September Monthly Report, and Surprise ECB Rate Cut
Posted on September 5, 2014 | Dividend Investing
The new September monthly report is now online. In it, we discuss why we look at both relative and absolute valuations when analyzing a stock. We also explain what cash from financing is and why you should care.
No changes were made to the DI portfolio, due to a lack of acceptable candidates. The DI tracking portfolio’s cash position, though still small relative to the overall size of the portfolio, is growing. Next month, we will consider reinvesting in one or more of our existing holdings if no new stocks appear on our radar screen.
Jobs Report Causes Market Uncertainty
Posted on September 5, 2014 | Stock Superstars Report
A short week did nothing to stop the indexes from hitting new highs, although the range was quite tight. On each of the four days of the week, new highs were reached. The jobs report released on Friday morning was a negative surprise, with only 142,000 jobs created versus expectations of 228,000 jobs created.
In Investing, Simpler Can Often Be Better
Posted on September 4, 2014 | Investor Update
The financial industry loves complexity. There is an ever-growing number of computerized models designed to maximize the returns from securities and optimize portfolio allocations, among other things (including executing trades faster). This complexity has led to new research, new strategies and new products.
Complexity can lead to unintended consequences, however. We saw this in 1998, when hedge fund Long-Term Capital Management imploded. We saw it again during the last financial crisis. Wall Street’s process of stripping and repackaging mortgage loans resulted in securities that looked good on a spreadsheet, but were disastrous in a portfolio.
Complexity also exists at the individual investor level. The investment industry is currently pitching alternative funds designed to follow hedge fund-like strategies. The strategies used by these funds often are not easy to understand (even by the advisers selling them). Complexity even exists at the stock selection level, where it is very possible for a strategy to be misunderstood by all but a small group of investors.
What is complex to one person may seem simple to another. Answering three questions can determine whether a strategy is too complex for you: Do you understand what the strategy is designed to look for? Can you easily follow the strategy? Do you understand what its potential risks are? If you cannot answer yes to these questions, then the strategy may not be right for you. At the very least, you need to learn more about the strategy before proceeding.
Ratio Analysis in Stock Investor Pro
Posted on September 4, 2014 | Stock Investor Pro
Companies of interest can be identified through a variety of methods in Stock Investor Pro. Once you have a company that you are interested in, you can use ratio analysis to dig deeper into the company’s fundamentals to make judgments about its profitability. In this month’s Stock Investor News, we discuss some common financial ratios and demonstrate how to use SI Pro to view and compare these ratios and print out a ratio analysis report.
AAII WEEKLY FEATURES 9/2/2014
Posted on September 4, 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.
Many AAII Members Comfortable With Prevailing Stock Valuations
Posted on September 4, 2014 | AAII Survey
This week’s special question asked AAII members how comfortable they are with the valuations of the stocks they currently hold. Half of all respondents said they are comfortable with current valuations. Some of these respondents described valuations as being elevated, but not too high. Others described valuations as being acceptable. An additional 5% of respondents said they were very comfortable with current valuations. At the other end of the spectrum, more than 18% of respondents described themselves as not being comfortable. Many of these respondents said valuations are too high.
Here is sampling of the responses:
- “Valuations are at the high end of normal, but overall, I feel comfortable with where valuations are.”
- “I’m comfortable only because I’m buying quality companies.”
- “I think valuations are too high.”
- “I’m not comfortable, but there are not good alternatives.”
- “I am very comfortable as I believe the stocks I’m investing in are fairly valued, if not undervalued.”
AAII Sentiment Survey: Optimism Pulls Back from Recent High
Posted on September 4, 2014 | AAII Survey
Optimism among individual investors about the short-term direction of the stock market pulled back, but remained above average, in the latest AAII Sentiment Survey. Bullish sentiment is now at a three-week low, while both neutral sentiment and bearish sentiment are at three-week highs.
Bullish sentiment, expectations that stock prices will rise over the next six months, fell 7.2 percentage points to 44.7%. Even with the drop, optimism remains above its historical average of 39.0% for the fourth consecutive week.
Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 2.5 percentage points to 31.4%. The increase puts neutral sentiment back above its historical average of 30.5% for the first time in three weeks.
Bearish sentiment, expectations that stock prices will fall over the next six months, rose by 4.7 points to 24.0%. The increase was not large enough to keep pessimism from staying below its historical average of 30.5% for the 41st time in the past 47 weeks.
A reversion to the mean occurred this week, with bullish sentiment pulling back from an unusually high level and bearish sentiment rebounding from an unusually low level. Even with the shift, it is important to realize that optimism is still nearly six percentage points above its historical average and pessimism is more than six percentage points below its historical average.
Keeping many individual investors optimistic about the short-term direction of stock prices are the S&P 500′s rise above 2,000, earnings growth, sustained economic expansion and the Federal Reserve’s tapering of bond purchases. Causing other AAII members to be pessimistic are prevailing valuations, the failure of the S&P 500 to set new highs, events in the Middle East and Ukraine, the pace of economic growth and Washington politics.
This week’s AAII Sentiment Survey results:
- Bullish: 44.7%, down 7.2 percentage points
- Neutral: 31.4%, up 2.5 percentage points
- Bearish: 24.0%, up 4.7 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.
Sell OF THE WEEK 9/3/2014
Posted on September 3, 2014 | Podcast
AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Intuit Inc. (INTU) 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
BUY OF THE WEEK 9/2/2014
Posted on September 3, 2014 | Podcast
AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Foot Locker, Inc. (FL) 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
August AAII Asset Allocation Survey: Rising Optimism Not Altering Portfolios
Posted on September 2, 2014 | AAII Survey
Portfolio allocations among individual investors were largely unchanged last month even as optimism about the short-term direction of stock prices swelled. The August AAII Asset Allocation Survey revealed only minor changes in equity, fixed-income and cash allocations relative to July.
Stock and stock fund allocations declined 0.2 percentage points to 67.3%. This is the 17th consecutive month and the 19th out of the past 20 months with equity allocations above their historical average of 60%.
Bond and bond fund allocations declined 0.1 percentage points to 16.6%. The historical average is 16%.
Cash allocations rose 0.2 percentage points to 16.0%. Even with the slight increase, cash allocations are at their third-lowest level since March 2000 (15%). August was the 33rd consecutive month with cash allocations below their historical average of 24%.
The 21-percentage-point rise in optimism towards stocks registered by our Sentiment Survey last month did not translate into higher equity allocations. This said, equity allocations were at their highest levels of the year in July, and August’s allocations were very close to that level. Fixed-income allocations also remain close to their 2014 highs as low yields have boosted bond prices. Cash allocations remain low as prevailing yields make the asset class look unattractive except to those investors who require cash reserves or expect market conditions to worsen.
August Asset Allocation Survey results:
- Stocks and Stock Funds: 67.3%, down 0.2 percentage points
- Bonds and Bond Funds: 16.6%, down 0.1 percentage points
- Cash: 16.0%, up 0.2 percentage points
August Asset Allocation Survey details:
- Stocks: 31.24%, down 2.1 percentage points
- Stock Funds: 36.1%, up 1.9 percentage points
- Bonds: 3.0%, down 0.2 percentage points
- Bond Funds: 13.6%, up 0.1 percentage points
- Stocks/Stock Funds: 60%
- Bonds/Bond Funds: 16%
- Cash: 24%
*The numbers are rounded and may not add up to 100%.
The AAII Asset Allocation Survey has been conducted monthly since November 1987 and asks AAII members what percentage of their portfolios are allocated to stocks, stock funds, bonds, bond funds and cash. The survey and its results are available online at: http://www.aaii.com/investor-surveys.