GADGET CORNER – Motorola Talkabout MS350R Two-Way Radios

Posted on January 18, 2013 | Computerized Investing

Rugged, waterproof two-way radio with 35-mile range.

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A Weak Link Between ROE and High Returns

Posted on January 18, 2013 | Investor Update

A popular measure of profitability, return on equity (ROE), does not hold up well as a primary screening criterion for identifying stocks with potential upside.

The ratio divides net income by shareholder equity. It reveals how much profit a company is earning of off its net assets. The more effectively management uses the company’s resources, the higher ROE will be. It is said to be a favored indicator of Warren Buffett.

Given this, it would seem logical that ROE would be a useful ratio for identifying stocks likely to outperform in the future. Yet, ROE may work better as an indicator of risk than of potential return. This is the finding of two books: “What Works on Wall Street, Fourth Edition” by James O’Shaughnessy (McGraw-Hill, 2012) and “Quantitative Strategies for Achieving Alpha” by Richard Tortoriello (McGraw-Hill, 2008). Both authors say only stocks with ROE ratios ranking in the top 20% enjoyed clear outperformance.

What was more significant was the performance of the stocks with ROE ratios ranking in the bottom 20% of all companies. These companies lagged significantly. The margin of their underperformance was far greater than the margin by which companies ranking in the top quintile for ROE ratios outperformed. The average excess returns were -9.6% and 6.2%, respectively, according to Tortoriello. Using a different database and longer time period, O’Shaughnessy calculated average annual excess compound returns of -3.9% and 1.0% respectively.

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AAII Sentiment Survey: Optimism Stays Above 40% for Seventh Week

Posted on January 17, 2013 | AAII Survey

Even with a small decline in optimism, more than 40% of individual investors describe themselves as bullish in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 2.5 percentage points to 43.9%. This is the seventh time in eight weeks that optimism has been above 40%. The historical average is 39%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 2.1 percentage points to 28.7%. This is a four-week high. Even with the improvement, neutral sentiment remained below its historical average of 30.5% for the 14th consecutive week and the 16th time in 18 weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, edged up 0.4 percentage points to 27.3%. This is the first time since August 2012 that pessimism is below 30% on consecutive weeks. This is also the fifth time in six weeks week that bearish sentiment is below its historical average of 30.5%.

Sentiment about the short-term direction of stock prices shifted last November and we continue to see many individual investors express optimism. There is not one single event which caused this shift, but rather a combination of higher stock prices, monetary stimulus, continued economic growth and seasonality. It is important to note, however, that bullish and bearish sentiment remain well within their typical historical ranges. Thus, while individual investors are comparatively more optimistic, it would be a mistake to describe them as exuberant.

This week’s special question asked AAII members how the revised capital gains and dividend tax rates are impacting their short-term outlook. The overwhelming majority of respondents said the new legislation had no impact. Many respondents said they were below the top tax bracket, held their investments mostly in tax-deferred accounts or were long-term investors.

Here is a sampling of the responses:

  • “There was little change, so it doesn’t matter to me.”
  • “Very little to not at all. I am not in the highest income bracket that will be affected the most.”
  • “Not at all. We have ROTH IRAs.”
  • “Not as much as I thought. I took some capital gains last year, but it was not necessary.”
  • “At least we know what to expect, so it is a net positive.”

This week’s AAII Sentiment Survey

  • Bullish: 43.9%, down 2.5 percentage points
  • Neutral: 28.7%, up 2.1 percentage points
  • Bearish: 27.3%, up 0.4 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 30.6%
  • Bearish: 30.6%

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:

Upcoming Chapter Meeting: AAII Albuquerque

Posted on January 17, 2013 | Local Chapters

Date: Thursday, January 24, 2013
Topic: Wealth Engineering
Speaker: Timothy Bock, Founder/President, Summit Portfolio Management

This presentation will focus on Tim Bock’s approach to creating optimal ways of enhancing portfolio management. He will discuss what investment science tells us about risk and returns, psychological hazards to avoid, protecting yourself from fraud and how to analyze track records. He will also touch on active versus passive management of portfolios.

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Upcoming Chapter Meeting: AAII Twin Cities

Posted on January 17, 2013 | Local Chapters

Date: Thursday, January 24, 2013
Topic: Introduction to Stock Investor Pro
Speaker: Joe Lan, CFA, Assistant Financial Analyst, AAII

This presentation demonstrates the power of Stock Investor Pro, AAII’s fundamental stock screening and research database. An overview of the program will be provided, showing the key data available as well as the 60 stock screens that come pre-built with the software. Joe will offer insights into creating your own stock screens and taking full advantage of Stock Investor Pro’s reporting system.

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Upcoming Chapter Meeting: AAII Birmingham

Posted on January 17, 2013 | Local Chapters

Date: Thursday, January 24, 2013
Topic: All Things Buffett
Speaker: Andrew Kilpatrick, Financial Author

Andrew Kilpatrick is perhaps the best-known biographer of the well-known investor Warren Buffett. Several books about Buffett by Kilpatrick have been published, with the best-known being “Of Permanent Value” (AKPE 2006). Several versions are available and it is updated periodically. Kilpatrick will discuss the life and investment career of Buffett at his company, Berkshire Hathaway, and offer insights into some of the reasons for Buffett’s success.

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The December 2012 passing company lists and performance data is now available on-line

Posted on January 16, 2013 | Stock Screens

YTD Return of Top Performers: Piotroski: High F-Score 91.7% — Murphy Technology 42.3%

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January 2013 AAII Model Portfolios Updated

Posted on January 16, 2013 | Model Portfolios

1-Year Returns as of 12/31/12: AAII Fund Portfolio 15.5% — AAII Shadow Stock Portfolio 33.3%

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Upcoming Chapter Meeting: AAII Columbus

Posted on January 16, 2013 | Local Chapters

Date: Wednesday, January 23, 2013
Topic: Outlook for the Economy and Financial Markets
Speaker: Jim Coons, Principal, Coons Advisors

Jim Coons will review current economic and market conditions and explain his views on where both might head in the near term and long term. In addition, he will discuss portfolio management strategies for uncertain times.

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Sell of the week 1/16/2013

Posted on January 16, 2013 | Podcast

AAII Journal Editor Charles Rotblut Editor explains to Chuck Jaffe of MarketWatch why Herbalife (HLF) 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

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