After Hours Investing

Some Thoughts On Investing Vs. Speculating And Fundamental Vs Technical Analysis...

2012-02-23T14:00:00.000-05:00

"The attempt to predict accurately the future course of stock prices and thus the appropriate time to buy or sell a stock must rank as one of investors most persistent endeavors."

- Malkiel Burton

Technical analysis (a.k.a. charting) is, at its most basic, the creation and interpretation of stock charts. The most fervent practitioners are called "chartists". Most chartists believe the market is 10% logical and 90% psychological. That is, chartists believe that the market is driven by the average sentiment of investors at any given time. This is very much like choosing stocks based on what you think other investors think (or will think) about the stock in the future. It's more about analyzing and predicting crowd behavior than the success or failure of a given business.

Fundamental analysis is the antithesis of technical analysis. The fundamentalist believes that the market is 90% logical and 10% psychological. They are called fundamentalists because they see the future value of a stock as the result of the future condition of the business fundamentals. That is, the value of the stock is the result of the value of the underlying business - ie. growth, earnings, cash flow, debt, etc...

Which is right?

A primary tenet of charting states that all that is knowable about a given stock is already reflected in it's price. This means that the historical chart contains the aggregate effect of all past dividends, splits, earnings, growth rates, etc - all the fundamental aspects of the stock.

The secondary tenet is that prices tend to move in trends - downward trends,upward trends or flat lined. A head-and-shoulders chart means the same for Google stock as it does for Alcoa. Chartists believe that any important fundamental factors of a stock are already "baked into" the current price. All that is knowable is reflected in the chart.

Charting works wonderfully, until it doesn't. Trends reflect the mass psychology of the crowd and can hence sustain a stock price to the point where it becomes self-perpetuating. The problem is that this leads to bubbles, and bubbles eventual burst. Charting and technical analysis can work in the short term,but when the trend reverses you can get caught catching the blade of the falling dagger.

Falling trends alone is very speculative. It's investing in stocks instead of businesses and it ignores all rationale in favor of crowd psychology. Speculators and chartists end up investing in something they don't (and can't) understand. The trend is ultimately, rarely explainable. It may be real, but it is also usually ephemeral and without a logical cause it is impossible to make a rational investment- you are simply chasing trends.

All this trend chasing leads to much trading, and this can quickly add up to high trading fees. It's not uncommon for traders (i.e.: speculators/chartists) to eat up their profits in trading fees.

All this does not mean that technical analysis is bad or useless. It just depends on how you use it.

Asking if Technical analysis is better than Fundamental analysis is a little like asking if Einstein's Theory of Relativity is better than Quantum Mechanics. The answer is neither - they are two different ways of viewing the universe and each works in its own space.

Einstein's theory predicts how matter behaves in the universe on a large scale while Quantum Mechanics predicts the behavior of matter in the sub-atomic realm.

Fundamental analysis works best for the long haul (like Einstein's theory) because the trend line is trending toward infinity. For example: the stock market as a whole will certainly be higher in 100 hundred years than it is today. But as that time period lessens, it becomes harder to say with certainty where prices will be. Can you make the same prediction of prices 1 year from today?

Technical analysis can help to predict these movements over shorter periods of time, but as discussed above the fees associated with chasing these trends can quickly eat up your returns.

My personal view (and this is just my opinion) is that investors should favor fundamental analysis for picking stocks to invest in for the long term (3 years or more), but use technical analysis to determine the bets (or at least better) time to buy and sell.

By using fundamental analysis to create you watch lists, and technical analysis to develop your trigger points you are utilizing a holistic approach that makes the best of both.

Stay the Course! 401(k) Savers Who Stuck With Stocks Saw Gains.

2012-02-14T11:30:00.000-05:00

"401(k) account owners who maintained their equity allocation and continued to save during the market decline of 2008 and 2009 now have much larger account balances than investors who stopped saving or pulled their money out of the stock market, according to a new Fidelity Investments study"

The study was conducted by Fidelity Investments between Sept. 30, 2008 through June 30, 2011. The sample consisted of nearly 20,500 401(k) plans with more than 11.6 million participants. Here are the highlights of that study:

Investors who did nothing during and after the stock market plunge, and continued making contributions in their 401(k) plan as usual saw their 401(k) balance grow an average of 50% .

401(k) participants who withdrew all of their money from the stock market during the lowest months of the market downturn, and never moved any money back into stocks saw only a 2% increase in their balance, on average.

Those who pulled everything out of the stock market, but went back in after the bulk of the market decline saw an average of 25% increase in their 401(k) balance.

Participants who stopped contributing during the meltdown, but left their allocation untouched saw an average increase of 26%.

Participants who increased their contributions, and left asset allocations untouched saw an average increase of 64%.

These point highlight that even a temporary exit from the stock market is enough to negatively impact the growth of your 401(k).

Investors get anxious when the market gyrates and become downright panicked when it crashes as it did in 2008-2009, and that understandable. Fidelity states that calls from concerned customers spiked again in the summer of 2011. But such volatility shouldn't affect you if you have a proper allocation. In fact, the above bullet points reinforce that staying the course and even doubling down - on a properly diversified allocation - is the best course of action. The second best course is to do nothing at all. The trick is being properly diversified.

Here are a couple of resources to get started on diversification and asset allocation:

Get a better understanding of two different types of risk.

Investing 101 -- The Importance of Sector Diversification

What Does Asset Allocation Mean?

Asset Allocation: The First Step Towards Profit

Introduction To Investment Diversification

6 Asset Allocation Strategies That Work

PREDICTION: 6 to 12 Months Hence, Investor Sentiment Will Turn Against Apple.

2012-02-09T14:00:00.000-05:00

This isn't my prediction. Well, not entirely. While I have made similar predictions in the not so distant past, I would never be so bold as to attach a time period to my predictions!

This prediction comes from David Garrity who is a tech analyst at GVA Research. It stems from Apple's latest announcement to begin selling text books to iPad users. This non event may be the catalyst for the ultimate demise of Apple.

From a recent Breakout interview on Yahoo! Finance :

"The issue still comes down to vision, or perhaps lack thereof, coming out of Cupertino. "Clearly we do have a vacuum, from a marketing standpoint," says Garrity. "From a presentation standpoint and, perhaps over time, we'll have a deficit from a vision standpoint.""

This is not too far from my own views on Apple and the death of Steve Jobs, as expressed in A Tale of Two Apples.

The cloud that hovers over Apple these days is one of vision for the future. Steve Jobs clearly had it, and he knew how to wield it most effectively. The question now is, does any would be successor have the vision and can he wield it to similar effect. The jury is clearly out on this question, but Garrity suggests the jury may have its decision within the year.

We'll wait and see.

For what it's worth, I think Steve Jobs is irreplaceable and once the pipeline of Jobs' ideas is spent, the world (and investment community) will turn its back on Apple, leaving it to languish as it did through much of the 1990's.

ING's ShareBuilder Stock for Stocking Stuffer Deal.

2011-12-07T18:03:00.001-05:00

What better stocking stuffer than stock?

ShareBuilder is offering a great deal for new investors this Christmas with a promotion they're calling: Put a Stock in Their Sock!

Here are the details...

For $30, you get:

A $50 ShareBuilder gift card (redeemable only into a NEW ShareBuilder Individual, Joint, or Custodial account).

5 Automatic Investment Plan credits (i.e. 5 free automatic investment transactions).

The Motley Fool video series: How to Buy the Right Stocks for Your Portfolio.

They claim this is a $125 value but regardless, it's a deal for the $50 gift car alone!

This is an excellent gift idea to get teens, newlyweds, grads,kids, grand kids, brothers or sisters, friends ... just about on the road to investing.

I've used ShareBuilder for about 5 years now, and they're service is as good as ING Direct, which is to say - excellent! They website is easy to use, and the fees are small and transparent.

Get your Gift of Stock Investing Kit here.

* If you order by December 17th, you get free shipping and guaranteed delivery before the 25th.

Top Investing Websites of 2011: The Best Free Investment Resources on the Web!

2011-12-05T19:54:00.001-05:00

AAII, the American Association of Individual Investors, has just released their
Best of the Net: 2011 Guide to the Top Investment Web Sites, 15th Edition.

Behind the AAII list.

Content is king - including variety of content format and medium. While users are increasingly looking for content on their mobile devices, the folks at AAII believe that traditional laptops and desktops remain the primary means of accessing investment related websites, and so they focus on those sites that provide the most informative videos and articles as well as useful tools.

I encourage you to visit the AAII site to read more, as they provide additional content such as personal picks of the AAII staff, as well as specifics as to why they like each pick.

Breakdown of the list.

Here's an exhaustive list of the categories and groups:

Stocks

IPOs
Stock Data
Analyst Estimates & Recommendations
Stock Screening
Stock Charting & Technical Analysis
Stock Valuation & Ratings
Company Conference Calls
Market Index Statistics

Funds

Mutual Fund Data
Mutual Fund Screening
Exchange-Traded Funds
Closed-End Funds

Other Investments

International
Bonds
REITs
Options/Futures

Financial Planning

Personal Finance
Retirement Planning
Estate Planning
Tax Information
Portfolio Tracking

Insurance Products

Immediate Annuities
Insurance
Medicare

Miscellaneous

Financial News & Analysis
Economic Data
Investing Videos
Social Media & Networking
Government
Regulators

Click Here for the Comprehensive Guide to the Top Web Sites.

Best free investment resources on the web.

Here are may personal picks for free sites from that list, and why.

Stocks.

Best site for stock data: AOL Money & Finance: DailyFinance. Real-time stock quotes, stock data going back to 1990 (including historical prices, dividends and splits), headline news, sec filings and more. An excellent quick-glance resource for getting the basics on a company or stock.

Alternate best site for stock data: CNBC. News, news and more news! Stock news. Market news. Business News. This is an excellent resource for major business and earnings news.

Stock And Market Charting.

Best site for Charting the Big Picture: Market Watch BigCharts. This is an excellent site for Stock Charts, Screeners, Interactive Charting and Research Tools. A great way to see a snapshot of the "big picture" of the market, as well as specific stocks and industries.

Runner up: FreeStockCharts.com . This site offers streaming real time stock charts - Free! Choose between line, bar and candlestick charts, plotted on an intraday, daily, weekly, monthly, quarterly and annual basis. Also offers over 80 indicators! Quite frankly, I gave this runner-up status because it's a bit overwhelming for the amateur investor, compared to the Market Watch's Big Charts site.

Company Conference Calls.

Best sites for getting the latest from company conference calls: Seeking Alpha - Earnings Call Transcripts . As the name suggests, you get a transcript of recent company conference calls. Interpretation of corporate doublespeak is up to the reader however.

Investor Calendar. This site provides a calendar of upcoming company conference calls, which may help plan when to make buy and sell decisions.

Mutual Funds.

Best free site for information on mutual funds: Mutual Funds Center - Yahoo! Finance . Yahoo's finance site offers excellent tools for screening, analyzing and learning more about the thousands of mutual funds available.

Best site for free info on closed-end funds: CEFA - Closed-End Fund Association. This handy site provides screening and information on closed-end funds, as well as a premium/discount chart, so you can see whether a fund is overbought or oversold. Very nice.

Foreign Investing.

Best sites for free resources on foreign investing are the American Depositary Receipts and the CIA World Factbook. ADR (American Depositary Receipts) has a wealth of information on investing in shares of foreign based companies - essentially buying foreign shares in the U.S. Market. The CIA fact book is included as a resource for information on foreign demographics and governments, so you can learn about the country in which the foreign company is based or operates.

Bonds.

The best free sites for investing in bonds: FINRA's Market Data Center. This site houses info on bond benchmarks, economic data and bond funds. An excellent resource for the bon investor.

The Securities Industry and Financial Markets Association. This site has a wealth of news that affects bonds, which makes it a great place to get an idea on where bond yields may be headed.

Lastly, there is the U.S. Department of the Treasury'sTreasuryDirect site, which offers information on government issue savings bonds and TIPS. It also allows you to purchase bonds online, should you feel the need to prop up the U.S. government's profligate spending.

REITs.

If real estate investment trusts are your thing, then REIT.com has much in store for you, from educational resources to investor information. It's provided by the National Association of Real Estate Investment Trusts, so you're not likely to find reasons not to buy REITs, but assuming you've decided to buy a REIT and are looking for the best one, this is a great source.

Buy and Hold is Dead! (but is it really?)

2011-08-29T14:29:00.000-04:00

Don't look now, the but Buy and Hold investment strategy is dead. Again. So says hedge fund manager Simon Baker, the CEO of Baker Ave. Many have said so in the past, and many will doubtless say it so in the future, Baker is just the most recent.

I don't know about you, but every time I hear some expert make this proclamation, my mind flashes back to that scene in Monty Python's Holy Grail. You know the one where the guy is walking through the plague ridden streets of some England village calling, "Bring out your dead!" and one hapless old man being carried to the dead cart claims, "I'm not dead!"....

Well, that old man is Buy & Hold.

Mr. Baker argues that buy & hold is a "relic of a bygone era when the economy was stable and consistent growth was the norm."

With all due respect to Mr. Baker, I would argue that his definition of Buy & Hold is much closer to Buy & Neglect. It's a common misunderstanding of buy and hold that many people have. Buy and hold does not mean, buy shares of stock or mutual funds and forget about them for 30 years.

The point is that most people cannot time the market, and doing so is a fool's game. Besides, the data shows that buying and holding works pretty well when the investor continues to buy on the down turn.

To his credit, Baker is not arguing that individual investors should try to time the market, just time the major crashes. ;-)

His point seems to be that buy and hold does not work in times of high market volatility, but I think for most investors it's fine as long as they continue buying. After all, that's dollar cost averaging and it's one of the pillars of saving for retirement.

I think the heart of his argument is risk. He says that it's a risky market these days, and guys like Jack Bogle don't want to consider risk. But what is risk? To a certain extent, risk is a function of time and in the short term, risk is very high. But in the long term, risk is much lower and that's where this whole argument breaks down.

It's apples to oranges in terms of investing for the long term vs. trading for the short term.

Here's the video interview with Simon Baker so you can hear it straight from him:

Buy and Hold (and Buy Some More) is King in Crisis.

2011-08-25T13:20:00.000-04:00

Ever since the crash of 2008 we've heard stories of investors withdrawing all of their money from stocks and putting it in ultra safe investments like cash and treasuries. We've also heard numerous proclamations that "buy and hold is dead". Here's a story that shows buy and hold is not only not dead, but by far the best course of action for your retirement planning...

First, the disclaimer and caveat: Staying the course/buy and hold and buy some more is the preferred course of action with proper diversification and time to recover from the volatility. In other words, don't just sit there if you're 5 years from retirement and 90% in stocks. But then again, if that's your 401(k) at that point in your life, then you've got serious problems anyway. See a professional retirement planner ASAP!

Now for the rest of the 401(k) population, US NEWS & World Report has a piece detailing how 401(k) Savers Who Stuck With Stocks Saw Gains

I've gone the extra mile to compile the data presented in that article into a chart to really hammer home the contrast.

Click for larger view.

The study (by Fidelity investments) compared the average return of 401(k) accounts from September 2008 to June 2011 across 5 possible actions taken after the big plunge of 2008:

Do nothing. (stay the course)
Pull everything out of stocks and put it all in a "safe" investment, like cash
Pull everything out of stocks, and then pile back in once the market began its bull run
Left everything as it was, and stopped contributing new money
Left everything as it was and increased contributions

As you can see, the winner by far is not only holding onto your stocks, but adding to them on the way down. This is because you're essentially buying those new shares on sale and magnifying your gains when the market swings up again.

Note: leaving the market and getting back in is nearly the same as staying and not buying new shares. This makes sense since you're essentially riding the market down and then back up and most people cannot time the optimal time to get out and back in.

Incidentally, these results mirror my own experience. During the crash I left my allocations untouched, and increased my contributions by 5%. The result was that my overall account balance had recovered within a year of the market crash.

3 Factors Driving Gold (and When They Might End).

2011-08-24T15:48:00.000-04:00

There is no disputing that gold is hot these days, but why? What's caused the meteoric rise in the price of gold in recent years, and will it end soon?

According to Rich Ilczyszyn, MF Global's Senior Market Strategist, the 3 things driving demand for gold are:

The European debt crisis.
Federal reserve policy.
Bull market fever.

Regarding the flight to safety, Ilczyszyn says:

"Gold isn't a safe haven, it's a currency. In other words, as far as gold bulls are concerned, gold is anti-everything collapsing in the Western world."

When this will end is anybody's guess, but I would think that a sign from Washington D.C. that they were getting serious about America's debt crisis might be a turning point. If the dollar suddenly gained strength and the U.S. financial house were on the road to order there would again be a competing currency to gold. Eventually this would weaken the sentiment that gold is the only viable currency of the future.

The federal reserve announced that they will be keeping rates at record lows until at least 2013. This gives gold investors an usual sense of timing on when they might expect treasuries to become a viable investment again. Of course, the fed can always change their mind and raise rates earlier than their stated time frame.

Bull market fever is obviously at play here as well since the recent increase in margin requirements by the CME didn't cause so much as a hiccup in the price of gold. This is unusual and unexpected and may be an indication that the global gold trade is so big that the CME margin hike can't affect it.

Gold is trading at 20% above major trend support and is an increasingly volatile market, so investors and speculators alike should tread lightly on any moves as we are in somewhat uncharted territory.

Here's an interview with Ilczyszyn in which he details some of his thoughts on this topic:

The Myth of the Seven Percent Solution.

2011-08-23T14:41:00.002-04:00

I was reading an interesting blog post about Unrealistic Returns In Personal Finance Writing in which the author quotes personal finance gurus like Dave Ramsey as stating the average return of stocks is 12-15%. The author's point is that 12% and above is absolutely absurd, and it's outright irresponsible for a personal finance expert to being giving such misleading and incorrect information to unsuspecting people.

Posts like that make for good comment fodder, being full of rebellious righteousness, but the truth is that it all depends on your definition of average, and what exactly you're including in that performance figure and what you mean by "stocks".

Consider that the stock market as a whole has returned an average of 12% per year before inflation from 1900-2010. This isn't too far off the standard advice I've always heard of 10%. It turns out that 10% isn't too far off 12% adjusted for average inflation of 3%.

For the record, that blogger was of the opinion that 7% is a more reasonable expected return going forward for stocks, since the recent market upheavals of 2008 and 2011. He even states that stocks have returned an average of 3% over the past decade.

Interestingly, 7% is right about where Warren Buffet sees stocks - after inflation.

But that's still about 3% lower than the 10% figure after inflation right? Not so much. You see, the other factor at play is dividends. The long term average yield of the S&P 500 is often stated as being 2-3%. Warren Buffet's figure does not include dividends. If we add this number to Warren Buffet's after-inflation-figure we get right back to the 9-10% range.

The author of the afore mentioned post made no mention of dividends, so I can only assume he was not taking them into consideration. Neither did he state whether he was considering inflation in those returns.

In short, I believe his 7% solution is really just the 10% version without dividends.

So is Dave Ramsey quoting 12-15% really irresponsible? Every time I've heard Ramsey say such things he is specifically referencing mutual funds and quoting the rate of return before inflation and taxes. I suspect the blogger above is comparing 12-15% to S&P 500 index funds, which would be a stretch. But it is quite possible to find mutual funds that provide the kind of return Ramsey suggests - especially small cap funds.

Let this be a reminder that the average rate of return can vary, especially when the meaning varies. :)

And one last thing to consider - the recent upheaval in the markets (i.e. wild, 600 point swings) makes for inefficiencies, which also makes opportunity. An actively managed mutual fund has a manager that can capitalize on these opportunities and add some points to the fund's return. And index fund cannot. If anything, that meager 3% return over the past decade should make it all the easier for a managed fund to beat the average, so it could be argued that we should expect higher returns than 7% over the next 10-15 years for some mutual funds.

A Brief (Pictorial) History of Apple... And Some Link Love.

2011-08-15T22:37:00.000-04:00

First, the link love...

After Hours Investing was featured recently by some other denizens of the blogosphere:

PersonalDividends.com featured my post What's the Best Bond Index ETF - BND, AGG or LAG? in his Carnival of Wealth – The Change of Guard Edition.
My Wealth Builder featured the same post in The Wealth Builder Carnival #45

Thanks to both of them for the mention!

And now for something completely graphic...

I've been writing a bit recently about Apple inc. so I thought I'd share this infographic detailing the history of the company:

via

Dow Drops, Yahoo! Finance Panics. (SALE!)

2011-08-04T22:33:00.000-04:00

I caught the front page of Yahoo! Finance this afternoon and couldn't help but think that they were a little over the top. Here's the way it looked at the time:

I mean, 3%? Really? Is that headline worthy, in the middle of the day?

It turns out that the DOW finished down 4.31% for the day, which isn't peanuts but it isn't crash time. Or is it?

Well, the DOW is an index of multiple stocks so it takes more than a little bump to take it down 3 or 4% but it is only 30 stocks. It's not the entire market.

But here's the S&P 500, which is a bit bigger than 30 stocks:

I've boxed similar drops over the past 5 years. Things don't look rosy, but let's be real here. Isn't this just investors realizing that the government stimulus that's been masking the recession is ended and the veil has been lifted. The recent "boom" or Bull market was largely an illusion, or at least based on a fallacy of recovery.

I think the market is just reverting to where it should be, but that also means stocks going on sale!

Just don't back the truck up yet. ;-)

A New Threat to Apple's Empire?

2011-07-30T14:11:00.006-04:00

I wrote yesterday about what could be the single biggest threat to Apple's charge to top Exxon Mobile as the U.S. company with the biggest market cap., but here's a new threat: iFraud.

China has long been the bastion of intellectual piracy. They've stolen and produced countless illegal copies of movies, music and software for decades now, but this is taking it to a whole new level. I am referring to reports of entire Apple stores being faked in China.

It's one thing to pirate copies of software or even electronics, since it's hard to find the people responsible. But allowing an entire illegitimate store to exist in a major city is a blatant disregard for copyright laws in the least!

Worse still, there are multiple stores within mere city blocks of each other!

I have no idea if Steve Jobs and company have any real recourse since the Chinese government itself is uninterested in enforcing intellectual property laws, but investors in Apple would be justified in asking Mr. Jobs what he plans on doing about this threat to revenue. Just because there are no legal avenues doesn't mean no action can be taken. Steve Jobs is renowned for his lateral thinking when solving problems, and he surrounds himself with some of the brightest people around.

It will be interesting watching this situation unfold, especially if shareholders put pressure on the company. Especially since Apple said last week that China was "very key" to its record earnings and revenue in the quarter that ended in June.

A Tale of Two Apples.

2011-07-29T12:49:00.001-04:00

Apple Computers Inc was created in 1976 by Steve Jobs and Steve Wozniak, in Steve Jobs' garage. He was a college student and living with his parents at the time. It is the quintessential startup. They went on to produce the world's first mass market personal computer with a GUI (Graphical User Interface). Before that, everything was green or white text on a black background; functional, but limiting.

That's the first incarnation of Apple.

This incarnation of Apple peaked in 1984 with its famous 1984 Macintosh commercial aired during Super Bowl XVIII. This is extremely iconic of the Apple culture, which in turn is a reflection of Steve Jobs.

Not long after the Mac release of 1984, Jobs was ousted from the reins and the company pursued a long, downward spiral into corporate mediocrity. Unfortunately, I am thus far unable to find a stock chart that covers this early period of Apple, but you can see from the chart below that the price did plummet in 1985 after Jobs' departure, and only regained a bit of ground to tread water for the next 10 years.

After Apple's lost decade, Jobs was brought back and ultimately began what is now it's 2nd incarnation.

In 1996, Steve Jobs was brought back to Apple as an advisor. In July , 1997 Jobs became the interim CEO and began restructuring the company's product line after the previous CEO was ousted by the board of directors who were unhappy after overseeing a 3 year record-low stock price and "crippling financial losses."

In 1997, Steve Jobs announced that Apple would join Microsoft to release new versions of Microsoft Office for the Macintosh. This was a condition of Apple receiving $150 million investment (in exchange for non-voting Apple stock ) from Microsoft. This is truly a low point as Microsoft was Apple's main competitor and had been eating Apple's lunch since the departure of Jobs. (see chart below)

This alone would be enough for many companies to simply fall by the wayside, or be consumed by the bigger company (of course, Microsoft made this investment instead of simply taking over Apple at the time because the Clinton DOJ was accusing Microsoft of being a monopoly. If Apple collapsed entirely, or Microsoft consumed them, then Microsoft really would be a monopoly in the PC market and not just a more dominant force).

But Steve Jobs is not most CEOs. This bailout from Microsoft allowed Apple to stay afloat long enough for Jobs to redefine the product line and the company with it. It ushered in the current,insanely profitable era in which Apple now finds itself. In essence, Jobs took a second rate PC company and turned it into the leading brand of geek chic consumer electronics. From the iMac to the iPod and iTunes and now the iPhone, Jobs has not only resurrected Apple, he's transformed it into an integral part of millions of people's lives - far beyond computer users.

So what's the point of this little biography? It's simply to remind investors out there that regardless of the incarnation of Apple, there are two different Apple Inc's - the one run by Steve Jobs, and the one that isn't.

Don't be distracted by any corporate talking points - Apple Inc. IS Steve Jobs. When Steve Jobs leaves Apple again, investors should seriously question the company's future viability. Jobs is a creative visionary force and a savvy business man, but his ego is not one which lends itself easily to grooming replacements.

Apple Inc. (AAPL) Seems Unstoppable!

2011-07-28T07:49:00.000-04:00

Apple reported its earnings for Q2 last week and Jeff Macke of Yahoo! Breakout is upset - because he has nothing to complain about! It's no wonder, let's look at some numbers...

Apple's cash reserves grew 16%

Revenue growth is accelerating

Apple beat EPS estimates by more than 30%

Apple beat revenue forecasts by 15%.

Apple stock is trading at just over 18x earnings and in near a P/E of 15 .

This stunning outpacing of expectations is somewhat a reflection of the analysts covering the company, but
David Garrity, a Principal with GVA Research, believes that this momentum and rate of growth is sustainable, at least for the next few years and sets his price target at $525 per share over the next 12-18 Mos.

Here's an interview of Garrity explaining his views in greater detail. (Feed readers may need to read the full post to see the embedded video):

Source

What's the Best Bond Index ETF - BND, AGG or LAG?

2011-07-27T10:52:00.062-04:00

Most ETF investors look for a single holding to gain exposure to a given sector. That's certainly true for many bond ETF investors. I know I look for one fund to give me the most exposure to the entire bond universe at a low cost. For wide-spread exposure to the major areas of the bond universe, you're looking at 3 big name ETFs:

iShares Barclays Aggregate Bond (AGG)

Vanguard Total Bond Market ETF (BND)

SPDR Barclays Capital Aggregate Bond (LAG)

Here's my analysis of how each of these measures up on the following criteria...

Performance Chart.

Click for full version

As you can see from the chart above, all 3 ETFs have a very close parity with one another. This is to be expected since they each track the same underlying index. BND is the smoothest ride, with the least volatility, but it looks like LAG has a slight edge on the others however.

This round is awarded to LAG.

Expense Ratio.

As you can see from the chart above, it's a pretty close race to the bottom for expense ratios, but BND is again the winner here with an exp ratio of 0.11%. That's a full 0.09% less than AGG's 0.20% and even lower than LAG 's 0.13%.

ETF DB prefers LAG, but that seems to be based solely on expense ratio, which at the time was lower than both BND and AGG. At the time of this writing however, the clear winner in expense ratio is BND.

Yield.

Another important metric of a bond ETF is its overall yield. After all, you're investing in bonds and bond ETFs to earn interest and generate income, right?

Here's how these 3 ETFs stack up on yield:

As you can see here, the appropriately named SPDR ETF LAGs (2.78%) behind BND (3.31%) and AGG (3.39%) in terms of yield. The winner in this round is clearly AGG, but it's a close one.

Asset Diversification.

Another aspect of any ETF or mutual fund I like to examine is the concentration of the underlying assets. For example, if an ETF holds 25% or more of its assets in one stock or one sector, then I know it's going to be more volatile and more sensitive to that stock or sector than a similar fund with more diversified holdings.

Here's how these 3 bond ETFs stack up on holdings:

This shows that AGG's top 10 holdings account for 32.75% of total assets, while the top 10 holdings of BND account for 11.19% of total assets, and LAG's top 10 holdings account for 19.58% of total assets.

Who wins? Is larger better or smaller better?

There's no real "right" answer here because it's more of a matter of style or aggressiveness. If you're looking for a smoother overall ride, BND is the winner. If volatility is your friend, AGG might be a better choice.

However, I'm going to award this round to BND based on my belief that most bond and bond ETF investors are looking for stable income, and not trying to play volatility and make a killing buying on the dips and selling on the peaks. For those reasons BND is the winner, since it is the most diversified and offers the least volatile
ride.

Trading Volume.

Finally, one more important aspect of any ETF is its trading volume. This is a measure of how many shares trade hands in a given day.

Here's a chart of average trading volume for the last 3 months:

884,821 shares of AGG trade every day, and 878,814 shares of BND trade every day (on average, over the past 3 months) while a paltry 34,149 shares of LAG are traded daily.

AGG and BND are pretty close, while LAG is left in the dust. What this means is that you may have a harder time getting your asking price when selling shares of LAG than you would selling shares of BND or AGG.

The winner in this round is AGG.

Overall best bond ETF is....

I'm awarding this title to BND. It's the clear winner in the categories that matter most: performance, expense ratio and diversification. It doesn't quite pull out a win on yield, but it's close. AGG is a respectable second, but the difference in yield is not enough to make up for the higher expense ratio and increased volatility in my mind. LAG is just late to the party and I'm not sure it brings enough to be a game changer frankly.

Fixed Assets - the BIG Picture! [Infographic]

2011-07-26T09:16:00.001-04:00

The term "Fixed Asset" is used in accounting to represent assets that traditionally fall under the umbrella of property, plant, and equipment. Often times, fixed assets are listed on a company's balance sheet in their favor, but they are usually not the most liquid of assets. It's a distinction that could carry significant impact when trying to determine a company's real value. Fixed asset management is a sub-discipline of accounting that tracks, and optimizes the use of fixed assets for large companies. Here's an infographic from Sage FAS (makers of Fixed Asset Accounting Software) that shows the "big picture" of fixed assets in the modern, corporate world.

Click to see the BIG picture!

Just How Bad is Inflation? (VIDEO).

2011-07-20T10:08:00.001-04:00

Here's an interview with Morningstar analyst Bob Johnson in which he discusses the current rate of inflation compared with historical rates, and the factors driving that rate higher as well as those keeping it lower.

The highlights:

The current rate of inflation is approximately 3.4%, which runs very close to the average rate since WWII is 3.5%. But later on in the interview he's forced to admit that this statistical average is skewed quite heavily by the double-digit inflation of the 1970's. So in essence, the current inflation rate is higher than the average from WWII, once the aberration of the 1970's is excluded. The true average inflation rate is closer to 2.5%.

Of course, all of this is predicated on the belief that the CPI number is true and not manipulated down by the government. I leave it to the reader to decide for himself on that point.

All in all, it's mostly more of the same from the economic experts: Inflation is really nominal... unless you happen to need gas, electricity, food and any product manufactured from hydrocarbons (i.e.: plastic).

8 Reasons To Own Gold (and Why it's Still a Good Idea)!

2011-07-19T21:55:00.000-04:00

Our friends at Investopedia recently shared 8 reasons to own gold . What struck me most when I read the article is how most of the reasons are still true today, even as pundits debate the possibility of a gold bubble.

photo by hto2008

Before I go an further, here are the 8 reasons to own gold:

Gold holds its value
Weakness of the U.S. Dollar
Inflation
Deflation
Geopolitical Uncertainty
Supply Constraints
Increased Demand
Portfolio Diversification

First off, many of these reasons are inter-related. For example, Inflation and Deflation, and Increased Demand and Supply Constraints. Looking at this list it becomes clear that gold is the "go-to" uncertainty play. Not sure if inflation is rising, or we're destined for deflation? Buy gold.

The fact that the price of gold has skyrocketed over the past decade should not be surprising when we consider the 8 reasons above. Since September 11, 2001 we've had terrorism as a very real threat, which produced serious geopolitical uncertainty.

Production of new gold from mines has been on the decline since 2000, and according to BullionVault.com:

"annual gold-mining output fell from 2,573 metric tons in 2000 to 2,444 metric tons in 2007. It can take from five to 10 years to bring a new mine into production."

Then you factor in the financial crisis of 2008, subsequent fears of hyperinflation and deflation, and the federal reserves seemingly hell-bent on destroying the value of the dollar and it's beginning to look a lot like a fundamentals issue rather than a chasing-performance bubble.

All of these uncertainties have led to an increase in demand, which in turn leads to an increase in the price.

I'm no expert, and I used to think gold was just the new dotCom bubble but I admit I underestimated the extent of the mess the folks in Washington D.C. would make of the financial crisis. Greece was never on my radar, much less the extent of socialism in their economy. If it was, I dare say the European "debt crisis" would have been much more obvious since it's only a matter of time before you run out of other people's money, and a credit crunch like the one in 2008 is all that was needed to put the brakes on that gravy train.

It doesn't look like the U.S. is going to take the action needed to fix its spending problem. Greece is likely to get booted from the EU or drag the EU and the Euro down with it. And we're unlikely to see any sort of stable growth economy for a decade or more.

All of that is without the impact of middle east unrest and oil prices, mind you.

It's looking more and more to me like high gold is here to stay, at least for a while more.

Smartest 401(k) Book You'll Ever Read: Maximize Your Retirement Savings...the Smart Way! (Review)

2011-06-29T16:00:00.012-04:00

Dan Solin, author of The Smartest Investment Book You'll Ever Read: The Simple, Stress-Free Way to Reach Your Investment Goals, has just applied his ability to simplify the often complex world of investing to the realm of the ubiquitous 401K plan.

This latest book, Smartest 401(k) Book You'll Ever Read: Maximize Your Retirement Savings...the Smart Way!, provides an excellent introduction to traps and pitfalls of the corporate retirement vehicle in just under 250 pages. That alone is a remarkable feat, given the often tome-like volumes of investment advice out there.

This is book that every new employee should read if their employer provides a 401k plan. Here's why...

The pitfalls of 401k plans

It will come as no surprise to experienced investors, or those who take an active role in their 401k plans that the fees on some funds can be outright absurd. Solin spends quite a bit of time describing and making the case that exorbitant fees of some 401k plans make those plans worse than useless.

This book should open your eyes to why the concept of a tax deferred retirement plan is a wonderful thing, and why so many 401k plans fall short on implementation.

Fear and uncertainty about taxation

One of the weaker parts of the book is when Solin raises fears about the possibility that 401(k) contributions could become taxed in future. He points to cases in the past where congress has enacted retro-active tax hikes.

My biggest problem with this line of thinking is that he advocates using IRA and Roth IRA plans in place of 401k plans through much of the book, but there's nothing to prevent congress from taxing those plans in the future either, so he offers this bit of fear and uncertainty about the future with no realy solution or action to minimize this risk.

Solutions

What makes this book so good is that Solin not only lays out the pitfalls and mine fields of many 401k plans, be he also provides some basic roadmaps for navigating around those trouble spots.

He offers practical solutions for what to do when the funds offered in your 401k plan are loaded with fees, or when they are perennial poor performers.

He offers simple ways to make better choices in plans with a mix of good and bad funds and he tells the reader which kinds of funds to avoid.

Conclusion

Solin often rails against high fees and poor disclosure of 401k plans. He has a very good point - for some 401k plans.

The problem is that his criticism of 401k plans is often presented as though it is true of all plans, and this is simply not the case. There actually are some very good 401k plans out there, and they are not all run by greedy leeches, trying to suck your financial future dry.

Some certainly are, but not all. I think this book should serve as a starting point to get those employees unfamiliar with the 401k deferred retirement plan more involved. It can give them the information to make the decision on their own about their individual 401k plan.

Aside from his view that the majority of 401k plans are run by greedy and incompetent fund managers he also exhibits the companion view that most investors are incapable of picking good funds regardless of whether it's in an IRA or 401k.

This for me was one of the weaker aspects of the book, because it is coupled with his promotion of DFA index funds. The problem here is that he works for Dimensional Fund Advisors, so after pointing to conflicts of interest in 401k plans he then engages in his own conflict of interest by promoting his company's index funds.

That doesn't make it a bad book, but in my mind it keeps it from being a great book.

Despite its shortcomings,Smartest 401(k) Book You'll Ever Read: Maximize Your Retirement Savings...the Smart Way!is a recommended read for anyone who is new to the 401k world, or who just wants to get a better handle on how to get the most out of their 401k plan the right way.

EU Should Give Greece the Boot; Investors Should Buy Euro?

2011-06-23T19:25:00.007-04:00

Not surprisingly, Greece is back in the news lately. I say not surprising because nothing has been done to solve the problem. Simply using bailouts to try and wallpaper over the fact that Greece can't pay its debt does nothing to solve the problem. In fact, it only serves to punish responsible countries, like Germany, and reward the irresponsible, like Greece.

More and more pundits are calling for the EU to simply give Greece the boot, take it off the Euro and let it deal with its mess. This seems the likely course of action, since retaining countries like Greece will only bring the Euro down and create resentment in those nations of the EU left to pay for Greece's recklessness.

Jon Najarian, the co-founder of OptionMonster.com, is one such pundit who says that if the EU would expel Greece and leave it to deal with the fallout of its socialist policies, the Euro would see a very real benefit. Doing so would also send a message to any other would be PIIGs, that they got themselves into their mess, they need to get themselves out.

Would the EU ever take this step? It's too soon to tell, but there don't appear to be many other options.

This should at least be food for thought for any would be Euro traders out there.

Forex Explained - Forex vs. Stock Market (Infographic)

2011-06-22T21:45:00.001-04:00

Here's an interesting visual break down of Forex and how the Forex Market compare with the Stock Market.

Preview

(photo courtesy of http://www.cmsfx.com/en/infographic/)

The Perfect Storm is Brewing for Global Economic Meltdown... or is it Just a Lot of Hot Air?

2011-06-14T16:45:00.000-04:00

I stumbled on this article from the Daily Ticker at Yahoo! the other day in which the hosts discuss Nouriel Roubini's latest case for global meltdown.

Here are the NYU Professor's latest four horsemen of the economic apocalypse:

Reckless spending by the U.S. government (state and federal)

Potential Chinese slowdown

The Euro-debt bomb (A.K.A.: Greece)

Continued stagnation in Japan.

Roubini apparently gives the odds in this way:

33% Recession

33% "anemic growth"

33% "accelerated growth"

I'm personally a little confused on his basis for such a large chance of accelerated growth. I'm no economist, but I'll play one here... ;-)

Every economic indicator is currently pointing toward either recession, or stagflation. The so-called government stimulus is running out, and taking the illusion of economic growth with it. States are out of money and finally beginning to cut costs. The Federal government is now in its second year without any budget, and its 3rd straight year of $1.5 TRILLION deficits.

Greece is America if America fails to scale back the size of government and the entitlement society - soon. The U.S. entitlement society has not reached the epidemic proportion it has in Greece, and so austerity measures can still work, but if we wait too long we will be in the same position Greece is in now - dead man walking.

Austerity measures in Greece are shrinking the GDP because too much of their GDP is built on unsustainable public sector employment. In short, no one is creating any wealth! They simply take money from the private sector to pay for public sector wages and benefits. That house of cards needs top fall before anything can be fixed. Instead, the world gets lies.

Here's a video of the DailyTicker hosts discussing this:

The Social Media Bubble (infographic)

2011-06-06T21:45:00.000-04:00

With recent talk of the social networking IPO boom brought about by IPO's and IPO bus about companies like Link'dIn, Twitter, Facebook, Groupon and more I thought it would be a good time to share this infographic showing the over-the-top valuations of many social media companies, and how they got there.

I leave any prognostication as to whether this is the dot COM bubble 2.0 to the reader (and the comment section below ;-) )

Insider behavior during corrections speaks volumes.

2011-06-01T21:43:00.000-04:00

As you are likely aware, May was the worst month for stocks since last August. Most of the media attention has been on that old saw about "sell in May and go away" being proven, but there may be something more significant to glean from this.

On the upside for instance, this change in direction provides investors with an opportunity to see what company insiders really believe about the future potential of their company.

It's times like these that we see whether insiders panic and sell into a decline, or if they are confident enough to hold or even buy more shares.

Obviously, buying into the decline is the most bullish sentiment an insider can have, because it shows they are so confident of the prospects of their company's future that they believe they are buying low. Holding during a decline is at worst a neutral sentiment, but if others are selling it may prove more bullish in comparison.

Of course, selling into a decline is a vote against the future of the company and hence, not a good sign.

Insider action now, and what it means

Argus Research publishes the Vickers Weekly Insider Report, which serves as a ratio of the number of shares sold by insiders to the number of share purchased by insiders.

The week of the most recent bull market's high that ratio was nearly 6 to 1. In other words, just before the market started to turn insiders as a whole were selling nearly 6 shares for every 1 share purchased.

The most recent ratio has dropped to about 3 to 1.

While the ratio has become less bearish, it's not necessarily a bullish sentiment either. Insiders are still selling more shares than they are buying, but the rate seems to be leveling off.

Why it may not be that important

Seeing a sell-to-buy ratio of nearly 6 to 1 at the recent peak may lead investors to think that it's a screaming "sell!" indicator, but not so fast. The average ratio for the last 40 years has been above 1, meaning that insiders usually sell more shares than they buy. This is largely due to the part that stock options awarded as compensation play in the act. Put simply, the acquisition of stock options does not factor into the ratio, only the selling of those options does.

As the tax rate on bonuses began to rise in the 80's and 90's, companies began to favor stock options as a means of rewards to provide an incentive for their employees. This has caused the insider sell-to-buy ratio to skew even further toward the selling.

In fact, according to some "experts", like Nejat Seyhun of the University of Michigan, the modern "normal" level of this ratio may be close to 6 to 1, meaning what looked like a screaming "sell!" a few weeks ago may have just been a normal market ratio.

The lesson here is that there is no magic bullet indicator that will tell you when the market is going to turn, but you can add the Vickers Weekly Insider Report's insider sell to buy ratio to your collection of indicators to watch. When taken with many other indicators, it may help to give you a warning when things might be likely to change.

The Most Important Thing - Uncommon Sense for the Thoughtful Investor (review)

2011-05-24T23:01:00.000-04:00

Howard Marks' new book,The Most Important Thing: Uncommon Sense for the Thoughtful Investor , has been much anticipated, but is it worth the wait?

Howard Mark is one of the investors with such a reputation for rare wisdom that his memos and newsletters are considered "essential truths" of investing. With this book, Mr. Mark lets the everyday investor in on some of this wisdom.

This book is not a "how to" book of investing. It's not a method or a formula. It's quite simply an outline of Mark's investment philosophy - his religion(his word).

His writing is as witty as it is wise, and at times this book reads like a roadmap of past pitfalls presented in such a way as to serve as a warning for future perils.

Perhaps of most value to the regular investor is the historical perspective Mark brings to these stories. His is the kind of perspective that comes from 40 years of spent in the investment world and being the chairman and cofounder of none other than Oaktree Capital Management.

The Most Important Thing is one of those rare books that has something for everyone. Long time investors and amateur's alike will gain from Mark's unique perspective and wisdom on assessing market opportunity and risk.

At first glance, it seems like the book is inaccurately named. Instead of focusing on one, single thing he appears to explain several keys to success and warn of multiple pitfalls. It's only when the book is considered as a whole that the title becomes clear. The Most Important Thing may be interpreted to be having an investment philosophy and following it.

Alternatively, it can be interpreted as purposefully misleading and that there really is no single most important thing - they're all equally important.

This is something that is perhaps best left to the reader decide.

Howard Mark has hit the mark on his goal of distilling a lifetime of experience and practice into a concise and practical book. For the amateur investor, it's a book to teach you how to think about investing. Much like Benjamin Graham's epic book The Intelligent Investor: The Definitive Book on Value Investing., only much shorter (under 200 pgs to Graham's 640 pgs!).

For the seasoned investor, this book should serve as a reminder that investing is often much more than the technical factors like P/E ratios, Alpha, Beta and the like.
The Most Important Thing: Uncommon Sense for the Thoughtful Investor is an investment philosophy, and a reminder that many times an investor must beat himself to beat the market. Or at the very least, that it's his own tendencies toward fear and greed that should concern him most.