Sell OF THE WEEK 11/5/2014

Posted on November 5, 2014 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Skyworks Solutions, Inc. (SWKS) 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 11/4/2014

Posted on November 4, 2014 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Edwards Lifesciences Corp (EW) 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


Posted on November 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.

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Small-Cap Underperformance Spurs Members to Stay Steady

Posted on November 3, 2014 | AAII Survey

The special question in October’s Asset Allocation Survey asked AAII members what, if any, changes they made to their small-cap stock allocations given the relative underperformance of small-cap equities this year. Nearly half of all respondents (47%) said they have not made any changes. Some of these AAII members said they don’t own small-cap stocks, while others said they have been maintaining their current allocations. Slightly more than a quarter of all respondents (26%) said they sold all or part of their small-cap holdings. About 21% of respondents said they have either increased their small-cap stock allocations or plan to do so.

Here is a sampling of the responses:

  • “None. I generally do not do small-cap.”
  • “None. I’m keeping my asset allocation the same.”
  • “No changes. I will be likely to buy even more if they continue to drop and the prices become attractive.”
  • “I purchased more positions during the mini-correction of October.”
  • “Earlier in the year, I lightened up on small caps.”

October AAII Asset Allocation Survey: Equity Allocations Decline to 14-Month Low

Posted on November 3, 2014 | AAII Survey

Equity allocations among individual investors fell to a 14-month low, according to the October AAII Asset Allocation Survey. Bond allocations rose to levels not seen since last November, while cash allocations rose for the third consecutive month.

Stock and stock fund allocations fell by 2.6 percentage points to 64.1%. This is the smallest equity allocation since August 2014. Even with the decline, stock and stock fund allocations remained above their historical average of 60% for the 19th consecutive month and the 21st out of the past 22 months.

Bond and bond fund allocations increased 0.4 percentage points to 17.2%. This is an 11-month low. It is also the fourth consecutive month with fixed-income allocations above their historical average of 16%.

Cash allocations rose 2.1 percentage points to 18.7%, a five-month high. Even with the increase, October was the 35th consecutive month with cash allocations below their historical average of 24%.

Even though optimism about the short-term direction for stock prices increased in our weekly Sentiment Survey, many AAII members reduced their allocations to individual stocks last month. Differences in the composition of who took the respective surveys and the date at which they took the surveys may explain some of the differences between the results. Nonetheless, the overall decline in equity allocations suggests that some individual investors sought to reduce risk in reaction to the downward volatility that occurred last month.

October AAII Asset Allocation Survey results:

  • Stocks Total: 64.1%, down 2.6 percentage points
  • Bonds Total: 17.2%, up 0.5 percentage points
  • Cash: 18.7%, up 2.1 percentage points

October AAII Asset Allocation Survey details:

  • Stocks: 30.2%, down 3.7 percentage points
  • Stock Funds: 33.9%, up 1.2 percentage points
  • Bonds: 3.9%, down 0.2 percentage points
  • Bond Funds: 13.3%, up 0.7 percentage points

Historical Averages:

  • 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:

Keeping the Bears at Bay

Posted on October 31, 2014 | Stock Superstars Report

The November SSR Monthly Report is now available at the SSR website. There is one new portfolio deletion and one new portfolio addition to announce.

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Waving Goodbye to Quantitative Easing in the U.S.

Posted on October 31, 2014 | Dividend Investing

The Federal Open Market Committee voted to end its asset purchase program, or QE3 (quantitative easing 3) as the financial industry folks like to call it. It’s not the full end to monetary stimulus, however. The Federal Reserve will continue to reinvest principal payments, meaning the early repayment of bonds it currently holds. Interest rates will be kept at rock-bottom low levels too.

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I Rebalanced My Portfolio

Posted on October 30, 2014 | Investor Update


I rebalanced my portfolio, or more specifically my 403(b) retirement savings account, this week. The change was made after I conducted my semiannual review. The changes offer some insight into how various asset classes have performed and how I personally manage my portfolio allocations.

Our 403(b) plan, which is the equivalent of a 401(k) plan, is operated through Vanguard. In it, I hold five funds: Vanguard 500 Index Fund (VFINX), Vanguard Small-Cap Value Index Fund (VISVX), Vanguard REIT Index Fund (VGSIX), Vanguard FTSE All-World ex-U.S. Small-Cap Index Fund (VFSVX) and the Vanguard Intermediate-Term Investment-Grade Fund (VFICX). The 500 index fund gives me access to what is arguably the most frequently used benchmark. The domestic small-cap value fund takes advantage of two factors shown to lead to higher returns: value and small company size. The FTSE small-cap fund gives me diversification via international small-cap stocks. Real estate investment trusts (REITs) have had similar long-term returns as small-cap stocks, tend to offer diversification benefits over longer periods of time and are one of the few asset classes to have a higher correlation to inflation. The bond fund provides diversification, buffers the portfolio against volatility and serves as a counter-weight I can rebalance into during bull markets for stocks and out of during bear markets for stocks. (I gave a longer explanation of my allocation, as well as the corresponding Admiral Share mutual fund and exchange-traded fund (ETF) tickers, last year. Vanguard will not allow us to hold the less expensive Admiral Share class funds in our accounts regardless of how much we have saved.)

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Chocolate Dominates AAII Members’ Halloween Candy

Posted on October 30, 2014 | Uncategorized

This week’s special question asked AAII members what type of candy they will be giving out to trick-or-treaters tomorrow night, Halloween. Just under 40% of respondents said they will give out an assortment of chocolate, candy bars or other candies. Snickers will be the treats offered by about 14% of respondents. Nearly 7% will pass out lollipops or Tootsie Roll Pops. A little more than 20% said they won’t be handing out candy, primarily because they are not expecting any children to stop by tomorrow night.

AAII Sentiment Survey: Optimism Stays Near 50%

Posted on October 30, 2014 | AAII Survey

Optimism remained near 50% as many individual investors are encouraged about the short-term outlook for stock prices, according to the latest AAII Sentiment Survey. Neutral sentiment rose this week, while pessimism declined further.

Bullish sentiment, expectations that stock prices will rise over the next six months, declined 0.3 percentage points to 49.4%. Optimism is above its historical average of 39.0% for the fourth consecutive week and the 11th out of the past 12 weeks.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 1.7 percentage points to 29.6%. Even with the increase, neutral sentiment remains below its historical average of 30.5% for the fifth time in the past six weeks.

Bearish sentiment, expectations that stock prices will fall over the next six months, declined by 1.4 percentage points to 21.1%. This week’s decline puts pessimism at a nine-week low and brings the two-week drop to a cumulative 12.6 percentage points. The historical average is 30.5%.

Bullish sentiment is above 49% on consecutive weeks for the first time since February 3 and February 10, 2011. Even with this week’s decline, optimism remains at unusually high levels (more than one standard deviation above average). Past readings of unusually high optimism have typically been followed by lower-than-average levels of market gains, as I explained in the June 2014 AAII Journal.

Bearish sentiment is near the bottom of its typical range. A drop below 20.5% would put bearish sentiment at an unusually low level (more than one standard deviation below average). In the past, unusually low readings have been followed by modestly lower-than-average six- and 12-month gains in the S&P 500.

As I discussed last week, many individual investors viewed this month’s bout of downward volatility as a buying opportunity. The pullback in the S&P 500 index and the correction in the Russell 2000 index made valuations more attractive and helped to alleviate concerns about stock prices having moved too far upward too fast. Also contributing to the level of optimism are earnings growth, sustained economic expansion and the Federal Reserve’s tapering of bond purchases. Keeping some AAII members cautious are worries that a larger drop in stock prices is forthcoming, a sense that prevailing valuations are still too high, geopolitical events, the pace of economic growth and Washington politics.

AAII Sentiment Survey results:

  • Bullish: 49.4%, down 0.3 percentage points
  • Neutral: 29.6%, up 1.7 percentage points
  • Bearish: 21.1%, down 1.4 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:

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