What mutual fund mistake am I talking about? This mistake is so common, chances are you have committed it yourself—before you became a savvy, successful investor, of course. If you have ever purchased a mutual fund solely on the basis of past performance, you have made this mistake. Buying yesterday’s winners—also known as performance chasing—is a time-honored tradition for many investors. No matter how many warnings they hear on the pitfalls of performance chasing, many novice investors continue to engage in this practice. Poll your friends and family who have 401(k) accounts. Ask them how … [Read more...]
Netflix: The Risk of High Expectations
Most of you are no doubt familiar with Netflix—the leading DVD and video-streaming rental business in America. Up until recently, Netflix was a high flyer—a momentum stock. From year-end 2009 to June 2011, the shares rose over 375%—the highest return in the S&P 500. During the company’s 18-month price vault, revenue growth accelerated from 23% to 52%, and EPS growth averaged more than 57%. Those are impressive numbers for a company operating in the throes of a lackluster economy. Investors were so impressed with Netflix’s business prospects that after paying 30X earnings in December of … [Read more...]
3 Reasons Dividends Trump Buybacks
In September, Warren Buffett announced that the Berkshire Hathaway board authorized a multibillion-dollar share-buyback program. Berkshire shares soared as much as 12% on the news. The market’s reaction to the buyback announcement is common. When companies announce buyback plans, their stocks often get a pop. But are the gains justified? This question is more important today than it has been in years past. Over the last decade, share buybacks have become the preferred method of returning cash to shareholders. In 2006 and 2007, U.S. companies bought back more in stock than they paid in … [Read more...]
Coping with Manic Markets
The S&P 500 leapt higher by 3.4% today on yet another plan-to-make-a-plan out of Europe and on news that the Chinese government will boost its stake in the nation’s largest banks. The benchmark index closed above its 50-day moving average for the first time since July. In the span of only five trading days, stocks have gained more than 11%. The sharp end of day bounce off of the 1,074 level last Tuesday, and the follow-through rally, have some technical analysts convinced stocks are poised for an upside breakout—see here. In only one week, the prevailing sentiment on the Street has shifted … [Read more...]
Goldman Calls it Quits
Goldman Sachs is closing up shop at its flagship Global Alpha hedge fund. Global Alpha is one of the best-known quantitative hedge funds in the world. In its heyday the fund managed $12 billion. But after a series of bad bets, assets tumbled over 90% to $1 billion. The fund’s downfall started in 2007 when computer-driven trading strategies went haywire. Global Alpha lost about 23% that August and reportedly finished the year down 40%. The fund regained some of its losses in 2008 and 2009 with gains of 4% and 30%, but it never fully recovered. Global Alpha was flat last year and it is down … [Read more...]
Is Your Money Fund Safe?
You really have to be careful what you read these days. There is loads of misguided advice pumped out of the financial press. I recently came across an article in one of the leading personal finance magazines that offered especially appalling advice. The article was about money funds and whether or not they are safe given the euro area’s sovereign debt and banking crisis. What does the euro area have to do with U.S. money funds? According to Fitch Ratings, prime U.S. money funds have almost 50% of their assets invested in European financial institutions. Not such a comforting thought when you … [Read more...]
A $65-Billion Bet
I was listening to Bloomberg radio the other day and Carly Fiorina was on as a guest. Carly is the former CEO of Hewlett Packard. She led a controversial acquisition of Compaq that turned HP into the world’s largest PC maker. Carly was on to talk about Hewlett Packard’s recently announced decision to exit the PC business and move deeper into software with a $10-billion acquisition of Autonomy Corp. HP’s decision came as a surprise to investors—an unpleasant surprise. The stock plummeted 20% on the news. As I listened to the Bloomberg interview I was struck by how often Ms. Fiorina used the … [Read more...]
Your Worst Payday
Should you have more invested in the stock market? The Dow has almost doubled from its March 2009 low. And over the last ten months, the index has gained 26%. Oil prices have started to pull back, the euro-area debt crisis is being addressed (at least temporarily) and some U.S. economic data has come in ahead of expectations. With the Dow surging 5% in only five trading days, you may be feeling more confident. Instead of hoarding cash, you might be looking to invest. But after the near doubling in the stock market, is it still a good time to invest? How can you tell? In order to gauge the … [Read more...]
Investing in Your Food Supply
You may want to start thinking and investing like a farmer. As a group, farmers’ average age continues to rise. And as their numbers decline in the coming years, the quality of our food is likely to follow suit, given the notion that more processing will pick up the slack. That’s why it’s so important to protect our heritage breeds—animals that were around when Thomas Jefferson walked the fields of Monticello. Protecting our heritage breeds may not be something you think about every day. But those who work at the SVF Foundation in Newport, Rhode Island, do. The SVF isn’t your ordinary farm. … [Read more...]
A Stacked Deck: Is your broker providing compromised investment advice?
I want to briefly touch on the subject of broker dealers (especially publically traded firms) as they relate to our private, family registered investment-advisory firm. I started our money management business over two decades ago in response to years of requests from my strategy report readers for such assistance. Back then, I was still researching and writing every word of Young’s World Money Forecast. YWMF was a 50-page monthly monetary and economics report for institutions and corporate financial officers, I was kept busy. I could only work with a handful of clients. As time passed and it … [Read more...]