The Cloud of Interest Rate Uncertainty

Posted on June 20, 2013 | Investor Update

Uncertainty over interest rates remains a short-term problem for the financial markets.

Yesterday’s Federal Open Market Committee (FOMC) statement failed to calm the nerves of traders. Though traders were looking for more clarity, the June meeting statement only contained two notable changes from the May meeting statement. The committee altered its assessment of economic and labor market downside risks to “having diminished,” from continuing to see those risks. The second change was the dissension of St. Louis Fed president James Bullard. Bullard thought a stronger defense of the committee’s willingness to defend its inflation target was needed.

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Streaks, Observations and Notes

Posted on June 6, 2013 | Investor Update

I have a few observations and notes to share with you this week. None long enough to warrant their own weekly update, but still worthy of mention.

The first is the streak of winning Tuesdays. Until two days ago, the Dow Jones industrial average rose on 20 consecutive Tuesdays. According to Bespoke Investment Group, this was the longest such streak since at least 1900. It may be the longest such streak ever.

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Focus on the Fundamentals, not the Story

Posted on May 30, 2013 | Investor Update

Every so often a stock with a good story catches the eyes of traders and experiences a price spike in response. Tesla Motors (TSLA) is currently that stock. Since the end of April, shares of Tesla have approximately doubled in price, soaring from $53.99 on April 30, 2013, to $104.95 today. When hoopla such as this occurs, it is easy to forget that good stories do not always result in good investments.

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Be Careful About What You Invest In

Posted on May 23, 2013 | Investor Update

I want to start with a short comment about Japan before moving onto the main subject of this week’s newsletter. As you probably heard, the Topix index plunged almost 7% today, the biggest drop since 2011’s earthquake and resulting tsunami. According to both Bespoke Investment Group and James Mackintosh of The Financial Times, this was also just the ninth time in the past 50 years that the Nikkei has fallen by more than 7% on a single day. (The Nikkei encompasses 225 stocks; the Topix tracks about 1,700.)

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Why You May Not Want to Go Away

Posted on May 16, 2013 | Investor Update

Take the money and run or keep your allocation to stocks?

I’m sure this is a question many of you have. The market has had a good run so far this year, with the S&P 500 gaining 17.3% on a total-return basis through yesterday’s close, despite a long list of worries. Then there is the old adage of “sell in May and go away.” But, Mr. Market remains in a chipper mood as is evident by the new record closes continually being set by the Dow Jones industrial average and the S&P 500.

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New Junk Bond Record, But Risks Remain

Posted on May 9, 2013 | Investor Update

The quest for higher yields is going to end badly for some investors. There is new evidence that some investors are ignoring risks in exchange for quenching their thirst for income.

The latest is junk bonds. Yesterday, the yield of the Barclays US High Yield Index fell to a new record low of 4.96%. It broke the 5% level for the first time in its entire 30-year history on Tuesday. Barron’s noted that prior to this past January, the index’s yield had never fallen below 6%.

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The Downsides of 401(k) Plans

Posted on May 2, 2013 | Investor Update

A recent episode of the PBS program Frontline focused on 401(k) plans. Entitled “The Retirement Gamble,” the program discussed both the risks and the costs of retirement saving plans.

A 401(k) plan is a defined-contribution plan: employers can choose to contribute a specified amount to the employee’s savings. In contrast, a pension is a defined-benefit plan: employers agree to provide a specified level of income throughout an employee’s retirement.

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Why I Don’t Use Stop Orders

Posted on April 25, 2013 | Investor Update

I don’t use stop orders. (Most commonly, these are standing orders to sell a stock if it falls below a specified price.) My avoidance of them has nothing to do with my investing style, but rather because of the influence that software code has on intraday moves of the market. Tuesday’s events give an example of why I think human intervention should remain a critical part of any buy or sell decision.

As you may have heard, hackers hijacked The Associated Press’ Twitter account. The hackers then sent out a tweet at 1:07 ET Tuesday afternoon reporting an explosion at the White House and an injury to President Barack Obama. The reaction in the market was swift, with the S&P 500 falling by nearly 1% over the next three minutes following the tweet.

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The AAII Portfolios

Posted on April 18, 2013 | Investor Update

I am often asked about our model portfolios. Specifically, what are the differences among them and how does an investor go about following them? I’ll provide a brief overview in this week’s newsletter.

AAII developed a number of model portfolios to educate our members on how to construct and manage stock and mutual fund portfolios. We currently operate four model portfolios: the Model Shadow Stock Portfolio, the Model Fund Portfolio, the Stock Superstars Report and AAII Dividend Investing. All of the AAII portfolios are tracked with real-money investments made through a discount brokerage firm. The performance we report is net of all transaction costs.

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The Shrinking Dividend Yield

Posted on April 11, 2013 | Investor Update

One consequence of the market’s ongoing rally has been shrinking dividend yields. The Dow Jones U.S. Index (IYY), an exchange-traded fund that tracks the largest 1,200 domestic stocks, yielded just 1.9% at the end of last week. Within the slightly broader S&P Supercomposite 1500 index, just 263 members traded with yields above 3.0%.

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