BUY OF THE WEEK 7/29/2014

Posted on July 29, 2014 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Cash America International (CSH) 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

Balancing Your Return Ideals With the Realities of Risk

Posted on July 28, 2014 | Classroom

Every builder starts with a foundation. If you are new to investing, you are building an investment portfolio, and you need to start with an investment foundation. That foundation consists of the basic investment principles.

Boiled down to its bare basics, investing concerns returns and risks.

An investor’s return consists of current income, plus capital gains due to growth, minus any losses from the investment.

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The Role of Luck and Skill in Investing

Posted on July 25, 2014 | AAII Journal

Since luck plays a bigger role than skill in influencing investment returns, investors need to focus on their portfolio management process.

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Politics Take the Backseat, for Now

Posted on July 25, 2014 | Stock Superstars Report

As earnings season gets into full swing, several SSR holdings reported earnings this week, so we are keeping the introduction short and sweet. Markets were shaken up on Monday on concerns of violence in Gaza and Ukraine, but investors were soothed after President Obama issued statements calling for a ceasefire in Gaza. He also said that Russia will be closely watched as investigators seek to get to the bottom of what happened to Malaysia Airlines Flight 17, which was shot down last week.

Macroeconomic events were on the back burner throughout the rest of the week, allowing investors to focus on improving company earnings and pushing the Dow Jones industrial average and S&P 500 index toward record highs. The S&P 500 finished Wednesday at an all-time high, the 26th record close for the year. According to FactSet, approximately one-third of the S&P 500 companies have reported earnings for the quarter and remain on track to increase earnings 6.6% from a year earlier. Analysts projected a 4.9% gain before the unofficial start of reporting season.

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Lots of Results News to Share

Posted on July 25, 2014 | Dividend Investing

We have much earnings news to share with you this week, so we’re going to keep our opening comments brief. In general, earnings have been good, but not great. There were some positive surprises, but also some misses too. Mostly, the DI companies have been performing as we expected them to.

Wall Street is very focused on short-term results. As investors, we’re more focused on the trends. We want to know how a business is evolving and whether the change is in a positive or negative direction. Sometimes a quarterly report can be enough to give us reason to reconsider our position in a stock; more often, however, it is a trend built over several quarters that will alter our opinion.

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AAII Sentiment Survey: Optimism Falls to an 8-Week Low

Posted on July 24, 2014 | AAII Survey

Pessimism about the short-term direction of stock prices rose to a three-month high in the latest AAII Sentiment Survey. Optimism continued to fall, while neutral sentiment extended its streak of above-average readings to 29 weeks.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 2.7 percentage points to 29.6%. This is an 11-week low. It is also the 17th time in the past 19 weeks that optimism is below its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.3 percentage points to 40.4%. As noted above, the increase puts neutral sentiment above its historical average of 30.5% for the 29th consecutive week. This is the third-longest streak of readings over 30.5% for neutral sentiment in the survey’s history.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.5 percentage points to 29.9%. This is the highest level of pessimism recorded by our survey since April 17, 2014. Nonetheless, bearish sentiment remains below its historical average of 30.5% for the 14th straight week and the 37th out of the last 41 weeks.

Neutral sentiment is back up to unusually high levels (more than one standard deviation above its historical average) for the first time in a month. Historically, unusually high neutral sentiment readings have been followed by better-than-average market performance over the proceeding six and 12-month periods. The link is not causal, however.

The bull-bear spread (the difference between bullish and bearish sentiment) turned negative for the first time since early May. The shift follows last Thursday’s 1.2% drop in the S&P 500, which was the biggest one-day drop since April. Though stock prices have rebounded since then, the decline came at a time when many individual investors have concerns about valuations. Some AAII members are also fretting about the events in the Middle East and Ukraine, the pace of economic growth and Washington politics. Other AAII members remain optimistic about sustained economic growth, the market’s upward trend and the Federal Reserve’s tapering of bond purchases.

This week’s AAII Sentiment Survey results:

  • Bullish: 29.6%, down 2.7 percentage points
  • Neutral: 40.4%, up 1.3 percentage points
  • Bearish: 29.9%, up 1.5 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:

Mixed Opinions on Whether Stocks Are Excessively Overvalued

Posted on July 24, 2014 | AAII Survey

This week’s AAII Sentiment special question asked AAII members what sectors or segments they think are excessively overvalued right now. Responses were very mixed. Slightly less than a quarter of all respondents (24%) said either no segment is excessively overvalued or that the overall market is fairly valued right now. About 13% view social media and Internet companies as being excessively overvalued. Technology was named by 12%. Financials and technology were each listed by 9% of respondents. (Some respondents named more than one sector or industry group.)

New Money Market Fund Rules Mostly Spare Individuals

Posted on July 24, 2014 | Investor Update

New rules for money market funds were approved by the Securities and Exchange Commission (SEC) yesterday after a few years of contentious debate. Some money market funds will have floating net asset values (NAVs) instead of having their NAVs strictly pegged to $1 per share. Redemption restrictions will also be allowed on certain money funds during times of stress. Finally, the SEC will also issue a re-proposal on how it will gauge a fund’s credit-worthiness, using methods other than credit ratings.

The majority of money market funds available to individual investors will not be affected by the new floating NAV rules. This appears to be a compromise the SEC accepted as part of its fight with the fund industry to get the reforms pushed through. The floating NAV rules will apply to institutional prime money market funds and (according to Mike Krasner at iMoneyNet) tax-free institutional funds. This said, “retail” money market funds will continue to be able to peg their NAVs to the $1 per share mark.

Non-government money market funds will “have the ability to impose to fees and (redemption) gates during times of stress.” In other words, the SEC will allow non-government money market funds to restrict the size of withdrawals and/or place redemption fees during periods of stress. This rule is intended to prevent large institutional investors from engaging in what is the equivalent of a bank run and harming individual investors in the process.

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“Market Wizards” Advice: Doing the Uncomfortable Thing

Posted on July 24, 2014 | AAII Journal

Basing trading decisions on what feels emotionally satisfying often leads to the worst portfolio performance.

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Five Common Traits of Successful Value Screens

Posted on July 22, 2014 | AAII Journal

Though investing gurus differ in what they look for in a stock, there are five common traits we see across the AAII value-oriented screens.

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