December 31, 2014

Ask Your Financial Guy Why Your Money Didn't Grow at 11% in 2014!

2014 is in the books.  How did your portfolio do compared to the indexes?  All three major indexes did pretty well and probably did too (if you didn't sell during one of the three major pullbacks).
These numbers do not include dividends.

DJIA 7.5%.
S&P 500 11.4%.
Nasdaq 13.4%.

I've said it a thousand times.  If you use a financial guy for advice, that's fine but do not expect to beat or even match the averages.  This is simply because he or she has to get paid.  And guess what, that is you.  Every quarter, your financial advisor takes money out of your account as a fee or your stockbroker takes commissions every transaction.  Either way, there is no free lunch and those fees and or commissions cut into your returns, period.

Now is the time to look at your statement to see how you did.  Let me know.

December 1, 2014

Santa Claus Rally?

The Santa Claus rally seems more like a gamble than an investment strategy.  Please read USA Today article and note that 94% of fund managers are trailing the simple S&P 500 index!

October 15, 2014

Update To Sell In May and Go Away

In April of this year, I blogged about the old Wall Street axiom, sell in May and go away.  There is a theory that if you sell in May and buy back in October that your investment returns will be better than just buying and holding.

Of course, you will miss out on a few dividend payments which as I've said before and hundreds of experts agree is at least half of the market returns over time but aside that, selling in May does seem to have some merit occasionally. 

There are exceptions to the rule and unfortunately, far too many to ignore so the answer if you should sell your stocks in May and buy back in October is not easy.  It is up to you.

In this year 2014, the market had run up for five years so taking some money off the table may not have been a bad idea BUT the problem with that is that you have to buy back in someday and invariably individual investors are not good market timers (neither are Wall St pros).

Sorry not to have a crystal ball.

October 10, 2014

CNBC Traders Results

I've been interested to see the results of the traders who have been 'paper' trading with $100,000.  To no ones surprise, certainly not mine, some have beaten the market slightly and most have trailed.

These are celebrated people on TV who manage peoples money for a living (besides being on TV).

You can see current results here at CNBC.  Feel free to compare these to the results of the S&P 500 or the DJIA.

I don't mean to rag on anyone in particular but as I have said on this blog and hundreds of times on radio or in articles - IT IS VERY HARD TO BEAT THE MARKET with any regularity at all.  The 'traders' on CNBC can't do it, most mutual fund managers can't do it and certainly, your local financial advisor can't either.

Bottom line is that like most people involved in the investment business, they are in the business of making money - for themselves.  This is achieved by separating you from your money via commissions and fees.

Check out my blog post from 2011 where I compared money management and gambling.

April 28, 2014

Sell In May Go Away, Does It Work?

One of the oldest sayings on Wall Street is 'sell in May and go away'.  What it means is that investors are supposed to sell their holdings sometime in May, go to cash and reinvest sometime in late September. You can see already some of the folly, which day to sell? which day to invest?
Anyway, you can see from the chart below that it does appear to pay off to be 'long' from October to April as opposed to May to September.                                                                 
cotd sell in may

March 7, 2014

Five Year Anniversary Of The Bull Market

The US bull market is now 5 years old.  That is a long time.  Probably few investors remember how terrible the markets where just five years ago.  There were people calling for the end of capitalism!  The old saying goes "buy when everyone else is fearful" couldn't be more true than it was March 9, 2009.

The current bull market may not be the longest in history but it is getting close.  You never know what will derail it, sometimes it is valuation, sometimes it is geopolitical and sometimes it takes just one small event to trigger selling.  I know this, with more hedge funds holding more assets, when real selling occurs, it will be swift.  You need to decide now what you might do.

My favorite of all wall street sayings is "professionals sell on the way up and amateurs wait for trouble and sell on the way down".  The psychology behind this is true.  I don't know when the bull market will end but check out the chart below and remember the terrible bear markets that took place after each!

If you utilize a financial guy, make sure you compare your brokerage account to history and if you didn't annualize over 19% a year over the last five years, then you are paying for nothing.

Don't expect your financial guy to sell anything now either for two reasons;
  • financial advisors only get paid for assets on the books, not cash
  • it's easier to be one of the crowd and ask for forgiveness when your account withers rather than risk being right
bull markets data

January 2, 2014

The Results Are In !!!

Followers of this blog know I have been following the results of the picks of a major brokerage firm for an entire year and the results are in.

JP Morgan gave us these picks via CNBC on the last day of 2012 so I posted the prices an investor would have got on the first trading day of 2013 and now the last day of 2013 and COMPARED them to a regular old boring index fund.  See the results below including the % gain for each.

Boeing (BA) - 76.93 136.49 77.4%
Bank of America (BAC) - 11.96 15.57 30.3%
Capital One (COF) - 60.05 76.61 27.6%
McDonalds (MCD) - 90.21 97.01 7.5%
Visa (V) - 155.71 222.68 43.0%
Apple (AAPL) - 547.76 561.11 2.4%
Ebay (EBAY) - 52.28 54.87 5.0%
Whole Foods (WFM) - 92.42 57.83 (after 2-1 split)(115.66) 25.1%
Starbucks - (SBUX) - 54.51 78.39 43.8%
Target (TGT) - 58.34 63.27 8.5%
2013 JP Morgan stock picks average 27.1% 

Vanguard Total Market (VTI) - 74.65 95.92 28.4%
Schwab Market (SCHB) - 35.04 45.01 28.4%

OK, so the average of the JP Morgan stock picks is 27.1% which is a pretty awesome year HOWEVER, the index funds averaged 28.4%.  These results do not include dividends or fees which both scenarios would include so would cancel each other out.  Additionally, you would likely pay a fixed fee of 1% to have someone 'manage' your money which would of course lower your results versus buying an index fund yourself.

The conclusion is easy.  Don't waste your valuable time and money using a stockbroker or financial advisor and paying a fee for under performance.  As I and others (Warren Buffett) have said repeated, it is extremely difficult to outperform an unmanaged index fund.