Diverging

March 5, 2012 Leave a comment

Some early technical indicators seem to be diverging from the uptrend. I’m feeling it could be the beginning of a correction (maybe 5-10% in most stock groups.) MACD is rolling over in most groups, and in recent days we’ve finished on the weak side, which is not the sign of a market that wants to continue to go higher.

Traders should prepare to close out marginal positions and tighten stops on others if a general market selloff accelerates. Investors (including 401k accounts) should then reduce or clean out this year’s underperformers, and ring the cash register on a portion of their biggest gainers.

I think the correction, if it develops, will provide opportunities to scale into a shopping list of stocks/funds. By industry I’m watching: tech, biotech, select pharma, select energy, gold, and almost anything that pays a solid dividend. I might look at some regional bank ETFs, potentially building strength after several difficult years.

Filed under Investment Management, Markets Commentary Tagged with , , ,

Nice Start to the New Year

February 14, 2012 Leave a comment

The Dow is up 5%, the S&P 7%, and the Nasdaq 100 12% in the New Year, continuing the trend from December. The impetus seems to have come from an improving  economy and better jobs reports in the U.S., plus the realization that Greece doesn’t spell the end of the world, whatever the outcome there.

It’s emotionally comfortable to project this trend onto the remainder of the year, but we’ve come pretty far pretty fast since the end of November. Although I feel the U.S. economy can contiue to improve this year, it looks like Europe’s economy is going to struggle some (probably in current market prices,) and there are some troubling signs in China (maybe not in current prices.)

As well, some of the most popular stocks have charts that are starting to look parabolic as others are running up against overhead resistance. There were quite a few poor end of year earnings reports and disappointing outlooks from several CEOs.

Having said all this, large cap, multi-national companies with solid and growing dividends and solid end of year reports are still attractive on pullbacks. Valuations don’t seem to be stretched in several industries like telecom, “old” tech, and healthcare, among others.

Emerging markets have rallied nicely in the past few months, after a bad 2011. It looks like time to trim a little there if you’ve got a full allocation (more than 10% of investable assets.) If you’re underinvested in emerging markets (less than 5%) a substantial (10% or more) pullback would probably be an opportunity since they are still well off their early 2011 highs. A pullback in gold could also be an opportunity as long as it stays above $1500 per ounce.

This is a very good time to go into our 401k accounts and trim laggards and research new funds that may have been added to your plan. Be willing to add to your best funds on market pullbacks. (This process is how you insulate your 401k from multi-year underperformance.)

As always, call or email with questions. Bob

 

Filed under Economy, Investment Management, Markets Commentary Tagged with , , , , ,

Investing in 2012

December 29, 2011 Leave a comment

Although the December rally seems to have stalled just above S&P 1250 (not far from where we started 2011,) there’s been a nice rally  in some big cap recession resistant stocks like food (e.g. Kraft, General Mills,) and drug stocks (e.g. Abbott Labs and Pfizer.)

Some big retailer rallied into the end of the year while others flattened out after the early December lift from the November lows. Tech also flattened out while oil and gas stocks, although not as strong as food and drugs, did pretty well by Santa.

The big market issues facing us in the New Year continue to be:

  • Will Europe’s continued incremental support of its banks and sovereign debt prevent the Eurozone from unwinding.
  • Will some important economies, like the U.S. and China, continue to grow, however slowly, even if Europe goes into recession.

My view is that Europe doesn’t get enough credit in the U.S. financial press for what they have done already to stabilize thier financial system. I believe they will continue to work on it in their slow, incremental way, and the Euro will still be one of the world’s top currencies at the end of 2012.

In the U.S. the job picture doesn’t look much better going into the New Year than it has been in most of 2011, but there are consistent signs of growth in several of the recently announced economic stats, especially manufacturing.

The U.S. consumer came alive in the 4th quarter, although it’s not clear that will continue into 2012. People are still paying down debt and not optimistic about their home values. Most analysts expect the Fed to maintain an easy monetary policy through 2012, as do I.

Europe is China’s largest end market, so if Europe slows down so will China. Too, the property boom in China shows signs of slowing. However, few analysts expect China’s growth rate to slow to the point where it’s a problem, as long as the U.S., China’s second largest export market, avoids recession.

So, global recession concerns and Euro problems balanced by an easy Fed and some U.S. growth seems to be already reflected in stock (and bond) prices, and I don’t see much changing in 2012.

What to do? Dividend yield on stocks bought on market or sector pullbacks have the best chance of providing positive returns in this coming year’s probable environment. The stock groups mentioned above, food, drugs, energy,  would be the first place to look. 

Bonds, having  priced in Fed Policy and a slow economy, offer little return potential in 2012, although they are still an important asset class for diversification.

Some selected short and intermediate term high grade corporate bonds in the banking and deep cyclical sectors, as well as selected muni’s, may offer good entries during the year for both decent yield and some appreciation.

Gold? Hold it if you own it. Buy it on dips if you don’t own enough (5-10% of your investments.)

As always, stops are important, cash is not trash, and stay diversified.

Happy New Year

Filed under Economy, Investment Management, Markets Commentary, Planning Tips Tagged with , , , , , , , , ,

Costly Retirement Savings/Investing Mistakes

June 29, 2011 Leave a comment

Most likely, no one is going to hand over a big check that will cover all of your living expenses when you stop working. Here are some of the common mistakes 401k investors make, and a few tips on how to improve your chances of reaching your retirement income goals:

1. You’re not saving enough. Use a retirement calculator to help determine how much money you’ll have at retirement. Most people plan to be active and travel in their retirement years. People are living longer, and could face higher medical expenses. Retirement plan contributions should be the first and most important item on our monthly budget.

2. You don’t make any changes in your 401(k). Many workers sign up for a 401(k) plan when they start a job, and then pay little or no attention to their investment selections afterward. Your retirement plan is not a “buy and forget” investment. Be proactive with your 401(k) by checking your investments every quarter, and making sure the funds you own are still meeting your expectations and are still the best of those available.

3. You make too many changes in your plan. Making too many changes based on emotions can cause you to take short-term actions that end up causing you to sell low and buy high, the exact opposite of the best strategy for opportunities to get higher returns. Try to sit still and don’t let your emotions rule — otherwise your plan will get off track.

4. You don’t have the right asset allocation. You won’t have to make too many changes to your 401(k) if you start with the right mix of different kinds of stocks, bonds, and cash. Some people get stuck when they have to choose mutual funds for their plan. First, figure out your asset allocation and risk tolerance by reviewing allocation models on credible sites. Then examine the funds offered in your 401(k) plan and pick the ones that fit. Depending on market conditions, you might have to re-balance your portfolio a few times a year to make sure your asset allocation stays intact, or adjust your asset allocation if your needs change. If you choose, a professional advisor can help you with fund selection and monitoring your investments quarterly.

5. You’re chasing performance. Try to avoid chasing the best performers of the moment. What you really want to know is which funds demonstrate the ability to anticipate market trends. This is possible by reviewing performance in different time frames. In addition to year to date, 1 year/3 year/5 year performance one should look at performance during major up and down moves in the market. Outperformance in down periods is an especially good indicator of nimble fund management.

Filed under Investment Management, Planning Tips Tagged with , ,

How to Interpret Performance when Choosing Mutual Funds

April 27, 2011

You need to know how to interpret mutual fund performance charts. The most common breakdown is 1, 3, 5 and 10 years. You’ll want to compare each of these time periods relative to major market trends. For instance; markets peaked in the fall of 2007, just a little over three years ago, experienced a nasty decline that bottomed in March of 2009, and is now, 24 months later, trading at this year’s highs.

  • When looking at one year performance what you’re really looking at is whether or not the manager is in sync with the current market dynamic. Markets rotate through industry sectors relatively frequently, and managers who anticipate these rotations will outperform markets in the current environment. (Be careful you’re not looking at a sector fund that happens to be enjoying its moment in the sun.)
  • Performance in the three year time period is a measurement of nimbleness and consistency, probably over a couple of market cycles. Right now it would be an indication of how well a manager managed through the decline and subsequent rally we’ve experienced since the fall of 2007. I would also review the annual performance for 2007-2010 to see how they managed through the downturn and how they managed during the recovery.
  • Five and Ten year relative performances are of course, strong measures of management consistency. Five year outperformance is a very good sign of a solid management team, although checking each year’s performance is solid proof of consistency. After 10 years the management team may have experienced a substantial turnover, and consistent outperformance in this time frame probably indicates a very robust organizational screening and training policy for new managers.

Filed under Investment Management, Planning Tips Tagged with , ,

Choosing Mutual Funds from a Limited List

April 27, 2011

Most of us have to choose mutual funds from the limited list provided by our employer sponsored retirement plans. Here are some tips on choosing your funds:

  • Domestically, most growth comes from small and mid cap companies. Big growth funds with multi billions in assets under management have to buy big companies. When choosing a growth fund try to choose smaller growth funds and review their portfolios for small and mid cap companies.
  • Value should mean dividends, dividends, dividends. If you’re going to buy large company value fund make sure it is made up exclusively of dividend paying stocks. Aside from generally lower volatility, dividends also provide some evidence that management is working for shareholders.
  • Bond funds should be diversified too. Most plans offer an inflation protected bond fund as part of their menu. Combine inflation protected bonds with short, intermediate, and to a much lesser degree, long term bonds.

Filed under Investment Management, Planning Tips Tagged with ,

Avoid Holding a Declining Investment

February 16, 2011

  • Even though we are long term investors it’s important to avoid holding onto an investment with declining fundamentals, or one that is dramatically over-valued.
  • Staying in an investment that will not recover significantly prevents you from deploying that money in an investment that can work in current economic and market conditions.
  • The tech stock collapse of 2000 to 2002 and the global market collapse of 2008/2009 taught us that, and many other lessons, including:
    • Valuation matters. Good stock investments require a thorough and disciplined analysis of valuation.
    • If you don’t understand the business model, you probably don’t need the company in your portfolio.
    • Much of the financial press does not have your best interest at heart. They support their advertisers, not the safest way to invest money.

Filed under Investment Management Tagged with , ,

Unfixed Income?

February 16, 2011 Leave a comment

Longer bonds have been going down in price/up in yield since mid October, flattening out in December-January, but resuming price declines early this month. The ten year T Note has gone from 2.334% to a peak on 2/8 of 3.725%, and closed today at 3.621%. Prices have firmed the last few days. The next few days will be interesting to see if yields catch support at the 20 dma-3.544%.

Filed under Markets Commentary Tagged with

Follow

Get every new post delivered to your Inbox.

Join 73 other followers

%d bloggers like this: