Being a super-bear or super-bull just got a lot easier and cheaper. Until the last few weeks, if you had been bearish on the market and wanted to profit from that bearishness, you only had a few ways to play it. One was to short an index exchange-traded fund, or ETF, in a margin account. The second was to buy an inverse mutual fund from Rydex or Profunds. Or, last, if you knew what you were doing, you could use…
Let’s say you need advice and you are going to pay a fee to someone to provide sound, unbiased counsel on any number of s u b j e c t s – f r o m plumbing to taxes. After you meet with the kind, presentable and seemingly competent adviser, you decide to use his services. The adviser’s contract has a lot of small print, like all contracts do. But before you just sign it, you heed your dad’s…
Two weeks ago in this space, I pointed out that investors are close to joining an exclusive club-there are only three previous seven-year periods where an investor lost money in the U.S. stock market. The last seven-year dry spell was from the start of 1968 through the end of 1974. In that span, $100,000 an investor put to work withered to $90,000. By the end of 1974, inflation, oil-price spikes, an unpopular war and an unpopular president had left investors…
As I write this, the stock market has fallen off a ledge and given up, depending on the index, between 7 percent and 12 percent in a bit over a month. After that kind of fun, you might be ready to throw yourself off a ledge, or at least cash in what’s left of your portfolio. Yes, the last few weeks have been trying, but being an investor in U.S. stocks since the beginning of this decade has been no…
I have said before in this space that in the long run the only thing that propels a stock’s price is earnings. As Ben Graham said: In the long run, the stock market is a weighing machine, but in the short run, it’s a voting machine. He meant that, over a period of years, a company’s stock is valued-or weighed-quite efficiently, but between now and Labor Day the value is subject to the whims of fickle traders who vote with…
As you may recall from my column a fortnight ago, Bill Miller is the manager of the Legg Mason Value Trust. It’s the mutual fund with the longest winning streak vs. the S&P 500-16 years. In the last column, I shared why Miller believes commodity prices are close to their peak and why he feels commodity stocks, especially oil and metals stocks, are too risky for their potential return. The rest of this column quotes Bill’s quarterly letter to his…
In February, I mentioned the Legg Mason Value Trust, managed by Bill Miller, as the fund with the longest-running winning streak vs. the S&P 500. The streak runs 16 years. A couple of weeks ago, Miller put out his quarterly market letter. I’m beginning to think I’m profound because I agree with his thinking. Below is a paraphrased summary of what he wrote: The Financial Times” headline on April 10 read, “Commodity Prices Set to Soar.” Then Miller thought back…
It’s the first of May, hip-hip-hooray, American investors are smarter today! Why are they smarter? Well, they must have improved their financial acumen because Congress designated last month as Financial Literacy Month. In fact, April 25 was Financial Literacy Day in America. Do you mean to tell me the big day came and went and you didn’t even know it? That’s OK. If you subscribe to this periodical, you have a higher net worth and income than the average American,…
Investment theories that have dominated thinking in the last half century or so have all stemmed from the efficientmarket hypothesis. These theories assume investors make rational decisions, all financial information is known by everyone, and all markets are efficient because prices are a combination of all those things. But in the last decade or so, behavioralfinance studies have postulated that irrational behavior by investors is actually a strong driving force behind markets-and that irrational behavior can be measured and acted…
In 1843, Charles MacKay wrote an investment book that even today remains a good-seller. It’s titled, “Extraordinary Popular Delusions and the Madness of Crowds.” In it, he argues the crowd is always wrong and that its irrational and manic mentality pushes prices to extremes. Throughout history, we all have witnessed many examples of this irrationality. The Holland tulip-bulb mania of the 1600s, various stock market crashes, and the willingness of kids to drain their piggy banks and frantically buy Pokemon…
When viewing the historical record of the stock market, it is clear investors who maintained a positive longterm stance have been rewarded with attractive compounded returns, despite some significant zigs and zags in between. Americans are, on balance, an optimistic bunch, especially when it comes to our outlook for the future. A “best is yet to come” policy has served us well, providing the drive to innovate and improve our country’s standard of living. Nevertheless, when it comes to making…
Every fortnight, my firm sends out a newsletter to clients, prospects and friends. In it, we opine on the stock market, the economy, pop culture and politics. If you read this column, you have a general idea of the tone of the letters. This week, we got “fan mail” from neither a client nor a friend, but from a gentleman we had presented our services to about 18 months ago. He started his letter stating he found our writings “informative,…
If you own individual stocks, you know they periodically drop or pop in price for no apparent reason. A big company’s total value can easily swing several billion dollars with seemingly innocuous news or comments from an influential analyst. One of the guys who can influence investor behavior is James Cramer, host of CNBC’s “Mad Money.” It is one of CNBC’s highest-rated shows and is entertaining, if you like stock market TV shows. If you hate those kinds of shows,…
A common hindrance to creating wealth from stocks is overtrading. Investors feel compelled to take a profit because, as they like to say, “If you don’t sell, the gain is just ‘on paper.'” However, some of the world’s best investors commit funds to a stock and hold it for fairly long periods; not forever, but quite a while. According to the mutual-fund-ratingservice Morningstar, there is an inverse correlation between turnover and performance in the funds they monitor. Sure, some folks…
A client of mine recently expressed concern her portfolio didn’t have foreign stock-market exposure. Because of this lack of diversification, she said, her account had just been “muddling along” for the 22 months we had been working together. Her concluding statement: “You haven’t bought me any foreign stocks to protect my portfolio in case the U.S. market suffers a calamity!” You know how a dog’s head quizzically tilts to the side when you talk to it? I think my head…
A client of mine recently expressed concern her portfolio didn’t have foreign stock-market exposure. Because of this lack of diversification, she said, her account had just been “muddling along” for the 22 months we had been working together. Her concluding statement: “You haven’t bought me any foreign stocks to protect my portfolio in case the U.S. market suffers a calamity!” You know how a dog’s head quizzically tilts to the side when you talk to it? I think my head…
In recent days, the yield curve inverted as the 10-year Treasury note yield dropped below the two-year Treasury yield by 100th of 1 percent. This miniscule inversion caused a freakout on Wall Street and sent stocks into a swoon. Here’s why: The Fed has tightened rates eight times in the last three decades, according to Merrill Lynch economist David Rosenberg, and five times it resulted in an inverted yield curve. Within one year of each of those five inversions, the…
Exactly one year ago in this column, I predicted what 2005 would bring for the stock market and guesstimated a “bang-up year with double-digit gains.” I came up with the projection based on the fact that most market strategists weren’t too optimistic and, as a group, usually have been wrong. I also threw in that mutual fund money was flowing into foreign funds instead of domestic funds and that mutual fund investors usually pile into funds at the wrong time….
Would you spend $20 and 122 minutes to dramatically enhance your net worth? The money is for what I feel is the greatest book since 1949 on how to pick stocks. It will take you 120 minutes to read the book, and two minutes to finish this column. In 1949, Benjamin Graham, then a 55-year-old professor at Columbia University, wrote “The Intelligent Investor.” It was a sequel to his 1934 tome on investing titled “Security Analysis,” which has long been…
Despite natural disasters, war and oil shocks, the U.S. economy has had a good year, with the gross domestic product posting growth of 3.8 percent. Corporate profits will grow this year at a doubledigit rate. And yet the U.S. stock market, as measured by the Dow Jones industrials, has done next to nothing. Here’s one big reason: fear of inflation. It’s slowed the economic sprint and caused investors to reach for their worry beads. We all know Alan Greenspan has…
