Wednesday, September 2nd, 2009
As we head into the fall and we look forward toward next year, it is important to take a look at the general econimc landscape, assess the data that we have access to, and develop our views on the performance of our investments going forward.
The following are three high-level economic data points that we can use, along with our other tools, to further assist us determining our views on equity market investments.
1.) U.S. Housing
As the root of the credit crisis, healing in the U.S. housing market is a precondition for sustainable recovery. Recent data has confirmed that the worst is behind us and the residential real estate market is stabilizing.
The inventory of unsold houses while still high is heading in the right direction towards clearing and sales of existing homes have recently turned positive on a year-over-year basis. And an index which measures year-over-year price changes of houses in 20 major U.S. cities (the S&P/Case-Shiller Home Price Index) plunged 33.6% from its June 2006 peak to the April 2009 trough, but has now climbed 1.9% over the past two months.
2.) The U.S. Consumer
The resurgence of the U.S. consumer will be key to watch as recovery unfolds since consumption is 70% of the American economy. Despite the ‘hit’ that the housing crisis has exacted on their net worth, American household balance sheets are still in relatively better shape than they’ve been in the past due to the tremendous growth net worth over the last decade.
However, the process of deleveraging (winding down debt) has begun and this will impact spending patterns in the near-term.
3.) The U.S. Manufacturing
The level of manufacturing has historically followed an inverse path to the Fed funds rate but on a 6-month lagged basis – as the fed funds rate drops, six months later, manufacturing activity picks up.
However, in fall 2008, although rates declined to historically low rates, the credit crunch intensified and that typical relationship between low interest rates and increased manufacturing activity did not materialize. More recently, credit channels have opened up and the ISM (gauge of manufacturing activity) has improved, indicating the economy is finally responding to massive stimulus after a long lag.
And further improvement just yesterday with the latest ISM level better than expected at 52.9 – the first reading above 50 since January 2008 and hit the highest level since June 2007. This is further indication that while not yet normal, the economic environment is normalizing.
These are three key areas of the market to watch when assessing the high-level economic situation and it’s relationship to the stock market trends and valuations.
Of course this isn’t the be all and end all of data you should include in your due diligence, but it certainly plays a role as you calculate your risk tolerance moving forward.
Posted in Investment News | 1 Comment »
Wednesday, October 1st, 2008
I just finished reading an older book written by Charles Schwab called Guide to Financial Independence: Simple Solutions for Busy People.
While the book is a bit dated (2000), It does provide some basic tenets of personal finance and investing that many investors will still appreciate.
My favorite chapter in the book is Chapter 4 which discusses investment in individual stocks. In this chapter Schwab makes a remark that many of know all too well about becoming an investor. I know that since I began investing several years ago that I know see every store that I enter and every business that I visit in a slightly different light.
Instead of simply visiting a store to purchase an item that I need, I inherently find myself analyzing the store and wondering how it makes money! What are the profit margins? How many people are in the store? How does its location affect business? What are the primary products? Are the staff knowledgeable and do the provide good service?
Schwab indicates that a consumer’s shopping experience is changed in this way as soon as they become investors – I totally agree!
Throughout the chapter Schwab outlines about 12 pieces of sound advice for investing in individual stocks. Here they are in no particular order:
- Only buy stock in companies that you want to hold for many years
- Don’t invest more than 10% of your portfolio in one stock
- Don’t over-invest in the company you work for
- Do your research. Don’t bypass research just to get in quick.
- Investing on a “Hot Tip” isn’t investing, it’s gambling – pure and simple!
- When you’re ready to invest $2000.00 in stocks, invest an equal dollar amount in 4 stocks that look promising. (I would personally invest in a mutual fund until I had at least $10,000 to invest in a basket of individual stocks.)
- Don’t believe the hype about new issues (IPO’s). Do your due diligence.
- You can measure the quality of a stock by its earnings per share. (This is only one metric that should be considered).
- The chief yardstick of a company’s value is the price/earnings or P/E ratio. (one must also consider the growth rate of the company and you may want to consider the PEG ratio in your analysis).
- Penny stocks are the worst quality stocks you can buy. you get what you pay for!
- Impatience is your biggest enemy as an investor.
I agree with some of these points more than others, but you can see that Schwab is certainly schooled along the same lines as Warren Buffett and Peter Lynch.
We must remember that Schwab is the founder of a brokerage, so natually he is going to want you to start investing (and paying brokerage fees) as soon as you have the money to do so. However, I hardly think it is smart to split $2000.00 up into 4 different stock purchases costing $10.00 per purchase. That is the equivalent of paying $40.00 in mutual fund fees for the same $2000.00 investment – or a 2% management expense ratio (MER).
Posted in Investment News | 8 Comments »
Sunday, June 1st, 2008
Welcome to readers from The Street.com and the Kirk Report. Please take a moment to visit our About Page to see why we love dividend stocks and subscribe to our blog using the Subscribe Form on the right side of the page.
I am a huge proponent of buying the best dividend paying stocks when they are value priced. However, if you aren’t sure about picking an individual stock and you still want to reap the rewards of Dividends, check out this list of some different Dividend Exchange Traded Funds (ETF’s).
The Vanguard Dividend Appreciation Fund (AMEX: VIG) is a one of the cheapest dividend ETFs, with an expense ratio of 0.26%. Some rivals charge as much as 0.60%. But fees aren’t everything here. VIG’s current yield — slightly less than 1.77% — is on the low side, as is its total return of roughly 7% since its inception in late April 2006.
VIG is benchmarked to the Mergent Dividend Achievers Select Index, a subset of the Mergent Dividend Achievers Index — a market-cap-weighted index of stocks with a consistent history of increasing dividends. Its holdings are highly concentrated in three sectors: consumer staples at 23%, financials at 20%, and industrials at 17% of assets. The top five stock holdings include Johnson & Johnson, GE, ExxonMobil, AIG, and IBM, each representing roughly 4% of assets.
Among other ETFs focusing on high-yielding equities, the iShares Dow Jones Select Dividend (NYSE: DVY), the first dividend ETF, has gathered more than $7 billion in assets. It invests in 100 of the highest dividend-yielding securities (excluding real estate investment trusts) in the Dow Jones U.S. Total Market Index.
First Trust Morningstar Dividend Leaders (AMEX: FDL) invests in the top 100 stocks of the Morningstar Dividend Leaders Index. These are the index’s highest-yielding stocks, ranked by the consistency with which they pay dividends and the ability to sustain those dividends going forward. Three securities — Citigroup, Bank of America, and Altria — together make up more than one-fourth of the fund.
State Street SPDR Dividend (AMEX: SDY) invests in the 50 highest dividend-yielding S&P Composite 1500 constituents. This index tracks equities that have consistently increased dividends every year for at least 25 years. Investing in these long-term dividend-paying stocks reduces the risk that the fund’s holdings will cut their dividends.
For Dividend Daredevils
More adventurous investors might consider the Claymore/Zacks Yield Hog ETF (AMEX: CVY), which aims to double the yield of other dividend-paying ETFs. The fund invests in high-yield securities such as preferred shares, master limited partnerships, closed-end funds, American Depository Receipts, and Real Estate Investment Trusts. It’s a riskier play, since the holdings don’t all have a long history of regular, stable dividends.
Paying the piper
Tax law changes in 2003 lowered the tax on most dividends to 15%, making dividend-paying stocks more appealing. This law is set to expire at the end of 2008, and if it does, dividend-paying stocks may become less desirable.
Courtesy of Motley Fool
Posted in Investor Education, Stock Studies | 2 Comments »
