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.

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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.

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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.

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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.)

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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….

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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.

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The Fiscal Standoff and Smart Beta Strategies

Posted on October 10, 2013 | Investor Update

Mr. Market has so far kept a stiff upper lip in the face of the current fiscal policy debacle. The S&P 500 has only fallen modestly over the past few weeks, and prior to today’s bounce. The benchmark 10-year Treasury note’s yield remains notably below its early September highs. The relative calm displayed in the U.S. markets is occurring even as the federal debt ceiling may be hit seven days from now.

It is always difficult to draw a precise conclusion of what Mr. Market is telling us, and there have been some signs of shaky knees. The VIX, a measure of volatility, recently jumped to levels not seen since last June. Domestic equity mutual funds collectively incurred an estimated $4.1 billion in outflows last week, according to the Investment Company Institute. The last time estimated outflows were anywhere near this range was at the start of last May.

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Investing Lessons from BlackBerry

Posted on September 26, 2013 | Investor Update

A funny thing happened this week. As I was about to tape my “Sell of the Week” for Chuck Jaffe’s Your Money Life podcast on Monday afternoon, trading in BlackBerry Ltd. (BBRY) was halted. Since neither Chuck nor I knew what was going on right at that minute, we postponed taping. As we now know, an acquisition offer was made for the Canadian smartphone maker.

I bring this up because BlackBerry is a great case study for investors. The company realized revenue growth of 33.1% and net income growth of 38.8% in fiscal 2011. (The company’s fiscal years run from March through February.) Last week, BlackBerry warned that fiscal second-quarter revenues would be down by approximately 45% from a year prior. The company also anticipated recognizing a net operating loss of nearly $1 billion, primarily reflecting a massive writedown of inventory.

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It’s The Simple Things That Matter

Posted on September 19, 2013 | Investor Update

I have a suggestion that will significantly impact your wealth: Focus on the simple things.

It’s easy to get caught up in the pursuit of beating the market. Forecasts about what the market is going to do, tactical asset allocation strategies to help you avoid down markets and advanced methodologies for stock selection all sound appealing, but there are actions you can take that will have a far greater impact on your long-term wealth and what you pass on to your heirs (or preferred charity).

If it sounds a bit odd, remember that the investment industry doesn’t make much money off of the simple things. Getting you to trade more often, switch brokerage firms, sign up for seminars, buy the latest fund incarnation and the like make the industry’s cash register ring. Your success is very much dependent on your ability to hit the mute button and not be distracted by whatever the investment industry can conjure up.

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The Dow’s Changes Make Sense

Posted on September 12, 2013 | Investor Update

It’s not often a change is made to the Dow Jones industrial average, and it’s even rarer to see three out of the 30 components replaced. This is what makes Tuesday’s announcement interesting. Goldman Sachs (GS), Visa (V) and Nike (NKE) will replace Bank of America (BAC), Hewlett-Packard (HPQ) and Alcoa (AA) after the close of trading on September 20, 2013. This is the first time three stocks have been replaced in the average since April 2004.

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