Marc Andreessen, a venture capitalist, remains best-known for his work on the creation of Netscape, one of the earliest and best web browsers. In a recent interview with The Wall Street Journal, he states that those who are concerned about a new stock market bubble in tech stocks simply don’t understand the revolution that is underway and how large an economic impact software firms can have. Continue reading
People have an understandable interest in patterns in stock market returns. As we head into September, we can expect the inevitable articles about the so-called ‘September swoon.’ If you look at the period since 1926, the average return in September has been negative. A 2011 paper in the Journal of Applied Finance concluded that the historical occurrence of negative returns for the stock market in September is so strong and consistent that it cannot easily be explained away. There are a range of other so-called ‘calendar effects’ in which a specific time of the year, month, or week has historically delivered returns that are markedly different from the average across all periods. There are no conclusive explanations for these effects and, in a rational world, these types of anomalies should not persist—but they do. If they expect stock prices to decline in September, savvy speculators should start to sell in August in anticipation of this drop and this selling should dilute the eventual drop in September. Over time, this type of effect should, in theory, disappear to investor anticipatory buying or selling. Nonetheless, these effects remain prominent in historical stock prices. Continue reading
Guest post by Contributing Editor, Robert P. Seawright, Chief Investment and Information Officer for Madison Avenue Securities.
Value has persistently outperformed over the long-term. Why is that?
In the most general terms, growth stocks are those with growing positive attributes – like price, sales, earnings, profits, and return on equity. Value stocks, on the other hand, are stocks that are underpriced when compared to some measure of their relative value – like price to earnings, price to book, and dividend yield. Thus growth stocks trade at higher prices relative to various fundamental measures of their value because (at least in theory) the market is pricing in the potential for future earnings growth. Over relatively long periods of time, each of these investing classes can and do outperform the other. For example, growth investing dominated the 1990s while value investing has outperformed since. But value wins over the long haul. Continue reading
Every year when the forecasts for the hurricane season are issued, there have been a spate of articles on implications for investors. This year was no exception. USA Today reported that U.S. natural gas prices jumped 3% on the basis of a forecast for an active hurricane season in 2013. It is also common to read that companies are attributing poor earnings to unusual weather. Continue reading
April is financial literacy month. I believe that lack of financial knowledge is one of the most critical problems that our country faces. Continue reading
The financial media loves a catch phrase and, with the apparent emotional hook of the ‘fiscal cliff’ diminished, we needed a new one. The current best candidate is the so-called ‘Great Rotation.’ The idea here is that investors, finally and completely fed up with the dismal returns from bonds, are going to move heavily back into equities. This is the ‘Great Rotation.’ When I Google the term, there are 820,000 search results. Not bad for a phrase that was invented in October 2012 (in a research note from Bank of America, apparently). Continue reading
I have been struggling to understand a problem that I am going to refer to as the ‘yield paradox.’ Yields for individual asset classes look low. The 10-year Treasury bond is yielding about 1.9%, and 30-year Treasury bonds are yielding a similarly paltry 3%. The S&P 500 is yielding 2.1%, which is very low by comparison to historical levels. Investment-grade corporate bond indexes are yielding less than 4% (see LQD, for example, at 3.8%). Given that the official rate of inflation for 2012 was 1.7%, these yields mean that investors are getting very little yield net of inflation. The very low yields on bonds and on stock indexes is a direct result of the Fed’s actions in holding interest rates at historical lows via Quantitative Easing. We have not yet gotten to the paradox. Continue reading
There is increasing evidence of big flows of money into equities and leaving bonds. This is being seen at all levels in the market, including among institutional investors such as pension plans. The Wall Street Journal just published an article discussing this shift called Are Mom and Pop Heading for Wall Street? Mutual fund flows suggest that investors are finally returning to equities, after selling in droves over the past several years. This article summarizes the issue:
From April 2009 through now, mutual-fund investors sold a quarter trillion dollars in stock funds, according to recent data from the Investment Company Institute.
Ironically, that selloff coincided with a period of stellar performance in stocks—when the Dow Jones Industrial Average jumped more than 60%. Continue reading
The price of a share of Apple (AAPL) is almost 30% below the high that it set back in September 2012—about five months ago. Even before its peak, the price of Apple shares had already made it the most valuable company in history. In those heady times, Apple shares reached $702. Today, they are at $503. Even today, however, Apple remains the largest single holding in the S&P 500 at about 3.6% of the total index. It is mind boggling to consider that the market value of the most valuable public firm in history could decline by 30% in five months, without some sort of catastrophic event. But this is the situation and there are some lessons to be drawn. Continue reading
Guest post by Contributing Editor, John Graves.
Editor’s Note: John Graves has been an independent financial advisor for 26 years. He is one of the two owners of The Renaissance Group, a Registered Investment Advisor based in Ventura, CA. John’s book, The 7% Solution: You Can Afford a Comfortable Retirement, was published in 2012. When I read this book, I was impressed with John’s approach and thinking and I recommend it as a good read. I contacted John and asked if he would consider contributing to this blog. After we bounced around some possible topics, he sent me the following piece that describes his process for designing income plans for retirees. Continue reading