DIVIDEND INVESTING ALERT FOR THE WEEK ENDING 2/14/2014
Posted on February 14, 2014 | Dividend Investing
A subscriber called us this week asking about when we purchase stocks for the DI tracking portfolio and when he should buy them as well. In the DI User’s Guide, we suggest acting on portfolio addition and deletion alerts reasonably quickly, within a week of when an addition or a deletion is announced.
Upcoming Chapter Meeting: AAII Southwest Florida
Posted on February 13, 2014 | Local Chapters
Date: Thursday, February 20, 2014
Topic: Do the Strategies of Investing Legends Still Work in Today’s Market?
Speaker: John P. Reese, CEO and Founder, Validea.com and Validea Capital Management, LLC
There are a handful of legendary investors whose performance and stock-picking ability are unprecedented. Ben Graham, Peter Lynch, Warren Buffett, David Dreman, John Neff and James O’Shaughnessy are just a few of them. These individuals have either outstanding long-term track records or have developed outperforming strategies through extensive historical testing. John Reese will discuss how using proven stock-picking strategies from history’s most successful investors still works in today’s market.
Finding Winners in Last Year’s Bargain Bin
Posted on February 13, 2014 | Investor Update
One of the most-cited value investing studies says stocks with low price-to-book ratios outperform stocks with high price-to-book ratios. Investment firm GMO’s Ben Inker says the study’s findings still hold, but work better when a one-year lag is used.
In “The Cross-Section of Expected Stock Returns” (The Journal of Finance, June 1992), Eugene Fama and Kenneth French published data showing an inverse relationship between returns and valuations. Average monthly returns ranged from 0.30% for the decile composed of stocks with the highest price-to-book (P/B) ratios to 1.83% for the decile composed of the lowest P/B ratio stocks. Fama and French calculated average returns for the period of July 1963 through December 1990 for their study.
Inker updated the data and shared his findings in the February 2014 GMO Quarterly Letter. He concluded: “If we just look at traditional value for stock selection—good old price/book as enshrined by Fama and French—the cheapest 10% of the market has outperformed the broad market by 2.5% per year since 1965. Sounds fine, but since the original Fama/French paper was published in 1992, the group has actually underperformed by 1.6% per year. The same group lagged one year outperformed by 3.5% per year since 1965, and since 1992 has outperformed by 2% per year. You can see similar patterns in sectors as well. In most cases lagged value either works better than portfolios based on current data or works almost as well.”
What Inker is referring to is buying the stocks whose P/B ratios ranked in the bottom decile one year ago (stocks whose valuations were lower than 90% of all other stocks last year), instead of buying those stocks that now appear in the bottom decile. His rationale for doing so is based on momentum. A stock becomes very cheap because of selling pressure (downward momentum), and the selling pressure may continue for a while. By using lagged valuation data, an investor allows time for the downward momentum to end.
AAII Sentiment Survey: Bullish Sentiment Rebounds Strongly
Posted on February 13, 2014 | AAII Survey
Bullish sentiment rebounded strongly in the latest AAII Sentiment Survey. The 12.3 percentage point rise was the largest since a 12.9 percentage point rebound on November 28, 2013. Accompanying the increase in optimism was the largest weekly drop in pessimism since August 29, 2013.
Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 12.3 percentage points to 40.1%. This is a five-week high. The historical average is 39.0%.
Neutral sentiment, expectations that stock prices will stay essentially unchanged, declined 3.2 percentage points to 32.5%. This is a five-week low. Even with the decline, neutral sentiment remains above its historical average of 30.5% for the sixth consecutive week.
Bearish sentiment, expectations that stock prices will fall over the next six months, fell 9.1 percentage points to 27.3%. The drop reverses two consecutive weeks with readings above 30% and puts pessimism below its historical average for the 19th time in the past 23 weeks.
Though the proportion of bulls increased significantly in this week’s survey, it’s worth noting that optimism remains below the levels registered at the start of this year. Furthermore, the current six-week streak of consecutive above-average neutral sentiment readings is the longest since last summer’s 12-week streak (May 30 through August 15, 2013).
The rebound in the S&P 500 after its recent pullback has likely alleviated concerns, at least temporarily, among individual investors about whether the market established a short-term top at the start of the year and whether a correction is looming. Sustained earnings and economic growth, Federal Reserve Chairman Janet Yellen’s intent to continue tapering bond purchases and the debt ceiling agreement are also contributing to the optimistic six-month outlook. Keeping some individual investors bearish are worries that the market’s weakness is not over, elevated stock valuations, the pace of revenue growth and Washington politics.
This week’s special question asked AAII members how fourth-quarter earnings have impacted their six-month outlook for stock prices. Approximately 46% of respondents said the recent earnings reports did not alter their short-term outlook. Several said this was because earnings were largely met their expectations, while some others said other factors are having a bigger influence on their outlook. About 11% said they are more bearish because of earnings and an additional 9% said they have tempered their outlook after looking at the profit figures. Some of these respondents cited disappointing reports or a lack of revenue growth. A small group, 6% of respondents, said earnings season has made them more bullish.
Here is a sampling of the responses:
- “Recent earnings are generally as expected.”
- “They have not. Other factors took precedent.”
- “Yes. Many companies I follow had slightly improved earnings.”
- “They have added to other news that together has reduced my outlook from positive to neutral.”
- “Earnings disappointments and expectations for lower earnings have caused me to pull back my exposure to the stock market.”
This week’s AAII Sentiment Survey results:
- Bullish: 40.1%, up 12.3 percentage points
- Neutral: 32.5%, down 3.2 percentage points
- Bearish: 27.3%, down 9.1 percentage points
- 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: http://www.aaii.com/sentimentsurvey
Upcoming Chapter Meeting: AAII Central Florida
Posted on February 12, 2014 | Local Chapters
Date: Wednesday, February 19, 2014
Topic: Strategies for Pursuing Your Retirement Paycheck
Speaker: Christine Benz, Director of Personal Finance, Morningstar Inc.; Senior Columnist, Morningstar.com
Morningstar’s director of personal finance, Christine Benz, will discuss how the retirement landscape has changed over the last 30 years and the challenges that current and future retirees face as a result, including the disappearing traditional pension and historically low interest rates. She’ll then share her recommendations for how to deal with these challenges by using the “bucket” approach to retirement portfolio planning.
Sell OF THE WEEK 2/12/2014
Posted on February 12, 2014 | Podcast
AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Kansas City Southern (KSU) 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
AAII WEEKLY FEATURES 2/11/2014
Posted on February 11, 2014 | Weekly Features
This week’s AAII Weekly Features has been updated.
View this week’s Top AAII Articles, Featured Stock Screen and Member Question.
BUY OF THE WEEK 2/11/2014
Posted on February 11, 2014 | Podcast
AAII Journal Editor Charles Rotblut Editor explains to Chuck Jaffe of MarketWatch why American Vanguard (AVD) 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
Upcoming Chapter Meeting: AAII Los Angeles
Posted on February 8, 2014 | Local Chapters
Date: Saturday, February 15, 2014
Topic: Hard Times Mean Easy Money is Here to Stay
Speaker: Cullen Roche, Founder, Orcam Financial Group
In this presentation, Cullen Roche will bring a thorough perspective on quantitative easing (QE), how the program functions at an operational level and what we can expect in the future. He will explain QE’s monetary transmission mechanism and how its effects ripple through the economy, as well as the behavioral effects of QE and the many myths revolving around its implementation and efficacy. Roche will also lay out potential effects of tapering on various asset classes and the global economy, and show to construct a macro-oriented portfolio using his concept of a “Total Portfolio.”
DIVIDEND INVESTING ALERT FOR THE WEEK ENDING 2/7/2014
Posted on February 7, 2014 | Dividend Investing
Betting the farm with our new stock.