Two Notable Mutual Fund Trends
Posted on February 6, 2014 | Investor Update
Yacktman Focused (YAFFX), a fund we recently deleted from the AAII Model Fund Portfolio, is one of a relatively small group of value-oriented mutual funds to close last year. When a mutual fund closes, it either stops accepting investment dollars from new investors or stops accepting any new investment dollars, be it from new or existing shareholders. Some funds may partially close by removing themselves from broker networks and requiring new investors to directly go through the fund. The latter is what the Sequoia Fund (SEQUX), which I own, did for a while before completing closing its doors to new investors at the end of last year.
No Tradable Signal From January’s First Five Days
Posted on January 9, 2014 | Investor Update
One indicator, the “First Five Days,” suggests the S&P 500’s full-year returns can be determined by how the index performs during the first five days of the year. If the first five days are positive, January’s returns will be positive and the calendar year will end with a 12-month gain. According to the Stock Trader’s Almanac, the last 40 up First Five Days were followed by full-year gains 34 times.
The Fed’s Shift in Policy, Plus RMDs
Posted on December 19, 2013 | Investor Update
The Federal Open Market Committee (FOMC) voted to shift its monetary policy yesterday. Monthly purchases of agency mortgage-backed securities and longer-term Treasury securities will each be reduced by $5 billion, to $35 billion and $40 billion, respectively. This tapering is significant in that it represents the beginning of the end of quantitative easing, but it is subtle in terms of the likely short-term impact on the economy.
Risk Is Not So Easily Defined
Posted on December 13, 2013 | Investor Update
Risk seems like a word that is easily definable. Certainly, in the world of finance, explaining what risk is should be fairly straightforward. In reality, defining risk is a bit like defining obscenity—a person knows it when he sees it.
The Merriam-Webster Unabridged Dictionary lists four definitions, and several qualifiers, for risk. They include “the possibility of loss, injury, disadvantage, or destruction,” “someone or something that creates or suggests a hazard or adverse chance” and “the product of the amount that may be lost and the probability of losing it.”
Are Quantitative Models a Better Strategy?
Posted on November 21, 2013 | Investor Update
In the middle, between passive (index) and active strategies, lie quantitative strategies. These strategies select stocks based on financial, valuation and momentum ratio analysis. Followers of quant strategies are not pure indexers, because they actively create models to identify and take advantage of market anomalies. They are not pure active managers, either, because they buy what their quantitative models tell them to buy.
One of the earliest proponents of using a quantitative approach was Benjamin Graham. Graham advocated buying stocks trading at low valuations. Though not traditionally viewed as a quant, Graham’s disciplined approach involved buying many stocks that exhibited large margins of safety.
Taking Action on Low Yields
Posted on November 14, 2013 | Investor Update
I invited a special guest for this week’s Investor Update: PIMCO’s Tony Crescenzi. Tony will give his outlook for the U.S. and global economy and the financial markets this Saturday at our Investor Conference. Ahead of his presentation, Tony wrote the following suggestions for coping with the current low-yield environment.
I remember well the excitement of opening my first savings account and receiving a passbook as a youth in the 1970s. As a novice yet eager saver, I took pride in seeing the numbers move ever higher, both from my deposits and from the “free” money that the bank was crediting my passbook with in the smudgy blue ink they used.
Start-Up Companies’ Not So Great Returns
Posted on November 7, 2013 | Investor Update
Today’s debut of Twitter (TWTR) as a public company adds to this year’s resurgent IPO market. As of the start of November, U.S.-listed initial public offerings totaled $49 billion (190 deals) year-to-date. Dealogic says this is the largest amount since 2007, when 230 IPOs worth $53 billion were completed during the same 10-month period.
The Changes I Made to My Portfolio
Posted on October 31, 2013 | Investor Update
Twice a year, I check my portfolio to see if any rebalancing needs to be done. I look at my allocations at the end of April and at the end of October to coincide with the start of the ‘worst six months’ (May through October) and the start of the ‘best six months’ (November through April). This week, I took the additional step of modifying the funds I hold in my 403(b) plan. (Since AAII is a nonprofit, our retirement plan falls under a different part of the tax code than 401(k) plans do.)
Two Ways to Lose Money
Posted on October 24, 2013 | Investor Update
The financial services industry seems to have an endless reserve of ideas for how to make money for itself at the expense of investors. Among the latest of these ideas are an investment in a football player and bonds paying coupon payments with additional bonds. Oh boy….
The Nobel Prize Winning Asset Price Theories
Posted on October 17, 2013 | Investor Update
The predictability of asset price movements was the theme of this year’s Nobel Prize in Economic Sciences. By awarding it to Eugene Fama, Robert Shiller and Lars Peter Hansen, the committee acknowledged the debate as to whether security prices are efficiently priced. It also recognized two men often viewed as being at different sides of the debate about market efficiency: Fama and Shiller. Most importantly, the lessons behind this year’s award have practical applications for individual investors.