Unusually High Neutral Sentiment Often Followed by Good Returns

Posted on May 21, 2015 | Investor Update


Last year, I conducted an updated analysis of our weekly Sentiment Survey to determine if the contrarian link between sentiment and market direction still existed if an investor only used the data available at a given point of time. In other words, I wanted to see what the results looked like if the analysis was done without any hindsight.

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BUY OF THE WEEK 5/19/2015

Posted on May 19, 2015 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Shire PLC (SHPG) 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 May 19, 2015 | 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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The May 2015 passing company lists and performance data is now available on-line.

Posted on May 15, 2015 | Stock Screens

YTD Return of Top Performers: Graham–Enterprising Investor: 35.2 — Fisher (Philip): 28.7%

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Small Caps Deflated in April After Big March

Posted on May 15, 2015 | Model Portfolios

Deflation seems to be all the rage these days, so it is probably appropriate that small-cap stocks took a breather in April after a big up month in March. Returns were mixed; the S&P 500 index’s total return was up 1.0%.

The Model Fund Portfolio was up for the month by 0.5%, while the Model Shadow Stock Portfolio, which invests in micro-cap value stocks, was down 0.8%.

The Model Shadow Stock Portfolio’s 0.8% decline for April, coming off of a big March, handily beat both of its comparison benchmarks: The Vanguard Small Cap Index fund (NAESX) lost 1.7% and the DFA US Micro Cap Index fund (DFSCX) lost 2.0% in April. Year to date, the Model Shadow Stock Portfolio has gained 4.7%, while the NAESX is up 3.0% and the DFSCX is up 1.1% over the same time period. Since its inception in 1993, the Model Shadow Stock Portfolio has a compound annual average return of 16.9%, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.3% annually over the same period.

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Buybacks and Earnings per Share

Posted on May 15, 2015 | Stock Superstars Report

Stock buybacks result in fewer shares outstanding, which boosts earnings per share growth to the extent that the number of shares repurchased is not offset by the issuance of new shares. The growth in earnings per share will be higher than that of net income when repurchases are made, because each share still outstanding will have a larger stake of total earnings.

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Favorable Earnings Reported by 77% of DI Companies Thus Far

Posted on May 15, 2015 | Dividend Investing

As we arrive at mid-May (although the temperature feels far from that here in Chicago), so far 91% of companies in the S&P 500 index have reported quarterly earnings. According to Thomson Reuters, the blended (reported and estimated) first-quarter 2015 quarterly earnings growth for S&P 500 constituents is 2.1%. On a sector basis, health care is at the top, reporting first-quarter earnings growth of 18.1%. Energy, without surprise, displayed the weakest growth (or lack of growth), reporting first-quarter earnings that fell 57.8%.

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Change in Oil Prices Has Minor Impact on Investor Attitudes

Posted on May 14, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members how the rebound in oil prices has impacted their six-month outlook for stock prices. About 12% of respondents said that the rebound affected their outlook negatively. Approximately 27% said that the increase in oil prices affected their outlook favorably. The majority of respondents, 61%, felt that the change in the price of oil has not altered their outlook.

Here is a sampling of the responses:

  • “The oil market improvement has not really affected my outlook. The present international situation, the Federal Reserve intervention and slow growth of the economy have the most impact on my outlook.”
  • “No, I’m more focused on corporate earnings and GDP growth.”
  • “Very little. I think the underlying competitive struggle between U.S. and Middle East (particularly Saudi Arabia) will leave the price movement neutral on average over the period.”
  • “Modest increases in oil prices should have a positive impact on stock prices.”
  • “Bullish impact because the partial rebound in oil prices will partially reverse the dramatic downturn in the energy sector caused by the oil price collapse.”
  • “Negative impact on market due to fewer investment dollars.”

AAII Sentiment Survey: Optimism Falls to a New Two-Year Low

Posted on May 14, 2015 | AAII Survey

Optimism set a new two-year low for the second consecutive week in the latest AAII Sentiment Survey. Neutral sentiment stayed above 45% for a sixth consecutive week, tying a 27-year record, while pessimism declined slightly.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 0.3 percentage points to 26.7%. This is the lowest level of optimism since April 11, 2013 (19.3%). Bullish sentiment remains below its historical average of 39% for a 10th week in a row. This streak is the longest since an 11-week stretch between March 20 and May 29, 2014.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rose 0.8 percentage points to 46.9%. The increase keeps neutral sentiment above 45% for the sixth consecutive week and above its historical average of 31% for the 19th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 0.5 percentage points, to 26.4%. This is the 16th week this year where pessimism has been below its historical average of 30.0%.

The current streak of six consecutive weekly neutral sentiment readings at or above 45% ties a record last set in 1988. Neutral sentiment stayed above 45% on consecutive weeks between May 13 and June 17, 1988. It was at or above 45% on consecutive weeks between January 22 and February 26, 1988. (Prior to 2000, the sentiment readings were rounded to the nearest full digit.)

Bullish sentiment remains at an unusually low level, while neutral sentiment continues to stay at an unusually high level. Historically, such readings—both unusually high low bullish sentiment and unusually high neutral sentiment—have been correlated with better-than-average market performance over the following six- and 12-month periods. (See Analyzing the AAII Sentiment Survey Without Hindsight in the June 2014 AAII Journal for more information.) There is no guarantee history will repeat itself in the future, however.

Causing some AAII members to be cautious or pessimistic are prevailing valuations, recent price volatility, geopolitical events, the pace of economic growth, the impact of the stronger dollar on earnings growth and worries that a notable decline in stock prices could occur. Keeping other AAII members encouraged are the ongoing bull market, sustained economic expansion, earnings growth and still-accommodative monetary policy.

This week’s AAII Sentiment Survey results:

  • Bullish: 26.7%, down 0.3 percentage points
  • Neutral: 46.9%, up 0.8 percentage points
  • Bearish: 26.4%, down 0.4 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

The AAII Sentiment Survey has been conducted weekly since June 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.

Measuring Pain Relative to Gain

Posted on May 14, 2015 | Investor Update


Wall Street defines risk as volatility. The more a fund or portfolio fluctuates in value, the riskier it is deemed. The vast majority of individual investors define risk differently. Individual investors, in aggregate, define risk as the chance of losing money.

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