Posts filed under “Investing”
With the 4th Quarter beginning, its time to take a review of
the technical factors which will govern the action. While we always find the
Macro-economic issues (and how they get so readily misinterpreted) fascinating,
their lead-time is so long that we rely on them only to provide color for our
longest-term perspective. The same can be said about equity valuation measures.
For the intermediate term, we rely on Trend and Monetary
factors (interest rates, money supply and tax rates). Trend has remained
positive since the October 2002 and March 2003 lows; That reading is the
primary source of our intermediate term Bullishness (that is, until they
As to monetary issues, the market has been wrestling with 2
out of three negatives: Rates have been rising, and the increasing budgetary
pressures suggest an increasing likelihood we see higher taxes sooner rather
The one positive monetary aspect has been money supply: Last
week, the St Louis Fed (Money Supply)
revealed a jump in the adjusted monetary base and over $40 billion surge in
MZM. This is consistent with our views of shorter-term gains set against
To anticipate shorter periods, we rely on technicals and the
market’s internal quantitative data to guide us. These have been modestly
encouraging, with a few exceptions. The overall technical picture on the major
indices shows a series of higher lows, and modestly higher highs. The Russell
2000 has been the exception. It had such a big run it simply got ahead of
Yet as the indices have moved higher, some market internals
have decayed. We note in particular that breadth has not kept pace. This
suggests that participation is less widespread than one would expect at this
stage in a healthy Bull market. So too, with the Net 52 Week Highs (see chart
nearby); We would prefer to see stronger readings more similar to the those of
the 2003 rally before we moved to a more aggressively Bullish postur
Lastly, we rely on Sentiment for facilitating the very
shortest trading periods, as well as key trend reversals. The excessive
bullishness seen recently has abated somewhat; Its worth observing that AAII
Bullish Sentiment has decreased
from 51.4% three weeks ago, to 39.5% 2 weeks ago, and to 31.9% this week.
Seeing some of the excess Bullishness removed is healthy for the near term
These factors confirm our prior expectations that the
markets can grind higher for the rest of the year; The serious trouble isn’t
expected until later in 2006.
UPDATE: October 4, 2005 1:54pm
Among individual investors, David Swensen isn’t a household name. But he is an icon in the world of big institutional money managers such as endowments and pension funds.
Mr. Swensen’s fame comes from his oversight of Yale University’s $15 billion endowment fund, which, since he was hired 20 years ago, has returned an average of 16% a year, far outpacing the market and other funds run for universities. Before arriving, Mr. Swensen had never overseen an institutional portfolio, and he brought to the job an unconventional approach for dividing up the portfolio among different asset classes. He is now Yale’s chief investment officer.
Five years ago, Mr. Swensen set out to write a book that would bring the lessons he learned to individual investors. Instead, he says he found that the option most accessible to individuals — mutual funds — often makes it impossible to beat the market. And even when they do find good managers, individuals end up shooting themselves in the foot, he says.
So while Yale relies on actively managed portfolios, Mr. Swensen says individuals should just stick to index funds, especially those run by not-for-profit companies. He also likes exchange-traded funds, which trade on exchanges like stocks, but says "buyer beware."
Excerpts from an interview with Mr. Swensen follow:
WSJ: You had hoped to give small investors a road map for beating the market based on Yale’s approach to investing. What happened?
Mr. Swensen: I found when I started down that path that individuals just don’t have the same set of investment opportunities available to them that we do here at Yale. In fact, the evidence showed me that the mutual-fund industry has completely failed to provide reasonable active-management returns to individuals.
WSJ: To say that it completely failed — that’s a pretty harsh statement to make.
Mr. Swensen: I think the evidence is there. The crux of the failure is with the for-profit management of funds for individuals. Mutual-fund managers have a fiduciary responsibility to investors. Obviously, if they are operating in a for-profit mode, they have a profit motive. When you put the profit motive up against fiduciary responsibility, that fiduciary responsibility loses and profits win.
continued below . . .
Yale Manager Blasts Industry
THE WALL STREET JOURNAL, September 6, 2005