Individual Investor Optimism Reaches an 8-Month High

Posted on August 21, 2014 | AAII Survey

Optimism about the short-term direction of stock prices jumped to an eight-month high in the latest AAII Sentiment Survey. Neutral sentiment, meanwhile, dipped below its historical average for the first time since early January.

Bullish sentiment, expectations that stock prices will rise over the next six months, rose 6.3 percentage points to 46.1%. This is the largest amount of optimism recorded by our survey since December 26, 2013 (55.1%). It is also just the second time since March with a bullish sentiment reading above its historical average of 39.0% on back-to-back weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 3.0 percentage points to 30.2%. The drop ends a 32-week stretch of neutral sentiment readings above its historical average of 30.5%. It was the third-longest such streak in the survey’s history.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.3 points to 23.7%. Pessimism is now at a seven-week low. Bearish sentiment is also below its historical average of 30.5% for the 38th time in the past 45 weeks.

Bullish sentiment has risen by a cumulative 15.2 percentage points over the past two weeks, while bearish sentiment has dropped by a cumulative 14.5 percentage points. The reversal comes as the S&P 500 has rebounded off of its short-term lows and ended the survey period near record highs. This rebound has alleviated fears among some individual investors about a possible correction having started. Other factors contributing to the optimistic stance are second-quarter earnings, sustained economic growth and the Federal Reserve’s tapering of bond purchases. Keeping some individual investors pessimistic are prevailing valuations, the failure of the S&P 500 to set new highs, events in the Middle East and Ukraine, the pace of economic growth and Washington politics.

At current levels, both bullish and bearish sentiment remain within their typical historical ranges, as does the bull-bear spread. The bull-bear spread measures the difference between bullish and bearish sentiment.

This week’s AAII Sentiment Survey results:

  • Bullish: 46.1%, up 6.3 percentage points
  • Neutral: 30.2%, down 3.0 percentage points
  • Bearish: 23.7%, down 3.3 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 30.5%
  • Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at:

Q2 Earnings Not Influencing Outlook for Many Individual Investors

Posted on August 21, 2014 | AAII Survey

This week’s special question asked AAII members if, and why, second-quarter earnings have impacted their six-month outlook towards stock prices. Slightly less than half of all respondents (49%) said the quarterly results haven’t impacted their outlook. Many of these members said either they are more focused on the economy or that quarterly earnings are too short-term of an indicator. Just under 23% of respondents said second-quarter earnings have positively influenced their outlook. Many of these respondents said earnings are improving. Earnings were viewed negatively or not good enough to justify current valuations by about 12% of respondents.

Here is a sampling of the responses:

  • “Earnings are not necessarily the real indicator of the underlying economy.”
  • “They are too short-term and thus unimportant in the long-term.”
  • “I believe the market is showing strength in varied sectors and the corporate profits are improving.”
  • “Earnings were good overall in the second quarter. The economy is slowly improving.”
  • “They’re still not high enough to justify the sky-high valuations.”

Sell OF THE WEEK 8/20/2014

Posted on August 20, 2014 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why FLIR Systems (FLIR) is his “Sell of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Sell of the week

The Top 8 Sites for Company, Industry & Sector and Economic News and Analysis

Posted on August 19, 2014 | Computerized Investing

Welcome to Computerized Investing’s “Best of the Web.” Here we have brought together what we consider to be the “best of the best” when it comes to online investment analysis, research and tracking. These are the sites that we editors and staff of CI use ourselves, almost on a daily basis.

The Internet has grown into an invaluable tool for investors, but for every quality website, there are dozens (if not more) that are only marginally useful. Here we provide you with the best online resources for data and analytical tools to help you make informed investment decisions. Beyond looking for sites that offer useful information, we try to find those that are easy to use and do not swamp you with ads. Whenever possible, we seek out websites that are free, though when subscriptions fees are charged, we clearly tell you. (Keep in mind that many websites offer both free and subscription-based content.)

Our primary criterion for analyzing a website is to consider whether it offers value for its visitors. There are a large number of websites with well-designed pages and lots of content, but that possess little that is unique enough to make them stand out from their peers. We pay a lot of attention to the quality of content and whether it is credible or not.

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BUY OF THE WEEK 8/19/2014

Posted on August 19, 2014 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why WR Berkley (WRB) is his “Buy of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Buy of the week


Posted on August 15, 2014 | Stock Screens

YTD Return of Top Performers: Rule #1 Investing 50.3% — ADR Screen 35.1%

See the results and passing companies »

August 2014 AAII MODEL PORTFOLIOS UPDATED – Signs of a Pullback

Posted on August 15, 2014 | Model Portfolios

The S&P 500 index declined 1.5% in July, putting a smile on the face of many a bear who have been wrong for so long. Still, the decline is too small to even qualify as a pullback. Global worries ranging from war in the Ukraine, Syria and Iraq to a possible recession in the European Union dominated headlines last month and weighed on the indexes. Even a solid jobs report in the U.S. could not push the markets higher in July. This resulted in a “risk off” month that impacted the model portfolios, but to different degrees. Still, despite all the negative headlines and the rotation out of small cap stocks, both the Shadow Stock Portfolio and the Model Fund Portfolio beat their benchmarks in July. The Model Fund Portfolio declined only slightly for the month, while the Model Shadow Stock Portfolio, which concentrates on small-cap stocks, dropped significantly. The Model Shadow Stock Portfolio can experience greater short-term volatilities because the portfolio is made up of stocks trading in the “shadows” of Wall Street and more likely to be mispriced. While there may be periodic negative periods in such a portfolio, over time the portfolio tends to significantly outperform the S&P 500. Short-term volatility is the price to be paid for higher long-term expected returns.

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SSR Portfolio Beats the Market

Posted on August 15, 2014 | Stock Superstars Report

According to a report from Merrill Lynch, health care and technology stocks have turned in the most second-quarter earnings and revenue numbers that beat consensus estimates, while the telecom sector has lagged.

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Have the Bears Been Sent Running?

Posted on August 15, 2014 | Dividend Investing

U.S. stocks continue to show resiliency. A week after nearly touching official pullback territory (a decline of at least 5%), large-cap stocks have rebounded nicely. The NASDAQ index enjoyed its strongest weekly performance since February, while the S&P 500 index had its best weekly performance since April.

The bond market is performing well too. Yields on the 10-year Treasury note fell to 2.34% today, the lowest closing yield of the year. To put this number in perspective, the benchmark note started 2014 with a yield of 3.03%.

Mr. Market is causing those who have made bearish forecasts to seem silly, as investors who have maintained their allocations to stocks and bonds have done well. But, while the bears may have been sent running this week, they have not been banished. That’s actually a good thing, because when sentiment runs too hot (which, at least for stocks, it currently is not) downside risks intensify.

Enjoy this week’s good returns, but remember that market conditions can change quickly.

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Are Smart Beta ETFs Smart Investments?

Posted on August 15, 2014 | Investor Update

The concept of smart beta funds has intrigued me. Smart beta funds use quantitative rankings to determine what stocks to hold and how to weight them. I agree with the general concept, but I wondered if smart beta exchange-traded funds (ETFs) actually delivered better performance. So I used the data in our ETF Guide to conduct an analysis.

This would seem to be an easy task: just line up the funds and compare the returns. After all, most funds, be they mutual funds or ETFs, can be quickly categorized as passive or active, small cap or large cap, domestic or international, etc. With smart beta ETFs, things weren’t so simple. In fact, I quickly found myself facing a quandary: What actually counts as a smart beta fund?

Morningstar does not designate funds as being smart beta in the data it supplies. (We use Morningstar’s data for our mutual fund guide, our ETF guide and our Quarterly Mutual Fund Update.) A search on Google for a list of smart beta ETFs didn’t turn up much either. This meant my first step was to create a list of smart beta ETFs.

The first few choices were easy. I knew there are ETFs based on Research Affiliates smart beta indexes, such as the PowerShares FTSE RAFI US 1000 (PRF). I included ETFs based on equal-weight market capitalization indexes, such as Guggenheim S&P 500 Equal Weight (RSP), even though equal-weight indexes were in existence before the term “smart beta” became popular.

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