stocks
Written by Dani, May 01st, 2012
We all know the phenomenon of “sell in May and go away” in the stock market. But is that really an effective strategy? Here’s a couple of articles we read recently on the subject:
From CNBC:
“The argument for “going away”: Over the last 12 months, investors who held to this belief made out pretty well. From May 1-November 1, 2011, the Dow lost 6.7%. From November 2011 through April 27, 2012, it gained 10.7%.
If we open a historical window – specifically, The Stock Trader’s Almanac – back to 1926, we see the S&P 500 rising 4.3% on average during May-October and gaining an average of 7.1% from November-April.”
From Stock Trader’s Almanac:
“On Wednesday April 18th, Jeffrey Hirsch provided election year statistics for the “Worst Six Months”, May to October. The results of that research began in election year 1952 and ran through 2008. 1952 was chosen as the starting point of the study primarily because the U.S. economy (and the global economy) was substantially different prior to that year than now. From 1901 to 1951 farming made August the best performing month of the year. This is no longer the case and August is now the second worst month of the year. In response to inquiries about years prior to 1952, the table from that post has been updated to include all election years from 1904 to 2008.
By including an additional 12 election years in the table, the results differ greatly, but this was expected because, Augusts’ top-ranking performance, the roaring twenties, a Great Depression and two world wars made those years significantly different (a great understatement). In fact, “Sell in October” would have been appropriate. Prior to 1952, May-October was up 32 of 51 years with an average gain of 3.3 % while November-April was up 29 of those same years averaging a gain of 2.4%. Since 1952, November to April (as of today) has been up 47 times and down 13 with an average gain of 7.5% while May to October has been up 35 and down 25 with an average of just 0.2%.
Before deciding if “Sell in May” in this election year is in the best interest of your investment objectives consider this; since 1940, there has been only one double-digit gain from May to October and the average gain is a paltry 0.3% (excluding the best and the worst, the average is 1.2%).”
Graphic from Stock Trader's Almanac
We believe that investors should be careful to not invest or pull their capital based simply on a season, time of year or “gut feeling”. This is definitely an interesting and risky time in the markets, and it’s important to know about the trends and thought-processes – but not necessarily to follow them.
Thanks for reading our podcast summary. If you want more details on what is discussed on the blog, please listen to the full podcast here.
Written by Dani, April 24th, 2012
French elections and Apple computer are the two big issues in the markets this week. Here’s why:
- APPL has gone into a correction this week and last week, losing about 5%.
- On Sunday, the French held their presidential elections. Sarkozy and Hollande are the two run-off candidates, and this matters to the markets because each candidate has such a different approach to how to fix Europe’s debt crisis.
We need to be paying attention to the elections in France and the condition of the European debt crisis because it will undoubtedly have effects on our economy and markets. This article from The Week gives a good soundbite for why we are bringing this up:
“What has Hollande promised to do as president?
He has pledged to increasegovernment spending to spur economic growth. That position is the polar opposite of the policy Sarkozy and German Chancellor Angela Merkel have adopted, encouraging EU countries to cut spending to get their finances in line. The duo, who have worked together so closely that they’re referred to jointly as “Merkozy,” have shaped the EU’s response to the debt crisis, which shows no signs of abating.
Would Hollande’s proposals hurt or help Europe?
It depends whom you ask. Some economists say it ‘is likely to make matters worse, possibly sending financial markets into a tailspin that invites further chaos,’ says Steven Erlanger at The New York Times. Others say boosting economic growth is the key to getting Europe out of its funk. ‘An Hollande victory would shake things up, and offer at least a possibility of something better,’ says Paul Krugman at The New York Times. Plus, some European countries may be starting to turn against Merkozy’s prescriptions: The Dutch government will likely collapse over resistance to new austerity measures, and Spain and Italy are also siding with more pro-growth policies.”
We are keeping an eye on the news from Europe, and it will be interesting to see if France continues to embrace austerity, or if they spend more in an effort to get out of their current debt crisis.
Speaking of paying attention, we asked our readers and listeners last week if you have the right life insurance policy or annuity. This is an important item to keep in mind, and we encourage you to learn what you need and why. Today, I am offering you a FREE insurance and annuity consultation. If you would like to have one of our experienced professionals research and analyze your life insurance policy or annuity contract, then simply call our offices at (800) 391-1118, and we’ll set you up for your FREE life insurance and annuity review.
Thanks for reading our podcast summary. If you want more details on what is discussed on the blog, please listen to the full podcast here.
Doug Fabian’s next live public speaking event will be in Las Vegas at the Money Show, where we’ll have about six different opportunities to present, and a special opportunity for our subscribers. Please check out moneyshow.com to register or for more information.
Written by Dani, March 21st, 2012
We have seen better economic numbers lately, and investors are feeling good about the market, which is causing some higher market numbers than we would have expected under the current unstable economic circumstances.
However, we want to continue to remind you that the global economy is a significant factor in this market, even if it’s currently being largely ignored. Please read our recent blogs about the Triple Threat and the European debt crisis for more information on our views of global economic growth and what that means to your investments.
We encourage you to keep watching Gold stocks, as we mentioned a few weeks ago. We’re not going to give a “buy” signal here on the blog or on the radio podcast – we don’t want to take away from the services our paying clients expect – however, if you are interested in hearing our specific advice on what to buy and when, please call our offices at 800-391-1118
(Also, if you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)
Written by Dani, March 13th, 2012
Stocks appear to be topping, and may have already peaked. There was a relief rally last week which we believe had much to do with the appearance of everything being OK (activity from the Federal Reserve, the controlled default in Greece, etc.), and not with the fundamentals.
One reason for continued investor confidence is that Apple Computer (AAPL) stock has been soaring. Also, American investors especially seem to be excited that it appears that America is decoupling from the rest of the world and they hope this means that we won’t be as affected by adverse global trends. However, we still believe that there is reason to be concerned, because of what we’re calling the triple threat.
The triple threat is:
- Europe is in recession
- China’s economy is slowing down
- U.S. profit growth prospects are slowing as well
Also, equities are going up, along with oil and bonds going up as well, so this is a very unusual circumstance. Bonds rising in value are usually associated with depression and deflation, but the stock market is soaring. Something strange is happening here, and John Hussman wrote last week that is a bad time to invest too heavily, based on historical similarities, and we agree. We encourage all of our readers to check out his piece on the market trends, here.
This is a podcast summary. For complete details on the items discussed today, please listen to the full audio here.
Written by David, February 29th, 2012
There’s no denying that the stock market is flashing bullish signs, but what about the bond market? Shouldn’t bond prices fall and bond yields rise in a bullish equity environment?
Historically, when stock prices surge bond prices fall and bond yields rise. This time around, however, stock prices are rising along with bond prices. Put another way, stock prices are surging while bond yields are falling.
In the chart below we see the price action in the S&P 500 vs. 10-year Treasury bond yields.
As you can see, since Nov. 2011, stocks have been in an uptrend while bond yields have fallen. The divergence here tells us a couple of important things. First, it shows us that money is flowing into both stocks and bonds in search of something more than the yield offered by cash. Thank Mr. Benanke and crew for the fact that cash is paying virtually nothing, as his near-zero interest rate policy is partly responsible for pushing investors into riskier assets in the quest for a decent return on their money.
The second thing it tells us is that while stocks are screaming bull, bonds are screaming bear. That’s because when things get dicey, money usually flows away from equities and into the relative safety of Treasury bonds, and that bond buying pushes yields lower.
Something has to give here, as stock investors and bond investors aren’t likely to continue betting on a divergent path for much longer. Which way will things go? Well, I think you know which camp I’ve got my tent pitched.
Written by Dani, February 07th, 2012
Thanks for reading our podcast summary. If you want more details on what is discussed on the blog, please listen to the full podcast here.
A suspect power rally in the financial markets
Stocks vs. Bonds: The bond market is being artificially manipulated by the Federal Reserve, as they sell short-term bonds and buy long-term bonds. Rates on CDs are ridiculously low, and is forcing people to make other financial decisions, which often ends badly. When people think they need to be getting a return on their investment at all times, they often move their money from a safe place into a risky one. It’s a good idea to be educated about your investment options, but remember that we are advising low-risk investments right now. Don’t be too eager to move your money in such turbulent times.
The stock market rallied this week, but we are still suspicious of this change, because, as you all remember from 2008, we have seen these kinds of bubbles before. We think that the problems in Europe will seriously effect the stock market (check back on the blog tomorrow for more details on the European crisis). For this reason we advise keeping a high volume of cash in your portfolio.
Despite a good jobs report this week here in the U.S., the situation in Europe has not changed for the better. We predict that economic growth will slow in response to these fiscal problems in the rest of the world, particularly in Europe. It’s crucial to understand the risks and continue to face these problems with a defensive posture.
For more information on the economic situation in Europe, please listen to the podcast and check back tomorrow for more info on the blog.
Written by David, February 24th, 2010
Join me on Saturday, March 6, at 12:00 p.m. (noon) Pacific Standard Time, for a FREE update on the financial markets in 2010. In this teleseminar, titled “Return of the Bear Market,” I will be offering my opinion on how you should be managing your assets as we navigate these choppy market waters.
Let’s face it, the last two years have been a wild ride for both stock and bond investors. What I call Phase One began in 2008 with the biggest decline in stocks since the Great Depression. Phase Two saw a recovery of more than 50% for the S&P 500 Index. Most investors now have been pacified by Wall Street and Washington, and many think the worst is behind us.
I believe that we are close to entering Phase Three of this investment cycle, and that could mean another devastating wave of wealth destruction. The good news, however, is that there is time to prepare, as well as clear signals on the road ahead that will give us time to adjust before any real damage is done.
Four key points you’ll learn in this seminar are:
- Why stocks and bonds have the potential to enter a new bear market
- What are the warning signs to look for in the markets
- Where investors can seek safety during the next 12 months
- How you can profit from the crisis
This FREE, one-hour teleconference will be held exclusively for the first 800 registrants, and judging by the participation in our last teleconference, we will reach capacity quickly. We urge you to take advantage of this opportunity and reserve your spot today.
Written by David, December 31st, 2009
Join Doug Fabian for his first investment conference of the New Year. On Saturday January 9, 2010 at 12:00 pm (noon) Pacific, Doug will be discussing the investment landscape for 2010.
Doug has been writing on the subject of stocks, interest rates, commodities, and currencies for decades and he is presenting a unique opportunity to learn from his expertise. He believes that 2010 will present an entirely new list of winners and losers in the investment markets, but you must be on the call to act on Doug’s advice.
This one hour tele-seminar will be held exclusively for the first 800 registrants. Early registration is your best way to ensure you will have a seat for Doug’s thoughts on the the investment markets.
Five important keys you’ll learn:
- His opinion on the direction of stocks in the New Year.
- What sectors Doug believes show the most potential for profits.
- What you can do to hedge your portfolio against rising interest rates.
- His thoughts on Gold for 2010.
- Which commodity ETFs deserve your attention right now.
The live teleconference will reach capacity because we’ve built an enormous following for this learning series. We urge you to take advantage of this opportunity and reserve your spot today.
Click here to register for this event.
Written by David, October 29th, 2008
As much as I like exchange-traded funds (ETFs), I frown when they become mispriced. This happens when the market price of an index ETF is different from its underlying net asset value (NAV). If an investor in such an index ETF needs to sell quickly, the mispricing may cause a bit of a financial hit.
In reality, the price of an index ETF “resembles,” but is independent of a fund’s NAV. For example, when there suddenly are more fund sellers than buyers, the market price of an index ETF may be lower than its NAV. With the recent market drops giving nervous investors a host of reasons to sell, the risk of such mispricing is heightened. I want you to be aware of this mispricing risk if you are thinking about buying index ETFs. If your plan is to buy and to sell quickly as a short-term trader, you face an increased risk of mispricing.
On the other hand, it also is possible for the market price of an index ETF to exceed its NAV when demand for fund shares temporarily exceeds the supply. This situation is not a problem for ETF sellers, as long as the buyers are willing to pay a premium to acquire the shares.
You also should be aware that “tracking errors” can occur. That situation can happen when an ETF pays out quarterly dividends that are received from the underlying stocks that it holds. However, the stocks held by the ETF may pay dividends to the fund throughout the quarter. As a result, an ETF may hold the cash received from the dividend payments, even though the underlying benchmark index does not hold any cash. This situation particularly applies to index ETFs known as HOLDRs that are organized as trusts. The HOLDRs cannot reinvest dividends, and must hold any dividend payments as cash.
Even though I am a big fan of ETFs, I want to be sure that you to know about the mispricing and tracking error issues that I just highlighted. Every investment has its strengths and weaknesses, so it is in your best interest to know the facts before investing your hard-earned money in anything.
Finally, you should not avoid investing in index ETFs just because of mispricing and tracking errors. However, I want you to be fully informed about these imperfections. Remember that I’m here to help guide you and it gives me great satisfaction to illuminate the path for investors who seek to invest in ETFs successfully.
Written by David, July 12th, 2008
The simplest definition for ETFs is that they are index funds that trade on the stock market exchanges. An ETF consists of a virtual basket of stocks that usually tracks a specific index or sector. To put it another way, ETFs are like a homologous species of mutual funds that allow investors to buy into a specific area of the market without all of the hassles, management fees and trading restrictions imposed by traditional mutual funds.
ETFs and mutual funds are similar in that they both offer access to an underlying pooled portfolio of assets. Both offer instant diversification, and both give you the ability to invest in the domestic and international markets, as well as in specific market sectors.
ETFs and stocks are similar in that they are both bought and sold on an exchange-NYSE, Amex or NASDAQ-throughout the trading day.
Keep in mind that like stocks, you must pay brokerage commissions to buy and sell ETFs. However, there are no sales loads on ETFs like there are on mutual funds, and internal expenses are typically far less than those of comparable mutual funds.
4 Main Benefits of Using ETFs
Benefit #1: Lower Expenses
While the Fabian family have been big advocates of mutual funds for the past three decades, most mutual funds are just not cutting it when it comes to performance. The number one reason for this stems from a mutual fund’s high annual expenses.
Because the managers of ETFs are not actually buying and selling stocks (and generating exorbitant fees along the way) in an effort to outsmart the market, ETFs have it all over mutual funds when it comes to lower expense. The average annual expense for a mutual fund is approximately 1.07%, while the average annual expenses for ETFs range between 0.1% and 0.6%.
Saving 0.5% to 1% doesn’t sound like much on the surface, but when it comes to a portfolio in excess of $500,000, this could be a savings of $5,000 a year.
Benefit #2: Liquidity
ETFs are as liquid as individual stocks. One of the biggest struggles we have with mutual funds is they only price at the end of the day. We feel this exposes your serious money to potentially devastating losses should the market have a significant one-day drop. Since ETFs trade like stocks, they offer the ability to buy or sell any time of the day. This provides investors with some added flexibility, along with the reassurance that they don’t have to wait until the end of the trading day to get the price of their investment.
Benefit #3: Global Opportunities
There are over 600 ETFs out there to choose from, and that number is growing rapidly. But ETFs are not just relegated to the domestic stock market. There are currently more than 130 ETFs focused on the international markets. From broad-based international indexes to emerging markets to country-specific ETFs, the panoply of global ETF offerings allows investors a way to get exposed to some of the alternative market segments out there.
Benefit #4: Instant Diversification
Like mutual funds, ETFs provide investors with instant diversification. Because ETFs usually mirror the performance of a particular market sector index, you get the diversification of owning every company in that index. For example, if you were to buy the SPDR 500 ETF, you in essence get the diversification of owning 500 of the world’s biggest companies.
These are just some of the reasons why Fabian Wealth Strategies trades a large portion of our portfolios using Exchange Traded Funds.
