September 2014 AAII MODEL PORTFOLIOS UPDATED – Race to the Top

Posted on September 15, 2014 | Model Portfolios

The S&P 500 index climbed 4.0% in August, pushing past any resistance to trade at new all-time highs. Eventually, the bears will be right and there will be a pullback, but it hasn’t happened yet. While global worries ranging from war in Ukraine, Syria and Iraq to a possible European Union recession continued to dominate headlines last month, these concerns didn’t slow down the indexes like they did in July. Data continued to point to a slowly strengthening economy, and with Fed chair Janet Yellen insisting that the Federal Reserve is in no rush to raise interest rates, the market’s climb had little to oppose it. Earnings were overall better than expected and supported the story of a strengthening economy. The positive momentum carried over to both the Model Shadow Stock Portfolio and the Model Fund Portfolio, although only the Model Shadow Stock Portfolio beat its benchmark in August. The Model Fund Portfolio was up 3.6% for the month, while the Model Shadow Stock Portfolio, which concentrates on small-cap stocks, rose 6.4%. The Model Shadow Stock Portfolio can experience greater short-term volatilities because it is made up of stocks trading in the “shadows” of Wall Street, and are therefore more likely to be mispriced. While there may be negative periods in such a portfolio, over time the portfolio tends to significantly outperform the S&P 500. Short-term volatility is the price to be paid for higher long-term expected returns. While in July this worked against the Model Shadow Stock Portfolio, in August it turned in the portfolio’s favor.

Read more »

Does Social Investing Generate Higher Returns?

Posted on September 15, 2014 | Financial Planning


Socially responsible investments have attracted much money, many investors, and many studies. We have studies of socially responsible mutual funds, socially responsible indexes, “sin” stocks, stocks with good and bad environmental records, and stocks with good and bad employee relations. But some parts of our knowledge are inconsistent with other parts and some gaps in our knowledge remain.

The Social Investment Forum, a national nonprofit organization promoting the concept, practice, and growth of socially responsible investing, describes socially responsible investing as “an investment process that considers the social and environmental consequences of investments, both positive and negative, within the context of rigorous financial analysis.”

Screening is the most prevalent form of socially responsible investing, followed by shareholder advocacy and community investing. Negative screening excludes or reduces the portfolio weights of companies with weak environmental, social, or governance records, and positive screening includes or increases the portfolio weights of companies with strong records.

Negative screens that exclude tobacco companies have been the most popular screens among socially responsible mutual funds, followed by screens that exclude companies associated with alcohol, gambling, and weapons. Negative and positive screens related to community relations come next in popularity, followed by screens related to the environment, labor relations, products and services, and equal employment.

Read more »


Posted on September 12, 2014 | Asset Allocation


Large-Cap Stocks: 25.04%
Mid-Cap Stocks: 22.75%
Small-Cap Stocks: 22.06%
International Stocks: 16.27%
Emerging Markets Stocks: 22.29%

Read more »

Total Returns Are Nice, but We Prefer Dividend Yields

Posted on September 12, 2014 | Dividend Investing

Last weekend, Barron’s ran an article about total yield, which encompasses dividends and share buybacks.

Buyback yield quantifies the impact of stock repurchases at the share ownership level. In our Stock Investor Pro stock screening program, we calculate the buyback yield as the change in share count for the current period versus the past period. For example, if a stock had 90 million average shares outstanding in the second quarter of 2014 and had 100 million average shares outstanding in the second quarter of 2013, the buyback yield would be 10%.

Read more »

Buckle Up, It’s FOMC Time

Posted on September 12, 2014 | Stock Superstars Report

The first full week of work in the fall added little to the big picture as the market hovered near all-time highs. Stocks fell for the week, snapping a five-week advance. Treasuries fell for the seventh straight day.

Jobless claims were slightly worse than expected, but this tends to be a volatile number so investors shouldn’t put too much stock into it. Consumer sentiment hit its strongest level in more than a year, while retail sales were in line with expectations. The data continued to point to an economy that is improving, albeit at an unhurried pace.

Read more »

AAII Sentiment Survey: Optimism Declines, but Stays Above Average

Posted on September 11, 2014 | AAII Survey

Optimism among individual investors about the short-term direction of the market declined for a second week in the latest AAII Sentiment Survey. Even with the pullback, bullish sentiment is above average for the fifth consecutive week, the longest such streak since February 13 through March 13, 2014.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 4.3 percentage points to 40.4%. The historical average is 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.7 percentage points to 33.0%. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose by 2.6 points to 26.6%. Even with the increase, pessimism is below its historical average of 30.5% for the 42nd time in the past 48 weeks.

Bullish sentiment has declined by a cumulative 11.5 percentage points since nearly reaching 52% two weeks ago. The pullback represents a reversion to the mean following the unusually high level of optimism (bullish sentiment has only exceeded 50% four times since February 2011). This week’s reading is also likely somewhat influenced by the S&P 500’s recent inability to stay above 2,000.  It is worth noting that in the backdrop of the recent decline in bullish sentiment, pessimism remains below average.

Keeping many individual investors optimistic about the short-term direction of stock prices is the S&P 500’s overall upward momentum, 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:

  • Bullish: 40.4%, down 4.3 percentage points
  • Neutral: 33.0%, up 1.7 percentage points
  • Bearish: 26.6%, up 2.6 percentage points

Historical averages:

  • 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:

Federal Reserve’s Tapering Has Little Impact on Investor Attitudes

Posted on September 11, 2014 | AAII Survey

This week’s AAII Sentiment Survey special question asked AAII members how the Federal Reserve’s ongoing tapering of bond purchases is impacting their six-month outlook for stock prices. Slightly more than half of all respondents (51%) said the tapering is not having any impact. Several of them (accounting for about 10% of all respondents) believe the market has already priced in the gradual ending of bond purchases by the central bank. About 17% thought the ending of quantitative easing is a negative or could lead to either additional volatility or a correction. An additional 8% said the ending of bond purchases and potential rise in interest rates is causing them to become more cautious or view stocks less favorably. At the other end of the spectrum, six percent of respondents view the tapering as a positive for the stock market.

Here is a sampling of the responses:

  • “Old news, it should not affect the stock market.”
  • “Not at all. I am looking forward to the end of tapering and the gradual increase in interest rates to get us back to a normal state.”
  • “The ongoing tapering has already been figured in by the market and will have no impact on my forecast whatsoever.”
  • “Once the reality of higher rates sets in, it will increase volatility and either flatten or lower stock prices.”
  • “I find it generally encouraging. The economy must be getting better for the Fed to taper.”

An Inside Look at Exchange-Traded Funds

Posted on September 10, 2014 | AAII Journal

Exchange-traded funds (ETFs) have been one of the most successful financial innovations in recent years.

Since the introduction of ETFs in the early 1990s, demand for these funds has grown markedly in the United States, as both institutional and individual investors have increasingly found their features appealing.

Read more »

Sell OF THE WEEK 9/10/2014

Posted on September 10, 2014 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Stephan Company (SCL) 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


Posted on September 9, 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.

Read more »

« Newer EntriesOlder Entries »