When index investing gets askewed
What can happen as money pours into index funds during a period of cheap and easy money? One example is explored in the article below by Bloomberg columnist Lisa Abramowicz. (more…)
April 8, 2016 Update
King dollar
With the first quarter of 2016 now in the books, we reflect that movements in currency which then ripple through into commodities remain the major driver of market action. The vacillating tone of the U.S. Federal Reserve created some volatility. The Fed told us that rates would be heading higher over 2016 only to reverse course as the global economy continues to show an inability to get any real traction. That has caused the Bank of Japan and European Central Bank to be even more aggressive in their drive to lower interest rates and support economies and markets. The push downward on interest rates through the floor by these two major market players left investors wondering what the impact of negative interest rates would be. (more…)
April 1, 2016 Update
A more nuanced definition of bull and bear markets
The stock market has familiar cycles dating back to at least the 1960s. The visual below (and the accompanying detailed set of tables below that) highlights these cycles and their direction. Each box in the graphic below shows the median return and duration for the seven of these cycles we’ve seen since 1968; but also the return and duration for the most recent phase of the current cycle. The cycles utilize the bull and bear market definitions pioneered by Ned Davis Research (NDR), which are more nuanced than the simple +20%/-20% traditional definition. (more…)
March 25, 2016 Update
Buy and Hold investing
Passive investing involves buying index ETFs or funds of varying asset classes in some predetermined target mix, such as 60% of a portfolio invested in stocks and 40% in bonds. The investor focuses on buying this portfolio at the lowest possible costs, holding the ETFs/funds indefinitely while occasionally making minor adjustments to keep the portfolio near its target mix. The challenge in following a passive investment approach is setting aside our emotional response to a market under severe pressure. Seeing your account balance dropping 20% is difficult for most of us to stomach. We believe investors do not have to suffer through those gut-wrenching declines. (more…)
March 18, 2016 Update
Are stocks in a bull or bear market?
Stocks have ripped off a four-week +11% rally after staring into the abyss during a very turbulent January and February. The bear market calls grew as the year got off to the worst start in history. By some measures, clues to a coming bear had been foretold months before. After all, the market for most stocks peaked almost a year ago now, back in April 2015. Since then, it’s been a rough ride with 2 drops of -10% and subsequent sharp snapback rallies. (more…)
March 11, 2016 Update
Corporate earnings keep falling
Coming into the first quarter of this year corporate earnings were expected to continue to struggle. Energy earnings have been under severe pressure for a year now as the plunge in oil prices decimates the income statements and balance sheets of those companies. With global economic growth remaining a concern, the ripples from that weakening growth flow outward to other sectors as shown below in the anticipated earnings changes from the prior year. (more…)
March 4, 2016 Update
Stock market returns history
We know that stocks average a return around +10% or so over many decades. We also know that the indexes rarely hit that +10% number, instead delivering years that are substantially positive, substantially negative, or just plain unchanged more often than not. (more…)
February 26, 2016 Update
You wanted more Turbo, you got MORE TURBO!
Like a sailboat needs wind to move through the water, our Turbo Model needs market volatility in order to be most effective. The past few years have seen an unprecedented level of calm in the markets with stocks going over three years without a -10% correction, an event that usually occurs at least annually. Without this up and down, back and forth movement in the markets, our Turbo Model cannot beat the market. It finds no opportunity to exploit. This lack of foothold for Turbo led to decent but below-market performance in 2012-2014. Not seeing the typical market waves, Turbo began looking for smaller waves, becoming more sensitive to smaller shifts in stock prices in an effort to find any hint of the volatility that drives its performance. Unfortunately, this increased sensitivity led to a series of performance-damaging whipsaws, especially in 2015, as unusual v-shaped market recoveries had become the norm. Initially, you figure the low volatility calmness of stocks is temporary. But when it goes on year after year and after many a disgruntled subscriber note, we decided we must search for a better solution. (more…)
February 19, 2016 Update
Some find reason for optimism
We thought that our friends here in Austin at Per Sterling did a good job with this month’s blog post. So we’re sharing portions of their monthly comments below. The words are theirs, not ours and thus reflect an investment approach that is more “traditional” than ours. Nevertheless, we think they do good analysis and bring it together in a clear fashion. (more…)
February 12, 2016 Update
Europe and the banks
The crisis du jour is found in European banks. The market has determined that nothing good and everything bad is knocking on the door of these large institutions. Remembering how unpleasant the fallout from the U.S. banking crisis was, markets have quickly piled into the worst case scenarios and extrapolated all manner of unhappiness from a few data points. (more…)