Posted December 8, 2011 at 3:23 am
Even in an unruly market, everyone should get these moves right.
by Jack Hough
Year-end financial planning might feel a bit like trying to fit an alligator for a suit. The S&P 500-stock index provided a year’s worth of typical gains this past week after losing nearly a year’s worth the week before.
How can investors hope to put such an unruly beast to work?
The good news is that three of the most important determinants of portfolio growth are under the direct control of investors: fees, asset allocation and new contributions.
Each deserves a fresh look [continue]…
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Posted December 5, 2011 at 3:55 am
by Kara Mcguire
“I’m scared to death of the market.”
That’s not what you’d expect to hear from a guy who has made a living researching and investing in the market since the 1960s. But that’s exactly the kind of candor I’ve come to expect from Steve Leuthold, Minnesota’s resident stock market historian and contrarian investor.
I recently sat down with Leuthold in his corner office overlooking the Minneapolis riverfront at the firm that bears his name – Leuthold Weeden Capital Management. Leuthold, 74, recently scaled back his duties, stepping down as chief investment officer, although he’ll continue to write and manage some portfolios, including money for his family foundation.
We talked about how he got into the business, how he avoided the tech bubble in 2000 but lost half his individual clients in the process, and how 2011 wasn’t a good year to be a potato farmer – one of Leuthold’s longstanding hobbies.
But I sought out Leuthold to ask him a single question: With 50 years of stock market history and experience behind him, what should my readers think about this market? [continue]…
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Posted November 22, 2011 at 12:17 pm
By Barry Goss
Here’s a video that busts the myth that GOLD is a “hedge” against market downturns:
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Posted November 21, 2011 at 3:55 am
via Dividend Stocks Online
Income investors know about efficiency. They know that income comes from two sources: First, by making their money work as hard as it can and second, reduce commissions and taxes to their lowest possible level.
In the case of the latter, it’s a little more straightforward. Reduce your tax liability by holding on to our positions for at least one year and for long term investors, attempt to minimize your dividend payouts in your taxable accounts.
For those with taxable brokerage accounts meant for long term growth, contributing the maximum to a traditional IRA and using that account for dividend names is worth considering.
Reducing expenses is easy compared to maximizing the work load of your money. Think of this illustration. A farmer who has 1,000 acres of land buys a high dollar tractor which will allow him to decrease the amount of workers he has to hire.
That’s sounds like a great use of capital but what if he only used his [continue]…
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Posted November 14, 2011 at 2:56 am
by Rob Bennett
Buy-and-Hold is popular because of the catch phrases that are used to promote it. Like television commercials, they appeal to the emotions, not the intellect.
Marketers know that, once they have won over our emotions, we will use our minds to develop rationalizations for sticking with the strategy to which we have become emotionally attached.
We are told that “You Can’t Beat the Market.”
Why?
There’s 30 years of academic research showing that valuations affect long-term returns. Lower your stock allocation when stocks are priced to fall hard and you are obviously going to do better than those who fail to do so. That’s beating the market, isn’t it?
My guess is that the marketing departments of the big mutual funds have done focus groups showing that middle-class investors are looking for humility in stock experts. They are sick of know-it-alls that pretend to insights they do not really possess.
The catch-phrase “You Can’t Beat the Market” signals humility. It wins over the hearts of millions of middle-class investors rating straight shooters over smooth talkers.
The fuller reality is that the claim that “You Can’t Beat the Market” is not humble at all. It is arrogant as all get-out. It is arrogance dressed n humble clothing.
The key to understanding the trickery is identifying who it is that we are talking about when we say that a “market” cannot be beat. The impression we get when we are told that we cannot beat the market is that the market is [continue]…
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Posted November 13, 2011 at 11:34 pm
via Pragmatic Capitalism
Despite being known for the collapse of Drexel Burnham and the insider trading scandal, Michael Milken is by far, one of the sharpest financial minds of our time.
It’s unusual to hear his thoughts on the markets and life in general, but Hunter at Distressed Debt Investing attended a conference which Milken spoke at this week and he provided us with some notes.
There are some other good thoughts from the other speakers at his site. I’ve attached the notes from Milken’s speech. Thought provoking at the very least [continue]:
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Posted November 9, 2011 at 2:47 am
by Carl Richards
Initial public offerings get a lot of coverage, and why not? Everyone loves the idea of taking hard-earned money and using it to gamble in the hope that they’ll end up owning the next Amazon or Google and not Pets.com or Demand Media.
What often gets lost when we get all excited about a hot new I.P.O. is the pesky fact that most of the time buying an I.P.O. is a great way to lose money.
Wall Street Roulette
BusinessWeek did a little math on the 25 hottest offerings of 2010 and 2011. The results don’t look so good.
There’s a lot of red: after the initial “pop” — the jump from the offering price to the open — 20 of those 25 tanked. Many have fallen 50 percent from their first day opening price in the stock market (one high-profile example: Demand Media, down 68 percent since its January debut), a few more than 80 percent.
But those were just the “hot” offerings of the last two years. What about the rest of the I.P.O.’s? What happened to their prices after that first day of trading?
The total for all 333 I.P.O.’s from 2010/11 for which Bloomberg has data is minus 11.1 percent.
The Odds Aren’t in Your Favor
And in case there is any doubt, almost every study I can find on the performance of I.P.O.’s shows the same thing [continue]:
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Posted November 9, 2011 at 1:21 am
by Joe Light
Twentysomethings are seeking safety from market volatility at precisely the wrong moment in their investing lives.
Here’s how to get back on track.
Risk-taking is for the young—except, it seems, when it comes to investing.
The 2008 market panic, last year’s “flash crash” and the latest burst of volatility are proving to be more than many young investors can stomach. As a group, people in their 20s and early 30s are less comfortable taking risk than they were before the financial crisis, according to recent surveys—leading them to hunker down with safe assets at a time when many financial planners say they should be rebalancing into risky ones.
“We had Depression babies,” says Bill Finnegan, a senior managing director with MFS Investment Management, a Boston-based asset manager. “Now I think we have recession babies.”
Investors who eschew risk at such a young age might be setting themselves up for disappointment. Without the compounding effects that come with investing in equities for a long time, stock-less investors might find it nearly impossible to accumulate a big enough nest egg to retire at all, let alone in their 60s.
“It’s hard to build a lot of wealth without taking at least some risks in the markets,” says Colorado Springs, Colo., financial planner Allan Roth.
The good news is that even the most traumatized young investors can take steps to ease back into the stock market and improve their long-term chances for success—while limiting the risks that made them so nervous about equities in the first place. The key is to take measured risks based on job security and other factors.
Of course, it won’t be easy for these investors to forget the tumult of the past four years. A 27-year-old who started investing right out of college has seen a 0.5% annualized gain from a Standard & Poor’s 500-stock index mutual fund—less than the 1.85% returns of an ultrasafe money-market fund.
It’s little wonder that such investors are dialing back on risk. According to a June MFS survey, investors in their 20s held 30% of their non-401(k) portfolios in cash—four percentage points higher than the average for all investors. The survey found that 40% of investors in their 20s agreed with the statement: “I will never feel comfortable investing in the stock market.”
The late-summer market storm only increased the worries. An October MFS survey showed that young investors held 33% in cash, six points higher than the overall average, while 52% agreed that they would never feel comfortable investing in stocks. Only 29% of investors of all ages agreed.
When younger investors do venture into the markets, they do so cautiously. Only 31% of investors under age 35 were willing to take above-average investment risk, according an October survey by the Washington D.C.-based trade group Investment Company Institute, compared with 39% in 2008.
As the market grew choppier in August, Max Dufour, a 34-year-old financial-services consultant for large investment banks in Boston, moved $50,000 from high-yield bond funds to lower-risk assets such as money-market mutual funds. After losing roughly half of his investments in 2008, Mr. Dufour says he has learned a lesson.
“I’m less willing to gamble,” he says.
Likewise, Dan Manges, a 26-year-old chief technology officer for a financial services company in Chicago, overhauled his $100,000 investment portfolio in July, moving from 60% stocks to 30%, with 30% in bonds and 40% in cash.
“A lot of the events we are seeing now haven’t happened before,” Mr. Manges says.
Some economists worry that young people’s risk aversion could be long-lasting. In a study published this year, Ulrike Malmendier of the University of California, Berkeley, and Stefan Nagel of Stanford University found that people who have experienced low stock-market returns throughout their lives are less likely to invest in stocks and are pessimistic about future returns. Young people were especially prone to making decisions based on recent events.
If young investors’ fear persists, financial advisers say, the result could be [continue]…
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Posted November 7, 2011 at 2:31 am
by Jessica Rao
Some love Mickey— Mouse that is. Others worship Mickey— as in Mantle. But to make a profit off of your passion, you have to know what you’re doing.
Irwin Kishner, head of the Sports and Entertainment practice at Herrick, Feinstein LLP in New York, says, “there are two types of memorabilia purchasers.”
The first is someone who collects for nostalgia reasons—like baseballs signed by childhood heroes; the second is an investor or wealthy individual who has a more substantial collection.
The memorabilia market is vast in what is considered collectible, the venues for buying and selling, and the total dollar value. The largest markets are sports and entertainment, and the most popular trading is done through auction houses, specialty dealers, and internet outlets like eBay.
Because memorabilia is not traded on an organized, formal exchange, it’s hard to pin down the exact size of the business but it is certainly a multi-billion-dollar one.
If you’re considering bumping your collection up a notch, or adding memorabilia to your investment portfolio, here are eight rules to keep in mind [continue]:
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Posted November 7, 2011 at 1:55 am
from Investing Caffeine
With the rise and frequency of heightened volatility in recent years, investing has never been as difficult as it is today. However, the importance of investing has never been more crucial either, thanks to the rising, corrosive effects of inflation, and the uncertainty surrounding the sustainability of Social Security, pensions, and other retirement accounts.
If you are not losing enough money from our structurally flawed and loosely regulated financial industry that is inundated with conflicts of interest, here are 10 additional ways to destroy your investment portfolio:
#1. Watch and React to Sensationalist News Stories: Typically, strategists and pundits do a wonderful job of parroting the consensus du jour. With the advent of the internet, and 24/7 news cycles, it is difficult to not get caught up in the daily vicissitudes. However, the accuracy of the so-called media experts is no better than weather forecasters’ accuracy in predicting the weather three Saturdays from now at 10:23 a.m. Investors would be better served by listening to and learning from successful, seasoned veterans (see Investing Caffeine Profiles).
#2. Invest for the Short-Term and Attempt Market Timing: Investing is a marathon, and not a sprint, yet countless investors have the arrogance to believe they can time the market. A few get lucky and time the proper entry point, but the same investors often fail to time the appropriate exit point. The process works similarly in reverse, which hammers home the idea that you can be 200% wrong when you are constantly switching your portfolio positions.
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