Let’s start this week’s commentary with a hypothetical scenario: A person you trust says they have two stock picks for you. Both stocks are expected to rise in price. The charts for each stock are showing similar formations and the recent news seems equally positive. You only have enough available cash to buy one of the two stocks. Which one do you choose?
Some of you will consider the valuations and opt for the less expensive stock. Others may look at the dividend. Portfolio diversification and volume would also be likely considerations. What about quality? Would you consider each stock’s underlying fundamental traits when deciding which one to buy?
I would suggest you should. While factors such as valuation, price momentum and dividends get more attention, quality matters too. Quality refers to a company’s underlying traits: Fiscal strength, profitability and the ability to return capital to shareholders. All things being equal, higher-quality companies offer more upside potential than lower-quality companies. Quality companies have more traits associated with higher returns and fewer traits associated with disappointing returns. Continue Reading »
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More on AAII.com
- Piotroski: High F-Score Screen – Joseph Piotroski used a variety of criteria to separate junk companies from quality companies among deep-value stocks.
- What Works: Key New Findings on Stock Selection – James O’Shaughnessy shared the strategies he uses to identify quality and financial strength (along with value).
Highlights from this month’s AAII Journal
- Polar Opposite: MAGNET Complex Goes From Bottom to Top in 2017 – Most of the AAII stock screens realized gains last year, with 25 besting the S&P 500, as Wayne Thorp discusses in our annual review.
- Model Shadow Stock Portfolio: Implementing the New Four-Year Sell Rule – A new rule designed to get rid of long-term underperformers prompted the replacement of four stocks.
AAII Sentiment Survey
Optimism jumped to its highest level in seven years. Find out how the S&P performed when optimism was previously at this level or higher. More about this week’s results.
This week’s results:
- Bullish: 59.8%, up 7.1 points
- Neutral: 24.7%, down 2.0 points
- Bearish: 15.6%, down 5.1 points
- Bullish: 38.5%
- Neutral: 31.0%
- Bearish: 30.5%
Take the Sentiment Survey.
AAII Asset Allocation Survey
Individual investors ended 2017 with their largest exposure to equities in 16½ years. More about the latest results.
- Stocks and stock funds: 72.0%, up 3.4 percentage points
- Bonds and bond funds: 15.0%, down 2.6 percentage points
- Cash: 13.0%, down 0.8 percentage points
- Stocks: 32.4%, up 3.4 percentage points
- Stock funds: 39.6%, up 0.1 percentage points
- Bonds: 2.9%, down 1.0 percentage points
- Bond funds: 12.0%, down 1.7 percentage points
Take the Asset Allocation Survey
What’s Trending on AAII
- The Individual Investor’s Guide to Personal Tax Planning 2017
- Competition Has Made Indexing a Winner’s Game
- Five Steps for Gaining Control of Your Investments and Avoiding Mistakes
The Week Ahead
First-quarter earnings season will “officially” start next week with Dow Jones industrial average component JPMorgan Chase & Co. (JPM) reporting on Friday. Six other members of the S&P 500 will also report: Acuity Brands Inc. (AYI) on Tuesday; Lennar Corp. (LEN) on Wednesday; Delta Air Lines (DAL) on Thursday; and BlackRock Inc. (BLK), PNC Financial Services Group Inc. (PNC) and Wells Fargo & Co. (WFC) on Friday.
The week’s first economic reports will be the November JOLTS report, released on Tuesday. Wednesday will feature December import and export prices. The December producer price index (PPI) will be released on Thursday. November business inventories, December retail sales and the December consumer price index (CPI) will be released on Friday.
Five Federal Reserve officials will make public appearance: Boston president Eric Rosengren on Monday and Friday; Atlanta president Raphael Bostic on Monday; Minneapolis president Neel Kashkari on Tuesday; and Chicago president Charles Evans and St. Louis president James Bullard on Wednesday.
The Treasury Department will auction $24 billion of three-year notes on Tuesday, $20 billion of 10-year notes on Wednesday and $12 billion of 30-year bonds on Thursday. You can buy Treasury securities directly from the government at TreasuryDirect.gov
Local Chapter Meetings
AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you! Upcoming Meetings »