricians discovered that on-base percentage  (OBP) was much more important. Winning games depends on scoring runs and the only way to score runs is to get on base. It doesn’t matter whether you get on base through a single or a walk or a hit-by-pitch. A .320 hitter who never walks is less valuable than a .290 hitter who walks often. Walks also serve the purpose of tiring out the opposing pitcher, because he is forced to throw many more pitches than would be the case if a hitter always swings.

Similarly for pitchers, tradition focused on earned run average (ERA) but ERA is dependent on the fielding team’s ability to prevent hits, not a pitcher’s skill. Sabermetrics determined that pitchers can only control walks, strikeouts, and home runs and thus should be judged on those metrics – as measured by fielding independent pitching (FIP) — not on hits and ERA.

Variant Perception Explains the Success of Both Sabermetrics and Value Investing

Back in 2002, when Moneyball takes place, most teams did not focus on OBP and FIP and consequently players with high OBP and FIP were not paid high salaries. Teams in low-revenue markets like Oakland that could not afford the $100 million player payrolls offered by teams in high-revenue markets like New York and Boston were able to remain competitive by loading up their roster with high OBP and FIP players. The value of high OBP and FIP was public information that was available to all, but only a few teams used sabermetrics and appreciated the predictive value of these novel statistical measurements. This is similar to the investing “Seeing eye” I wrote about in How to Beat the Stock Market Without Really Trying: Value Investing. It also meshes with what superstar hedge fund investor Michael Steinhardt wrote in his 2001 autobiography entitled No Bull: My Life in and Out of Markets about the importance of being a contrarian investor with a perception of value at variance with the crowd:

I began to consciously articulate the virtue of using variant perception as an analytic tool. I defined variant perception as holding a well-founded view that was meaningfully different from market consensus. I often said that the only analytic tool that mattered was an intellectually advantaged disparate view. This included knowing more and perceiving the situation better than others did. It was also critical to have a keen understanding of what the market expectations truly were.

Thus, the process by which a disparate perception, when correct, became consensus would almost inevitably lead to meaningful profit. Understanding market expectation was at least as important as, and often different from, fundamental knowledge. As a firm, we soon found that we excelled at this. We took exactly that approach during the early 1970s, when most of our success resulted from our implementation of perceptions that were meaningfully at variance with consensus wisdom. We shorted near the top, in the face of great bullishness, and we got long at the bottom, in the face of keen pessimism.

In an interview, Beane made his own analogy between sabermetrics and investing:

It’s all about evaluating skills and putting a price on them. Thirty years ago, stockbrokers used to buy stock strictly by feel. Let’s put it this way: Anyone in the game with a 401(k) has a choice. They can choose a fund manager who manages their retirement by gut instinct, or one who chooses by research and analysis. I know which way I’d choose.

Sabermetrics is Not a Panacea, But One of Many Tools

In watching the movie, however, something didn’t ring true. The opening scene is the 2001 American League Divisional Playoff between the Athletics and the Yankees. The Athletics won 102 games that year and beat the Yankees in the first two games of the playoff. Then momentum reversed and the Yankees won the last three games to eliminate the Athletics from the postseason. All of this success occurred before Beane had embraced sabermetrics. In other words, despite the fact that Oakland was a low-revenue market, it had managed to win 102 games under the old system of developing players internally through scouting. The movie completely trashes the value of traditional scouting – particularly the A’s head scout Grady Fuson – but the success of the scout-developed 2001 team speaks for itself.

After the 2001 playoff loss, the A’s lost three of its star players to free agency: first baseman Jason Giambi, outfielder Johnny Damon, and relief pitcher Jason Isringhausen. Beane couldn’t afford to replace these players immediately by paying the inflated salaries of other major leaguers with similar batting statistics, but he also didn’t want to wait for the scouts and Oakland farm system to develop new talent (which he didn’t trust anyway despite the 2001 season). What he could do immediately is buy a number of cheap players with high sabermetric ratings that collectively could come close to equaling the offensive output of the departed star players. Not in terms of traditional measures of output (e.g., batting average or home runs), but in terms of the offensive output that really mattered (e.g., run generation). 

2002 was the first year that Beane utilized sabermetrics (after firing head scout Grady Fuson). The result was a 103-win season, one game better than the year before. Furthermore, the A’s broke the American league regular-season record for consecutive wins by winning 20 in a row. But the A’s didn’t do any better in the playoffs, losing in the first round to the Twins. Funny thing, the 2002 playoff loss didn’t make it into the movie. So did sabermetrics really improve anything? According to one analysis, the A’s success in 2002 was a combination of luck and the performance of the pitching staff, all of whom were developed by the traditional scouting system and none selected by Paul DePodesta’s sabermetric computer screen. The A’s still couldn’t win the big game despite sabermetrics. In fact, under Billy Beane’s continuing 13-year tenure (1998-2011), the A’s have never reached the World Series, let alone win it. Furthermore, since getting swept by the Tigers in the 2006 playoffs, the A’s suffered five consecutive losing seasons and not advanced to a single playoff berth despite sabermetrics.

But Beane is making a comeback! In 2013, the A’s were crowned champions of the American League’s Western Division for the second consecutive year and it marked the seventh time the A’s had made the playoffs in Beane’s 16 years at the helm. He is still widely considered the best general manager in baseball.

Popularity is Sabermetrics’ Downfall

Until the renewed success of the last two years, a large cause of Beane’s failures was that sabermetrics has been widely adopted by most major league baseball teams, so highly-rated OBP and FIP players are no longer undervalued and Oakland no longer has a “variant perception” advantage. Soon after the book was published in 2003, the Boston Red Sox became a believer (thanks to its commodity-trading owner John Henry who recognized the investment analogy). The Red Sox owner (played by himself in the movie) offered Beane $12.5 million to move to Boston but Beane declined, allegedly because he didn’t want to leave his daughter. Henry had previously hired sabermetric guru Bill James for a lot less money and the Red Sox won the World Series in 2004 for the first time in 86 years.

If you look at baseball statistics today, sabermetric measures like OBP, OPS, and WHIP are always included. So sabermetrics definitely has value, but it is now widely recognized and exploited by the rich teams just like all other measures of talent, leaving poor teams like Oakland back where they started prior to 2002. Even rich teams like the New York Mets aren’t finding success (yet) with sabermetrics since they adopted the approach in October 2010 with the hiring of former A’s general manager Sandy Alverson. And the Phillies were able to win 102 games in 2011 – more than any other team in baseball – despite rejecting sabermetrics.

Just like investment styles temporarily fall out of favor with the market — only to come roaring back — so too does sabermetrics. While the sabermetric A’s won the American League West this year, the non-sabermetric Phillies finished fourth out of five in the National League East.

Critical Thinking Never Goes Out of Style

Still, I think sabermetrics has a bright future because it is based on objective reason and analysis, and those qualities never go out of style. There will always be new insights to learn about baseball that others have not yet realized. As sabermetric guru Bill James said in an interview:

Well, that window has closed. But, you know, there will never be a shortage of ignorance. I mean, there will always be things that people don’t understand, and you just have to move on to the new areas of better understanding and master those to have the advantage that you had 10 years ago. And that’s in the nature of any progressive field, you know? The things that worked 10 years ago aren’t going to work anymore. I mean, that’s true, but it’s a limited truth. And there are still great advantages to be had by understanding the game better just as there were 10 years ago.

The Ultimate Irony: Grady Fuson Returns

With the Red Sox World Series victory in 2013, Billy Beane perhaps regrets not taking John Henry’s $12.5 million offer, but he’s not giving up. He’s pushing to have the A’s move to San Jose, which is a higher-revenue market than Oakland. And – the most ironic of all – he’s rehired old-time scout Grady Fuson, the Moneyball anti-christ.

Sometimes reality is stranger than fiction.