What worries me most about the stock market rally are the peculiar divergences we are seeing. What do I mean? Let's look at some charts. My first chart shows that gold is breaking out to the upside on heavy volume. SPDR Gold Trust Gold is an inflation hedge, a currency hedge, and a safe-haven asset. When gold rises, other financial assets are often falling. But my stock market chart shows that the S&P 500 has rallied virtually uninterrupted since bottoming in March. S&P 500 Oddly, though, volume is falling while prices are rising. A divergence in price and volume … [Read more...]
Top 10 Mistakes #7
September 11, 2009 How does a triad of a 20% prime rate, $200-per-barrel oil and $2,000-per-ounce gold sound to you? Are these numbers possible, or even probable? Oh yeah! And, in fact, the record-breaking deficits and printing press activity at home suggests these numbers may be underestimated. If Israel attacks Iran’s nuclear sites (a 50/50 bet), you’ll perhaps see oil prices well above $200 per barrel. Your strategy is to protect yourself from such an outcome while exposing yourself to minimal risk if you are wrong. In my strategy reports, I write about what you should do. And as a client … [Read more...]
Top 10 Mistakes #8
September 4, 2009 More money has probably been lost by overreaching for yield than by any other misguided strategy. Today, investors are really spooked. Money market funds, bank CDs, and treasuries offer little in the way of yield. That’s why I would suggest that you eschew all three, except for your emergency funds. I would also, given my views on inflation (expressed monthly in my letters and Matt’s client letter), avoid long maturities. A middle-ground approach is the way to go. I outline my views in both my monthly strategy reports and use this work to craft portfolios at Richard C. Young … [Read more...]
Get It While It’s Cheap
Natural gas is super cheap today, but it could get cheaper before the cycle is over. There is an abundance of it. U.S. storage capacity is almost full. If excess production does not drop before capacity fills up, the price of natural gas is likely to weaken. Natural gas is out of favor. The momentum crowd is bailing out, driving prices below the cost of production. Smart successful investors move against the crowd. You want to be a buyer when everybody else is selling. Long term, today's depressed natural gas price is unsustainable. It has to rise. Gas is cheap, clean, and available in … [Read more...]
Top 10 Mistakes #9
August 28, 2009 Most investors fail to make dividends their #1 priority. When it comes to stocks, if you are retired or saving for retirement within the next decade or so, dividends and dividend growth must dominate your thought process. If the results of the last decade have taught conservative investors anything, it is that dividends matter. At Young Research, we do not even consider a stock for our in-house, 32-stock model portfolio unless it pays a dividend. And at our family investment management company, we do not invest for clients in non-dividend-paying stocks. Moreover, we like … [Read more...]
Don’t Miss the Boat: Investment Advisers See Inflow of $108 Billion
In 2008 alone $108 billion flowed into the top three custodians for investment advisers while the big-four Wall Street brokerages had an outflow of $8 billion, according to The WSJ. If you have a 401(k), I suggest you do what many others have already done and roll it over to an IRA the moment you are eligible to do so. And I advise you to seek out the help of an investment adviser. Once in retirement, you don't have time to make up for investment mistakes like you did when you were younger. You face difficult big picture investment decisions and unlike before indecision cannot be … [Read more...]
Top 10 Mistakes #10
August 21, 2009 In the coming weeks, I will lay out the 10 biggest potential tragedies and traps for investors this summer. Number 10 on my list is not recognizing that the recession is over. The media have largely missed the transition. But let me prove to you that the worst of the recession ended in March and that a modest recovery is already underway. On the menu bar at the top of this page, click Economy, then click Recession Watch. A series of slides (1-29) is set up for you. Click Next to start your slide show. Note carefully the slides numbered 3, 8, 9, 10, 17, 18, 19, 20, 22, 23, 24, … [Read more...]
Protect your Portfolio from the Blindside
On day one of football training camp, the first lesson many players learn is to play to the whistle. My coach used to drill this into all the new players. He'd say, "I don't care if the ball is 50 yards downfield, you play full speed until the ref blows the whistle." When the ball is downfield, the tendency of many players is to jog slowly toward the action until the whistle blows. After all, if you aren't in the center of the action, what's the point of playing full speed? That's an attitude that doesn't last long. For me, one scrimmage was enough to learn the importance of playing to the … [Read more...]
The Magic Number
The magic number for retirement is four, as in a 4% annual draw on the initial balance of your retirement portfolio. Thus, if your portfolio totals $1 million, you draw $40,000 in year number one. In future years, you draw 4% or $40,000 annually, whichever is less. To achieve the 4% goal, you will want a balanced portfolio of bonds and stocks. You will want to craft an armadillo-like portfolio, assembled with care to dampen volatility and smooth out long-term returns. You will always gauge risk before looking at potential returns. You will look to achieve most of your annual 4% cash flow, if … [Read more...]
A Strategy for the Current Stock Market Rally
The S&P 500 is up 15% since July 10 and up close to 50% from its March low. What's the catalyst for recent gains? A strong second-quarter earnings season. More than 75% of S&P 500 companies that have reported earnings beat analysts' estimates. Strong second-quarter earnings gave the minutiae-focused quarterly earnings crowd the courage to leap back into stocks. Even after the recent rally, there remains a truckload of cash sitting on the sidelines. But are quarterly earnings a reliable signal of future sustainable stock gains? In this case, I think not. Closer examination of the … [Read more...]