With all of the action and volatility in the markets this week there will not be a shortage of information and opionions on the web.  Here are a few things I read this week that I thought were relevant to our readers.

• If you only read one thing this weekend it should be this note from Brian Wesbury and Bob Stein at First Trust.  The report was written after the 500 point drop in the Dow on Thursday.  They do a nice job of pointing out the best possible explanation for the drop: European debt problems, specifically Italy.  I agree with their conclusion that the recent selloff in the market appears to be more of a technical correction than a fundamental change in direction.  Of course that doesn’t mean that the correction is over.  The market has created some nice buying opportunies for value based investors looking for strong fundamentals.

• Next, I want to point out that as of last week Apple has more cash than the US Government. As I like to tell clients, we are investors in businesses, not the US Government.  Apple is a great example of a company that has thrived throughout the past recession.  Even though the US economy was in the tank, Apple continued to innovate and grow their business.  Each quarter they were profitable and even more important they have continued to grow their earnings at an incredible pace.  The company has a fortress-like balance sheet.  The stock price has followed the fundamentals of the company.  This is why we believe investors can still make money even during a recession or at a time when all of the headlines are focused on a slow growing economy.

• Don’t miss these 25 Shocking but True Statistics About Retirement. Some of them will surprise you:)

• Parents, have you updated your will? Do you even have one?

• If you haven’t refinanced your mortgage yet, now might be your opportunity.  30-year mortgage rates are now 4.39% and the average 15-year fixed rate decreased to a record 3.54%.

Enjoy the weekend!

Disclosure: Long AAPL.

Much has been said about the US debt.  In July alone the Google search traffic for “us debt” has surged to over 7.5X the average search volume for this term.

It is projected that, unless the U.S. government fixes the budget, the  US national debt (credit card bill) will topple 15 trillion by Christmas 2011.

$15,000,000,000,000!

Ever wander what $15 Trillion looks like? Click here for a nice visualization.

Stocks finished the fourth quarter with a strong December.  2010 was the second straight year of gains for stocks.

Here are the details:

Dow Industrials

• Up 789.46 points this quarter, or 7.3%, to close at 11577.51.
• In December, the Dow was up 571.49 points, or 5.2%.
• Up 31.9% over the last two years.
• Up 1149.46 points for the year with a return of 11.0%

Nasdaq Composite

• Up 284.25 points this quarter, or 12.0% to close at 2652.87.
• Up 154.64 points, or 6.2%, for December.
• Up 68.2% since 2008.
• Up 383.72 points for the year with a return of 16.9%

S&P 500

• Up 116.44 points this quarter, or 10.2% to close at 1257.64.
• December’s gain was 6.5%, or 77.09 points.
• Up 142.54 points for the year with a return of 12.8%

Sources

• Data Points: U.S. Markets [MarketBeat]

As we approach Thanksgiving, I am reminded of how often our culture overlooks this important holiday.  The stores are already lines with Christmas trees and Black Friday sales that will draw the shoppers attention toward the most profitable holiday in December, rather than the holiday that begs us to stop, and be thankful.  The following is President Abraham Lincoln’s Thanksgiving Proclamation.  This proclamation set the precedent and regularity for America’s national day of Thanksgiving.  It proclaims the last Thursday in November be “a day of Thanksgiving and Praise.”

Coming off the tail end of a vicious bear market, with unemployment remaining stubbornly near record highs, the unending debate of inflation vs. deflation jamming the airwaves, and the vast array of other financial ‘end-of-days’ events looming, it is more important now than ever to stop and reflect on the things we should be thankful for.  The blessings we experience daily are often taken for granted, such as running water, a roof over our heads, a car to drive, cell phone, heat, paved roads, freedom of speech, freedom of religion, clothes to wear, a God who cares, and a billion other things for you, gentle reader, to continue to ponder on for your own life.

Proclamation of Thanksgiving
By Abraham Lincoln, 16th President of the United States of America
October 3, 1863 in Washington, D.C.

The Year that is drawing to a close, has been filled with the blessings of fruitful fields and healthful skies. To these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, others have been added, which are so extraordinary a nature, that they cannot fail to penetrate and soften even the heart which is habitually insensible to the ever watchful providence of Almighty God.

In the midst of a civil war of unequaled magnitude and severity, which has sometimes seemed to foreign States to invite and to provoke the aggression, peace has been preserved with all nations, order has been maintained, the laws have been respected and obeyed, and harmony has prevailed everywhere except in the theater of military conflict; while that theater has been greatly contracted by the advancing armies and navies of the Union.

Needful diversion of wealth and strength from the fields of peaceful industry to the national defense, have not arrested the plough, the shuttle or the ship; the axe has enlarged the borders of our settlements, and the mines, as well of iron and coal as of the precious metals, have yielded even more abundantly than heretofore.

Population has steadily increased, notwithstanding the waste that has been made in the camp, the siege, and the battle-field; and the country, rejoicing in the consciousness of augmented strength and vigor, is permitted to expect continuance of years with large increase of freedom.

No human counsel hath devised nor hath any mortal hand worked out these great things. They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy.

It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and one voice by the whole American People.

I do therefore invite my fellow citizens in every part of the United States, and also those who are at sea and those who are sojourning in foreign lands, to set apart and observe the last Thursday of November next, as a day of Thanksgiving and Praise to our beneficent Father who dwelleth in the Heavens.

And I recommend to them that while offering up the ascription’s justly due to Him for such singular deliverance’s and blessings, they do also, with humble penitence for our national perverseness and disobedience, commend to His tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife in which we are unavoidably engaged, and fervently implore the interposition of the Almighty hand to heal the wounds of the nation, and to restore it as soon as may be consistent with the Divine purposes to the full enjoyment of peace, harmony, tranquility, and Union.

In testimony whereof, I have hereunto set my hand and caused the seal of the United States to be affixed.

Done at the City of Washington, this Third day of October, in the year of our Lord one thousand eight hundred and sixty-three, and of the Independence of the United States the Eighty-eighth.

By: Abraham Lincoln

Take the time to be thankful for all of your blessings, enjoy time with your family, and have a wonderful and Happy Thanksgiving!

Picture By: Wish Upon a Cupcake

It took researchers at Georgia Tech 2 hours using graphics cards to crack 8-character computer passwords.  This compares with the 17,000 years (149,022,000 hours) it would take them to crack 12-character passwords.

Bottomline:  With much of today’s consumerism taking place via usernames and passwords on the Internet, you may want to think twice about your current password, and perhaps extend it to a 12-character one if you haven’t already.

Source: CNN

Picture via fczuardi

Turns out that there are 500 boxes of all Cheerios varieties sold per minute in fiscal year 2010.  Of the 500 sold, Honey Nut Cheerios (my personal favorite) claims the top spot followed by regular Cheerios.  Those 2 cereals hold the #1 and #2 spot among top-selling cereals in the US.  Cheerios is a brand from General Mills (GIS), the 6th largest food company in the world.

Source: Bloomberg Businessweek

Picture via bpende

“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” – George Soros

After a sell-off in the second quarter, stocks reversed course during the third quarter to stage a nice recovery.  Most of the gains for the quarter came during the month of September.  This was a surprise by many as September has historically been a bad month for stocks.

Here are the details:

Dow Industrials

• Up 1014.03 points this quarter, or 10.4%, to close at 10788.05.
• Best quarterly performance since Q3-2009.
• In September, the Dow was up 773.33 points, or 7.7%.
• This was the best September since 1939 (71 years).
• Year-to-date = 3.5%

Nasdaq Composite

• Up 259.38 points this quarter, or 12.3% to close at 2368.62.
• Best quarterly performance since Q3-2009.
• Up 254.59 points, or 12.0%, for September.
• Year-to-date = 4.4%

S&P 500

• Up 110.49 points this quarter, or 10.7% to close at 1141.20.
• Best quarterly performance since Q3-2009.
• September’s gain was 8.8%, or 91.87 points.
• Year-to-date = 2.3%

Sources

• Data Points: U.S. Markets [MarketBeat]

This morning Adam Joyce asked this question on LinkedIn:

I responded with the following answer:

This got me thinking about how I’ve educated myself about investing.  The internet has, by far, been my number one source of information.  However, if I really want to dig in to a topic or learn about something in detail I will buy a book on the subject.  So, this got me thinking about the books that have shaped my investment philosophy.  Here are 5 of the most important books on investing that I have read:

The Intelligent Investor by Benjamin Graham – Originally published in 1949, this book has often been called the bible of investing.  Read it once and you’ll see why.  Ben Graham is the father of value investing.  He is a very smart investor and lays out a simple portfolio policy including principles for selecting stocks.  Warren Buffett‘s own investment philosophy has been influenced by Mr. Graham.  Buffett claims that this book is, “By far the best book on investing ever written.”  This is a book that you will want to read several times to maximize its impact on your investing.  You will also want to be sure to get the revised version which adds helpful commentary from Jason Zweig.

The Dhando Investor by Mohnish Pabrai - Mr. Pabrai is another great value investor.  $100k invested with Pabrai in 1999 was worth over $659k by 2006…an annualized return of over 28% after fees.  In this book Pabrai shows how he has combined the methods of Warren Buffett, Benjamin Graham, and Charlie Munger to create a simple framework for investing.

The Davis Discipline by John Rothchild – The author shares the story of the Davis family beginning with the elder Shelby Davis, followed by his son (also Shelby), and now the third generation (Chris and Andrew).  The book provides a fascinating account of how an initial portfolio of $50,000 started by Shelby in 1947  turned into $900 million by 1994.  The story is an excellent example of the power of compounding, patience, and discipline.

Buffettology by Mary Buffett and David Clark – A good book to gain insight into Warren Buffett’s style of investing.  In this book you will find methods used by Buffett to value companies and select stocks.  It is a great book for investors who want to learn more about the approach of one of the best investors ever.

The Warren Buffett Way by Robert Hagstrom – Another great resource on Buffett’s investment strategy.  Chapter 4, titled “Buying a Business” is my favorite part of this book.  It will help you see that there is no fundamental difference between buying an entire business outright and buying shares in a business by investing in stocks.  Being an “owner” of businesses should drive your investment strategy and help you think through some very important criteria when it comes to picking stocks.

How about you?  What books have shaped your investment philosophy?  Leave your favorites in the comments…I would love to see what’s on your list.

One way to evaluate stocks and bonds is to compare the earnings yield of the S&P 500 with the yield on the 10-year US Treasury bond.

In total, S&P 500 companies reported after-tax annualized earnings of $716 billion in the second quarter and had a market capitalization of $9.3 trillion. In other words, for every $100 in market value, the companies in the S&P 500 were generating $7.70 in after-tax profits – an “earnings yield” of 7.7%.

Comparing that earnings yield to the 10-year Treasury yield (currently 2.8%) reveals a gap of nearly five percentage points, the largest such gap since the late 1970s.

Today stocks offer an earnings yield that is 2.75X the yield on bonds.  So, by this measure, stocks are considerably more attractive than bonds for long-term investors.

Source: “Unfunded Liabilities and Cheap Stocks” [First Trust Advisors]