MARKET WATCH
My wife and I had the opportunity to visit New York City with some friends for her birthday on December 29th. That evening we strolled through Times Square, right past the unmarked, unlicensed, white cargo van that had been parked there for several days and was removed from the street the next day. It was searched for explosives, but none were found, however, the NASDAQ and other buildings in the area were evacuated. For the second time in a week, my attention was once again focused on terrorism. In fact, had it not been for the incompetence of the nut case with the bomb in his underwear, Christmas Eve could have been a night of tragedy for this country.
While sitting in the lounge at the Marriott Marquis in the Times Square area, our conversation turned to the multitude of high rise office buildings and the numerous businesses located in this section of the city. The history of this vibrant economic engine confronts you at every corner. The activity in the area gives one an appreciation for the scope of the economy of NYC, and helps me fathom the enormity of the 14 trillion dollar economy of our country, which many times seems quite esoteric.
We have been through a difficult recession and unemployment is still at an uncomfortable level, but as bad as 10% unemployment sounds, the reality is that 9 out of 10 workers have jobs. As an investment advisor, I read numerous publications and constantly scan data. I condense it into this newsletter to help you make decisions about your investments in order to attain your goals. Information constantly flows from the media, and much of it is spun by extremists on the right and left to advance their agenda. While I am not always correct, I try to be objective and show both sides of the issues facing us.
An interesting year has just concluded for the markets, as the financial panic that began in 2008 reached its nadir in March of 2009. Since then, the markets have recovered dramatically signaling the end of the recession and posting some significant gains for the year. In fact, the DJIA gained 18.82% for the year and closed at 10,428.05 while the S&P 500 improved to 1,115.10 which is an increase of 23.45%. Meanwhile, the NASDAQ rose to 2,269.15 adding 43.89%. While these percentage gains are significant, it is important to keep things in perspective.
In order for the indices to reach their former all time highs, the DJIA must still add 35.83% to get to 14,164.53 and the S&P 500 must improve to 1,565.15 which is another 40.35% gain. The NASDAQ, which bubbled into the stratosphere in 2000, must still reach 5,048.62 which is an increase of 122%.
While these statistics seem a bit depressing at first glance, it is safe to say that none of us invested all of our assets in the markets in October 2007, when the DJIA and S&P 500 reached these levels. While the value of our assets are lower than their highest value during the previous bull market, most of us have made money on our investments over the years. If you were investing through the entire recession, then you are poised to reap some pleasant rewards during the next bull market, which is unfolding now.
Remember, somewhere out there is a hapless soul who sold his investments in March, at the height of the panic, and went to cash. Now he is trying to decide if this rally is for real. Luckily, it is none of us! There will be some ups and downs going forward, and problems still exist, but the growth machine that is the US economy is unstoppable if we don’t constrain it.
ECONOMIC OUTLOOK FOR 2010
Of course, this turn of the page of the calendar also has us entering a new decade, which many times seems like a new chapter in an interesting book. There are many soothsayers out there trying to convince you they “know” what is going to happen this decade, and frankly I have read forecasts that are all over the map. My purpose here is to focus on where we are now and what we can expect in the short term, drawing on opinions depicting best and worst case scenarios.
As I mentioned earlier, the recession has not “officially” been declared over by the National Bureau of Economic Research, but the 2.2% growth in the third quarter is an indicator that the economy is growing again, albeit by economic stimulus. Of course, there are predictions of everything from a double dip recession to fourth quarter GDP increasing by 4.5% and annual GDP growth of 3.5% in 2010. According to a survey of 58 economists by Bloomberg, done in December, the US economy is “expected to muddle along at the 2.6% average annual growth rate of the past 20 years, that consumer prices will rise by 2.1% and that joblessness will remain at 10% for the year”.
Within that particular survey, the economists were divided into two distinct and extreme groups as to their view of the direction of the economy. One group adhered to the belief that the recovery will follow historical norms, with pent up demand generating a burst of growth. The other group believes things will be different this time as people will shy away from shopping and banks will be tight fisted with credit. While the “this time it is different crowd” was debunked in in the previous decade on dotcom profits, different paradigms, demographics, housing and decoupling of economies, there have also been recessions in the past where the recovery was not prolific or “V shaped”. It seems like the consensus view of muddling through may indeed be what happens.
Another area where opinions diverge drastically are on government intervention and stimulus. Had the government done nothing, the ensuing panic may have been even worse than what we saw from October 2008 to March 2009. So, now the focus is on an exit strategy.
There is reluctance to withdraw the stimulus too soon for fear of choking off a recovery. However, the more stimulus in the system, the higher probability of inflation. Many economists see little risk of inflation with unemployment at 10%, but politicians are already sweating the 2010 midterm elections. Current legislative initiatives will be costly, and all of us will have to pay more in taxes. Higher taxation stifles growth. Without growth, unemployment increases. Let’s hope Bernanke has the will to remove the punch bowl in time.
ROTH IRA CONVERSION RULES FOR 2010
In 2010, the income limit of $100,000.00 for ROTH IRA conversions will be eliminated, making it possible for anyone with an IRA to convert to a ROTH IRA. There are many factors to consider when making a decision about whether or not to convert your IRA to a ROTH IRA, but the overriding factor is taxation. If you convert in 2010, you must pay 100% of the tax by the date of final tax filing, which is October 14, 2011. Or, you can defer the tax due and pay half in 2011 & half in 2012. You also have until the final tax filing date to recharacterize or undue the conversion if your account value drops, and the tax would be lower by reconverting in 2011. However, then the total tax due would be 100% in that year. Give me a call for more information to see if it makes sense for you.
COMPANY INFORMATION:
Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
570 Carillon Parkway
St. Petersburg, FL 33758-9053
800-245-8250
Member FINRA & SIPC
Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com/
All opinions expressed in this newsletter are solely those of John Kaighn & Jersey Benefits Advisors, formerly known as Kaighn Financial Services.
Showing posts with label stocks. Show all posts
Showing posts with label stocks. Show all posts
Tuesday, January 5, 2010
Thursday, March 12, 2009
Brokerage Account Features
Many people have accounts with different mutual fund companies, and receive numerous statements, which can be a burden. One way to lessen paperwork is to consolidate assets into a brokerage account. Most major brokerage firms offer a brokerage account, which they may also call an Asset Management Account. Below are some of the features and benefits provided by a Pershing Brokerage Account, offered by Jersey Benefits Advisors, which include:
· Consolidated statement which shows all investments including money market funds, stocks, bonds, mutual funds, unit investment trusts, partnerships, brokered CD’s and annuities
· Daily sweep of idle cash into a money market account
· Available borrowing power for Margin approved accounts
· Procash checking services
· Free ACH transactions from checking to brokerage and from brokerage to checking
· Electronic funds transfer services
· Free dividend reinvestment
· Direct deposit of payroll, social security, pension checks, etc.
· Online access to account information
· Access to numerous mutual funds from different investment companies as well as variable annuities* from many insurance companies
· Systematic investment into mutual funds in order to purchase shares on a monthly, quarterly or annual basis utilizing dollar cost averaging
If you have any questions, feel free to contact me through my websites listed below.
John Kaighn is a Registered Investment Advisor with Jersey Benefits Advisors and writes articles on various business and investment information, ideas and opportunities. For more information about this and other topics you can visit Jersey Benefits Advisors and The Kaighn Report
· Consolidated statement which shows all investments including money market funds, stocks, bonds, mutual funds, unit investment trusts, partnerships, brokered CD’s and annuities
· Daily sweep of idle cash into a money market account
· Available borrowing power for Margin approved accounts
· Procash checking services
· Free ACH transactions from checking to brokerage and from brokerage to checking
· Electronic funds transfer services
· Free dividend reinvestment
· Direct deposit of payroll, social security, pension checks, etc.
· Online access to account information
· Access to numerous mutual funds from different investment companies as well as variable annuities* from many insurance companies
· Systematic investment into mutual funds in order to purchase shares on a monthly, quarterly or annual basis utilizing dollar cost averaging
If you have any questions, feel free to contact me through my websites listed below.
John Kaighn is a Registered Investment Advisor with Jersey Benefits Advisors and writes articles on various business and investment information, ideas and opportunities. For more information about this and other topics you can visit Jersey Benefits Advisors and The Kaighn Report
Monday, November 26, 2007
Morningstar Stock Investor: Seven Different Investing Perspectives
Recently, Paul Larson, an equities strategist with Morningstar, described seven ways in which his investment strategy differs from the conventional wisdom and academia ("Seven Different Investing Perspectives"). Mr. Larson definitely uses a long term strategy for investing, which is also my approach. Taking into consideration the views and strategies of a variety of advisors and analysts can be very helpful in shaping your investment strategy. A synopsis of Larson’s "seven investing perspectives" is included below for you to review.
Morningstar Stock Investor: Seven Different Investing Perspectives
1. Focus on the next decade, not the next quarter.
Most Wall Street analysts who publish research for public consumption spend a lot of their energy focusing on near-term tax rates, weekly inventory trends, and so on, which really do not matter in the long term.
The army of analysts on Wall Street serve an exploding number of hedge funds, entities whose investors demand performance - and demand it now - given the exorbitant fees usually being paid. Many hedge funds cannot afford to think about the long term, because if they suffer even a little in the short term, they might not be around for the long term.
Luckily, those willing and able to take a long-term perspective can gain an edge in this short-term-focused world, and that's exactly what I and our analysts do here at Morningstar. We spend a lot of our time thinking about where a company is going to be many years from now, because this is what drives intrinsic value. We try to minimize the short-term noise to pick out the secular trends that will really matter.
2. Price volatility does not equal risk.
If you go to business school, you are likely to be taught that risk in the stock market can be defined as the historical volatility in a stock's price. Risk is usually thought of and measured in terms of beta, a statistical measure that represents a stock's past volatility relative to an index. Frankly, I just do not understand the relevance of beta when thinking about ways I might lose money. Not only is it backward-looking, but its connection to intrinsic business value is tenuous at best.
When thinking about a stock's risk rating, Morningstar analysts do not focus on the past stock price movements of a company. Rather, we focus on the fundamental business factors - competition, litigation, financial leverage, and so on - to try to figure out what sort of margin of safety to apply to a company before buying it.
3. Price volatility is a good thing.
Not only do I think stock price volatility is a silly way to measure risk, but I actually like volatility. When stock prices whip around, it creates more opportunities to buy things when they go on sale. Moreover, volatility can fling stocks well above their intrinsic values, creating selling opportunities.
I think two of the more famous Warren Buffett nuggets of wisdom apply here. (Though Buffett is as mainstream now as he has ever been, he is still seen as a heretic in many academic circles.) According to Buffett, one of the cornerstones of his strategy is, "Be fearful when others are greedy, and greedy when others are fearful." The other Buffett quote that backs up my favorable opinion of volatility is: "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."
4. Concentration has its benefits, overdiversity its downfalls.
It seems that whenever I hear financial advisors speak, they are always preaching the benefits of diversity. While I agree every portfolio should have some level of diversity to prevent any single mistake from causing financial doom, I do not think the downside of diversity gets enough attention. Specifically, the wider you spread your portfolio around, the less you will know about any single investment, and the greater the chance you will miss something that is wrong. Call it the risk of ignorance.
In other words, I agree that it is good advice to not put all your eggs in one basket, but do not forget about the risks of trying to carry too many baskets. Or, to use our "fat pitch" metaphor, don't swing at the marginally decent pitches, because then your swings at the truly fat pitches will be diluted.
5. Bottom-up is better than top-down.
There are two basic ways to look at stocks. The first way (and what we do here at Morningstar) is to look at an individual company - its competitive positioning, profitability, growth prospects, and so on - to come up with an intrinsic value estimate for the business. We then compare this fair value estimate with the current stock price to come up with our Morningstar Rating for stocks (the star rating).
The other way is to try to pick out macroeconomic trends and generate investment ideas from these trends. Some examples might include ideas regarding the aging population, interest-rate movements, global-warming regulations, changes in consumer-spending patterns, and so forth. Some investors might choose to overweight or underweight their portfolios in certain sectors based upon their views of some of these trends.
The problem I see is that there are often too many logical links between the ideas and the actual stock investments. Even if your idea is correct, you could still select the wrong stock for that idea. Another pitfall of looking top-down is forgetting the importance of valuation and paying too much for a stock.
I also do not try to "fill the box" when managing the [stock portfolio]. What I mean by this is deciding on some sort of asset allocation - either by sector or stock style - and then picking stocks to try to fit my target allocation. To me, this is putting the cart before the horse.
What I do instead is look at each stock on a case-by-case basis, and I then let the cards fall where they may with respect to the sectors and styles of my holdings. Only at the extremes might I get worried (such as having more than half a portfolio invested in a single narrow industry).
6. Increased portfolio activity does not create higher returns.
In the real world, the more activity you have in a given area, the greater the return in that area, in general. For example, the more you exercise, the more weight you lose. The more you play golf, the better your swing will get and the lower your handicap will go, and so on. But when trading stocks, the exact opposite is true. In general, the more you trade, the lower your returns will be.
There are the frictional costs of taxes, trading spreads, and commissions that will eat into your capital every time you trade. Of even greater importance in my mind is the amount of thought that goes into each trading decision. It seems that the greater the thought-per-transaction ratio, the better our results should be, all else equal. I spend hours upon hours considering each transaction in the Tortoise and Hare, but spend mere minutes interacting with our broker doing the mechanical transactions, worrying about nickels and dimes. I get the impression that too many investors have this ratio reversed.
7. Focus on value, not price.
It strikes me that many in the market know the price of everything and the value of nothing. I will admit that there are scores of companies for which I know what the stock price has done, but have no clue about the value of the underlying business. But before I invest in something, there is no way I would put a single penny in without having some idea what the underlying business is worth. Knowing price without knowing value means knowing nothing.
I recently was asked if I had in place any stop-loss orders for positions in the Tortoise and Hare. The answer is a resounding "no." Making decisions based on historical prices makes no sense to me. Moreover, assuming that the intrinsic value of a business is unchanged, when its stock price goes down, that is the time to get more excited and consider buying more, not time to cut bait.
Of course, the key phrase is "assuming the intrinsic value of a business is unchanged." We are continually questioning our theses and projections for the companies we cover, always digging deeper for pieces of confirming or contradictory evidence. These fundamental factors - not stock prices or ideas about future market sentiment - are what drive our fair value estimates.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
Morningstar Stock Investor: Seven Different Investing Perspectives
1. Focus on the next decade, not the next quarter.
Most Wall Street analysts who publish research for public consumption spend a lot of their energy focusing on near-term tax rates, weekly inventory trends, and so on, which really do not matter in the long term.
The army of analysts on Wall Street serve an exploding number of hedge funds, entities whose investors demand performance - and demand it now - given the exorbitant fees usually being paid. Many hedge funds cannot afford to think about the long term, because if they suffer even a little in the short term, they might not be around for the long term.
Luckily, those willing and able to take a long-term perspective can gain an edge in this short-term-focused world, and that's exactly what I and our analysts do here at Morningstar. We spend a lot of our time thinking about where a company is going to be many years from now, because this is what drives intrinsic value. We try to minimize the short-term noise to pick out the secular trends that will really matter.
2. Price volatility does not equal risk.
If you go to business school, you are likely to be taught that risk in the stock market can be defined as the historical volatility in a stock's price. Risk is usually thought of and measured in terms of beta, a statistical measure that represents a stock's past volatility relative to an index. Frankly, I just do not understand the relevance of beta when thinking about ways I might lose money. Not only is it backward-looking, but its connection to intrinsic business value is tenuous at best.
When thinking about a stock's risk rating, Morningstar analysts do not focus on the past stock price movements of a company. Rather, we focus on the fundamental business factors - competition, litigation, financial leverage, and so on - to try to figure out what sort of margin of safety to apply to a company before buying it.
3. Price volatility is a good thing.
Not only do I think stock price volatility is a silly way to measure risk, but I actually like volatility. When stock prices whip around, it creates more opportunities to buy things when they go on sale. Moreover, volatility can fling stocks well above their intrinsic values, creating selling opportunities.
I think two of the more famous Warren Buffett nuggets of wisdom apply here. (Though Buffett is as mainstream now as he has ever been, he is still seen as a heretic in many academic circles.) According to Buffett, one of the cornerstones of his strategy is, "Be fearful when others are greedy, and greedy when others are fearful." The other Buffett quote that backs up my favorable opinion of volatility is: "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it."
4. Concentration has its benefits, overdiversity its downfalls.
It seems that whenever I hear financial advisors speak, they are always preaching the benefits of diversity. While I agree every portfolio should have some level of diversity to prevent any single mistake from causing financial doom, I do not think the downside of diversity gets enough attention. Specifically, the wider you spread your portfolio around, the less you will know about any single investment, and the greater the chance you will miss something that is wrong. Call it the risk of ignorance.
In other words, I agree that it is good advice to not put all your eggs in one basket, but do not forget about the risks of trying to carry too many baskets. Or, to use our "fat pitch" metaphor, don't swing at the marginally decent pitches, because then your swings at the truly fat pitches will be diluted.
5. Bottom-up is better than top-down.
There are two basic ways to look at stocks. The first way (and what we do here at Morningstar) is to look at an individual company - its competitive positioning, profitability, growth prospects, and so on - to come up with an intrinsic value estimate for the business. We then compare this fair value estimate with the current stock price to come up with our Morningstar Rating for stocks (the star rating).
The other way is to try to pick out macroeconomic trends and generate investment ideas from these trends. Some examples might include ideas regarding the aging population, interest-rate movements, global-warming regulations, changes in consumer-spending patterns, and so forth. Some investors might choose to overweight or underweight their portfolios in certain sectors based upon their views of some of these trends.
The problem I see is that there are often too many logical links between the ideas and the actual stock investments. Even if your idea is correct, you could still select the wrong stock for that idea. Another pitfall of looking top-down is forgetting the importance of valuation and paying too much for a stock.
I also do not try to "fill the box" when managing the [stock portfolio]. What I mean by this is deciding on some sort of asset allocation - either by sector or stock style - and then picking stocks to try to fit my target allocation. To me, this is putting the cart before the horse.
What I do instead is look at each stock on a case-by-case basis, and I then let the cards fall where they may with respect to the sectors and styles of my holdings. Only at the extremes might I get worried (such as having more than half a portfolio invested in a single narrow industry).
6. Increased portfolio activity does not create higher returns.
In the real world, the more activity you have in a given area, the greater the return in that area, in general. For example, the more you exercise, the more weight you lose. The more you play golf, the better your swing will get and the lower your handicap will go, and so on. But when trading stocks, the exact opposite is true. In general, the more you trade, the lower your returns will be.
There are the frictional costs of taxes, trading spreads, and commissions that will eat into your capital every time you trade. Of even greater importance in my mind is the amount of thought that goes into each trading decision. It seems that the greater the thought-per-transaction ratio, the better our results should be, all else equal. I spend hours upon hours considering each transaction in the Tortoise and Hare, but spend mere minutes interacting with our broker doing the mechanical transactions, worrying about nickels and dimes. I get the impression that too many investors have this ratio reversed.
7. Focus on value, not price.
It strikes me that many in the market know the price of everything and the value of nothing. I will admit that there are scores of companies for which I know what the stock price has done, but have no clue about the value of the underlying business. But before I invest in something, there is no way I would put a single penny in without having some idea what the underlying business is worth. Knowing price without knowing value means knowing nothing.
I recently was asked if I had in place any stop-loss orders for positions in the Tortoise and Hare. The answer is a resounding "no." Making decisions based on historical prices makes no sense to me. Moreover, assuming that the intrinsic value of a business is unchanged, when its stock price goes down, that is the time to get more excited and consider buying more, not time to cut bait.
Of course, the key phrase is "assuming the intrinsic value of a business is unchanged." We are continually questioning our theses and projections for the companies we cover, always digging deeper for pieces of confirming or contradictory evidence. These fundamental factors - not stock prices or ideas about future market sentiment - are what drive our fair value estimates.
John Kaighn
Jersey Benefits Advisors
Plug In Profit
John Kaighn's Web Business Review
John Kaighn's Guidance Website
Wednesday, May 30, 2007
China Hiccups
The US markets opened lower today, as investors digested the overnight news from China. Stocks in China were down sharply on Wednesday because the government raised a tax on stock trades. The reason for this tax increase is an attempt to dampen some of the enthusiasm for stocks, due to a market boom. There are growing concerns about a possible bubble.
The main Shanghai Composite Index dropped 6.5 percent to 4,071.27 after hitting a record high on Tuesday. The Shenzhen Composite Index for China's smaller secondary market closed at 1,199.45 a decline of 7.2 percent. The market plunge came on the heels of an announcement by the Finance Ministry that tripled the "stamp tax" on stock trades from 0.1 percent to 0.3 percent. The change was effective Wednesday, as the the official Xinhua News Agency reported the ministry was trying to "cool the stock market".
The last time stocks plunged in China, which was February of this year, emerging markets took it on the chin. Stocks in the US and other mature markets also swooned as investors reacted to the news. Anytime you have a precipitous drop in a major market, there are bound to be ripple effects in all of the world's markets. One thing to remember is the fact that the markets do not move in a straight line, so after a period of increasing share prices, one has to expect a decline sooner or later. Hopefully, this will not be a correction that reclaims all of the gains made this year, but it is a distinct possibility. If you have a few dollars sitting on the sidelines, this may present an opportunity to buy shares at a lower cost. For those of you who continually dollar cost average, you will automatically reap the benefits of any sale on shares.
Later in the day, the US markets responded to the release of the FOMC minutes, as the S&P 500 index advanced to its first record close in more than seven years ending at 1,530.23. Investors concluded from the Fed report the evidence of a cooling economy might be a reason for the Federal Reserve to begin cutting interest rates in the second half of the year. The DJIA also closed in record territory at 13,633.08 as the markets shrugged off the news from China. Sometimes you just never know how the market will react to news, which is why I always recommend not letting emotion rule your investment decisions.
For More Information on Investments and Business Information and Opportunities, visit my websites:
http://jerseybenefits.com
http://johnkaighn.com
The main Shanghai Composite Index dropped 6.5 percent to 4,071.27 after hitting a record high on Tuesday. The Shenzhen Composite Index for China's smaller secondary market closed at 1,199.45 a decline of 7.2 percent. The market plunge came on the heels of an announcement by the Finance Ministry that tripled the "stamp tax" on stock trades from 0.1 percent to 0.3 percent. The change was effective Wednesday, as the the official Xinhua News Agency reported the ministry was trying to "cool the stock market".
The last time stocks plunged in China, which was February of this year, emerging markets took it on the chin. Stocks in the US and other mature markets also swooned as investors reacted to the news. Anytime you have a precipitous drop in a major market, there are bound to be ripple effects in all of the world's markets. One thing to remember is the fact that the markets do not move in a straight line, so after a period of increasing share prices, one has to expect a decline sooner or later. Hopefully, this will not be a correction that reclaims all of the gains made this year, but it is a distinct possibility. If you have a few dollars sitting on the sidelines, this may present an opportunity to buy shares at a lower cost. For those of you who continually dollar cost average, you will automatically reap the benefits of any sale on shares.
Later in the day, the US markets responded to the release of the FOMC minutes, as the S&P 500 index advanced to its first record close in more than seven years ending at 1,530.23. Investors concluded from the Fed report the evidence of a cooling economy might be a reason for the Federal Reserve to begin cutting interest rates in the second half of the year. The DJIA also closed in record territory at 13,633.08 as the markets shrugged off the news from China. Sometimes you just never know how the market will react to news, which is why I always recommend not letting emotion rule your investment decisions.
For More Information on Investments and Business Information and Opportunities, visit my websites:
http://jerseybenefits.com
http://johnkaighn.com
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