Posts filed under “Index/ETFs”
I did a long interview with Forbes, we discuss some investing themes and ideas:
“Here’s the thing I think most people have a hard time understanding and putting into context. To say stocks are cheap or expensive today is to simultaneously discuss two different things. The first is future earnings power. So the real question when you’re evaluating, “Are stocks cheap or expensive,” is how much can earnings continue to grow? What so many people get wrong about this is that step one is to acknowledge the inherent uncertainty about the future – that you don’t truly know what is going to happen to earnings in 2014 or 2015. There are many likely scenarios, but we focus on two of them: Either the economy tips into a recession (as so many people have been claiming for many years now). When we war game different scenarios, we think that is the most likely negative one. Not the most likely outcome, but if we do get a negative outcome, that is the most likely one. If that happens, we’d expect to see earnings contract 20% to 30%. If that were to happen, the equity markets would also go down by that much.
What about the upside? The economic recovery has been woefully slow and arduous — like watching frozen molasses run uphill. But directionally, it’s been heading in the right way over time, and on a regular basis. So if this slow and painful recovery continues, we’re very likely to see earnings maintained at somewhere near the current level or better. Let’s call it $110 – $120 in profits on the S&P. Call this the more of the same scenario.
Consensus for S&P earnings is about $110 for the next 12 months, and it wouldn’t surprise us to see that tick up to $112 or $115, in which case a 1,600 S&P is a little rich. But it’s not crazy. We’ve gone a long time without a real 10% correction — though we have come pretty close. But we haven’t had a major correction at all in 2013, and the markets have strung together some very nice gains.
So it wouldn’t be surprising to see somewhat of a pullback here. We certainly don’t want to eschew U.S. markets completely, but Good Lord! We’re up 150% since March ’09. Being overweight U.S. equities after that sort of move over four and a half years, we just thought it was prudent to pare it back just a touch. If we do get a correction, we are buyers on the dip.”
Its a long interview, and that’s just a flavor. You can see the whole thing here.
Invest As If The Sun Is Coming Up Tomorrow
Forbes, October 11, 2013
Want to know what has been in the Dow Jones Industrials over the past century and change? Click thru for an interactive chart that shows the full history of the Grandpappy all of indexes. 128 years of the Dow — what’s in and what’s out click for interactive chart Source: CNNMoney Hat tip Tal Yellin
click for interactive version Source: WSJ Nice graphic and article explaining how only 5 stocks (of 30) in the Dow are the prime drivers of the rally, responsible for one third of the gains. Before you go Oooh, consider the simple math of this. If every stock contributed equally to the Dow’s rise,…Read More
Traditional QQQ Weighting click for larger graphic Source: Nasdaq Long overdue and excellent idea: Part of the problem with the Nasdaq QQQ’s has bee on the oversize weighting of a few giant market names in it. Certainly Apple (AAPL), but also Microsoft (MSFT), Google (GOOG) and others. Note that chart above dates from 12/31/2012…Read More
The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price moves. The RSI moves between zero and 100 and is considered overbought with a reading above 70 and oversold when below 30. Note the RSI can sustain an overbought (oversold) reading in a strong up (down) trend….Read More
My Sunday Washington Post Business Section column is out. This morning, we look at the advantages of avoiding complexity in your investment process. The print version had the simple headline Simplifying Your Investment Strategy while the online version used the hedder Keep it simple, avoid the pitfalls.
There are know advantages to certain complex investing strategies, but these complexities become harmful disadvantages most of the times, as Humans are emotionally unable to follow them.
By creating an investment plan that is simple and easy to follow, you make it more likely that you will ultimately succeed and reach your goals. Hence, all of the familiar themes get mentioned in my focus on simplicity: ETFs, lower costs, diversification, rebalancing, dollar cost averaging, etc.
Here’s an excerpt from the column:
“We must recognize our own behavioral errors. To be blunt, you are not likely to become a cognitive Zen master anytime soon. But a little enlightenment could keep you from making some common investing errors.
Knowing these limitations, we can design an investment plan to circumvent the behavioral pitfalls. And a good step is to simplify. Toward that end, keep these 10 ideas in mind when approaching your portfolio”
The 10 ideas are not groundbreaking — but they are often overlooked.
Less can be more.
Keep it simple, avoid the pitfalls
Washington Post, January 25 2013
Why cheap Apple shares can’t gain any traction click for larger graphic Source: Barron’s The chart above shows the 5 largest market cap firms as a percentage of the S&P500 index. Barron’s points out that when companies hit 5% of the S&P500, it often acts as a cap on further valuation growth. The…Read More